THIS DOCUMENT AND THE ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action you should take, you are recommended to seek your own personal financial advice immediately from your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 (the “FSMA”) if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.
This document is a prospectus (the "Prospectus") relating to Equiniti Group plc (the “Company”) prepared in accordance with the Prospectus Rules of the Financial Conduct Authority (the “FCA”). This Prospectus has been approved by the FCA in accordance with section 85 of FSMA, will be made available to the public and has been filed with the FCA in accordance with the Prospectus Rules. This Prospectus together with the documents incorporated into it by reference (as set out in Part XIX (Information Incorporated by Reference) of this Prospectus) will be made available to the public in accordance with Prospectus Rule 3.2.1 by the same being made available, free of charge, at www.equiniti.com and at the Company’s registered office at Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH.
If you sell or have sold or have otherwise transferred all of your Shares (other than ex rights) held in certificated form before 8.00 am (London time) on 29 September 2017 (the “Ex Rights Date”), please send this Prospectus, together with any Provisional Allotment Letter duly renounced, if and when received, at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to the United States or any of the Excluded Territories. If you sell or have sold or have otherwise transferred all or some of your Existing Shares (other than ex rights) held in uncertificated form before the Ex Rights Date, a claim transaction will automatically be generated by Euroclear which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee. If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex rights) held in certificated form before the Ex Rights Date, you should refer to the instruction regarding split applications in Part IX (Terms and Conditions of the Rights Issue) of this Prospectus and in the Provisional Allotment Letter.
The Directors, whose names appear on page 74 of this Prospectus, and the Company, accept responsibility for the information contained in this Prospectus. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and this Prospectus does not omit anything likely to affect the import of such information.
Prospective investors should read the entirety of this Prospectus and, in particular, Part III (Risk Factors) for a discussion of certain factors that should be considered in connection with an investment in the Rights and the New Shares. Prospective investors should be aware that an investment in the Company involves a degree of risk and that, if certain of the risks described in this Prospectus occur, investors may find their investment materially adversely affected. Accordingly, an investment in the Rights and the New Shares is only suitable for investors who are particularly knowledgeable in investment matters and who are able to bear the loss of the whole or part of their investment.
Equiniti Group plc (incorporated under the Companies Act 2006 and registered in England and Wales with registered number 07090427)
Proposed acquisition of Wells Fargo Shareowner Services
and
3 for 14 Rights Issue of 64,309,150 New Shares at 190p per New Share
and
Notice of General Meeting
Lead Financial Adviser and Joint Sponsor Greenhill Joint Financial Adviser, Joint Sponsor, Joint Global Coordinator and Joint Bookrunner Citi Joint Global Coordinator and Joint Bookrunner Barclays
A Notice of General Meeting of the Company, to be held at 110 Fetter Lane, London, EC4A 1AY on 28 September 2017, is set out at the end of this Prospectus. Whether or not you intend to be present at the General Meeting, you are asked to complete and return the enclosed Form of Proxy in accordance with the instructions printed on it as soon as possible and, in any event, so as to be received by the Company’s Registrar, Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, by not later than 9.00 a.m. on 26 September 2017 (or, in the case of an adjournment, not later than 48 hours before the time fixed for the holding of the adjourned meeting). If you hold Existing Shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to the Registrar (CREST participant ID RA19), so that it is received by no later than 9.00 a.m. on 26 September 2017. The completion and return of a Form of Proxy (or the electronic appointment of a proxy) will not preclude you from attending and voting in person at the General Meeting or any adjournment thereof, if you wish to do so and are so entitled.
The Existing Shares are listed on the premium listing segment of the Official List maintained by the FCA and traded on the London Stock Exchange’s main market for listed securities. Application will be made to the FCA and to the London Stock Exchange for the New Shares to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange’s main market for listed securities, respectively. It is expected that Admission will become effective and that dealings on the London Stock Exchange in the New Shares (nil paid) will commence at 8.00 am (London time) on 29 September 2017.
Your attention is drawn to the letter of recommendation from the Chairman which is set out in Part II (Letter from the Chairman) of this Prospectus. Your attention is also drawn to the section headed “Risk Factors” at Part III of this Prospectus, which sets out certain risks and other factors that should be considered by Shareholders when deciding on what action to take in relation to the Rights Issue, and by others when deciding whether or not to purchase Nil Paid Rights, Fully Paid Rights (together, the "Rights") or the New Shares. You should read the whole of this Prospectus and any documents incorporated by reference prior to making any investment decision.
Greenhill & Co. International LLP (“Greenhill”), which is authorised and regulated in the United Kingdom by the FCA, Citigroup Global Markets Limited ("Citi") and Barclays Bank PLC ("Barclays", and together with Citi, the "Joint Bookrunners", and together with Greenhill, the "Advisers") are acting exclusively for the Company and no one else in connection with this Prospectus, the Acquisition, the Rights Issue and Admission, and will not regard any other person (whether or not a recipient of this Prospectus) as a client in relation to the Prospectus, the Acquisition, the Rights Issue or Admission, and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients, or for providing advice, in relation to the Prospectus, the Acquisition, the Rights Issue, Admission or any other transaction or arrangement referred to herein.
Apart from the responsibilities and liabilities, if any, which may be imposed on the Advisers by FSMA or the regulatory regime established thereunder, none of the Advisers or any of their respective affiliates, directors, officers, employees or advisers accept any responsibility whatsoever or makes any representation or warranty, express or implied, in respect of the contents of this Prospectus, including its accuracy, completeness, or verification, or for any other statement made or purported to be made by it, or on its behalf, the Company or the Directors in connection with the Company, the Rights, the New Shares, the Provisional Allotment Letters, the Rights Issue or the Acquisition, and nothing in this Prospectus is or shall be relied upon as a promise, warrant or representation in this respect, whether as to the past or future. Each of the Advisers and their respective affiliates, directors, officers, employees and advisers accordingly disclaims to the fullest extent permitted by applicable law, all and any liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above), which they might otherwise have in respect of this Prospectus or any such statement.
The Advisers do not accept any responsibility whatsoever for the contents of this Prospectus, including its accuracy or completeness, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Rights, the New Shares, the Provisional Allotment Letters, the Rights Issue or the Acquisition. The Joint Bookrunners disclaim all and any liability, whether arising in tort, contract or otherwise, which they might otherwise have in respect of this Prospectus or any such statement.
It is expected that Qualifying Non CREST Shareholders (other than, subject to certain exceptions, those with registered addresses in the United States or the Excluded Territories will be sent a Provisional Allotment Letter on 28 September 2017, and that Qualifying CREST Shareholders (other than, subject to certain exceptions, those with registered addresses in the United States or the Excluded Territories) will receive a credit to their appropriate stock accounts in CREST in respect of the Nil Paid Rights to which they are entitled on 29 September 2017. The Nil Paid Rights so credited are expected to be enabled for settlement by Euroclear as soon as practicable after Admission.
The Joint Bookrunners may, in accordance with applicable legal and regulatory provisions and subject to the Underwriting Agreement, engage in transactions in relation to the Rights, the New Shares and/or related instruments for their own account for the purpose of hedging their underwriting exposure or otherwise. Except as required by applicable law or regulation, the Joint Bookrunners do not propose to make any public disclosure in relation to such transactions.
The latest time and date for acceptance and payment in full for the New Shares by holders of the Nil Paid Rights is expected to be at 11.00a.m. on 16 October 2017. The procedures for delivery of the Nil Paid Rights, acceptance and payment are set out in Part IX (Terms and Conditions of the Rights Issue) of this Prospectus and, for Qualifying Non CREST Shareholders (other than, subject to certain exceptions, those with registered addresses in the United States or the Excluded Territories) also in the Provisional Allotment Letter.
NOTICES TO OVERSEAS INVESTORS
This Prospectus does not constitute an offer to sell, or the solicitation of an offer to buy or to subscribe for, the Rights and the New Shares to any person in any jurisdiction to whom or in which jurisdiction such offer or solicitation is unlawful and, in particular, is not for distribution in Australia, Canada, Japan or South Africa. Neither the Company nor any of the Advisers accepts any legal responsibility for any violation by any person, whether or not a prospective investor, of any such restrictions. No action has been, or will be, taken in any jurisdiction other than the UK that would permit a public offering of the Rights and the New Shares, or the possession, circulation or distribution of this Prospectus or any other material relating to the Company or the Rights and the New Shares in any jurisdiction where action for that purpose is required. The offer, sale and/or issue of the Rights and the New Shares has not been, and will not be, qualified for sale under any applicable securities laws of Australia, Canada, Japan or South Africa. Subject to certain exceptions, the Rights and the New Shares may not be offered, sold or delivered within Australia, Canada, Japan or South Africa, or to, or for the benefit of, any national, resident or citizen of Australia, Canada, Japan or South Africa.
The Rights, the New Shares and the Provisional Allotment Letters have not been, and will not be, registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the US and may not be offered or sold in the US except in transactions exempt from, or not subject to, the registration requirements of the Securities Act and in accordance with applicable securities laws of any state or other jurisdiction of the US. Accordingly, the Fully Paid Rights may only be subscribed for by, and the New Shares are only being offered and sold to: (i) in the US to qualified institutional buyers (“QIBs”) as defined in Rule 144A of the Securities Act (“Rule 144A”) pursuant to an exemption from the registration requirements of the Securities Act; and (ii) investors who are outside the US and subscribing or purchasing in “offshore transactions” as defined in, and in reliance on, Regulation S of the Securities Act (“Regulation S”). Prospective investors in the US are hereby notified that the sellers of the Rights and the New Shares may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A thereunder. In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the Rights and the New Shares within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the Securities Act.
All Overseas Shareholders and any person (including, without limitation, a nominee or trustee) who has a contractual or legal obligation to forward this Prospectus or any Provisional Allotment Letter, if and when received, or other document to a jurisdiction outside the United Kingdom should read the information set out in paragraph 7 of Part IX (Terms and Conditions of the Rights Issue) of this Prospectus.
The Rights and the New Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the US or any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the Rights Issue or the accuracy or completeness of this Prospectus. Any representation to the contrary is a criminal offence in the US.
This Prospectus is being furnished by the Company in connection with an offering exempt from the registration requirements of the Securities Act solely for the purpose of enabling prospective investors to consider an investment in the Fully Paid Rights and the New Shares described herein. Financial information included in this Prospectus has been or will have been prepared in accordance with non-US accounting standards that may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States. The information contained in this Prospectus has been provided by the Company and other sources identified herein. This Prospectus is being furnished on a confidential basis only to persons in the US who are QIBs and to other eligible persons outside the US. Any reproduction or distribution of this Prospectus, in whole or in part, in or into the US and any disclosure of its contents or use of any information herein in the US for any purpose, other than in considering an investment by the recipient in the Rights and the New Shares offered hereby in accordance with the offer and sale restrictions described herein, is prohibited. Each prospective investor in the Rights and the New Shares, by accepting delivery of this Prospectus, agrees to the foregoing. The Fully Paid Rights and the New Shares are being offered in the US to QIBs through the respective US registered broker dealer affiliates of the Joint Bookrunners.
The date of this Prospectus is 12 September 2017 TABLE OF CONTENTS
PART I - SUMMARY ...... 5 PART II - LETTER FROM THE CHAIRMAN ...... 29 PART III - RISK FACTORS ...... 40 PART IV - PRESENTATION OF INFORMATION ...... 65 PART V - RIGHTS ISSUE STATISTICS...... 72 PART VI - EXPECTED TIMETABLE OF RIGHTS ISSUE...... 73 PART VII - DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS...... 74 PART VIII - QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE ...... 81 PART IX - TERMS AND CONDITIONS OF THE RIGHTS ISSUE ...... 88 PART X - INFORMATION ON THE GROUP AND THE INDUSTRY IN WHICH IT OPERATES ...... 121 PART XI - INFORMATION ON WFSS AND THE INDUSTRY IN WHICH IT OPERATES ...... 147 PART XII - OPERATING AND FINANCIAL REVIEW OF EQUINITI ...... 156 PART XIII - OPERATING AND FINANCIAL REVIEW OF WFSS ...... 182 PART XIV - HISTORICAL FINANCIAL INFORMATION OF WFSS ...... 187 PART XV - UNAUDITED PRO FORMA STATEMENTS OF THE ENLARGED GROUP ...... 205 PART XVI - SECTION A: UK TAXATION ...... 213 SECTION B: CERTAIN US FEDERAL INCOME TAX CONSEQUENCES ...... 218 PART XVII - KEY TRANSACTION TERMS ...... 225 PART XVIII - ADDITIONAL INFORMATION ...... 228 PART XIX - INFORMATION INCORPORATED BY REFERENCE ...... 260 PART XX - DEFINITIONS ...... 261 NOTICE OF GENERAL MEETING ...... 266 PART I - SUMMARY
Summaries are made up of disclosure requirements known as “Elements”. These Elements are numbered in Sections A - E (A.1 - E.7). This summary contains all the Elements required to be included in a summary for this type of security and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.
Even though an Element might be required to be inserted in the summary because of the type of security and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in this summary with the mention of the words “not applicable”.
SECTION A - Introduction and warnings
Element Disclosure Disclosure requirement
A.1 WARNING This summary should be read as an introduction to the Prospectus.
Any decision to invest in the New Shares should be based on consideration of the Prospectus as a whole by the investor. Where a claim relating to the information contained in the Prospectus is brought before a court, the claimant investor might, under the national legislation of the Member States, have to bear the costs of translating the Prospectus before the legal proceedings are initiated.
Civil liability attaches only to those persons who have tabled the summary, including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the Prospectus or if it does not provide, when read together with the other parts of the Prospectus, key information to aid investors when considering whether to invest in the New Shares.
A.2 CONSENT FOR Not applicable. No consent has been given by the Equiniti Group plc INTERMEDIARIES (the "Company" and, together with its subsidiary undertakings from time to time (not including Wells Fargo's Shareowner Services business ("WFSS")) the "Group" or "Equiniti") or any other person drawing up the Prospectus to use this document for the subsequent resale or placement of securities by financial intermediaries.
SECTION B - Issuer
Element Disclosure Disclosure requirement
B.1 LEGAL AND Equiniti Group plc COMMERCIAL NAME
B.2 DOMICILE AND The Company is a public limited company, incorporated (and having its LEGAL FORM registered office) in England and Wales. The Company operates under the Companies Act 2006.
5 B.3 CURRENT Equiniti provides complex administration and payment services OPERATIONS, supported by leading technology platforms to a wide range of PRINCIPAL organisations, including approximately 70 of the companies in the FTSE ACTIVITIES AND 100. It is the UK’s leading provider of share registration, employee share MARKETS plans and associated investor services, and also has market leading positions in pension administration and software, and employee benefit schemes. Equiniti supports clients in a wide range of industries and has particular strengths with clients in the banking, insurance and other financial services as well as outsourced government services sectors. The Group enjoys long term and loyal relationships with its client base and has demonstrated resilient revenue growth, having experienced 14.4% CAGR between Financial Years 2014 and 2016, with revenue of £382.6 million in Financial Year 2016.
The directors of the Company (the "Directors") believe that the Group offers its clients business-critical outsourced services and includes a range of software solutions that support them in areas of complex administration and payment processing.The Group’s suite of capabilities can be deployed across multiple different markets with a focus on complex or regulated environments where its clients are managing high volume interactions with their stakeholders.The Group’s solutions are supported by proprietary technology and delivered by a team of 4,478 employees including approximately 800 employees based in India as at 31 July 2017.
Equiniti was formed as a stand-alone group in 2007 following a carve- out from Lloyds TSB (now part of Lloyds Banking Group). From the outset, a core strategy of the Group has been to broaden the suite of complementary services that it provides to its clients, whilst leveraging its existing core skill-set. As a result, the business has expanded over time into a range of new market segments including, inter alia, pension administration, share dealing and custody services, complaints technology solutions, loan technology, and since Equiniti's IPO in 2015, Equiniti has added new regulatory technology (‘RegTech’) services including KYC client on-boarding, fraud analytics, cyber security and data analytics supported by proprietary software.
The Group provides a range of services and is organised in three core divisions: Investment Solutions, Pension Solutions and Intelligent Solutions.
Investment Solutions division (33% of the Group’s revenue for Half Year 2017 and 32% of the Group’s revenue for Financial Year 2016).
This division offers a broad range of services, including share registration for around half 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.
Pension Solutions division (36% of the Group’s revenue for Half Year 2017 and 34% of the Group’s revenue for Financial Year 2016).
This division, which has a 181-year history, offers administration and payment services to pension schemes, as well as pension software, data solutions, and life and pensions administration. The division is a
6 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 Equiniti has served continuously since 1836.
Intelligent Solutions division (28% of the Group’s revenue for Half Year 2017 and 31% of the Group’s revenue for Financial Year 2016).
This division targets complex or regulated activities to help organisations manage their interactions with customers, citizens and employees. The division also offers enterprise workflow for case and complaints management, credit services, KYC client on-boarding, data analytics, cyber security and complaints rectification and remediation.
Interest Income: In addition to the Group’s three divisions, the Group earns interest income on balances it administers on clients' behalf. This generated 3% of revenue in 2016 and 3% of revenue for Half Year 2017.
The Directors believe that the Group maintains leading positions in its core markets and challenger positions in several other market segments that it has successfully entered since 2007. The addressable market for complex outsourced administration and software in the UK is large and Equiniti currently only serves a small portion of this addressable market and hence the Directors believe there is significant headroom for growth as the Group continues to develop and acquire additional capabilities. Furthermore, the Directors believe that there are favourable macro trends, such as increasing regulation and continuing digitalisation, which may drive increased appetite on the part of corporate clients and government departments to seek outsourcing solutions for their complex needs. The Directors believe that Equiniti is well-placed to benefit from these trends.
The Group benefits from a diverse client base consisting of large, well- established companies and government agencies in the UK and abroad. The Group’s client base comprises approximately 70 of the companies in the FTSE 100, and approximately 120 of the companies in the FTSE 250. The Group has an average FTSE 100 share registration client relationship of more than 20 years and had a 100% retention rate for its FTSE 100 and FTSE 250 clients in Financial Year 2016. The Group’s top 25 private sector clients accounted for approximately 46% of revenue in Financial Year 2016, while approximately 36% of revenue in the same year was derived from other private sector clients, and approximately 18% from public sector clients, including the NHS and the Cabinet Office. This means that not only are the Group’s clients long- standing and financially sound with high credit ratings, but revenues are diversified and the Group is not reliant on any single client to achieve its growth strategy.
B.4a SIGNIFICANT The Group’s markets are widely defined as the interactions between UK RECENT corporate clients and government departments and their stakeholders, TRENDS employees, customers and citizens. This broad definition can be AFFECTING THE understood through the markets defined by the Group’s three key GROUP AND THE divisions, within which the Group provides its ever-expanding suite of INDUSTRY IN services and solutions across a number of individual markets: WHICH THE GROUP UK Registration Services Market: The market for the provision of
7 OPERATES solutions to manage shareholder registries and company secretary functions. Clients for these services are typically FTSE-listed companies, with the core relationships governed by long-term contracts;
UK Employee Share Plans Market: The market for the provision of, inter alia, SAYE (Sharesave) scheme administration, SIP administration, executive share plans and flexible benefits to employees of private and public sector organisations. Clients for these services are typically FTSE-listed companies, and are often the same clients for whom the Group provides share registration services;
UK Investment Services Market: The market for the provision of certificated and online execution-only share dealing and related retail offerings, executive share dealing and wealth management outsourcing solutions. Clients for these services are typically corporate clients, employees of corporate clients and also direct to retail clients;
UK Pension Solutions Market: The market for the provision of a broad range of pension-related services including: pension administration and payments, pension software (typically for in-house administration), data solutions and life and pensions administration. Clients include corporate clients and government clients and their pension scheme members; and
UK Intelligent Solutions Market: The market for the provision of complaints, case management and regulatory services, public sector technology products, loan technology, KYC client on-boarding, risk assessment, cyber security, data analytics, as well as data services. Clients for these services are typically from the private sector and citizens interacting with government agencies.
The Directors believe that the Group's addressable markets are growing, driven by:
• Macro-economic conditions, including the level of interest rates and investor confidence, which affect demand for investment- linked products and the number of flotations, mergers and acquisitions, rights issues and buybacks.
• Business development activity, which expands the addressable market as the Group brings in new capabilities.
• Long-term structural trends, which are increasing demand for services. These trends are outlined below:
Increased regulation: There is ongoing pressure to protect consumers’ interests through greater consumer protection-related regulation. In the UK, more than 80 pieces of legislation have been passed since the financial crisis. This means both public and private sector organisations face rising compliance costs and the need to upgrade technology in response to new regulations, while they are still contending with past regulatory issues. Organisations that fail to meet their regulatory obligations also face more investigations, which accelerates demand for remediation services. Whilst Equiniti is also impacted by compliance costs, it sees the ongoing regulatory changes as more of an opportunity to service its clients.
Continuing digitisation: Consumers expect to receive high-quality
8 service and want to manage their affairs online. Shortening product lifecycles require organisations to build customer journeys more quickly, through extensive investment in websites, portals and mobile apps, which can be difficult and costly to do in-house. At the same time, they often struggle with legacy technology, particularly in the banking industry which provides Equiniti a greater opportunity to offer its services within these industries.
Increasing cost consciousness: With low economic growth and intense pressure on public finances, companies and government agencies must do more with less. This requires them to focus on their core operations and to be more efficient. Technology-led solutions help them to transform their businesses and deliver operational efficiencies
Implications for Equiniti include businesses' need to work differently: technology is a key enabler of that change. The changing environment means existing clients of the Group have new needs, creating an opportunity for Equiniti to cross-sell and up-sell.
B.5 GROUP The Company is the ultimate holding company for the Group, which STRUCTURE will continue to report its results on the basis of the Company and its consolidated subsidiaries.
B.6 MAJOR Insofar as the Company has been notified under the Disclosure and SHAREHOLDERS Transparency Rules, the names of each person who, directly or indirectly, has an interest in three per cent, or more of the Company’s issued share capital, and the amount of such person’s interests, as at 11 September 2017 (being the latest practicable date prior to the date of this document) and at the closing of the Rights Issue are as follows:
Name Number of shares Percentage of shares Woodford Investment 31,358,427 10.45 Management Paradice Investment 15,380,908 5.13 Management GVQ Investment 15,265,117 5.09 Management
Fidelity Management & 13,025,052 4.34 Research Legal & General 12,126,977 4.04 Investment Management Mondrian Investment 10,950,167 3.65 Partners Allianz Global Investors 10,200,496 3.40 Rathbone Investment 10,187,309 3.39 Management Citadel Investment Group 9,829,995 3.28 All Ordinary Shares have the same voting rights.
So far as the Company is aware, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government or any other natural or legal person, severally or jointly. None of the major Shareholders referred to above has different voting
9 rights from other Shareholders.
So far as the Company is aware, immediately following the Rights Issue, the interests of those persons set out above with an interest in three per cent, or more of the Company’s issued share capital (assuming: (i) full take up by such persons of their entitlements under the Rights Issue; and (ii) that no options under the Company’s sharesave schemes are exercised between the date of this document and closing of the Rights Issue) will be as follows:
Name Number of shares Percentage of shares
Woodford Investment 38,078,090 10.45 Management Paradice Investment 18,676,817 5.13 Management GVQ Investment 18,536,214 5.09 Management Fidelity Management & 15,816,135 4.34 Research Legal & General 14,725,615 4.04 Investment Management Mondrian Investment 13,296,631 3.65 Partners Allianz Global Investors 12,386,317 3.40 Rathbone Investment 12,370,304 3.39 Management Citadel Investment Group 11,936,423 3.28
B.7 SELECTED Equiniti HISTORICAL KEY FINANCIAL The selected financial information set out below has been extracted INFORMATION without material adjustment from the historical financial information relating to Equiniti. Set out below is the: (1) consolidated income statement, (2) consolidated balance sheet and (3) consolidated cash flow statement.
Consolidated income statement
Six months ended 30 Year ended 31 December June 2016 2017 2014 2015 2016 (unaudited) (unaudited) (unaudited) £m £m £m £m £m Revenue 191.9 194.8 292.3 369.0 382.6
Operating costs before exceptional costs, (150.7) (152.8) (222.3) (282.8) (290.2) depreciation and amortisation EBITDA* prior to exceptional items 41.2 42.0 70.0 86.2 92.4 Operating costs - exceptional items (2.4) (3.9) (12.6) (32.8) (5.0) EBITDA* 38.8 38.1 57.4 53.4 87.4 Depreciation of property, plant and (2.5) (3.0) (3.8) (4.4) (5.4) equipment Amortisation of software (8.3) (7.7) (11.0) (15.8) (16.0) Amortisation of acquisition related (12.7) (13.3) (20.9) (23.0) (25.3) intangible assets
Total operating costs (176.6) (180.7) (270.6) (358.8) (341.9) Earnings before interest and tax (EBIT) 15.3 14.1 21.7 10.2 40.7
10 Six months ended 30 Year ended 31 December June 2016 2017 2014 2015 2016 (unaudited) (unaudited) (unaudited) £m £m £m £m £m
Finance income 0.1 0.5 0.6 0.7 0.2 Finance costs - before exceptional items (6.6) (5.9) (72.4) (61.4) (12.4) Finance costs - exceptional items - - - (21.2) - Net finance costs (6.5) (5.4) (71.8) (81.9) (12.2)
Gain on disposal of associate - - 9.8 - - Share of profit of associate - - 1.7 - -
Profit before income tax 8.8 8.7 (38.6) (71.7) 28.5
Income tax (charge)/credit (2.0) (1.5) 1.7 25.9 4.9 Profit for the year 6.8 7.2 (36.9) (45.8) 33.4
Profit for the year attributable to: - Owners of the parent 5.9 5.6 (39.0) (50.4) 30.5 - Non-controlling interests 0.9 1.6 2.1 4.6 2.9 Profit for the year 6.8 7.2 (36.9) (45.8) 33.4
Basic and diluted earnings per share attributable to owners of the parent: Basic earnings per share (pence) 2.0 1.9 (780.0) (92.8) 10.2 Diluted earnings per share (pence) 2.0 1.9 (780.0) (92.8) 10.1
Consolidated balance sheet
Six months ended 30 Year ended 31 December June 2016 2017 2014 2015 2016 (unaudited) (unaudited) (unaudited) £m £m £m £m £m Assets Property, plant and equipment 13.4 16.4 12.6 11.4 17.1 Intangible assets 653.5 677.9 638.2 637.2 670.1 Other financial assets 12.0 4.5 11.2 1.8 7.8 Deferred income tax assets 16.8 28.1 - 20.0 29.1 695.7 726.9 662.0 670.4 724.1
Current assets Trade and other receivables 76.8 74.8 64.7 70.5 75.4 Agency broker receivables 67.5 36.5 19.5 15.9 15.9 Other financial assets - 0.1 - - 0.2 Cash and cash equivalents 52.9 69.6 30.1 76.5 56.7 197.2 181.0 114.3 162.9 148.2
Total assets 892.9 907.9 776.3 833.3 872.3
Liabilities Non-current liabilities External loans and borrowings 308.9 322.1 623.7 314.3 301.5 Preference shares and loans due to - - 277.8 - - ultimate controlling party Deferred consideration - - 4.0 - - Post-employment benefits 13.5 23.9 15.5 13.5 23.9 Provisions for other liabilities and charges 13.5 23.2 5.8 4.5 16.2 Other financial liabilities 4.8 3.7 0.7 0.5 4.5
11 Six months ended 30 Year ended 31 December June 2016 2017 2014 2015 2016 (unaudited) (unaudited) (unaudited) £m £m £m £m £m Deferred income tax liabilities - - 7.7 - - 340.7 372.9 935.2 332.8 346.1 Current liabilities Trade and other payables 90.2 99.6 68.5 97.8 105.4 Agency broker payables 67.5 36.5 19.5 15.9 15.9 Employee benefits - - 0.4 - - Income tax payable 1.0 1.0 0.8 1.8 2.2 Provisions for other liabilities and charges 3.5 - 3.4 4.1 - Other financial liabilities 0.2 0.5 0.4 0.4 0.5 162.4 137.6 93.0 120.0 124.0
Total liabilities 503.1 510.5 1,028.2 452.8 470.1
Net assets 389.8 397.4 (251.9) 380.5 402.2
Equity Equity attributable to owners of the parent Share capital 0.3 0.3 5.0 0.3 0.3 Share premium - 0.1 3.5 - - Capital redemption reserve - - - - - Capital contribution reserve 181.5 181.5 - 181.5 181.5 Hedging reserve 7.6 2.1 (0.2) 1.8 4.9 Share-based payments reserve 1.1 3.9 - 0.2 2.1 Translation reserve 0.1 2.8 - - 3.1 Retained earnings 180.6 187.8 (277.9) 176.7 191.5 371.2 378.5 (269.6) 360.5 383.4 Non-controlling interest 18.6 18.9 17.7 20.0 18.8 Total equity 389.8 397.4 (251.9) 380.5 402.2
Consolidated cash flow statement
Six months ended 30 Year ended 31 December June 2016 2017 2014 2015 2016 (unaudited) (unaudited) (unaudited) £m £m £m £m £m Cash generated from operations 16.8 43.5 53.8 73.7 64.0 Interest paid (4.8) (4.7) (29.3) (30.1) (9.7) Income tax paid (1.2) (2.5) (2.6) (1.5) (2.2) Net cash inflow from operating activities 10.8 36.3 21.9 42.1 52.1
Cash flows from investing activities Interest received 0.1 0.5 0.2 0.4 0.2 Dividends from investment - - 0.4 0.3 - Dividends from associate - 1.7 - - Business acquisitions net of cash acquired (12.1) 0.7 (30.3) (19.9) (12.0) Proceeds from disposal of a business - - 1.5 - - Investment in an associate - - (2.5) - - Payment relating to prior year acquisitions (0.4) (15.6) (0.7) (3.9) (7.3) Acquisition of property, plant and (2.1) (1.3) (3.8) (2.9) (8.3) equipment Acquisition of intangible assets (8.4) (15.1) (17.0) (15.5) (19.9) Net cash outflow from investing activities (22.9) (30.8) (50.5) (41.5) (47.3)
12 Six months ended 30 Year ended 31 December June 2016 2017 2014 2015 2016 (unaudited) (unaudited) (unaudited) £m £m £m £m £m
Cash flows from financing activities Proceeds from issue of share capital - 0.1 - 495.0 - Proceeds from new bank loans - - - 250.0 - Increase/(decrease) in revolving credit (6.0) 20.0 45.5 24.5 (14.0) facility Repayment of loan notes - - - (440.0) - Repayment of PIK loans - - - (161.9) - Repayment of preference shares - - - (105.0) - Payment of finance lease liabilities (0.3) (0.3) (0.3) (0.3) (0.4) Dividends paid (2.0) (9.3) - - (7.0) Dividends paid to non-controlling interests (1.6) (1.5) - (1.1) (1.6) Transactions with non-controlling interests (1.7) (1.6) - (1.2) (1.7) Loan fees paid and other finance costs - - (1.9) - - Refinancing fees paid - - - (14.2) - Net cash inflow/(outflow) from financing (11.6) 7.4 43.3 45.8 (24.7) activities
Net increase/(decrease) in cash and cash (23.7) 12.9 14.7 46.4 (19.9) equivalents Foreign exchange gains on cash and cash 0.1 - - - 0.1 equivalents Cash and cash equivalents at 1 January 76.5 56.7 15.4 30.1 76.5
Cash and cash equivalents at 30 June/ 52.9 69.6 30.1 76.5 56.7 31 December There has been no significant change in the financial condition and operating results of the Group during or after the period covered by the historical financial information of the Group incorporated by reference into this Prospectus.
***
WFSS
The selected financial information set out below has been extracted without material adjustment from the unaudited historical financial information relating to WFSS. Set out below is the: (1) income statement, (2) balance sheet / statement of financial position, (3) statement of changes in equity and (4) cash flow statement.
Income statement
Year ended 31 Six months December ended 30 June 2015 2016 2016 2017 Note $m $m $m $m Revenue 5.1 95.8 103.2 52.2 61.9
Operating expenses 5.2 (86,3) (91,1) (46,3) (54.0) Earnings before interest, deprecation and 9.5 12.1 5.9 7,9 amortisation (EBITDA) Amortisation of software 6.1 - (0.2) (0.1) (0.1) Depreciation of property, plant and equipment 6.2 (1,2) (1,2) (0.6) (0.7)
13 Total operating costs (87.5) (92.5) (47.0) (54.8) Profit before taxes 8.3 10.7 5.2 7.1
Income taxes 10.1 (3.2) (4.1) (2.0) (2.7) Profit and total comprehensive income for the 5.1 6.6 3.2 4.4 year
Balance sheet / statement of financial position
Year ended 31 Six months December ended 30 June 2015 2016 2016 2017 Note $m $m $m $m Assets Non-current assets Software 6.1 4.4 4.9 4.7 5.1 Property, plant and equipment 6.2 4.4 3.8 4.2 3.3 Total non current assets 8.8 8.7 8.9 8.4
Current assets Trade and other receivables 7.1 14.1 15.3 20.7 17.0 Cash and cash equivalents 8.1 - - - - Total current assets 14.1 15.3 20.7 17.0 Total assets 22.9 24.0 29.6 25.4
Equity and Liabilities Equity Equity attributable to owners of the parent Net investment reserve 19.4 16.6 21.9 16.2 Total equity 19.4 16.6 21.9 16.2
Current liabilities Trade and other payables 7.2 3.5 7.4 7.7 9.2 Total current liabilities 3.5 7.4 7.7 9.2
Total liabilities 3.5 7.4 7.7 9.2 Total equity and liabilities 22.9 24.0 29.6 25.4
Statement of changes in equity
Net Total investment equity reserve $m $m Balance at 1 January 2015 17.6 17.6 Net profit for period 5.1 5.1 Total comprehensive income 22.7 22.7 Net transfers to owners (3.3) (3.3) Balance at 31 December 2015 19.4 19.4
Balance at 1 January 2016 19.4 19.4 Net profit for period 6.6 6.6 Total comprehensive income 26.0 26.0 Net transfers to owners (9.4) (9.4) Balance at 31 December 2016 16.6 16.6
14 Balance at 1 January 2016 19.4 19.4 Net profit for period 3.2 3.2 Total comprehensive income 22.6 22.6 Net transfers to owners (0.7) (0.7) Balance at 30 June 2016 21.9 21.9
Balance at 1 January 2017 16.6 16.6 Net profit for period 4.4 4.4 Total comprehensive income 21.0 21.0 Net transfers to owners (4.8) (4.8) Balance at 30 June 2017 16.2 16.2
Cash flow statement
Year ended 31 Six months December ended 30 June 2015 2016 2016 2017 Note $m $m $m $m Cash flows from operating activities Profit for the period 5.1 6.6 3.2 4.4 Adjustments to reconcile net operating profit to net cash used in operating activities: Non-cash items: Amortisation of software - 0.2 0.1 0.1 Depreciation of property, plant and equipment 1.2 1.2 0.6 0.7 Changes in operating assets and liabilities: Accounts receivable, net (2.3) (1.3) (7.1) (1.2) Other financial assets Prepaid expenses and other current assets (1.1) 0.1 0.5 (0.5) Deferred revenues - 2.5 3.3 (0.7) Accounts payable and accrued expenses 2.7 1.4 0.9 2.5 Net cash inflow from operating activities 5.6 10.7 1.5 5.3
Cash flows from investing activities Purchase of property, plant and equipment (0.1) (0.6) (0.4) (0.2) Purchase of software (2.2) (0.7) (0.4) (0.3) Net cash outflow from investing activities (2.3) (1.3) (0.8) (0.5)
Cash flows from financing activities Net transactions with Wells Fargo & Company (3.3) (9.4) (0.7) (4.8) Net cash outflow from financing activities (3.3) (9.4) (0.7) (4.8)
Net movement in cash and cash equivalents - - - - Cash and cash equivalents at beginning of period - - - -
Cash and cash equivalents at end of period - - - -
There has been no significant change in the financial condition and operating results of WFSS during or after the period covered by the historical financial information of WFSS set out in this Prospectus.
B.8 SELECTED KEY The pro forma financial information in this section is unaudited and UNAUDITED PRO addresses a hypothetical situation and therefore does not represent FORMA Equiniti's actual financial position or results. Set out below is the: (1) FINANCIAL Unaudited Pro Forma Statement of Net Assets, (2) Unaudited Pro
15 INFORMATION Forma Income Statement for the year ended 31 December 2016 and (3) Unaudited Pro Forma Income Statement for the year ended 30 June 2017.
Unaudited Pro Forma Statement of Net Assets
Adjustments Draw Pro Equiniti WFSS down of Forma at 30 June at 30 June Rights new Enlarged 2017 2017 Issue facilities Acquisition Group £m £m £m £m £m £m (Note 2) (Note 3) (Note 4) (Note 5) (Note 6) Non-current assets Property, plant and 16.4 2.6 - - - 19.0 equipment Intangible assets 677.9 3.9 - - 162.1 843.9 Other financial assets 4.5 - - - - 4.5 Deferred income tax 28.1 - - - - 28.1 assets 726.9 6.5 - - 162.1 895.5 Current assets Trade and other 74.8 13.1 - - - 87.9 receivables Agency broker receivables 36.5 - - - - 36.5 Other financial assets 0.1 - - - - 0.1 Cash and cash equivalents 69.6 - 117.8 70.8 (174.6) 83.6 181.0 13.1 117.8 70.8 (174.6) 208.1 Total assets 907.9 19.6 117.8 70.8 (12.5) 1,103.6
Non-current liabilities External loans and 322.1 - - 70.8 - 392.9 borrowings Post-employment benefits 23.9 - - - - 23.9 Provisions for other 23.2 0.1 - - - 23.3 liabilities and charges Other financial liabilities 3.7 - - - - 3.7 372.9 0.1 - 70.8 - 443.8 Current liabilities Trade and other payables 99.6 7.0 - - - 106.6 Agency broker payables 36.5 - - - - 36.5 Income tax payable 1.0 - - - - 1.0 Provisions for other ------liabilities and charges Other financial liabilities 0.5 - - - - 0.5 137.6 7.0 - - - 144.6 Total liabilities 510.5 7.1 - 70.8 - 588.4 Net assets 397.4 12.5 117.8 - (12.5) 515.2
Unaudited Pro Forma Income Statement for the year ended 31 December 2016
16 Adjustments Equiniti WFSS for the for the year year Draw Pro ended 31 ended 31 down of Forma December December new Enlarged 2016 2016 facilities Acquisition Group £m £m £m £m £m (Note 2) (Note 3) (Note 5) (Note 7) Revenue 382.6 75.9 - - 458.5 Operating costs before exceptional (290.2) (67.0) - - (357.2) costs, depreciation and amortisation EBITDA prior to exceptional items 92.4 8.9 - - 101.3 Operating costs - exceptional items (5.0) - - (10.6) (15.6) EBITDA 87.4 8.9 - (10.6) 85.7 Depreciation of property, plant and (5.4) (0.9) - - (6.3) equipment Amortisation of software (16.0) (0.1) - - (16.1) Amortisation of acquisition related (25.3) - - - (25.3) intangible assets Total operating costs (341.9) (68.0) - (10.6) (420.6) Earnings before interest and tax 40.7 7.9 - (10.6) 38.0 Finance income 0.2 - - - 0.2 Finance costs before exceptional items (12.4) - (2.3) - (14.7) Finance costs - exceptional items - - - - - Net finance costs 12.2 - (2.3) - (14.5) Profit before income tax 28.5 7.9 (2.3) (10.6) 23.5 Income tax credit 4.9 (3.0) 0.9 2.0 4.8 Profit for the year 33.4 4.9 (1.4) (8.6) 28.3
Unaudited Pro Forma Income Statement for the year ended 30 June 2017
Adjustments Equiniti WFSS for the six for the six Draw Pro months months down of Forma ended 30 ended 30 new Enlarged June 2017 June 2017 facilities Acquisition Group £m £m £m £m £m (Note 2) (Note 3) (Note 5) (Note 6) Revenue 194.8 49.1 - - 243.9 Operating costs before exceptional (152.8) (42.8) - - (195.6) costs, depreciation and amortisation EBITDA prior to exceptional items 42.0 6.3 - - 48.3 Operating costs - exceptional items (3.9) - - (10.6) (14.5) EBITDA 38.1 6.3 - (10.6) 33.8 Depreciation of property, plant and (3.0) (0.5) - - (3.5) equipment Amortisation of software (7.7) (0.1) - - (7.8) Amortisation of acquisition related (13.3) - - - (13.3) intangible assets Total operating costs (180.7) (43.4) - (10.6) (234.7) Earnings before interest and tax 14.1 5.7 - (10.6) 9.2 Finance income 0.5 - - - 0.5 Finance costs before exceptional items (5.9) - (1.1) - (7.0) Finance costs - exceptional items - - - - - Net finance costs (5.4) - (1.1) - (6.5) Profit before income tax 8.7 5.7 (1.1) (10.6) 2.7 Income tax credit (1.5) (2.2) 0.4 2.0 (1.3) Profit for the year 7.2 3.5 (0.7) (8.6) 1.4
17 Notes
(1) The unaudited pro forma financial information has been compiled from underlying financial statements prepared in accordance with IFRS as applied by Equiniti and reflects the transaction to create the Group as enlarged by the acquisition of WFSS (the "Enlarged Group").
The unaudited pro forma financial information should be read in conjunction with the underlying financial information of Equiniti, which is incorporated by reference and WFSS, which is included in Part XIV (“Historical Financial Information of WFSS”) of this document.
(2) The net assets of Equiniti used in the pro forma consolidated net asset statement as at 30 June 2017 have been extracted without adjustment from the unaudited consolidated interim financial statements for the six months ended 30 June 2017.
The financial information for Equiniti used in the pro forma consolidated income statement for the year ended 31 December 2016 has been extracted without adjustment from the audited consolidated financial statements for the year ended 31 December 2016.
The financial information for Equiniti used in the pro forma consolidated income statement for the six months ended 30 June 2017 has been extracted without adjustment from the unaudited consolidated interim financial statements for the six months ended 30 June 2017.
(3) The net assets of WFSS used in the pro forma consolidated net asset statement as at 30 June 2017 have been extracted without adjustment from the historical financial information included in Part XIV, translated at an exchange rate of $1.30:£1.00, being the closing rate as at 30 June 2017.
The financial information for WFSS used in the pro forma consolidated income statement for the year ended 31 December 2016 has been extracted without adjustment from the historical financial information included in Part XIV, translated at an exchange rate of $1.36:£1.00, being the average exchange rate for the year ended 31 December 2016.
The financial information for WFSS used in the pro forma consolidated income statement for the six months ended 30 June 2017 has been extracted without adjustment from the historical financial information included in Part XIV, translated at an exchange rate of $1.26:£1.00, being the average exchange rate for the six months ended 30 June 2017.
(4) The net proceeds of the Rights Issue of £117.8 million are calculated on the basis that the Company issues 64,309,150 New Shares at a price of 190 pence per share, net of estimated expenses in connection with the Rights Issue of approximately £4.3 million.
18 (5) Equiniti has established an additional term loan facility of $92 million and has increased the Revolving Credit facility by £49 million to partially fund the acquisition of WFSS. It is estimated that $92 million (£70.8 million at $1.30:£1.00) will be drawn under these new facilities to fund the balance of the estimated purchase consideration of £174.6 million after deduction of £103.8 million, being the proportion of the proceeds of the Rights Issue used to part fund the estimated purchase consideration.
The additional borrowings incur interest at the same rate as existing facilities. Interest charge adjustments of £2.3 million and £1.1 million have been made in the unaudited pro forma income statements for the year ended 31 December 2016 and the six months ended 30 June 2017 respectively.
The estimated tax benefits of the above adjustments are £0.9 million and £0.4 million in the proforma income statements for the year ended 31 December 2016 and the six months ended 30 June 2017 respectively. This estimate reflects the effective tax rate of WFSS where the pro forma adjustment is assumed to occur.
(6) The adjustments arising as a result of the Acquisition are set out below:
(a) Estimated purchase consideration is $227 million (£174.6 million at $1.30:£1.00).
(b) The unaudited pro forma statement of net assets has been prepared on the basis that the acquisition of WFSS (the "Acquisition") will be treated as a business combination in accordance with IFRS 3. However, it does not reflect any fair value adjustments to the acquired assets and liabilities as the fair value measurement of these items will only be performed as at the date of Closing. For the purposes of the pro forma statement of net assets, the excess purchase consideration over the carrying amount of the net assets of WFSS has been attributed to goodwill. The fair value adjustments, when finalised following Closing may be material. The preliminary goodwill arising has been calculated as follows:
£m Consideration 174.6 WFSS net assets (12.5) Pro forma goodwill adjustment 162.1
(7) £10.6 million of transaction related costs have been incurred which do not qualify to be capitalised as part of the estimated purchase consideration. None of these items were initially recorded as expenses in the Equiniti or WFSS income statements. Therefore, an adjustment has been made to include these expenses incurred because the pro forma income statements have been prepared as if the transaction had been
19 completed at the start of the periods stated. These expenses are non-recurring in nature and are not expected to have a continuing impact on the consolidated results. The estimated tax benefit of the above adjustment is £2.0 million in the pro forma income statements for the year ended 31 December 2016 and the six month period ended 30 June 2017 based on current corporate tax rates.
(8) The pro forma income statements do not include amortisation of intangible assets on acquisition as this will not be determined until the purchase price allocation exercise is completed.
(9) The pro forma income statements do not include the following potential adjustments estimated by Directors:
◦ the removal of $14.0 million (10.3 million) of general Wells Fargo cost allocations which the Directors do not view as directly supporting WFSS business operations;
◦ the removal of $0.4 milion (0.3 million) of revenue and costs associated with mutual fund fees generated from the current Wells Fargo shared relationship. The Directors believe that these costs and expenses will not continue after the Acquisition; and
◦ the inclusion of $7.8 million (5.7 million) of incremental costs which the Directors believe will be incurred in running WFSS as a business separate from Wells Fargo.
If these adjustments were applied to the WFSS pro forma income statement for the year ended 31 December 2016 this would increase WFSS EBITDA to approximately $18 million (£13.2 million).
(10) No adjustment has been made to reflect the trading results of Equiniti or of WFSS since 30 June 2017.
There has been no significant change in the financial condition and operating results of WFSS during or after the period covered by the historical financial information of WFSS in the Prospectus.
B.9 PROFIT Not applicable: no profit forecasts or estimates have been made. FORECAST/ ESTIMATE
B.10 AUDIT REPORT Not applicable: there are no qualifications in the audit report on Equiniti’s QUALIFICATIONS consolidated financial information incorporated by reference. ON HISTORICAL FINANCIAL INFORMATION
B.11 INSUFFICIENT Not applicable: the Company is of the opinion that, taking into account WORKING the net proceeds of the Rights Issue and the bank and other facilities
20 CAPITAL available to the Group, the working capital available to the Group is sufficient for its present requirements, that is, for at least the next 12 months from the date of the publication of this Prospectus.
SECTION C - Securities
Element Disclosure Disclosure requirement
C.1 TYPE AND The Rights Issue is being made to all Qualifying Shareholders on the CLASS OF register of members of the Company at close of business on 26 SECURITIES September 2017 (the “Record Date”) . Pursuant to the Rights Issue, the Company is offering 64,309,150 ordinary shares of £0.001 each to Qualifying Shareholders at 190p per ordinary share. Each ordinary share will be issued at a premium of 189.9p to its nominal value of £0.001. When admitted to trading, the ordinary shares (i.e. the New Shares) will be registered with ISIN number GB00BYWWHR75.
The ISIN number for the Nil Paid Rights is GB00BD1QQJ84 and the ISIN number for the Fully Paid Rights is GB00BD1QQL07.
C.2 CURRENCY The New Shares are denominated in pounds sterling and will be quoted and traded in pounds sterling.
C.3 ISSUED SHARE As at 11 September 2017 (being the latest practicable date prior to the CAPITAL date of this Prospectus), the nominal value of the issued share capital of the Company was £300,109.369 divided into 300,109,369 Shares (fully paid) of £0.001 each.
C.4 RIGHTS Each New Share ranks equally for voting purposes. On a show of hands ATTACHING TO each Shareholder has one vote, and on a poll each Shareholder has THE NEW one vote per New Share held. Each New Share ranks equally for any SHARES dividend declared and for any distribution made on a winding up.
Each New Share ranks equally in the right to receive a relative proportion of shares in the event of a capitalisation of reserves. The New Shares are not redeemable.
C.5 RESTRICTIONS There are no restrictions on the free transferability of the Shares. ON TRANSFER
C.6 ADMISSION Application will be made to the FCA and to the London Stock Exchange for the New Shares to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange’s main market for listed securities, respectively. It is expected that Admission (nil paid) will become effective on 29 September 2017 and that dealings on the London Stock Exchange in the New Shares (nil paid) will commence as soon as practicable after 8.00 a.m. on that date.
C.7 DIVIDEND For the financial year ended 31 December 2016, Equiniti paid a final
21 POLICY dividend of 3.11p per Ordinary Share, giving a total dividend for the year of 4.75p per share.
The board of the Company intends to continue with its current policy of paying dividends on a progressive basis, targeting a distribution of around 30% of Equiniti's underlying profit attributable to Shareholders each year. Following Closing, future dividend payments per Share will be adjusted to take account of the enlarged number of Shares that will be in issue following the Rights Issue and the Acquisition.
SECTION D - Risks
Element Disclosure Disclosure requirement
D.1 KEY Key information on the key risks that are specific to Equiniti, WFSS and INFORMATION the Acquisition is as follows: ON THE KEY RISKS SPECIFIC Closing of the Acquisition is conditional and the conditions may TO THE GROUP, not be satisfied THE ACQUISITION The Acquisition is conditional, among other things, upon: (i) AND THE Shareholders passing the relevant resolution; (ii) certain regulatory ENLARGED approvals necessary under US law to enable Equiniti to own and operate GROUP WFSS's business, including in particular either the approval of (1) the New York Department of Financial Services for the formation of a new trust corporation or (2) the Office of the Comptroller of the Currency for the formation of a federally chartered limited purpose trust company to acquire WFSS and certain approvals from the United States Securities and Exchange Commission for the new trust corporation to operate a transfer agency business; and (iii) the expiry of waiting periods under the United States Hart-Scott-Rodino Act. There can be no assurance that these conditions will be satisfied or waived, if applicable, and that closing of the Acquisition will be achieved.
If closing does not occur, the Company will not realise the benefits of the Acquisition as summarised in Part II (Letter from the Chairman) of this document. The Company would nonetheless be required to pay significant fees and other costs incurred in connection with the Acquisition (which include financing, financial advisory, legal and accounting fees and expenses) and may also be required to pay a break fee to Wells Fargo in an amount equal to $9.3 million pursuant to the terms of an agreement dated 12 July 2017 under which the Company agreed with Wells Fargo to acquire the assets and liabilities of WFSS (the "Asset Purchase Agreement").
The Group as enlarged by the Acquisition (the "Enlarged Group") may not be able to fully realise the benefits of the Acquisition
Achieving the advantages of the Acquisition will depend partly on the efficient management and coordination of the activities of Equiniti and WFSS, two businesses that currently function independently with geographically dispersed operations, and with different business cultures and compensation structures. The Directors have estimated cost synergies of at least $10 million per annum by the third year of
22 ownership, of which 50% is expected to be achieved by the second full year of ownership. Although Equiniti has a strong track record of integration and carve out experience, such synergies may not be achieved within the stated time or at all because of a number of factors, including delays in migration to Equiniti's Sirius platform, failure to leverage Equiniti's experience in integration of acquisitions and Equiniti's lack of familiarity with the US market. Accordingly, there is a risk that synergy benefits from the Acquisition may fail to materialise in a timely manner or at all, or that they may be materially lower than have been estimated. In addition, the costs of funding the process necessary to achieve these synergies may exceed expectations.
The Directors intend to cross-sell a number of the Group's existing capabilities to WFSS's clients, including in relation to such areas as know your customer, complaints handling, fraud management and other solutions for handling large amounts of data. Whilst the business case for the Acquisition is not based on such cross-selling, there can be no assurance that these cross-selling efforts will be successful, as WFSS's clients may decide they do not require such services or may already access them from other providers.
The Directors expect the Acquisition to be earnings accretive in the first full year of ownership and double digit earnings accretive by the end of the second full year of ownership, and that ROIC (post tax) will exceed WACC in the second full year of ownership. Various factors, including those listed in the paragraphs below, may adversely affect the Enlarged Group's ability to achieve these expectations within the stated time or at all.
Any such eventualities may have a material adverse effect on the financial position of the Enlarged Group.
The Enlarged Group’s results of operations and its business strategy could be adversely affected if the Enlarged Group fails to retain its existing clients, sell additional products and services to its existing clients, introduce new or enhanced products and services or attract and retain new clients
The Enlarged Group may not be able to retain existing clients, pass price increases to its clients, sell additional products or project work for specific services, through effective sales and marketing efforts and services. It may not successfully develop and implement new and enhanced products and services, including through investment by the Enlarged Group in its product developments and IT platforms. It may not be able to attract new clients and procure project work on an ad hoc basis and, accordingly, maintain or increase its revenues. All of these factors could adversely affect the Enlarged Group’s business, financial condition and results of operations. In addition, the Enlarged Group may fail to retain clients if they demand services in jurisdictions where the Enlarged Group has not historically operated and is prevented or delayed from doing so due to regulatory, competition and practical constraints. Such inability or delay could result in a loss of current or potential business.
The Enlarged Group’s future success depends on its ability to continue to perform and maintain its client contracts. If the Enlarged Group is unable to provide services under its client
23 contracts, if the Enlarged Group has disputes with its clients over the services to be provided under the Enlarged Group’s contracts, or if the services to be provided under the Enlarged Group’s contracts are more demanding than anticipated, the Enlarged Group’s results of operations could be materially adversely affected
The Enlarged Group provides products and services to its clients under contracts, many of which have terms from three to ten years. On renewal, clients will often put the relevant contract out to tender and the Enlarged Group may not win the tender. If the Enlarged Group is unable to renew these contracts or fulfil its obligations under the Enlarged Group’s contracts for any reason, the Enlarged Group risks the loss of revenues and fees under that contract, the potential loss of a client and harm to its reputation. The Enlarged Group may have disputes or disagreements with its clients as to the level of services the Group has agreed to provide which could result in exceptional or irrecoverable costs relating to the contract. Moreover, the fulfilment of the Enlarged Group’s obligations under its contracts could become more costly than initially anticipated, and as a result, the Enlarged Group may experience significant increases in its operating costs that it is unable to pass to its clients, which could have a material adverse effect on its business, financial condition and results of operations. Such disputes or disagreements could also adversely affect the Enlarged Group’s reputation and increase the risk of litigation and regulatory censure.
Management distraction or insufficient management capacity as a result of the Acquisition could have an adverse effect on the business of the Group or the Enlarged Group
Integrating WFSS's business with the rest of the Group presents a number of challenges, including the need to create new back office capacity (covering areas such as finance, compliance, risk and legal support) to replace that previously provided by Wells Fargo, and the need to hire additional staff to provide services previously provided to WFSS by Wells Fargo. In addition Equiniti intends to migrate WFSS's systems to its Sirius platform. There is a risk that these challenges associated with integrating WFSS's business will distract management's attention from managing other parts of the Enlarged Group or that management will have insufficient capacity to meet the demands of integration or to manage the Enlarged Group. As a result the underlying business may not perform in line with management or shareholder expectations.
D.2 KEY The market price of the Shares could be volatile and subject to INFORMATION significant fluctuations due to a variety of factors, which could result ON THE KEY in a decline in the market price of the Shares. Shareholders who do RISKS SPECIFIC not take up their entitlements to the New Shares in the Rights Issue TO THE will have their proportionate shareholdings in the Company diluted as SHARES, THE a consequence of the Rights Issue. Shareholders outside the United NIL PAID RIGHTS Kingdom may not be able to take up the New Shares in the Rights Issue OR THE FULLY or further issues of Ordinary Shares and therefore may suffer dilution. PAID RIGHTS
24 SECTION E - Offer
Element Disclosure Disclosure requirement
E.1 NET PROCEEDS The total net proceeds of the Rights Issue are expected to be AND COSTS approximately £118 million (net of expenses).
The total costs, charges and expenses (including underwriting commissions and other fees, taxes and other expenses) payable by the Company in connection with the Rights Issue are estimated to be approximately £4.3 million (inclusive of VAT).
No expenses will be charged by the Company to subscribers of the New Shares.
E.2a REASONS FOR The total consideration for the Acquisition to be paid by the Company at THE RIGHTS Completion will be $227 million (approximately £176 million) subject to ISSUE AND USE certain customary closing adjustments. The Acquisition will be financed OF PROCEEDS in part by the Rights Issue, and in part by additional Equiniti debt facilities of £120 million (approximately $155 million). 64,309,150 New Shares will be issued, providing approximate net proceeds (after costs and expenses associated with the Rights Issue) of £118 million to be used to finance the Acquisition. The additional debt facilities, in addition to financing the balance of the Acquisition consideration, will in part also be used to pay non-Rights Issue transaction costs and expenses, and to finance the integration costs of the Acquisition.
Further, in the event that the Acquisition does not complete or if the Shareholders do not approve the Acquisition, the Company intends to return substantially all of the net proceeds of the Rights Issue to the Shareholders in a timely and efficient manner.
E.3 TERMS AND Equiniti is proposing to raise approximately £118 million net of expenses, CONDITIONS OF by way of a rights issue of 64,309,150 New Shares. THE RIGHTS ISSUE Qualifying Shareholders who do not, or are not able or permitted to, take up their Nil Paid Rights in full will have their proportionate shareholdings in the Company diluted by approximately 17.6 per cent. as a result of the Rights Issue.
The Rights Issue Price of 190p per New Share represents a discount of approximately 31.7 per cent. to the theoretical ex-rights price based on the closing middle-market price of a Share as derived from the Stock Exchange Daily Official List of 297.1p per Existing Share on 11 September 2017 (being the latest practicable date prior to the date of this Prospectus).
Subject to the terms and conditions set out below (and, in the case of Qualifying Non-CREST Shareholders, the Provisional Allotment Letter), the New Shares will be offered for subscription by way of a rights issue to Qualifying Shareholders (other than Excluded Shareholders) on the following basis:
3 New Shares at 190p each for every 14 Existing Shares
25 held and registered in the name of each Qualifying Shareholder at the close of business on the Record Date and so in proportion for any other number of Shares then held. Qualifying Shareholders with fewer than two Existing Shares will not be entitled to any Rights and the New Shares. Entitlements to New Shares will be rounded down to the nearest whole number (or to zero in the case of Qualifying Shareholders holding fewer than five Existing Shares at the close of business on the Record Date) and fractions of New Shares will not be allotted to Qualifying Shareholders but will be aggregated and, if possible, sold in the market as soon as practicable after the commencement of dealings in the New Shares, nil paid. The net proceeds of such sales (after deduction of expenses) will accrue for the benefit of Equiniti. Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.
The Nil Paid Rights (also described as New Shares, nil paid) are entitlements to buy New Shares at the Rights Issue Price. The Fully Paid Rights are entitlements to receive New Shares for which subscription and payment has already been made.
New Shares will be provisionally allotted (nil paid) to all Qualifying Shareholders on the Register at the Record Date, including Excluded Shareholders. However, subject to certain exceptions, Qualifying Shareholders who have a registered address in the Excluded Territories or who are otherwise located in the Excluded Territories have not been and will not be sent Provisional Allotment Letters and have not and will not have their CREST accounts credited with Nil Paid Rights.
The Existing Shares are listed on the premium segment of the Official List and traded on the London Stock Exchange’s Main Market for listed securities. Application will be made to the UK Listing Authority and to the London Stock Exchange for the Rights and the New Shares to be admitted to the premium segment of the Official List and to trading on the London Stock Exchange’s Main Market for listed securities, respectively.
It is expected that Admission will become effective on 29 September 2017 and that dealings in the New Shares, nil paid, will commence at 8.00 a.m. on the same day.
The Rights and the New Shares will be issued pursuant to the authority granted under the resolutions passed at the Annual General Meeting of the Company held in April 2017. The New Shares, when fully paid, will rank pari passu with the Existing Shares.
None of the Rights nor the New Shares are being made available to the public other than pursuant to the Rights Issue on the terms and subject to the conditions set out in this document and, in the case of Qualifying Non-CREST Shareholders holding certificated shares, any relevant Provisional Allotment Letter.
The Rights Issue has been fully underwritten by the Citi and Barclays (the "Joint Bookrunners") in accordance with the terms of the underwriting agreement dated the date of this Prospectus between the Company, Greenhill & Co International LLP and the Joint Bookrunners (the "Underwriting Agreement") and is conditional on, inter alia:
26 (a) the Company complying with its obligations under the Underwriting Agreement to the extent they fall to be performed before Admission;
(b) the publication of a press release relating to the Rights Issue in the approved terms through a Regulatory Information Service by not later than 8.00 a.m. on the date of the Underwriting Agreement;
(c) the passing of the Resolution (without any amendment which is material in the bona fide opinion of the Joint Bookrunners) at the General Meeting by the requisite majority of Shareholders;
(d) no supplementary prospectus being published by or on behalf of the Company prior to Admission;
(e) the Asset Purchase Agreement not having been terminated or materially amended or varied prior to Admission;
(f) Admission becoming effective by not later than 8.00 a.m. on 29 September 2017 (or such later date as the Company and the Joint Bookrunners may determine, not being later than 8.00 a.m. on 17 October 2017); and
(g) Euroclear having approved admission and enablement of the Nil Paid Rights and Fully Paid Rights as participating securities within CREST on or prior to Admission and such Ordinary Shares continuing to be participating securities within CREST.
If the Resolution is not passed the Rights Issue will not proceed.
The Underwriting Agreement may be terminated by the Joint Bookrunners prior to Admission upon the occurrence of certain specified events, in which case the Rights Issue will not proceed. The Joint Bookrunners may arrange sub-underwriting for some, or none, of the New Shares. The Underwriting Agreement is not capable of termination following Admission.
In addition, the Company reserves the right to decide not to proceed with the Rights Issue if the Underwriting Agreement is terminated at any time prior to Admission and commencement of dealings in the New Shares, nil paid.
If for any reason it becomes necessary to adjust the expected timetable as set out in this document, Equiniti will make an appropriate announcement to a Regulatory Information Service giving details of the revised dates.
E.4 MATERIAL Not applicable. There are no interests (including conflicts of interest) INTERESTS known to the Company, which are material to the Rights Issue.
E.5 SELLING Not applicable. The Rights Issue comprises New Shares being issued SHAREHOLDER by the Company. There are no lock-up arrangement in respect of the New Shares.
E.6 DILUTION Qualifying Shareholders who do not take up their entitlements to New Shares will have their proportionate shareholdings in the Company
27 diluted by approximately 18 per cent. as a consequence of the Rights Issue.
E.7 EXPENSES Not applicable. There are no commissions, fees or expenses to be CHARGED TO charged to subscribers for New Shares by the Company. THE INVESTORS
28 PART II - LETTER FROM THE CHAIRMAN
Board: Registered Office: Kevin Beeston Chairman Sutherland House, Russell Way, Philip Yea Chairman Designate Crawley, Guy Wakeley Chief Executive West Sussex, John Stier Chief Financial Officer RH10 1UH Sally-Ann Hibberd Non-Executive Director Victoria Jarman Non-Executive Director Tim Miller Non-Executive Director John Parker Non-Executive Director Darren Pope Non-Executive Director
PROPOSED ACQUISITION OF WELLS FARGO'S SHAREOWNER SERVICES BUSINESS AND FULLY UNDERWRITTEN RIGHTS ISSUE
Dear Shareholder,
1 INTRODUCTION
On 12 July 2017, Equiniti Group plc (“Equiniti”, or the “Company”) announced the proposed acquisition (the "Acquisition") and carve out of the Wells Fargo Shareowner Services business (“WFSS”) for a total cash consideration of $227 million (approximately £176 million) subject to certain customary closing adjustments and conditions. (In this letter, a USD/GBP foreign exchange rate of 0.775 is used for transaction value and 0.777 is used for all other conversions.)
The Acquisition combines the #1 UK and #3 US share registrars1 to create a multi-national share registration and services business spanning the world’s deepest capital markets, which will create a more diversified, multi-national group.
Founded in 1929, WFSS provides share registration, corporate actions, and investment plan services to approximately 1,200 public and private US companies and other global companies, with approximately 5 million shareholder records processed in the US.
WFSS occupies a leading US market position and is growing market share driven by recent client wins and high profile corporate actions business, which have delivered strong organic revenue growth (approximately 6% 2014-16A Revenue CAGR). In 2016 WFSS delivered revenues of $103 million (approximately £80 million) and had profits to be acquired (calculated on the basis set out in section 3 of this letter) of approximately $18 million (approximately £14 million).
The Acquisition has compelling strategic rationale. It transforms Equiniti into a multinational share registration business delivering scale benefits. The Directors expect that the Acquisition will provide a highly attractive entry point into the US, which is the largest, most active but consolidated share registration market with strong development opportunities for Equiniti. WFSS has a strong track record of organic growth and market share capture, and is expected to be an excellent strategic fit given the core competency correlation between Equiniti and WFSS. The Directors also expect a near term opportunity from the introduction of Equiniti’s Sirius platform to the US share registry market, as well as significant cost synergies. Additionally, considerable opportunities have also been identified to cross-sell Equiniti services to WFSS’s clients, but are not required to underpin the strong financial returns from the Acquisition.
1 By number of issuers served.
29 The Acquisition is believed to be financially attractive for shareholders, with strong earnings accretion expected in the first full year of ownership and double digit earnings accretion by the end of the second full year of ownership.2,3 The Acquisition is also anticipated to deliver strong returns for shareholders with a ROIC (post tax) which exceeds the Group's WACC in the second full year of ownership.2 Cost synergies, estimated to be at least $10 million (approximately £8 million) per annum, are expected to be achieved in the third full year of ownership, with 50% achieved by the second full year of ownership. The Directors are confident of delivering these synergies and will leverage Equiniti’s strong track record of integration and carve out experience. Pro-forma Enlarged Group leverage is expected to be broadly in line with the current group level (dependent on completion date) with a clear deleveraging profile to Equiniti’s 2.0 - 2.5x medium term objective by the end of the second full year of ownership.2
Todd May, currently Executive Vice President and Head of WFSS, will continue to manage WFSS post- closing and will report directly to Equiniti's Chief Executive, Guy Wakeley.
The cash consideration and Equiniti's transaction expenses are expected to be financed from a £122 million (approximately $157 million) fully underwritten Rights Issue and £120 million (approximately $155 million) fully underwritten debt facilities. The Rights Issue is conditional upon approval of the Acquisition by Shareholders and other customary conditions as set out in Part IX (Terms and Conditions of the Rights Issue).
The key terms of the Acquisition are described in Part XVII (Key Transaction Terms) of this Prospectus.
The Board has decided that the Acquisition will be conditional upon the approval of Shareholders. Accordingly, a General Meeting has been convened for 9.00 a.m. on 28 September 2017 at the offices of Weil, Gotshal & Manges (London) LLP, 110 Fetter Lane, London EC4A 1AY for Shareholders to consider, and if thought fit, pass the necessary resolution to approve the Acquisition. An explanation of the Resolution is set out in paragraph 10 below.
The Acquisition is expected to complete during the fourth quarter of 2017 or the first quarter of 2018 following the grant of the necessary regulatory approvals.
I am writing to give you further details of the Acquisition and the Rights Issue, including the background to and reasons for it, to explain why the Board considers it to be in the best interests of Equiniti and Shareholders as a whole and to seek your approval of the Resolution.
2 BACKGROUND TO AND REASONS FOR THE ACQUISITION AND THE RIGHTS ISSUE
2.1 Equiniti's Strategy
Equiniti’s strategy is to drive organic growth by leveraging its technology platforms into its customer base. The key components of the Group’s strategy are as follows:
(a) Increase penetration to existing clients through up-sell and cross-sell
The Directors believe that companies are increasingly looking for more efficient solutions to non- core specialist processes, and that legislative changes in the UK are further increasing complexity and administrative burdens in many organisations, particularly in the pensions, banking, wider financial services and healthcare industries. The Directors believe that the Group’s established expertise and the scale of its capabilities position it well to respond to these market demands and that its existing relationships with approximately 1,700 clients, primarily large private sector companies and government agencies, provide attractive opportunities to further up-sell and cross- sell its solutions and products.
The Directors believe that new revenue opportunities exist to cross-sell Equiniti's products to
2 This statement is not intended as a profit forecast and should not be interpreted to mean that earnings per share for Equiniti for the current or future financial years would necessarily match or exceed historical published earnings. 3 EPS accretion is measured on an adjusted underlying basis, as explained in the announcement of the results of Equiniti for the six months ended 30 June 2017 incorporated into this Prospectus by reference
30 WFSS's clients. These opportunities represent incremental upside and are not required to underpin the transaction rationale. The principal areas of opportunity that have been identified are within software capabilities including KYC, financial crime, fraud analytics, asset tracing, financial services remediation and complaints, and additional distribution channels for share plans, share registry related services, proxy solicitation, investor relations and multi-national offerings.
(b) Continue to win new clients through sale of core products
Equiniti leverages its brand, reputation for high-quality service delivery and deep domain expertise to secure new client wins in the private and public sectors. The Group has enjoyed continued success in winning new customers, adding several high profile clients, including Sainsbury's, AA, Abcam, Admiral Insurance Group, Ascential, Biffa, Domino's Pizza, Draper Esprit, GoCompare, Joules, Metrobank and Time Out.
(c) Develop and acquire new capabilities
The Directors believe that the Group has identified attractive growth markets where it has the capabilities, domain expertise and technology to develop an attractive outsourcing solution to develop a significant position in those markets. The Group has a strong track record in executing and developing opportunities and adding new capabilities.
(d) Leverage B2B2C and D2C channels
The Group intends to leverage opportunities in the growing B2B2C and D2C markets, as set out in the Strengths section of Section A (The Group) of Part X (Information on the Group and the Industry in which it Operates), to enable it to expand its services to shareholders, customers and employees of the Group’s corporate clients and to the general public.
(e) Continue to improve and maximise operational efficiencies, including offshoring
The Directors believe that the Group will continue to invest in its employees in order to maintain the specialised quality of its workforce. The Directors believe additional potential is embedded in the Group’s business model, which would see further profit growth from further offshoring and other cost optimisation initiatives (including premises consolidation and supplier rationalisation).
(f) Continue to use strong cash flows to invest in the Group’s business and to reduce leverage
The Group has demonstrated its ability to generate strong cash flows over the last three years. Aggregate cash flow (pre-exceptional) generated by the Group from operations from 1 January 2015 to 30 June 2017 is £181 million. As at 30 June 2017, its net leverage ratio, as adjusted, was 2.8x. In addition to utilising the Group’s strong cash flows to reduce its net leverage ratio towards Equiniti’s 2-2.5x medium term objective, the Group also intends to continue to use its cash flow to further invest in, and grow, its business by securing new business opportunities and tactical acquisitions.
2.2 Reasons for the Acquisition
The US is the largest and most active market for share registration services. WFSS is a high-quality asset with a well-established position and growing market share. In acquiring WFSS, the third largest share registrar by number of clients in the US market, Equiniti would become a multinational, share registration and services business spanning the deepest capital markets, creating a more diversified, multi-national group. Equiniti is expected to have the opportunity to provide a broader range of services, such as share plan administration, than WFSS currently provides its clients.
The Directors believe that the Acquisition has a compelling strategic rationale and is financially attractive for shareholders:
(a) The Acquisition transforms Equiniti into a multi-national share registration business combining local
31 expertise with global reach
The Acquisition combines the #1 UK and #3 US share registration business to transform Equiniti into a multi-national share registration business which is expected to deliver scale benefits stemming from direct opportunities to target new “big ticket” multi-national solutions.
(b) The Acquisition represents a highly attractive entry point into the US
The Directors believe that the Acquisition provides Equiniti with a high quality, well-developed platform for growth in the large, active but highly consolidated US share registry market. The Directors believe that the US shareholder services industry is mature in nature with the top three participants accounting for approximately 80% of total market share. Consolidation continues to be a long-term trend in the US shareholder services industry.
The Directors believe strong development opportunities exist in the US market for Equiniti. The US market has structural similarities with the UK, but is much larger, with approximately 18,500 US corporate issuers (vs. approximately 2,500 UK corporate issuers). The US has also experienced higher levels of corporate activity than other geographies since 2008 and is subject to a rising interest rate environment.
(c) WFSS has a strong track record of organic growth and market share capture
WFSS occupies a leading US market position servicing approximately 650 issuers including Hewlett Packard, J.P.Morgan and Wells Fargo & Company. WFSS is demonstrating strong client momentum with several high profile client wins in 2016 including General Electric and Procter & Gamble. The combination of these factors has led to WFSS delivering good organic revenue growth (approximately 6% 2014-16A Revenue CAGR), growing its market share to 21% by number of shareholders served and 10% by number of issuers served and increasing the total number of shareholders served by its share registry services (a net increase of approximately 375,000 new shareholders during 2016).
Both WFSS and Equiniti possess a strong financial services client orientation. Equiniti has 150 financial services clients and WFSS has 57. Following the carve out of Equiniti from Lloyds Banking Group in 2007/8, Lloyds continues to be one of Equiniti’s largest clients.
WFSS has also been very active in recent high profile US corporate transactions, including:
◦ Exelon Corp’s $6.8bn acquisition of Pepco Holdings in 2016 (paying agent)
◦ Procter & Gamble’s $12.6bn divestiture of certain beauty brands in 2016 (depository agent)
◦ Alcatel-Lucent’s approximately $16.6bn sale to Nokia in 2016
◦ Valvoline’s $660m IPO in 2016
◦ H.J. Heinz’s $55bn acquisition of Kraft Foods Group in 2015 (paying agent)
◦ UnitedHealth Group’s $12.8 billion acquisition of Catamaran in 2015 (paying agent)
(d) Equiniti and WFSS have an excellent strategic fit and direct core competency correlation
The Directors believe that Equiniti's and WFSS’s operating models are very well aligned. Equiniti's and WFSS’s client bases both exhibit high client fidelity. During 2015 and 2016, Equiniti maintained 100% of its clients with an average client tenure of 29 years (for FTSE 100 clients). WFSS has the highest client loyalty statistics in the US market and has been recognized by clients for its high quality of service and has been a service award winner for sixteen of the past seventeen years.
Equiniti and WFSS’s client service methodologies are both orientated to value rather than price, and both operators have fostered a culture of market leading client service provision.
32 Equiniti and Wells Fargo envisage having a strong reciprocal relationship, based on the post-closing agreements contemplated by the Asset Purchase Agreement.
(e) The Acquisition generates a near term value opportunity to migrate WFSS to Equiniti’s Sirius platform
Equiniti management intends to migrate WFSS onto Equiniti’s market leading Sirius platform (Equiniti’s proprietary registration database and workflow management system). Initial work undertaken by Equiniti indicates high levels of cross functionality which will be leveraged to drive operational excellence and extract cost synergies.
Equiniti management intends to ensure the planned Sirius migration is both a measured and controlled risk migration of data over an appropriate timescale in order to bring Equiniti’s full capabilities to WFSS’s clients and then to target investment to drive future growth.
(f) The Acquisition is expected to be strongly earnings accretive with strong returns for shareholders
Equiniti management expects the Acquisition to be strongly EPS accretive in the first full year of ownership and double digit earnings accretive3 after the second full year ownership and ROIC (post- tax) is expected to exceed Equiniti WACC in second full year of ownership.2
(g) Anticipated to release material cost synergies
Equiniti’s initial cost synergy assessment indicates $10 million (approximately £8 million) achievable by the third full year of ownership, with 50% achieved by the second full year of ownership. These have been principally identified from technology opportunities and operational synergies and are subject to a clear integration plan with key responsibilities and timetable agreed. The expected one- off exceptional costs to implement the integration and deliver the synergies are estimated at $26 million (approximately £20 million) with the majority (approximately 60%) incurred during 2018. The Acquisition is also expected to require one off capital expenditure of $28 million (approximately £22 million) with the majority (approximately 80%) incurred during 2018 to implement a standalone IT infrastructure and transition to the Sirius IT platform. Transaction costs are anticipated to be approximately £17 million. The Directors anticipate a cash tax rate for WFSS of 5% of pre-tax profit in 2018 and 2019 rising to approximately 30% thereafter.
(h) Cross-selling opportunities have been identified
Although new revenue opportunities do exist, these represent incremental upside and are not required to underpin transaction rationale. The principal areas of opportunity that have been identified are within software capabilities including KYC, financial crime, fraud analytics; asset tracing; financial services remediation and complaints; and additional distribution channels e.g. for share registry related services, proxy solicitation, investor relations, global offerings and share plans.
2.3 Financial Effects of the Acquisition
The Acquisition is believed to be financially attractive for shareholders. The Acquisition is expected to be strongly earnings accretive in the first full year of ownership and double digit earnings accretive3 in the second full year of ownership and to deliver strong returns with ROIC (post tax) anticipated to exceed WACC in second full year of ownership.2
As detailed in paragraph 8 of this letter, the Acquisition will be funded through a fully underwritten Rights Issue to raise approximately £122 million (approximately $157 million) and additional Equiniti debt facilities of £120 million (approximately $155 million), which are expected to provide Equiniti with a strong financial footing. Pro-forma Enlarged Group leverage is expected to be broadly in line with the current group level (dependent on completion date) with a clear deleveraging profile to Equiniti’s 2-2.5x medium term objective by the end of the second full year of ownership.2
33 This will position the Enlarged Group in a strong financial position to take advantage of future strategic opportunities to drive both organic and inorganic growth.
3 SUMMARY INFORMATION ABOUT WFSS
Founded in 1929, WFSS provides share registrar, corporate actions, and investment plan services to approximately 1,200 public and private US companies and other global companies, with approximately 5 million shareholder records processed in the US. WFSS’s service lines include stock transfer and registry services, proxy and annual meeting services, corporate actions and investment plan services. WFSS is headquartered in Mendota Heights, Minnesota where it has two facilities. WFSS also has several shared facilities, including a call centre in Phoenix, Arizona and a smaller shared office in New York.
In March 2012, WFSS joined Equiniti in becoming a member of the Global Share Alliance (GSA) to expand its capabilities and as a result the Equiniti and WFSS’s management teams and operations are well known to each other.
As at 31 December 2016, WFSS had approximately 400 full-time employees and, based on 2015 Group 5 survey results, WFSS has the highest NPS scores in the US market for client loyalty (retention) and customer satisfaction (measured by data security, issuer service and shareholder service).
In 2016 WFSS delivered revenues of $103 million (approximately £80 million). The profits of WFSS for the year ended 31 December 2016 (as shown in part XIV (Historical Financial Information of WFSS)) were $12.1 million. The Directors believe that WFSS as a standalone business would not incur some of the costs which are reflected in these profits. As noted in Part XV (Unaudited pro forma statements of the Enlarged Group), the Directors estimate that the profits of WFSS for the year ended 31 December 2016 would have been approximately $18 million (approximately £14 million) on a standalone basis (see paragraph 4.5 of Part XIII (Operating and Financial Review of WFSS). These estimated profits are referred to as "profits to be acquired" elsewhere in this Prospectus.
4 SUMMARY INFORMATION ABOUT EQUINITI
Equiniti is a specialist outsourcer delivering technology-enabled solutions to a wide range of organisations, including approximately 70 of the companies in the FTSE 100. It is the UK’s leading provider of share registration and associated investor services, and also has market leading positions in administration of employee share plans, pension administration and software, and employee benefit schemes. Equiniti's services, which are delivered by over 4,300 employees, benefit 28 million people in the UK and 120 countries around the world.
The Directors believe that the Group offers its clients business critical outsourced services including a range of software solutions that support them in areas of complex administration and payment processing. The Group’s suite of capabilities can be deployed across multiple different markets with a focus on complex or regulated environments where its clients are managing high volume interactions with their stakeholders.
5 INTEGRATION OF WFSS
Equiniti intends to leverage its extensive track record of carve out and integration experience to derive a clear pathway to capture cost synergies. Equiniti will draw upon its experience of its own carve out from Lloyds Banking Group in 2007-2008 as a proven blueprint for WFSS’s carve out from Wells Fargo, along with experience from subsequent carve outs, including:
• J.P. Morgan Corporate Dealing Services / JP Morgan in 2014
• Self Trade / Societe Generale in 2014
• Killik Employee Services / Killik in 2013
• My CSP / HM Government in 2012
• Xafinity / Equiniti in 2012
34 • Nat West Stockbrokers CES / RBS in 2011
6 MANAGEMENT AND EMPLOYEES
WFSS has an experienced and strongly aligned management team. Todd May, currently Executive Vice President and Head of WFSS, will continue to manage WFSS post-closing and will report directly to Equiniti Chief Executive Guy Wakeley. The WFSS management team will be incentivised to drive continued performance and synergies.
7 PRINCIPAL TERMS OF THE ACQUISITION
Under the terms of the Asset Purchase Agreement, and subject to the conditions thereunder being satisfied, Equiniti has agreed to acquire WFSS for a cash consideration of $227 million (subject to certain adjustments).
Completion is conditional on, among other things, (i) the passing of the Resolution; and (ii) the receipt of necessary regulatory approvals, including the approval of the New York Department of Financial Services for the formation of a new trust corporation (or, if applicable, the approval of the Office of the Comptroller of the Currency for the formation of a federally chartered limited purpose trust company) as a wholly-owned subsidiary of Equiniti to acquire the WFSS business and the approval of the United States Securities and Exchange Commission for the trust corporation to act as a transfer agent.
More detailed summaries of the key terms of the Asset Purchase Agreement and of the agreements to be entered into on Closing are set out in Part XVII (Key Transaction Terms) of this Prospectus.
8 FINANCING THE ACQUISITION
The total consideration for the Acquisition to be paid by Equiniti at Completion will be $227 million (approximately £176 million) subject to certain customary closing adjustments. The Acquisition will be financed in part by the Rights Issue, and in part by additional Equiniti debt facilities of £120 million (approximately $155 million). 64,309,150 New Shares will be issued, providing approximate net proceeds (after costs and expenses associated with the Rights Issue) of £118 million to be used to finance the Acquisition. The additional debt facilities, in addition to financing the balance of the Acquisition consideration, will in part also be used to pay non-Rights Issue transaction costs and expenses, and to finance the integration costs of the Acquisition.
Further, in the event that the Acquisition does not complete or if the Shareholders do not approve the Acquisition, the Company intends to return substantially all of the net proceeds of the Rights Issue to the Shareholders in a timely and efficient manner.
The Rights Issue is conditional upon, amongst other things, the passing of the Resolution, Admission having become effective and the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission), and not having been terminated in accordance with its terms, prior to Admission. The Rights Issue is not conditional upon completion of the Acquisition. However, the Underwriting Agreement is conditional on (among other matters) the Asset Purchase Agreement not having been terminated, amended or varied in any material respect or having lapsed before Admission.
9 PRINCIPAL TERMS OF THE RIGHTS ISSUE
Pursuant to the Rights Issue, the Company is proposing to offer 64,309,150 New Shares to Qualifying Shareholders. The offer is to be made at 190p per New Share, payable in full on acceptance by no later than 11.00 a.m. on 16 October 2017. If the Rights Issue were to proceed but Closing does not take place, Equiniti intends to return substantially all of the net proceeds of the Rights Issue to Shareholders as soon as reasonably practicable. Such a return could carry costs for certain Shareholders and will have costs for the Company.
The Rights Issue is expected to raise approximately £118 million, net of expenses. The Issue Price represents a 31.7 per cent discount to the theoretical ex rights price based on the closing middle market price of 297.1p per Share on 11 September 2017 (being the last Business Day before the announcement of the terms of the Rights Issue).
35 The Rights Issue will be made on the basis of 3 New Shares at 190p per New Share for every 14 Existing Shares held by Qualifying Shareholders at the close of business on the Record Date.
Entitlements to New Shares will be rounded down to the nearest whole number and fractional entitlements will not be allotted to Shareholders but will be aggregated and issued into the market for the benefit of the Company. Holdings of Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.
The Rights Issue is fully underwritten by the Joint Bookrunners pursuant to the Underwriting Agreement. The principal terms of the Underwriting Agreement are summarised in Part XVIII (Additional Information) of this document.
The Rights Issue will result in 64,309,150 New Shares being issued (representing approximately 21.4 per cent, of the existing issued share capital and 17.6 per cent, of the enlarged issued share capital immediately following completion of the Rights Issue, assuming that no options under the Sharesave Scheme are exercised between the date of this document and Admission becoming effective).
The New Shares, when issued and fully paid, will rank pari passu in all respects with the Existing Shares, including the right to receive dividends or distributions made, paid or declared after the date of issue of the New Shares. Application will be made to the FCA and to the London Stock Exchange for the Rights and the New Shares to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange’s main market for listed securities, respectively. It is expected that Admission will become effective and that dealings on the London Stock Exchange in the New Shares will commence at 8.00 a.m. on 29 September 2017.
Some questions and answers, together with details of further terms and conditions of the Rights Issue, including the procedure for acceptance and payment and the procedure in respect of Rights not taken up, are set out in Parts VIII (Questions and Answers about the Rights Issue) and IX (Terms and Conditions of the Rights Issue) of this Prospectus and, where relevant, will also be set out in the Provisional Allotment Letter.
10 THE RESOLUTION
The notice convening the General Meeting, at which the Resolution will be proposed, is set out on pages 266 - 269 (inclusive) of this document. The full text of the Resolution is set out in the Notice of General Meeting. The purpose of the General Meeting is to consider and, if thought appropriate, pass the Resolution. The Resolution proposes that the Acquisition be approved and that the Board be authorised to implement the Acquisition.
11 DIVIDENDS AND DIVIDEND POLICY
The Board intends to continue with its current policy of paying dividends on a progressive basis, targeting a distribution of around 30% of Equiniti's underlying profit attributable to ordinary Shareholders each year. Following the Acquisition, future dividend payments per Share will be adjusted to take account of the enlarged number of Shares that will be in issue following the Rights Issue and the Acquisition.
12 FURTHER INFORMATION
Your attention is drawn to the further information set out in Parts III (Risk Factors) to V (Rights Issue Statistics) and VII (Directors, Secretary, Registered Office and Advisers) to XX (Definitions) (inclusive) of this document.
Shareholders should read the whole of this document and not rely solely on the information set out in this letter. In addition, you should consider the risk factors set out on pages 40 - 64 (inclusive) of this document.
13 OVERSEAS SHAREHOLDERS
The attention of Shareholders who have registered addresses outside the United Kingdom, or who are citizens or residents of or located in countries other than the United Kingdom, is drawn to the information in paragraph 7 of Part IX (Terms and Conditions of the Rights Issue) of this document.
36 The New Shares will be provisionally allotted (nil paid) to all Shareholders on the register at the Record Date, including Overseas Shareholders. However, subject to certain exceptions, Provisional Allotment Letters will only be sent to Qualifying Non CREST Shareholders with registered addresses outside the United States and the Excluded Territories and only the CREST stock accounts of Qualifying CREST Shareholders with registered addresses outside the United States and the Excluded Territories will be credited.
Notwithstanding any other provision of this document or the Provisional Allotment Letter, the Company reserves the right to permit any Shareholder on the register at the Record Date to take up his/her rights if the Company in its sole and absolute discretion is satisfied that the transaction in question will not violate applicable laws.
The provisions of paragraph 6 of Part IX (Terms and Conditions of the Rights Issue) of this Prospectus will apply generally to Overseas Shareholders who cannot or do not take up the Rights and the New Shares provisionally allotted to them.
14 UK AND US TAXATION
Certain information about United Kingdom and United States taxation in relation to the Rights Issue is set out in Part XVI (Taxation) of this document. If you are in any doubt as to your tax position, or you are subject to tax in a jurisdiction other than the United Kingdom or the United States, you should consult your own independent tax adviser without delay.
15 ACTION TO BE TAKEN
15.1 Action to be taken in respect of the General Meeting
Set out at the end of this document is a notice convening the General Meeting to be held at 9.00 a.m. on 28 September 2017 at the offices of Weil, Gotshal & Manges (London) LLP, 110 Fetter Lane, London, EC4A 1AY. At the General Meeting, the Resolution will be proposed for approval.
You will find enclosed with this document (unless you hold your shares indirectly) a Form of Proxy for use at the General Meeting. Whether or not you propose to attend the General Meeting in person, you are asked to complete the Form of Proxy and return it to the Company’s Registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA (using the enclosed prepaid envelope), so as to arrive as soon as possible, but in any event so as to be received by no later than 9.00 a.m. on 26 September 2017.
Alternatively, Shareholders may submit their proxy vote electronically via www.sharevote.co.uk where full instructions on the procedure are given. The Voting ID, Task ID and Shareholder Reference Number printed on the Form of Proxy will be required to use this electronic proxy appointment system. Alternatively, shareholders who have already registered with Equiniti Registrars’ online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk and clicking on the link to vote.
CREST members may also choose to utilise the CREST electronic proxy appointment service in accordance with the procedures set out in the notice convening the General Meeting at the end of this document.
Completion and return of a Form of Proxy (or the electronic appointment of a proxy) will not preclude you from attending and voting at the General Meeting in person if you so wish.
Further details relating to voting by proxy are set out in the notes to the Notice of General Meeting on pages 266 - 269 (inclusive) of this document.
15.2 Action to be taken in respect of the Rights Issue
If you are a Qualifying Non CREST Shareholder with a registered address outside the United States and the Excluded Territories (subject to certain exceptions), you will be sent a Provisional Allotment Letter giving you details of your Nil Paid Rights by post on or about 28 September 2017. If you are a Qualifying
37 CREST Shareholder, you will not be sent a Provisional Allotment Letter. Instead, provided that you have a registered address outside the United States and the Excluded Territories (subject to certain exceptions), you will receive a credit to your appropriate stock accounts in CREST in respect of Nil Paid Rights, which it is expected will take place as soon as practicable after 8.00a.m. on 29 September 2017. Such crediting does not in itself constitute an offer.
If you sell or have sold or otherwise transferred all of your Shares held (other than ex rights) in certificated form before 26 September 2017, please forward this document and any Provisional Allotment Letter, if and when received, at once to the purchaser or transferee or the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee, except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including, but not limited to, the United States and the Excluded Territories.
If you sell or have sold or otherwise transferred all or some of your Shares (other than ex rights) held in uncertificated form before the Ex Rights Date, a claim transaction will automatically be generated by Euroclear which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee.
If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex rights) held in certificated form before the Ex Rights Date, you should refer to the instruction regarding split applications in Part IX (Terms and Conditions of the Rights Issue) of this document and in the Provisional Allotment Letter.
The latest time and date for acceptance and payment in full in respect of the Rights Issue is expected to be 11.00 a.m. on 16 October 2017, unless otherwise announced by the Company. The procedure for acceptance and payment is set out in Part IX (Terms and Conditions of the Rights Issue) of this document and, if applicable, in the Provisional Allotment Letter.
For Qualifying Non CREST Shareholders, the New Shares will be issued in certificated form and will be represented by definitive share certificates, which are expected to be despatched by no later than 24 October 2017 to the registered address of the person(s) entitled to them.
For Qualifying CREST Shareholders who take up their rights, the Registrar will instruct CREST to credit the stock accounts of the Qualifying CREST Shareholders with their entitlements to New Shares. It is expected that this will take place as soon as practicable after 8.00a.m. on 29 September 2017.
Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsor regarding the action to be taken in connection with this document and the Rights Issue.
If you are in any doubt as to the action you should take, you should immediately seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the FSMA or, if you are outside the United Kingdom, by another appropriately authorised independent financial adviser.
16 BOARD’S INTENTIONS
The Board is fully supportive of the Rights Issue. Each of the members of the Board who hold Shares either intends, to the extent that he or she is able, to take up in full his or her rights to subscribe for New Shares under the Rights Issue or to sell a sufficient number of their Nil Paid Rights during the nil paid trading period to meet the costs of taking up the balance of his or her entitlement to New Shares.
17 RECOMMENDATION AND VOTING INTENTIONS
The Board believes the Acquisition and the Resolution to be in the best interests of Equiniti and Shareholders as a whole and, accordingly, unanimously recommends that the Shareholders vote in favour of the Resolution, as the members of the Board each intend to do in respect of their own legal and beneficial holdings, amounting to 2,341,464 Shares (representing approximately 0.78 per cent, of the Company’s existing issued share capital as at 11 September 2017, being the last practicable date prior to the date of this Prospectus).
38 Yours faithfully,
Kevin Beeston
Chairman
Equiniti Group plc
39 PART III - RISK FACTORS
The Rights Issue and any investment in the Rights and the New Shares are subject to a number of risks. Accordingly, Shareholders and prospective investors should carefully consider the factors and risks associated with any investment in the Rights and the New Shares, Equiniti, WFSS, and the industry in which it operates and the business and industry in which the Enlarged Group will operate, together with all other information contained or incorporated by reference in this document, including, in particular, the risk factors described below, and their personal circumstances prior to making any investment decision. Some of the following factors relate principally to WFSS and the Enlarged Group’s businesses. Other factors relate principally to the Rights Issue and an investment in the Rights and the New Shares. The businesses, operating results, financial condition and prospects of Equiniti, WFSS and the Enlarged Group could be materially and adversely affected by any of the risks described below. In such case, the market price of the Nil Paid Rights, the Fully Paid Rights and/or the Rights and the New Shares may decline and investors may lose all or part of their investment.
Prospective investors should note that the risks relating to Equiniti, WFSS and the Enlarged Group and the industries in which they operate and the risks relating to the Rights and the New Shares summarised in the section of this document headed “Summary” are the risks that the Board believes to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Rights and the New Shares. However, as the risks which Equiniti, WFSS and the Enlarged Group face relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in the section of this document headed “Summary” but also, among other things, the risks and uncertainties described below.
The following is not an exhaustive list or explanation of all risks which investors may face when making an investment in the Rights and the New Shares and should be used as guidance only. Additional risks and uncertainties relating to Equiniti, WFSS and the Enlarged Group that are not currently known to the Company, or that it currently deems immaterial, may individually or cumulatively also have a material adverse effect on Equiniti or WFSS and the Enlarged Group’s business, financial condition and results of operations and, if any such risk should occur, the price of the Rights and the New Shares may decline and investors could lose all or part of their investment. Investors should consider carefully whether an investment in the Rights and the New Shares is suitable for them in the light of the information in this document and their personal circumstances.
1 RISKS ASSOCIATED WITH THE ACQUISITION
1.1 Closing of the Acquisition is conditional and the conditions may not be satisfied
The Acquisition is conditional, among other things, upon: (i) Shareholders passing the Resolution; and (ii) certain regulatory approvals necessary under US law to enable Equiniti to own and operate WFSS's business, including in particular the approval of the New York Department of Financial Services for the formation of a new trust corporation (or, if applicable, the approval of the Office of the Comptroller of the Currency for the formation of a federally chartered limited purpose trust company) to acquire WFSS and certain approvals from the United States Securities and Exchange Commission for the new trust corporation to operate a transfer agency business. There can be no assurance that these conditions will be satisfied or waived, if applicable, and that Closing will be achieved.
If Closing does not occur, the Company will not realise the benefits of the Acquisition as summarised in Part II (Letter from the Chairman). The Company would nonetheless be required to pay significant fees and other costs incurred in connection with the Acquisition (which include financing, financial advisory, legal and accounting fees and expenses) and may also be required to pay a break fee to Wells Fargo in an amount equal to $9.3 million pursuant to the terms of the Asset Purchase Agreement.
1.2 The Enlarged Group may not be able to fully realise the benefits of the Acquisition
Achieving the advantages of the Acquisition will depend partly on the efficient management and coordination of the activities of Equiniti and WFSS, two businesses that currently function independently
40 with geographically dispersed operations, and with different business cultures and compensation structures. The Directors have estimated cost synergies of at least $10 million per annum by the third year of ownership, of which 50% is expected to be achieved by the second full year of ownership. Although Equiniti has a strong track record of integration and carve out experience, such synergies may not be achieved within the stated time or at all because of a number of factors, including delays in migration to Equiniti's Sirius platform, failure to leverage Equiniti's experience in integration of acquisitions and Equiniti's lack of familiarity with the US market. Accordingly, there is a risk that synergy benefits from the Acquisition may fail to materialise in a timely manner or at all, or that they may be materially lower than have been estimated. In addition, the costs of funding the process necessary to achieve these synergies may exceed expectations.
The Directors intend to cross-sell a number of the Group's existing capabilities to WFSS's clients, including in relation to such areas as know your customer, complaints handling, fraud management and other solutions for handling large amounts of data. There can be no assurance that these cross-selling efforts will be successful, as WFSS's clients may decide they do not require such services or may already access them from other providers.
The Directors expect the Acquisition to be earnings accretive in the first full year of ownership and double digit earnings accretive by the end of the second full year of ownership, and that ROIC (post tax) will exceed WACC in the second full year of ownership. Various factors, including those listed in paragraphs 1.3 to 1.5 below, may adversely affect the Enlarged Group's ability to achieve these expectations within the stated time or at all.
Any such eventualities may have a material adverse effect on the financial position of the Enlarged Group.
1.3 The Acquisition may lead to customer attrition from WFSS's business
The Acquisition requires the formation of a new entity to carry on WFSS's business. This new entity will not carry the Wells Fargo brand which may be familiar to many of WFSS's customers, but instead the Equiniti brand, which may not be so familiar. Many of the contracts between WFSS and its customers contain certain provisions limiting the ability of WFSS to assign contracts with such customers to a new entity, and most of WFSS's existing customers have the right to terminate their contracts with WFSS on relatively short notice. As a result of these factors, the Acquisition, and the separation and integration of WFSS following the Acquisition, may trigger a higher level of customer and revenue attrition. The Acquisition will trigger change of control termination rights in certain of WFSS's customer contracts, inluding in the contract with its largest customers, which, as required by its company policy, is currently soliciting request for fee proposals from WFSS's competitors. Although WFSS does however not expect any of its customers to terminate their contracts, especially due to the costs involved in on-boarding onto a competitor's new technology platform, no assurances can be made that such terminations will not occur. Such customer attrition could have an adverse effect on the business, financial condition and operating results of the Enlarged Group.
1.4 As a result of the Acquisition WFSS, the Group and the Enlarged Group may fail to retain key management or other personnel
The calibre and performance of WFSS's, the Group's and the Enlarged Group’s senior management and other key employees are critical to the success of WFSS, the Group and the Enlarged Group. Such employees have key relationships with the Enlarged Group's customers, knowledge of the Enlarged Group's key IT systems and processes, among other skills, and the Enlarged Group relies on them. Although incentive plans (including retention bonuses) have been put in place for key personnel of WFSS and Equiniti with a view to retaining them after the Acquisition, there can be no assurance that key personnel will not leave the Enlarged Group, including WFSS, either as a result of the Acquisition or for other reasons. Such attrition may take place either before the Acquisition is completed or during the Enlarged Group’s integration process following the Acquisition. Failure of the Enlarged Group to put in place new long term incentive plans/arrangements and otherwise remunerate employees appropriately could result in loss of key personnel. The loss of a significant number of management or key employees could adversely affect both the Enlarged Group’s ability to conduct its businesses (through an inability to execute business operations and strategies effectively) and the value of those businesses.
In this context, it is noted that the Company has agreed to key terms with the current Executive Vice-
41 President and Head of WFSS and other senior management of WFSS, and pursuant to the Asset Purchase Agreement, Equiniti has agreed to maintain certain levels of compensation opportunity and benefits for employees of WFSS after Closing. Failure of these arrangements to retain the Executive Vice-President and Head of WFSS or other key employees of WFSS could have a material adverse effect on the Enlarged Group's financial condition and operating results.
1.5 Management distraction or insufficient management capacity as a result of the Acquisition could have an adverse effect on the business of the Group or the Enlarged Group
The Group will be required to devote significant management attention and resources to integrating WFSS's business practices and operations. Furthermore, the Enlarged Group will operate businesses across multiple time zones and, although regulatory and operational decision-making will often be undertaken by each of the businesses locally, coordinating its decision-making across all the businesses in the Enlarged Group will present challenges to the Enlarged Group’s management team.
Integrating WFSS's business with the rest of the Group presents a number of challenges, including the need to create new back office capacity (covering areas such as finance, compliance, risk and legal support) to replace that previously provided by Wells Fargo, and the need to hire additional staff to provide services previously provided to WFSS by Wells Fargo. In addition Equiniti intends to migrate WFSS's systems to its Sirius platform (see further 3.1 below). There is a risk that these challenges associated with integrating WFSS's business will distract management's attention from managing other parts of the Enlarged Group or that management will have insufficient capacity to meet the demands of integration or to manage the Enlarged Group. As a result the underlying business may not perform in line with management or shareholder expectations.
1.6 Equiniti has limited rights to terminate the Acquisition if an adverse event affects WFSS before Closing
Prior to Closing, Equiniti has limited rights to terminate the Acquisition. Accordingly, if there is an adverse event affecting the value of WFSS or the value of WFSS declines prior to Closing, the value of the WFSS business purchased by the Group may be less than the consideration agreed to be paid by Equiniti and, accordingly, the net assets of the Enlarged Group could be reduced. There can be no assurance that Equiniti would be able to renegotiate the consideration paid for WFSS in such circumstances and Equiniti may therefore pay an amount in excess of market value for WFSS, which could have an adverse effect on the business and financial condition of the Enlarged Group.
1.7 A write-down of goodwill or other intangible assets would adversely affect the Enlarged Group’s financial condition and results of operation
Upon completion of the Acquisition, a significant portion of the difference between the purchase price, WFSS’s net assets at that date and the allocation of costs of the combination to the assets acquired and the liabilities assumed, will be recorded as goodwill. In addition, other intangible assets will be recorded as a result of the purchase price allocation. Under IFRS, goodwill and intangible assets with indefinite lives are not amortised but are tested for impairment annually, or more often if an event or circumstance indicates that any impairment loss may have been incurred. Other intangible assets with a finite life are amortised on a straight-line basis over their estimated useful lives and reviewed for impairment whenever there is an indication of impairment. In particular, if the combination of the businesses meets with unexpected difficulties, or if the business of the Enlarged Group does not develop as expected, or if the value of WFSS proves to be less than the consideration paid by Equiniti, impairment charges may be incurred in the future which could be significant and which could have an adverse effect on the Enlarged Group’s results of operations and financial condition. Such charges may also reduce Equiniti's distributable reserves and thus reduce its ability to pay future dividends.
1.8 Equiniti will have foreign exchange risk related to the purchase price for the Acquisition
Equiniti is obliged to pay the purchase price for the Acquisition in US dollars. It will finance the Acquisition partly through the Rights Issue and partly by borrowing under its debt facilities. The Group's debt facilities permit borrowing in US dollars. However, in relation to the portion of the purchase price which will be financed through the Rights Issue, there could be a period of a number of months between receipt of the
42 proceeds of the RIghts Issue, which will be in pounds sterling, and Equiniti’s obligation to acquire WFSS for payment in US dollars becoming unconditional. During this time, the Group will be exposed to the risk of a significant appreciation in the US dollar against the pound sterling. The Group has entered into currency hedges, in order to limit its total exposure in respect of the Acquisition to adverse currency movements, although there can be no guarantee that such measures will be fully effective.
1.9 Following the Acquisition, a significant portion of the revenues and costs of the Enlarged Group will be denominated in US dollars
Before the Acquisition, substantially all of the revenues and a significant portion of the costs of the Group have been denominated in pounds sterling. Following the Acquisition, a significant portion of the revenues and costs of the Enlarged Group will be denominated in US dollars. Fluctuations in the exchange rate between the pound sterling and the US dollar may lead to fluctuations in the revenues and costs of the Enlarged Group as reported in pounds sterling, which would affect its profits. The Group may enter into hedging arrangements to mitigate this exposure, but there can be no assurance that such arrangements will be effective or available on acceptable terms.
1.10 There can be no assurance that governmental agencies will not seek to impose new or more stringent conditions on the Group in connection with granting regulatory approvals
Certain governmental agencies, such as the New York Department of Financial Services, Office of the Comptroller of the Currency, and the United States Securities and Exchange Commission, may impose conditions on approvals granted by them in connection with the Acquisition. The terms and conditions of approvals that are granted by such authorities may impose additional requirements, limitations or costs on the business of the Enlarged Group. There can be no assurance that these conditions or undertakings will not materially limit the revenues of the Enlarged Group, increase the costs of the Enlarged Group, reduce the ability of the Enlarged Group to achieve cost synergies or lead to the abandonment of the Acquisition.
1.11 If Closing does not occur but the Rights Issue does, Equiniti may not be able to return the proceeds of the Rights Issue to Shareholders efficiently
The Rights Issue is not conditional upon Closing. It is therefore possible that the proceeds of the Rights Issue will be received by Equiniti but not used for the purpose of the Acquisition. In such circumstances, Equiniti intends to return the proceeds of the Rights Issue to Shareholders. There can be no assurance that Equiniti will be able to effect such a return of capital without additional tax or other costs falling on Equiniti or the Shareholders receiving such a return of capital.
1.12 The Company’s actual financial position and results of operations may differ materially from the unaudited pro forma condensed combined financial information included in this Prospectus.
The unaudited pro forma condensed combined financial information contained in this Prospectus is presented for illustrative purposes only and may not be an indication of what the Company’s financial position or results of operations would have been had the Acquisition been completed on the dates indicated. The unaudited pro forma condensed combined financial information has been derived from the audited and unaudited financial statements of the Company and WFSS, and certain adjustments and assumptions have been made in the preparation of such pro forma financial information. The application of purchase accounting for the Acquisition has also required the Company to make preliminary estimates with respect to the fair values of the net assets acquired, and applicable guidance does not require the Company to finalise such fair values until one year after the Acquisition is completed. The finalised carrying values of the net assets acquired may differ materially from the Company's current estimates reflected in the unaudited pro forma condensed combined financial information in the Prospectus. The Company’s future reported results of operations and balance sheet data may therefore differ from those that might be expected based on the unaudited pro forma condensed combined financial information set forth in this Prospectus. In addition, the assumptions used in preparing the pro forma combined financial information may not prove to be accurate, and other factors may affect the Company’s financial condition or results of operations.
43 2 RISKS RELATING TO THE ENLARGED GROUP’S BUSINESS AND THE INDUSTRY IN WHICH IT OPERATES
The risks summarised below exist in relation to the current business of the Group (whether or not the Acquisition is consummated) and, where reference is made to the Enlarged Group, in relation to the existing business of WFSS as it exists now and as it will exist when it becomes part of the Enlarged Group.
Business-related risks
2.1 The Enlarged Group’s results of operations and its business strategy could be adversely affected if the Enlarged Group fails to retain its existing clients, sell additional products and services to its existing clients, introduce new or enhanced products and services or attract and retain new clients
The Enlarged Group may not be able to retain existing clients, pass price increases to its clients, sell additional products or project work for specific services, through effective sales and marketing efforts and services. It may not successfully develop and implement new and enhanced products and services, including through investment by the Enlarged Group in its product developments and IT platforms. It may not be able to attract new clients and procure project work on an ad hoc basis and, accordingly, maintain or increase its revenues. All of these factors could adversely affect the Enlarged Group’s business, financial condition and results of operations. In addition, the Enlarged Group may fail to retain clients if they demand services in jurisdictions where the Enlarged Group has not historically operated and is prevented or delayed from doing so due to regulatory, competition and practical constraints. Such inability or delay could result in a loss of current or potential business.
2.2 The Enlarged Group’s future success depends on its ability to continue to perform and maintain its client contracts. If the Enlarged Group is unable to provide services under its client contracts, if the Enlarged Group has disputes with its clients over the services to be provided under the Enlarged Group’s contracts, or if the services to be provided under the Enlarged Group’s contracts are more demanding than anticipated, the Enlarged Group’s results of operations could be materially adversely affected
The Enlarged Group provides products and services to its clients under contracts, many of which have terms from three to ten years. On renewal, clients will often put the relevant contract out to tender and the Enlarged Group may not win the tender. If the Enlarged Group is unable to renew these contracts or fulfil its obligations under the Enlarged Group’s contracts for any reason, the Enlarged Group risks the loss of revenues and fees under that contract, the potential loss of a client and harm to its reputation. The Enlarged Group may have disputes or disagreements with its clients as to the level of services the Group has agreed to provide which could result in exceptional or irrecoverable costs relating to the contract. Moreover, the fulfilment of the Enlarged Group’s obligations under its contracts could become more costly than initially anticipated, and as a result, the Enlarged Group may experience significant increases in its operating costs that it is unable to pass to its clients, which could have a material adverse effect on its business, financial condition and results of operations. Such disputes or disagreements could also adversely affect the Enlarged Group’s reputation and increase the risk of litigation and regulatory censure.
2.3 The Enlarged Group may not be successful in achieving its strategic goals
The Enlarged Group may not be successful in developing and implementing its strategic plans for its businesses, including cross-selling its products and services to the Enlarged Group’s existing client base and integrating the Enlarged Group’s variety of product offerings efficiently. The Enlarged Group may not be successful in implementing its long term strategy of increasing revenue through focusing on its top clients through its key accounts programme or continue to achieve operating efficiencies through offshoring. If the development or implementation of such plans is not successful, the Enlarged Group may not produce the revenues, margins, earnings or synergies that it needs to be successful and to offset the impact of adverse economic conditions that may develop in the future. The Enlarged Group may also face delays or difficulties in implementing product, process and system improvements, which could adversely affect its ability to successfully compete in the markets the Enlarged Group serves. The existing and future execution of the Group’s strategic and operating plans will, to some extent, also be dependent on external
44 factors that the Enlarged Group cannot control, such as UK, EU and international legislative and regulatory changes, changes in the Enlarged Group’s industry or the industry sectors of the Enlarged Group’s clients and changes in fiscal and monetary policies. In addition, these strategic and operational plans need to be continually reassessed to meet the challenges and needs of the Enlarged Group’s businesses in order for the Enlarged Group to remain competitive. The failure to implement and execute the Enlarged Group’s strategic and operating plans in a cost-effective and timely manner, or at all, realise the cost savings or other benefits or improvements associated with such plans, have financial resources to fund the costs associated with such plans or incur costs in excess of anticipated amounts, or sufficiently assess and reassess these plans could adversely affect the Enlarged Group’s business, financial condition or results of operations.
2.4 The Enlarged Group’s business reputation is important to its continued success and any damage to the Enlarged Group’s reputation, particularly from any failure in its ability to adequately provide its services, could have a material adverse effect on the Enlarged Group’s business
The Enlarged Group’s reputation is important to its business, as the Enlarged Group relies on its relationships with its current, former and potential clients, business referrers, regulators, the investment management and financial services communities and the Enlarged Group’s reputation with its clients, investors, shareholders and employees and within the industries that they serve. The Enlarged Group’s ability to effectively offer its services is fundamental to maintaining the Enlarged Group’s relationship with its clients and its industry-wide reputation. For example, if the Enlarged Group fails to settle outstanding share trades on an accurate and timely basis or execute share dealing instructions, such failure could damage its reputation. Any other damage to the Enlarged Group’s reputation, whether arising from IT systems failure, operational failure, litigation, regulatory, supervisory or enforcement actions, matters affecting the Enlarged Group’s financial reporting or compliance with administrative agencies in the territories in which the Enlarged Group operates, negative publicity, customer service or complaints managements problems, client funds custody issues or the Enlarged Group’s conduct of its business or otherwise, could have a material adverse effect on the Enlarged Group’s ability to obtain new business and retain existing clients, which may ultimately harm its business, financial condition and results of operations.
2.5 The Enlarged Group’s results of operations are impacted by interest rate fluctuations, and any failure to hedge effectively against interest rate changes may adversely affect results of operations
The Enlarged Group generates, and is expected to generate, revenues from interest that accrues on certain client and customer balances. These balances fluctuate with underlying market conditions and with the level of transactional business being conducted by the Enlarged Group at any particular time. This income is subject to interest-rate fluctuations which directly result in variation of the interest-related revenue the Enlarged Group generates from these balances. For Financial Year 2016 and Half Year 2017, the Group earned interest of £11.2 million and £4.7 million, respectively and WFSS earned interest of $7.6 million and $6.5 million, respectively. Following the Acquisition, the Enlarged Group will therefore be exposed to changes in both UK and US interest rates, which may change independently of each other. The Group regularly enters into interest rate swaps to help manage this risk and will typically hedge between one-third and two-thirds of its exposure to short term changes in UK interest rates. Wells Fargo has agreed in the Asset Purchase Agreement to offer WFSS a rate of interest on client balances deposited with Wells Fargo of at least the upper end of the Federal Reserve target range for a period of two years after Closing. In addition, the Enlarged Group intends to enter into hedging arrangements to help manage its exposure to short term changes in US interest rates. Despite these hedging and other arrangements, any variation in interest-rate hedging by the Enlarged Group is likely to impact its interest-related revenues. The interest rate hedge instruments that the Enlarged Group uses to manage some of its exposure to interest rate volatility involve risk, such as the risk that counterparties may fail to honour their obligations under these arrangements. In addition, the accounting treatment of the Enlarged Group’s hedge arrangements may change. Interest-rate fluctuations impacting the Enlarged Group’s interest-related revenue and ineffective hedging by the Enlarged Group against such fluctuations may adversely affect the Enlarged Group’s results of operations.
2.6 The failure of the Enlarged Group’s pension and payment processing business to properly
45 process and remit payments to clients and to tax authorities could result in substantial taxes, penalties and liabilities that could adversely affect the Enlarged Group’s business
Many of the Enlarged Group’s pension payments, payroll processing and employee share plan clients have delegated to the Enlarged Group the responsibility of calculating tax withholdings from payments from pension schemes or as part of payroll processing or calculating guaranteed minimum pension payments. The Enlarged Group’s services process the data received from its clients, calculate tax amounts owed and in many cases remit the funds to payroll and/or the individual. The Enlarged Group’s services also supply the data to payroll so that it can submit a tax return to the appropriate taxing authorities, typically HMRC, when due. Any failure by the Enlarged Group to properly calculate and remit such funds, including its ability to take into account any change in taxes related to share dealing and pension schemes, could result in tax liability. As the party delegated to make payments to HMRC, the Enlarged Group may be liable directly to HMRC for the failure to remit amounts due on a timely basis, which penalties could include the difference in the tax owed, interest accrued on such amounts and additional punitive fines. Even if the Enlarged Group is not directly fined by HMRC for these payments, the Enlarged Group’s contracts with its clients hold the Enlarged Group liable to HMRC as a third party processor for the failure to make such payments. These taxes, penalties and liabilities could, in some cases, be substantial and could adversely affect the Enlarged Group’s reputation, client relationships, business and results of operations.
2.7 Improper disclosure of the Enlarged Group’s clients’ sensitive data or data protected by data protection laws could result in liability and harm the Enlarged Group’s reputation
The Enlarged Group handles and processes increasingly large amounts of potentially sensitive or confidential information for its clients as part of the Enlarged Group’s service offerings, much of which is protected by data protection laws. Whilst the Enlarged Group continuously improves its design and coordination of security controls across its business groups, it is possible that the Enlarged Group’s security controls over personal data, its training of employees and partners on data security, and other data protection practices the Enlarged Group follows may not prevent the improper disclosure of such sensitive information in breach of applicable laws and contracts. Improper disclosure of this information could harm the Enlarged Group’s reputation, lead to legal exposure of the Enlarged Group and its clients or subject the Enlarged Group to liability under laws that protect data, resulting in increased costs or loss of revenues. Perceptions that the Enlarged Group’s services do not adequately protect the privacy of client information could materially adversely affect its business, financial condition and results of operations.
2.8 A breach of the Enlarged Group’s IT security, loss of client data or system disruption could adversely affect its business and reputation
The Enlarged Group’s business is dependent on a range of in-house data processing systems, including but not limited to Sirius, the Enlarged Group’s primary Shareholder Solutions platform, Xanite, the Enlarged Group’s custody and settlement platform, Compendia, the Enlarged Group’s pension administration system and payroll systems, Charter MMX, the Enlarged Group’s complaint system, PayFac, one of the Enlarged Group’s payment systems, Pancredit's and The Nostrum Group Limited's technology platforms which together provide the Enlarged Group’s loan-servicing system, Equiniti KYC Solutions' client on-boarding and AML platform KYCNET, Riskfactor's fraud detection platform EQ RIskfactor and the Enlarged Group’s human resources and administration systems. The Enlarged Group uses these and other systems to provide services to its clients. The Enlarged Group relies on these systems to process, on a daily basis, a large number of complicated transactions. Any material security breach in the Enlarged Group’s business processes or systems has the potential to impact its systems, client information and financial reporting capabilities which could result in the potential loss of business and the Enlarged Group’s ability to accurately report financial results. If any of these systems fail to operate properly or become disabled even for a brief period of time, it could result in loss of client data or unauthorised access to such data and the Enlarged Group could suffer financial loss, a disruption of the Enlarged Group’s businesses, liability to clients, regulatory intervention or damage to the Enlarged Group’s reputation. Any material failure in the Enlarged Group’s payroll system could result in an inability to pay the Enlarged Group’s clients’ employees, which could in turn lead to reputational damage. In addition, any issue of data privacy as it relates to unauthorised access to or loss of client and/or employee information could result in the potential loss of business, damage to the Enlarged Group’s market reputation, litigation and regulatory investigation and penalties. Although the Enlarged Group has made investments in the security of its IT systems and taken
46 efforts to improve the controls within its IT systems and its information security, the Enlarged Group may need to further enhance systems capability and resilience and the Enlarged Group may be subject to future attempts to breach its security or unauthorised access to confidential, sensitive or proprietary information. The Enlarged Group’s websites, in particular Selftrade, Shareview and Selector, could potentially suffer cyber-attacks, which could disrupt the Enlarged Group’s IT systems and impair the Enlarged Group’s ability to provide online services. In addition, in the event of a catastrophic occurrence, either natural or man- made, the Enlarged Group’s ability to protect its infrastructure, including client data, and maintain ongoing operations could be significantly impaired.
2.9 The Group may not be able to successfully integrate acquired businesses or realise the benefits the Group anticipates from any acquisition
Since the Group’s formation in 2007, it has grown significantly through a combination of acquisitions and organic growth (including the Acquisition). The Enlarged Group will continue to seek appropriate opportunities and acquire businesses that the Directors believe are strategically beneficial, and some acquisition targets may be of a significant size compared to the Enlarged Group. The Enlarged Group may fail to identify suitable acquisition candidates, and may not be able to complete any acquisition or business arrangement that it pursues, or is pursuing, on favourable terms, and any acquisitions or business arrangement may fail to ultimately provide the anticipated benefits to the Enlarged Group’s business. In addition, the annual revenue and EBITDA earned by acquired businesses prior to the Enlarged Group’s acquisition may fail to recur and as a result the financial results of any acquired business may fail to contribute to the Enlarged Group’s consolidated results in line with expectations.
Any acquisitions, if consummated, might require the Enlarged Group to incur additional indebtedness or raise additional equity financing. There is a risk that, with respect to the Enlarged Group’s recent acquisitions or future acquisitions, the Group may fail to:
• realise all or any of the anticipated revenue, cost or client relationship benefits;
• successfully integrate the businesses with its operations;
• maintain effective internal controls to deal with increasingly complex system requirements and assimilate acquired businesses into the Group’s control system;
• identify and mitigate business risks inherent to the acquired businesses;
• retain key management of acquired businesses; and/or
• manage such integration without adversely affecting its existing operations, client relationships and reputation.
Any failure to successfully integrate acquired businesses may have a material adverse effect on the Enlarged Group’s business, financial condition and results of operations. Additionally, any acquisitions, even if successful, may divert significant management resources required to address such integration or other operational issues. Despite undertaking reasonable due diligence into acquired businesses, the Enlarged Group may encounter unforeseen obstacles or costs in such integration or may be subject to material liabilities of an acquired company that are unknown to the Enlarged Group at the time of acquisition. Any of these issues may have a material and adverse effect on the Enlarged Group’s business, financial condition and results of operations.
2.10 The Enlarged Group may infringe the intellectual property rights of third parties, which could adversely affect the Enlarged Group’s business, results of operations and financial condition
The proprietary IT platforms and intellectual property of the Enlarged Group are key to its business and any failure by the Enlarged Group to operate without infringing upon patents and proprietary rights held by third parties could affect the Enlarged Group’s ability to compete effectively in the market and deliver services to the client as well as incur significant expenses. The Enlarged Group relies on a combination of contractual provisions, confidentiality procedures and copyright, trademark and service mark laws to protect the proprietary aspects of its brands, technology, data and estimates. The Enlarged Group’s data
47 could be subject to unauthorised use, misappropriation or disclosure, despite the Enlarged Group having required its employees, consultants, clients and collaborators to enter into confidentiality agreements.
Furthermore, litigation may be necessary to enforce the Enlarged Group’s intellectual property rights and to determine the validity and scope of its proprietary rights. In addition, the growing need for global data, along with increased competition and technological advances, puts increasing pressure on the Enlarged Group to share its intellectual property for client applications. Policing unauthorised use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available at all or within an acceptable time frame. Any future litigation, regardless of outcome, could result in substantial expense and diversion of resources with no assurance of success and could adversely affect the Enlarged Group’s business, results of operations and financial condition.
2.11 Litigation and governmental inquiries, investigations and proceedings may adversely affect the Group’s financial results
The Enlarged Group may become subject to claims (such as employee-related disputes, intellectual property disputes or contractual disputes) or judicial and administrative proceedings or enquiries from regulatory bodies and administrative agencies. Such claims, proceedings and enquiries are a more common feature of business in the United States than they are in the UK, as a result of which the Enlarged Group could face more frequent or costly legal disputes after the Acquisition. These claims, proceedings and enquiries could result in judgments, settlements or unanticipated costs which could materially adversely affect the Enlarged Group. Such proceedings could incur charges that exceed present or future accruals or insurance coverage and be expensive and time consuming, divert management resources and harm the Enlarged Group’s reputation.
In addition, inquiries from regulatory bodies and administrative agencies, in relation to which the Group’s practice is to co-operate, may result in audits, reviews and investigations by regulatory authorities. Refer to Section C (Regulatory overview) of Part X (Information on the Group and the Industry in which it operates). An adverse outcome of any investigation or inquiry by a relevant regulatory or administrative agency may have a material adverse effect on the Group and result in:
• the institution of administrative, civil or criminal proceedings;
• sanctions and the payment of fines and penalties, including potential loss of regulatory licences depending on the severity and scale of any regulatory issues;
• changes in personnel;
• the Enlarged Group’s inability to conduct business due to the loss of its regulatory licence or restrictions or conditions being placed on the Group’s activities; and
• increased review and scrutiny of its services by its clients, regulatory authorities, the media and others.
2.12 The Group has underfunded pension plans, which may require future pension contributions that could impact its liquidity and financial condition
The Group operates three defined benefit pension schemes, all of which are now closed to new members and, apart from a small sub-section of the Paymaster (1836) Limited scheme, are closed to future accrual of benefits. For accounting purposes, the projected benefit obligations of the the Equiniti ICS Scheme Pension Scheme, Paymaster Pension Scheme and MyCSP Pension Scheme (together the “Defined Benefit Schemes”) exceeded the fair value of the plan assets by £1.6 million, £20.9 million and £1.4 million, respectively, as at 31 December 2016. This is primarily as a result of historically low gilt yields and, to a lesser extent, lower than expected returns on assets. The actuarial methodology and assumptions for the periodic actuarial valuations for cash funding purposes may be different from those used for funding deficit purposes. The current profit and loss costs in respect of future accrual for the Paymaster Pension Scheme and the Equiniti ICS Pension Scheme amount to £0.8 million per annum and £0.2 million per annum respectively which is in line with the Directors’ expectation of future deficit contributions. Higher contributions may be required to the Defined Benefit Schemes in the future as a result of valuation
48 discussions with the pension trustees. The most recent triennial funding valuation of the Paymaster Pension Scheme was carried out at 5 April 2015. The most recent triennial funding valuation of the Equiniti ICS Pension Scheme was carried out at 5 April 2015. The most recent triennial funding valuation of the MyCSP Pension Scheme was carried out at 31 December 2012.
Among the key assumptions inherent in the Group’s actuarially calculated pension plan obligation and projected pension plan expense are mortality rates, the discount rate and the expected long-term rate of return on plan assets. If interest rates, gilt rates and return on invested plan assets are lower than assumed by the scheme actuary due to changing market or economic conditions, or if scheme members have longer than assumed life expectancy, the Group’s obligations to provide further contributions to the Defined Benefit Schemes could increase materially. Some of the Group’s employees may be entitled to enhanced pension payments in the event of redundancy. The size of future required pension contributions could result in the Group dedicating an increasing level of its cash flows from operations to make the contributions which could negatively impact the Group’s liquidity and financial position.
2.13 There are risks relating to the powers of the UK pensions regulator (the “Pensions Regulator”) under the Pensions Act 2004
As the Group operates defined benefit pension plans in the UK, there are risks to the Group relating to the powers of the Pensions Regulator under the Pensions Act 2004. The Pensions Regulator has power in certain circumstances to issue contribution notices or financial support directions to any member of the Group which, if issued, could result in significant liabilities arising on Group members not otherwise directly liable for the Group’s pension obligations. The Pensions Regulator may, subject to a reasonableness test, issue a contribution notice (“CN”) to any member of the Group or to any person who is connected with or an associate of any employer in the Defined Benefit Schemes in respect of an act or omission, where one of the main purposes of the act was to avoid pension liabilities or where the impact of the act was materially detrimental to the Defined Benefit Schemes and where there has been no appropriate mitigation. If the Pensions Regulator considers that any of the employers participating in the Defined Benefit Schemes are “insufficiently resourced” or a “service company” it may, subject to a reasonableness test, impose a financial support direction (“FSD”) requiring any member of the Group or any person associated or connected with the employer in the Defined Benefit Schemes, to guarantee, or provide other financial support in respect of, the relevant scheme’s underfunding or to make a contribution to the scheme.
Liabilities imposed under a CN or a FSD may be for an amount up to the difference between the value of the assets of the Defined Benefit Scheme concerned and the cost of buying out the benefits of all beneficiaries of the relevant scheme.
In practice, the risk of a CN or a FSD being imposed may inhibit the Group’s freedom to restructure itself or undertake certain corporate activities without first seeking the agreement of the trustees of the Defined Benefit Schemes. Additional security may need to be provided to the trustees of the Defined Benefit Schemes before certain corporate activities can be undertaken (such as the payment of an unusual dividend) and any additional funding of the Defined Benefit Schemes may have an adverse effect on the Group’s financial condition and the results of its operations.
2.14 Failure to maintain required levels of financial stability pursuant to the Enlarged Group’s client contracts may materially adversely affect the Enlarged Group’s business
Certain of the Enlarged Group’s client contracts require the Enlarged Group to maintain certain levels of financial stability. For example, government procurement contracts often require the Enlarged Group to maintain certain credit ratings and to meet material financial covenants and the Enlarged Group may be required to provide parent company guarantees to certain clients as well. The Enlarged Group’s inability to comply with these provisions could have contractual consequences that may range from changes in its fee structure to granting clients the right to early contract termination. The Enlarged Group is also party to some private sector contracts that include a potential termination trigger in the event that the Enlarged Group’s credit rating falls below a certain agreed upon threshold. The Enlarged Group may enter into additional client contracts with similar financial stability provisions in the future, and the Enlarged Group may not be able to comply with such provisions, which could materially adversely affect the Enlarged Group’s business, financial condition and results of operations.
49 2.15 The Enlarged Group’s success is dependent on the retention and acquisition of talented people and the skills and abilities of its management team, key account relationship managers and key personnel
The Enlarged Group’s business depends on the efforts, abilities and expertise of its senior executives and other senior management, key account relationship managers and key personnel across all its business units and, in particular, its key IT personnel. These individuals are important to the Enlarged Group’s success because they have been instrumental in setting its strategic direction, operating the Enlarged Group’s business, identifying, recruiting and training key personnel and identifying business opportunities. The loss of one or more of these key individuals could impair the Enlarged Group’s business and development until qualified replacements are found. The Enlarged Group’s ability to grow and provide its clients with competitive services depends in part on the Enlarged Group’s ability to attract and retain motivated people with the skills to serve its clients and failure to do so could have a material adverse effect on the Enlarged Group’s business, financial condition and results of operations.
2.16 Increases in labour costs, potential labour disputes and work stoppages at the Group’s facilities could adversely affect its financial performance
The Group’s financial performance is affected by the availability of qualified personnel and the cost of labour. The Group has approximately 4478 employees. There is currently a recognition agreement in place with the unions Unite and PCS: the agreement with Unite provides for collective bargaining and negotiation; however the Group’s agreement with PCS states that there is no conciliation agreement and therefore matters of pay and employment terms and conditions are at the discretion of Paymaster (1836) Limited and not the subject of negotiation with PCS. From time to time, the Group has had disagreements with unions, but no such disagreements have resulted in work stoppages. If the Group is unable to maintain satisfactory labour agreements with its unionised employees, the Group could experience a disruption of its operations, which could impede the Group’s ability to provide services to its clients. In addition, the Group’s non-unionised labour force may become subject to labour union organising efforts, which could cause the Group to incur additional labour costs and increase the related risks the Group faces.
2.17 The Enlarged Group depends on vendors, suppliers and other third parties to deliver its products and services. The loss of any of these contractors could adversely affect the Enlarged Group’s results of operations
The Enlarged Group’s business is dependent on a number of vendors, suppliers and other third-parties and its ability to continue to provide certain services in the manner in which the Enlarged Group currently delivers them may be affected by actions taken by suppliers and other third parties. These suppliers include Experian,which provides bankers' automatic clearing services for payments; CREST, which provides settlement services for the Group's share dealing services; Citibank, which provides overseas payment services; HP, which provides IT hardware support; Microsoft, which provides software and application support; and BT, which provides the majority of Equiniti's communications through broadband and telephony. Any adverse change in the Enlarged Group’s relationship with these parties or its inability to establish alternatives to these relationships in a timely and effective manner could adversely affect the Enlarged Group’s business and results of operations.
2.18 The Enlarged Group’s estimates, assumptions and judgments underlying its stated financial objectives, growth rates and other forward-looking performance measures may prove inaccurate, and as a result the Enlarged Group may be unable to successfully meet its objectives or achieve desired financial results
Various estimates are presented in this Prospectus relating to, for example, market size, market share and market position data, expansion, performance and growth forecasts. The information in respect of these objectives, targets and expected future contracts represents Directors’ estimates only and should not be relied upon as to predict or forecast actual results or future events or to represent exact quantities. In addition, the Directors believe that the Enlarged Group has multiple routes to growth. This belief is based on estimated data and one or more of the routes to growth could be ineffective and the financial results generated by the services provided by the Enlarged Group’s business lines could decline due to price pressures or increased competition from the Enlarged Group’s competitors leading to a loss of existing clients and inability of the Enlarged Group to attract new clients. In addition, the Directors believe that the
50 markets served by the Enlarged Group will grow. This belief is based on a number of assumptions, such as regulatory changes, technological advances, shifts in consumer behaviour or changes in the needs and strategies of the Enlarged Group’s customers which, if they prove to be incorrect, could lead to a decline in the markets served by the Enlarged Group instead.
The aforementioned estimates and beliefs reflect a number of assumptions relating to future revenues, operating expenses, capital expenditures, customer demand, market size and growth assumptions and forecasts, current fiscal policies and regulatory regimes, any of which may not be borne out due to both known and unforeseen risks, uncertainties and other important factors beyond the control of the Enlarged Group that could affect actual performance. Such forecasts, assumptions, estimates and valuations carry an inherent degree of uncertainty and may not take into account all relevant considerations. If the assumptions upon which the estimated data is based prove to be inaccurate, this may indicate lower than expected growth rates or a less favourable position of the Enlarged Group in the market, which in turn may materially adversely affect the Enlarged Group’s financial condition and results of operations.
2.19 Inability of, or any delay by, the Group in making international payments could result in loss of current or potential business thereby adversely affecting the Group’s revenues and results of operations
The Group provides a service which allows corporate clients to make payments to overseas employees and suppliers, through its International Payments Business, in the Investment Solutions division. Restrictions on money transmission to certain territories can change from time to time and the Group may be affected by the changes in such restrictions. The inability of, or any delay by, the Group in making such international payments could affect its ability to provide the payment services its clients require and result in a loss of current or potential business, thereby adversely affecting the Group’s revenues and results of operations.
Industry-related risks
2.20 General economic factors could adversely affect the Enlarged Group’s financial performance and other aspects of its business
General economic conditions and trade and monetary and fiscal policies impact the Enlarged Group’s business and the industries the Enlarged Group serves. In particular, as the Enlarged Group is expected to derive substantially all of its revenue and profits from the UK and the US, its revenues and profits may be impacted by the prevailing economic conditions in the UK and the US.
Merger and acquisition activities can also lead to a reduction in the number of shareholders serviced by the Enlarged Group if it is not the registrar of the combined entity. Additionally, if the number of shareholders of listed companies in the UK and the US decreases at a rate faster than currently expected by the Enlarged Group, this could lead to a reduction in revenue of the share registration services provided by the Enlarged Group and affect the Enlarged Group’s financial performance.
Adverse changes in the global economic conditions and uncertainties could also impact the Enlarged Group or its business partners and clients by reducing access to capital or credit, increasing cost of debt and limiting the ability to manage interest rate risk. A change in monetary or fiscal policy resulting in reduced liquidity could also increase the risk of bankruptcy of parties with which the Enlarged Group does business.
2.21 The withdrawal of the United Kingdom from the European Union may have a negative effect on global economic conditions, financial markets and the business of the Group
In June 2016, a referendum was held in the UK which resulted in a majority in favour of the United Kingdom withdrawing from the European Union. Formal notice of such withdrawal was given in March 2017. The terms of withdrawal will be negotiated over a period which is expected to extend at least until March 2019. As a result, there is significant uncertainty about the future relationship between the United Kingdom, the European Union and its other member states. While the Group has no significant business outside the United Kingdom at present, these developments have had, and are likely to continue to have, an adverse effect on global financial markets and economic conditions. This may adversely affect the Group's business through depressing transaction volumes, in particular of larger corporate transactions which contribute
51 significantly to the Group's revenues from time to time. In addition, many of the regulations to which the Group is subject (see Section C: Regulatory Overview of Part X) are derived from legislation made at the European Union level. It is unclear whether, in the medium term, the United Kingdom may seek to impose additional or divergent regulation on businesses such as the Group, and, if so, what the effect of such regulation on the business of the Group would be.
2.22 Reversal of the outsourcing trend or a reduction in spending on outsourcing could adversely affect the financial performance of the Enlarged Group
UK and US corporate clients and government agencies are increasingly focusing on operational efficiencies and optimising their core capabilities. A facilitator for these initiatives is outsourcing non-core functions to simplify operations and reduce fixed cost bases. In addition, the Directors believe that increasing regulatory scrutiny, for example in the financial services industry, is likely to drive further outsourcing of middle and back office functions. The Directors believe that the demand for self-service driving technology enabled outsourcing is likely to increase as stakeholders want to manage activities themselves. The Directors believe that these macro trends are likely to benefit the Enlarged Group and increase its addressable markets. Any reversal of these macro trends and therefore outsourcing, or a reduction in spending on outsourcing, could adversely affect the Enlarged Group’s financial performance.
2.23 The Enlarged Group’s results of operations are impacted by variable corporate actions in any given period
The Enlarged Group also receives income from corporate actions taken by its clients, such as corporate reorganisations, equity offerings and merger and acquisition activity. In particular, initial public offerings which include retail offerings increase the revenue generated by the Enlarged Group and result in the continuing demand for the Enlarged Group’s services, such as maintaining share registers of the listed companies. These corporate actions vary both in size and quantity and fluctuate based on factors outside the Enlarged Group’s control, including macro-economic cycles. As a result, a proportion of Group’s income has been and is likely to remain highly cyclical, and any decline in corporate actions taken could adversely impact the Enlarged Group’s results of operations.
2.24 A large proportion of the Enlarged Group’s services and product offerings are dependent on the banking industry, and any material failure in banking systems would materially adversely affect the Enlarged Group’s ability to conduct its business
The Enlarged Group depends on large banks to execute payment transactions as part of several of the Enlarged Group’s services, including pension payments, payroll services and share-related payments services. The risk of failure of the transaction payment systems on a periodic basis could cause losses to the Enlarged Group. In addition, a systematic shutdown of the banking industry would impede the Enlarged Group’s ability to process and settle funds on behalf of clients receiving any of the Enlarged Group’s payments services and could have an adverse impact on its financial results and liquidity. In the UK, the Group depends on Lloyds Banking Group for the savings carrier service for its SAYE schemes. If Lloyds Banking Group were to cease providing its services due to a bankruptcy, liquidation or otherwise, the Group’s ability to administer SAYE schemes would be limited until the Group found a replacement institution, which may take time and the Group may not be able to agree equally favourable terms with such replacement institution. The Enlarged Group expects to continue to use Wells Fargo for various banking services in the United States, and would have to find another such provider (which might not be prepared to offer services on as favourable terms as Wells Fargo) if Wells Fargo were to cease to provide such services. In addition, the Enlarged Group must continue to undertake ongoing risk assessment of each banking relationship in case of risk of failure or bankruptcy or liquidation of other institutions. This could materially adversely affect the Enlarged Group’s reputation and its business, financial condition and financial performance.
2.25 The markets the Enlarged Group serves are competitive and the Enlarged Group’s clients may seek to conduct the services the Enlarged Group provides in-house or engage one of its competitors, which could lead to a significant decrease in the demand for the Enlarged Group’s services and could adversely affect the Enlarged Group’s business
The markets for the Enlarged Group’s businesses are competitive. The Enlarged Group faces competition
52 from a variety of companies, and some of its competitors have greater financial resources and a larger geographic scope than the Enlarged Group does, which, in turn, provides them with additional leverage in the competition for contracts and greater ability to grow their businesses and product offerings through acquisitions, invest in ensuring compliance with regulatory oversight of the markets and in developing new technology. By providing services that the Enlarged Group does not provide, these competitors have the advantage of being able to bundle their products and services together and present them to existing clients with whom they have established relationships. In addition, current competitors could decide to focus greater resources on the Enlarged Group’s markets, which could intensify the highly competitive conditions that already exist. These existing competitors could offer or introduce new technologies or a different service model, or could treat the services to be provided by one of the Enlarged Group’s businesses as one component of a larger product or service offering. These developments could enable new and existing competitors to offer similar products or services at reduced prices and/or increased service levels. Furthermore, clients may for various reasons seek to bring certain services in-house. If this were to occur, it could lead to a decline in demand for the Enlarged Group’s services and negatively impact the Enlarged Group’s results of operations. Any of these or other similar developments could adversely affect the Enlarged Group’s business, financial condition and results of operations.
2.26 The Enlarged Group’s ability to adapt its technology to changing industry and client needs or trends may affect its competitiveness or demand for its services, which may adversely affect its results of operations
Changes in technology may limit the competiveness of and demand for the Enlarged Group’s services. The Enlarged Group’s businesses operate in industries that are subject to technological advancements, developing industry standards and changing client needs and preferences. Also, the Enlarged Group’s clients continue to adopt new technology for business and personal uses. The Enlarged Group must anticipate and respond to these industry and client changes in order to remain competitive within its relative markets. If the Enlarged Group is unable to successfully maintain or deliver new products and service resilience on its existing platforms or such platform changes cannot be brought online in a timely manner, the Enlarged Group’s future growth and competitiveness in its markets may be at risk.
2.27 The Enlarged Group’s results of operations could be affected by natural disasters, war, acts of terrorism and other events in the locations in which the Enlarged Group or its suppliers operate
A natural disaster or other events outside of the Enlarged Group’s control, such as war and terrorism (including in relation to its offshored operations in India), that result in a prolonged disruption to the Enlarged Group’s operations, or the operations of its suppliers, may adversely affect the Enlarged Group’s business, financial condition and results of operations. The Enlarged Group’s business continuity, disaster recovery plans and strategies cover all material platforms and services but may not be successful in mitigating the effects of a catastrophic occurrence, such as fire, flood, tornado, power loss or telecommunications failures for some of the Enlarged Group’s systems.
Regulatory risks
2.28 The Group operates in an evolving regulatory environment which is subject to intensive regulation. Major changes in laws and regulations could adversely affect the Group’s business, financial position, results of operations and prospects
The regulated environment in which the Group operates gives rise to significant legal and financial compliance costs and management time. Non-compliance could result in monetary and reputational damage, all of which could have an adverse effect on the Group’s business, financial position and results of operations. The Group conducts its business in an environment that is highly regulated by financial services laws and regulations which is evolving, particularly following the recent global economic crisis and as a result of political concerns, at national, EU and international levels, about the operations of the financial services industry.
The financial services regulatory industry continues to be a focus of significant regulatory scrutiny. This has led to a more intensive approach to supervision, oversight, increased expectations, enhanced requirements and enforcement and an increasing frequency and amount of data requests and visits from relevant
53 supervisory authorities. For example, firms regulated by the Markets in Financial Instruments directive (2004/39/EC), as amended, supplemented or replaced from time to time ("MiFID"), such as Equiniti Financial Services Limited, must comply with transaction reporting requirements when they execute a reportable transaction. The FCA has made clear that failure to comply with its transaction reporting requirements represents a serious breach of its rules which may result in enforcement action.
Implementing and monitoring compliance with applicable requirements means that the Group must continue to have staff dedicated to these activities and to spend monetary and management resources and to create sufficient awareness with business staff of the Regulated Entities of the products and services the Regulated Entities offer and the rules applicable to them. Any delays or errors in implementing regulatory compliance could lead to substantial monetary damages and fines, a negative effect on the Group’s reputation, increased regulatory compliance requirements or other potential regulatory restrictions on the Regulated Entities’ businesses, enforced suspension of operations and in extreme cases, withdrawal of licences or authorisations to operate particular businesses or criminal prosecution in certain circumstances.
The introduction of new laws and regulations could significantly impact the manner in which the Group is able to operate, particularly in situations where EU regulatory initiatives have direct impact in the UK. New requirements may adversely affect the Group’s business, capital and risk management strategies and may result in the Group deciding to modify its capital and funding structures or not expand in certain business areas, despite their otherwise attractive potential. Recent and proposed regulatory changes have, and will have, an effect on the regulatory environment within which the Group operates. These include, but are not limited to, the following:
• The revised EU Directive on Markets in Financial Instruments (2014/65/EU) and the accompanying Regulation (Regulation 600/2014) (together, “MiFID II”) replaces, extends and improves existing European rules (including those in force in the UK) on markets in financial instruments, giving more extensive powers to supervisory authorities (including the ability to ban products or services), increasing market infrastructure and transaction reporting requirements, more robust investor protection, increasing both equity and non-equity market transparency, and introducing the possibility to impose higher fines in case of infringement of its requirements. Equiniti Financial Services Limited is currently operating a project to enable effective compliance with MIFID II.
• The European Union has agreed to implement the General Data Protection Regulation (“GDPR”) on 25 May 2018. The GDPR is designed to bolster individuals’ privacy rights and is expected to have widespread implications for organisations which hold and process personal data, along with a wider suite of privacy legislation both with the UK and EU including the E-Privacy Directive and the Privacy and Electronic Communications Regulation. The GDPR contains Articles which increase the scope of regulatory requirement and increase the sanctions for non-compliance. The GDPR also retains restrictions on transfers of personal data outside of the EEA, which may restrict the Group’s ability to transfer personal data to certain territories, including the United States and India. The UK Government has committed to fully implementing the GDPR and seeking to maintain equivalent requirements once the UK has left the European Union (the detail of any such continuation is a political matter and is currently unknown).
• The FCA will extend the Senior Management and Certification Regime ("SMCR") framework to firms including Equiniti Financial Services Limited. This regime will replace the existing Approved Person regime. The SMCR will require explicit accountability for certain executives and senior management who hold positions with Equiniti Financial Services Limited, but also will include those who directly support and oversee the firm from within the Group. The exact scope, form and timing of these requirements is currently being considered by the FCA although it is expected that the SMCR will apply to all FCA regulated firms by the end of 2018.
• Revisions to the Payment Services Regulations 2009 (“PSRs”) will need to take place to reflect the revised directive on payment services (Directive (EU) 2015/2366) (“PSD2”). PSD2 came into force on 12 January 2016 and member states, including the UK, are required to transpose it into national law by 13 January 2018. HM Treasury consulted on the 'Implementation of the Revised EU Payment Services Directive II' and also published the draft Payment Services Regulations 2017. On 19 July 2017, HM Treasury published its response to the consultation and on the same date, the Payment Services Regulations 2017 (“PSRs 2017”) were laid before Parliament. Key changes include the
54 requirement for account Information Services (“AIS”) and payment Initiation services (“PIS”) to now be regulated, new security requirements and increased focus on consumer protection. There are also changes to the scope of the conduct of business rules and the list of exemptions.
• Regulated Group entities (including Equiniti Financial Services Limited) could be subject to capital requirements that could in turn impact the Group’s operations. Changes to the capital requirements under which those entities operate could hinder growth by prescribing more stringent requirements than those with which they currently comply. UK regulators and international policymakers are reviewing a number of areas of the regulatory capital framework, with a view to making changes as appropriate. The package of reforms developed by the Basel Committee on Banking Supervision to the regulatory capital framework (“Basel III”) (including additional capital requirements, higher capital ratios, more stringent eligibility requirements for capital instruments, a new leverage ratio and liquidity requirements) was implemented in the EEA through the Capital Requirements Regulation (the “CRR”) and the Capital Requirements Directive (the “CRD”) (together, “CRD IV”). The CRR established a single set of harmonized prudential rules which apply directly to all credit institutions and investment firms in the EEA, with the directive containing fewer prescriptive provisions to be transposed into national law. Full implementation began from 1 January 2014, with particular elements being phased in over a period of time, to be fully effective by 2024.
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLR 2017”) came into force on 26 June 2017 and implemented the EU’s fourth Directive on Money Laundering. The MLR 2017 replaces the Money Laundering Regulations 2007 that were previously in force. The MLR 2017 places a requirement on any in-scope Group entity carrying on business in the UK in the financial services sector to adopt a more risk-based approach towards anti-money laundering, in particular how they conduct due diligence.
• The FSMA established the Financial Services Compensation Scheme ("FSCS"), which pays compensation to eligible customers of authorized financial services firms which are unable, or are likely to be unable, to pay claims against them. Regulated Group entities (including Equiniti Financial Services Limited) are required to pay levies to the FSCS to enable the scheme to meet claims against it. It is possible that future FSCS levies may differ from those that have been incurred historically, and that future reforms could result in regulated Group entities incurring additional costs and liabilities, which may adversely affect the Group’s business, financial conditions and/or results of operations.
2.29 The Group operates in a regulatory environment where the regulator is increasing its supervisory oversight. Any supervisory or enforcement action could adversely affect the Group’s business, financial position, results of operations and prospects
The Directors believe that oversight and scrutiny by the FCA of financial services firms generally has increased in recent years. This has, in general, led to more supervisory and interventional investigations and resultant enforcement action as well as an increase in the amount of fines. If this trend continues, the negative effect to the Group of non-compliance could be more pronounced in the future than a similar event of non-compliance would have had in the past. Non-compliance with applicable regulation may also lead to civil liability towards affected clients and, increasingly, third parties. The Directors are aware of increased thematic interest from the FCA in the area of conduct, capital adequacy and client assets (CASS) and have had dialogue with the FCA on each subject.
The FCA has various powers under FSMA which include the power to impose fines, to vary a regulated firm’s permissions to carry on regulated activities, to issue public censures, to make restitution orders and to suspend or terminate a regulated firm’s authorisation. The FCA also has product intervention powers which include the power to ban products or services and it can also direct a regulated firm to withdraw or amend an advertisement. In addition, the FCA may take action against approved persons which similarly includes the power to impose fines, issue public censures, withdraw approval and issue an order prohibiting them from working in the financial services industry. The FCA has the power to increase Equiniti Financial Services Limited’s existing mandatory regulatory capital requirements and change the approach it uses to calculate its capital requirements which could lead to an increase in costs of compliance for EFSL.
The FCA has increased its use of skilled person reviews under section 166 of FSMA as one of its
55 supervisory tools for addressing specific areas of concern about potential weaknesses or failings in a firm’s practices. A skilled person review is one of the regulatory tools the FCA can employ under section 166 FSMA which gives the FCA the right to require an authorised firm to appoint skilled persons to review specific elements of the firm's activities, and provide the resulting confidential report to the FCA. The information gathered from the skilled person review can be used for the basis for enforcement action by the FCA if the weaknesses or failings are considered to be material by the FCA, and it is the Directors’ view that such section 166 reviews will be a preferred method of regulatory intervention for the foreseeable future.
The FCA is increasingly taking an intensive and intrusive approach to identifying and mitigating CASS risks and is seeking to increase firms’ compliance and awareness of CASS rules. As a result, the FCA is increasing the supervision of firms holding client money and safe custody of assets through more intrusive visits to firms, thematic projects and desk-based reviews, actions initiated through audit information and in some cases, section 166 reviews. Where firm failings are identified the FCA may take enforcement action including the imposition of fines, limitation of permissions or cancellation of permissions, which could have a materially adverse effect on the operations and business of the Group.
Consolidated supervision rules may in the future be considered by the FCA in respect to the Group. There is a risk that the FCA may seek to calculate the regulatory capital requirements across the Group and therefore impose consolidated prudential supervision which could materially increase regulatory capital requirements and affect the Group’s financial performance.
2.30 Applicable regulatory requirements in the UK may delay, deter or prevent any future change of control of the FCA regulated entities in the Group, which may in turn reduce the value of the Ordinary Shares
A number of change in control regimes exist in the UK, to which the Regulated Entities are subject. Prior approval of the FCA under section 178 of FSMA (for Equiniti Financial Services Limited, Paymaster (1836) Limited, The Nostrum Group Limited and Marketing Source Limited) or Article 32 of the PSRs (for Paymaster (1836) Limited and TransGlobal Payment Solutions Limited) is required of any person proposing to acquire or increase “control” or a “qualifying holding” (respectively) of an FCA authorised person. No change in control approvals apply to firms only registered with the FCA for anti-money laundering (which applies to Equiniti Limited).
For FCA regulated entities (excluding authorised payment institutions), the FCA has 60 working days from the day on which it acknowledges the receipt of a completed change of control notice to determine whether to approve the new controller or object to the transaction. However, this period may (subject to limits) cease to run while the FCA is awaiting the provision of further information that it may request from an applicant during the approval process. If approval is given, it may be given unconditionally or subject to such conditions as the FCA considers appropriate.
For FCA authorised payment institutions, the FCA expects to be notified at least 28 days in advance of the proposed change in control and will contact the proposed controller if it has any concerns following notification.
These laws may change and may, in their current or any future form, discourage potential future acquisition proposals and may delay, deter or prevent a change of control of the group’s FCA regulated entities. This may, in turn, reduce the value of the Ordinary Shares.
2.31 Failure to comply with laws to combat fraud, money laundering, bribery and corruption and terrorist financing could lead to civil or criminal penalties or harm the Enlarged Group’s reputation and could disrupt the Enlarged Group’s business and result in a material adverse effect on the Enlarged Group’s business, financial position and results of operations
Combating fraud, money laundering, bribery and corruption and terrorist financing has been a major focus of government policy relating to financial institutions in recent years. These laws and regulations impose obligations on the Enlarged Group to maintain appropriate policies, procedures and controls to detect and prevent money laundering and terrorist financing, report unusual transactions and suspicions of money laundering and terrorist financing and combat bribery. Even though its staff are periodically trained on
56 these subjects and appropriate measures are implemented to support staff, the Enlarged Group depends on sufficient awareness and compliance by its staff of these relevant laws and regulations for the execution of its policies, procedures and controls.
Despite the Enlarged Group’s compliance programmes and internal control policies and procedures, a risk remains that the Enlarged Group’s clients, employees or agents might commit reckless or negligent acts, or that they might violate laws, regulations or policies. The Enlarged Group operates to mitigate this risk through its internal control environment, including its internal financial controls and accounting systems, to provide the Enlarged Group with reasonable assurance that its operations are proceeding as intended and transactions are appropriately recorded. Should any or all of these controls, processes, procedures and systems fail to operate as intended, this may affect the Enlarged Group’s potential revenues and accuracy of its books and records.
The Enlarged Group faces the risk of fraud, which can be perpetrated by employees or external parties, and the scale of the possible financial consequences may be significant. The steps the Enlarged Group has taken to mitigate the risks of fraud and other criminal acts may not be adequate.
Failure by the Enlarged Group to implement and maintain adequate programmes to combat fraud, money laundering, bribery and corruption and terrorist financing could lead to civil or criminal penalties or harm the Enlarged Group’s reputation and could disrupt the Enlarged Group’s business and result in a material adverse effect on the Enlarged Group’s business, financial position, results of operations and prospects.
The Enlarged Group provides, from the UK, share dealing and custody services to retail clients who are resident in overseas jurisdictions where local regulation may be more restrictive or may impose significant additional requirements on the Enlarged Group than would be required in the UK. These services are restricted to employees of the Enlarged Group’s corporate clients who take part in employee share plans provided to them by the corporate client and who receive shares upon maturity of the plan. Such services are only made available through the corporate client and no direct marketing takes place. Whilst the Enlarged Group has taken measures, using external parties, to assess the jurisdictional regulatory requirements, particularly where participant numbers in that jurisdiction are significant or where local regulation is more transparent, for certain jurisdictions a risk based approach has been taken given the limited nature of the services provided. As a result of this approach the Enlarged Group could be exposed to risk of censure or sanction by overseas regulators should it fail to comply with any local regulations which it has not identified as being applicable.
2.32 The Group’s clients which are regulated firms in the financial services industry may be subject to tightened regulation from the regulator on the selection of third party and outsource service providers which could disrupt the Group’s business financial position, results of operations and prospects
The FCA has increasingly focused on outsourcing arrangements by regulated firms and in particular regulated firms’ oversight of their outsourcing arrangements. This has included FCA reviews on outsourcing in the general insurance market and publishing a regulatory checklist for banks to consider when entering into critical technology outsourcing agreements. There is a risk that the increased scrutiny on outsourcing arrangements leads to the FCA tightening regulations on outsourcing in the future.
2.33 HM Treasury’s implementation of the European Directive to de-materialise paper-based share certificates could potentially impact on the Group’s revenue generated from its services relating to paper-based share certificates and transactions
HM Treasury has confirmed its intent to implement the European Directive on de-materialisation of paper share certificates, which will result in those shareholder records held by the UK registrars in paper format being maintained in an electronic format. This is likely to benefit the Group. However the de- materialisation of paper certificates could have an adverse effect on its share dealing volumes and revenues, as the Group would lose the ability to generate revenues by charging fees in connection with services relating to lost share certificates which may not be fully compensated for by the opportunities to charge higher fees to corporate clients for the maintenance of electronic records that could be created by de-materialisation. Further any failure to successfully implement the Group’s strategy to take advantage of potential opportunities presented by de-materialisation could adversely affect the Group’s results of
57 operations.
2.34 Changes in tax laws and regulations or in the Enlarged Group’s effective tax rate or VAT rates may have an adverse effect on its results of operations
The Enlarged Group’s future effective tax rate and the amount of its provision for income taxes may be adversely affected by a number of factors, including:
• adjustments to estimated taxes upon finalisation of various tax returns;
• changes in VAT or other rates;
• changes in available tax credits;
• changes in its ability to utilise tax losses;
• increases in expenses not deductible for tax purposes;
• changes in the valuation of its deferred tax assets and liabilities;
• changes in accounting standards or tax laws and regulations, or interpretations thereof; and
• penalties or interest expense that the Enlarged Group may be required to recognise on liabilities associated with uncertain tax positions.
The Enlarged Group’s effective income tax rate may increase due to numerous factors, including those described above. A significantly higher effective income tax rate could have an adverse effect on the Enlarged Group’s business, results of operations and liquidity. Any resulting changes in tax laws or regulations could impose new restrictions, costs or prohibitions on the Enlarged Group’s current practices, reduce its net income and adversely affect its cash flows. In addition, any changes to the tax structures of SAYE or SIP products affecting their status as qualifying products for UK tax purposes as a result of changes in legislation could result in these products being less attractive to customers, resulting in a material adverse effect on the Enlarged Group’s financial position and results of operations.
2.35 The Group may become subject to tax audits, investigations or enquiries, including (but not limited to) in relation to VAT and income tax accounted for under the UK Pay As You Earn (“PAYE”) rules, which could, among other things, result in adjustments to its tax returns, higher tax costs, penalties or interest that could materially adversely affect the Group’s financial condition
HMRC is currently undertaking a ‘desktop’ audit of selected VAT returns of the Group. No issues have arisen to date. HMRC customarily performs tax audits, investigations or enquiries, including (but not limited to) in relation to VAT and income tax accounted for under the PAYE rules on a regular basis. An unfavourable outcome from any such audit, investigation or enquiry could result in, among other things, higher tax costs, penalties and interest, as well as reputational damage. This could adversely impact the Group’s financial condition, results of operations or cash flows.
2.36 The Company may be or may become a passive foreign investment company (a "PFIC") for US federal income tax purposes
Whether the Company is or may be a PFIC is a complex determination based on all of the relevant facts and circumstances, including the classification of various assets and income under the PFIC rules. This determination must be made annually, as the Company's circumstances may change in any given year. Accordingly, the activities of the Company or its subsidiaries could cause it to become a PFIC. If the Company is or becomes a PFIC, US Holders may be subject to increased US federal income taxes on a sale or other disposal of their Ordinary Shares and on the receipt of certain distributions and will be subject to increased US federal income tax reporting requirements. See Section B of Part XVI for a more detailed discussion of the consequences of the Company being classified as a PFIC.
2.37 The Enlarged Group’s operations and future growth may be affected by competition
58 regulations
The Enlarged Group is subject to competition laws and regulations at the national and supranational level. In markets where the Enlarged Group has a leading market position or where competition is relatively concentrated (and therefore regulators may seek to limit additional concentration), these laws and regulations may reduce the Enlarged Group’s operational flexibility and limit its ability to make future acquisitions and implement its strategy. Individual employees may act against the Enlarged Group’s instructions and either inadvertently or deliberately violate applicable competition laws and regulations by engaging in prohibited activities such as price fixing or colluding with competitors regarding markets or clients. Such actions may harm the Enlarged Group’s reputation and, if the Enlarged Group is held responsible, the resulting fines and other sanctions could be substantial. Such breaches by employees may have an adverse effect on the Enlarged Group’s business, financial condition and results of operations.
2.38 The scope and content of a number of services offered by the Enlarged Group to its clients are affected by regulatory requirements and any change in such requirements could lead to a change in such services which could affect the Enlarged Group’s profitability and results of operations
The scope and content of a number of services offered by the Enlarged Group to its client, such as pensions administration and share registration services are subject to regulatory requirements which could change as a result of regulatory changes and reforms. Such changes could lead to a change in the scope and content of the services that the Enlarged Group offers to its clients and, depending on the ability of the Enlarged Group to adapt to such changes, could impact the Enlarged Group’s ability to generate same levels of revenue or profitability and affect the Enlarged Group’s financial performance and results of operations.
59 3 RISKS RELATING TO WFSS
The risks associated with WFSS's business are similar to those associated with the business of the Group. In particular, the risks specified in paragraphs 2.1 to 2.11 inclusive, 2.20, 2.22 to 2.27 inclusive, 2.31, 2.34, 2.36 and 2.37 apply to WFSS as they apply to the Group. In addition, the following specific risks apply to the business of WFSS:
3.1 Migration from WFSS's existing technology platform to Equiniti's Sirius system may be complex and costly
A third party currently provides and services the technology platform utilised by WFSS in its interactions with its clients. It is intended that WFSS should migrate to Equiniti's technology platform called Sirius, which will be the Enlarged Group's primary Shareholder Solutions system. This migration will take place after Closing and is expected to be complete by 31 March 2019. During this period, Wells Fargo will be obliged, under a TSA and subject to the terms and conditions thereof, to continue to ensure that WFSS has the benefit of the services currently provided by the technology platform currently utilised by WFSS. If the migration to Sirius is not completed, WFSS's business may be disrupted, potentially resulting in a loss of customers if customers no longer have a technology platform. In addition, the Enlarged Group may have to pay additional fees, which could be significant, to obtain a contract extension to use the existing platform after 31 March 2019 through WFSS's existing provider or to make other suitable arrangements as necessary. Disruption of WFSS's business could also occur if the third party and/or Wells Fargo fail to provide technology systems and services to WFSS during the migration period. In addition, in evaluating the Acquisition, the Directors have taken account of estimated costs of the migration to Sirius, but there is a risk that their estimates may not be correct for unforeseen reasons. Any of these risks could have an adverse effect on the Enlarged Group's financial condition and results of operations.
3.2 Changes in, and enforcement of, US regulation may impact WFSS and the Enlarged Group
Following the Acquisition, the WFSS business will be owned by a new trust corporation which is a wholly- owned indirect subsidiary of the Company. The new trust corporation will be subject to supervision and regulation by the New York Department of Financial Services, (or, if the trust corporation is federally chartered, by the Office of the Comptroller of the Currency) the Securities and Exchange Commission and other US regulatory authorities. The rules made by such authorities and applicable to WFSS may change from time to time. In particular, the Securities and Exchange Commission has published proposals to reform the regulation of transfer agents, which, if implemented, could lead to additional costs for WFSS and/or require changes to its systems and processes. In addition, some of these regulators have a track record of aggressive enforcement of their rules, as well as of rules relating to money laundering, financing of terrorism, corruption and international sanctions, and may take enforcement or supervisory action against WFSS, which could lead to additional costs and/or disruption to its business. Such regulators commonly cooperate with the FCA and it is therefore possible that enforcement action in the US may lead to action by the FCA to investigate entities within the Enlarged Group in the UK regulated by it. Any changes in rules or enforcement action could therefore have an adverse effect on the Enlarged Group's financial condition and results of operations.
3.3 WFSS will continue to have a commercial relationship with Wells Fargo after Closing
After closing, pursuant to agreements to be negotiated and executed before closing, and subject to any necessary approvals of the board of directors of Wells Fargo & Company, WFSS will continue to act as the transfer agent in relation to Wells Fargo's own shares and will rely on Wells Fargo for certain banking services, including deposits belonging to customers. Wells Fargo has committed to maintain these relationships for a period of at least three years. Termination of these relationships with Wells Fargo could impose additional costs on WFSS and/or disrupt its business.
3.4 WFSS's financial performance, as set out in the historical financial information contained in this Prospectus, may not in all respects be indicative of its future performance
WFSS's historical financial information presented in Part XIV has been prepared on a “carve out” basis (that is, prepared by identifying transactions and balances relating to WFSS's business from the financial records of Wells Fargo). WFSS's operating results as at and for the years ended 31 December 2016 and
60 for the half year ended 30 June 2017 reflect a period when WFSS's business was managed as part of Wells Fargo. WFSS's historical financial information does not reflect certain expenses or other elements of WFSS's business which were applicable under Wells Fargo's ownership. As a result, it may be difficult to evaluate WFSS's current business and its future prospects, including its ability to plan for and model future growth, on the basis of the historical financial information contained in this Prospectus.
In these respects, and with respect to operating costs after the Acquisition, therefore, the historical financial information presented in Part XIV may not be indicative of the Board’s expectations as to the Enlarged Group’s future performance. In particular, the actual operating costs of WFSS once it is part of the Enlarged Group may be higher than those shown in the historical financial information presented in Part XIV and/ or than the Directors' estimate of such costs, potentially adversely affecting the Enlarged Group's future profitability.
3.5 WFSS will rely on services provided by Wells Fargo under a TSA for a period following Closing
Until 31 March 2019, WFSS will rely for the operation of its business on transitional services supplied by Wells Fargo at cost under a TSA. Such services cover areas such as IT support, accounting services, and certain compliance and regulatory matters. If such services are not provided in accordance with the TSA, WFSS's business may be disrupted and WFSS may have to incur additional costs by obtaining such services from other providers. The cost to Wells Fargo of providing these services (and thus the amount payable by WFSS for them) may exceed the Directors' estimates made in the course of evaluating the Acquisition. These factors may have an adverse effect on the profitability of WFSS and the Enlarged Group.
61 4 RISKS RELATING TO THE RIGHTS ISSUE AND AN INVESTMENT IN SHARES
4.1 The market value of listed securities may fluctuate and may not reflect the underlying asset value of the Group
Prospective investors should be aware that the value of an investment in Equiniti may go down as well as up. The market value of the Ordinary Shares can fluctuate and may not always reflect the underlying asset value. A number of factors outside the control of the Group may have an impact on its performance and the price of the Ordinary Shares. Such factors include the operating and share price performance of other companies in the industry and markets in which the Group operates, speculation about Equiniti's business in the press, media or investment community, changes to the Group’s profit estimates, the publication of research reports by analysts and general market conditions, among other factors. The market price of the Ordinary Shares may be adversely affected by any of the preceding or other factors regardless of the Group’s actual results of operations and financial condition.
4.2 An active trading market in the Nil Paid Rights may not develop on the London Stock Exchange
An active trading market in the Nil Paid Rights may not develop on the London Stock Exchange during the trading period and holders of Nil Paid Rights may not be able to sell them as a result. In addition, because the trading price of the Nil Paid Rights depends on the trading price of the Ordinary Shares, the Nil Paid Rights price may be volatile and subject to the same risks as noted in the paragraph above. The existing volatility of the Ordinary Shares may also magnify the volatility of the Nil Paid Rights.
4.3 Qualifying Shareholders who do not take up their rights in full will experience dilution in their ownership
If Qualifying Shareholders do not take up the offer of Rights and the New Shares under the Rights Issue, their proportionate ownership and voting interests in Equiniti will be reduced and the percentage that their Ordinary Shares will represent of the total share capital of Equiniti will be reduced accordingly.
Even if a Qualifying Shareholder elects to sell its unexercised Nil Paid Rights, or such Nil Paid Rights are sold on its behalf, the consideration it receives may not be sufficient to compensate it fully for the dilution of its percentage ownership of the Company's share capital that may be caused as a result of the Rights Issue.
4.4 If there is a substantial decline in the price of the Ordinary Shares, the Nil Paid Rights may become worthless
The public trading market price of the Ordinary Shares may decline below the subscription price for the Rights and the New Shares. Should that occur after investors exercise their rights in the Rights Issue, investors will suffer an immediate unrealised loss as a result. Following the exercise of rights, such investors may be unable to sell Rights and the New Shares at a price equal to or greater than the subscription price. If the public trading market price of the Ordinary Shares declines below the subscription price for the Rights and the New Shares, investors who have acquired any such Nil Paid Rights in the secondary market will suffer a loss as a result.
4.5 Any future Ordinary Share issues and sales of Ordinary Shares by major Shareholders may have an adverse effect on the market price of the Ordinary Shares
Although Equiniti has no current plans for a subsequent offering of new Ordinary Shares, it is possible that Equiniti may decide to offer additional Ordinary Shares in the future. An additional offering or a significant sale of Ordinary Shares by Equiniti or any of Equiniti's major Shareholders could have an adverse effect on the market price of the outstanding Ordinary Shares.
4.6 Shareholders with a registered address or who are resident or located in, the United States or any Excluded Territories may not be able to take up their rights (subject to certain exceptions)
The take-up of the Nil Paid Rights under the Rights Issue will not be readily available to any Qualifying
62 Shareholder with a registered address or who is resident or located in, the United States or any Excluded Territory (subject to certain exceptions). If a Qualifying Shareholder is not able to take up Rights granted in respect of Existing Shares under the Rights Issue, then it may not receive the economic benefit of such Rights because there is no assurance that the procedure in respect of Rights not taken up, described in Part IX (Terms and Conditions of the Rights Issue) of this document, will be successful either in respect of the sale of the Nil Paid Rights or in respect of the prices obtained.
4.7 Investors may not receive compensation for expired and unexercised rights
The period during which the Rights being offered in the Rights Issue may be taken up is expected to commence on 29 September 2017 and is expected to expire on 16 October 2017. If an investor fails to exercise its Rights prior to the end of such period, then it may not receive the economic benefit of such Rights because there is no assurance that the procedure in respect of Rights not taken up, set out in Part IX (Terms and Conditions of the Rights Issue) of this document, will be successful in either selling the Nil Paid Rights, or in respect of the prices obtained.
4.8 Equiniti’s ability to continue to pay dividends on the Ordinary Shares is subject to restrictions
As a holding company, Equiniti's ability to pay dividends in the future is affected by a number of factors, including its receipt of sufficient dividends from its subsidiaries and subsidiary undertakings. The payment of dividends to Equiniti by its subsidiaries and subsidiary undertakings is, in turn, subject to restrictions, including certain regulatory requirements and the existence of sufficient distributable reserves and cash in such subsidiaries and subsidiary undertakings. The ability of these subsidiaries and subsidiary undertakings to pay dividends and Equiniti's ability to receive distributions from its investments in other entities is subject to applicable local laws and regulatory requirements and other restrictions, including, but not limited to, applicable tax laws and covenants in some of the Group’s debt facilities. These laws and restrictions could limit the payment of future dividends and distributions to Equiniti by its subsidiaries, which could restrict Equiniti's ability to fund other operations or to pay a dividend to holders of the Existing Shares or the Rights and the New Shares.
4.9 Exchange rate fluctuations may impact the price of Ordinary Shares or the value of any dividends paid
The Ordinary Shares, and any dividends to be announced in respect of such shares, will be quoted in pounds sterling. An investment in Ordinary Shares by an investor in a jurisdiction whose principal currency is not pounds sterling exposes the investor to foreign currency rate risk. Any depreciation of the pound sterling in relation to such foreign currency will reduce the value of the investment in the Ordinary Shares in foreign currency terms and may adversely impact the value of any dividends.
4.10 Holders of Ordinary Shares outside the United Kingdom may not be able to participate in future equity offerings
Shareholders outside of the United Kingdom and Jersey may not be entitled to exercise their rights to pre-emption. In particular, US holders of shares are customarily excluded from exercising any such pre- emption rights they may have unless a registration statement under the Securities Act is effective with respect to those rights, or an exemption from the registration requirements or similar requirements in other jurisdictions thereunder is available. The Group has no current intention to file any such registration statement, and cannot assure prospective investors that any exemption from the registration requirements would be available to enable US or other holders outside the United Kingdom and Jersey to exercise such pre-emption rights or, if available, that it will utilise any such exemption.
4.11 Shareholders may have difficulty in effecting service of process on the Company or the Directors in the US, in enforcing US judgments in the UK or in enforcing US securities laws in UK courts.
The Directors are residents of countries other than the US. The Company is incorporated outside the US and its assets are located outside the US. As a result, it may not be possible for Shareholders to effect service of process within the US upon the Directors or on the Company, or to obtain discovery of relevant
63 documents and/or the testimony of witnesses. US Shareholders may have difficulties enforcing in courts outside the US judgments obtained in US courts against the Directors or the Company (including actions under the civil liability provisions of the US securities laws). Shareholders may also have difficulty enforcing liabilities under the US securities laws in legal actions originally brought in jurisdictions located outside the US.
64 PART IV - PRESENTATION OF INFORMATION
1 MARKET AND INDUSTRY INFORMATION
Market data and certain industry forecasts used in this Prospectus were obtained from internal surveys, reports and studies, where appropriate, as well as market research, publicly available information and industry publications. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy or completeness of such information is not guaranteed. Similarly, internal surveys, reports and studies and market research, while believed by the Company to be reliable and accurately extracted by the Company for the purposes of this Prospectus, have not been independently verified and the Company makes no representation as to the accuracy of such information. In determining such sources to be reliable, and in determining the basis for statements presented in this Prospectus as statements of belief, the Directors have also relied on their own estimates, assumptions and judgements in respect of the conclusions drawn by such sources. The industry forecasts are forward looking statements. See “Cautionary Note Regarding Forward Looking Statements” below.
As noted in this Prospectus, certain information has been included from third party publications and surveys, including from:
(a) Fortune 2017; and
(b) Group 5.
The Company and the Directors confirm that information sourced from third parties has been accurately reproduced and, as far as they are aware and are able to ascertain from information published by those third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. Where third party information is used in this Prospectus, the source of such information has been given.
2 CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus and the information incorporated by reference into this Prospectus include statements that are, or may be deemed to be, “forward looking statements”. These forward looking statements can be identified by the use of forward looking terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “plans”, “goal”, “target”, “aim”, “may”, “will”, “would”, “could” or “should” or, in each case, their negative or other variations or comparable terminology. These forward looking statements include all matters that are not historical facts. They appear in a number of places throughout this Prospectus and the information incorporated by reference into this Prospectus and include statements regarding the intentions, beliefs or current expectations of the Board, the Company or the Group concerning, amongst other things, the operating results, financial condition, prospects, growth, strategies and dividend policy of the Group and the industry in which it operates.
By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company’s ability to control or predict, and therefore are based on current beliefs and expectations about future events. The Directors believe that these risks and uncertainties include, but are not limited to:
• the Enlarged Group's ability to fully realise the anticipated benefits of the Acquisition;
• the risk of customer attrition from WFSS's business as a result of the Acquisition;
• the risk of failure of the Enlarged Group to retain key management or other personnel;
• the risk of management distraction or insufficient management capacity as a result of the Acquisition;
• Equiniti's limited rights to terminate the Acquisition before Closing;
• foreign exchange risk in connection with the Acquisition and the future business of the Enlarged Group;
65 • the risk of litigation and/or regulatory actions related to the Acquisition;
• changes in regulatory environment in which the Enlarged Group operates or specific government action that adversely impacts the markets in which it operates;
• competitive pressures and the Enlarged Group's ability to retain or increase market share;
• the success of the Enlarged Group's key products and performance of its new products and new variants of existing products;
• the Enlarged Group’s ability to continue to perform and maintain its clients contracts;
• the Enlarged Group's ability to achieve its strategic goals;
• changes in the regulatory environment in the UK or the US;
• litigation or adverse regulatory actions in which the Enlarged Group may be involved in from time to time;
• events which damage the Enlarged Group's business reputation;
• fluctuations in interest rates in the UK and the US;
• failure in the Enlarged Group's IT or data security systems;
• the Enlarged Group’s ability to maintain its level of recurring revenues;
• the Enlarged Group’s ability to predict and estimate addressable market size, market share and growth forecasts; and
• the Enlarged Group’s ability to forecast changes and trends in the markets in which it operates and the market opportunities for its products.
Forward looking statements are not guarantees of future performance. The Enlarged Group’s actual operating results, financial condition, dividend policy and the development of the industry in which it operates may differ materially from the impression created by the forward looking statements contained in this Prospectus and/or the information incorporated by reference into this Prospectus. In addition, even if the operating results, financial condition and dividend policy of the Enlarged Group, and the development of the industry in which it operates, are consistent with the forward looking statements contained in this Prospectus and/or the information incorporated by reference into this Prospectus, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to, general economic and business conditions, industry trends, competition, changes in government and other regulation, changes in political and economic stability and changes in business strategy or development plans and other risks, including those described in the section of this Prospectus headed “Risk Factors”.
You are advised to read this Prospectus and the information incorporated by reference into this Prospectus in their entirety, and, in particular, the section of this Prospectus headed “Risk Factors”, for a further discussion of the factors that could affect the Group’s future performance and the industry in which it operates. In light of these risks, uncertainties and assumptions, the events described in the forward looking statements in this Prospectus and/or the information incorporated by reference into this Prospectus may not occur.
Other than in accordance with their legal or regulatory obligations (including under the Listing Rules, the Disclosure and Transparency Rules and the Prospectus Rules), neither the Company nor its Advisers undertake any obligation to update or revise publicly any forward looking statement, whether as a result of new information, future events or otherwise.
3 PRESENTATION OF FINANCIAL INFORMATION
Capitalisation and indebtedness information relating to the Group in this Prospectus is derived from the
66 Group’s internal accounting records. All financial information relating to the Group, unless otherwise stated, has been extracted from its unaudited consolidated interim financial statements for the six months ended 30 June 2017 and the six months ended 30 June 2016, prepared in accordance with IAS 34, and the 2014, 2015 and 2016 Annual Report and Accounts, certain sections of which are incorporated by reference into this Prospectus.
Where information has been extracted from the Group’s audited consolidated financial statements, the information is audited unless otherwise stated. Where the information has been extracted from the Group’s consolidated interim financial statements, the information is unaudited. Unless otherwise indicated, financial information relating to the Group in this document and the information relating to the Group incorporated by reference into this Prospectus is presented in pounds sterling and has been prepared in accordance with IFRS.
The financial information in this Prospectus includes financial information for WFSS as at and for the year ended 31 December 2016 and the half year ended 30 June 2017, in each case, prepared in accordance with IFRS, except as described below, and extracted without material adjustment from Part XIV of this Prospectus.
In particular, the financial information relating to WFSS reflects direct and indirect costs related to the operations of WFSS. Indirect costs relate to certain support functions that are provided on a centralised basis within Wells Fargo (including with respect to affiliates of Wells Fargo). As certain expenses reflected in the WFSS financial information are allocated according to certain judgments and determinations in respect of whether appropriately attributed to Wells Fargo or WFSS, the WFSS financial information may not be indicative of the financial position, results of operations and cash flows that would have been presented if WFSS had been a standalone entity. Therefore, the WFSS financial information may not necessarily be indicative of the future financial position, results of operations and cash flows of WFSS.
This Prospectus incorporates by reference certain financial information relating to the Group (see Part XIX (Information incorporated by reference)). Where this Prospectus refers to financial information relating to the Group for the year ended 31 December 2014, such information has been derived from the restated comparative financial information for the Group for such financial year contained in the Group's Annual Report and Accounts for the year ended 31 December 2015. Such comparative financial information differs from the audited consolidated accounts of the Group for the year ended 31 December 2014 to take account of a change in accounting policies relating to the estimated useful life of software which took effect in 2015. Details of the effect of such change are contained in the Group's Annual Report and Accounts for the year ended 31 December 2015.
As of 1 January 2017, certain operations of the Group were transferred from one division to another as set out in the table below. As a result, the segmental analysis of the Group's results for the financial years ended 31 December 2014, 2015 and 2016 and for the half year ended 30 June 2016 contained in this Prospectus takes account of such transfers as if they had been in effect throughout the relevant periods. The resulting segmental analysis has not been audited. The following table sets out the effect of such transfers on the segmental analysis for the relevant periods:
Six Six months months Year Year Year Year Year Year ended ended ended 31 ended 31 ended 31 ended 31 ended 31 ended 31 30 June 30 June December December December December December December 2016 As 2016 2016 As 2016 2015 As 2015 2014 As 2014 reported Transfers restated reported Transfers restated reported Transfers restated reported Transfers restated REVENUE (£m) Investment 62.1 0.4 62.5 123.6 0.4 124.0 114.9 1.2 116.1 94.9 (3.7) 91.2 Solutions Intelligent 58.4 (3.7) 54.7 116.4 (7.1) 109.3 102.3 (10.0) 92.3 89.6 (5.8) 83.8 Solutions Pension 65.6 3.3 68.9 131.4 6.7 138.1 142.5 8.8 151.3 101.3 9.5 110.8 Solutions Interest 5.8 - 5.8 11.2 - 11.2 9.3 - 9.3 6.5 - 6.5 Income Central Costs ------Total Group 191.9 - 191.9 382.6 - 382.6 369.0 - 369.0 292.3 - 292.3
67 Six Six months months Year Year Year Year Year Year ended ended ended 31 ended 31 ended 31 ended 31 ended 31 ended 31 30 June 30 June December December December December December December 2016 As 2016 2016 As 2016 2015 As 2015 2014 As 2014 reported Transfers restated reported Transfers restated reported Transfers restated reported Transfers restated
EBITDA prior to exceptional items (£m) Investment 18.1 (0.3) 17.8 38.6 (1.1) 37.5 35.1 (0.6) 34.5 29.3 (1.0) 28.3 Solutions Intelligent 12.8 (0.7) 12.1 29.5 (1.2) 28.3 23.2 (1.7) 21.5 16.3 (1.1) 15.2 Solutions Pension 11.0 1.5 12.5 24.3 3.4 27.7 26.7 3.2 29.9 21.7 2.8 24.5 Solutions Interest 5.8 - 5.8 11.2 - 11.2 9.3 - 9.3 6.5 - 6.5 Income Central Costs (6.5) (0.5) (7.0) (11.2) (1.1) (12.3) (8.1) (0.9) (9.0) (3.8) (0.7) (4.5) Total Group 41.2 - 41.2 92.4 - 92.4 86.2 - 86.2 70.0 - 70.0
EBITDA margin prior to exceptional items (%) Investment 29.1% 28.5% 31.2% 30.2% 30.5% 29.7% 30.9% 31.0% Solutions Intelligent 21.9% 22.1% 25.3% 25.9% 22.7% 23.3% 18.2% 18.1% Solutions Pension 16.8% 18.1% 18.5% 20.1% 18.7% 19.8% 21.4% 22.1% Solutions Total Group 21.5% 21.5% 24.2% 24.2% 23.4% 23.4% 23.9% 23.9%
Figures have been restated to take account of the following reorganisation: Company Secretariat - moved from Intelligent Solutions to Investment Solutions. HR Payroll - moved from Intelligent Solutions to Pensions Solutions. Flexible Benefits - moved from Investment Solutions to Pensions Solutions.
The financial information included in this Prospectus or incorporated by reference into this Prospectus was not prepared in accordance with US Generally Accepted Accounting Principles (“US GAAP”) or audited in accordance with US Generally Accepted Audited Standards (“US GAAS”) or the auditing standards of the Public Company Accounting Oversight Board (“PCAOB Standards”). No opinion or any other assurance with regard to any financial information was expressed under US GAAP, US GAAS or PCAOB Standards and the financial information is not intended to comply with SEC reporting requirements. Compliance with such requirements would require modification, reformulation or exclusion of certain financial measures. In addition, changes would be required in the presentation of certain other information. In particular, no reconciliation to US GAAP is provided.
The financial information presented in a number of tables in this Prospectus has been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this Prospectus reflect calculations based upon the underlying information prior to rounding, and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.
4 NON-IFRS MEASURES
The Group measures organic revenue growth (which it defines as reported revenue growth adjusted for acquisitions on a like-for-like basis). In order to create a like-for-like comparison of year-on- year progress, results for the period before the period in which an acquisition took place are restated as if the acquired entities had been owned in the prior period.
WFSS has not in the past constituted a separate legal group in any of the periods presented in the historical financial information, and so in order to reflect the effect of the Acquisition, the financial information relating to WFSS was prepared on a “carve-out” basis from the consolidated historical financial information of Wells Fargo and has been prepared specifically for the purposes of preparing for the Rights Issue. WFSS consists of the “carve out” of assets, liabilities and operations relating to the Shareholder Services business from the existing Wells Fargo.
68 This Prospectus includes one non-IFRS measure, EBITDA. EBITDA is a supplemental measure of financial performance not required by, nor presented in accordance with, IFRS and prospective investors should not consider it as an alternative to: (a) revenue for the period (as determined in accordance with IFRS) as a measure of the Group’s operating performance; (b) cash flows from operating and financing activities as a measure of the Group’s cash needs; or (c) any other measures of performance under generally accepted accounting principles. Prospective investors should exercise caution in comparing EBITDA as reported by the Group to the same or similar measures published by other companies. The Directors believe that EBITDA is a useful indicator of profitability of the Group’s business and of its ability to incur and service its indebtedness and can assist securities analysts, investors and other parties to evaluate the Group. The table set out item B7 of Part 1 (Summary) contains a reconciliation of EBITDA to EBIT (operating profit) for all relevant periods.
5 PRO FORMA FINANCIAL INFORMATION
In this Prospectus, any reference to “pro forma” financial information is to information which has been extracted without material adjustment from the unaudited pro forma financial statements contained in Part XV (Unaudited pro forma financial information of the Enlarged Group) of this Prospectus. The unaudited pro forma statement of net assets and pro forma income statement of the Enlarged Group have been prepared to illustrate the impact of (i) the Rights Issue, (ii) the Acquisition, and (iii) the draw down of the new debt facilities on the net assets of Equiniti as at 30 June 2017 as if they had taken place at that date, and on the income statement of Equiniti for the year ended 31 December 2016 and the six months ended 30 June 2017 as if they had taken place at the beginning of those financial periods. The unaudited pro forma statement of net assets and income statement are based on the consolidated financial information and compiled on the basis set out in the notes thereto and in accordance with the accounting policies adopted by the Group for the six months ended 30 June 2017 and for the year ended 31 December 2016 respectively. The unaudited pro forma financial information has not been prepared, and shall not be construed as having been prepared, in accordance with Regulation S-X under the Securities Act.
The unaudited pro forma income statement and net assets statement has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent either the Group’s or the Enlarged Group’s actual financial position or results. The unaudited pro forma financial information has been prepared on the basis set out in the notes to the pro forma financial information and in accordance with Annex II to the PD Regulation. The unaudited pro forma financial information is stated on the basis of the Group’s accounting policies.
6 CURRENCIES
In this Prospectus and the information incorporated by reference into this Prospectus, references to “£”, “sterling”, “pounds sterling” or “GBP” are to the lawful currency of the United Kingdom. References to “US$”, “$”, “US dollars” or “dollars” are to the lawful currently of the United States.
7 NO PROFIT FORECAST
No statement in this Prospectus is intended as a profit forecast and no statement in this Prospectus should be interpreted to mean that earnings per Share for the current or future financial years would necessarily match or exceed the historical published earnings per Share.
8 NOTICE TO INVESTORS IN THE UNITED STATES OF AMERICA
The Rights, the Shares and the Provisional Allotment Letters have not been and will not be registered under the Securities Act or under any relevant securities laws of any state or other jurisdiction of the United States and may not be offered, sold, pledged, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States absent registration or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable state securities laws. The Rights, the Shares and the Provisional Allotment Letters have not been approved or disapproved by the SEC, any state securities commission in the United States or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the Rights Issue or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States. Accordingly, subject to certain exceptions, neither this Prospectus
69 nor the Provisional Allotment Letter constitutes, or will constitute, or forms part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, the Rights or the New Shares to any Shareholder with a registered address in, or who is resident of, the United States. Notwithstanding the foregoing, the Rights and the New Shares may be offered to and acquired by, a limited number of Shareholders in the United States reasonably believed to be QIBs, in offerings exempt from the registration requirements under the Securities Act. The Rights and the New Shares being offered outside the United States are being offered in reliance on Regulation S.
A QIB will be permitted to take up its entitlements to New Shares under the Rights Issue only if the QIB executes an investor letter in the form provided by the Company and delivers it to the Company, with a copy to the Joint Bookrunners. The investor letter will require each such QIB to represent and agree that, amongst other things, (i) it is a QIB and (ii) it will only offer, sell, transfer, assign, pledge or otherwise dispose of the New Shares in transactions exempt from, or not subject to, the registration requirements of the Securities Act and in compliance with applicable securities laws. The investor letter contains additional written representations, agreements and acknowledgements relating to the transfer restrictions applicable to the New Shares.
In addition, any investor within the United States that subscribes for any New Shares that were not taken up in the Rights Issue can only do so if it is a QIB and is deemed to have made certain representations. See Part IX of this Prospectus.
No representation has been, or will be, made by the Company or the Joint Bookrunners as to the availability of Rule 144 under the Securities Act or any other exemption under the Securities Act or any state securities laws for the reoffer, pledge or transfer of the Rights and the New Shares.
Any envelope containing a Provisional Allotment Letter and postmarked from the United States will not be valid unless it contains a duly executed investor letter in the appropriate form as described above, and any Provisional Allotment Letter in which the exercising holder requests Rights and the New Shares to be issued in registered form and gives an address in the United States will not be valid unless it contains a duly executed investor letter.
The payment paid in respect of Provisional Allotment Letters that do not meet the foregoing criteria will be returned without interest.
Any person in the United States who obtains a copy of this Prospectus and who is not a QIB is required to disregard it.
9 AVAILABLE INFORMATION
If, at any time, the Company is neither subject to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor exempt from reporting pursuant to Rule 12g3 2(b) thereunder, the Company will furnish, upon request, to any holder or beneficial holder of the Rights and the New Shares, or any prospective purchaser designated by any such holder or beneficial owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. In such cases, the Company will also furnish to each such owner all notices of general Shareholders’ meetings and other reports and communications that the Group generally makes available to Shareholders.
10 ENFORCEMENT OF CIVIL LIABILITIES
The ability of an Overseas Shareholder to bring an action against the Company may be limited under law. The Company is a public limited company incorporated in England and Wales. The rights of holders of Shares are governed by English law and by the Articles of Association. These rights differ from the rights of shareholders in typical US corporations and some other non UK corporations.
An Overseas Shareholder may not be able to enforce a judgment against some or all of the Board and executive officers. The majority of the Board and executive officers are residents of the United Kingdom. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Board and executive officers within the Overseas Shareholder’s country of residence or to enforce against the Board and executive officers judgments of courts of the Overseas Shareholder’s country of residence
70 based on civil liabilities under that country’s securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgments in civil and commercial matters or any judgments under the securities laws of countries other than the United Kingdom against the Board or executive officers who are residents of the United Kingdom or countries other than those in which judgment is made. In addition, English or other courts may not impose civil liability on the Board or executive officers in any original action based solely on the foreign securities laws brought against the Company or the Board in a court of competent jurisdiction in England or other countries.
11 NO INCORPORATION OF WEBSITE INFORMATION
The contents of the Group’s websites (including www.equiniti.com, the “Website”) do not form any part of this Prospectus.
71 PART V - RIGHTS ISSUE STATISTICS
Price per New Share 190 p Basis of Rights Issue 3 New Shares for every Existing 14 Shares Number of Existing Shares in issue on 11 September 2017(1) 300,109,369 Number of New Shares to be issued by the Company 64,309,150 Number of Shares in issue immediately following completion of the Rights Issue(2) 364,418,520 New Shares as a percentage of enlarged issued share capital of the Company 17.6 per cent immediately following completion of the Rights Issue(2) Estimated gross proceeds in connection with the Rights Issue £122 million Estimated expenses in connection with the Rights Issue £4.3 million Estimated net proceeds receivable by the Company after expenses £118 million
Notes:
(1) Being the latest practicable date prior to the date of this Prospectus. (2) Assuming that no options under the Sharesave Scheme are exercised between the date of this Prospectus and Admission becoming effective.
72 PART VI - EXPECTED TIMETABLE OF RIGHTS ISSUE
Timing Publication and posting of this Prospectus and the Form of Proxy 12 September 2017(2)(3) Latest time and date for receipt of Forms of Proxy 9.00 a.m. on 26 September 2017 Record Date for entitlements under the Rights Issue 6.00 p.m. on 26 September 2017 General Meeting 9.00 a.m. on 28 September 2017 Date of dispatch of Provisional Allotment Letters (to Qualifying Non CREST 28 September 2017 Shareholders only)(1) Dealings in Rights, nil paid, commence on the London Stock Exchange 8.00 a.m. on 29 September 2017 The Ex Rights Date 29 September 2017 Nil Paid Rights credited to stock accounts in CREST (Qualifying CREST as soon as practicable after 8.00 a.m. Shareholders only) on 29 September 2017 Nil Paid Rights and Fully Paid Rights enabled in CREST 29 September 2017 Recommended latest time for requesting withdrawal of Nil Paid Rights or Fully 4.30 p.m. on 10 October 2017 Paid Rights from CREST (ie if your Nil Paid Rights or Fully Paid Rights are in CREST and you wish to convert them into certificated form) Latest time and date for depositing renounced Provisional Allotment Letters, 3.00 p.m. on 11 October 2017 nil paid or fully paid, into CREST or for dematerialising Nil Paid Rights into a CREST stock account Latest time and date for splitting Provisional Allotment Letters 3.00 p.m. on 12 October 2017 Latest time and date for acceptance in CREST and payment in full and 11 a.m. on 16 October 2017 registration of renounced Provisional Allotment Letters Expected date of announcement of results of the Rights Issue 17 October 2017 Dealings in the New Shares to commence on the London Stock 8.00 a.m. on 17 October 2017 Exchange fully paid New Shares credited to CREST stock accounts (uncertificated holders only)(1) as soon as practicable after 8.00 a.m. on 17 October 2017 Dispatch of definitive share certificates for New Shares in certificated form (to by no later than 24 October 2017 Qualifying Non CREST Shareholders only)(1)
Notes:
(1) Subject to certain restrictions relating to Overseas Shareholders. See paragraph 7 of Part IX (Terms and Conditions of the Rights Issue) of this Prospectus. (2) The times and dates set out in the timetable above and referred to throughout this document and in the Provisional Allotment Letter may be adjusted by the Company by announcement through a Regulatory Information Service, in which event details of the new dates will also be notified to the Financial Conduct Authority, the London Stock Exchange and, where appropriate, Shareholders. (3) References to times in this Prospectus are to London time, unless otherwise stated.
73 PART VII - DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS
1 BOARD OF DIRECTORS
The Board comprises:
Year of joining Date of appointment to Equiniti Name Position the Board Group Kevin Beeston Non-Executive Chairman 1 September 2011 2011 Philip Yea Chairman Designate, Independent Non- 3 July 2017 2017 Executive Director Guy Wakeley Chief Executive 27 January 2014 2014 John Stier Chief Financial Officer 19 June 2015 2015 Victoria Jarman Senior Independent Non-Executive Director 1 May 2014 2014 Sally-Ann Hibberd Independent Non-Executive Director 1 August 2016 2016 Tim Miller Independent Non-Executive Director 1 February 2015 2015 John Parker Independent Non-Executive Director 1 January 2014 1999 Darren Scott Pope Independent Non-Executive Director 1 December 2016 2016
The business address of Kevin Beeston, Philip Yea, Guy Wakeley, John Stier, Darren Scott Pope, Victoria Jarman, Sally-Ann Hibberd, Tim Miller and John Parker is: c/o The Company Secretary of Equiniti, Level 6, Broadgate Tower, 20 Primrose Street, London EC2A 2EW.
Equiniti’s registered address is Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH.
1.1 Biographies
Kevin Beeston joined the Board as Non-Executive Chairman in September 2011. He is also Chairman of FTSE 100 developer and homebuilder Taylor Wimpey plc and a non-executive director of FA Premier League Limited and Severn Trent plc. Prior to this Kevin was Chairman of Serco Group plc, having held the roles of Chief Executive and Finance Director during a 25-year career with the company. He has been an Operating Partner of Advent International, a non-executive director of engineering group IMI plc, Chairman of Domestic and General Group Limited and Partnerships in Care Group Limited as well as a Director of Ipswich Town Football Club. Kevin’s other previous roles include Chairman of the CBI’s Public Services Strategy Board and commissioner for the TUC’s Commission on Vulnerable Employment. Kevin is an accountant by background. He is the Chairman of Equiniti’s Nomination Committee. He will retire from the Board in September 2017.
Philip Yea joined the Board as Non-Executive Director and Chairman Designate on 3 July 2017 and will succeed Kevin Beeston as Chairman when Kevin retires from the Board in September 2017. Philip has been Chairman of Greene King plc since May 2016. He is senior independent director at Computacenter PLC, a non-executive director of Aberdeen Asian Smaller Companies Investment Trust plc and Marshall of Cambridge (Holdings) Ltd and also an independent director and trustee of the Francis Crick Institute. He recently retired as senior independent director of Vodafone Group plc in July 2017. Prior to joining Greene King, he was Chairman of bwin.party digital entertainment plc until the successful completion of its acquisition by GVC Holdings. He has considerable executive experience in both the quoted and private equity sectors, having been chief executive of 3i Group plc from 2004 to 2009. He is a former finance director of Diageo plc and, as finance director of Guinness PLC, was closely involved in the creation of Diageo through Guinness's merger with GrandMet in 1997.
Guy Wakeley joined the Board as Chief Executive in January 2014. Previously, he was the chief executive of Morrison plc, the property and services provider to the public and private sectors for five years. He is a member of CBI’s Public Services Strategy Board, promoting the role of business in transforming the UK’s public services and is an FCA Approved Person. Previously Guy has held divisional leadership positions
74 with Amey, The Berkeley Group, General Electric and Rolls-Royce. He holds an MA in Engineering Science from the University of Cambridge, and a PhD in applications of artificial intelligence to engineering design. He is a Chartered Engineer, a Fellow of the Royal Institution of Chartered Surveyors, and a commercial pilot and flight instructor.
John Stier joined the Group in 2015 from Northgate Information Solutions Ltd (NIS), the global software and outsourcing business, where he was the Chief Financial Officer for over ten years. NIS was a FTSE 250 organisation until 2007 when it was acquired by KKR, the US private equity firm. Prior to this, he was the Chief Financial Officer of Subterra Ltd, a subsidiary of Thames Water Plc which delivered engineering services to businesses across Europe. John is a fellow of the Institute of Chartered Accountants and has a background in corporate finance.
Victoria Jarman joined the Board as a Non-Executive Director in May 2014. Victoria is a qualified chartered accountant with an early career at KPMG and latterly eleven years in corporate finance at Lazard where she was Chief Operating Officer. During her time at Lazard she successfully led the restructuring of UK operations. She sat on the Lazard London Board and European Management Committee, and opened Lazard’s Dubai office. She holds non-executive directorships at De La Rue plc and Hays plc where she chairs their audit committee and holds a Mechanical Engineering degree from Leicester University. Victoria is the Chair of the Group’s Audit Committee and a member of the Risk, Remuneration and Nomination Committees.
Sally-Ann Hibberd was appointed to the Board as a Non-Executive Director in August 2016. Sally- Ann has a broad background in financial services and technology and is a non-executive director of Shawbrook Group plc and NFU Mutual, a non-executive member of the governing body of Loughborough University and an advisory board member of OEE Consulting. Previously, Sally-Ann served as COO of the International division and latterly as Group Operations and Technology Director of Willis Group, and held a number of senior executive roles at Lloyds TSB. Sally-Ann is Chair of the Group's Risk Committee and a member of the Audit, Nomination and Remuneration Committees.
Tim Miller joined the Board as an Independent Non-Executive Director in February 2015. Tim has extensive experience as a board level executive across a range of sectors. During his fourteen years at Standard Chartered Bank, he held a number of director level positions with global responsibility for areas including human resources, compliance, audit, assurance, financial crime and legal. He is currently non- executive Director of Otis Gold Corporation, a Toronto Stock Exchange Listed company. Recently he held non-executive director roles including acting as non-executive Chairman of the Girls Day School Trust and Chairman of the Governing Body of the School of Oriental and African Studies. Tim is Chairman of Equiniti’s Remuneration Committee, a member of the Audit, Risk and Nomination Committees and a non-executive director of EFSL.
John Parker was Managing Director of Equiniti Shareholder Solutions, with responsibility for share registration, employee benefits and investment services businesses. He joined the Group in 1999 (when it was Lloyds TSB Registrars) and held a number of senior positions during that period. He was a former employee of the Group but is considered independent by the Board. John was with Lloyds TSB Group for 30 years, holding a range of management roles in retail banking. He held senior positions as Head of Offshore Treasury and as National Sales Manager, Wealth Management before joining Lloyds TSB Registrars (now Equiniti). He is a fellow of the Chartered Institute of Bankers. John is a member of the Risk and Nomination Committees. On 28 July 2017, it was announced that John would stand down as a Non- Executive Director of the Company with effect from 30 September 2017.
Darren Pope joined the Board as an Independent Non-Executive Director on 1 December 2016. Darren has a broad range of commercial skills and experience from executive and senior finance roles within publicly listed companies. He is a qualified accountant with over 30 years’ experience in the financial services industry, the majority of which has been spent in retail financial services. Most recently Darren served as CFO of TSB Bank plc having led the initial stages of its separation from Lloyds Banking Group and having a central role in its subsequent IPO. He has held a number of other senior positions at Lloyds Banking Group, Cheltenham & Gloucester plc, Egg plc and Prudential plc. Darren is member of the Nomination, Audit and Risk Committees.
75 2 SENIOR MANAGERS
The Group’s executive management team comprises:
Name Position Guy Wakeley Chief Executive John Stier Chief Financial Officer Adam Green Chief Risk Officer Liam McGrath Chief Operating Officer Mark Taylor Chief Customer Officer Mark Churley Group Business Development Director Paul Matthews CEO, EQ Boardroom
2.1 Biographies
Guy Wakeley (Chief Executive). See “Directors” above for Guy Wakeley’s biography.
John Stier (Chief Financial Officer). See “Directors” above for John Stier’s biography.
Adam Green (Chief Risk Officer) joined Equiniti as Chief Risk Officer in 2015, working as part of the Executive Leadership Team. He has a wide range of experience in financial services, risk management, regulation and business change. Adam was previously interim head of UK Compliance for BUPA and prior to that managed a core transition work stream at the Financial Services Authority, as it established the Financial Conduct Authority and Prudential Regulatory Authority. He has also worked at PricewaterhouseCoopers helping boards, management teams and change programmes to deliver complex risk and regulatory requirements, which followed his time as a major groups regulator at the Financial Services Authority.
Liam McGrath (Chief Operating Officer) started with Equiniti as Managing Director, Group Operations in May 2014. He joined Equiniti from Chaucer Insurance plc, where he was the UK Division Operations Director responsible for all underwriting and claims operations, as well as facilities. Prior to this, he worked for the Royal Bank of Scotland Group running a number of large operational areas, including mortgages, credit cards, loans and overdrafts. Liam has also worked in senior roles in GE Consumer Finance, Royal and Sun Alliance Insurance and Vodafone, driving large scale operational change and improvement.
Mark Taylor (Chief Customer Officer) joined Equiniti in 2009 and has over 30 years’ experience in the retail financial services industry. He has responsibility for direct to consumer marketing and digital strategy across the Group. He has a track record of new business start-ups and product development in the “direct” market place. Previously a Director at Virgin Money, he was responsible for growing Virgin’s savings, investments and pensions business and the launch of Virgin’s Climate Change Fund. Mark was also a Director of Egg Investments, where he launched the UK’s first fully automated on-line fund trading platform. He was a founding partner in Clearwell Ltd, an online personal finance software business, prior to its sale to a national IFA network. Mark also held a number of senior roles in other leading companies such as Fidelity and Charles Schwab and has worked both in the USA and mainland Europe.
Mark Churley (Group Business Development Director) joined Equiniti in August 2017 to strengthen the Group’s sales leadership team and is responsible for growth across Equiniti’s core markets, both in the UK and overseas, through new business origination and from our established strategic accounts. Prior to Equiniti he was Enterprise Software and Strategic Accounts Director at NCR Corporation, a global software, services and hardware company. Mark was Head of Group Business Development with Talaris, a former De La Rue company, where he built global sales capabilities and grew revenue. Over the last 20 years, he held senior positions with companies including De La Rue and Lucent. Mark has a BSc (Hons) in Marine Technology and an MBA from Durham University.
Paul Matthews (CEO, EQ Boardroom) joined Equiniti in 2011 as Managing Director, Corporate Markets. Paul is responsible for working with the UK’s leading businesses to deliver successful transactions, including IPOs and corporate actions, for a client base covering circa 50% of the FTSE 100 and circa
76 40% of the FTSE 250. Paul’s stock market experience spans 30 years and he currently leads Equiniti’s partnership with the Global Share Alliance. Prior to joining Equiniti, Paul was a Managing Director at the investment bank JP Morgan Cazenove, where he had a successful career spanning over 25 years.
3 SECRETARY
The Company Secretary is Kathy Cong.
4 ADVISERS
Lead Financial Adviser and Joint Sponsor: Greenhill, Lansdowne House, 57 Berkeley Square, London W1J 6ER Joint Financial Adviser, Joint Sponsor, Joint Citi, 33 Canada Square, London E14 5GL Global Coordinator and Joint Bookrunner: Joint Global Coordinator and Joint Bookrunner: Barclays, 5 The North Colonnade, Canary Wharf, London E14 4BB Reporting Accountants: KPMG, 15 Canada Square, London E14 5GL Statutory Auditor to the Company: PricewaterhouseCoopers LLP, One Embankment Place, London WC2N 6RH Legal advisers to the Company as to English Weil, Gotshal & Manges (London) LLP, 110 Fetter and United States law: Lane, London, EC4A 1AY Legal advisers to the Joint Bookrunners and Allen & Overy LLP, One Bishop's Square, London Joint Sponsors as to English and United States E1 6DY law: Registrar and Receiving Agent: Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
5 CORPORATE GOVERNANCE
5.1 UK Corporate Governance Code
The UK Corporate Governance Code sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders. The UK Corporate Governance Code recommends that for a company in the FTSE 350 (such as the Company), at least half the board, excluding the chairman, should be ‘independent’ non-executive directors, being individuals determined by the board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, the director’s judgement. It also recommends that a FTSE 350 company’s remuneration and audit committees should comprise at least three ‘independent’ non-executive directors, and that its nomination committee should comprise a majority of ‘independent’ non-executive directors.
The UK Corporate Governance Code recommends that the Board appoints one of the independent non- executive directors to be the senior independent non-executive director (“SID”). The SID should be available to shareholders if they have concerns that the normal channels of chairman, chief executive officer or other executive directors have failed to resolve or for which such channels of communication are inappropriate.
The Company is fully compliant with all applicable requirements of the UK Corporate Governance Code and as revised April 2016, save as to Code provision A.3.1 whereby the outgoing Chairman, Kevin Beeston, was not considered independent at the time of his appointment. It will continue to report to Shareholders on compliance with the UK Corporate Governance Code in accordance with the Listing Rules.
5.2 Board composition and independence
The Board is committed to the highest standards of corporate governance. The UK Corporate Governance Code recommends that at least half of the Board (excluding the Non-Executive Chairman) should comprise
77 independent non-executive directors, who should be independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement. The Board consists of the non-executive Chairman, Chief Executive, Chief Financial Officer, five independent nonexecutive Directors (including the SID and the Chairman Designate) and one non- executive Director. It is supported by the Company Secretary. The roles of the Chairman and the Chief Executive are separate. The Board is collectively responsible for the long-term success of Equiniti and delegates the day-to-day management of Equiniti to the Chief Executive and Chief Financial Officer.
The Board is responsible for approving the Group strategy and ensuring that the Group is suitably resourced to achieve it. In doing so, the Board takes account of its responsibilities to Equiniti’s stakeholders, including Equiniti's shareholders, employees, suppliers and the communities in which Equiniti operates. The non-executive Directors are responsible for constructively challenging, and helping to develop, proposals on Group strategy, offering input based on individual and collective experience. They scrutinise the performance of the executive management team in meeting agreed goals and objectives and take on specific duties as members of the Board’s main Committees.
The Company Secretary acts as secretary to the Board and its main Committees, provides advice on corporate governance issues and ensures compliance with Board procedures. She is also Company Secretary of Equiniti Financial Services Limited, the Company’s primary regulated subsidiary, and ensures consistency of and adherence to Equiniti's governance framework at subsidiary board level.
As Chairman, Kevin Beeston has overall responsibility for leadership of the Board and assures its overall effectiveness. He sets the Board’s agendas, to ensure the Board has adequate time for discussion of all agenda items, in particular strategic issues, and ensures the Board receives relevant information in a timely fashion. The Chairman promotes a culture of openness and debate, and fosters constructive relations between the executive and non-executive Directors. Externally the Chairman is a key contact for shareholders to discuss governance and strategy. The Chairman meets regularly and individually with the Chief Executive, Chief Financial Officer and with members of the Executive Committee and other senior managers, to seek their views and advice on governance within the Group.
The SID, Victoria Jarman, acts as a sounding board for the Chairman and as a trusted intermediary for the other Directors. In addition, the SID meets with the other non-executive Directors in the absence of the Chairman at least once a year, in order to review the Chairman’s performance. She is also available to shareholders as required.
The Chief Executive, Guy Wakeley, is responsible for the day-to-day management of the Company and executing the strategy, once agreed by the Board. He creates a framework of strategy, values, organisation and objectives to ensure the successful delivery of results, and allocates decision making and responsibilities accordingly. He manages the risk profile in line with the risk appetite and categories of risk identified and accepted by the Board. He takes a leading role, with the Chairman, in the relationship with all external stakeholders and in promoting Equiniti.
5.3 Board committees
As envisaged by the UK Corporate Governance Code, the Board has four Board Committees, Audit, Remuneration, Risk and Nomination Committees, comprised only of non-executive Directors.
(a) Audit Committee
The Audit Committee has responsibility for, among other things, the monitoring of the integrity of the Group's financial statements and the involvement of its auditors in that process. It focuses in particular on compliance with accounting policies and ensuring that an effective system of internal financial controls is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board. The Audit Committee will normally meet at least three times a year at the appropriate times in the reporting and audit cycle.
The terms of reference of the Audit Committee cover such issues as membership and the frequency of meetings, together with requirements for quorum and notice procedure and the right to attend
78 meetings. The responsibilities of the Audit Committee covered in the terms of reference include external audit, internal audit, financial reporting and internal controls and risk management. The terms of reference also set out the authority of the committee to carry out its responsibilities.
The UK Corporate Governance Code recommends that, for companies in the FTSE 350, the Audit Committee comprises at least three members who are independent non-executive directors and includes one member with recent and relevant financial experience. The Audit Committee’s terms of reference require that its composition comply with these recommendations. The Audit Committee currently comprises four Independent Non-Executive Directors (Victoria Jarman, Tim Miller, Sally- Ann Hibberd and Darren Pope). The committee is chaired by Victoria Jarman.
(b) Remuneration Committee
The Remuneration Committee has responsibility, subject to any necessary Shareholder approval, for the determination of the terms and conditions of employment, remuneration and benefits of each of the Executive Directors and certain other senior executives, including pension rights and any compensation payments. It also recommends and monitors the level and structure of remuneration for senior management and the implementation of share option or other performance-related schemes. The Remuneration Committee will meet at least twice a year.
The terms of reference of the Remuneration Committee cover such issues as membership and frequency of meetings, together with the requirements for quorum and notice procedure and the right to attend meetings. The responsibilities of the Remuneration Committee covered in its terms of reference include determining and monitoring policy on and setting levels of remuneration, termination, performance-related pay, pension arrangements, reporting and disclosure, share incentive plans and the appointment of remuneration consultants. The terms of reference also set out the reporting responsibilities and the authority of the committee to carry out its responsibilities.
The UK Corporate Governance Code recommends that, for companies in the FTSE 350, the Remuneration Committee comprises at least three members who are independent non-executive directors, and that, in addition, the Chairman may also be a member of the Remuneration Committee (but may not chair the Remuneration Committee) if he was considered independent on appointment as Chairman. The Remuneration Committee currently comprises four members, all of whom are Independent Non-Executive Directors (Victoria Jarman, Tim Miller, Sally-Ann Hibberd and Darren Pope). The committee is chaired by Tim Miller.
(c) Nomination Committee
The Nomination Committee is responsible for considering and making recommendations to the Board in respect of appointments to the Board, the Board committees and the chairmanship of the Board committees. It is also responsible for keeping the structure, size and composition of the Board under regular review, and for making recommendations to the Board with regard to any changes necessary.
The Nomination Committee’s terms of reference deal with such issues as membership and frequency of meetings, together with the requirements for quorum and notice procedure and the right to attend meetings. The responsibilities of the Nomination Committee covered in its terms of reference include review of the Board composition, appointing new Directors, re-appointment and re-election of existing Directors, succession planning taking into account the skills and expertise that will be needed on the Board in the future. It is also responsible for reviewing the time required from the Non-Executive Directors, determining membership of other Board committees and ensuring external facilitation of the evaluation of the Board. The Nomination Committee will meet at least twice a year.
The UK Corporate Governance Code recommends that a majority of the members of the Nomination Committee should be independent non-executive directors. The terms of reference of the Nomination Committee require that its composition complies with these requirements. The Nomination Committee comprises five members, being four of the Independent Non-Executive
79 Directors and the Non-Executive Chairman. The committee is chaired by Kevin Beeston and will be chaired by Philip Yea from 1 October 2017 after Kevin Beeston's retirement.
(d) Risk Committee
The Risk Committee has responsibility for, amongst other things, monitoring and overseeing the current and potential future risk exposures of the Group, the strategy for management of risk, including the determination of risk appetite and tolerance, the performance of the compliance monitoring function of the Group and the promotion of risk awareness and compliance culture within the Group.
The terms of reference of the Risk Committee cover such issues as membership and the frequency of meetings, together with requirements for quorum and notice procedure and the right to attend meetings. The responsibilities of the Risk Committee covered in the terms of reference include risk management function, ensuring the adequacy and effectiveness of the Group’s risk management policies and procedures and review and recommend the policies for credit risk, market risk and operational risk.
The Risk Committee currently comprises six members who are all Independent Non-Executive Directors and the Chairman (Sally-Ann Hibberd, Victoria Jarman, Tim Miller, John Parker, Darren Pope and Philip Yea). The committee, chaired by Sally-Ann Hibberd, meets four times per year.
5.4 Remuneration policy
The Company’s remuneration strategy is to provide a remuneration framework that will:
• promote the long-term success of the business;
• attract, retain and motivate executives and senior management in order to deliver the Company’s strategic goals and business outputs;
• provide an appropriate balance between fixed and performance related pay supporting a high performance culture;
• provide a simple remuneration structure which is easily understood by all stakeholders;
• adhere to the principles of good corporate governance and appropriate risk management;
• align Senior Managers with the interests of Shareholders and other external stakeholders;
• consider the wider pay environment both internally and externally; and
• encourage widespread equity ownership across the Group.
80 PART VIII - QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE
The questions and answers set out in this Part VIII (Questions and Answers about the Rights Issue) are intended to be in general terms only and you should read Part IX (Terms and Conditions of the Rights Issue) of this document for full details of what action you should take. If you are in any doubt as to what action you should take, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser, duly authorised under the FSMA if you are resident in the UK or, if not, from another appropriately authorised independent financial adviser.
This Part VIII (Questions and Answers about the Rights Issue) deals with general questions relating to the Rights Issue and more specific questions relating to Shares held by persons resident in the UK who hold their Shares in certificated form only. If you are an Overseas Shareholder, you should read paragraph 7 of Part IX (Terms and Conditions of the Rights Issue) of this document and you should take professional advice as to whether you are eligible and/or you need to observe any formalities to enable you to take up your rights. If you hold your Shares in uncertificated form (that is, through CREST) you should read Part IX (Terms and Conditions of the Rights Issue) of this document for full details of what action you should take. If you are a CREST sponsored member, you should also consult your CREST sponsor. If you do not know whether your Shares are in certificated or uncertificated form, please call the Shareholder Helpline on 0333 207 6563 (from within the UK) or on +44 121 415 0878 (if calling from outside the UK).
The Shareholder Helpline is open from 8.30 a.m. to 5.30 p.m. (UK time) Monday to Friday (excluding English and Welsh public holidays). Calls to the Shareholder Helpline from outside the UK will be charged at the applicable international rate. Please note that calls may be recorded and randomly monitored for security and training purposes. Please note that for legal reasons, the Shareholder Helpline cannot provide advice on the merits of the Rights Issue nor give financial, tax, investment or legal advice.
Times and dates referred to in this Part VIII (Questions and Answers about the Rights Issue) have been included on the basis of the expected timetable for the Rights Issue set out on page 73.
1 WHAT IS A RIGHTS ISSUE?
A rights issue is a way for companies to raise money. Companies do this by giving their existing shareholders a right to buy further shares in proportion to their existing shareholdings.
The offer under this Rights Issue is at a price of 190p per New Share. If you hold Shares on the Record Date and, subject to certain exceptions, do not have a registered address in the United States or the Excluded Territories, you will be entitled to buy Rights and the New Shares pursuant to the Rights Issue. If you hold your Existing Shares in certificated form, your entitlement will be set out in your Provisional Allotment Letter.
New Shares are being offered to Qualifying Shareholders in the Rights Issue at a discount to the Share price. The Issue Price of 190p per New Share represents a 31.7 per cent, discount to the theoretical ex rights price based on the closing middle market price quotation as derived from SEDOL of 297.1p per Share on 11 September 2017, the latest practicable date before the date of this Prospectus. As a result of this discount and while the market value of the Existing Shares exceeds the Issue Price, the right to buy the New Shares is potentially valuable.
The Rights Issue is on the basis of 3 New Shares for every 14 Existing Shares held by Qualifying Shareholders.
If you are a Qualifying Shareholder and you do not want to buy the New Shares to which you are entitled, you can instead sell or transfer your rights (called Nil Paid Rights) to those New Shares and receive the net proceeds, if any, of the sale or transfer in cash. This is referred to as “dealing nil paid”.
2 WHAT HAPPENS NEXT?
The Company has called a General Meeting to be held at 9.00 a.m. on 28 September 2017 at the offices
81 of Weil, Gotshal & Manges (London) LLP, 110 Fetter Lane, London EC4A 1AY. Please see the Notice of General Meeting at the end of this document. As you will see from the contents of the Notice of General Meeting, the Board is seeking shareholder approval for the Acquisition.
If the Resolution is passed at the General Meeting, the Rights Issue will proceed (subject to certain conditions). The Provisional Allotment Letters are due to be despatched on or about 28 September 2017 to Qualifying Non CREST Shareholders with registered addresses outside the United States and the Excluded Territories (subject to certain exceptions) and the Nil Paid Rights are due to be credited to the CREST stock accounts of Qualifying CREST Shareholders with registered addresses outside the United States and the Excluded Territories (subject to certain exceptions) as soon as practicable after 8.00 a.m. on 29 September 2017.
3 CAN I SELL SOME RIGHTS AND USE THE PROCEEDS TO TAKE UP MY REMAINING RIGHTS?
This is known as a cashless take up or “tail swallowing”. You should contact your stockbroker or financial adviser who may be able to help if you wish to do this. Your ability to sell your rights is dependent on demand for such rights and that the price for Nil Paid Rights may fluctuate. Please ensure that you allow enough time so as to enable the person acquiring your rights to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 16 October 2017.
4 I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. HOW DO I KNOW IF I AM ABLE TO TAKE UP MY RIGHTS AND ACQUIRE NEW SHARES UNDER THE RIGHTS ISSUE?
If you receive a Provisional Allotment Letter and are a Qualifying Non CREST Shareholder with a registered address outside the United States and the Excluded Territories (subject to certain exceptions), then you should be eligible to take up your Rights and acquire New Shares under the Rights Issue (as long as you have not sold all of your Existing Shares before the Ex Rights Date, in which case you will need to follow the instructions on the front page of this document).
5 I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. HOW WILL I BE INFORMED OF HOW MANY NEW SHARES I AM ENTITLED TO BUY?
Subject to Shareholders passing the Resolution at the General Meeting to be held on 28 September 2017, if you hold your Existing Shares in certificated form and are a Qualifying Non CREST Shareholder with a registered address outside the United States and the Excluded Territories (subject to certain exceptions), you will be sent a Provisional Allotment Letter that shows:
5.1 how many Existing Shares you held at the close of business on 26 September 2017 (the record date for the Rights Issue);
5.2 how many New Shares you are entitled to buy; and
5.3 how much you need to pay if you want to take up your right to buy all the New Shares provisionally allotted to you in full.
Subject to certain exceptions, if you have a registered address in the United States or the Excluded Territories, you will not receive a Provisional Allotment Letter.
6 I AM A QUALIFYING SHAREHOLDER WITH A REGISTERED ADDRESS IN THE UNITED KINGDOM AND I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. WHAT ARE MY CHOICES AND WHAT SHOULD I DO WITH THE PROVISIONAL ALLOTMENT LETTER?
6.1 If you want to take up all of your rights
If you want to take up all of your rights to acquire the New Shares to which you are entitled, all you need to do is send the Provisional Allotment Letter, together with your cheque or banker’s draft for the full amount, payable to “Equiniti Limited re: Equiniti Group plc Rights Issue” and crossed ‘‘A/C payee only”, by post or by hand (during normal business hours only) to Equiniti Limited, Corporate Actions, Aspect House, Spencer Road, Lancing. West Sussex BN99 6DA , to arrive by no later than 11.00 a.m. on 16 October 2017. Within
82 the United Kingdom only, you can use the reply paid envelope which will be enclosed with the Provisional Allotment Letter. Full instructions are set out in Part IX (Terms and Conditions of the Rights Issue) of this document and will be set out in the Provisional Allotment Letter.
Please note third party cheques may not be accepted other than building society cheques or banker’s drafts.
If payment is made by a building society cheque (not being drawn on account of the applicant) or a banker’s draft, the building society or bank should insert details of the name of the account holder and have either added the building society or bank branch stamp, or have provided a supporting letter confirming the source of funds. The name of such account holder should be the same as the name of the shareholder shown on page 1 or page 4 of the Provisional Allotment Letter.
A definitive share certificate will then be sent to you for the New Shares that you take up. Your definitive share certificate for the New Shares is expected to be despatched to you by no later than 24 October 2017. You will need your Provisional Allotment Letter to be returned to you if you want to deal in your Fully Paid Rights. Your Provisional Allotment Letter will not be returned to you unless you tick the appropriate box on the Provisional Allotment Letter.
6.2 If you do not want to take up your rights at all
If you do not want to take up your rights, you do not need to do anything. If you do not return your Provisional Allotment Letter subscribing for the New Shares to which you are entitled by 11.00 a.m. on 16 October 2017, Equiniti have made arrangements under which Citi and Barclays will try to find investors to take up your rights and the rights of others who have not taken up their rights. If Citi and Barclays find investors who agree to pay a premium above the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of value added tax), you will be sent a cheque for your share of the amount of that premium, provided that this is £5.00 or more. Cheques are expected to be despatched by no later than 24 October 2017 and will be sent to your existing address appearing on the Company’s register of members (or to the first named holder if you hold your Existing Shares jointly). If investors cannot be found who agree to pay a premium over the Issue Price and related expenses so that your entitlement would be £5.00 or more, you will not receive any payment, and any amounts of less than £5.00 will be aggregated and donated to charity. Alternatively, if you do not want to take up your rights, you can sell or transfer your Nil Paid Rights (see paragraph 6.4 below).
6.3 If you want to take up some but not all of your rights
If you want to take up some but not all of your rights and wish to sell some or all of those you do not want to take up, you should first apply to have your Provisional Allotment Letter split by completing Form X on the Provisional Allotment Letter, and returning it by post or by hand (during normal business hours only) to Equiniti Limited, Aspect House, Spencer Road, Lancing. West Sussex BN99 6DA, to be received by 3.00 p.m. on 12 October 2017, together with a covering letter stating the number of split Provisional Allotment Letters required and the number of Nil Paid Rights to be comprised in each split Provisional Allotment Letter. You should then deliver the split Provisional Allotment Letter representing the New Shares that you wish to accept together with your cheque or banker’s draft to Equiniti Limited, Aspect House, Spencer Road, Lancing. West Sussex BN99 6DA to be received by 11.00 a.m. on 16 October 2017.
Your ability to sell your rights is dependent on demand for such rights and that the price for Nil Paid Rights may fluctuate. Please ensure that you allow enough time so as to enable the person acquiring your rights to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 16 October 2017.
Alternatively, if you only want to take up some of your Rights (but not sell some or all of the rest), you should complete Form X on the Provisional Allotment Letter and return it with a cheque or banker’s draft together with an accompanying letter indicating the number of Nil Paid Rights that you wish to take up, in accordance with the provisions set out in the Provisional Allotment Letter. In this case the Provisional Allotment Letter and cheque or banker’s draft must be received by Equiniti Limited by 3.00 p.m. on 12 October 2017, being the latest time and date for splitting Provisional Allotment Letters, nil paid.
83 Further details are set out in Part IX (Terms and Conditions of the Rights Issue) of this document and will be set out in the Provisional Allotment Letter.
6.4 If you want to sell all of your rights
If you want to sell all of your rights, you should complete and sign Form X on the Provisional Allotment Letter (if it is not already marked “Original Duly Renounced”) and pass the entire letter to your stockbroker, bank manager or other appropriate financial adviser or to the transferee (provided they are not in the United States or the Excluded Territories).
Your ability to sell your rights is dependent on demand for such rights and that the price for Nil Paid Rights may fluctuate. Please ensure that you allow enough time so as to enable the person acquiring your rights to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 16 October 2017.
7 I ACQUIRED MY EXISTING SHARES PRIOR TO THE RECORD DATE AND HOLD MY EXISTING SHARES IN CERTIFICATED FORM. WHAT IF I DO NOT RECEIVE A PROVISIONAL ALLOTMENT LETTER?
If the Shareholders pass the Resolution at the General Meeting to be held on 28 September 2017, and you do not receive a Provisional Allotment Letter but hold your Existing Shares in certificated form, this probably means that you are not able to take up your Rights or acquire New Shares under the Rights Issue. Some Non CREST Shareholders, however, will not receive a Provisional Allotment Letter but may still be eligible to take up your Rights or acquire New Shares under the Rights Issue, namely:
7.1 Qualifying CREST Shareholders who held their Existing Shares in uncertificated form on 26 September 2017 and who have converted them to certificated form;
7.2 Shareholders who bought Existing Shares before 26 September 2017 and who hold such Shares in certificated form but were not registered as the holders of those Shares at the close of business on 26 September 2017; and
7.3 certain Overseas Shareholders.
If you do not receive a Provisional Allotment Letter but think that you should have received one, please call the Shareholder Helpline on 0333 207 6563 (from within the United Kingdom) or on +44 121 415 0878 (if calling from outside the United Kingdom).
8 IF I BUY SHARES AFTER THE RECORD DATE, WILL I BE ELIGIBLE TO PARTICIPATE IN THE RIGHTS ISSUE?
If you bought Shares after the Record Date but prior to 8.00 a.m. on the Ex Rights Date, you may be eligible to participate in the Rights Issue.
If you are in any doubt, please consult your stockbroker, bank or other appropriate financial adviser, or whoever arranged your share purchase, to ensure you claim your entitlement.
If you buy Shares at or after 8.00 a.m. on the Ex Rights Date, you will not be eligible to participate in the Rights Issue in respect of those Shares.
9 I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. IF I TAKE UP MY RIGHTS, WHEN WILL I RECEIVE THE CERTIFICATE REPRESENTING MY NEW SHARES?
If you take up your rights under the Rights Issue, share certificates for the New Shares are expected to be posted by no later than 24 October 2017.
10 WHAT IF THE NUMBER OF NEW ORDINARY SHARES TO WHICH I AM ENTITLED IS NOT A WHOLE NUMBER? AM I ENTITLED TO FRACTIONS OF NEW SHARES?
Your entitlement to New Shares will be calculated at the Record Date (other than in the case of those
84 who bought shares after the Record Date but prior to 8.00 a.m. on the Ex Rights Date who are eligible to participate in the Rights Issue). If the result is not a whole number, you will not be provisionally allotted a New Share in respect of the fraction of a New Share and your entitlement will be rounded down to the nearest whole number. The New Shares representing the aggregated fractions that would otherwise be allotted to Shareholders will be sold in the market nil paid for the benefit of the Company.
11 WILL I BE TAXED IF I TAKE UP OR SELL MY RIGHTS OR IF MY RIGHTS ARE SOLD ON MY BEHALF?
If you are resident in the United Kingdom for tax purposes, you should not have to pay UK tax when you take up your rights, although the Rights Issue will affect the amount of UK tax you may pay when you subsequently sell your Shares.
However, assuming that you hold your Shares as an investment, rather than for the purposes of a trade, you may (subject to any available exemption or relief) be subject to capital gains tax on any proceeds that you receive from the sale of your rights. Similarly, assuming that you hold your Shares as an investment, if you allow, or are deemed to allow, your rights to lapse and receive a cash payment in respect of them, you may (subject to any available exemption or relief) be subject to capital gains tax on any proceeds.
However, if the proceeds are “small” as compared to the value of the Existing Shares in respect of which the rights arose (broadly, the proceeds do not exceed £3,000 or five per cent. of the value of the Existing Shares), a capital gains tax charge should not generally arise at that time. Rather, the proceeds will be deducted from the base cost of the holding of the Existing Shares for the purposes of computing a chargeable gain or allowable loss on a subsequent disposal. This treatment will not apply if the proceeds are greater than the base cost of the holding of Existing Shares.
Further information for Qualifying Shareholders who are resident in the United Kingdom for tax purposes is contained in Part XVI (Taxation) of this document. This information is intended as a general guide to the current tax position in the United Kingdom and Qualifying Shareholders should consult their own tax advisers regarding the tax treatment of the Rights Issue in light of their own circumstances. Qualifying Shareholders who are in any doubt as to their tax position, or who are subject to tax in any other jurisdiction, should consult an appropriate professional adviser as soon as possible. Please note that the Shareholder Helpline will not be able to assist you with taxation issues.
12 I UNDERSTAND THAT THERE IS A PERIOD WHEN THERE IS TRADING IN THE NIL PAID RIGHTS. WHAT DOES THIS MEAN?
If you do not want to buy the New Shares being offered to you under the Rights Issue, you can instead sell or transfer your Nil Paid Rights and receive the net proceeds of the sale or transfer in cash. This is referred to as “dealing nil paid”. This means that, during the Rights Issue period (between 29 September 2017 and 11.00 a.m. on 16 October 2017) you can either purchase Shares (which will not carry any entitlement to participate in the Rights Issue) or you can trade in the Nil Paid Rights.
13 I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. WHAT IF I WANT TO SELL THE NEW ORDINARY SHARES FOR WHICH I HAVE PAID?
Provided the Rights and the New Shares have been paid for and you have requested the return of the receipted Provisional Allotment Letter, you can transfer the Fully Paid Rights by completing Form X (the form of renunciation) on the receipted Provisional Allotment Letter in accordance with the instructions set out in the Provisional Allotment Letter until 3.00 p.m. on 11 October 2017. After that time, you will be able to sell your New Shares in the normal way. The share certificate relating to your New Shares is expected to be despatched to you by no later than 24 October 2017. Pending despatch of the share certificate, instruments of transfer will be certified by the Registrar against the register.
Further details are set out in Part IX (Terms and Conditions of the Rights Issue).
14 WHAT SHOULD I DO IF I LIVE OUTSIDE THE UNITED KINGDOM?
Whilst you have an entitlement to participate in the Rights Issue, your ability to take up or sell rights to New Shares may be affected by the laws of the country in which you live and you should take professional advice
85 as to whether you require any governmental or other consents or need to observe any other formalities to enable you to take up your rights. Shareholders with registered addresses in the United States or the Excluded Territories are, subject to certain exceptions, not able to take up their Rights or acquire New Shares under the Rights Issue. Your attention is drawn to the information in paragraph 7 of Part IX (Terms and Conditions of the Rights Issue) of this document.
The Company has made arrangements under which Citi and Barclays will try to find investors to take up your rights and those of other Shareholders who have not taken up their rights. If Citi and Barclays find investors who agree to pay a premium above the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of value added tax), you will be sent a cheque for your share of the amount of that premium provided that this is £5.00 or more. Cheques are expected to be despatched by no later than 24 October 2017 and will be sent to your address appearing on the Company’s register of members (or to the first named holder if you hold your Shares jointly). If investors cannot be found who agree to pay a premium over the Issue Price and related expenses so that your entitlement would be £5.00 or more, you will not receive any payment and any such amount of less than £5.00 will be donated to charity.
15 WILL THE RIGHTS ISSUE AFFECT THE FUTURE DIVIDENDS THE COMPANY PAYS?
Following completion of the Rights Issue, future dividend payments will be adjusted for the Rights Issue. The adjustment will take account of the discount in the Issue Price to the share price at close of business on 11 September 2017, being the day prior to the announcement of the terms of the Rights Issue.
16 WHAT IF I HOLD OPTIONS AND AWARDS UNDER THE SHARE SCHEMES?
Participants in the Share Schemes will be contacted separately with further information on how their options and awards granted under such plans may be affected by the Rights Issue.
17 HOW DO I TRANSFER MY RIGHTS INTO THE CREST SYSTEM?
If you are a Qualifying Non CREST Shareholder, but are a CREST member and want your Rights and the New Shares to be in uncertificated form, you should complete Form X and the CREST Deposit Form (both on the Provisional Allotment Letter) and ensure they are delivered to CCSS to be received by 3.00 p.m. on 11 October 2017 at the latest. CREST sponsored members should arrange for their CREST sponsors to do this.
If you have transferred your rights into the CREST system, you should refer to paragraph 4 of Part IX (Terms and Conditions of the Rights Issue) of this document for details on how to pay for the New Shares.
18 WHAT SHOULD I DO IF I THINK MY HOLDING OF SHARES IS INCORRECT?
If you have recently bought or sold Shares, your transaction may not be entered on the register of members in time to appear on the register at the Record Date. If you are concerned about the figure in the Provisional Allotment Letter or otherwise concerned that your holding of Shares is incorrect, please call the Shareholder Helpline on 0333 207 6563 (from within the United Kingdom) or on +44 121 415 0878 (if calling from outside the United Kingdom).
19 WHERE TO FIND FURTHER HELP
If you have any questions relating to the Rights Issue or completion and return of your Provisional Allotment Letter, please contact the Shareholder Helpline on the numbers set out below.
Shareholder Helpline telephone numbers:
0333 207 6563 (from inside the UK) or +44 121 415 0878 (if calling from outside the UK)
The Shareholder Helpline is open from 8.30 a.m. to 5.30 p.m. (UK time) Monday to Friday (excluding English and Welsh public holidays). Calls to the Shareholder Helpline from outside the UK will be charged at the applicable international rate. Please note that calls may be recorded and randomly monitored for security and training purposes.
86 Please note that for legal reasons, the Shareholder Helpline cannot provide advice on the merits of the Rights Issue nor give financial, tax, investment or legal advice.
87 PART IX - TERMS AND CONDITIONS OF THE RIGHTS ISSUE
1 SUMMARY OF THE RIGHTS ISSUE
1.1 Equiniti is proposing to raise approximately £118 million net of expenses, by way of a rights issue of 64,309,150 New Shares.
1.2 Qualifying Shareholders who do not, or are not able or permitted to, take up their Nil Paid Rights in full will have their proportionate shareholdings in the Company diluted by approximately 17.6 per cent. as a result of the Rights Issue.
1.3 The Rights Issue Price of 190p per New Share represents a discount of approximately 31.7 per cent. to the theoretical ex-rights price based on the closing middle-market price of a Share as derived from SEDOL of 297.1p per Existing Share on 11 September 2017 (being the latest practicable date prior to the date of this Prospectus).
2 TERMS AND CONDITIONS OF THE RIGHTS ISSUE
2.1 Subject to the terms and conditions set out below (and, in the case of Qualifying Non-CREST Shareholders, the Provisional Allotment Letter), the New Shares will be offered for subscription by way of a rights issue to Qualifying Shareholders (other than Excluded Shareholders) on the following basis:
3 New Shares at 190p each for every 14 Existing Shares
held and registered in the name of each Qualifying Shareholder at the close of business on the Record Date and so in proportion for any other number of Shares then held. Qualifying Shareholders with fewer than five Existing Shares will not be entitled to any New Shares. Entitlements to New Shares will be rounded down to the nearest whole number (or to zero in the case of Qualifying Shareholders holding fewer than five Existing Shares at the close of business on the Record Date) and fractions of New Shares will not be allotted to Qualifying Shareholders but will be aggregated and, if possible, sold in the market as soon as practicable after the commencement of dealings in the New Shares, nil paid. The net proceeds of such sales (after deduction of expenses) will accrue for the benefit of Equiniti. Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.
2.2 The Nil Paid Rights (also described as New Shares, nil paid) are entitlements to buy New Shares at the Rights Issue Price. The Fully Paid Rights are entitlements to receive New Shares for which subscription and payment has already been made.
2.3 Qualifying Shareholders who do not, or are not able or permitted to, take up their Nil Paid Rights in full will experience dilution of their shareholdings by 17.6 per cent. as a result of the Rights Issue.
2.4 The attention of all Qualifying Shareholders and any other person (including, without limitation, custodians, nominees and trustees) who has a contractual or legal obligation to forward this document into a jurisdiction other than the UK is drawn to paragraph para 7 of Part IX (Terms and Conditions of the Rights Issue) below. New Shares will be provisionally allotted (nil paid) to all Qualifying Shareholders on the Register at the Record Date, including Excluded Shareholders. However, subject to certain exceptions, Qualifying Shareholders who have a registered address in the Excluded Territories or who are otherwise located in the Excluded Territories have not been and will not be sent Provisional Allotment Letters and have not and will not have their CREST accounts credited with Nil Paid Rights.
2.5 The Existing Shares are listed on the premium segment of the Official List and traded on the London Stock Exchange’s main market for listed securities. Application will be made to the UK Listing Authority and to the London Stock Exchange for the Rights and the New Shares to be admitted to the premium segment of the Official List and to trading on the London Stock
88 Exchange’s Main Market for listed securities, respectively.
2.6 It is expected that Admission will become effective on 29 September 2017 and that dealings in the New Shares, nil paid, will commence at 8.00 a.m. on the same day.
2.7 The New Shares and the Existing Shares are in registered form and can be held in certificated and uncertificated form via CREST.
2.8 The Existing Shares are already admitted to CREST. No further application for admission to CREST is required for the New Shares. All such New Shares, when issued and fully paid, may be held and transferred by means of CREST. Applications will be made for the Nil Paid Rights and the Fully Paid Rights to be admitted to CREST. Euroclear requires the Company to confirm to it that certain conditions are satisfied before Euroclear will admit the Nil Paid Rights and Fully Paid Rights to CREST. It is expected that these conditions will be satisfied on Admission. As soon as practicable after Admission, the Company will confirm this to Euroclear.
2.9 The Rights and the New Shares will be issued pursuant to the authority granted under the resolutions passed at the Annual General Meeting of the Company held in April 2017. The New Shares, when fully paid, will rank pari passu with the Existing Shares.
2.10 The ISIN for the New Shares will be the same as the ISIN for the Existing Shares, being GB00BYWWHR75. The ISIN for the Nil Paid Rights will be GB00BD1QQJ84 and the SEDOL will be BD1QQJ8. The ISIN for the Fully Paid Rights will be GB00BD1QQL07 and the SEDOL will be BD1QQL0.
2.11 None of the Rights nor the New Shares are being made available to the public other than pursuant to the Rights Issue on the terms and subject to the conditions set out in this document and, in the case of Qualifying Non-CREST Shareholders holding certificated shares, any relevant Provisional Allotment Letter.
2.12 The Rights Issue has been fully underwritten by the Joint Bookrunners in accordance with the terms of the Underwriting Agreement and is conditional on, inter alia:
(a) the Company complying with its obligations under the Underwriting Agreement to the extent they fall to be performed before Admission;
(b) the publication of a press release relating to the Rights Issue in the approved terms through a Regulatory Information Service by not later than 7.30 a.m. on the date of the Underwriting Agreement;
(c) the passing of the Resolution (without any amendment which is material in the bona fide opinion of the Joint Bookrunners) at the General Meeting by the requisite majority of Shareholders;
(d) no supplementary prospectus being published by or on behalf of the Company prior to Admission;
(e) the Asset Purchase Agreement not having been terminated, rescinded or materially amended or varied in any material respect (without the prior written consent of the Joint Bookrunners) prior to Admission;
(f) the Senior Facilities Agreement not having been terminated, not having been amended or varied in any manner which would adversely affect the availability of the Debt Financing Commitment without the prior written consent of the Joint Bookrunners, not to be unreasonably withheld, and not having lapsed or ceased to be capable of completion in accordance with its terms and the Company having received no notification that any condition contained in the Debt Financing Commitments will not be fulfilled or waived;
(g) in the sole opinion of the Joint Bookrunners after consultation (where practicable) with
89 the Company, there being or there having been no material adverse change nor any development which could reasonably be expected to result in a material adverse change at any time before Admission;
(h) Admission becoming effective by not later than 8.00 a.m. on 29 September 2017 (or such later date as the Company and Joint Bookrunners may determine, not being later than 8.00 a.m. on 17 October 2017); and
(i) Euroclear having approved admission and enablement of the Nil Paid Rights and Fully Paid Rights as participating securities within CREST on or prior to Admission and such Ordinary Shares continuing to be participating securities within CREST.
2.13 If the Resolution is not passed the Rights Issue will not proceed.
2.14 The Rights Issue is not conditional upon completion of the Acquisition; if the Acquisition does not complete the Rights Issue may still complete and the Board will consider how best to return the net proceeds of the Rights Issue to Shareholders. Such a return could result in certain costs and complexities such that any return of capital may be less than the amount subscribed in the Rights Issue.
2.15 The Underwriting Agreement may be terminated by the Joint Bookrunners prior to Admission upon the occurrence of certain specified events, in which case the Rights Issue will not proceed. the Joint Bookrunners may arrange sub-underwriting for some, or none, of the New Shares. The Underwriting Agreement is not capable of termination following Admission. A summary of the principal terms of the Underwriting Agreement is set out in Part XVIII (Additional Information) of this document.
2.16 The Joint Bookrunners and their respective affiliates may, in accordance with the applicable legal and regulatory provisions, engage in transactions in relation to the Nil Paid Rights, the Fully Paid Rights or the New Shares and/or related instruments for its own account for the purpose of hedging its underwriting exposure or otherwise. Except as required by applicable law or regulation, The Joint Bookrunners do not propose to make any public disclosure in relation to such transactions.
2.17 In connection with the Rights Issue, the Joint Bookrunners and their respective affiliates, acting as an investor for its own account, may take up Rights in the Rights Issue and in that capacity may retain, purchase or sell for their own account such securities and any Rights and the New Shares or related investments and may offer to sell such New Shares or other investments otherwise than in connection with a Rights Issue. Accordingly, references in this document to Rights and the New Shares being offered or placed should be read as including any offering or placement of Rights and the New Shares to the Joint Bookrunners or any of their respective affiliates acting in such capacity. Neither the Joint Bookrunners or their respective affiliates intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. In addition, the Joint Bookrunners or their respective affiliates may enter into financing arrangements (including swaps or contract for differences) with investors in connection with which the Joint Bookrunners may from time to time acquire, hold or dispose of Shares.
2.18 Applications will be made for the Nil Paid Rights and the Fully Paid Rights to be admitted to CREST. Euroclear requires Equiniti to confirm to it that certain conditions are satisfied before Euroclear will admit any security to CREST. As soon as practicable after Admission, Equiniti will confirm this to Euroclear. It is expected that these conditions will be satisfied on Admission.
2.19 In addition, the Company reserves the right to decide not to proceed with the Rights Issue if the Underwriting Agreement is terminated at any time prior to Admission and commencement of dealings in the New Shares, nil paid.
2.20 Subject, inter alia, to the conditions referred to in paragraphs 2.12(a) to 2.12(g) above being satisfied and save as provided in paragraphs 2.12(a) to 2.12(g) of this Part IX (Terms and
90 Conditions of the Rights Issue), it is intended that:
(a) Provisional Allotment Letters (which constitute temporary documents of title) in respect of Nil Paid Rights will be despatched to Qualifying Non-CREST Shareholders (other than, subject to certain exceptions, Qualifying Shareholders with a registered address in the Excluded Territories, or who are otherwise located in any Excluded Territory, or any agent or intermediary of those Qualifying Shareholders, except where Equiniti is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction) following the General Meeting on 28 September 2017;
(b) the Receiving Agent will instruct Euroclear UK & Ireland to credit the appropriate stock accounts of Qualifying CREST Shareholders (other than Qualifying CREST Shareholders with a registered address in the Excluded Territories or who are otherwise located in any Excluded Territory, or any agent or intermediary of those Qualifying CREST Shareholders, except where Equiniti is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction) with their entitlements to Nil Paid Rights with effect from 8.00a.m. on 29 September 2017;
(c) the Nil Paid Rights and Fully Paid Rights will be enabled for settlement by Euroclear UK & Ireland on 29 September 2017, as soon as practicable after Equiniti has confirmed to Euroclear UK & Ireland that all the conditions for admission of the Nil Paid Rights and the Fully Paid Rights to CREST have been satisfied;
(d) the New Shares will be credited to the appropriate CREST accounts of the relevant Qualifying CREST Shareholders (or relevant renouncees) who validly take up their Nil Paid Rights as soon as practicable after 8.00 a.m. on 17 October 2017; and
(e) share certificates in respect of the New Shares taken up are expected to be posted to the relevant Qualifying Non-CREST Shareholders (or relevant renouncees) on or around 24 October 2017 at their own risk.
2.21 This document constitutes the offer of New Shares to all Qualifying CREST Shareholders (other than, subject to certain exceptions, Qualifying CREST Shareholders with a registered address in the Excluded Territories or who are otherwise located in any Excluded Territory, or any agent or intermediary of those Qualifying Shareholders, except where Equiniti and the Joint Bookrunners are satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction) by way of enablement of the Nil Paid Rights and the Fully Paid Rights (as set out in paragraph 2.20(e) above); and to Qualifying Non-CREST Shareholders (other than, subject to certain exceptions, Qualifying Non-CREST Shareholders with a registered address in the Excluded Territories or who are otherwise located in any Excluded Territory; or any agent or intermediary of those Qualifying Non-CREST Shareholders, except where Equiniti is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction) by way of a Provisional Allotment Letter (as set out in paragraph 2.20(a) above).
2.22 All documents, including Provisional Allotment Letters (which constitute temporary documents of title), cheques and certificates posted to or by or from Qualifying Shareholders and/or their respective transferees or renouncees (or their agents, as appropriate) will be posted at their own risk. Any person accepting and/or renouncing a Provisional Allotment Letter or requesting registration of the Rights and the New Shares comprised therein and any CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in paragraphs 4.2 and 5.2 of this Part IX (Terms and Conditions of the Rights Issue) of this document is deemed to have made the representations and warranties set out in paragraphs 5.2(d) and 7.5 of this Part IX (Terms and Conditions of the Rights Issue) of this document.
2.23 If for any reason it becomes necessary to adjust the expected timetable as set out in this document, Equiniti will make an appropriate announcement to a Regulatory Information Service
91 giving details of the revised dates.
2.24 The attention of Overseas Shareholders is drawn to paragraph 7 of this Part IX (Terms and Conditions of the Rights Issue).
2.25 The New Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Shares, including the right to receive all dividends or other distributions made, paid or declared after the date of issue of the New Shares. There will be no restrictions on the free transferability of the New Shares save as provided in the Articles. The rights attaching to the New Shares are governed by the Articles, a summary of which is set out in paragraph 6 of Part XVIII (Additional Information) of this Prospectus.
2.26 Shareholders taking up their rights by completing a Provisional Allotment Letter or by sending a MTM instruction to Euroclear will be deemed to have given the representations and warranties set out in paragraph 5.2(d) and 7.5 of this Part IX (Terms and Conditions of the Rights Issue), unless the requirement is waived by the Company.
3 ACTION TO BE TAKEN
3.1 The action to be taken in respect of Rights and New Shares depends on whether, at the relevant time, the Nil Paid Rights or Fully Paid Rights in respect of which action is to be taken are in certificated form (that is, are represented by Provisional Allotment Letters) or in uncertificated form (that is, are in CREST).
3.2 If you are a Qualifying Non-CREST Shareholder and (subject to certain limited exceptions, as set out in paragraph 7 of this Part IX (Terms and Conditions of the Rights Issue)) do not have a registered address in the Excluded Territories, please refer to paragraphs 1, 2, 4 and 7 to 14 (inclusive) of this Part IX (Terms and Conditions of the Rights Issue).
3.3 If you are a Qualifying CREST Shareholder and (subject to certain limited exceptions, as set out in paragraph 7 of this Part IX) do not have a registered address in the Excluded Territories, please refer to paragraphs 1, 2, 5 and 7 to 14 (inclusive) of this Part IX (Terms and Conditions of the Rights Issue) and to the CREST Manual for further information on the CREST procedures referred to below.
3.4 If you are a Qualifying CREST Shareholder or a Qualifying Non-CREST Shareholder, either (i) with a registered address in an Excluded Territory, or (ii) holding Shares on behalf of, or for the account or benefit of any person on a non-discretionary basis who is in an External Territory, please refer to paragraph 7 below.
3.5 CREST sponsored members should refer to their CREST sponsors, as only their CREST sponsors will be able to take the necessary actions specified below to take up the entitlements or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of CREST sponsored members.
3.6 All enquiries in relation to the Provisional Allotment Letters should be addressed to Equiniti Limited using the telephone numbers provided in 3.7 below which is available from 9.00 a.m. to 5.30 p.m. (London time) Monday to Friday.
3.7 If you have any questions, please call 0333 207 6563 (from inside the UK) or +44 121 415 0878 (if calling from outside the UK). The Shareholder Helpline is open from 8.30 a.m. to 5.30 p.m. (UK time) Monday to Friday (excluding English and Welsh public holidays). Calls to the Shareholder Helpline from outside the UK will be charged at the applicable international rate. Please note that calls may be recorded and randomly monitored for security and training purposes. Please note that for legal reasons, the Shareholder Helpline cannot provide advice on the merits of the Rights Issue nor give financial, tax, investment or legal advice.
92 4 ACTION TO BE TAKEN BY QUALIFYING NON-CREST SHAREHOLDERS IN RELATION TO NIL PAID RIGHTS REPRESENTED BY PROVISIONAL ALLOTMENT LETTERS
4.1 General
(a) Provisional Allotment Letters are expected to be despatched to Qualifying Non- CREST Shareholders (other than, subject to certain limited exceptions, as set out in paragraph 7 of this Part IX (Terms and Conditions of the Rights Issue), Qualifying Non-CREST Shareholders with registered addresses in the Excluded Territories) following the General Meeting on 28 September 2017.
(b) Each Provisional Allotment Letter will set out:
(1) in box 1, the holding at the close of business on the Record Date of Existing Shares on which a Qualifying Non-CREST Shareholder’s entitlement to New Shares has been based;
(2) in box 2, the aggregate number of Rights and the New Shares provisionally allotted to that Qualifying Non-CREST Shareholder;
(3) in box 3, the amount payable by a Qualifying Non-CREST shareholder at the Rights Issue Price to take up his entitlement in full;
(4) the procedures to be followed if a Qualifying Non-CREST Shareholder wishes to take up all of his, her or its entitlement to New Shares;
(5) the procedures to be followed if a Qualifying Non-CREST Shareholder wishes to dispose of all or part of his entitlement or to convert all or part of his entitlement into uncertificated form; and
(6) instructions regarding acceptance and payment, consolidation, splitting and registration of renunciation.
(c) If you sell or have sold or otherwise transferred all of your Existing Shares (other than ex-rights) in certificated form before the Ex-Rights Date, please send any Provisional Allotment Letter, if and when received, at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee except that no Provisional Allotment Letter should be distributed, forwarded to or transmitted in or into any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to the United States or any of the other Excluded Territories.
(d) If you sell or transfer or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex-rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in paragraph 4.7 of this Part IX (Terms and Conditions of the Rights Issue).
(e) If you do not receive a Provisional Allotment letter or you think that the holding of Existing Shares in certificated form on which your entitlement to Rights and New Shares in the Provisional Allotment Letter has been based does not reflect your holding of Existing Shares in certificated form on the Record Date, please telephone Equiniti Limited on the numbers set out in paragraph 3 of this Part IX (Terms and Conditions of the Rights Issue).
(f) If the Rights Issue is delayed so that Provisional Allotment Letters cannot be despatched on 28 September 2017, the expected timetable on page 73 of this document will be adjusted accordingly and the revised dates will be set out in the Provisional Allotment Letters and announced through a Regulatory Information Service. References to dates and times in this document should be read as subject to any such adjustment.
93 (g) On the basis that Provisional Allotment Letters are posted on 28 September 2017 and that dealings commence at 8.00 a.m. on 29 September 2017, the latest time and date for acceptance and payment in full will be 11.00 a.m. on 16 October 2017.
4.2 Procedure for acceptance and payment
(a) Qualifying Non-Crest Shareholders who wish to accept in full
Qualifying Non-CREST Shareholders who wish to accept in full Holders of Provisional Allotment Letters who wish to take up all of their Nil Paid Rights must return the Provisional Allotment Letter in accordance with the instructions thereon, together with a cheque or banker’s draft, made payable to “Equiniti Limited re: Equiniti Group plc Rights Issue” (and crossed “A/C Payee Only”) for the full amount payable on acceptance, in accordance with the instructions printed on the Provisional Allotment Letter, by post or by hand (during normal business hours) to Equiniti Limited, Corporate Actions, Aspect House, Lancing Road, Worthing, West Sussex BN99 6DA so as to be received as soon as possible and, in any event, not later than 11.00 a.m. on 16 October 2017. A reply-paid envelope is enclosed for use within the United Kingdom only. If you post your Provisional Allotment Letter, it is recommended that you allow sufficient time for delivery. Please note that payments via CHAPS, BACS or electronic transfer will not be accepted. Once your Provisional Allotment Letter duly completed and payment has been received by the Receiving Agent in accordance with the above, you will have accepted the offer to subscribe for the number of Rights and the New Shares specified on your Provisional Allotment Letter.
(b) Qualifying Non-Crest Shareholders who wish to accept in part
Holders of Provisional Allotment Letters who wish to take up some, but not all, of their Nil Paid Rights should refer to Section 4.7 of this Part IX (Terms and Conditions of the Rights Issue) below.
(c) Qualifying Non-CREST Shareholders who do not wish to take up their rights at all
Holders of Provisional Allotment Letters who do not wish to take up their rights at all do not need to do anything. If Qualifying Non-CREST Shareholders do not return the Provisional Allotment Letter by 11.00 a.m. on 16 October 2017, Equiniti has made arrangements under which the Joint Bookrunners will try to find investors to take up such Shareholders’ rights. If they do find investors and are able to achieve a premium over the Rights Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of VAT which are not recoverable), Qualifying Non- CREST Shareholders so entitled will be sent a cheque for the amount of that aggregate premium above the Rights Issue Price less related expenses (including any applicable brokerage and commissions and amounts in respect of VAT which are not recoverable), so long as the amount in question is at least £5.00.
(d) Payments
All payments must be made in pounds sterling by cheque or banker’s draft made payable to “Equiniti Limited re: Equiniti Group plc Rights Issue” and crossed “A/C Payee Only” . Third-party cheques may not be accepted. Cheques or banker’s drafts must be drawn on the personal account to which the Qualifying Non-CREST Shareholder (or their nominees) has sole or joint title to the funds. Such payments will be held by the Receiving Agent to the order of Equiniti. Cheques or banker’s drafts must be drawn on an account at a branch (which must be in the United Kingdom, the Channel Islands or the Isle of Man) of a bank or building society which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through facilities provided by either of these companies. Such cheques and banker’s drafts must bear the appropriate sorting code in
94 the top right-hand corner. Neither post-dated cheques nor payments via CHAPS, BACS or electronic transfer will be accepted.
Cheques and banker's drafts will be presented for payment on receipt. The Company reserves the right to instruct the Receiving Agent to seek special clearance of cheques or banker’s drafts to allow value to be obtained for remittances at the earliest opportunity. No interest will be paid on payments made before they are due and any interest on such payments ultimately will accrue for the benefit of the Company. It is a term of the Rights Issue that cheques shall be honoured on first presentation, and Equiniti and the Joint Bookrunners may elect to treat as invalid any acceptances in respect of which cheques are not so honoured. Return of the Provisional Allotment Letter with a cheque will constitute a warranty that the cheque will be honoured on first presentation. All documents, cheques, and banker’s drafts sent through the post will be sent at the risk of the sender. If New Shares have already been issued to Qualifying Non-CREST Shareholders prior to any payment not being so honoured or such Qualifying Non-CREST Shareholders’ acceptances being treated as invalid, Equiniti may (in its absolute discretion as to manner, timing and terms) make arrangements for the sale of such New Shares on behalf of those Qualifying Non-CREST Shareholders and hold the proceeds of sale (net of Equiniti’s reasonable estimate of any loss that they have suffered as a result of the payment not being honoured or the acceptance being treated as invalid and of the expenses of sale, and of all amounts payable by such Qualifying Non-CREST Shareholders pursuant to the provisions of this Part IX (Terms and Conditions of the Rights Issue) in respect of the acquisition of such New Shares) on behalf of such Qualifying Non-CREST Shareholders. None of Equiniti, the Joint Bookrunners or any other person shall be responsible for, or have any liability for, any loss, expenses or damage suffered by Qualifying Non-CREST Shareholders as a result.
If payment is made by a building society cheque (not being drawn on account of the applicant) or a banker’s draft, the building society or bank should insert details of the name of the account holder and have either added the building society or bank branch stamp, or have provided a supporting letter confirming the source of funds. The name of such account holder should be the same as the name of the shareholder shown on page 1 or page 4 of the Provisional Allotment Letter.
(e) If a cheque or banker’s draft sent by a Qualifying Non-CREST Shareholder is drawn for an amount different from that set out in Box 3 of that Qualifying Non-CREST Shareholder’s Provisional Allotment Letter, that Shareholder’s application shall be treated as an acceptance in respect of such whole number of New Shares which could be acquired at the Rights Issue Price with the amount for which the cheque or banker’s draft is drawn (and not the amount set out in Box 3 of the Provisional Allotment Letter). Any balance from the amount of the cheque will be retained for the benefit of the Company.
4.3 Discretion as to validity of acceptances
(a) If payment is not received in full by 11.00 a.m. on 16 October 2017, whether from the original allottee or any other person in whose favour the Rights have been renounced, the provisional allotment will (unless the Company has exercised its right to treat as valid an acceptance, as set out below) be deemed to have been declined and lapsed. Equiniti and the Joint Bookrunners may elect, but shall not be obliged, to treat as valid: (a) Provisional Allotment Letters and accompanying remittances that are received through the post not later than 8.00 a.m. on 16 October 2017 if the cover bearing a legible postmark not later than 11.00 a.m. on 16 October 2017); and (b) acceptances in respect of which a remittance is received prior to 11.00 a.m. on 16 October 2017 from an authorised person (as defined in section 31(2) of FSMA) specifying the number of New Shares to be acquired and undertaking to lodge the relevant Provisional Allotment Letter, duly completed, in due course.
95 (b) Equiniti may also (having consulted with the Joint Bookrunners) treat a Provisional Allotment Letter as valid and binding on the person(s) by whom or on whose behalf it is lodged even if it is not completed in accordance with the relevant instructions or is not accompanied by a valid power of attorney where required.
(c) The Company, having first consulted with the Joint Bookrunners, reserves the right to treat as invalid any acceptance or purported acceptance of the Rights that appears to the Company and the Joint Bookrunners to have been executed in, despatched from or that provides an address for delivery of share certificates for New Shares in the United States or any Excluded Territory unless the Company and the Joint Bookrunners are satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.
(d) The provisions of this paragraph 4.3 and any other terms of the Rights Issue relating to Qualifying Non-CREST Shareholders may be waived, varied or modified as regards specific Qualifying Non-CREST Shareholder(s) or on a general basis by the Company and the Joint Bookrunners.
(e) A Qualifying Non-CREST Shareholder who makes a valid acceptance and payment in accordance with this section 4 is deemed to request that the New Shares to which they will become entitled be issued to them on the terms set out in this document and subject to the Articles.
4.4 Money Laundering Regulations
(a) It is a term of the Rights Issue that, to ensure compliance with the Money Laundering Regulations, the Receiving Agent may require, at its absolute discretion, verification of the identity of the person by whom or on whose behalf the Provisional Allotment Letter is lodged with payment (which requirements are referred to below as the “verification of identity requirements”). If the Provisional Allotment Letter is submitted by a UK regulated broker or intermediary acting as agent and which is itself subject to the Money Laundering Regulations, any verification of identity requirements are the responsibility of such broker or intermediary and not of the Receiving Agent. In such case, the lodging agent’s stamp should be inserted on the Provisional Allotment Letter. The person lodging the Provisional Allotment Letter with payment and in accordance with the other terms as described above (the “acceptor”), including any person who appears to the Receiving Agent to be acting on behalf of some other person, shall thereby be deemed to agree to provide the Receiving Agent with such information and other evidence as the Receiving Agent may require to satisfy the verification of identity requirements.
(b) The Receiving Agent may therefore undertake electronic searches, including using a credit reference agency, for the purposes of verifying identity. To do so, the Receiving Agent may verify the details against the applicant’s identity, but also may request further proof of identity. A record of the search will be retained. If the Receiving Agent determines that the verification of identity requirements apply to any acceptor or application, the relevant New Shares (notwithstanding any other term of the Rights Issue) will not be issued to the relevant acceptor unless and until the verification of identity requirements have been satisfied in respect of that acceptor or application. The Receiving Agent is entitled, in its absolute discretion, to determine whether the verification of identity requirements apply to any acceptor or application and whether such requirements have been satisfied, and neither the Receiving Agent, the Joint Bookrunners, nor Equiniti will be liable to any person for any loss or damage suffered or incurred (or alleged), directly or indirectly, as a result of the exercise of such discretion.
(c) If the verification of identity requirements apply, failure to provide the necessary evidence of identity within a reasonable time may result in delays and potential rejection of an application. If, within a reasonable time and in any event by not later than 3 p.m. on
96 16 October 2017 following a request for verification of identity, the Receiving Agent has not received evidence satisfactory to it as aforesaid, Equiniti may be entitled to make arrangements (in its absolute discretion as to manner, timing and terms) to sell the relevant shares (and for that purpose the Company will be expressly authorised to act as agent of the acceptor). Any proceeds of sale (net of expenses) of the relevant shares which shall be issued to and registered in the name of the purchaser(s) or an amount equivalent to the original payment, whichever is the lower, will be held by the Company on trust for the acceptor, subject to the requirements of the Money Laundering Regulations (at the acceptor’s risk) without interest to the account of the bank or building society on which the relevant cheque or banker’s draft was drawn (without prejudice to the right of Equiniti to take proceedings to recover the amount by which the net proceeds of sale of the relevant Rights fall short of the amount payable thereon).
(d) None of the Receiving Agent, the Joint Bookrunners or the Company will be liable to any person for any loss suffered or incurred as a result of the exercise of any such discretion or as a result of any sale of relevant shares.
(e) Submission of a Provisional Allotment Letter with the appropriate remittance will constitute a warranty to each of Equiniti, the Receiving Agent and the Joint Bookrunners from the applicant that the Money Laundering Regulations will not be breached by application of such remittance and an undertaking to provide promptly to the Registrar such information as may be specified by the Registrar as being required for the purpose of the Money Laundering Regulations. If the verification of identity requirements apply, failure to provide the necessary evidence of identity may result in your acceptance being treated as invalid or in delays in the despatch of a receipted fully paid Provisional Allotment Letter, share certificate or other documents relating to the Rights Issue (as applicable).
(f) The verification of identity requirements will not usually apply for the UK purposes if:
(1) the applicant is an organisation required to comply with the EU Money Laundering Directive 2005/60/EC of the European Parliament and of the EC Council of 26 October 2005;
(2) the acceptor is a regulated United Kingdom broker or intermediary acting as agent and is itself subject to the Money Laundering Regulations;
(3) the applicant is a company whose securities are listed on a regulated market subject to specified disclosure obligations;
(4) the applicant (not being an applicant who delivers his/her application in person) makes payment through an account in the name of such applicant with a credit institution which is subject to the Money Laundering Regulations or with a credit institution situated in a non-EEA State which imposes requirements equivalent to those laid down in that directive; or
(5) the aggregate subscription price for the New Shares is less than EUR15,000 (or its pounds sterling equivalent).
(g) In other cases the verification of identity requirements may apply. The following guidance is provided in order to assist in satisfying the verification of identity requirements and to reduce the likelihood of difficulties or delays and potential rejection of an application (but does not limit the right of the Registrar to require verification of identity as stated above). Satisfaction of these requirements may be facilitated in the following ways:
(1) if payment is made by cheque or banker’s draft in pounds sterling drawn on a branch in the United Kingdom of a bank or building society which bears a UK bank sort code number in the top right-hand corner the following applies. Cheques,
97 which must be drawn on the personal account of the individual investor where they have sole or joint title to the funds, should be payable to Equiniti Limited re Equiniti Group plc Rights Issue” in respect of an application by a Qualifying Non-CREST Shareholder. Third party cheques may not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the cheque/ banker’s draft to such effect. The account name should be the same as that shown on the Provisional Allotment Letter; or
(2) if the Provisional Allotment Letter is lodged with payment by an agent which is an organisation of the kind referred to in sub-paragraph 4.4(f)(i) above or which is subject to anti-money laundering regulation in a country which is a member of the Financial Action Task Force (the non-European Union members of which are Argentina, Australia, Brazil, Canada, China, Gibraltar, Hong Kong, Iceland, Japan, Mexico, New Zealand, Norway, Russian Federation, Singapore, South Africa, Switzerland, Turkey, UK Crown Dependencies and the United States and, by virtue of their membership of the Gulf Co-operation Council, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), the agent should provide with the Provisional Allotment Letter written confirmation that it has that status and a written assurance that it has obtained and recorded evidence of the identity of the person for whom it acts and that it will on demand make such evidence available to the Receiving Agent and/or any relevant regulatory or investigatory authority, or if the agent is not such an organisation, it should contact the Receiving Agent at the address set out in “Directors and Advisers”; or
(3) if a Provisional Allotment Letter is lodged by hand by the applicant in person, he should ensure that he has with him evidence of identity bearing his photograph (for example, his passport) and evidence of his address (for example, a recent bank statement).
4.5 Dealings in Nil Paid Rights
Subject to the fulfilment of the conditions set out in paragraph 2 of this Part IX (Terms and Conditions of the Rights Issue), dealings on the London Stock Exchange in the Nil Paid Rights are expected to commence at 8.00 a.m. on 29 September 2017. A transfer of Nil Paid Rights can be made by renunciation of the Provisional Allotment Letter in accordance with the instructions printed on it and delivery of the Provisional Allotment Letter to the transferee or to a stockbroker, bank or other appropriate financial adviser. The latest time for registration of renunciation of Provisional Allotment Letters, nil paid, is expected to be 3.00 p.m. on 11 October 2017.
4.6 Dealings in Fully Paid Rights
After acceptance of the provisional allotment and payment in full in accordance with the provisions set out in this document and in the Provisional Allotment Letter, the Fully Paid Rights may be transferred by renunciation of the relevant Provisional Allotment Letter and lodging of the same, by post or by hand (during normal business hours only) to Corporate Actions, Equiniti Limited, Aspect House, Lancing Road, Worthing, West Sussex BN99 6DA, so as to be received not later than 11.00 a.m. on 16 October 2017. To do this, Qualifying Non-CREST Shareholders will need to have their fully paid Provisional Allotment Letter returned to them after their acceptance has been effected by the Receiving Agent. However, fully paid Provisional Allotment Letters will not be returned to Qualifying Non-CREST Shareholders unless their return is requested by ticking the appropriate box on the Provisional Allotment Letter. Thereafter, the New Shares will be registered and transferable in the usual common form or, if they have been issued in or converted into uncertificated form, in electronic form under the CREST system.
4.7 Renunciation and splitting of Provisional Allotment Letters
98 (a) The Provisional Allotment Letters are fully renounceable (save as required by the laws of certain overseas jurisdictions) and may be split prior to 3.00 p.m. on 12 October 2017 nil paid and fully paid. Qualifying Non-CREST Shareholders who wish to transfer all of their Nil Paid Rights or, after acceptance of the provisional allotment and payment in full, Fully Paid Rights comprised in a Provisional Allotment Letter may (save as required by the laws of certain overseas jurisdictions) renounce such allotment by completing and signing Form X on page 4 of the Provisional Allotment Letter (if it is not already marked “Original Duly Renounced”) and passing the entire Provisional Allotment Letter to their stockbroker or bank or other appropriate financial adviser or to the transferee. Once a Provisional Allotment Letter has been so renounced, it will become a negotiable instrument in bearer form and the Nil Paid Rights or Fully Paid Rights (as appropriate) comprised in such letter may be transferred by delivery of such letter to the transferee, provided that a transferee must not have a registered address in, or be resident or located in, the United States or any other Excluded Territory. The latest time and date for registration of renunciation of Provisional Allotment Letters is 3.00 p.m. on 11 October 2017 and after such date the New Shares will be in registered form, transferable by written instrument of transfer in the usual common form or, if they have been issued in or converted into uncertificated form, in electronic form under the CREST system.
(b) Qualifying Non-CREST Shareholders should note that fully paid Provisional Allotment Letters will not be returned to Qualifying Non-CREST Shareholders unless their return is requested.
(c) If a holder of a Provisional Allotment Letter wishes to have only some of the Rights registered in his name and to transfer the remainder, or wishes to transfer all the Nil Paid Rights, or (if appropriate) Fully Paid Rights but to different persons, he may have the Provisional Allotment Letter split, for which purpose he must sign and date Form X on page4 of the Provisional Allotment Letter. The Provisional Allotment Letter must then be delivered by post or by hand (during normal business hours only) to the appropriate address as set out in paragraph 4.7 of this Part IX (Terms and Conditions of the Rights Issue) by no later than 3.00 p.m. on 12 October 2017, to be cancelled and exchanged for the split Provisional Allotment Letters required. The number of split Provisional Allotment Letters required and the number of Nil Paid Rights or (as appropriate) Fully Paid Rights to be comprised in each split Provisional Allotment Letter should be stated in an accompanying letter. Form X on page 4 of split Provisional Allotment Letters will be marked “Original Duly Renounced” before issue. The holder of the split Provisional Allotment Letters should then follow the instructions in the preceding paragraph in relation to transferring the Nil Paid Rights or (if appropriate) Fully Paid Rights represented by each of the Provisional Allotment Letters.
(d) Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their Rights, without transferring the remainder, should complete Form X on page 4 of the original Provisional Allotment Letter and return it by post or by hand (during normal business hours only) to the Registrar at the appropriate address as set out in paragraph 4.7 of this Part IX (Terms and Conditions of the Rights Issue), together with a covering letter confirming the number of New Shares to be taken up and a cheque or banker’s draft in pounds sterling for the appropriate amount made payable to “Equiniti Limited re: Equiniti Group plc Rights Issue” and crossed “A/C payee only” detailing the allotment number (which is on page 1 of the Provisional Allotment Letter) written on the reverse of the cheque or banker’s draft to pay for this number of shares. In this case, the Provisional Allotment Letter and the cheque or banker’s draft must be received by the Registrar by 11.00 a.m. on 16 October 2017, being the last date and time for acceptance.
(e) Equiniti reserves the right to refuse to register any renunciation in favour of any person in respect of which Equiniti believes such renunciation may violate applicable legal or regulatory requirements including (without limitation) any renunciation in the name of any person with an address outside the United Kingdom.
99 4.8 Registration in the names of Qualifying Non-CREST Shareholders
A Qualifying Non-CREST Shareholder who wishes to have all his entitlement to New Shares registered in his name must accept and make payment for such allotment prior to the latest time for acceptance and payment in full, which is 11.00 a.m. on 16 October 2017, in accordance with the provisions set out in the Provisional Allotment Letter and this document, but need take no further action. A share certificate shall be sent to such Shareholder by post not later than 24 October 2017.
4.9 Registration in the names of persons other than Qualifying Non-CREST Shareholders originally entitled
In order to register Fully Paid Rights in certificated form in the name of someone other than the Qualifying CREST Shareholders originally entitled, the renouncee or his agent(s) must complete Form Y on page 4 of the Provisional Allotment Letter (unless the renouncee is a CREST member who wishes to hold such shares in uncertificated form, in which case Form X and the CREST Deposit Form must be completed – as set out in paragraph 4.11 of this Part IX (Terms and Conditions of the Rights Issue)) and lodge the entire letter when fully paid by post or by hand (during normal business hours only) with the Receiving Agent at the appropriate address as set out in paragraph 4.7 of this Part IX (Terms and Conditions of the Rights Issue) not later than the latest time for registration of renunciation which is 3.00 p.m. on 11 October 2017. Registration cannot be effected unless and until the New Shares comprised in a Provisional Allotment Letter are fully paid. The New Shares comprised in two or more Provisional Allotment Letters (duly renounced where applicable) may be registered in the name of one holder (or joint holder) if Form Y is completed on page 4 of one of the Provisional Allotment Letters (the “Principal Letter”) and all other relevant Provisional Allotment Letters are delivered in one batch. Details of each relevant Provisional Allotment Letter (including the Principal Letter) should be listed in an attached letter and the allotment number of the Principal Letter should be entered into the space provided on each of the other Provisional Allotment Letters.
4.10 Deposit of Nil Paid Rights or Fully Paid Rights into CREST
(a) The Nil Paid Rights or Fully Paid Rights represented by a Provisional Allotment Letter may be converted into uncertificated form, that is deposited into CREST (whether such conversion arises as a result of a renunciation of those rights or otherwise). Similarly, Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is withdrawn from CREST. Subject as provided in the next paragraph or in the Provisional Allotment Letter, normal CREST procedures and timings apply in relation to any such conversion. You are recommended to refer to the CREST Manual for details of such procedures.
(b) The procedure for depositing the Nil Paid Rights or Fully Paid Rights represented by a Provisional Allotment Letter into CREST, whether such rights are to be converted into uncertificated form in the name(s) of the person(s) whose name(s) and address(es) appear on page 1 of the Provisional Allotment Letter or in the name of a person or persons to whom the Provisional Allotment Letter has been renounced, is as follows: Form X and the CREST Deposit Form (both set out on page 4 of the Provisional Allotment Letter) will need to be completed and the Provisional Allotment Letter deposited with the “CCSS”; in addition, the normal CREST stock deposit procedures will need to be carried out, except that: (a) it will not be necessary to complete and lodge a separate CREST Transfer Form (prescribed under the Stock Transfer Act 1963) with the CCSS; and (b) only the whole of the Nil Paid Rights or Fully Paid Rights represented by the Provisional Allotment Letter may be deposited into CREST. If you wish to deposit only some of the Nil Paid Rights or Fully Paid Rights represented by the Provisional Allotment Letter into CREST, you must first apply for split Provisional Allotment Letters. If the rights represented by more than one Provisional Allotment Letter are to be deposited, the CREST Deposit Form on each Provisional Allotment Letter must be completed and deposited. A Consolidation Listing Form (as defined in the CREST Regulations) must not be used. A holder of the Nil
100 Paid Rights or Fully Paid Rights represented by a Provisional Allotment Letter who is proposing to convert those rights into uncertificated form (whether following a renunciation of such rights or otherwise) is recommended to ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the Nil Paid Rights or Fully Paid Rights in CREST following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 16 October 2017.
(c) In particular, having regard to processing times in CREST and on the part of the Receiving Agent, the latest recommended time for depositing a renounced Provisional Allotment Letter (with Form X and the CREST Deposit Form on page 4 of the Provisional Allotment Letter duly completed) with the CCSS (to enable the person acquiring the Nil Paid Rights or Fully Paid Rights in CREST as a result of the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 16 October 2017) is 3.00 p.m. on 11 October 2017.
(d) When Form X and the CREST Deposit Form (both set out on page 4 of the Provisional Allotment Letter) have been completed, the title to the Nil Paid Rights or the Fully Paid Rights represented by the relevant Provisional Allotment Letter will cease forthwith to be renounceable or transferable by delivery and, for the avoidance of doubt, any entries in Form X on page 4 of such Provisional Allotment Letter will not be recognised or acted upon by the Registrar. All renunciations or transfers of the Nil Paid Rights or Fully Paid Rights must be effected through the means of the CREST system once such rights have been deposited into CREST.
(e) CREST sponsored members should contact their CREST sponsor as only their CREST sponsor will be able to take the necessary action to take up their entitlement or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of the CREST sponsored member. Note: Surrender of the Provisional Allotment Letter with (a) Form X purporting to have been signed by the same person(s) in whose name(s) it was issued or, in the case of a split PAL, marked “Original Duly Renounced”, and (b) where applicable, Form Y or the CREST Deposit Form duly completed, shall be conclusive evidence in favour of Equiniti and the Registrar of:
(1) the right of the person(s) named in Form Y or the CREST Deposit Form of the Provisional Allotment Letter to be registered as the holder(s) of the Rights and the New Shares comprised in the Provisional Allotment Letter;
(2) the title of the person(s) lodging the Provisional Allotment Letter to deal with the same and to receive split Provisional Allotment Letters and/or a share certificate or a deposit to their CREST member’s account (as appropriate); and
(3) the authority of the person(s) completing Form Y or the CREST Deposit Form. All documents will be despatched by post at the risk of the person(s) entitled to them. For the avoidance of doubt, each Provisional Allotment Letter deposited with the CCSS is not considered to be a bearer document unless delivered. Liability is limited to standard stock deposit replacement costs in accordance with Euroclear UK’s standard terms and conditions.
4.11 Issue of New Shares in definitive form
Definitive share certificates in respect of the New Shares to be held in certificated form are expected to be despatched by post by no later than 24 October 2017 at the risk of the person(s) entitled to them, to accepting Qualifying Non-CREST Shareholders and renouncees or their agents or, in the case of joint holdings, to the first-named Shareholder at their registered address (unless lodging agent details have been completed in box 5 on page 4 of the Provisional Allotment Letter). After despatch of definitive share certificates, Provisional Allotment Letters will cease to be valid for any purpose whatsoever. Pending despatch of definitive share certificates and the inscription of the member in Equiniti’s register of members, instruments of transfer of the New
101 Shares will be certified by the Registrar against the lodgement of fully paid Provisional Allotment Letters and/or, in the case of renunciations, against the Provisional Allotment Letters held by the Registrar.
5 ACTION TO BE TAKEN BY QUALIFYING CREST SHAREHOLDERS IN RELATION TO NIL PAID RIGHTS IN CREST
5.1 General
(a) Subject as provided in paragraph 7 of this Part IX (Terms and Conditions of the Rights Issue) in relation to certain Overseas Shareholders, each Qualifying CREST Shareholder is expected to receive a credit to his CREST stock account of his entitlement to Nil Paid Rights as soon as practicable after 8.00 a.m. on 29 September 2017. For such Qualifying CREST Shareholders, the CREST stock account to be credited will be an account under the participant ID and member account ID that apply to the Existing Shares held on the Record Date by the Qualifying CREST Shareholder in respect of which the Nil Paid Rights are provisionally allotted.
(b) The maximum number of New Shares that a Qualifying CREST Shareholder may take up is that which has been provisionally allotted to that Qualifying CREST Shareholder and for which he receives a credit of entitlement into his stock account in CREST. The minimum number of New Shares a Qualifying CREST Shareholder may take up is one.
(c) The Nil Paid Rights will constitute a separate security and can accordingly be transferred, in whole or in part, by means of CREST in the same manner as any other security that is admitted to CREST. If, for any reason, it is impracticable to credit the stock accounts of such Qualifying CREST Shareholders or to enable the Nil Paid Rights by 8.00 a.m. on 29 September 2017, Provisional Allotment Letters shall, unless Equiniti decides otherwise, be sent out in substitution for the Nil Paid Rights which have not been so credited or enabled and the expected timetable as set out in this document may be adjusted as appropriate. References to dates and times in this document should be read as subject to any such adjustment. Equiniti will make an appropriate announcement to a Regulatory Information Service giving details of the revised dates but Qualifying CREST Shareholders may not receive any further written communication.
(d) CREST members who wish to take up all or part of, or otherwise to transfer all or part of, their entitlements in respect of or otherwise to transfer Nil Paid Rights or Fully Paid Rights held by them in CREST (including effecting a cashless take-up of Nil Paid Rights), should refer to the CREST Manual for further information on the CREST procedures referred to below. If you are a CREST sponsored member, you should consult your CREST sponsor if you wish to take up your entitlement as only your CREST sponsor will be able to take the necessary action to take up your entitlements or otherwise deal with your Nil Paid Rights or Fully Paid Rights.
5.2 Procedure for acceptance and payment
(a) MTM instructions
CREST members who wish to take up all or part of their entitlement in respect of Nil Paid Rights in CREST must send (or, if they are CREST sponsored members, procure that their CREST sponsor sends) an MTM instruction to Euroclear which, on its settlement, will have the following effect:
(1) the crediting of a stock account of the Receiving Agent under the participant ID and member account ID specified below, with the number of Nil Paid Rights to be taken up;
(2) the creation of a settlement bank payment obligation (as this term is defined in the
102 CREST Manual), in accordance with the RTGS payment mechanism (as this term is defined in the CREST Manual), in favour of the RTGS settlement bank (as this term is defined in the CREST Manual) of the Receiving Agent in pounds sterling, in respect of the full amount payable on acceptance in respect of the Nil Paid Rights referred to in sub-paragraph 5.2(a)(1) above; and
(3) the crediting of a stock account of the accepting CREST member (being an account under the same participant ID and member account ID as the account from which the Nil Paid Rights are to be debited on settlement of the MTM instruction) of the corresponding number of Fully Paid Rights to which the CREST member is entitled on taking up his Nil Paid Rights referred to in sub-paragraph 5.2(a)(1) above.
(b) Contents of MTM instructions
The MTM instruction must be properly authenticated in accordance with Euroclear’s specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details:
(1) the number of Nil Paid Rights to which the acceptance relates;
(2) the participant ID of the accepting CREST member;
(3) the member account ID of the accepting CREST member from which the Nil Paid Rights are to be debited;
(4) the participant ID of the Receiving Agent, in its capacity as a CREST receiving agent. This is 2RA89;
(5) the member account ID of the Receiving Agent, in its capacity as a CREST receiving agent. This is RA268301;
(6) the number of Fully Paid Rights that the CREST member is expecting to receive on settlement of the MTM instruction. This must be the same as the number of Nil Paid Rights to which the acceptance relates;
(7) the amount payable by means of the CREST assured payment arrangements on settlement of the MTM instruction. This must be the full amount payable on acceptance in respect of the number of Nil Paid Rights to which the acceptance relates (referred to in paragraph 5.2(a)(i) above);
(8) the intended settlement date (which must be on or before 11.00 a.m. on 16 October 2017);
(9) the Nil Paid Rights ISIN. This is GB00BD1QQJ84;
(10) the Fully Paid Rights ISIN. This is GB00BD1QQL07;
(11) the Corporate Action Number (as this term is defined in the CREST Manual) to the Rights Issue. This will be available by viewing the relevant corporate action details in CREST;
(12) contact name and telephone numbers in the shared notes field; and
(13) a priority of at least 80.
(c) Valid acceptance
(1) An MTM instruction complying with each of the requirements as to authentication and contents set out in paragraph 5.2(b) will constitute a valid acceptance where
103 either:
(A) the MTM instruction settles by not later than 11.00 a.m. on 16 October 2017; or
(B) at the discretion of Equiniti and the Joint Bookrunners: (A) the MTM instruction is received by Euroclear by not later than 11.00 a.m. on 16 October 2017; and (B) the number of Nil Paid Rights inserted in the MTM instruction is credited to the CREST stock member account of the accepting CREST member specified in the MTM instruction at 11.00a.m. on 16 October 2017; and (C) the relevant MTM instruction settles by 2.00pm on 16 October 2017 (or such later date as Equiniti and the Joint Bookrunners have determined).
(2) An MTM instruction will be treated as having been received by Euroclear for these purposes at the time at which the instruction is processed by the Network Provider’s Communications Host (as this term is defined in the CREST Manual) at Euroclear of the network provider used by the CREST member (or by the CREST sponsored member’s CREST sponsor). This will be conclusively determined by the input time stamp applied to the MTM instruction by the Network Provider’s Communications Host.
(3) The provisions of this paragraph 5.2 and any other terms of the Rights Issue relating to Qualifying CREST Shareholders may be waived, varied or modified as regards specific Qualifying CREST Shareholder(s) or on a general basis by the Company and the Joint Bookrunners.
(d) Representations, warranties and undertakings of CREST members
(1) A CREST member, or CREST sponsored member who makes a valid acceptance in accordance with this paragraph 5.2, represents, warrants and undertakes to Equiniti and the Joint Bookrunners that he/she has taken (or procured to be taken), and will take (or will procure to be taken), whatever action is required to be taken by him/her or by his/her CREST sponsor (as appropriate) to ensure that the MTM instruction concerned is capable of settlement at 11.00a.m. on 16 October 2017 and remains capable of settlement at all times after that until 2.00pm on 16 October 2017 (or until such later time and date as Equiniti and the Joint Bookrunners may determine). In particular, the CREST member or CREST sponsored member represents, warrants and undertakes that at 11.00 a.m. on 16 October October 2017 and at all times thereafter until 2.00pm on 16 October 2017 (or until such later time and date as Equiniti and the Joint Bookrunners may determine) there will be sufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account to be debited with the amount payable on acceptance to permit the MTM instruction to settle. CREST sponsored members should contact their CREST sponsor if they are in any doubt.
(2) If there is insufficient headroom within the cap in respect of the cash memorandum account of a CREST member or CREST sponsored member for such amount to be debited or the CREST member’s or CREST sponsored member’s acceptance is otherwise treated as invalid and New Shares have already been allotted to such CREST member or CREST sponsored member, Equiniti and the Joint Bookrunners may (in their absolute discretion as to manner, timing and terms) make arrangements for the sale of such shares on behalf of that CREST member or CREST sponsored member and hold the proceeds of sale (net of Equiniti’s reasonable estimate of any loss that it has suffered as a result of the acceptance being treated as invalid and of the expenses of sale, and of all amounts payable by the CREST member or CREST sponsored member pursuant to the provisions of this Part IX (Terms and
104 Conditions of the Rights Issue) in respect of the acquisition of such shares) on behalf of such CREST member or CREST sponsored member. None of Equiniti nor the Joint Bookrunners nor any other person shall be responsible for, or have any liability for, any loss, expenses or damage suffered by such CREST member or CREST sponsored member as a result.
(3) A Qualifying CREST Shareholder will be deemed to have made the representations and warranties set out in paragraph 5.2(d) of this Part IX (Terms and Conditions of the Rights Issue) and the agreement and acknowledgement set out in paragraph 5.3 of this Part IX (Terms and Conditions of the Rights Issue).
(e) CREST procedures and timings
CREST members and CREST sponsors (on behalf of CREST sponsored members) should note that Euroclear does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in relation to the input of an MTM instruction and its settlement in connection with the Rights Issue. It is the responsibility of the CREST member concerned to take (or, if a CREST sponsored member, to procure that his CREST sponsor takes) the action necessary to ensure that a valid acceptance is received as stated above by 11.00 a.m. on 16 October 2017. In this connection, CREST members and (where applicable) CREST sponsors are referred in particular to those sections of the CREST Manual concerning the practical limitations of the CREST system and timings.
(f) CREST member’s undertaking to pay
A CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in this paragraph 5.2 undertakes to pay to the Registrar, or to procure the payment to the Registrar of, the amount payable in pounds sterling on acceptance in accordance with the above procedures or in such other manner as Equiniti may require (it being acknowledged that, where payment is made by means of the RTGS payment mechanism (as defined in the CREST Manual), the creation of a RTGS settlement bank (as this term is defined in the CREST Manual) payment obligation in pounds sterling in favour of the Registrar’s RTGS settlement bank, in accordance with the RTGS payment mechanism, shall, to the extent of the obligation so created, discharge in full the obligation of the CREST member (or CREST sponsored member) to pay the amount payable on acceptance); and requests that the Fully Paid Rights and/or New Shares to which they will become entitled be issued to them on the terms set out in this document and subject to Equiniti’s Articles. If the payment obligations of the relevant CREST member in relation to such New Shares are not discharged in full and such New Shares have already been issued to the CREST member or CREST sponsored member, Equiniti and the Joint Bookrunners may (in their absolute discretion as to the manner, timing and terms) make arrangements for the sale of such shares on behalf of that CREST member or CREST sponsored member and hold the proceeds of sale (net of expenses, and all amounts payable by the CREST member or CREST sponsored member pursuant to the provisions of this Part IX (Terms and Conditions of the Rights Issue) in respect of the acquisition of such shares) or an amount equal to the original payment of the CREST member or CREST sponsored member (whichever is lower) on trust for such CREST member or CREST sponsored member. In these circumstances, none of the Joint Bookrunners or Equiniti shall be responsible for, or have any liability for, any losses, expenses or damages arising as a result.
(g) Discretion as to rejection and validity of acceptances
Equiniti may in its absolute discretion (after consulting with the Joint Bookrunners):
(1) reject any acceptance constituted by an MTM instruction, which is otherwise valid, in
105 the event of breach of any of the representations, warranties and undertakings set out or referred to in this Part IX (Terms and Conditions of the Rights Issue). Where an acceptance is made as described in this paragraph 5.2(g) which is otherwise valid, and the MTM instruction concerned fails to settle by 2.00pm on 16 October 2017 (or by such later time and date as Equiniti and the Joint Bookrunners may determine), Equiniti shall be entitled to assume, for the purposes of its right to reject an acceptance as described in this paragraph 5.2(g), that there has been a breach of the representations, warranties and undertakings set out or referred to in this paragraph 5.2(g) unless Equiniti is aware of any reason outside the control of the CREST member or CREST sponsor (as appropriate) concerned for the MTM instruction to settle;
(2) treat as valid (and binding on the CREST member or CREST sponsored member concerned) an acceptance which does not comply in all respects with the requirements as to validity set out or referred to in this paragraph ;
(3) accept an alternative properly authenticated dematerialised instruction from a CREST member or (where applicable) a CREST sponsor as constituting a valid acceptance in substitution for, or in addition to, an MTM instruction and subject to such further terms and conditions as Equiniti and the Joint Bookrunners may determine;
(4) treat a properly authenticated dematerialised instruction (the “First Instruction”) as not constituting a valid acceptance if, at the time at which the Receiving Agent receives a properly authenticated dematerialised instruction giving details of the first instruction, either Equiniti or the Receiving Agent has received actual notice from Euroclear of any of the matters specified in CREST Regulation 35(5)(a) in relation to the first instruction. These matters include notice that any information contained in the first instruction was incorrect or notice of lack of authority to send the first instruction; and
(5) accept an alternative instruction or notification from a CREST member or (where applicable) a CREST sponsor, or extend the time for acceptance and/or settlement of an MTM instruction or any alternative instruction or notification, if, for reasons or due to circumstances outside the control of any CREST member or CREST sponsored member or (where applicable) CREST sponsor, the CREST member or CREST sponsored member is unable validly to take up all or part of his/her Nil Paid Rights by means of the above procedures. In normal circumstances, this discretion is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of facilities and/or systems operated by the Receiving Agent in connection with CREST.
5.3 Money Laundering Regulations
(a) If you hold your Nil Paid Rights in CREST and apply to take up all or part of your entitlement as agent for one or more persons and you are not a UK or EU regulated person or institution (e.g. a bank, a broker or another UK financial institution), then, irrespective of the value of the application, the Receiving Agent is required to take reasonable measures to establish the identity of the person or persons (or the ultimate controller of such persons) on whose behalf you are making the application and any submission of a MTM instruction constitutes agreement for the Receiving Agent to make a search via a credit reference agency where deemed necessary. A record of search results will be retained. Such Qualifying CREST Shareholders must therefore contact the Receiving Agent before sending any MTM instruction or other instruction so that appropriate measures may be taken.
(b) Submission of an MTM instruction which constitutes, or which may on its settlement constitute, a valid acceptance as described above constitutes a warranty and undertaking
106 by the applicant to provide promptly to the Receiving Agent any information the Receiving Agent may specify as being required for the purposes of the Money Laundering Regulations. Pending the provision of evidence satisfactory to the Receiving Agent as to identity, the Receiving Agent, having consulted with Equiniti and the Joint Bookrunners, may take, or omit to take, such action as it may determine to prevent or delay settlement of the MTM instruction.
(c) If satisfactory evidence of identity has not been provided within a reasonable time, the Receiving Agent will not permit the MTM instruction concerned to proceed to settlement; but without prejudice to the right of Equiniti and the Joint Bookrunners to take proceedings to recover any loss suffered by it/them as a result of failure by the applicant to provide satisfactory evidence.
5.4 Dealings in Nil Paid Rights in CREST
Subject to the fulfilment of the conditions under the Underwriting Agreement (summarised in paragraph 2.12 of this Part IX (Terms and Conditions of the Rights Issue)), dealings in the Nil Paid Rights on the London Stock Exchange are expected to commence at 8.00 a.m. on 29 September 2017. Dealings in Nil Paid Rights can be made by means of CREST in the same manner as any other security that is admitted to CREST. The Nil Paid Rights are expected to be disabled in CREST at 11.00a.m. on 16 October 2017.
5.5 Dealings in Fully Paid Rights in CREST
(a) After acceptance and payment in full in accordance with the provisions set out in this document, the Fully Paid Rights may be transferred (in whole or in part) by means of CREST in the same manner as any other security that is admitted to CREST. The last time for settlement of any transfer of Fully Paid Rights in CREST is expected to be 11.00a.m. on 16 October 2017. The Fully Paid Rights are expected to be disabled in CREST at the close of CREST business on 16 October 2017.
(b) After 16 October 2017, the New Shares will be registered in the name(s) of the person(s) entitled to them in Equiniti’s register of members and will be transferable in the usual way.
5.6 Withdrawal of Nil Paid Rights or Fully Paid Rights from CREST
(a) Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is withdrawn from CREST. Normal CREST procedures (including timings) apply in relation to any such conversion.
(b) The recommended latest time for receipt by Euroclear of a properly authenticated dematerialised instruction requesting withdrawal of Nil Paid Rights from CREST is 4.30pm on 10 October 2017, so as to enable the person acquiring or (as appropriate) holding the Nil Paid Rights following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 16 October 2017. You are recommended to refer to the CREST Manual for details of such procedures.
5.7 Issue of New Shares in CREST
Fully Paid Rights in CREST are expected to be disabled in CREST after the close of CREST business on 16 October 2017 (the latest date for settlement of transfers of Fully Paid Rights in CREST). New Shares (in definitive form) will be issued in uncertificated form to those persons registered as holding Fully Paid Rights in CREST at the close of business on the date on which the Fully Paid Rights are disabled. The Registrar will instruct Euroclear to credit the appropriate stock accounts of those persons (under the same participant ID and member account ID that applied to the Fully Paid Rights held by those persons) with their entitlements to Rights and the New Shares with effect from the next Business Day (expected to be 17 October 2017).
107 5.8 Right to allot/issue in certificated form
Despite any other provision of this document, Equiniti reserves the right to allot and to issue any Nil Paid Rights, Fully Paid Rights or New Shares in certificated form. In normal circumstances, this right is only likely to be exercised in the event of an interruption, failure or breakdown of CREST (or of any part of CREST) or of a part of the facilities and/or systems operated by the Receiving Agent in connection with CREST.
6 PROCEDURE IN RESPECT OF NEW SHARES NOT TAKEN UP
6.1 If an entitlement to New Shares is not validly taken up by 11.00am on 16 October 2017 in accordance with the procedure laid down for acceptance and payment, then that provisional allotment will be deemed to have been declined and will lapse. the Joint Bookrunners will endeavour to procure, by not later than 3.00pm on the second dealing day after the last date for acceptance of the Rights Issue, subscribers for all (or as many as possible) of those Rights not taken up at a price per New Share which is at least equal to the Rights Issue Price and the expenses of procuring such subscribers (including any applicable brokerage and commissions and amounts in respect of VAT which are not recoverable).
6.2 Notwithstanding the above, the Joint Bookrunners may cease to endeavour to procure any such subscribers if, in the reasonable opinion of the Joint Bookrunners, there is no reasonable likelihood that any such subscribers can be so procured at such a price by such time. If and to the extent that subscribers cannot be procured on the basis outlined above, the relevant New Shares will be subscribed for by the Joint Bookrunners as principal pursuant to the Underwriting Agreement or by the sub-underwriters (if any) procured by the Joint Bookrunners, in each case, at the Rights Issue Price and on the terms and subject to the conditions of the Underwriting Agreement.
6.3 Any premium over the aggregate of the Rights Issue Price and the expenses of procuring subscribers (including any applicable brokerage and commissions and amounts in respect of VAT which are not recoverable) shall be paid (subject as provided in this paragraph 6):
(a) where the Nil Paid Rights were, at the time of its lapsing, represented by a Provisional Allotment Letter, to the person whose name and address appeared on page 1 of the Provisional Allotment Letter;
(b) where the Nil Paid Rights were, at the time they lapsed, in uncertificated form, to the person registered as the holder of those Nil Paid Rights at the time of their disablement in CREST; and
(c) to the extent not provided above, where an entitlement to Rights and the New Shares was not taken up by an Overseas Shareholder, to that Overseas Shareholder,
6.4 New Shares for which subscribers are procured on this basis will be re-allotted to such subscribers and the aggregate of any premiums (being the amount paid by such subscribers after deducting the price at which the New Shares are offered pursuant to the Rights Issue and the expenses of procuring such subscribers including any applicable brokerage and commissions and amounts in respect of VAT which are not recoverable tax), if any, will be paid (without interest) to those persons entitled (as referred to above) pro rata to the entitlements not taken up, save that no payment will be made of amounts of less than £5 per holding, which amounts will ultimately accrue for the benefit of Equiniti. Cheques for the amounts due (if any) will be sent in pounds sterling, by first class post, at the risk of the person(s) entitled, to their registered addresses (the registered address of the first named in the case of joint holders), provided that where any entitlement concerned was held in CREST, the amount due will, unless Equiniti (in its absolute discretion) otherwise determines, be satisfied by Equiniti procuring the creation of an assured payment obligation in favour of the relevant CREST member’s (or CREST sponsored member’s) RTGS settlement bank in respect of the cash amount concerned in accordance with the RTGS payment mechanism.
6.5 Any transactions undertaken pursuant to this paragraph 6 shall be deemed to have been
108 undertaken at the request of the persons who did not take up their entitlements and none of Equiniti, the Joint Bookrunners nor any other person procuring subscribers shall be responsible for any loss or damage (whether actual or alleged) arising from the terms of or timing of any such acquisition, any decision not to endeavour to procure subscribers or the failure to procure subscribers on the basis described above. The Joint Bookrunners will be entitled to retain any brokerage, fees, commissions or other benefits received in connection with these arrangements.
6.6 It is a term of the Rights Issue that all New Shares validly taken up by subscribers under the Rights Issue may be allotted to such subscribers in the event that not all of the New Shares offered for subscription under the Rights Issue are taken up.
7 OVERSEAS SHAREHOLDERS AND SELLING AND TRANSFER RESTRICTIONS
7.1 General
(a) Whilst Overseas Shareholders (other than those, subject to certain exceptions, in the United States or the Excluded Territories) are entitled to participate in the Rights Issue, the offer of Nil Paid Rights, Fully Paid Rights, Provisional Allotment Letters and/or New Shares pursuant to the Rights Issue and the distribution of this document or any other document relating to the Rights Issue (including the Provisional Allotment Letter) to persons resident in, or who are citizens of, or who have a registered address in a jurisdiction other than, the United Kingdom may be affected by the laws of the relevant jurisdiction. Those persons should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights under the Rights Issue. It is the responsibility of all persons outside the United Kingdom (including, without limitation, custodians, nominees and trustees) receiving this document and/or a Provisional Allotment Letter and/or a credit of Nil Paid Rights to a stock account in CREST and wishing to accept the offer of New Shares to satisfy themselves as to full observance of the laws of the relevant territory, including obtaining all necessary governmental or other consents which may be required, observing all other requisite formalities needing to be observed and paying any issue, transfer or other taxes due in such territory.
(b) This paragraph 7.1 is intended as a general guide only. Any Overseas Shareholder who is in doubt as to his position should consult his own Independent Professional Adviser without delay. It sets out certain restrictions applicable to Qualifying Shareholders who have registered addresses outside the United Kingdom, who are citizens or residents of countries other than the United Kingdom, or who are persons (including, without limitation, custodians, nominees and trustees) who have a contractual or legal obligation to forward this document to a jurisdiction outside the United Kingdom or who hold Existing Shares for the account or benefit of any such person. The restrictions set out in this paragraph will also apply to any investors who acquire Rights or New Shares in connection with the placement of New Shares not subscribed for in the Rights Issue.
(c) Having considered the circumstances, the Board have formed the view that, subject to certain exceptions, it is necessary or expedient to restrict the ability of persons in the United States and the Excluded Territories to take up rights to the New Shares or otherwise participate in the Rights Issue due to the time and costs involved in the registration of this document and/or compliance with the relevant local, legal or regulatory requirements in those jurisdictions.
(d) Receipt of this document and/or a Provisional Allotment Letter or the crediting of Nil Paid Rights to a stock account in CREST will not constitute an offer of securities for subscription, sale or purchase in those jurisdictions in which it would be illegal to make such an invitation or offer and, in those circumstances, this document and/or a Provisional Allotment Letter must be treated as sent for information only and should not be copied or redistributed. New Shares will be provisionally allotted (nil paid) to all Shareholders on the register at the
109 Record Date, including Excluded Shareholders. However, a Provisional Allotment Letter will not be sent to, and Nil Paid Rights will not be credited to CREST accounts of, persons with registered addresses in the United States or any other Excluded Territory or their agent or intermediary, except where Equiniti and the Joint Bookrunners are satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.
(e) No person receiving a copy of this document and/or a Provisional Allotment Letter and/ or receiving a credit of Nil Paid Rights to a stock account in CREST in any territory other than the United Kingdom may treat the same as constituting an invitation or offer to him nor should he in any event use the Provisional Allotment Letter or deal with Nil Paid Rights or Fully Paid Rights in CREST unless, in the relevant territory, such an invitation or offer could lawfully be made to him or the Provisional Allotment Letter could lawfully be used or dealt with without contravention of any registration or other legal requirements.
(f) Accordingly, persons (including, without limitation, custodians, nominees and trustees) receiving a copy of this document and/or a Provisional Allotment Letter or whose stock account in CREST is credited with Nil Paid Rights or Fully Paid Rights should not, in connection with the Rights Issue, distribute or send the same in or into, or transfer Nil Paid Rights or Fully Paid Rights to any person in or into, the United States or any Excluded Territory. If a Provisional Allotment Letter or credit of Nil Paid Rights or Fully Paid Rights in CREST is received by any person in the United States or any Excluded Territory, or by their agent or nominee in any such territory, he must not seek to take up the rights referred to in the Provisional Allotment Letter or in this document or renounce the Provisional Allotment Letter or transfer the Nil Paid Rights or Fully Paid Rights in CREST unless Equiniti determines that such actions would not violate applicable legal or regulatory requirements. Any person (including, without limitation, custodians, nominees and trustees) who does forward this document or a Provisional Allotment Letter into any such territories (whether under contractual or legal obligation or otherwise) should draw the recipient’s attention to the contents of this paragraph 7.1.
(g) Subject to this paragraph 7.1, any person (including, without limitation, nominees, agents and trustees) outside the United Kingdom wishing to take up his rights under the Rights Issue (or to do so on behalf of someone else) must satisfy himself as to full observance of the applicable laws of any relevant territory including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such territories.
(h) None of Equiniti, the Joint Bookrunners, nor any of their respective representatives, is making any representation to any offeree or purchaser of the New Shares, Nil Paid Rights or Fully Paid Rights regarding the legality of an investment in the New Shares, Nil Paid Rights or Fully Paid Rights by such offeree or purchaser under the laws applicable to such offeree or purchaser.
(i) The Company reserves the right to treat as invalid and will not be bound to allot or issue any New Shares in respect of any acceptance or purported acceptance of the offer of New Shares which:
(1) appears to the Company or its agents to have been executed, effected or dispatched from the United States or any Excluded Territory unless the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement; or
(2) in the case of a Provisional Allotment Letter, provides an address for delivery of the share certificates or other statements of entitlement or advice in an Excluded Territory or any other jurisdiction outside the UK in which it would be unlawful to deliver such certificates, statements or advice or if the Company or its agents
110 believe that the same may violate applicable legal or regulatory requirements; or
(3) in the case of a credit of Rights or New Shares in CREST, to a CREST member or CREST sponsored member whose registered address would be in the United States or any Excluded Territory or any other jurisdiction outside the UK in which it would be unlawful to make such a credit or if the Company or its agents believe that the same may violate applicable legal or regulatory requirements.
(j) The attention of Overseas Shareholders with registered addresses in the United States or any of the Excluded Territories is drawn to paragraphs 7.2 to 7.7 below.
(k) The provisions of paragraph 6 above will apply to Overseas Shareholders who do not take up New Shares provisionally allotted to them or are unable to take up New Shares provisionally allotted to them because such action would result in a contravention of applicable law or regulatory requirements. Accordingly, such Shareholders will be treated as Shareholders that have not taken up their entitlement for the purposes of paragraph 6 above and the Joint Bookrunners will use reasonable endeavours to procure subscribers for the relevant Shares. The net proceeds of such sales (after deduction of expenses) will be paid to the relevant Shareholders pro-rata to their holdings of Existing Shares at the close of business on the Record Date as soon as practicable after receipt, save that no payment will be made of amounts of less than £5 or for amounts in respect of fractions, which amounts will be aggregated and ultimately accrue for the benefit of Equiniti. None of the Company, the Joint Bookrunners or any other person shall be responsible or have any liability whatsoever for any loss or damage (actual or alleged) arising from the terms or the timing of the acquisition or the procuring of it or any failure to procure subscribers.
(l) Notwithstanding any other provision of this document or the Provisional Allotment Letter, Equiniti reserves the right to permit any Qualifying Shareholder to take up rights, if in its sole and absolute discretion, it is satisfied that the transaction in question is exempt from, or not subject to, the legislation or regulations giving rise to the restrictions in question. If the Company is so satisfied, the Company will arrange for the relevant Qualifying Shareholder to be sent a Provisional Allotment Letter if he is a Qualifying Non-CREST Shareholder or, if he is a Qualifying CREST Shareholder, arrange for Nil Paid Rights to be credited to the relevant CREST stock account.
(m) Those Qualifying Shareholders who wish, and are permitted, to take up their entitlement should note that payments must be made as described in paragraph 4.2 in relation to Qualifying Non-CREST Shareholders and paragraph 5.2 in relation to Qualifying CREST Shareholders of this Part IX.
(n) The provisions of paragraph 6 of this Part IX (Terms and Conditions of the Rights Issue) will apply generally to Qualifying Shareholders with registered addresses in the Excluded Territories who do not or are unable to take up New Shares provisionally allotted to them.
7.2 Offering and transfer restrictions relating to the United States
(a) The Rights the New Shares and the Provisional Allotment Letters have not been nor will they be registered under the Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, in or within the United States except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in accordance with any applicable securities laws of any states or other jurisdiction of the United States.
(b) Subject to certain exceptions, Equiniti is not extending the Rights Issue into the United States and, subject to certain exceptions, none of this document and the Provisional Allotment Letters constitute or will constitute an offer or invitation to apply for an offer or an
111 invitation to acquire any Rights or New Shares in the United States, except to QIBs pursuant to an exemption from, the registration requirements of the Securities Act and in compliance with any applicable securities law of any state or other jurisdiction in the United States. Subject to certain exceptions, Provisional Allotment Letters have not been, and will not be, sent to, and Rights have not been, and will not be, credited to the CREST account of, any Qualifying Shareholder with a registered address in the United States.
(c) Subject to certain exceptions, Provisional Allotment Letters or renunciations thereof sent from or post-marked in the United States will be deemed to be invalid and all persons acquiring New Shares and wishing to take up their Rights and hold such New Shares in registered form must provide an address for registration of the Rights and the New Shares outside the United States.
(d) Subject to certain exceptions, any person who acquires Rights or New Shares will be deemed to have declared, warranted and agreed, by accepting delivery of this document or the Provisional Allotment Letters, taking up their entitlement or accepting delivery of the Rights or the New Shares, that they are not, and that at the time of acquiring the Rights or New Shares they will not be, in the United States or acting on a non-discretionary basis for a person located within the United States and that they are not acquiring the Rights and the New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any Rights or New Shares in the United States or anywhere the Company believes will result in the contravention of any applicable legal requirements in any jurisdiction.
(e) Subject to certain exceptions, each such person further will be deemed to have declared, warranted and agreed that: it acknowledges (or if it is a broker-dealer acting on behalf of a customer, its customer has confirmed to it that such customer acknowledges) that the Rights and the New Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and are being distributed and offered outside the United States in reliance on Regulation S; it is acquiring the Rights and the New Shares from Equiniti in an “offshore transaction” as defined in and meeting the requirements of Regulation S; and the Rights and the New Shares have not been offered to it by Equiniti by means of any “directed selling efforts” as defined in Regulation S.
(f) Equiniti, having first consulted with the Joint Bookrunners, reserves the right to treat as invalid any acceptance or purported acceptance of New Shares that appears to Equiniti to have been executed in, despatched from or that provides an address for delivery of share certificates for Rights and the New Shares in the United States. Equiniti will not be bound to allot (on a non-provisional basis) or issue any Rights, or accept to take up such Rights and issue New Shares to any person with an address in, or who is otherwise located in, the United States in whose favour a Provisional Allotment Letter or any Rights and the New Shares may be transferred or renounced.
(g) The provisions of paragraph 6 of this Part IX (Terms and Conditions of the Rights Issue) will apply to any Rights and the New Shares not taken up. Accordingly, subject to certain exceptions, Qualifying Shareholders with registered addresses in the United States will be treated as holders who are not participating in the Rights Issue, and the Joint Bookrunners will endeavour to sell the Rights and the New Shares relating to such holders’ entitlements on such holders’ behalf.
7.3 US transfer restrictions in respect of New Shares not taken up in the Rights Issue
Any person within the United States that subscribes for any New Shares that were not taken up in the Rights Issue must meet certain requirements and will be deemed to have represented, acknowledged and agreed that it has received a copy of this document and such other information as it deems necessary to make an investment decision and to have further represented,
112 acknowledged and agreed as follows (terms defined in Rule 144A or Regulation S shall have the same meaning in this section):
(a) It is a QIB and, if it is subscribing for or acquiring the New Shares as a fiduciary or agent for one or more investor accounts, each such account is a QIB.
(b) It is aware, and each beneficial owner of the New Shares has been advised, that the New Shares have not been, and will not be, registered under the Securities Act, and that the offer and sale to it (or such beneficial owner) is being made in a transaction not involving a public offering exempt from registration under the Securities Act.
(c) It is acquiring the New Shares for its own account or for the account of a QIB as to which it has full investment discretion (and it has full power and authority to make, and does make, the acknowledgments, representations and agreements herein on behalf of each owner of such account), in each case for investment purposes and not with a view to, or for offer of sale in connection with, any distribution (within the meaning of the US securities laws) thereof.
(d) It has made its own assessment concerning the relevant tax, legal, and other economic considerations relevant to its investment in the New Shares. It will base its investment decision solely on this document, including the information incorporated by reference herein. It acknowledges that none of the Company, any of its affiliates or any other person (including any of the Joint Bookrunners or any of their respective affiliates) has made any representations, express or implied, to it with respect to the Company, the Rights Issue, the New Shares or the accuracy, completeness or adequacy of any financial or other information concerning the Company, the Rights Issue or the New Shares, other than (in the case of the Company and its affiliates only) the information contained or incorporated by reference in this document. It acknowledges and agrees that it will not hold the Joint Bookrunners or any of their affiliates or any person acting on their behalf responsible or liable for any misstatements in or omissions from any publicly available information relating to the Company. It acknowledges that it has not relied on any investigation that the Joint Bookrunners or any person acting on their behalf may or may not have conducted, nor any information contained in any research reports prepared by the Joint Bookrunners or any of their respective affiliates, and it has relied solely on its own judgment, examination and due diligence of the Company, and the terms of the transaction, including the merits and risks involved, and not upon any view expressed by or information provided by, or on behalf of, the Joint Bookrunners or any of their affiliates. It acknowledges that it has read and agreed to the matters set forth under paragraph 7.2 of this Part IX.
(e) It is aware that the New Shares will be “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act.
(f) It is aware that the New Shares may not be deposited, and it agrees that it shall not deposit any New Shares, into any unrestricted depositary facility and that the New Shares may not settle or trade, and it agrees that it shall not settle or trade such New Shares, through the facilities of The Depositary Trust Company or any other US exchange or clearing system, unless at the time of deposit, settlement or trading such New Shares are no longer “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act.
(g) It will not reoffer, resell, pledge or otherwise transfer the New Shares except (i) outside the United States in accordance with Rule 903 or Rule 904 of Regulation S, or (ii) to another QIB in compliance with Rule 144A; or (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 or any other exemption from the registration requirements of the Securities Act, subject to its delivery to the Company of an opinion of counsel (and of such other evidence that the Company may reasonably require) that such transfer or sale is in compliance with the Securities Act, in each case in accordance with any applicable securities laws of any state or other jurisdiction of the United States. It understands that no representation has been made as to the availability of Rule 144 of the
113 Securities Act or any other exemption under the Securities Act or any state securities laws for the offer, resale, pledge or transfer of the securities.
(h) It understands, and each beneficial owner understands, that the Company does not intend to file a registration statement in respect of the New Shares.
(i) It is an institution, and it, and each other QIB, if any, for whose account it is acquiring the New Shares, in the normal course of business invest in or purchase securities similar to the New Shares, (i) has such knowledge and experience in financial and business matters that it is capable of evaluating the risks of an investment in the New Shares, and (ii) has the financial stability to bear the economic risk, and sustain a complete loss, of such investment in the New Shares for an indefinite period of time and adequate means for providing for current needs and possible contingencies. It agrees that it will not look to any of the Joint Bookrunners or any of their affiliates for all or part of any loss it may suffer.
(j) It is not subscribing for or acquiring the New Shares as a result of any general solicitation or general advertising (as those terms are defined in Regulation D under the Securities Act), including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over the radio or television or any seminar or meeting whose attendees have been invited by general solicitation or general advertising or directed selling efforts (as that term is defined in Regulation S).
(k) It acknowledges that, to the extent the New Shares are delivered in certificated form, the certificate delivered in respect of the New Shares will bear a legend substantially to the following effect for so long as the securities are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (B) TO A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN AND IN COMPLIANCE WITH RULE 144A; OR (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 OR ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (AND OF SUCH OTHER EVIDENCE THAT THE COMPANY MAY REASONABLY REQUIRE) THAT SUCH TRANSFER OR SALE IS IN COMPLIANCE WITH THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THE SHARES REPRESENTED HEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE SHARES MAY NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY MAINTAINED BY A DEPOSITARY BANK. EACH HOLDER, BY ITS ACCEPTANCE OF THESE SHARES, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS.
(l) It will notify any person to whom it subsequently reoffers, resells, pledges or otherwise transfers the New Shares of the foregoing restrictions on transfer. It acknowledges and agrees that the Company shall not have any obligation to recognize any offer, resale, pledge or other transfer made other than in compliance with the restrictions on transfer set forth and described in this section and that the Company may make notations on its records or give instructions to any transfer agent of the New Shares in order to implement such
114 restrictions.
(m) It acknowledges and agrees that the Company, its affiliates, the Joint Bookrunners, their respective affiliates, the Registrar and others will rely upon the truth and accuracy of the foregoing warranties, acknowledgements, representations and agreements. It agrees that if any of the representations, warranties, agreements and acknowledgements deemed to be made cease to be accurate, it shall promptly notify the Company and the Joint Bookrunners.
Prospective purchasers are hereby notified that sellers of the New Shares may be relying on the exemption from the registration requirements of the Securities Act provided by Rule 144A.
7.4 Australia
(a) This Prospectus and the Rights Issue is only made available in Australia to persons to whom a "disclosure document" is not required to be given under Chapter 6D of the Corporations Act 2001 (Cth) of Australia (the "Corporations Act"). This Prospectus is not a prospectus, product disclosure statement or any other form of formal “disclosure document” for the purposes of the Corporations Act. This Prospectus is not required to, and does not, contain all the information which would be required in a disclosure document under the Australian Corporations Act. Accordingly, the Nil Paid Rights, the Fully Paid Rights and the New Shares may not be offered, issued, sold or distributed in Australia by any person other than by way of, or pursuant to, an offer or invitation that does not need disclosure to investors under Chapter 6D of the Corporations Act.
(b) This Prospectus has not been, and will not be, lodged or registered with the Australian Securities and Investments Commission or the Australian Securities Exchange or any other regulatory body or agency in Australia.
(c) The persons referred to in this Prospectus may not hold Australian financial services licences and may not be licensed to provide financial product advice in relation to the securities.
(d) This Prospectus does not take into account the investment objectives, financial situation or needs of any particular person. Accordingly, before making any investment decision in relation to this document Prospectus, you should assess whether the acquisition of any interest in the Company is appropriate in light of your own financial circumstances or seek professional advice.
(e) Any Nil Paid Rights, Fully Paid Rights or New Shares issued upon acceptance of the Rights Issue may not be offered for sale or transferred to any person located in, or a resident of, Australia for a period of at least 12 months after the issue, except in circumstances where the person is a person to whom a disclosure document is not required to be given under Chapter 6D of the Corporations Act or in circumstances under which another exemption from the requirement to give a disclosure document is available. Accordingly, each investor acknowledges these restrictions and, by applying for the securities under this document, gives an undertaking not to sell or offer to sell these securities in Australia (except in the circumstances referred to above) for 12 months after their issue.
7.5 Other overseas territories
(a) Provisional Allotment Letters will be posted to Qualifying Non-CREST Shareholders (other than to, subject to certain limited exceptions, Qualifying Shareholders with registered addresses in the Excluded Territories) and Fully Paid Rights will be credited to the CREST stock accounts of Qualifying CREST Shareholders with registered addresses in any country other than,subject to certain limited exceptions, the United States or any other Excluded
115 Territory. Subject to certain limited exceptions, no offer of or invitation to subscribe for Rights or New Shares is being made by virtue of this document or the Provisional Allotment Letters into any of the Excluded Territories.
(b) Qualifying Shareholders in jurisdictions other than, subject to certain limited exceptions, the Excluded Territories may, subject to the laws of their relevant jurisdiction, accept their rights under the Rights Issue in accordance with the instructions set out in this document and, in the case of Qualifying Non-CREST Shareholders only, the Provisional Allotment Letters.
(c) Qualifying Shareholders who have registered addresses in or who are resident in, or who are citizens of, countries other than the United Kingdom should consult their appropriate professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their Nil Paid Rights or to acquire Fully Paid Rights or Rights and the New Shares.
(d) If you are in any doubt as to your eligibility to accept the offer of Rights and New Shares or to deal with Nil Paid Rights or Fully Paid Rights, you should contact your appropriate professional adviser immediately.
(e) EEA States
In relation to the EEA States that have implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive was implemented in that relevant member state (the “Relevant Implementation Date”), no New Shares, Nil Paid Rights or Fully Paid Rights have been offered or will be offered pursuant to the Rights Issue to the public in that relevant member state prior to the publication of a prospectus in relation to the New Shares, Nil Paid Rights and Fully Paid Rights which has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in the relevant member state, all in accordance with the Prospectus Directive, except that with effect from and including the relevant implementation date, offers of New Shares, Nil Paid Rights or Fully Paid Rights may be made to the public in that relevant member state at any time under the following exemptions under the Prospectus Directive, if they are implemented in that relevant member state:
(1) to any legal entity which is a qualified investor, as defined in the Prospectus Directive;
(2) to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) in such relevant member states; or
(3) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of New Shares, Nil Paid Rights or Fully Paid Rights shall result in a requirement for the publication by Equiniti of a prospectus pursuant to Article 3 of the Prospectus Directive.
For this purpose, the expression “an offer of any New Shares, Nil Paid Rights or Fully Paid Rights to the public” in relation to any Rights and the New Shares, Nil Paid Rights and Fully Paid Rights in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the Rights Issue and any New Shares, Nil Paid Rights and Fully Paid Rights to be offered so as to enable an investor to decide to acquire any New Shares, Nil Paid Rights or Fully Paid Rights, as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state.
7.6 Representations and warranties relating to Shareholders
116 (a) Qualifying Non-CREST Shareholders
(1) Any person accepting and/or renouncing a Provisional Allotment Letter or requesting registration represents and warrants to Equiniti and the Joint Bookrunners that, except where proof has been provided to Equiniti’s satisfaction that such person’s use of the Provisional Allotment Letter will not result in the contravention of any applicable legal requirements in any jurisdiction:
(A) such person is not accepting and/or renouncing the Provisional Allotment Letter from within any Excluded Territory;
(B) such person is not in any territory in which it is unlawful to make or accept an offer to subscribe for New Shares or to use the Provisional Allotment Letter in any manner in which such person has used or will use it;
(C) such person is not acting on a non-discretionary basis for a person located within any Excluded Territory (except as agreed with Equiniti) or any territory referred to in paragraph 7.5(a)(1)(B) above at the time the instruction to accept or renounce was given; and
(D) such person is not acquiring New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such New Shares into any Excluded Territory.
(2) Equiniti may treat as invalid any acceptance or purported acceptance of the allotment of New Shares comprised in, or renunciation or purported renunciation of, a Provisional Allotment Letter if it:
(A) appears to Equiniti or the Joint Bookrunners to have been executed in or despatched from the United States or any other Excluded Territory or otherwise in a manner which may involve a breach of the laws of any jurisdiction or if they believe the same may violate any applicable legal or regulatory requirement;
(B) provides an address in the United States or any other Excluded Territory for delivery of definitive share certificates for New Shares (or any jurisdiction outside the United Kingdom in which it would be unlawful to deliver such certificates); or
(C) purports to exclude the warranty required by this paragraph.
(b) Qualifying CREST Shareholders
(1) A Qualifying CREST Shareholder who makes a valid acceptance in accordance with paragraph 5.2 of this Part IX (Terms and Conditions of the Rights Issue) represents and warrants to Equiniti and the Joint Bookrunners that, except where proof has been provided to Equiniti’s satisfaction that such person’s acceptance will not result in the contravention of any applicable legal requirement in any jurisdiction:
(A) he or she is not within any Excluded Territory;
(B) he or she is not in any territory in which it is unlawful to make or accept an offer to acquire or subscribe for the New Shares;
(C) he or she is not accepting on a non-discretionary basis for a person located within any Excluded Territory or any territory referred to in 7.5(b)(1)(B) above at any time the instruction to accept was given; and
(D) he or she is not acquiring any New Shares with a view to the offer, sale,
117 resale, transfer, delivery or distribution, directly or indirectly, of any such or New Shares into any Excluded Territory or into any territory referred to at 7.5(b)(1)(B) above.
(2) Equiniti may, having first consulted with the Joint Bookrunners, treat as invalid any MTM instruction which (a) appears to Equiniti to have been despatched from the United States or an Excluded Territory or otherwise in a manner which may involve a breach of the laws of any jurisdiction or they or their agents believe may violate any applicable legal or regulatory requirement; or (b) purports to exclude the warranty required by this paragraph.
(3) All Qualifying Shareholders will also be deemed to have agreed and acknowledged that:
(A) the Joint Bookrunners: (i) are acting exclusively for the Company and no one else in connection with the Rights Issue and the listing of the Rights and the New Shares on the premium segment of the Official List; and (ii) will not be responsible to anyone other than the Company for providing the protections afforded to their clients for providing advice in connection with the Rights Issue, the listing of the Rights and the New Shares on the premium segment of the Official List or the contents of this Prospectus;
(B) apart from the responsibilities and liabilities, if any, which may be imposed on the Joint Bookrunners by FSMA, the regulatory regime established thereunder or otherwise under law: (i) each of the Joint Bookrunners does not have any responsibility or liability for the contents of this document; (ii) each of the Joint Bookrunners make no representation or warranty, express or implied, as to the contents of this document (including as to its accuracy, completeness or verification) or for any other statement made or purported to be made by or on behalf of any of them, by the Company or on its behalf or by any other person in connection with the Company, the Rights and the New Shares or the Rights Issue, and nothing in this document shall be relied upon as a promise or representation in this respect (whether as to the past or the future); and (iii) each of the Joint Bookrunners shall not have any liability whatsoever to such Qualifying Shareholders, whether arising in tort, contract or otherwise (save as referred to above) in respect of this document or any such statement;
(C) such Qualifying Shareholder has not relied on the Joint Bookrunners or any person affiliated with them in connection with any investigation as to the accuracy of any information contained in this document or their investment decision; and
(D) such Qualifying Shareholder has relied only on the information contained in this document, and that no person has been authorised to give any information or to make any representation concerning the Group or the Rights or the New Shares (other than as contained in this document) and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Company or the Joint Bookrunners.
7.7 Waiver
The provisions of this paragraph 7 and of any other terms of the Rights Issue relating to all Qualifying Shareholders with registered addresses in any of the Excluded Territories may be waived, varied or modified as regards specific Shareholders or on a general basis by Equiniti its absolute discretion. Subject to this, the provisions of this paragraph 7 supersede any terms of
118 the Rights Issue inconsistent herewith. References in this paragraph 7 to Qualifying Shareholders shall include references to the person or persons executing a Provisional Allotment Letter and, in the event of more than one person executing a Provisional Allotment Letter, the provisions of this paragraph 7 shall apply to them jointly and to each of them.
7.8 Payment
All payments must be made in the manner set out in paragraphs 4.2 and 5.2 of this Part IX (Terms and Conditions of the Rights Issue) (as applicable).
8 WITHDRAWAL RIGHTS
8.1 Persons who have the right to withdraw their acceptances under Section 87Q(4) of the FSMA after a supplementary prospectus (if any) has been published and who wish to exercise such right of withdrawal must do so by lodging a written notice of withdrawal (which shall not include a notice sent by facsimile), which must include the full name and address of the person wishing to exercise such statutory withdrawal rights and, if such person is a CREST member, the participant ID and the member account ID of such CREST member, with the the Receiving Agent so as to be received no later than two Business Days after the date on which the supplementary prospectus was published, withdrawal being effective upon receipt of the written notice of withdrawal. Notice of withdrawal given by any other means or which is deposited with or received by the Registrar after the expiry of such period will not constitute a valid withdrawal.
8.2 Furthermore, the Company will not permit the exercise of withdrawal rights after payment by the relevant Shareholder of its subscription amount in full and the allotment of the New Shares to such Shareholder becoming unconditional. In such circumstances, Shareholders are advised to consult their professional advisers.
8.3 Provisional allotments of entitlements to New Shares which are the subject of a valid withdrawal notice will be deemed to be declined. Such entitlements to New Shares will be subject to the provisions of paragraph 6 above as if the entitlement had not been validly taken up.
9 TIMES AND DATES
9.1 Equiniti shall, at its discretion and after consultation with its financial and legal advisers, be entitled to amend the dates that Provisional Allotment Letters are despatched or dealings in Nil Paid Rights commence and amend or extend the latest date for acceptance under the Rights Issue and all related dates set out in this document and in such circumstances shall notify the UKLA, via a Regulatory Information Service approved by the UKLA and, if appropriate, Qualifying Shareholders. However, Qualifying Shareholders may not receive any further written communication.
9.2 If a supplementary prospectus is issued by Equiniti two or fewer Business Days prior to the latest time and date for acceptance and payment in full under the Rights Issue specified in this document, the latest date for acceptance under the Rights Issue shall be extended to the date that is three Business Days after the date of issue of the supplementary prospectus (and the dates and times of principal events due to take place following such date shall be extended accordingly).
10 TAXATION
10.1 The information contained in Part IX (Terms and Conditions of the Rights Issue) is intended as a general guide only to the current tax position in the United Kingdom and Qualifying Shareholders should consult their own tax advisers regarding the tax treatment of the Rights Issue in light of their own circumstances.
10.2 Certain statements regarding United Kingdom taxation in respect of the Rights Issue are set out
119 in Part XVI (Taxation). Shareholders who are in any doubt as to their tax position in relation to taking up their entitlements under the Rights Issue, or who are subject to tax in any jurisdiction other than the United Kingdom should immediately consult a suitable professional adviser.
11 EQUINITI SHARE PLANS
The Board may, if it determines that it is appropriate, and subject to the necessary approvals, adjust the exercise price per Ordinary Share (if relevant) and the number of Shares under outstanding options or awards granted under the Equiniti Share Plans, in accordance with the rules of each of the Equiniti Share Plans. Any adjustments will not be made until after the ex-rights date and will be subject to approval of HMRC and the Company’s auditors, where required.
12 DILUTION
Qualifying Shareholders who do not take up their Nil Paid Rights in full will experience dilution of their shareholdings by 18 per cent. as a result of the Rights Issue.
13 GOVERNING LAW AND JURISDICTION
This document (including the terms and conditions of the Rights Issue), the Provisional Allotment Letters and any non-contractual obligation related thereto shall be governed by, and construed in accordance with, the laws of England and Wales. The Rights and the New Shares will be created and issued pursuant to Equiniti’s Articles and under the Companies Act. The courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Rights Issue, this document or the Provisional Allotment Letter including, without limitation, disputes relating to any non-contractual obligations arising out of or in connection with the Rights Issue, this document or the Provisional Allotment Letter. By taking up Rights under the Rights Issue in accordance with the instructions set out in this document and, in the case of Qualifying Non-CREST Shareholders only, the Provisional Allotment Letter, Qualifying Shareholders irrevocably submit to the jurisdiction of the courts of England and Wales and waive any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum.
14 FURTHER INFORMATION
Your attention is drawn to the further information set out in this document and also, in the case of Qualifying Non-CREST Shareholders and any other Qualifying Shareholders to whom Equiniti has sent Provisional Allotment Letters, to the terms, conditions and other information printed on the Provisional Allotment Letter.
120 PART X - INFORMATION ON THE GROUP AND THE INDUSTRY IN WHICH IT OPERATES
Section A: The Group
1 Overview
Equiniti provides complex administration and payment services supported by leading technology platforms to a wide range of organisations, including approximately 70 of the companies in the FTSE 100. It is the UK’s leading provider of share registration and associated investor services, and also has market leading positions in administration of employee share plans, pension administration and software, and employee benefit schemes. Equiniti supports clients in a wide range of industries and has particular strengths with clients in the banking, insurance and other financial services as well as outsourced government services sectors. The Group enjoys long term and loyal relationships with its client base and has demonstrated resilient revenue growth, having experienced 14.4% CAGR between Financial Years 2014 and 2016, with revenue of £382.6 million in Financial Year 2016.
The Directors believe that the Group offers its clients business-critical outsourced services and includes a range of software solutions that support them in areas of complex administration and payment processing. The Group’s suite of capabilities can be deployed across multiple different markets with a focus on complex or regulated environments where its clients are managing high volume interactions with their stakeholders. The Group’s solutions are supported by proprietary technology and delivered by a team of approximately 4,478 employees including approximately 800 employees based in India as at 31 July 2017.
Equiniti was formed as a stand-alone group in 2007 following a carve-out from Lloyds TSB (now part of Lloyds Banking Group). From the outset, a core strategy of the Group has been to broaden the suite of complementary services that it provides to its clients, whilst leveraging its existing core skill-set. As a result, the business has expanded over time into a range of new market segments including, inter alia, pension administration, share dealing and custody services, complaints technology solutions, loan technology, and since Equiniti's IPO in 2015, Equiniti has added new regulatory technology (‘RegTech’) services including KYC client on-boarding, fraud analytics, cyber security and data analytics supported by proprietary software.
The Group provides a range of services and is organised in three core divisions: Investment Solutions, Pension Solutions and Intelligent Solutions.
(1) Investment Solutions division (33% of the Group’s revenue for Half Year 2017 and 32% of the Group’s revenue for Financial Year 2016).
This division offers a broad range of services, including share registration for around half 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.
(2) Pension Solutions division (36% of the Group’s revenue for Half Year 2017 and 34% of the Group’s revenue for Financial Year 2016).
This division 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 Equiniti has served continuously since 1836.
(3) Intelligent Solutions division (28% of the Group’s revenue for Half Year 2017 and 31% of the Group’s revenue for Financial Year 2016).
This division targets complex or regulated activities to help organisations manage their interactions with customers, citizens and employees. The division offers enterprise workflow for case and
121 complaints management, credit services, on-boarding new clients and specialist resource for rectification and remediation.
Interest Income: In addition to the Group’s three divisions, the Group earns interest income on balances it administers on clients' behalf. This generated 3% of revenue in 2016 and 3% of revenue for Half Year 2017.
Further details of the Group’s products and services are contained in Section 5 of this Part X.
The Directors believe that the Group maintains leading positions in its core markets and challenger positions in several other market segments that it has successfully entered since 2007. The addressable market for complex outsourced administration and software in the UK is large. Equiniti currently only serves a small portion of this addressable market and hence the Directors believe there is significant headroom for growth as the Group continues to develop and acquire additional capabilities. Furthermore, the Directors believe that, although the overall economic outlook may be uncertain, there are certain favourable macro trends, such as increasing regulation and continuing digitalisation, which may drive increased appetite on the part of corporate clients and government departments to seek outsourcing solutions for their complex needs. The Directors believe that Equiniti is well-placed to benefit from these trends.
In the Financial Year 2016, the Group had revenue of £382.6 million, EBITDA of £92.4 million, representing increases of 3.7% and 7.2% respectively, compared to Financial Year 2015. For Half Year 2017, the Group had revenue of £194.8 million and EBITDA of £42.0 million.
2 History
Equiniti was formed in September 2007 following the carve-out of Lloyds TSB Registrars from Lloyds TSB (now part of Lloyds Banking Group). At that time, the business consisted of a number of core products including share registration, employee share plans administration and execution-only share dealing services. From the outset, the strategy of the Group has been to develop and acquire new capabilities and broaden the suite of complementary services that Equiniti provides to its clients, whilst leveraging its existing proprietary technology platforms and capabilities. The Lloyds TSB Registrars business forms the basis of the current Investment Solutions division.
Financial Year 2014 to present
Guy Wakeley joined the Group as Chief Executive in January 2014, and the Group’s strategy became focused on leveraging Equiniti’s technology, customer relationships and accessing new markets in the UK to develop multiple channels for growth.
In 2014 the Group implemented a new sales structure. This involved the roll-out of a key accounts framework, implemented to encourage greater up-selling and cross-selling of the Group’s products to its key customers. This was empowered through a new incentive structure, a newly embedded CRM system and a strengthened sales team with appropriate industry experience.
The Group’s acquisition strategy was accelerated at the beginning of 2014, and the Group acquired two technology businesses with capabilities that are new to the Group, and that now form part of the Intelligent Solutions division. These are Pancredit, which provides loan administration technology solutions, and Invigia, which provides case management, complaints and feedback management technology solutions. In addition, the Group also acquired JP Morgan Corporate Dealing Services, further increasing the Group’s presence in the executive share dealing market, consolidating the market position of the Group.
In 2015, the business developed and then launched a new product line in the Investment Solutions division, bereavement services, an account closure and probate assistance solution, and two new stockbroker back office outsourcing contracts were commenced, further driving organic growth. In 2015, the Group also completed two acquisitions. The Selftrade acquisition was completed in January 2015 and expanded the number of retail share dealing accounts. A further technology business was acquired in September 2015 with the acquisition of TransGlobal Payment Solutions, a foreign currency payments technology provider, which strengthened the Group’s existing international payments business.
In October 2015, Equiniti completed its initial public offering ("IPO") and its Shares were listed on the
122 premium segment of the Official List of the FCA and admitted to trading on the main market of the London Stock Exchange.
In 2016, the Group continued to expand its RegTech capabilities and grow the Intelligent Solutions division. In March 2016, the Group acquired RiskFactor, which provides risk management and fraud analytics software to the global commercial finance market. The Group also acquired KYCnet during the same month, which provides workflow technology for on-boarding and monitoring commercial and retail clients. Both of these acquisitions enhanced the Group’s capabilities in financial services compliance. In July 2016, Equiniti acquired Toplevel Computing, a digital services technology provider of case management solutions. In December 2016, the Group took control of Marketing Source Limited, a data analytics and cyber security business which helps clients mitigate risk and improve customer targeting through data analytics, identity checking and cyber security products.
In 2017, the Group acquired two businesses. Gateway2Finance, which provides personal loans broking services, was acquired in January 2017. In July 2017, the Group acquired The Nostrum Group Limited, which provides loans administration and technology to lenders, strengthening Equiniti’s existing position through Equiniti Pancredit in this market.
The Directors believe that recent acquisitions are in line with the Group’s strategy of building technology- led solutions for companies that operate in complex and regulated markets and which can be sold into the Group’s existing client base. In addition to the acquisition of WFSS, the Directors will continue to review further potential acquisitions, both smaller opportunities and larger transformational opportunities which may, from time to time, arise.
3 Strengths
The Directors believe the following competitive strengths contribute to the Group's success and position it well for future growth:
3.1 Long-term, high fidelity blue chip customers
The Group benefits from a diverse client base consisting of large, well-established companies and government agencies in the UK and abroad. The Group’s client base comprises approximately 70 of the companies in the FTSE 100, and approximately 120 of the companies in the FTSE 250. The Group has an average FTSE 100 share registration client relationship of more than 20 years and had a 100% retention rate for its FTSE 100 and FTSE 250 clients in Financial Year 2016. The Group’s top 25 private sector clients accounted for approximately 46% of revenue in Financial Year 2016, while approximately 36% of revenue in the same year was derived from other private sector clients, and approximately 18% from public sector clients, including the NHS, the Cabinet Office, Civil Service Pension Scheme (MyCSP) and UKAR. This means that not only are the Group’s clients long-standing and financially sound with high credit ratings, but revenues are diversified and the Group is not reliant on any single client to achieve its growth strategy.
3.2 A leader in large and growing markets
The Group has leading market positions and challenger positions across its services portfolio in the UK.
Within its Investment Solutions division, the Group has the number one market leading position in share registration services and corporate actions,providing registration services around half of the companies in the FTSE 100. In Employee Services, the Group has the market leading positions in Sharesave (SAYE), SIP and executive share plans together with challenger positions in global nominee and flexible benefits services. Within Investment Services, the Group has the number one market leading position in certificated trading services.
In Pension Solutions, the Group is the number two provider with approximately 7 million pension scheme members.
In Intelligent Solutions, the Group has challenger positions in complaints, case management and regulatory services, loan technology, KYC client on-boarding, risk assessment, cyber security, data analytics and large government outsourcing contracts.
123 The Directors believe that the structural growth in the Group’s end-markets is supported by expected macro-economic recovery, anticipated interest rate rises and increased investor confidence, which is expected to drive demand for its products and services.
3.3 Well invested, scalable and modern proprietary technology
The vast majority of the Group’s technology platforms are proprietary, which enables it to adapt and to white-label the platforms easily to facilitate provision of a range of solutions. The Group’s IT infrastructure includes several main platforms, including: Sirius, a share registration, dividend and share plan management platform, Xanite, a custody, investment and wealth management platform, Compendia, a platform for pension administration and payroll, Charter, a case and complaints management solution, and Passport, a KYC client on-boarding solution. The Directors believe that the Group’s IT platforms are scalable and have the flexibility to be modified to meet its clients’ evolving requirements, including to accommodate potential regulatory changes, and of supporting the Group’s anticipated future growth.
3.4 Resilience, profitability and cash generation
The Group supplies critical services to its customers, generally resulting in high levels of client retention and long term contracts. The Group enjoys long term and loyal relationships with its client base and has demonstrated resilient revenue growth, having experienced 14.4% CAGR between Financial Years 2014 and 2016, with revenue of £382.6 million in Financial Year 2016.
The Group’s EBITDA margin was 24%, 23% and 24% for Financial Years 2014, 2015 and 2016 respectively and 22% for Half Year 2017.
The Group’s cash conversion rate was 100% for Financial Year 2016 and 109% for Half Year 2017.
3.5 Multiple growth opportunities and strong momentum
The Directors believe that there exists a significant opportunity to grow through cross selling and up-selling products and services to Equiniti’s installed customer base of approximately 1,700 primarily private sector companies and government agencies.The Directors believe this opportunity is being driven both at the micro and macro level as companies look to outsource non-core specialist processes as they become more complex and pose an increasing administrative burden due to by legislative and regulatory changes.This is facilitated through the key accounts program, which was implemented in 2014 to encourage greater up- selling and cross-selling of the Group’s products.
3.6 Strong acquisitions track record, adding capabilities and proposition
The Group has a focused strategy of expanding capabilities through internal innovation and corporate acquisitions. It targets clearly identified market segments that are aligned to Equiniti’s strategic focus and which provide attractive opportunities for growth. The Group has successfully entered four new market segments in Financial Year 2016 which has increased its addressable market which include client on- boarding and KYC solutions, fraud prevention, customer targeting through data analytics as well as cyber security. The Group has a clear set of criteria when screening for new targets, both operationally and financially, as well as a strong track record of integrating and delivering on past acquisitions. The Group has a strong acquisitions track record having completed 22 transactions since 2007.
3.7 WFSS acquisition related strengths
The Directors believe that Equiniti’s and WFSS’s operating models are very well aligned. Equiniti and WFSS’s client bases both exhibit high client fidelity. During 2015 and 2016 Equiniti maintained 100% of its clients that have an average client tenure of more than 20 years (for FTSE 100 clients). WFSS has the highest client loyalty statistics in the US market and has been recognised by clients for its high quality of service and has been a service award winner for sixteen of the past seventeen years.
The Directors consider one of the most attractive aspects of the Acquisition to be the entry point it provides to the US market. The US is the largest and most active market for share registration services. WFSS is the third largest share registrar by number of clients in the US market, and has a well-established position with a growing market share.
124 WFSS is a transformational acquisition for the Group, combining local expertise with a global reach. The Directors anticipate that, following completion, Equiniti will become an international, diversified share registration and services business spanning the deepest capital markets, delivering scale benefits from opportunities to target new registry clients. The Directors believe that the Acquisition provides Equiniti with a high quality platform for growth in the large US share registry market. The Directors believe that the US shareholder services industry is mature in nature, with the top three participants accounting for approximately 80% of total market share. Consolidation continues to be a long-term trend in the US shareholder services industry. Strong development opportunities exist in the US market for Equiniti.The US market has structural similarities with the UK, but is much larger, with approximately 18,500 US corporate issuers, with approximately 2,500 corporate issuers in the UK.
4 Strategy
Equiniti’s strategy is to drive organic growth by leveraging its technology platforms into its customer base. The key components of the Group’s strategy are as follows:
4.1 Increase penetration to existing clients through up-sell and cross-sell.
The Directors believe that companies are increasingly looking for more efficient solutions to non-core specialist processes, and that legislative changes in the UK are further increasing complexity and administrative burdens in many organisations, particularly in the pensions, banking, wider financial services and healthcare industries. The Directors believe that the Group’s established expertise and the scale of its capabilities position it well to respond to these market demands and that its existing relationships with approximately 1,700 clients, primarily large private sector companies and government agencies, provide attractive opportunities to further up-sell and cross-sell its solutions and products.
The Directors believe that new revenue opportunities exist to cross-sell Equiniti’s products to WFSS clients. These represent incremental upside and are not required to underpin the transaction rationale. The principal areas of opportunity that have been identified are within software capabilities including KYC; financial crime; fraud analytics; asset tracing; financial services remediation and complaints; and additional distribution channels for share plans, share registry related services, proxy solicitation, investor relations and multi-national offerings.
4.2 Continue to win new clients through sale of core products.
Equiniti leverages its brand, reputation for high quality service delivery and deep domain expertise to secure new client wins in the private and public sectors. The Group has enjoyed continued success in winning new customers, adding several high-profile clients recently, including Sainsbury’s, AA, Abcam, Admiral Insurance Group, Ascential, Biffa, Domino’s Pizza, Draper Esprit, GoCompare, Joules, Metro Bank and Time Out.
4.3 Develop and acquire new capabilities.
The Directors believe that the Group has identified attractive growth markets where it has the capabilities, domain expertise and technology to develop an attractive outsourcing solution to develop a significant position in those markets. The Group has a strong track record in acquiring and developing new capabilities. This is demonstrated in Equiniti’s most recent acquisitions of KYCnet, RiskFactor, Toplevel, Marketing Source Limited, Gateway2Finance and The Nostrum Group along with the new bereavement services solution that was developed in-house.
4.4 Leverage B2B2C and D2C channels
The Group intends to leverage opportunities in the growing B2B2C and D2C markets, to enable it to expand its services to shareholders, customers and employees of the Group’s corporate clients and to the general public.
4.5 Continue to improve and maximise operational efficiencies, including offshoring.
The Group has implemented a number of company-wide improvement programmes in order to improve the efficiency of its business operations, such as the rationalisation of sites, the consolidation of all of its
125 printing and mailing processes, the delayering of management, the consolidation of its client service teams and its contact centres, as well as the use of its near-shore and off-shore lower cost operating centres.The Directors believe that the Group has the project management skills in-house to continuously manage such programmes. The Directors believe that the Group will also continue to invest in its employees in order to maintain the specialised quality of its workforce. The Directors believe additional potential is embedded in the Group’s business model, which would see further profit growth from further offshoring and other cost optimisation initiatives (including premises consolidation and supplier rationalisation).
4.6 Continue to use strong cash flows to invest in the Group’s business and to reduce leverage.
The Group has demonstrated its ability to generate strong cash flows over the last three years. During the period from 1 January 2015 to 30 June 2017, the Group generated an aggregate cash flow (pre- exceptional) from operations of £181 million. As at 30 June 2017, its net leverage ratio, as adjusted, was 2.8x.In addition to utilising the Group’s strong cash flows to reduce its net leverage ratio towards Equiniti’s 2-2.5x medium term objective, the Group also intends to continue to use its cash flow to further invest in, and grow, its business by securing new business opportunities and tactical acquisitions.
5 Services offered by the Group
The Group provides a range of services and is organised in three divisions: Investment Solutions, Pension Solutions and Intelligent Solutions.
5.1 Investment Solutions division
(a) Registration Services business unit
Description: Registration Services is the largest business unit of the Investment Solutions division in terms of revenue, offering the following services to the Group's client base: core registration services, company secretary services, investor analytics, oversight of corporate actions and bereavement services.
Each of these services provided by this business unit is fundamental to providing corporate clients with a full suite of shareholder maintenance services resulting from day-to-day activities. The Group also manages the logistics and voting procedures for annual and extraordinary general meetings. For registrar administration, the Group charges its corporate clients a per-shareholder rate, which in some cases varies depending on the number of shareholders that a client has at any particular time. The Group also charges fees for the various additional services it provides, and earns dealing commissions when it reinvests cash dividends on behalf of shareholders in the open market. These core services often provide a first entry point to client relationships from which the Group is able to cross-sell additional services.
The Group also charges shareholders directly for, inter alia, reissuing lost or expired dividend cheques, and generates indemnity commissions for authenticating lost share certificates. Shareholder programmes are specific projects in which the Group, with the permission of the corporate client, approaches small shareholders on the register to facilitate the sale of a block of shares in the market. The Group earns a commission based on a percentage of the value of shares up to a maximum per share amount, and it charges a fixed fee if a shareholder wishes to purchase more shares. Many of the Group’s large registration clients contract to conduct two share dealing programmes over a five-year period.
The investor analytics service involves data analysis and reporting of shareholder registers performed on behalf of corporate clients, which may either occur as an ongoing service or be related to a specific corporate action. The Group sells data reporting and analysis products, including a reporting package that allows companies to run enquiries for the full identification of shareholdings in order to comply with the Companies Act requirements, and an analysis product that provides senior management with in-depth data on a company’s shareholders in advance of key shareholder meetings. The fees for products that facilitate shareholder meetings can be fixed or can be variable based on attendance at those meetings. The Group charges fixed fees for its reporting and analysis products.
126 The bereavement service launched towards the end of 2015 and had a promising first year, Prudential began a 12-month pilot program and in November 2017, Registration Services signed its first large bereavement service contract with Lloyds Banking Group. The division also launched a new share forfeiture solution during the year, which is unique to Equiniti. A number of FTSE 100 and FTSE 250 clients have taken up this service.
The corporate actions service involves managing changes to the shareholding structure of a registration client, such as IPOs, rights issues, bonus issues, share consolidations and splits, debt redemptions, de-mergers and takeovers. The Group may charge variable fees per transaction or fixed management fees for an entire transaction, depending on the characteristics of the transaction. Corporate actions, and the Group’s ability to charge fees related to them, are highly dependent on general economic and market factors. Furthermore the revenue deduced from corporate actions is normally heightened when the client has a large number of shareholders. The Group’s contracts entitle it to assist its clients when they undertake corporate actions, which by their nature are unpredictable and are required to be delivered in short timescales. The Group generates corporate action fees when these clients engage in takeovers, re-organisations or other such transactions. The Group also may be engaged by a client in the first instance for a large corporate action, such as an IPO, and is then subsequently retained as the share registration services provider. This gives the Group a platform to then sell further services to these newly acquired clients.
Clients: Registration Services clients are primarily FTSE-listed companies, including registers for around half of the FTSE 100 and around 40% of the FTSE 250. Since the IPO, key client wins for the share registration services include Sainsbury’s, AA, Abcam, Ascential, Biffa, Domino's Pizza, GoCompare and Metro Bank.
Equiniti's registration services business unit also supported several clients going through significant corporate actions, including Royal Dutch Shell's acquisition of BG Group, which created the largest company on the London Stock Exchange by market capitalisation. Other major transactions by Equiniti’s clients during 2016 were Softbank's purchase of ARM Holdings and the acquisition of SABMiller by AB InBev. These three transactions represented £160bn of value processed through Equiniti's systems.
(b) Employee Services business unit
Description: The Employee Services business unit offers the following services: SAYE (Sharesave) scheme administration, SIP administration, executive share plans, flexible benefits and additional, smaller services. As with the Registration Services business unit, the Group uses the Sirius technology platform to administer all employee share plans, whilst the Centive platform is used specifically for executive share plans. In total, the Employee Services business unit encompasses approximately 1.2 million employees in share plans.
The Group manages SIPs for corporate clients which provide tax-efficient programs through which employees receive free shares; partnership and share matching; and dividend reinvestment. The Group earns administration fees as a fixed fee per contract or as a variable fee dependent on the number of employees, in each case relating to the general administration of the plan. Dealing commissions are also earned from trading these shares, as provided through Investment Services.
Executive share plans are similar to the SIP product, but are provided specifically to the corporate executive level. As with the SIP, the administration fees may be fixed or variable, and dealing is priced on a fee-per-trade basis with a foreign exchange commission applied for trades made in currencies other than pounds sterling. The Group’s Global Employee Shareplan product allows it to administer schemes on a global level, permitting employees domiciled around the world to participate in a share scheme. The Group earns foreign exchange commission for payments made in currencies outside of the UK other than in pounds sterling, which is channelled through Equiniti Global.
Clients: The Group’s client base is substantially similar to that of Registration Services, as they are largely complementary product sets, therefore primarily FTSE-listed companies. Since the IPO, the Employee Services business unit won share plan mandates with newly listed companies such as Biffa, Metrobank as it continued to benefit from cross-selling with registration services business
127 unit.Equiniti also won significant new clients from competitors, including Abcam and Close Brothers, and renewed contracts with clients such as Tesco and Severn Trent.
(c) Investment Services business unit
Description: The Investment Services business unit includes the following services: retail share dealing, specialist share dealing and international payments and wealth. The Group uses the Xanite technology platform to provide custody and dealing services, and the acquired PayFac platform to provide international payments (recently rebranded as Equiniti Global) in partnership with Citibank. The Investment Services business unit is a key supplier to other parts of the Group’s Investment Solutions division, whenever market dealing or share trading is required.The Investment Services business unit had £19 billion assets under custody at 30 June 2017 and provides execution and trade services to approximately 450,000 retail customers.
Equiniti’s specialist share dealing service offers retail ISA and investment management packages to corporate clients for customised investment products its clients offer to their employees and retail customers. The Group does not provide trading advice in any capacity for any of its products.
International payments offers a B2B international payments product in collaboration with Citibank. The service builds on pre-existing capabilities in the international pension payments market to make payments on behalf of corporate clients to overseas employees and suppliers. The business currently focuses on providing services to mid-market enterprises, where revenues are generated through FX spread and commission. The Group currently has coverage in 130 currencies, spanning 180 countries worldwide.
The Group also offers a suite of services within wealth solutions that provide broker back office and custodial support to wealth and asset managers. These services generate revenues from software sales, software maintenance and outsourcing fees. Recently, the Group has also marketed a “white- labelled” solution that provides third parties with an online execution-only share dealing platform with custody and settlement functionalities. The Directors believe that the Group differentiates itself from its competitors by its ability to offer a fully integrated software and outsourcing capability across the full value chain, as well as through synergies with the Group’s registrar capabilities.
Clients: These services are provided to corporate clients, employees of corporate clients and also direct to retail clients.
5.2 Pension Solutions division
Description: The Group’s Pension Solutions division consists of the following services: pension administration and payments, pension software, data solutions and life and pensions administration.
Pension Solutions clients have a total of approximately 7 million pension scheme members. Across the Pension Solutions division, the Directors believe that the Group’s primary competitive advantage is its ability to offer clients a comprehensive suite of software and administration services.
The Pension Solutions division is a scale provider of pension technology and operates some of the largest pension schemes in the UK. These include the NHS, which has more than 2.6 million members, and the Armed Forces Veterans, which Equiniti has served continuously since 1836.
The Pension Solutions divisions’ core offering is pension administration, which operates under the brands “Equiniti Paymaster” and MyCSP and provides outsourced administration and software services for a number of public and private sector pension schemes – both defined benefit and defined contribution. The division also provides payment processing for annuity schemes on behalf of pension companies, pension payments, overseas payments for pensioners living abroad and a small amount of existence checking and dormant account administration.
The Pensions Solutions division also provides project related and software solutions, including a data solutions service involving complex administration and bulk calculation services to pension schemes, including those undergoing wind-up, as well as support to insurance companies buying out pension liabilities.
128 The Group pension software is called Compendia. Compendia is used within Equiniti's business and the platform is provided as a software solution to clients’ in-house pension teams. This platform provides for rapid and flexible configuration of Compendia for new clients, and the establishment of online and mobile self- service applications.
The Group tends to generate fixed monthly income from its contracts for these services. Annuities revenue is earned based on a fixed monthly fee to process a client’s payments to annuitants each month. The Group also charges fixed monthly fees for payroll services. When the Group makes payments to pensioners overseas, it charges transaction fees and a commission percentage on the payment of each pensioner’s pension entitlement in order to process payments in the local currency. It also operates a partnership with Citibank to provide payments in foreign currencies on behalf of pensioners in return for commission on the transactions. The life and pensions administration product provides the life and pensions industry with software solutions, outsourced pension administration and payment services for annuity, closed book and defined benefit insured schemes. Revenues for the data solutions service are generated by fees charged on a daily basis for services rendered, with rates based on project scope and complexity. The Group earns fees from its pensions software service (where software is sold separately from administration) from one- time perpetual licence fees, ongoing contracted maintenance fees and from consulting or project-related work. The software tends to require regular maintenance to reflect updates to reflect tax and regulatory changes, and fees for this maintenance are covered by annual rolling maintenance agreements. The software the Group provides its clients is highly customised to their needs, which means most clients are required to purchase consultancy for maintenance outside of core maintenance agreements.
Clients: The Group’s key pension administration clients are trustees of major pension schemes including those of Prudential and Citibank. Contracts are generally in place for a term of approximately 5 years, and the Group charges its clients a fixed monthly fee for the administration of pension schemes, supplemented by project income, which is variable depending on the scope of the project and the client.
The division has continued to win new clients, including in 2016 a new life and pensions outsourcing contract with Retirement Advantage, a company that provides retirement income solutions, with a contract value of approximately £40 million over 10 years. Under this contract, the Pensions Solutions division handles nearly all administrative services for the client, including processing new business. Other new client wins included Santander, Amec Foster Wheeler and the University of Oxford.
5.3 Intelligent Solutions division
Description: The Intelligent Solutions division is a division through which the Group currently provides the following services: complaints, case management and regulatory services, specialist public sector technology products, complex HR solutions, loan technology, KYC client on-boarding, fraud analytics , cyber security and data analytics. These services are supported by a number of technology platforms and are described below in more detail.
Clients / Contracts: In 2016, the Intelligent Solutions division won various new clients for the Group including a contract to provide loan management and motor finance software to Admiral. Other wins in 2016 included asset reunification projects on behalf of Royal Dutch Shell and Santander, and a five-year proof of life contract with the Italian social security and welfare institute (INPS), in partnership with Citibank.
(a) Complaints, case management and regulatory service
Description: Complaints, case management and regulatory services is the largest business unit of the Intelligent Solutions division, and involves the provision of specialist software, people and process know-how to financial institutions and large corporates for end-to-end complaints processing and remediation, as well as case management solutions in regulated environments. The Group combines two acquisitions to provide these services: Hazell Carr, acquired as part of Xafinity Group in 2010, and Invigia, acquired in 2014. Hazell Carr provides outsourced services for complaints remediation and case management, whilst Invigia provides a complementary Charter technology solution. Fees are charged for resourcing based on agreed day rates, whilst Charter generates revenues through license, maintenance and project implementation fees. This product line currently manages over 4.5 million complaints per annum.
129 Recent acquisition activity: In July 2016, Equiniti acquired Toplevel Computing to enhance Equiniti’s case management offering. Toplevel is a digital services technology provider of large scale digital case management solutions.
(b) Specialist public sector technology products
Description: Specialist public sector technology products involve the provision of business process software solutions to central and local government entities. These services include complex case management, document and record management, private cloud hosting and infrastructure services. The Group employs a variety of revenue models for this offering depending on the specific nature of the solution, but will generally include fees from both IT implementation and maintenance support.
(c) Complex HR solutions
Description: Complex HR solutions include a full range of HR-related and payroll services and software applicable to clients in the private, public and not-for-profit sectors. For HR and payroll, the Group is the only Microsoft-certified provider in the UK, having launched PeopleAX, based on the Microsoft Dynamics AX platform. Revenues are generated for these software solutions through upfront licence fees, maintenance fees and tailored fees for implementation and development projects. As with public sector technology products, the Group’s HR and payroll capabilities were initially acquired through the purchase of Equiniti ICS in 2009. Complex HR solutions also include the “Equiniti 360” product suite.
(d) Loan administration
Description: Loan administration provides clients with an end-to-end loan servicing solution, which includes loan application, administration and collection systems, loan servicing outsourcing, standby services and intelligent credit sourcing solutions. This service is managed through the Pancredit technology platform, which performs over 52 million calculations per month. Revenues for loan administration are generated via upfront fees, maintenance fees and fees for tailored projects. The Group added this capability through its acquisition of Pancredit in 2014.
Recent acquisition activity: In January 2017, Equiniti acquired Gateway2Finance and more recently, in July 2017, Equiniti acquired The Nostrum Group. The Directors believe that the combination of these three businesses strengthens Equiniti’s position in the credit services market.
(e) Data analytics
Description: Data analytics includes asset reunification and identity validation, as well as the handling and cleansing of large data sets. Asset reunification involves identifying dormant or orphaned assets on a corporate register and returning them to the original investor. Data services provide tracing services to pension schemes, local authorities and debt collection agencies. The Group generates fees based on a percentage of the value of the recovered asset chargeable to the asset holder. The Group added this capability through its acquisition of Prosearch in 2008.
(f) Know-Your-Customer (KYC)
Description: In 2016, Equiniti acquired KYCnet (rebranded as EQ KYC Solutions), a provider of software and services for KYC due diligence, which is part of the core business process of ‘client on-boarding’. The target market of this service is principally banks where anti-money laundering and regulatory risk are a growing area of complexity, driven by a range of legislation in the US, Europe and the UK. This is notably so for Business to Business relationships, where KYCnet has specialist expertise.
Since acquisition KYCnet has won contracts with Deutsche Bank and the Bank of Ireland.
(g) Fraud analytics
Description: In 2016, Equiniti entered the market of fraud analytics through the acquisition of RiskFactor. RiskFactor is a provider of fraud analytics software for commercial finance lending. Since
130 the acquisition, RiskFactor has contributed to the Group’s growth and has signed a new contract with HSBC.
(h) Cyber security
Description: In January 2017, Equiniti acquired Marketing Source Limited which is a data analytics and cyber security business. It helps clients mitigate risk and improve effective customer targeting through data analytics, identity checking and cyber security products. Its products assist blue-chip organisations profile their customers, cleanse customer data and utilise targeted customer data, whilst ensuring compliance with incoming GDPR (data protection) regulations.
6 Interest
The Group generates interest-related revenues through the administration of client balances, including corporate actions management and dividend payments. The client funds are diversified across deposits held with a number of authorised banks. Unless the client has made specific arrangements to receive interest on these funds from the bank, the Group is entitled to earn interest on the client balances. The Group receives the gross interest from these balances and passes on the appropriate payments to its clients. At any time, a number of clients may have made arrangements to share interest with the Group, and often similar arrangements are made for corporate actions. The rate payable in these arrangements is usually the Bank of England base rate less a tiered margin, and the Group usually earns a fixed margin in these arrangements. For Financial Year 2016 and Half Year 2017, the Group earned interest of £11.2 million and £4.7 million respectively on balances from which the Group was entitled to earn interest. This income excludes fees which are deducted from the interest benefit on SAYE schemes. Please see Part III (Risk Factors) for further details. The Group also earns interest on balances it holds in its own non-client accounts in connection with its corporate sponsored nominee and share dealing services. An anticipated increase in UK interest rates over the coming years would create a further upside.
The acquisition of WFSS increases the quantum of client balances being administered by the Group.The client balances of WFSS have similar characteristics to the client balances currently being administered by the Group. The interest earned by WFSS during 2016 was $7.6 million.
7 Technology platforms
The Group delivers its range of services and solutions through a suite of proprietary technology platforms, which provide technology and functionality to clients in multiple markets. These platforms are well-invested, with total capital expenditure in IT and software investments of £28.2 million in 2016, and the Directors view them as scalable in nature, hence having significant capacity to process increasingly large volumes of data and transactions at marginal incremental cost. The broad functionality and flexibility of these platforms supports the Group’s strategy of expanding its range of data-intensive solutions, including the possibility to provide white–label solutions. The investments made in the technology platforms are believed by the Directors to underpin the security and resilience of Equiniti’s systems, and the platforms’ ability to rapidly adapt to changing customer and market requirements, whilst minimising external risks.
The following provides an overview of the Group’s primary technology platforms:
7.1 Sirius
Sirius is Equiniti’s core register management platform, supporting their registration, dividend payment and share plan administration services. It can handle vast processing volumes, managing over 70 million data records on behalf of 19 million shareholders and making payments of £120bn in 2016. Sirius receives approximately 1 million internal website hits each day and delivers an average response time of less than 1 second.
Equiniti intends to replace the existing WFSS share registration technology with the Sirius platform. This is expected to enable the business to run on the one platform, generating cost synergies across the estate, and consolidating the services in one place.The replacement of many of WFSS’s ‘commercial off-the-shelf’ packages is anticipated to simplify the overall WFSS IT solution.
131 7.2 Xanite
Xanite is Equiniti’s custody and settlement wealth management platform. Through its interface with SWIFT and CREST, it supports share dealing for both retail investors and corporate clients, as well as their outsourcing services for wealth managers. The Directors believe that Xanite supports the Group’s strategy of growing its direct-to-consumer business, which is delivered through the Equiniti Selftrade web and mobile offering, following the acquisition of Selftrade in January 2015.
7.3 Compendia
Compendia is Equiniti’s award-winning pension administration and payroll platform. the Group supports administration and payment for approximately 9 million UK pension scheme members. The platform is also marketed directly as a pension administration software solution to Equiniti’s clients, either as an on premise or as a managed service solution.
In addition, Compendia offers a self-service functionality through Equiniti’s new mobile app and responsive web design, providing an improved experience to scheme members who are assisted in planning their retirements and increasing their engagement with the scheme. The services also bring about greater efficiency and increased streamlining for the schemes themselves.
7.4 Charter
Charter is Equiniti’s case and complaints management platform. Charter supports the Group’s Intelligent Solutions offering, processing more than 4.5 million complaints on behalf of clients. It is a highly customisable solution, which supports automated FCA reporting, root cause analysis and secure data management. It is used to present Equiniti employees with a wide variety of business-critical data in a single view and hence enables swift end efficient processes.
7.5 Other key technology platforms
Other key proprietary technology platforms comprise Centive, the Group’s executive share plans platform; the proprietary technology platforms operated by Pancredit and The Nostrum Group, which support the Group’s loan administration services; Equiniti KYC Solution’s client on-boarding and AML platform, KYCNET; and Riskfactor’s fraud detection platform, EQ Riskfactor.
8 Key suppliers
The Group has a small number of key suppliers who are critical to its business and the delivery of the services it provides to its clients and their shareholders, employees and citizens. These suppliers include Lloyds Banking Group, which provides it with savings carrier services and execution and processing services, Experian, which provides bankers’ automatic clearing gateway services for payments, CREST, which provides settlement services for the Group’s share dealing services, Citibank, which provides overseas payment services, HP, which provides the Group’s IT hardware support and Microsoft, which provides software and application support and BT, which provides majority of Equiniti’s communications through broadband and telephone. The Group has entered into multi-year contracts with its key suppliers.The Directors believe that the Group is not dependent on any of its suppliers that the loss of any one supplier would not have a material adverse effect on its business, and that it could replace its suppliers without materially disrupting its business.
9 Sales and marketing
Equiniti's strategy prioritises organic growth, driven by cross-selling and up-selling services to existing clients and bringing new clients into the Group.
Equiniti continues to benefit from the key accounts programme introduced in 2014. This programme focuses on growing revenue from their top clients, by identifying opportunities to up-sell and cross-sell other solutions.
Beyond their key accounts programme, each of their divisions have specialist sales teams who engage with Equiniti's clients and potential clients to win new business. The Group has a bids support team that
132 assists with the preparation of the tender documents and supports pricing of potential contracts.
10 Customer base
The Group services approximately 1,700 clients across both the public and private sectors. In Financial Year 2016, the Group received approximately 46% of revenues from its top 25 private sector clients, approximately 36% from other private sector clients, and approximately 18% from public sector clients, as compared to 2007, during which it received 100% of revenues from private sector clients. The Group provides services to approximately 70 of the companies in the FTSE 100, approximately 120 of the companies in the FTSE 250 and seven million pension scheme members.
11 Employees
As of 31 July 2017, the Group employed approximately 4,478 people and approximately 17.6% of total headcount was based offshore in India with the remainder based in the UK.
The average number of the Group’s employees based in the UK during the following financial periods, analysed by business division, was as follows:
Year ended 31 December Six months ended 30 2016 2015 June 2017 Investment Solutions 1,236 1,244 1,278 Pension Solutions 1,557 1,651 1,721 Intelligent Solutions 524 515 479 Central 1,169 925 671 Total 4,478 4,335 4,149
12 Property
The key offices used in the Group’s businesses (excluding MyCSP office locations) are located in Belfast, Birmingham, Bristol, Cardiff, Crawley, Exeter, Lancing, Leeds, London, Reading, Stirling, Walton-on- Thames, Worthing and Amsterdam in Europe and in Chennai, India.
13 Intellectual Property
The Group relies on trade mark and copyright laws, confidentiality procedures and contractual provisions to protect its intellectual proprietary rights. It regards its intellectual property as a valuable asset in the provision of its services and actively takes steps to protect its intellectual property rights when and where it deems appropriate. The Group provides its products and services under approximately 70 registered trademarks, primarily covering the “Equiniti” logo. Since Equiniti’s IPO in 2015, Equiniti has added the trademark "THRIVE" and has several trademarks pending. It also owns trademarks pertaining to its other brands, including the “SHAREVIEW”, “CLUB TOGETHER”, “COMPENDIA”, “DATASURE”, “SUPERVAL”, “PEOPLESPACE”, “PRISM COSEC”, “PETEREVANS”, “PROSEARCH” and “PAYMASTER” brands. Approximately 14 of its registered trademarks are registered as Community Trade Marks and 31 of its trademarks are registered as national marks in the UK. The Group’s other trademarks are registered in a range of territories including Australia, China, Hong Kong, India, New Zealand, Saudi Arabia, Switzerland and the US. The Directors believe that the Group’s trademarks enhance its competitive advantage and are important to its business. The Group owns or controls approximately 407 domain names, including its core website. These domain names are either used by its business to deliver services and information to its customers or held to protect trading names and brands developed by the business.
14 Legal proceedings
The Group becomes involved, from time to time, in claims and lawsuits arising in the ordinary course of its business, such as employee claims and disputes with the Group’s clients. The Group has insurance cover for any professional indemnity claims that may be brought against the Group.
133 The Directors do not believe that any such legal proceedings, either individually or in the aggregate, will have a material adverse effect on its financial position or results of operation. The outcome of legal proceedings can however be difficult to predict. For more detail, see Part III (Risk Factors) and paragraph 14 of Part XVIII (Additional Information).
15 Insurance
The Group maintains a group comprehensive insurance programme which includes directors and officers and company reimbursement, public liability, product liability, employer liability, property, business continuation and other general insurances. In addition to this, the Group maintains a Group-wide enhanced crime, damage and civil liability policy which includes fidelity, external crime and direct professional loss.
16 The Group’s approach to, and governance of, risk
The nature of Group’s business, complex administration and payment services, means that it faces wider and more complex risk management challenges than many businesses. Its position of trust for its clients sits on top of the risks commonly faced by businesses which are highly dependent on software and technology platforms, and provides an added dimension to defining and managing the Group’s risk appetite and control systems. Crystallisation of a risk within any of the major risk categories could trigger significant reputational damage for the business, which may affect its ability to maintain its successful trading record, as well as delivering damaging financial losses. Please refer to Part III (Risk Factors) for details of other risks affecting the Group.
The Group’s Chief Risk Officer is Adam Green who oversees the risk management system within the Group. The Directors delegate general risk management authority to the Risk and Audit Committees and then, by the clear articulation of policy, through the management hierarchy to the executives running the Group’s operating divisions. The policies and risk appetite statements are communicated throughout the Group, encouraging employees at all levels to consider risk in their decision making and take personal accountability for the risks they take.
As a consequence, risk and its management and mitigation, is a particular focus for the Group.
At each stage of the risk management process, the Group seeks to establish clear accountability and responsibility for risk in order to drive a culture of transparency and openness among the staff. The Directors believe this encourages the early escalation of risks and creation of mitigation plans as appropriate. The Directors delegate responsibility for the oversight of risk management to the Risk Committee and then, by clear articulation of policy, the accountability and responsibility for risk management to the executive team who run the business on a day to day basis.
134 Section B: Industry Overview
1 Market definition
The Group’s markets are widely defined as the interactions between UK corporate clients and government departments and their stakeholders, employees, customers and citizens. This broad definition can be understood through the markets defined by the Group’s three key divisions, within which the Group provides its ever-expanding suite of services and solutions across a number of individual markets:
• UK Registration Services Market: The market for the provision of solutions to manage shareholder registries and company secretary functions. Clients for these services are typically FTSE-listed companies, with the core relationships governed by long-term contracts;
• UK Employee Share Plans Market: The market for the provision of, inter alia, SAYE (Sharesave) scheme administration, SIP administration, executive share plans and flexible benefits to employees of private and public sector organisations. Clients for these services are typically FTSE-listed companies, and are often the same clients for whom the Group provides share registration services;
• UK Investment Services Market:The market for the provision of certificated and online execution- only share dealing and related retail offerings, executive share dealing and wealth management outsourcing solutions. Clients for these services are typically corporate clients, employees of corporate clients and also direct to retail clients;
• UK Pension Solutions Market: The market for the provision of a broad range of pension-related services including: pension administration and payments, pension software (typically for in-house administration), data solutions and life and pensions administration. Clients include corporate clients and government clients and their pension scheme members;
• UK Intelligent Solutions Market: The market for the provision of complaints, case management and regulatory services, public sector technology products, loan technology, KYC client on-boarding, risk assessment, cyber security, data analytics as well as data services. Clients for these services are typically from the private sector and citizens interacting with government agencies.
The Directors believe that the Group's addressable markets are growing, driven by:
• Macro-economic conditions, including the level of interest rates and investor confidence, which affect demand for investment-linked products and the number of flotations, mergers and acquisitions, rights issues and buybacks.
• Business development activity, which expands the addressable market as the Group brings in new capabilities.
• Long-term structural trends, which are increasing demand for services. These trends are outlined below:
Increased regulation: There is ongoing pressure to protect consumers’ interests and ensure the stability of the financial services system through greater regulation. In the UK, more than 80 pieces of legislation have been passed since the financial crisis. This means both public and private sector organisations face rising compliance costs and the need to upgrade technology in response to new regulations, while they are still contending with past regulatory issues. Organisations who fail to meet their regulatory obligations also face more investigations, which accelerates demand for remediation services. Whilst Equiniti is also impacted by compliance costs, Equiniti sees the ongoing regulatory changes as more of an opportunity to service its clients.
Continuing digitisation: Consumers expect to receive high-quality service and want to manage their affairs online. Shortening product lifecycles require organisations to build customer journeys more quickly, through extensive investment in websites, portals and mobile apps, which can be difficult and costly to do in-house. At the same time, they often struggle with legacy technology, particularly in the banking industry which provides Equiniti a greater opportunity to offer its services within these industries.
135 Increasing cost consciousness: With low economic growth and intense pressure on public finances, companies and government agencies must do more with less. This requires them to focus on their core operations and to be more efficient. Technology-led solutions help them to transform their businesses and deliver operational efficiencies
Implications for Equiniti include businesses' need to work differently: technology is a key enabler of that change. The changing environment means existing clients of Equiniti have new needs, creating an opportunity for Equiniti to cross-sell and up-sell.
2 The Group’s core offerings
The Group services a number of individual markets through its five business units as it continues to increase its addressable market through organic innovation and selective acquisitions:
• Registration Services;1
• Employee Services;1
• Investment Services;1
• Pension Solutions; and
• Intelligent Solutions.
1 Part of the Investment Solutions division.
Each of the Group’s divisions and business units defines a market that is composed of a number of smaller, distinct markets, as described below. Furthermore, in order to most effectively deliver a comprehensive set of services within these markets, the Group uses three distinct go-to-market channels — B2B, B2B2C and D2C — that optimise both customer experience and the Group’s share of wallet. The Directors believe that the Group currently participates in only a portion of these markets, providing substantial headroom for future growth.
The five key markets defined by the Group’s business units (UK Registration Services, UK Employee Share Plans and UK Investment Services Market are part of the Group’s Investment Solutions division) are as follows:
2.1 UK Registration Services Market
The Group: The Group provides services to this market through its Registration Services business unit within the Investment Solutions division. The Registration Services business unit provides clients with a full suite of solutions to manage their shareholder registries and company secretary functions, offering the following to help meet those needs: core registration
services, company secretary services, investor analytics and oversight of corporate actions. Clients for these services are typically FTSE-listed companies, with the core relationships governed by long-term contracts. Services are typically provided to employees, brokers, retail investors, institutional investors, corporate customers and CREST.
Addressable Market: The Directors expect the addressable market to continue to grow due in part to the following factors:
• IPO momentum:economic recovery has led to a stabilisation in the number of listed companies and provides market growth opportunities;
• Macro-economic recovery: stock market performance and potential large retail offerings (e.g., Lloyd’s) to drive number of retail investors up and partially offset recent trend of nominee accounts replacing personal shareholding accounts;
• Revenues from shareholders (B2B2C) to increase: falling shareholder numbers with the rise of
136 nominee accounts expected to be mitigated by registrars through increased shareholder pricing for actions such as replacing lost share and dividend certificates;
• Increased outsourcing due to growing regulatory burdens: more stringent legislation is likely to drive corporates to increased outsourcing; and
• Innovative dividend solutions: ability to expand through innovations (e.g. dividend solutions for M&S).
Key Competitors: The Group’s key competitors in the UK Registration Services market are other share registrars, namely Capita and Computershare. The Directors believe that the Group’s key differentiator is the ability to offer comprehensive registrar and employee benefits services through a single provider
2.2 UK Employee Share Plans Market
The Group: The Group provides services to this market through its Employee Services business unit within the Investment Solutions division. The Employee Services business unit focuses on serving the employees of private and public sector organisations, primarily offering the following solutions: SAYE (Sharesave) scheme administration, SIP administration, executive share plans and flexible benefits. Clients for these services are typically FTSE-listed companies, and are often the same clients for whom the Group provides share registration services. These relationships are governed by long- term contractual arrangements.
Addressable Market: The Directors believe that the addressable market will continue to grow in part through the following factors:
• Demand for “one-stop-shop” for employee solutions: increasing demand for management of employee benefit packages through a single interface or portal;
• Expensive to do “in-house”: outsourcing trend to continue driven by cost savings and company focus, in addition to more effective administration;
• SAYE limit increase to £500: increase to all employee savings limits drives total SAYE balances, with further upside from intermediary fees paid to hold SAYE balances;
• Demand for self-service functionality: employee demands for high quality services with functionality to review benefits are leading companies to outsource to keep employees happy;
• Requirement for accurate and real-time systems: software upgrades required to meet auto- enrolment requirements are expected to drive the flexible benefits market; and
• Increasing trend of flexible benefits as part of salary exchange: often employers are investing in flexible benefit plans to improve engagement and communication with employees.
Key Competitors: The Group’s key competitors in the UK Employee Share Plans market are other UK share plans providers (excluding flexible benefits), including Computershare, Capita, Yorkshire Building Society, Solium and Equatex. The Directors believe that the Group’s key differentiator is the ability to offer comprehensive registrar and employee benefits services through a single provider
2.3 UK Investment Services Market
The Group: The Group provides services to this market through its Investment Services division. Investment Services offers the following solutions: certificated and online execution-only share dealing and related retail offerings, executive share dealing and various wealth management outsourcing solutions. Importantly, these retail services are provided to corporate clients, employees of corporate clients and also direct to retail clients. Share dealing fees are generated on a per trade basis, with fees also earned through foreign exchange and custody services. Wealth solutions generate revenues from software sales, software maintenance and outsourcing fees. The Group does not compete in the advice-aided trading segment of the market.
Addressable Market: The Directors expect the addressable market to continue to grow, due in part to the
137 following factors
• Demand for digital and functional dealing platforms: user demand for digital and functional dealing platforms driving further outsourcing, as in-house systems no longer have the capabilities to meet client requirements. Moreover, development of advanced analytics is creating new pockets of demand for investor analytics;
• Macroeconomic tailwinds: boosts in consumer confidence should support growth in wealth solutions and execution-only share dealing;
• Increase in cross-border business activity;
• Rise of self-service and investing: growing interest in self-management and desire for self-service is encouraging a growing number of investors in the execution-only segment; and
• Increasing financial services regulation: Increasing regulatory scrutiny over the financial services industry is likely to drive further outsourcing of middle and back office functions and further consolidation within the wealth management industry.
Key Competitors: The Group’s key competitors in the UK Investment Services market are other UK retail share dealing providers, including Hargreaves Lansdown and TD Direct Investing. The Directors believe that the Group differentiates itself in the following ways: (A) Low customer acquisition costs due to its access to 18 million shareholders, 7 million pensioners and 1.2 million employee share plan members; (B) market leadership and scale in certificated dealing; and (C) comprehensive offer of retail services.
Key competitors for wealth solutions are Pershing and Jervis as outsourcing specialists, and JHC Figaro, Broadridge Tarot, Dion, Pulse and SEI as software providers.The Directors believe that the Group differentiates itself in this segment by its proven ability to offer a fully integrated software and outsourcing capability across the entire value chain.
2.4 UK Pensions Solutions Market
The Group: The Group provides services to this market through its Pension Solutions division. The Pension Solutions division focuses on addressing the needs of corporate and government clients and their pension scheme members, offering the following uniquely broad range of services: pension administration and payments, pension software (typically for in-house administration), data solutions and life and pensions administration. In addition to having a substantial client base in the private sector, the Group is the pension administrator to three of the four largest public sector pension schemes in the UK. This segment is generally governed by long-term contracts, with revenues supplemented by ad hoc project income.
Addressable Market:The Directors believe that the addressable market will continue to grow, due in part to the following factors
• Increasing buy in / buy outs transactions of defined benefit pension schemes: driving demand for data cleansing and liability calculations;
• Increased digitalisation of pension administration platforms: driving market for more complex and sophisticated pensions software. Development of advanced analytics is creating new pockets of demand for intelligent pension administration;
• Employees increasingly demanding self-service functionality: employers seeking to meet demand from employees for platforms with increased self-service functionality; and
• Continued trend towards full pension administration outsourcing: Outsourcing trend to continue, largely drive by outsourcing for non-core where internal administration proves too costly.
Key Competitors:The Group’s key competitors in the UK Pension Solutions market are other UK pension solutions providers, including Capita, Towers Watson, Jardine Lloyd Thompson and Aquila Heywood.
The Group’s key competitors in the pension administration market are Capita, Towers Watson and Jardine
138 Lloyd Thompson, all of which have large established businesses. This market is fragmented, with no single competitor holding a significant market share. Capita is the only other third party administrator with any significant public sector scheme experience. In pension software, Capita and Aquila Heywood are the Group’s primary competitors for larger schemes, and more widely it also competes with Procentia, Jardine Lloyd Thompson and Civica.
Across the pensions segment, the Directors believe that the Group differentiates itself by being the only top-tier provider actively offering both administration and software services to the public sector, and — apart from Jardine Lloyd Thompson — the only top-tier player provider offering both administration and software services to the private sector
2.5 UK Intelligent Solutions Market
The Group: The Group provides services to this market through its Intelligent Solutions division. The evolving Intelligent Solutions division provides the following services to both customers of the private sector and citizens interacting with government agencies: complaints, case management and regulatory services, public sector technology products, loan administration, KYC, data analytics and data services. This is the most varied of the Group’s markets and provides the most runway for future expansion of services
Addressable Market: The addressable UK Intelligent Solutions market is composed of the complaints, case management and regulatory services and other case management markets. The addressable market for intelligent solutions has increased to loan technology as well as ‘Reg Tech’ services including KYC client on-boarding, risk assessment, cyber security and data analytics due to the most recent completed acquisitions. The Directors believe that the addressable market will continue to grow due in part to the following factors:
• Growing customer savviness coupled with the rise of social media: has facilitated and driven complaints volume growth;
• Increase in consumer lending and demand for faster, smoother loan application processes: driving software uptake;
• Greater focus on compliance, analytics, technology enabled services and self-service: driving demand for sophisticated software;
• Increasing regulation: increasing breadth and depth of regulatory reach creates new demand across market segments, including through the adoption of legislation encouraging use of specialist software to ensure compliance in loan management and through increased investigative efforts that create opportunities for new remediation work;
• Cost consciousness and focus on core driving continued growth in HR software: Continued growth in public sector outsourcing due to cost reduction initiatives; and
• Development of new credit products: driving demand for accompanying loan administration related software.
Key Competitors: The Group’s key competitors in the UK Intelligent Solutions market are other UK complaints, case management and regulatory services providers, including Huntswood, Momenta, Capita, Pega Systems and White Clarke.
The Directors believe that price and breadth of capabilities are key competitive factors across each of these services, and the Group’s offshore base in Chennai, India, coupled with its near shore IT solutions centre in Belfast, enables it to offer high quality solutions at competitive prices.
3 Competitive landscape and market dynamics
The Group operates across a series of largely fragmented markets, often facing a different set of competitors by market segment. In fact, Capita is the only player that largely operates across the full breadth of the Group’s chosen markets.The Directors believe that the Group benefits from three key factors in maintaining its position as market leader: (A) customer stickiness, (B) proprietary, scalable technology
139 platforms and (C) operational expertise including deep domain expertise and a proven ability to handle high volumes of complex and sensitive data.
Despite the diversity of these markets and services, the Directors believe that a consistent set of capabilities is required to differentiate and succeed, including (A) the ability to process large quantities of complex and sensitive data securely and accurately and (B) the ability to process large volumes of payment transactions quickly and without mistake.
140 Section C: Regulatory overview
1 UK regulatory framework
1.1 FCA authorisation
In the UK, firms providing certain types of financial services are subject to authorisation and regulation by the FCA. Equiniti Financial Services Limited, Paymaster (1836) Limited, Marketing Source Limited, The Nostrum Group Limited and Equiniti Gateway Limited are authorised and regulated under FSMA. Paymaster (1836) Limited is authorised and regulated under both FSMA and the UK Payment Services Regulations 2009 (SI 2009 No. 209) (“PSRs”) TransGlobal Payment Solutions Limited is authorised and regulated under the PSRs.
Under FSMA, persons carrying on “regulated activities” by way of business in the UK require, in the absence of an exemption or exclusion, authorisation by the FCA. Carrying on regulated activities without authorisation is a criminal offence and agreements made in the course of the carrying on of regulated activities by unauthorised persons are unenforceable without an order of the court or the FCA (as applicable). In addition, agreements introduced by unauthorised credit brokers or introducers in the course of carrying on a regulated activity are also unenforceable without an order of the court or the FCA (as applicable). In order for a firm to be authorised and regulated under FSMA, the FCA must be satisfied that the firm meets certain threshold conditions. In considering an application for an authorisation, the FCA will have regard to: (a) the firm’s legal status; (b) the location of its offices; (c) whether it has any close links to other persons which will prevent the firm being effectively supervised; (d) the ability of the FCA to supervise the firm more generally; (e) the appropriateness of the firm’s resources; and (f) the firm’s suitability (which will include a consideration of whether the firm and the persons and/or legal entities that control or influence it are fit and proper). The FCA will also consider whether the firm has a viable and sustainable business model. In order to remain authorised, the firm needs to demonstrate its continuing compliance with the FCA threshold conditions.
The existing payment services regulatory regime in the UK originates from European Community law: the Payment Services Directive 2007/64/EC (“PSD”). The aim of the PSD was to foster a single market in retail payment services across the European Economic Area (“EEA”) by removing barriers to entry and ensuring fair market access to enhance competition in payment services and establishing the same set of rules across the EEA on information requirements and other rights and obligations that are applicable to many payment services transactions in the EEA. The PSRs implemented the PSD by introducing an authorisation and prudential regime for payment service providers that are not banks, building societies or e-money issuers (and so already authorised or certified by the FCA). Such businesses are known as authorised payment institutions and are able to passport their services to other EEA States. The FCA may impose penalties and censures for breaches of the PSRs and instigate criminal prosecutions against those who provide, or claim to provide, payment services but are not authorised to do so. It can also order firms to provide restitution to their customers. Revisions to the PSRs will need to take place to reflect PSD2 which has to be transposed into national law by 13 January 2018. The UK is implementing PSD2 by way of the PSRs 2017 which were laid before Parliament on 19 July 2017. Key changes to the PSD include the requirement for AIS and PIS to now be regulated, new security requirements and increased focus on consumer protection. There are also changes to the scope of the conduct of business rules and the list of exemptions.
1.2 Ongoing regulatory compliance
An FCA authorised and regulated firm also has to ensure that it complies with the high level regulatory requirements set out in the FCA’s Principles for Businesses, as set out in the FCA’s Handbook of Rules and Guidance (the “FCA Rules”), together with those of the FCA Rules that are applicable to its business. The FCA Rules seek to ensure, amongst other items, that authorised and regulated firms have appropriate resources, are managed and controlled by fit and proper persons, have adequate senior management arrangements, systems and controls, have appropriate safeguards in place to protect client money and assets and are able to comply with certain minimum conduct of business standards. Different conduct of business standards apply depending on the types of regulated activities carried out by the relevant firm.
141 (a) Investment firm
As an investment firm, Equiniti Financial Services Limited is required to comply with, amongst other items, the conduct of business rules in the FCA Rules. Some important items include client categorisation and ensuring investments are “appropriate”, treating customers fairly, communicating with clients in a particular way, including financial promotions, and providing product information to clients. The FCA Rules require Equiniti Financial Services Limited to categorise its clients (either as retail clients, professional clients or eligible counterparties). The purpose of client categorisation is to ensure that clients will be given an appropriate level of protection under the FCA Rules. Equiniti Financial Services Limited is able to deal with retail clients, who are offered the most protections under the UK regulatory regime. Equiniti Financial Services Limited provides execution only services to clients and does not provide investment advisory services. In carrying out execution only services to retail clients, Equiniti Financial Services Limited is required, subject to certain exemptions, to carry out an “appropriateness” test and must determine whether each retail client has the necessary experience and knowledge in order to understand the risks involved in relation to the product and services offered or requested.
(b) Authorised payments institutions
As authorised payment institutions, TransGlobal Payment Solutions Limited and Paymaster (1836) Limited are required to comply with the conduct of business requirements set out under the PSRs. These conduct of business requirements include information which is to be provided to their customers before and after execution of a payment transaction and the rights and obligations of both payment institutions and their respective customers in relation to payment transactions. The information requirements differ depending on whether the transaction concerned is carried out as part of an ongoing relationship under a framework contract or as a single payment transaction. There are also different requirements for payment instruments that are limited to low value transactions. In some cases, the PSRs allow different requirements to be agreed between the customer and payment service provider: what is known as a ‘corporate opt out’, so that payment service providers can reach agreement with certain classes of business customers to apply different requirements.
Authorised payment institutions also need to comply with the EU Wire Transfer Regulation (Regulation (EC) 2015/847) (“WTRs”) and the UK Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) ("MLRTFR"), which aims to prevent terrorists and other criminals from accessing payment systems for the transfer of funds. Flows of illicit money through transfers of funds can damage the integrity, stability and reputation of the financial sector and threaten the EU internal market. The WTRs apply to electronic transfers of funds in any currency that are sent or received by an EU payment services provider and require transfers to be accompanied by accurate and meaningful information about the payer. Paymaster (1836) Limited is also authorised by the FCA to arrange and administer certain life insurance policies as in some cases, linked to its role as pension scheme administrator, it is also deemed to be carrying out regulated activities in relation to contracts of insurance, including arranging and assisting in the administration and performance of a contract of insurance. This means that it is also required to comply with applicable conduct of business rules in the FCA Rules in relation to its life insurance business activities. The overall aim of the insurance conduct of business rules is to ensure that customers are treated fairly and that they receive clear, fair information when they are sold insurance. Certain high-level business standards apply to all insurance product sales, including suitability, product disclosure and claims handling. Under the MLRFTR, the FCA has new powers to cancel, suspend or restrict an authorisation or registration of an authorised person, including authorised payment institutions. In addition, the FCA can temporarily or permanently prohibit an officer responsible for a contravention from holding a management role at a relevant person or a payment service provider. In effect, these are civil penalties, similar to the FCA’s disciplinary powers under FSMA.
Paymaster (1836) Limited is also categorised by the FCA as an exempt MiFID firm (Article 3), which means that: (i) it cannot hold clients’ funds or securities and does not, for that reason, at any time, place itself in debt with its clients; cannot provide any investment service other than reception and transmission of orders or investment advice, or both, in relation to transferable securities and units in
142 collective investment undertakings; (ii) it can transmit orders only to one or more of the following: (a) MiFID investment firms; (b) certain credit institutions; (c) branches of third country investment firms or credit institutions complying with rules considered by the FCA to be at least as stringent as those laid down in MiFID, or the EU Capital Requirements Directive (2013/36/EU) (“CRD”) and Regulation (Regulation 575/2013) (“CRR”); (d) collective investment undertakings or their managers authorised under the law of an EEA State to market units to the public; and (e) EU incorporated investment companies the securities of which are listed or dealt in on a regulated market, for example investment trust companies.
(c) Consumer credit firms
As consumer credit firms, Equiniti Gateway Limited and The Nostrum Group Limited are subject to certain sections of the FCA’s Consumer Credit sourcebook, which sets out the detailed obligations that are specific to credit-related regulated activities and connected activities. Equiniti Gateway Limited acts as (re-)broker of consumer credit applications. The Nostrum Group Limited provides technology and services to other companies to enable them to administer their consumer credit requirements and provides outsourced administration of these services to its clients. Equiniti Gateway Limited also has certain mortgage broking permissions and so is subject to certain mortgage conduct of business provisions set out in the FCA Rules.
Marketing Source Limited is authorised by the FCA under FSMA as a Credit Reference Agency, for the provision of consumer credit references to business.
In accepting a customer, the Regulated Entities must carry out adequate due diligence in order to discharge their obligations under the UK anti-money laundering and counter-terrorist financing laws and regulations. In practice, the FCA monitors and supervises firms’ compliance with these laws and regulations. The due diligence process is sometimes known as “Know Your Client”, “KYC” or “customer due diligence”. The Regulated Entities have established procedures to assist compliance with their customer due diligence responsibilities, including systems to allow employees to make suspicious activity reports. UK regulation also impose requirements on the Regulated Entities to observe proper standards of market conduct, ensure that their employees are adequately trained and remain competent and that there are proper safeguards in place to prevent and detect market abuse. The FCA requires that where a Regulated Entity is permitted to hold and/or control client money the Regulated Entity has in place proper systems for ensuring that client money is segregated from that of the Regulated Entity. Where required, reconciliations are performed on a daily basis and any discrepancies are made good immediately whilst the discrepancy is being investigated. Regulated Entities may also be required to put in place adequate arrangements to safeguard clients’ ownership rights of their assets, conduct regular in ternal custody record checks and external custody reconciliations, and investigate and correct any discrepancies.
The Company faces both financial and reputational risk where legal or regulatory proceedings are brought against its Group or members of its industry generally in the UK High Court or elsewhere, or where complaints are made against its Group or members of its industry generally to the Financial Ombudsman Service ("FOS") or another relevant body. The OFFOS is paid for by levies and case fees which the businesses it covers (including Equiniti Financial Services Limited) have to pay by law.
1.3 FCA firm classification
Equiniti Financial Services Limited is the most significant FCA regulated entity in the Group. Equiniti Financial Services Limited is classified by the FCA as a flexible portfolio firm, which means that it does not have a dedicated FCA supervisor and has been assessed as having fewer direct retail clients than firms with similar businesses. Ordinarily, this means that Equiniti Financial Services Limited is subject to a regulatory supervisory visit once every 3-4 years. As Equiniti Financial Services Limited’s business grows, FCA may review its flexible portfolio classification. Firms which are classified as fixed portfolio firms have a dedicated FCA supervisor and a higher level of firm-specific supervision.
In addition, the FCA has classified Equiniti Financial Services Limited as a “P2” firm for prudential purposes (on a scale of 1-4, with 1 being the most significant), which means that the FCA considers
143 it to be prudentially significant (this means that a disorderly failure will have a significant impact on market functionality). Periodic assessments of capital requirements are expected and there is a possibility of prudentially-focused FCA visits. In line with its risk-based approach, the FCA requires all firms that fall within scope of the CRD and the CRR to undergo a Supervisory Review and Examination Process (“SREP”), which involves determining the appropriate level of capital and liquidity that the firm should hold, based on the risks posed by its business model. Firms within the FCA’s “P1” and “P2” categories are subject to periodic onsite prudential assessments from the FCA.
In Financial Year 2017, Equiniti Financial Services Limited was classified as a 'large' client assets firm ("CASS") under the FCA's rules and is therefore the most significant firm for client money and client asset purposes in the Group.
The Nostrum Group Limited, Equiniti Gateway Limited and Marketing Source Limited are treated by the FCA as flexible portfolio firms for conduct purposes (where applicable). TransGlobal Payment Solutions Limited and Paymaster (1836) Limited are subject to the FCA’s complaints-led and reports-based prudential supervision applicable to authorised payment institutions under the PSRs. In addition, payment institutions may be asked to attend educational roadshows and made subject to a periodic review every four years.
1.4 Policies, systems and controls
The Group deploys a “three lines of defence” risk control model and complies with a range of standards set by the International Organisation for Standardisation across its business lines. Operational compliance is responsible for the first line of defence of risk management, which includes the development and documentation of operating processes, authorisation limits, segregation of duties and other controls. The second line of defence is delivered by the Group’s Regulatory Compliance and Risk team, which supports operational management in delivering risk oversight. The Group’s Regulatory Compliance and Risk team operates an Enterprise Wide Risk Management assessment framework, under which a formal risk review of the Group’s businesses is carried out in conjunction with operational management on a periodic basis. The results of the risk review are reported to the Risk and Audit Committees. The third line of defence is risk assurance delivered by the Group’s internal Risk and Audit Committees, which cooperates with the Regulatory Compliance and Risk team in order to independently assess the Group’s systems and controls before reporting back to executive management and the external auditors. The Group’s internal Risk and Audit Committees meet at least three times a year with executive management and the external auditors to review and revise the Group’s approach. The Company formally defines and agrees the audit, compliance and risk plan, which is then approved by the Group’s internal Risk and Audit Committees on an annual basis. The assessment takes into account the regulatory output of the Group’s Enterprise Wide Risk Management framework, as well as any other material regulatory issues or developments observed by the Group’s Regulatory Compliance and Risk team.
1.5 Regulatory capital
The FCA requires Equiniti Financial Services Limited to maintain, at all times, appropriate financial resources to ensure that it is able to meet its regulatory capital requirements and has sufficient liquidity to demonstrate that it is able to meet its liabilities as they fall due. The regulatory capital requirements of Equiniti Financial Services Limited are considered by the FCA on a standalone basis. Equiniti Financial Services Limited is an “IFPRU 125K limited licence firm” and has been classified by the FCA as a significant IFPRU firm due to the value of client assets under administration. As an “IFPRU 125K firm”, Equiniti Financial Services Limited must ensure that it maintains regulatory capital to meet the higher of: (a) its base own funds requirement of €125,000; or (b) an assessment based on its credit, market risk, operational risks and business risks; or (c) an assessment based on its fixed overheads requirement; or (d) an assessment based on the cost of winding down the firm in a hypothetical insolvency. The board of Equiniti Financial Services Limited has put in place processes and controls to ensure that Equiniti Financial Services Limited is able to meet its minimum regulatory capital requirements.
Paymaster (1836) Limited and TransGlobal Payment Solutions Limited are subject to the capital rules set out in the PSRs, which include specific capital requirements for authorised payment institutions. As Paymaster (1836) Limited and TransGlobal Payment Solution Limited’s payment services are limited to money remittance activities, they each must hold minimum capital resources of €20,000 and meet ongoing
144 capital requirements which are to be met by their capital resources using certain qualifying items specified in the PSRs. In relation to its life insurance business (and as an exempt MiFID firm), Paymaster (1836) Limited is required to comply with applicable capital rules set out under the FCA’s interim prudential sourcebook for investment businesses and the FCA’s prudential sourcebook for mortgage and home finance firms and insurance intermediaries.
Equiniti Gateway Limited is subject to capital requirements as consumer credit firms and is required to hold £100,000.
1.6 Financial promotions
FSMA provides that a person must not in the course of business, communicate an invitation or inducement to engage in investment activity unless the promotion has been made or approved by an authorised persons or it is exempt. As authorised persons, the Regulated Entities may communicate financial promotions, subject to certain conduct of business rules. These rules are of particular relevance, as they determine what the Regulated Entities may or may not display on their websites and in all other marketing materials. In broad terms, communications with all clients must be fair, clear and not misleading.
Communications with retail clients must comply with a number of additional stipulations including a requirement that communications: (a) include the Regulated Entity’s name, are accurate and do not emphasise any potential benefits of the business or investments referred to without giving a fair and prominent indication of any risks involved; (b) are sufficient for, and presented in a way that is likely to be understood by, the average member of the retail group to whom they are directed or who is likely to receive them; and (c) do not disguise, diminish or obscure important items, statements or warnings. In addition, the FCA’s conduct of business rules require the Regulated Entity to disclose details of the products and services they offer, including details as to risk, costs and third party inducements.
As a MiFID firm, MiFID rules also apply to any advertising or marketing carried out by Equiniti Financial Services Limited on a cross-border basis.
The Nostrum Group Limited and Equiniti Gateway Limited are also required to comply with the FCA’s Consumer Credit sourcebook in relation to financial promotions and communications with customers.
1.7 Financial Services Compensation Scheme
The Financial Services Compensation Scheme (“FSCS”) is the UK’s statutory compensation fund for customers of most financial services firms authorised under FSMA, including Equiniti Financial Services Limited, and Paymaster (1836) Limited. The FSCS pays compensation, up to certain limits, to eligible customers of firms authorised under FSMA that are unable, or likely to be unable, to pay claims against them. Compensation payments are, broadly speaking, directed towards those customers who are least able to sustain financial loss. The extent to which the FSCS will provide compensation for a successful claim will depend on the type of claim. For example, the maximum payment for a claim relating to protected deposit is currently £85,000.
2 Data protection
The Group’s client and employees’ personal data is subject to a number of laws and regulations, including those relating to data protection. All personal data is held in UK locations with exception of Chennai staff-related HR and finance data, and Governmental data is maintained in environments accredited in accordance with the client’s requirement, such as to store data in IL3 secure locations. Data for KYC Solutions is hosted in servers in different locations dependant on client requirement, but predominantly in the Netherlands. The Group has an appointed a Data Protection manager and a Chief Information Security Officer and an embedded compliance framework pursuant to which it has implemented controls and procedures including, but not limited to, privacy impact assessments, breach reporting and escalation, managing subject access requests and third party adequacy assessments as well as staff training throughout its organisation and IT platform to facilitate the protection of integrity and confidentiality of personal information relating to the Group’s clients and employees to comply with these data protection laws and regulations. User access is tailored to business needs and authorisation. Passwords are subject to system forced complexity, monthly refresh and lock out after three attempts. Data transfer is protected
145 in line with the client’s security requirements, where they retain data controller responsibility. Laptop standalone security is subject to encryption controls and new acquisitions are progressively included within this model where not already in place. While the Group continuously improves its design and coordination of security controls across the Group’s business units and geographies, like many organisations, the Group is still at risk of cyber-attacks and attempted frauds, among others. The Group is mindful of, and susceptible to, changes to regulation and legislation and carefully manages the risks of such change to its systems and operating model. For more detail, please see Part III (Risk Factors — Risks relating to the Group’s business and the industry in which it operates).
The European Commission has proposed a GDPR which is intended to bolster individuals’ privacy rights and will have widespread implications for organisations which hold and process personal data with proposals including the widening of the definition of personal data restricting the practice of implying consent to the use of personal data for marketing purposes. The GDPR will be implemented in May 2018 and the Group is well advanced in assessing and analysing its impact on the business.
3 Regulatory oversight by the Pensions Regulator
Since April 2015 certain public sector pension schemes must be governed and administered as public service pension schemes under the Public Service Pensions Act. The Pensions Regulator is responsible for overseeing and regulating the governance and administration of public service pension schemes. The Pensions Regulator has developed a code of practice that gives practical guidance and sets standards for the administration of public service pension schemes as well as setting out the relevant legal requirements. The Group is alert to the Pensions Regulator’s guidance and the related notification and reporting requirements and has established adequate procedures to meet these obligations. The Group through its Regulatory Pensions Support function pro-actively monitors changes to regulation and guidance and manage necessary changes to its policies and procedures.
146 PART XI - INFORMATION ON WFSS AND THE INDUSTRY IN WHICH IT OPERATES
Section A: WFSS
1 Overview
The Wells Fargo Shareowner Services Business ("WFSS") provides share registrar, corporate actions, and investment plan services to approximately 1,200 public and private US companies and other global companies. The WFSS service lines include stock transfer and registry services; proxy and annual meeting services; corporate actions and investment plan services. WFSS occupies a leading US market position with 21% market share by number of issuers served and 10% by the number of issuers served, as of 31 December 2016.
WFSS is headquartered in Mendota Heights, Minnesota where it has two facilities. WFSS also has several shared facilities, including a call centre in Phoenix, Arizona, an office in India and a smaller shared office in New York. As of 31 December 2016, WFSS employed approximately 400 full-time employees.
2 History
Since its establishment, WFSS has grown to service approximately 650 corporate issuers and 5 million active US shareholders. WFSS retains a rich heritage and a well-established brand of business. WFSS is a division of Wells Fargo, which is the largest subsidiary of Wells Fargo & Company. Wells Fargo & Company is a diversified, community-based financial services company with $1.93 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo & Company provides banking, insurance, investments, mortgage, and consumer and commercial finance through its banking and non-banking subsidiaries. Wells Fargo & Company serves one in three households in the United States and is ranked 25 on Fortune's 2017 rankings of America's largest corporations. Wells Fargo & Company ranked third in assets and second in market value of its common stock among all U.S. banks at 30 June 2017.
In 2012 WFSS's headquarters were moved to their current offices in Mendota Heights, Minnesota.
For the financial year 2016, WFSS had revenues of $103.2 million and EBITDA of $12.1 million, representing increases of 7.7% and 27.4% respectively, compared to financial year 2015. For half year 2017, WFSS had revenues of $61.9 million, EBITDA of $7.9 million and an EBITDA margin of 12.8%.
3 Strengths
3.1 Share registry services business serving over 650 corporate issuers and approximately 5 million active US shareholders
Based on 2015 Group 5 survey results, WFSS has the highest NPS scores in the US market for client loyalty (retention) and customer satisfaction (measured by data security, issuer service and shareholder service). WFSS leads the market in average shareholder base per company, with a net increase of approximately 375,000 shareholders in 2016. WFSS offers shareholders accessible, helpful services online, by mail, or over the phone. WFSS does not bill per call, creating an incentive to care for shareowner needs on the first contact. WFSS also offers easy and secure online tools to deliver account management, with resources and controls focusing on security and privacy.
3.2 Number 3 US market position with growing market share
WFSS holds the number three market position in stock transfer services in the US, by number of issuers served.
3.3 Recent client wins driving strong revenue growth
WFSS demonstrated strong sales momentum with business wins in 2016, including Duke Realty Corporation, Pacific Gas and Electric, Caleres Inc, General Electric Company, Ingevity Corporation, Procter and Gamble Co., and The Southern Company. WFSS also has hired a new sales team member to focus on the middle market, increasing the potential for new wins.
147 3.4 Blue chip client base delivering high profile corporate actions business
WFSS benefits from a client base consisting of large, well-established companies and is the market leader in client loyalty and overall satisfaction. WFSS has over 650 clients, with a strong list of financial services companies. WFSS’s clients include: Northern Trust, T Rowe Price, Lincoln Financial Group, J.P.Morgan, Berkshire Hathaway, and Visa.
4 Strategy
WFSS aims to generate and maintain organic growth through its relationship management team. Strategies include cross-selling to the existing portfolio, generating sales based on leveraging existing relationships, leveraging knowledge and expertise, having a needs-based and consultative sales approach, and identifying new opportunities through benefit selling.
5 Services
WFSS provides a range of services for its clients which include: stock transfer and registrar services, including annual meeting and dividend distribution; corporate action services, including paying agent, exchange agent, and initial and secondary public offerings; investment plan services, including dividend reinvestment plans, direct stock purchase plans, employee stock purchase plans, and waiver discount feature.
5.1 Transfer agent services
WFSS’s transfer agent service serves as the issuer’s record keeper for registered shares. The service ensures the shares are balanced and that regulations are met, whilst working with clients to manage their shareowner base. WFSS’s transfer agent services is comprised of: book-entry record keeping, certificate issuance, shareowner inquiries, and abandoned property including lost shareholder search.
Additional services provided, based on company need, may include annual meeting services and dividend disbursements.
5.2 Corporate actions
WFSS’s corporate actions services is comprised of: paying agent, exchange agent, tender agent, spin and split offs, and IPOs. WFSS offers knowledge and advice, focusing on the clients’ key strategic goals, and experience and expertise when it comes to corporate transactions.
WFSS has a dedicated initial public offering team delivering a consulting based approach, backed by a project planning methodology. The initial public offerings management capabilities of WFSS include: appointment and closing documents, shareholder communications, domestic and international wires, custodian for selling shareholders, and online access for shareholders.
5.3 Investment plan services
WFSS’s plan services comprises: direct stock purchase plan, employee stock purchase plan, and dividend reinvestment plan.
(a) Direct stock purchase plan
Direct stock purchase plans can be offered through WFSS’s bank sponsored plan or through a company’s S-3 registered plan. This type of plan allows individuals to purchase stock directly from a company or through a transfer agent without holding shares in their own name.
InvestDIRECT plan is a direct stock purchase plan offered through WFSS bank sponsored plan. This plan is designed to be fully shareholder paid, with electronic enrolment only and annual statements. This is WFSS’s default plan that comes with the transfer agent package if the company does not want to offer a plan direct.
(b) ADR (American Depositary Receipts)
148 ADR programs are offered by JPMorgan, one of four sponsoring depositary banks. WFSS provides white label transfer agent services for JPMorgan, handling dividends, proxy, corporate events, and administering their Global Invest Direct (GID) plan for shareholders to reinvest dividends or purchase additional ADR shares.
(c) Employee stock purchase plans
Employee Stock Purchase Plans (S3 or 423) are plans for company employees to purchase additional shares of company stock by deducting funds from their payroll dollars. Plans can often offer a discount. Features in plans can include: dividend reinvestment, optional cash, payroll investments, waiver discount, and sell stock.
(d) Dividend reinvestments
Dividend reinvestment plan is an S-3 registered plan that allows current registered investors to reinvest their dividend and/or contribute optional cash to purchase additional shares of the company. This plan does not allow new investors to purchase their initial shares through the plan.
5.4 Annual meeting services
WFSS’s annual meeting service comprises: annual meeting planning, printing and mailing of materials, proxy tabulation, and inspector of election. Proxy services are provided in partnership with a third party vendor to handle such things as coordination of print and mail, internet and phone voting, and fulfillment.
6 Technology Platforms
WFSS’s technology platforms are currently integrated within the wider Wells Fargo IT infrastructure. The present applications are primarily a third party-provided mainframe solution, integrated to a number of custom Windows-based solutions supporting client and shareowner websites, self-service activities, and various external interfaces for settlement and payment processing.
6.1 Third Party Platform Solution
The third party platform solution utilised by WFSS, undertake the primary line of business transaction recording, such as recording and maintaining the personal details of share owners, and recording and executing the changes in share ownership. Complex activities such as dividend payments, other corporate action and employee processing activities are supported.
Equiniti intends to replace third party-provided technology platform utilised by WFSS with its Sirius platform along with many of the other integrated applications. This will enable the business to run on the one platform, generating cost synergies across the estate, and consolidating the services already in place.
The replacement of many of WFSS’s ‘commercial off-the-shelf’ packages are expected to simplify the overall IT solution, the related support processes, and deliver both IT and operational productivity improvements.
Sirius is a custom solution based on the Microsoft .Net and SQLServer platform, and it manages the full range of Shareowner services, including basic Shareowner registration, multiple forms of employee plans, Corporate Action activity, and dividend processing.
7 Key Suppliers
WFSS uses several external suppliers to provide mail and postage services, tax reporting, and data processing.
7.1 Mail services & postage
Wells Fargo relies on various third party suppliers to provide mail and postage services.
149 7.2 Tax
WFSS primarily uses Wells Fargo internal tax operations. WFSS relies on third parties for assistance in connection with tax reclamation and certification for Irish domiciled companies and cost basis reporting.
7.3 Data processing
This relates to data processing costs associated with the system of reporting used in connection with WFSS's third party-provided technology platform.
8 Sales and Marketing
WFSS’s sales and marketing strategy incorporates three core principles of differentiation: gain a deep understanding of the customer and provide creative, commercially useful insights, tailor solutions to meet the needs of the customer that are uniquely available from WFSS, and strive for control of the process to secure the sale in order to ensure an optimal outcome for the customer. WFSS aims to produce confidence in the solutions offered, build long term loyalty, ensure a smooth transition process, and reduced customer tension with the four core WFSS servicing areas.
9 Customer Base
WFSS has a diversified base of corporate clients across all regions of the US. Its top five accounts by number of shareholders are Comcast Corporation, General Electric Company, P&G Company, Wells Fargo & Company, and J.P.Morgan Chase Bank N.A.
10 Employees
WFSS had approximately 400 full-time employees as at 31 December 2016. Most full-time employees are located in Minnesota. A significant percentage of full-time employees have tenure of greater than 10 years with WFSS. WFSS's key leadership team is planning to transfer to Equiniti on Closing.
11 Property
Two leased sites will be transferring with WFSS: leased office space at 1110 Centre Pointe Curve and 1175 Centre Point Circle in Mendota Heights, Minnesota.
12 Intellectual Property
It is anticipated that certain intellectual property rights of Wells Fargo relating to the WFSS business will transfer to Equiniti. Wells Fargo owns one registered service mark, Shareowner Client Connect, that will transfer in connection with the Acquisition. Other service marks are used in connection with the WFSS business, which are Shareowner Services, Shareowner Services InvestDIRECT Plan, and Shareowner Services Plus Plan, but these are not registered.
13 Legal Proceedings
WFSS becomes involved, from time to time, in various claims and lawsuits arising in the ordinary course of its business, such as shareowner claims and disputes with their clients.
The outcome of legal proceedings can be difficult to predict. See Part III (Risk Factors).
14 Insurance
WFSS is the beneficiary of a comprehensive insurance programme which includes automotive liability, directors’ and officers’ liability corporate reimbursement and individual coverage, employment practices liability, fiduciary liability, financial institution bond, general liability, professional liability, property including security privacy and multimedia liability, umbrella liability, and workers’ compensation team member injury plans and employer’s liability. It is intended for a similar insurance programme to be maintained by Equiniti after the Acquisition.
150 Section B: Industry Overview
1 Market Definition
The US shareholder services industry can be broadly defined as the interactions between US corporate clients and their shareholders, employees, customers, and citizens. This can be understood through an expanding suite of services and solutions across four individual service areas: transfer agent, plan services, corporate actions, and annual meeting.
The number of corporate issuers in the US is significantly larger than in the U.K. WFSS holds 21% market share by number of shareholder served and 10% market share by number of issuers served. The US shareholder services industry is mature and highly concentrated, with the top three participants accounting for approximately 80% of total market share.
Compared to its competitors, WFSS is the highest rated in satisfaction for account support, issuer service, and shareholder service. WFSS holds the second highest satisfaction rating for issuer website, and is in third place for annual meeting services and client fees.
The Directors believe that structural growth in each of these markets is supported by macroeconomic tailwinds, increases in interest rates and growing levels of market activity. US labour market is close to full employment, supporting both consumer spending and housing. But, there are weak corporate profits, a strong dollar, and modest global growth. This is limiting business investment and export growth. Inflation is expected to rise towards the Fed’s 2% target, strengthening the case for modest monetary policy tightening.
The business-to-business sales environment has changed dramatically over the past 10 years. Today, buyers are exerting their purchasing power more than ever, and procurement groups have more influence in the buying process, with a shrinking knowledge of the transfer agency products and services.
2 Competition
WFSS continues to increase its addressable market through organic innovation and strong client loyalty. WFSS has the highest client loyalty, ten points above the closest competitor.
Key competitors: WFSS’s main competitors in the US shareholder services market are other transfer agents, namely Computershare, Broadridge and American Stock Transfer & Trust, LLC. Key differentiators are WFSS’s consistently high loyalty and overall satisfaction ratings.
Section C: Regulatory Overview
1 Banking Regulation
Because WFSS will engage in the transfer agent business in New York, it will be required to obtain a charter to operate in New York as a limited purpose trust company with fiduciary powers in order to satisfy New York law which requires any entity which exercises fiduciary powers in connection with its transfer agent business to obtain a trust company charter. WFSS will be subject to state and federal banking laws and regulations in the U.S. which impose specific and detailed restrictions on the manner in which WFSS will be permitted to conduct its business. These laws and regulations are generally designed to protect WFSS’s customers and the public generally and not WFSS’s shareholders.
WFSS will be organized as a limited purpose trust company with fiduciary powers under the laws of the State of New York. It will be regulated and supervised by the New York State Department of Financial Services (the “NYSDFS”). As a limited purpose trust company with fiduciary powers under New York law, WFSS is a “bank” under such law, but does not fall within the definition of “bank,” “member bank” or “insured bank” (as the case may be) under various US federal bank regulatory statutes, including the US Bank Holding Company Act of 1956, as amended (the “BHCA”), the Federal Reserve Act (the “Federal Reserve Act”) and the Federal Deposit Insurance Act (the “FDIA”). Accordingly, while WFSS will be regulated as a “bank” under New York law, it will, because of the limited nature of its permissible business activities, not be regulated or supervised by either of the Board of Governors of the Federal Reserve System or the Federal Deposit Insurance Corporation. WFSS will not be authorized to make loans. It will also not be authorized to receive or accept customer deposits and will therefore be ineligible for FDIC deposit insurance.
151 Before consummating the acquisition of the WFSS business from Wells Fargo, Equiniti must receive the approval of the NYSDFS to organize, own and operate WFSS as a limited purpose trust company with fiduciary powers in New York State pursuant to an application (the “Charter Application”) that Equiniti has filed or will file shortly with the NYSDFS. As a matter of policy, the NYSDFS expects a parent entity (such as Equiniti) of a limited purpose trust company with fiduciary powers to act as a source of financial strength to its subsidiary trust company and to have available sufficient financial resources to support such subsidiary trust company’s capital and liquidity positions in the event of financial stress at such trust company.
If Equiniti obtains the approval of NYSDFS to organize, own and operate WFSS in New York State, the principal office and the executive office of WFSS will be located in New York City, and WFSS will be subject to the on-going supervision and regulation of the NYSDFS as a limited purpose trust company with fiduciary powers. WFSS’s business activities will be narrowly limited by the applicable provisions of the New York Banking Law and related rules, regulations and interpretive guidance to activities generally described as “fiduciary” and ancillary powers under the New York Banking Law and will include the various businesses acquired from WFSS. WFSS will not be authorized to make loans or to receive or accept customer deposits. It will be subject to capital and liquidity requirements which are generally similar to BASEL III requirements in concept but not so in application because of the composition of WFSS’s balance sheet, which is expected to contain only cash, cash equivalents and high quality debt securities on the asset side and no deposits or other non-affiliated funding on the liability side. Such capital requirements will focus on the appropriate level of capital that will be needed to permit WFSS to operate its business in accordance with its business plan in a safe and sound manner, given the particular risk profile and expected earnings of WFSS and the applicable liquidity requirement will focus on the amount of liquidity that will be needed by WFSS during a full “wind-down” period if it decideds to cease engaging in business as a limited purpose trust company. Other New York Banking Law requirements applicable to WFSS include the general requirement to operate in a “safe and sound” manner, which includes the imposition of various internal controls, risk management, information systems, cybersecurity and audit requirements. Various other restrictions, including restrictions on the payment of dividends and the making of material changes to its business plan will also apply to WFSS during its first three years of operations.
Applicable New York capital requirements mandate a minimum of $5 million in Tier 1 common equity (measured on a leverage basis without regard to any risk-weighted capital analysis) for newly established limited purpose trust companies with fiduciary powers. Higher capital requirements could be imposed if the NYSDFS believes that such minimum requirements are insufficient because of the particular risk profile of WFSS or because of what the NYSDFS believes to be adverse market or economic conditions applicable to WFSS or to the financial services marketplace generally. Dividend payments are also restricted by applicable New York law. Generally, WFSS will be prohibited from paying dividends during its first full three years of operations without the prior approval of the NYSDFS and will be restricted thereafter to paying dividends in any calendar year solely out of “net profits” for the current calendar year combined with the retained “net profits” for the previous two calendar years. In addition, dividends may not be paid if there is an impairment of its capital stock. The NYSDFS does not impose any specific liquidity requirement on limited purpose trust companies with fiduciary powers under its supervision although the NYSDFS does consider the adequacy of liquidity as part of its consideration of the Charter Application and will continue to evaluate WFSS’s liquidity on an ongoing basis after WFSS opens for business.
The NYSDFS typically conducts an annual onsite safety and soundness examination of each of the banks and trust companies under its jurisdiction. It should be assumed that WFSS will be so examined on an annual basis as well. The NYSDFS possesses broad remedial and enforcement powers that can be used to correct supervisory or regulatory deficiencies (such as insufficient levels of capital or liquidity, inadequate risk management practices or internal controls, breaches of fiduciary duty and other failures to meet required regulatory and supervisory standards) that are found to exist as a result of these examinations. These powers include supervisory orders either mandating specified changes in the manner in which a regulated institution conducts its business or prohibiting such institution from continuing to engage in certain illegal or “unsafe or unsound” banking practices, removal from office of officers or directors who have engaged in conduct which the NYSDFS finds especially inappropriate for an officer or director of a New York-regulated institution and the imposition of monetary penalties against such officers and directors and/or the institutions themselves and referral to law enforcement authorities for criminal prosecution in certain cases.
152 Because WFSS is not a “bank” under the BHCA, is not an “insured bank” under the FDIA and is not a “member bank” under the Federal Reserve Act, it will not be subject to the requirements of those statutes and will otherwise be subject to limited federal banking regulation in the US. WFSS will, however, be subject to certain federal banking or other regulatory or supervisory statutes, rules, regulations or interpretive guidance either because of the direct applicability of such statutes, rules, regulations and interpretive guidance or because the NYSDFS, in certain instances, requires New York State-chartered banks and trust companies under its jurisdiction (such as WFSS) to satisfy the requirements of such federal laws.
For example, under US federal law, including the Bank Secrecy Act (the “BSA”) and the USA Patriot Act of 2001, WFSS must maintain anti-money laundering programs that include established internal policies, procedures, employee training and controls to combat money laundering. Under these requirements, WFSS will be required to take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions. In addition, WFSS is required to satisfy the requirements imposed by the Office of Foreign Assets Control (“OFAC”), which administers laws and Executive Orders that prohibit US entities such as WFSS from engaging in transactions with certain prohibited parties who are identified on an OFAC-published list of person and organizations suspected of financing, aiding, harboring or engaging in terrorist acts.
Bank regulators, including the NYSDFS, routinely examine institutions for compliance with these obligations. Failure of a financial institution, including WFSS, to maintain and implement adequate programs to combat money laundering and terrorist financing and comply with OFAC sanctions, or to comply with relevant laws and regulations, could have serious legal, reputational and financial consequences for the institution. The NYSDFS has a history of being particularly aggressive in enforcing the BSA- and OFAC-related rules and regulations.
Most of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd- Frank Act”), which was signed into law on July 21, 2010, will not be applicable to WFSS for one or more reasons, including the fact that WFSS is not an insured bank and does not accept deposits, is not publicly traded, does not engage in proprietary trading of securities, has a balance sheet of less than $500 million in assets that contains only cash, cash equivalents and high quality debt securities, does not make loans and does not offer or sell consumer-related financial products.
2 SEC Regulation
Under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), generally companies such as WFSS that act as a transfer agent or registrar for securities that are publicly traded in the United States must register as, and comply with regulations applicable to, a transfer agent. In the case of a transfer agent that is a limited purpose trust company formed under the New York Banking Law that is neither insured by the Federal Deposit Insurance Company nor a member of the Federal Reserve System, the appropriate regulatory agency is the SEC. A U.S. transfer agent must also comply with certain requirements established by self-regulatory organisations (“SRO”), which are discussed further below.
The SEC has issued rules under the Exchange Act that govern transfer agents which for the most were adopted 30-40 years ago, and have widely been recognized by both the industry and the SEC to be outdated in light of existing technology and business practices. The current SEC rules applicable to transfer agents address, among other things: initial registration and requirements to report material changes in registration information, and to file reports annually, including an annual report prepared by an independent accountant concerning the transfer agent’s system of internal accounting controls and related procedures for the transfer of record ownership and the safeguarding of securities and funds; fingerprinting of directors, officers and employees; reporting the discovery of the theft or loss of any certificates (including “cancelled” securities) or counterfeit securities; times for turnaround and processing of securities transactions, maintenance of internal procedures to satisfy these requirements and notices of failure to comply with these requirements; requirements regarding the maintenance of a master security holder file and control list; requirements to resolve or buy-in securities in the market if an overissuance of an issuance of securities is discovered; requirements regarding responding to inquiries from securities holders and broker-dealers; monthly reports regarding aged record differences, buy-ins and failures to post certificate detail to master security holder and subsidiary files; safeguarding securities and funds; acting as a depositary or exchange agent with respect to a tender offer or exchange offer; maintaining standards and procedures for accepting signature guarantees from eligible guarantor institutions; procedures for
153 assuming or ceasing to act as a transfer agent for a securities issue; obligations to search for “lost” securities holders; policies and procedures for cancellation and destruction of certificates; handling consumer report information; and record keeping requirements, including rules on electronic record retention.
In addition to matters that are specifically addressed in the SEC’s rules, the SEC has in recent years emphasized that it regards transfer agents as performing important “gatekeeper” functions in helping to detect and prevent frauds involving unregistered securities, improperly issued securities and improper transfers of securities that are not freely transferable without restriction. The SEC has brought a number of enforcement actions against transfer agents for failure to maintain proper controls or supervision designed to prevent such occurrences.
After a number years of indicating that it was drafting new rules, in December 2015 the SEC issued an advance notice of proposed rulemaking and concept release (the “2015 Release”) as a preliminary step towards furthering this process. Among other things, in the 2015 Release the SEC stated that it intended to propose new or amended rules to: (1) expand the scope of information collected in forms that transfer agents are required to file each year and capture all such information in a structured, electronic format as needed to enhance aggregation, comparison, and analysis; (2) require that any arrangement for transfer agent services between a registered transfer agent and an issuer to be set forth in a written agreement that addresses topics such as the transfer agent services to be provided, the fee schedule, and requirements for the handing over of transfer agent records to the successor transfer agent; (3) enhance transfer agents’ requirements for the safeguarding of issuer and securityholder funds and securities; (4) apply an anti-fraud provision to specific activities of transfer agents; (5) require transfer agents to establish business continuity and disaster recovery plans; (6) require transfer agents to establish basic procedures regarding the use of information technology, including methods of safeguarding personally identifiable information; (7) revise recordkeeping requirements to more fully capture the scope of a transfer agent’s business activities; and (8) conform and update various terms and definitions to reflect modern systems and usage, as well as to eliminate obsolete rules. Additionally, the SEC asked for specific comments on: the need for revisions to the current regulatory framework; whether the proposals will increase the prompt and accurate clearance and settlement of securities transactions or have other benefits, such as reducing the potential for fraudulent activity; the potential effects on efficiency, competition, and capital formation of potential revisions to the current regulatory framework; any potential interplay between applicable rules issued by SROs and the potential revisions to the current regulatory framework for transfer agents, including any potential conflicts that should be considered or resolved; specific areas where transfer agents need additional guidance or regulatory clarity regarding the applicability of current rules; and whether the SEC should prioritise certain of the proposed rule changes, and if so, which ones. Since the 2015 Release was published, no rules have been proposed, and the SEC has not indicated if or when such proposals can be expected.
3 SROs
The Exchange Act gives the US securities industry substantial responsibility to supervise itself under the SEC’s overall regulation through the establishment of SROs, such as national securities exchanges, clearing corporations and other entities, that must register with and comply with rules of the SEC. In the case of a transfer agent, the SROs that are of primary importance are the national securities exchanges on which securities are publicly traded in the United States, such as the New York Stock Exchange (the “NYSE”) and NASDAQ, and the Depositary Trust & Clearing Corporation (“DTC”), which effectively functions as a central securities depositary in the United States by holding through a nominee securities that are held in “street name”, i.e., are held in brokerage accounts and are not registered on the records of the issuer in the name of the beneficial owner.
Under the NYSE rules, a transfer agent must be approved by the NYSE before it is permitted to act as transfer agent for a security that is listed on the NYSE. The principal requirements established by the NYSE applicable to transfer agents include the following: maintaining insurance coverage of at least $25 million to protect securities while in process; subject to certain exceptions, maintaining at least $10 million in capital surplus, undivided profits and capital reserves; required turnaround times; recording the receipt of securities from a clearing agency; assuming responsibility and liability for securities from the time of receipt until they are redelivered to the transferee; maintaining sufficient experienced personnel; maintaining adequate facilities for the safekeeping of securities and the processing of transfers; utilising
154 co-transfer agents; providing an indemnity agreement if it acts as both transfer agent and registrar; and maintaining the functions of transfer agent and registrar separately and distinctly with appropriate internal controls, subject to an annual review by and report of the agent's independent auditors, a copy of which must be submitted to the NYSE.
As a practical matter, a US transfer agent must comply with DTC’s requirements because (a) most securities that are publicly traded in the United States are held in “street name” by a nominee of DTC and (b) the NYSE and NASDAQ require all securities listed on those exchanges to be eligible for the direct registration system (“DRS”), and one of the requirements for DRS is that the transfer agent must be a participant in DTC’s Fast Automated Securities Transfer (“FAST”) program (a “FAST Agent”). DRS is a system in which securities are registered in the name of the beneficial owner on the books and records of the issuer’s transfer agent but not evidenced by certificates. The FAST program is a system through which securities are transferred between DTC and a transfer agent without the physical delivery of certificates. According to DTC, there are more than 1.1 million issues of securities valued at over $41 trillion that participate in the FAST program. Virtually every transfer agent that is a FAST Agent also participates in the Deposit/Withdrawal by Custodian system that facilitates the electronic transfer of securities between DTC and the transfer agent.
The primary requirements for becoming a FAST Agent include: complying with insurance requirements (although complying with the NYSE insurance requirements are generally sufficient for DTC purposes); submitting an external audit report of transfer agent procedures and controls on an annual basis; complying with certain operational requirements; and executing certain agreements and documents. These agreements and documents cover matters such as additional transfer requirements, record date requirements, dividend and income notification procedures and maintaining DTC-eligible inventory in the form of jumbo certificates registered in the name of DTC’s nominee. Additionally, if a FAST Agent acts as transfer agent for securities that participate in DRS, it must execute a Limited Participant Agreement with DTC and comply with additional insurance requirements. In DRS transactions, communications are sent over DTC’s Profile system. Each FAST Agent that effects a DRS transaction over the Profile system must (a) make certain representations regarding its authority to effect the transaction, (b) provide indemnities in the event such representations are breached and (c) post a surety bond to support such indemnities.
155 PART XII - OPERATING AND FINANCIAL REVIEW OF EQUINITI
The following is a discussion and analysis of the Group’s results of operations and financial condition based on the consolidated financial information of the Company and its consolidated subsidiaries (the “Group”) as of and for the Financial Years 2014, 2015 and 2016, as well as Half Year 2016 and Half Year 2017 (all such periods being referred to herein as the “periods under review”), prepared in accordance with IFRS (except as stated otherwise).
This discussion contains forward-looking statements, which, although based on assumptions that the Directors consider reasonable, are subject to risks and uncertainties that could cause actual events or conditions to differ materially from those expressed or implied by the forward-looking statements. Such risks and uncertainties, include, but are not limited to those described in Part III (Risk Factors). Actual results may differ materially from those contained in the forward-looking statements. See paragraph 2 of Part IV (Presentation of Information).
1 OVERVIEW
1.1 Financial information presented
The Company was incorporated in 2009 in connection with the acquisition of Xafinity Limited by the Company. For the periods under review, the historical financial information presented is of the Company and its consolidated subsidiaries.
The Company is the ultimate holding company for the Group, which will continue to report its results on the basis of the Company and its consolidated subsidiaries.
1.2 The Group
Equiniti provides complex administration and payment services supported by leading technology platforms to a wide range of organisations, including approximately 70 of the companies in the FTSE 100. It is the UK’s leading provider of share registration and associated investor services, and also has market leading positions in administration of employee share plans, pension administration and software, and employee benefit schemes. Equiniti supports clients in a wide range of industries and has particular strengths with clients in the banking, insurance and other financial services as well as outsourced government services sectors. The Group enjoys long term and loyal relationships with its client base and has demonstrated resilient revenue growth including a compound revenue growth rate of 14% over Financial Years 2014 to 2016.
The Directors believe that the Group offers its clients business-critical outsourced services and includes a range of software solutions that support them in areas of complex administration and payment processing. The Group’s suite of capabilities can be deployed across multiple different markets with a focus on complex or regulated environments where its clients are managing high volume interactions with their stakeholders. The Group’s solutions are supported by innovative technology and delivered by a team of approximately 4,478 employees across 35 locations (excluding Chennai and India).
Equiniti was formed as a stand-alone Group in 2007 following a carve-out from Lloyds TSB (now part of Lloyds Banking Group). From the outset, a core strategy of the Group has been to broaden the suite of complementary services that it provides to its clients, whilst leveraging its existing core skill-set. As a result, the business has expanded over time into a range of new market segments including, inter alia, pension administration, retail and executive share dealing and custody services, complaints technology and servicing solutions, and loan technology and administration, supported by advanced software.
The Group provides a range of services and is organised in three core divisions: Investment Solutions, Intelligent Solutions and Pension Solutions.
(a) Investment Solutions (33% of the Group’s Revenues for Half Year 2017 and 32% of the Group’s Revenues for Financial Year 2016).
The Investment Solutions division offers a broad range of services, including share registration
156 for around half the FTSE 100, and the administration of SAYE schemes and share incentive plans for 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.
(b) Intelligent Solutions (28% of the Group’s Revenues for Half Year 2017 and 29% of the Group’s Revenues for Financial Year 2016).
The Intelligent Solutions division 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.
(c) Pension Solutions (36% of the Group’s Revenues for Half Year 2017 and 36% of the Group’s Revenues for Financial Year 2016).
The Pension Solutions division 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 Equiniti has served continuously since 1836.
(d) Interest Income (3% of the Group's Revenues for Half Year 2017 and 3% of the Group's Revenues for Financial Year 2016).
In addition to the three divisions, the Group earns interest income on balances administered on its clients’ behalf.
A key strength of the Group is the strong relationships it has with its blue-chip client base. The Group is focused on large corporate clients, including approximately 70 of the companies in the FTSE 100, as well as large government departments. The Group maintains strong relationships with its clients as evidenced by the Group’s client retention rate of 100% for its FTSE 100 and FTSE 250 clients in the Financial Year 2016 and Half Year 2017. The services it provides to its clients are underpinned by proprietary technology, which the Directors believe is both highly scalable and well invested. Using this technology, the Group provides mission critical, “high cost of failure” services whilst maintaining large volumes of critical data helping Equiniti remain a relevant and therefore highly valued supplier to its clients. As a result, the Group has been able to benefit from a degree of recurring revenues underpinned by long-term contracts with disincentives to exit.
The Group maintains leading positions in its core markets and challenger positions in several other market segments that it has successfully entered since 2007. The addressable market for complex outsourced administration and software in the UK is large. Equiniti currently only serves a small portion of this addressable market and hence the Directors believe there is significant headroom for growth as the Group continues to develop and acquire additional capabilities. Furthermore, the Directors believe that, although the overall economic outlook may be uncertain, there are certain favourable macro trends, such as increasing regulation, which may drive increased appetite on the part of corporate clients and government departments to seek outsourcing solutions for their complex needs. The Directors believe that Equiniti is well-placed to benefit from these trends.
For the Financial Year 2016, the Group had revenues of £382.6 million, EBITDA of £92.4 million, representing increases of 3.7% and 7.2% respectively, compared to Financial Year 2015, and an EBITDA margin of 24.2%. For Half Year 2017, the Group had revenues of £194.8 million, EBITDA of £42.0 million and an EBITDA Margin of 21.6%, representing an increase of 1.5% and 1.9% respectively, compared to Half Year 2016.
2 FACTORS AFFECTING RESULTS
Several factors have historically affected the Group’s business and may impact its business in the future, of which the key factors are set out below. Some of these are macroeconomic factors, which are primarily
157 outside management’s control, affecting the business process outsourcing markets and, consequently, the results of the Group’s operations. Company-specific and operational factors also impact the results of the Group’s operations. These factors will continue to affect the Enlarged Group's business after the Acquisition and many of them are applicable to WFSS as they apply to the Group.
2.1 Interest Rates
A limited portion of the Group’s revenues, £11.2 million or 3% of Group revenue for Financial Year 2016, is derived from interest income earned on balances administered on behalf of clients. Fluctuations in UK interest rates therefore impact such revenues. The Group has entered into certain customary interest rate swap hedging arrangements which partially offset the impact of these potential fluctuations, as described in “Quantitative and qualitative disclosure on market risk.” Interest rates are currently at historical lows. The Directors expect increased revenues from balances administered on behalf of clients if interest rates return to longer term averages.
The Group regularly reviews its interest rate hedging with the aim of ensuring the most appropriate balance of certainty and stability of earnings coupled with exposure from the future upside of UK interest rate increases. As a consequence, the Group entered into interest rate hedges for £380 million in July 2017. Currently interest hedges are in place for two thirds of addressable client interest bearing cash which expire in July and August 2018 and July 2020.
Furthermore, the Group also earns revenue from other sources that are related to UK interest rates and more specifically to three and five year swap rates, such as in relation to the administration of SAYE schemes on behalf of corporates and the underlying savers. If interest rates were to rise, certain of these sources of revenue are expected to have a medium term positive impact on Group revenues.
2.2 Corporate activity
Corporate actions are recurrent in nature but recur in relatively irregular patterns, thus generating an unpredictable impact on underlying trading. Corporate actions contributed £3.2 million, £6.2 million and £7.9 million to Group revenue for the Financial Years 2014, 2015 and 2016 respectively. This resulted in a three year revenue average from corporate actions of £5.8 million per annum.
Particular corporate actions undertaken by the Group’s larger clients may have a disproportionate impact on earnings. Accordingly, the high level of revenue from corporate actions in Financial Year 2016 was driven primarily by three actions. When considering trends in underlying trading, the Directors therefore believe that it is important to consider trading excluding the impact of corporate actions of this nature. In general, the Directors believe that a robust economic climate leads to higher levels of corporate action activity.
2.3 Favourable market trends
The Group’s results in recent years have also been impacted by the trend towards increased outsourcing of the types of services it offers to both public and private entities.
The key market drivers supporting the movement to outsourcing include:
• Increasing regulation. There is ongoing pressure to protect consumers’ interests through greater regulation. In the UK, more than 80 pieces of legislation have been passed since the financial crisis. This means both public and private sector organisations face rising compliance costs and the need to upgrade technology in response to new regulations, while they are still contending with past regulatory issues. Organisations who fail to meet their regulatory obligations also face more investigations, which accelerates demand for remediation services. Whilst Equiniti is also impacted by compliance costs, the Group sees the ongoing regulatory changes as more of an opportunity to service its clients.
• Continuing digitisation. Consumers expect to receive high-quality service and want to manage their affairs online. Shortening product lifecycles require organisations to build customer journeys ever more quickly, through extensive investment in websites, portals and mobile apps, which can be difficult and expensive to do in-house. At the same time, they often struggle with legacy technology,
158 particularly in the banking sector, hampering their ability to respond.
• Increasing cost consciousness. With low economic growth and intense pressure on public finances, companies and government agencies must do more with less. This requires them to focus on their core operations and to be more efficient. Technology-led solutions help them to transform their businesses and deliver operational efficiencies.
2.4 Upselling and cross-selling to Existing Clients
A high proportion of the Group’s revenue is driven by its ability to execute its existing contracts and deepen the high-fidelity blue chip client relationships that the Group maintains. The Group has an average FTSE 100 share registration client relationship of over 20 years, and had a 100% retention rate for its FTSE 100 and FTSE 250 clients during the Financial Year 2016 and Half Year 2017. Throughout the periods under review, the Group has retained 100% of its corporate clients and has an average client relationship greater than 20 years. The Directors believe that the Group is well-positioned to leverage these relationships and increase the range and value of services that it currently provides to its clients. This is because the Group offers a portfolio of services and solutions, underpinned by proprietary technology, which serve the needs of large businesses and government departments that operate with large stakeholder groups in increasingly regulated and complex environments. The Directors believe that the Group’s portfolio of services is particularly well-suited to its suite of financial services clients and expects to see particular growth amongst these clients.
2.5 New client wins
Equiniti leverages its brand, reputation for high quality service delivery and deep domain expertise to secure new client wins in the private and public sectors. The Group has enjoyed continued success in winning new clients and has added several high-profile clients by winning 10 new share registration clients in Financial Year 2016. Recent client wins include AA, Biffa, Domino’s Pizza, Go Compare, Metro Bank, Retirement Advantage and Sainsbury's. New client wins allow the business to continue its strategy of upselling services to new clients once they take a core offering, often in Registration Services or Pension Solutions.
2.6 Internal development of new capabilities
The Group has internally developed several new capabilities which it has begun selling to new and existing clients. Equiniti builds upon its existing technology and capabilities to derive new solutions which can be leveraged across the customer base to drive increased upselling and cross-selling. By way of example, three of the more recently developed solutions which have had a positive impact on the Group's performance include:
• Bereavement Services: The Group developed a full-scale estate administration service for families and representatives of deceased consumers. This is a natural extension to the Group’s service offering as it already receives around 1,000 notifications of death per day. The service is aimed at executors or representatives of the deceased who find that the complexity and time involved in dealing with the affairs of the deceased means they would prefer to use a specialist provider.
• Electronic AGM: The Group successfully delivered the first UK plc electronic AGM in 2016. The Group worked closely with Lumi, the global leader in real-time audience engagement technology and provider of AGM voting software, to enable the AGM voting to be both legally robust and practical across a number of electronic platforms, from Android and Apple’s IoS to desktop applications.
• Augmented Reality: The Group developed EQ Strata to provide corporates with a new and interactive way to engage on their employee benefits. EQ Strata is an Android and iOS app enabling augmented reality to display through an individual’s smartphone or tablet, offering universal reach in global organisations where significant numbers of employees do not have access to the corporate intranet.
2.7 Acquisitions and disposals in the periods under review
In addition to the internal development of new capabilities, the Group has also made a series of strategic
159 acquisitions during the periods under review that matched its core growth strategy and extended its capabilities.
The Acquisition will be significantly larger than any other acquisition made by Equiniti in the period under review. The Directors believe that the Acquisition has a compelling strategic rationale and is financially attractive for shareholders for the reasons set out in more detail in paragraph 2.2 of Part II (Letter from the Chairman), including in particular:
• The Acquisition transforms Equiniti into a multi-national share registration business combining local expertise with global reach;
• The Acquisition represents a highly attractive entry point into the US;
• WFSS has a strong track record of organic growth and market share capture;
• Equiniti and WFSS have an excellent strategic fit and direct core competency correlation;
• The Acquisition generates a near term value opportunity to migrate WFSS to Equiniti's Sirius platform;
• The Acquisition is anticipated to release material cost synergies; and
• Cross-selling opportunities have been identified.
The Acquisition is expected to be strongly earnings accretive4, 5 in the first full year of ownership and double digit earnings accretive4 in the second full year of ownership and to deliver strong returns with ROIC (post tax) anticipated to exceed WACC in the second full year of ownership.
The Acquisition will be funded through a fully underwritten Rights Issue to raise approximately £122 million (approximately $157 million), and additional Equiniti debt facilities of £120 million (approximately $155 million), which will provide Equiniti with a stronger financial footing. Pro-forma Enlarged Group leverage is expected to be broadly in line with the current Group level (dependent on completion date) with a clear deleveraging profile to Equiniti’s 2-2.5x medium term objective by the end of the second full year of ownership.4
Other acquisitions which have also impacted the Group’s continuing operations are as follows:
• The Group made three acquisitions in Financial Year 2014, consisting of the Invigia group of companies (“Invigia”), the business and assets of Corporate Dealing Services from JP Morgan (“JPM CDS”) and the share capital of Pancredit Systems Limited (“Pancredit”), for a total consideration net of cash acquired of £45.0 million. The acquired businesses generated post acquisition revenues of £7.2 million for Financial Year 2014. In addition, the Group became the majority shareholder in MyCSP Limited (“MyCSP”) in Financial Year 2014 with the acquisition of an additional 11% share for £8.0 million.
• The Group made two acquisitions in Financial Year 2015, consisting of the business and assets of Selftrade (“Selftrade”) and the share capital of TransGlobal Payment Solutions (“TPS”), for a total consideration of £19.9 million. The acquired businesses generated post acquisition revenues of £8.5 million and also generated pre acquisition revenues of £1.8 million for the Financial Year 2015.
• The Group completed three acquisitions in Financial Year 2016, consisting of the entire issued share capital of KYCnet BV (“KYCnet”), RiskFactor Group (“RiskFactor”) and Toplevel Holdings Limited (“Toplevel”) for a total consideration of £30.6 million. The acquired businesses generated post acquisition revenues of £8.6 million in Financial Year 2016.
• The Group completed two acquisitions in Half Year 2017, consisting of Marketing Source Limited
4 This statement is not intended as a profit forecast and should not be interpreted to mean that earnings per share for Equiniti for the current or future financial years would necessarily match or exceed historical published earnings. 5 EPS accretion is measured on an adjusted underlying basis, as explained in the announcement of the results of Equiniti for the six months ended 30 June 2017 incorporated into this Prospectus by reference
160 and its subsidiary (“Marketing Source”), and Gateway2Finance Limited and Refresh Personal Finance Limited (“Gateway2Finance”) for a total consideration of £25.4 million. The Group took control of Marketing Source on 1 December 2016. The acquired businesses generated post acquisition revenues of £3.1 million in Half Year 2017.
• The Group completed one acquisition post Half Year 2017 consisting of 100% of the fully diluted share capital of The Nostrum Group Limited for a total consideration £13.0 million.
Deferred or contingent consideration is still payable for the acquisitions relating to TPS, KYCnet, RiskFactor, Toplevel, Marketing Source Limited, Gateway2Finance and The Nostrum Group Limited. The amount of consideration outstanding in respect of each acquisition as at 30 June 2017 is as follows:
• TPS - up to £3.0 million (earn out dependent on performance criteria);
• KYCnet — up to £9.4 million (earn out dependent on performance criteria);
• RiskFactor — up to £5.0 million (earn out dependent on performance criteria);
• Toplevel — up to £0.1 million;
• Marketing Source Limited –— up to £7.2 million (earn out dependent on performance criteria);
• Gateway2Finance — up to £1.1 million (earn out dependent on performance criteria); and
• The Nostrum Group Limited — up to £7.0 million (earn out dependent on performance criteria).
(collectively the “Contingent Consideration”).
Provision for the Contingent Consideration has been made in the accounts of the Group. The Group does not expect to incur material integration costs as a result of any of the acquisitions described above.
2.8 Implementation of a Group Operations Platform and Offshoring Initiatives
The Group has implemented efficiency programmes in order to streamline its business operations and reduce operating costs. From an organisational perspective this has led to the establishment of a Group Operations function which provides services to all three divisions. The Group has significantly enhanced its presence in Chennai increasing its headcount in India from 136 on 31 December 2013 to 784 as of 30 June 2017. This has led to approximately 17.6% of the Group’s total headcount being located in Chennai and the Directors believe that significant further opportunity to expand operations and reduce costs exists through careful and appropriate offshoring.
3 CURRENT TRADING AND PROSPECTS
The solid financial performance of the Group reported in Half Year 2017 has continued. This performance underpins the Board’s confidence that the dependability of revenues, the platform nature of operations and progressive deleveraging will enable the Group to grow profits and earnings ahead of revenue.
The Directors expect a tax rate in line with that of a typical UK corporate. The Group has significant tax assets available for use against future profits which the Directors expect will lead to an effective cash tax paid rate of approximately 14%.
3.1 Explanation of income statement items
(a) Revenue
Revenue, which excludes value added tax, represents the invoiced value of services and software supplied and is almost entirely attributable to the United Kingdom.
Professional services revenue is recognised when earned with software licences sales being recognised when goods and licences are delivered. Technical support revenues are recognised
161 rateably over the term of the maintenance agreement. Amounts recognised as revenue but not yet billed are reflected in the statement of financial position as accrued income. Amounts billed in advance of work performed are deferred in the statement of financial position as deferred income. In the case of long term contracts, revenue is recognised proportionately as the contract is performed. Total costs incurred under contracts in progress net of amounts transferred to the statement of comprehensive income are stated less foreseeable losses and payments on account. The statement of comprehensive income reflects the proportion of the work carried out at the accounting date.
Revenues also comprise fixed periodic administration fees, transaction processing fees, fees for managing corporate actions, fees for professional and IT services and fees earned on the administration of client funds and are stated net of value added tax. Periodic administration fees are recognised evenly over the contract period. Transaction based fees are recognised at the time of processing the related transactions.
Revenues from corporate actions are recognised in line with the stage of completion and fees in relation to administration of client funds are recognised as they accrue. Revenues include variable margin fee income earned on funds under administration of the Group. Out of pocket expenses recharged to clients are recognised in revenue when they are recoverable from the client, net of the related expense.
(b) Operating costs
Operating costs consist primarily of the following items:
◦ Employee benefit expense of staff costs to deliver the Group’s product and technology, customer operations and support centre departments, including bonuses, social security costs and pension costs;
◦ Bought in services including the cost of contractors and the Group’s offshore contract costs;
◦ Other administrative expenses such as costs associated with supporting the Group’s property and IT infrastructure, travel, recruitment, training and licence fees incurred as a result of providing certain third party services and other incidental support function costs;
◦ Depreciation expenses related to capital expenditure on the Group’s infrastructure; and
◦ Amortisation expense related to the development projects which the Group has completed in developing its core digital platforms and software, together with intangible assets recognised on acquisition of subsidiaries and investments.
(c) Taxation
Tax on the profit for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
162 (d) Amortisation and depreciation
Amortisation is charged on computer software and other intangible assets (arising from acquisitions) over the useful life of the asset.
Goodwill is not amortised but tested annually for impairment. Depreciation is charged on tangible fixed assets on a straight line basis over the estimated useful lives of each part of an item of property, plant or equipment including motor vehicles held under finance leases. Land is not depreciated.
The depreciation and amortisation of software and hardware investments of the Group is expected to be generally in line with the growth of the Group’s annual capital expenditures for the foreseeable future.
(e) Exceptional items
Exceptional items are costs which due to their size, incidence and non-recurring nature have been classified separately in order to draw the reader to the attention of the financial statements and, in the Directors’ judgement, to show more accurately the underlying nature of the Group. These exceptional items are included within the statement of comprehensive income, and are separately disclosed either in the notes to the consolidated financial statements or on the face of the consolidated statement of comprehensive income. Examples of exceptional items include costs in relation to business integration / reorganisation as well as potential and aborted acquisitions.
(f) Finance costs
Finance costs include interest charges payable on the Group’s outstanding indebtedness and certain bank fees accrued in connection with the restructuring and refinancing of the Group’s borrowings, parent company loans and finance costs relating to pension schemes, unwinding of discounted amount in provisions and cost of interest rate swaps.
(g) EBITDA
EBITDA represents operating profit before depreciation and amortisation and exceptional items.
3.2 SEGMENTAL ANALYSIS
Under IFRS 8, “Operating Segments”, the Group has identified its reporting segments based on internal management reporting information that is regularly reviewed by the Board. An analysis of the segments for the periods under review is shown in the table below.
Year ended 31 December Six months ended 30 June 2014 2015 2016 2016 2017 (unaudited) (restated) (Unaudited) (Unaudited) £m £m £m £m £m Revenue Investment Solutions 91.2 116.1 124.0 62.5 64.2 Intelligent Solutions 83.8 92.3 109.3 54.7 55.4 Pension Solutions 110.8 151.3 138.1 68.9 70.5 Interest 6.5 9.3 11.2 5.8 4.7 Group Revenue 292.3 369.0 382.6 191.9 194.8 EBITDA prior to exceptional items Investment Solutions 28.3 34.5 37.5 17.8 20.2 Intelligent Solutions 15.2 21.5 28.3 12.1 13.4 Pension Solutions 24.5 29.9 27.7 12.5 10.5
163 Interest 6.5 9.3 11.2 5.8 4.7 Central Costs (4.5) (9.0) (12.3) (7.0) (6.8) Group EBITDA prior to exceptional items 70.0 86.2 92.4 41.2 42.0 Exceptional items (12.6) (32.8) (5.0) (2.4) (3.9) Group EBITDA 57.4 53.4 87.4 38.8 38.1
Results of Operations
The following tables set out the selected consolidated statement of comprehensive income data for Financial Years 2014, 2015 and 2016 as well as Half Year 2016 and Half Year 2017 without material adjustment:
(a) Results of Operations for Half Year 2017 compared with Half Year 2016
Six months ended 30 June (Unaudited) 2016 2017 Continuing operations £m £m Revenue 191.9 194.8 Operating costs before exceptional costs, depreciation and amortisation (150.7) (152.8) EBITDA* prior to exceptional items 41.2 42.0 Operating costs — exceptional items (2.4) (3.9) EBITDA 38.8 38.1 Depreciation of property, plant and equipment (2.5) (3.0) Amortisation of software and acquisition related intangible assets (21.0) (21.0) Total operating costs (176.6) (180.7) Earnings before interest and tax (EBIT) 15.3 14.1 Finance income 0.1 0.5 Finance costs — before exceptional items (6.6) (5.9) Net finance costs (6.5) (5.4) Profit before income tax 8.8 8.7 Income tax charge (2.0) (1.5) Profit for the period 6.8 7.2 Profit for the period attributable to: — Owners of the parent 5.9 5.6 — Non-controlling interests 0.9 1.6 Profit for the period 6.8 7.2 Earnings per share attributable to owners of the parent: Basic and diluted earnings per share (pence) 2.0 1.9 Basic and diluted underlying earnings per share (pence) 6.5 6.9
*Earnings before interest, tax, depreciation and amortisation
Revenue
Revenue increased by 1.5% to £194.8 million in Half Year 2017 (Half Year 2016: £191.9 million), with a slight decline in organic growth despite the interest rate headwind and second half bias of the Group's trading. The Group experienced revenue growth in all three business divisions. The acquisitions of Marketing Source Limited and Gateway2Finance have been fully integrated and add to the Group’s capabilities, having now secured credit bureau and credit servicing permissions. The acquisition of The Nostrum Group Limited strengthens the Group's scale and depth in the credit servicing market. The proposed acquisition of Wells Fargo’s Shareowner Services business creates
164 a stronger, more diversified multi-national Group combining Equiniti's local expertise with global reach.
Operating costs
Six months ended 30 June (Unaudited) 2016 2017 £m £m Expenses by nature Employee benefit expense 81.2 84.2 Direct costs 35.6 37.4 Bought in services 8.9 9.6 Premises costs 3.2 3.5 Operating lease costs 3.7 3.4 Government grants for research and development - (0.9) Other general business costs 18.1 15.6 Operating costs before exceptional costs, depreciation and amortisation 150.7 152.8 Exceptional items 2.4 3.9 Depreciation of property, plant and equipment 2.5 3.0 Amortisation of software 8.3 7.7 Amortisation of acquisition related intangible assets 12.7 13.3 Total operating costs 176.6 180.7
Total operating costs increased by 2.3% to £180.7 million in Half Year 2017 (Half Year 2016: £176.6 million) principally due to the exceptional items related to the proposed acquisition of the Wells Fargo Shareowner and Services Business, an increase in employee benefit expenses and costs related to recent acquisitions.
EBITDA prior to exceptional items
EBITDA prior to exceptional items increased by 1.9% to £42.0 million in Half Year 2017 (Half Year 2016: £41.2 million) due to the positive impact of acquisitions made in the current and prior year and overall improved margins across the Group.
Exceptional items
Exceptional items increased by 62.5% to £3.9 million in Half Year 2017 (Half Year 2016: £2.4 million) and relate to the proposed acquisition of the Wells Fargo Shareowner & Services Business.
EBIT
Reported EBIT decreased by 7.8% to £14.1 million in Half Year 2017 (Half Year 2016: £15.3 million) principally due to the increase in exceptional items in the period.
Net Finance Costs
Net finance costs before exceptional items decreased by 16.9% to £5.4 million in Half Year 2017 (Half Year 2016: £6.5 million).
Profit before Tax
The Group made a profit from continuing operations for Half Year 2017 of £7.2 million (Half Year 2016: £6.8 million).
165 Segmental Analysis
Investment Solutions
Revenue in Investment Solutions increased by 2.7% to £64.2 million in Half Year 2017 (Half Year 2016: £62.5 million) driven by new client wins, higher share dealing volumes and growth in employee share plans, offset by the timing of corporate action income.
EBITDA prior to exceptional items increased by 13.5% to £20.2 million in Half Year 2017 (Half Year 2016: £17.8 million) with margin progression of 3.0% as a result of revenue growth, an increase in project work and continued focus on operating leverage.
Registration Services continued to win market share and was appointed share registrar to Arrow Global, Howden Joinery Group and Sainsbury's, replacing existing service providers. The bereavement services contract secured with Lloyds Banking Group in the second half of 2016 has now gone live and the division secured a further pilot project for six banks through the British Bankers’ Association. The division won a number of mandates from newly listed companies including Alpha FX, Arix Bioscience, Global Ports, Ramsdens and Xafinity, and renewed or extended relationships with clients such as DS Smith, Lloyds Banking Group, Imperial Brands, JPM Investment Trusts, Metro Bank, National Express, Santander and TalkTalk.
Six months ended Half Year 30 June on (Unaudited) Half Year £m 2016 2017 2016-2017 Revenue 62.5 64.2 2.7% Acquisition like-for-like Adjustment* - - Organic Revenue 62.5 64.2 2.7% Of Which Corporate Actions 5.6 4.7
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2016 in respect of the period in which acquisitions have been made in 2017 have been presented here to create a like-for-like comparison of year-on-year progress.
Intelligent Solutions
Revenue in Intelligent Solutions increased by 1.3% to £55.4 million in Half Year 2017 (Half Year 2016: £54.7 million), with a decline in organic revenue growth of 5.8%, reflecting good progress across the division offset by the delay of a major remediation contract with a retail bank which has now commenced. The acquisitions of Marketing Source Limited and Gateway2Finance have been fully integrated and add to the Group’s capabilities having secured credit bureau and credit servicing permissions. The acquisition of The Nostrum Group Limited strengthens the Group's scale and depth in the credit servicing market.
EBITDA prior to exceptional items increased by 10.7% to £13.4 million in Half Year 2017 (Half Year 2016: £12.1 million) as a result of growth in higher margin work and a continuing drive on efficiency.
The division won a broad range of work during the period including asset reunification on behalf of RBS and Royal Dutch Shell, and new sales in complaints management to a number of existing clients including a number of utilities companies.
166 Six months ended Half Year 30 June on (Unaudited) Half Year £m 2016 2017 2016-2017 Revenue 54.7 55.4 1.3% Acquisition like-for-like Adjustment* 4.1 - Organic Revenue 58.8 55.4 (5.8%)
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2016 in respect of the period in which acquisitions have been made in 2017 have been presented here to create a like-for-like comparison of year-on-year progress.
Pension Solutions
Revenue in Pension Solutions increased by 2.3% to £70.5 million in Half Year 2017 (Half Year 2016: £68.9 million) driven by an increase in project work, new client wins and revenue from MYCSP stabilising.
EBITDA prior to exceptional items decreased by 16.0% to £10.5 million in Half Year 2017 (Half Year 2016: £12.5 million) with a decrease in margins of 3.2%. This was due to lower margin project work with cost pressure for specialist work. Action taken to adjust the cost base at the end of the second quarter will underpin full year profit and margin. The division continues to win new clients including House of Fraser, Magnox, Shawbrook, and a partnership with Aon Hewitt, and has renewed or extended long-term relationships with Hackney, the NHS and the Metropolitan Police. The division has also been awarded contracts to manage GMP reconciliation and rectification for Tayside, Clwyd Pension Fund and SSE plc, and our early-mover advantage in local authority GMP rectification will drive revenue for the second half of 2017.
Six months ended Half Year 30 June on (Unaudited) Half Year £m 2016 2017 2016-2017 Revenue 68.9 70.5 2.3% Acquisition like-for-like Adjustment* - - Organic Revenue 68.9 70.5 2.3%
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2016 in respect of the period in which acquisitions have been made in 2017 have been presented here to create a like-for-like comparison of year-on-year progress.
Results of Operations for Financial Year 2015 compared with Financial Year 2016
2015 2016 £m £m Revenue 369.0 382.6 Operating costs before exceptional costs, depreciation and amortisation (282.8) (290.2) EBITDA prior to exceptional items 86.2 92.4 Operating costs - exceptional items (32.8) (5.0) EBITDA 53.4 87.4 Depreciation of property, plant and equipment (4.4) (5.4) Amortisation of software (15.8) (16.0)
167 Amortisation of acquisition related intangible assets (23.0) (25.3) Total operating costs (358.8) (341.9) Earnings before interest and tax (EBIT) 10.2 40.7 Finance income 0.7 0.2 Finance costs before exceptional items (61.4) (12.4) Finance costs - exceptional items (21.2) - Net finance costs (81.9) (12.2) Profit/(loss) before income tax (71.7) 28.5 Income tax credit 25.9 4.9 Profit/(loss) for the year (45.8) 33.4 Profit/(loss) for the year attributable to: - Owners of the parent (50.4) 30.5 - Non-controlling interests 4.6 2.9 Profit/(loss) for the year (45.8) 33.4 Earnings/(loss) per share attributable to owners of the parent: Basic earnings/(loss) per share (pence) (92.8) 10.2 Diluted earnings/(loss) per share (pence) (92.8) 10.1 Underlying earnings per share attributable to owners of the parent: Basic underlying earnings per share (pence) 13.5 15.9 Diluted underlying earnings per share (pence) 13.5 15.8
Revenue
Reported revenue for Financial Year 2016 increased by 3.7% to £382.6 million (Financial Year 2015: £369.0 million) whilst organic revenue grew by 2.1%. Acquisitions made in the period progressed well. Excluding MyCSP, revenues grew organically by 6.8% in Financial Year 2016. MyCSP earnings have now stabilised.
Operating Costs
2015 2016 Expenses by nature: £m £m Employee benefit expense 147.4 160.1 Direct costs 66.3 69.4 Bought in services 18.0 15.8 Premises costs 5.8 6.6 Operating lease costs 6.3 7.2 Government grants for research and development - (1.9) Other general business costs 39.0 33.0 Operating costs before exceptional costs, depreciation and amortisation 282.8 290.2 Exceptional items 32.8 5.0 Depreciation of property, plant and equipment 4.4 5.4 Amortisation of software 15.8 16.0 Amortisation of acquisition related intangible assets 23.0 25.3 Total operating costs 358.8 341.9
Operating costs
Total operating costs for Financial Year 2016 decreased by 4.7% to £341.9 million (Financial Year 2015: £358.8 million) primarily due to a reduction in exceptional items which were at a higher level in Financial Year 2015 as a result of financing and advisory costs incurred in connection with the IPO.
168 EBITDA prior to exceptional items
EBITDA prior to exceptional items for Financial Year 2016 increased by 7.2% to £92.4 million (Financial Year 2015: £86.2 million) reflecting the impact of acquisitions made in the current and prior year and the profit element of the organic growth at an improved margin.
Exceptional Items
Exceptional operating costs of £5.0 million for Financial Year 2016 (Financial Year 2015: £32.8 million) primarily relate to acquisition-related expenses, including transactional fees and changes in expected contingent consideration, restructuring and other costs related to building an offshore centre in Chennai, and driving the Group’s efficiency.
EBIT
Reported EBIT increased to £40.7 million in Financial Year 2016 (Financial Year 2015: £10.2 million).
Net finance costs
Group net finance costs before exceptional items fell by £48.5 million to £12.2 million in Financial Year 2016 (Financial Year 2015: £60.7 million) reflecting the benefits of the Group’s new capital structure and loan agreements from October 2015.
Profit before tax
The Group made a profit for Financial Year 2016 of £28.5 million compared to loss of £71.7 million in Financial Year 2015.
Segmental Analysis
Investment Solutions
Revenue in Investment Solutions increased by 6.8% to £124.0 million in Financial Year 2016 (Financial Year 2015: £116.1 million), benefitting from organic growth of 6.0%, along with the full year impact of TransGlobal, completed on 3 September 2015.
EBITDA prior to exceptional items grew by 8.7% to £37.5 million in Financial Year 2016 (Financial Year 2015: £34.5 million) driven by strong organic growth.
Registration Services won a number of mandates from newly listed companies including Ascential, Biffa, Draper Esprit, GoCompare, Metro Bank, Joules and Time Out. The division was appointed share registrar to AA, Abcam and Domino’s Pizza, displacing existing service providers. Investment Solutions also supported three of the largest corporate actions in UK history, the acquisition of BG Group by Royal Dutch Shell, the acquisition of ARM Holdings by Softbank, and the acquisition of SABMiller by AB InBev.
In Investment Services, slowing trading volumes were offset by strong growth in the International Payments business which benefited from the prior year acquisition of TransGlobal, giving Investment Services ownership of the technology that already underpinned its international payments. This allowed the division to drive growth in that business, which included a landmark transaction supporting Visa Europe through its €18.25 billion acquisition by Visa Inc.
Employee Services continued to benefit from the strong growth in SAYE and SIP schemes, as well as a number of one-off projects in corporate actions and flexible benefits. The division won a number of share plan mandates with newly listed companies as it continued to benefit from cross- selling with Registration Services. Activity from existing clients was also an important source of growth for Employee Services with BT’s acquisition of EE adding c12,000 newly eligible employees to the BT share plan, and Tesco’s payment of a turnaround bonus for approximately 265,000 staff.
169 The bereavement service launched towards the end of 2015 had a promising first year. Prudential began a 12-month pilot programme in early 2016 and in November, Registration Services signed its first large bereavement service contract with Lloyds Banking Group.
Year on Year ended Year £m, unless otherwise indicated 2015 2016 2015-2016 Revenue 116.1 124.0 6.8% Acquisition like-for-like Adjustment* 0.9 - Organic Revenue 117.0 124.0 6.0% Of which Corporate Actions 6.2 7.9
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2015 in respect of the period in which acquisitions have been made in 2016 have been presented here to create a like-for-like comparison of year-on-year progress.
Intelligent Solutions
Revenue in Intelligent Solutions increased by 18.4% to £109.3 million in Financial Year 2016 (Financial Year 2015: £92.3 million). This was the result of organic growth of 12.8%, driven by continued demand for technology solutions in complaints management. The acquisitions of KYCnet and RiskFactor in March 2016, Toplevel Computing in July 2016 and Marketing Source Limited in December 2016, contributed to reported growth, with KYCnet in particular seeing strong demand for its software and services.
EBITDA prior to exceptional items increased by 31.6% to £28.3 million in Financial Year 2016 (Financial Year 2015: £21.5 million) as a result of strong revenue growth and an increasing proportion of the business being driven by technology sales.
Intelligent Solutions won a broad range of work during the year including a contract to provide loan management and motor finance software to Admiral Group plc, which is a new client for the Group. Other key wins included a five-year contract with TSB to provide a complaints platform, asset reunification projects on behalf of Royal Dutch Shell and Santander, and a five-year proof of life contract with the Italian social security and welfare institute (INPS), in partnership with Citi. The division is seeing increased opportunities in the utilities market for complaints management and secured a new contract and an extension with two major utility companies.
RiskFactor, KYCnet, Toplevel Computing and Marketing Source Limited all contributed to growth since their acquisition. RiskFactor signed a new contract with HSBC, while KYCnet secured contracts with Deutsche Bank and Bank of Ireland.
Year ended Year on Year £m, unless otherwise indicated 2015 2016 2015-2016 Revenue 92.3 109.3 18.4% Acquisition like-for-like Adjustment* 4.6 - Organic Revenue 96.9 109.3 12.8%
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2015 in respect of the period in which acquisitions have been made in 2016 have been presented here to create a like-for-like comparison of year-on-year progress.
Pensions Solutions
Revenue in Pension Solutions decreased by 8.7% to £138.1 million in Financial Year 2016
170 (Financial Year 2015: £151.3 million) with a decrease in EBITDA prior to exceptional items of 7.4% to £27.7 million in Financial Year 2016 (Financial Year 2015: £29.9 million). This was due to the expected decline in project work in MyCSP with its software roll-out to the Civil Service concluding in the fourth quarter of 2015.
The division continued to win new clients, including a life and pensions outsourcing contract with Retirement Advantage, with a contract value of approximately £40 million over 10 years. The contract saw Pension Solutions take on virtually all administrative services for the client, including processing new business. This was a first for the industry and the largest outsourcing deal in the life and pensions space in recent years.
Other notable successes included a contract with Telent to administer its closed pension scheme for the life of the plan, expected to be for at least another 15 years, and renewals of contracts with Heathrow, Kimberley Clark and Inchcape.
Year ended Year on Year £m, unless otherwise indicated 2015 2016 2015-2016 Revenue 151.3 138.1 (8.7)% Acquisition like-for-like Adjustment* - - Organic Revenue 151.3 138.1 (8.7)%
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2016 in respect of the period in which acquisitions have been made in 2017 have been presented here to create a like-for-like comparison of year-on-year progress.
(b) Results of Operations for Financial Year 2014 compared with Financial Year 2015
2014 2015 (unaudited) £m (Restated) £m Revenue 292.3 369.0 Operating costs before exceptional costs, depreciation and amortisation (222.3) (282.8) EBITDA prior to exceptional items 70.0 86.2 Operating costs - exceptional items (12.6) (32.8) EBITDA 57.4 53.4 Depreciation of property, plant and equipment (3.8) (4.4) Amortisation of software (11.0) (15.8) Amortisation of acquisition related intangible assets (20.9) (23.0) Total operating costs (270.6) (358.8) Earnings before interest and tax (EBIT) 21.7 10.2 Finance income 0.6 0.7 Finance costs before exceptional items (72.4) (61.4) Finance costs - exceptional items - (21.2) Net finance costs (71.8) (81.9) Gain on disposal of associate 9.8 - Share of profit of associate 1.7 - Loss before income tax (38.6) (71.7) Income tax credit 1.7 25.9 Loss for the year (36.9) (45.8) Loss for the year attributable to:
171 - Owners of the parent (39.0) (50.4) - Non-controlling interests 2.1 4.6 Loss for the year (36.9) (45.8) Basic and diluted loss per share (in £) attributable to owners of the parent: Basic and diluted loss per share (in £) (7.80) (0.93)
Comparative years have been restated due to a change in accounting policy to align the useful life of software to five years.
Revenue
Reported revenue increased by 26.2% to £369.0 million in Financial Year 2015 (Financial Year 2014: £292.3 million) whilst organic revenue grew by 6.8%, with growth across all divisions.
Operating costs
2014 2015 (unaudited) (Restated) Expenses by nature: £m £m Employee benefit expense 114.6 147.4 Direct costs 54.6 66.3 Bought in services 7.7 18.0 Premises costs 8.6 5.8 Operating lease costs 5.6 6.3 Other general business costs 31.2 39.0 Operating costs before exceptional costs, depreciation and amortisation 222.3 282.8 Exceptional items 12.6 32.8 Depreciation of tangible assets and amortisation of software 14.8 20.2 Amortisation of acquisition related intangible assets 20.9 23.0 Total operating costs for continuing operations 270.6 358.8
Operating costs
Total operating costs were £358.8 million for Financial Year 2015, an increase of £88.2 million or 32.6% from £270.6 million in Financial Year 2014, primarily due to the full year impact of the acquisition of MyCSP in October 2014 and the exceptional advisory costs resulting from the Group's IPO in October 2015.
EBITDA prior to exceptional items
EBITDA prior to exceptional items increased by 23.1% to £86.2 million in Financial Year 2015 (Financial Year 2014: £70.0 million) reflecting the impact of acquisitions made in the current and prior year and the profit element of the organic growth at an improved margin.
EBIT
In Financial Year 2015 reported EBIT prior to IPO related exceptional costs increased 50.7% to £32.7 million (Financial Year 2014: £21.7 million).
Exceptional items
Exceptional operating costs of £32.8 million in Financial Year 2015 (Financial Year 2014: £12.6 million) include £22.5 million of legal, advisory and banking costs incurred in respect of the change of control of the Group that resulted in Equiniti's listing on the London Stock Exchange. In addition, exceptional costs include costs of driving Equiniti's offshore and efficiency programme and £2.0
172 million to integrate Selftrade.
Exceptional finance costs of £21.2 million in Financial Year 2015 (Financial Year 2014: £0 million) include the write down of the remaining unamortised fees that were capitalised following the arrangement of the Group’s finance facilities in 2013 and other financing fees incurred to redeem Equiniti's traded bonds.
Net finance costs
Group net finance costs before exceptional items fell by £11.1 million to £60.7 million in Financial Year 2015 (Financial Year 2014: £71.8 million) reflecting the benefits of the Group’s new capital structure and loan agreements from October 2015. On a pro-forma basis, which adjusts for interest on a like-for-like basis under the new loan arrangements, net finance costs fell to £13.0 million (Financial Year 2014: £14.9 million).
Loss before tax
The Group made a loss for the year from continuing operations of £71.7 million in Financial Year 2015 compared to £38.6 million in Financial Year 2014, driven by IPO related costs and Equiniti's previous capital structure.
Segmental Analysis
Investment Solutions
Revenue in Investment Solutions increased by 27.3% to £116.1 million in Financial Year 2015 (Financial Year 2014: £91.2 million), benefitting from organic growth of 11.6%, a full year of the JP Morgan Corporate Dealing Service, acquired on 1 September 2014, along with the acquisition of Selftrade, completed on 23 January 2015, and TransGlobal, completed on 3 September 2015.
EBITDA prior to exceptional items grew by 21.9% to £34.5 million in Financial Year 2015 (Financial Year 2014: £28.3 million) driven by the increase in revenue but at a slightly lower margin due to the change in the product mix including the acquisition of Selftrade, plus ongoing investment to support further growth and to meet Equiniti's regulatory obligations.
Registration Services had a good year, retaining all of its FTSE 350 share registration clients and winning a number of mandates from newly listed companies, including Virgin Money, Shawbrook, Aldermore and Worldpay.
Investment Services added a number of new corporate accounts in the year, including white label share dealing services for Saga and the migration of Santander’s share dealing service. The business also increased its presence in the IPO market, completing the retail offering for more than 10 IPOs, including Equiniti and Worldpay.
Employee Services delivered good growth, benefitting from the doubling of the amount employees can pay into SAYE schemes, as well as a number of one-off projects in corporate actions and flexible benefits. However, the low interest rate environment continued to weigh on sharesave fees and difficult equity markets reduced share trading activity in the second half.
Major wins included share plans for Worldpay, which utilised Employee Services’ new global nominee product. Other new clients included Virgin Money, Shawbrook and Metro Bank, as the business benefitted from cross-selling with Registration Services. Employee Services also undertook international sharesave roll-outs for clients including BT, Pearson and Smith & Nephew.
Year ended Year on (Restated) Year £m, unless otherwise indicated 2014 2015 2014-2015 (unaudited) Revenue 91.2 116.1 27.3%
173 Acquisition like-for-like Adjustment* 12.8 - Organic Revenue 104.0 116.1 11.6% Of which Corporate Actions 3.2 6.2
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2014 in respect of the period in which acquisitions have been made in 2015 have been presented here to create a like-for-like comparison of year-on-year progress.
Intelligent Solutions
Revenue in Intelligent Solutions increased by 10.1% to £92.3 million in Financial Year 2015 (Financial Year 2014: £83.8 million). This was the result of organic growth of 0.5%, driven by strong demand for Equiniti's software solutions in complaints management and credit solutions, offset by the rest of the division seeing a slight decline. The full year impact of Pancredit Systems and Invigia, which were acquired on 18 March 2014 and 1 September 2014 respectively, increased reported growth.
EBITDA prior to exceptional items increased by 41.4% to £21.5 million in Financial Year 2015 (Financial Year 2014: £15.2 million) through strong revenue growth, an increasing proportion of sales coming from software licences and the benefit of focusing on Equiniti's cost base driving efficiency across the division.
Intelligent Solutions won a broad range of work with different types of clients during the year, including a PPI rework project for a major bank; the provision of software to help police forces manage their highly sensitive, confidential information; the provision of a hosted software lending platform for Telefonica; and a deal with ATOS to support the extension of its service to National Savings and Investments.
Year ended Year on (Restated) Year £m, unless otherwise indicated 2014 2015 2014-2015 (unaudited) Revenue 83.8 92.3 10.1% Acquisition like-for-like Adjustment* 8.0 - Organic Revenue 91.8 92.3 0.5%
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2014 in respect of the period in which acquisitions have been made in 2015 have been presented here to create a like-for-like comparison of year-on-year progress.
Pension Solutions
Revenue in Pension Solutions increased by 36.6% to £151.3 million in Financial Year 2015 (Financial Year 2014: £110.8 million). This was the result of organic growth of 7.0% and the full year effect of consolidating MyCSP, following the acquisition of a further 11% holding on 30 September 2014, increasing Equiniti's shareholding from 40.0% to 51.0%.
EBITDA prior to exceptional items increased by 22.0% to £29.9 million in Financial Year 2015 (Financial Year 2014: £24.5 million) as a result of revenue growth. Margins declined due to a higher proportion of revenue coming from Equiniti's MyCSP joint venture which is lower margin than the rest of Equiniti's pension operations, coupled with continued investment in MyCSP intellectual property.
Pension Solutions saw strong growth in clients taking reconciliation services, as a result of the cessation of contracting out at the end of 2016. It also successfully retained a number of clients who
174 renewed contracts during the year, and generally did so on improved terms.
Key achievements in 2015 included successfully delivering major transformation projects for public sector clients. Pension Solutions simultaneously implemented a new pension’s administration platform for the NHS and supported the introduction of the Hutton reforms, which base members’ pensions on a career average rather than final salary. The NHS pension scheme is the largest in Europe, with more than 2.6 million members, making this a significant and complex task. Pension Solutions also helped MyCSP to deliver the Alpha scheme, which is the equivalent to the Hutton reforms for civil service pensions.
Year ended Year on (Restated) Year £m, unless otherwise indicated 2014 2015 2014-2015 (unaudited) Revenue 110.8 151.3 36.6% Acquisition like-for-like Adjustment* 30.6 - Organic Revenue 141.4 151.3 7.0%
* Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. The corresponding figures for 2014 in respect of the period in which acquisitions have been made in 2015 have been presented here to create a like-for-like comparison of year-on-year progress.
Liquidity and capital resources
Overview
The following tables set out the cash flows for Financial Years 2014, 2015 and 2016, as well as Half Year 2016 and Half Year 2017:
Half Year Full Year (Unaudited) 2014 2015 2016 2016 2017 (unaudited) £m £m £m £m £m Cash flows from operating activities Cash generated from operations 53.8 73.7 64.0 16.8 43.5 Interest paid (29.3) (30.1) (9.7) (4.8) (4.7) Income tax paid (2.6) (1.5) (2.2) (1.2) (2.5) Net cash inflow from operating activities 21.9 42.1 52.1 10.8 36.3 Cash flows from investing activities Interest received 0.2 0.4 0.2 0.1 0.5 Dividends from investment 0.4 0.3 - - - Dividends from associate 1.7 - - - - Business acquisitions net of cash acquired (30.3) (19.9) (12.0) (12.1) 0.7 Proceeds from disposal of a business 1.5 - - - - Investment in an associate (2.5) - - - - Payment relating to prior year acquisition (0.7) (3.9) (7.3) (0.4) (15.6) Acquisition of property, plant and equipment (3.8) (2.9) (8.3) (2.1) (1.3) Acquisition of intangible assets (17.0) (15.5) (19.9) (8.4) (15.1) Net cash outflow from investing activities (50.5) (41.5) (47.3) (22.9) (30.8) Cash flows from financing activities Proceeds from issue of share capital - 495.0 - - 0.1 Proceeds from new bank loans - 250.0 - - -
175 (Decrease)/increase in revolving credit facility 45.5 24.5 (14.0) (6.0) 20.0 Repayment of loan notes - (440.0) - - - Repayment of payment in kind loans - (161.9) - - - Repayment of preference shares - (105.0) - - - Payment of finance lease liabilities (0.3) (0.3) (0.4) (0.3) (0.3) Dividends paid - - (7.0) (2.0) (9.3) Dividends paid to non-controlling interests - (1.1) (1.6) (1.6) (1.5) Transactions with non-controlling interests - (1.2) (1.7) (1.7) (1.6) Loan fees paid and other finance costs (1.9) - - - - Refinancing fees paid - (14.2) - - - Net cash (outflow)/inflow from financing 43.3 45.8 (24.7) (11.6) 7.4 activities Net (decrease)/increase in cash and cash 14.7 46.4 (19.9) (23.7) 12.9 equivalents Foreign exchange gains on cash and cash - - 0.1 0.1 - equivalents Cash and cash equivalents at 1 January 15.4 30.1 76.5 76.5 56.7 Cash and cash equivalents at period end 30.1 76.5 56.7 52.9 69.6
Cash flow
Comparison of Half Year 2016 and Half Year 2017
Net cash flows from operating activities
Net cash inflows from operating activities were £36.3 million for Half Year 2017, an increase of £25.5 million from £10.8 million for Half Year 2016, principally due to a reduction in exceptional items which were at an elevated level in 2016 following the payment of fees in relation to the Group’s IPO. In addition the Group had strong improvements in working capital utilisation.
Net cash flows from investing activities
Net cash outflows from investing activities were £30.8 million for Half Year 2017, an increase of £7.9 million from £22.9 million for the Half Year 2016, principally due to an increase in capital expenditure which related to major regulatory projects such as MiFID II and the launch of a new portal for the Selftrade business. Business acquisitions net of cash acquired for Half Year 2016 was £12.1 million and related to the acquisition of KYCnet and RiskFactor. Payments in relation to prior year acquisitions for Half Year 2017 was £15.6 million and mainly related to the acquisition of Marketing Source Limited.
Net cash flows from financing activities
Net cash inflows from financing activities were £7.4 million for Half Year 2017, an increase of £19.0 million compared to a cash outflow of £11.6 million for Half Year 2016, principally due to the increase in utilisation of the revolving credit facility partly offset by an increase in dividend payments.
Comparison of Financial Years 2015 and 2016
Net cash flows from operating activities
Net cash inflows from operating activities were £52.1 million for Financial Year 2016, an increase of £10.0 million from £42.1 million for Financial Year 2015, principally due to a reduction in interest payments resulting from the IPO-related recapitalisation of the Group in 2015. This was partly offset by an increase in exceptional items in 2016 which related to the payment of fees in relation to the Group’s IPO.
Net cash flows from investing activities
176 Net cash outflows from investing activities were £47.3 million for Financial Year 2016, an increase of £5.8 million from £41.5 million for Financial Year 2015, principally due to an increase in capital expenditure related to enhancements to the Group’s property estate and also the implementation of cloud computing capacity. Payments in relation to prior year acquisitions for Financial Year 2016 was £7.3 million and related to deferred and contingent consideration for previous acquisitions.
Net cash flows from financing activities
Net cash outflows from financing activities were £24.7 million for Financial Year 2016, a decrease of £70.5 million from a cash inflow of £45.8 million for Financial Year 2015, principally due to the recapitalisation of the Group following its IPO and the commencement of ordinary dividend payments in Financial Year 2016.
Comparison of Financial Years 2014 and 2015
Net cash flows from operating activities
Net cash inflows from operating activities were £42.1 million for Financial Year 2015, an increase of £20.2 million from £21.9 million for Financial Year 2014, principally due to an increase in EBITDA and improvements in working capital.
Net cash flows from investing activities
Net cash outflows from investing activities were £41.5 million for Financial Year 2015, a decrease of £9.0 million from £50.5 million for Financial Year 2014, principally due to a decrease in acquisition expenditure (Selftrade and Transglobal Payments Solutions were acquired in 2015).
Net cash flows from financing activities
Net cash inflows from financing activities were £45.8 million for Financial Year 2015, an increase of £2.5 million from a cash inflow of £43.3 million for Financial Year 2014, principally due to the recapitalisation of the Group following its IPO in 2015.
3.3 Capitalisation and indebtedness
The following tables set out the indebtedness of the Group and the capitalisation of the Group as at 30 June 2017. The following tables do not reflect the impact of the Rights Issue or the Acquisition on the Group's capitalisation and indebtedness. Please refer to Part XV (Unaudited Pro Forma Financial Information of the Enlarged Group) of this Prospectus for an illustration of the impact of the Rights Issue and the Acquisition on the consolidated net assets of the Group as though the proposed issue of the New Shares had occurred at 30 June 2017.
(a) Capitalisation and Indebtedness Statement
£m As at 30 June 2017 Indebtedness(1) Guaranteed 0.0 Secured 0.7 Unguaranteed/unsecured 0.0 Total current debt (excluding current portion of long-term debt) 0.7 Guaranteed 0.0 Secured 327.1 Unguaranteed/unsecured(2) (3.9) Total non-current debt 323.2
177 £m As at 30 June 2017 Total debt 323.9
Capitalisation Shareholders' equity 0.3 Share premium account 0.1 Statutory and other reserves (3) 207.4 Total capitalisation 207.8
(1) This statement of indebtedness has been prepared under IFRS as adopted by the European Union using policies which are consistent with those used in preparing the Group’s historical financial information set out in Part XIII (Historical Financial Information) of this Prospectus.
(2) The Group’s debt is shown net of unamortised debt issue costs of £3.9 million and does not include accrued interest of £1.7 million as at 30 June 2017.
(3) Statutory and other reserves exclude the accumulated deficit.
There have been no material changes in the capitalisation of the Group since 30 June 2017.
The table below sets out the Group’s net indebtedness as at 30th June 2017(1)(2)(3).
£m As at 30th June 2017 Cash 69.6 Cash equivalents 0.0 Trading securities 0.0 Liquidity 69.6 Current bank debt 0.0 Current portion of non-current debt 0.0 Other current financial debt (0.7) Current financial debt (0.7) Net current financial indebtedness (68.9) Bonds and bank loans(4) 322.1 Other non-current loans(5) 1.1 Non-current financial indebtedness 323.2 Net financial indebtedness 254.3
(1) This statement of indebtedness has been prepared under IFRS as adopted by the European Union using policies which are consistent with those used in preparing the Group’s historical financial information set out in Part XIII (Historical Financial Information) of this Prospectus.
(2) The Group manages its cash flows interest rate risk on bank loans by using interest rate swaps. The interest rate swaps are not included in the indebtedness statement. The fair value of these derivatives at 30 June 2017 is £2.1 million.
(3) The Group has no indirect or contingent indebtedness as at 30 June 2017.
(4) The Group’s debt is shown net of unamortised debt issue costs of £3.9 million and does not include accrued interest of £1.7 million as at 30 June 2017.
178 (5) Other non-current loans relate to finance leases.
(b) Existing Debt Facilities
On 23 October 2015 (and as amended and restated pursuant to an amendment and restatement agreement), the Company (as Parent), Equiniti Holdings Limited (as Company) and Equiniti Limited (among others), the Original Lenders and Lloyds Bank PLC as agent entered into a senior facilities agreement which provides for a £150 million multi-currency revolving facility (the “Revolving Facility”) and a £250 million term loan B facility (the “Term Loan Facility”) (the “Senior Facilities Agreement”).
(c) Additional Debt Facilities
Pursuant to an additional facilities notice dated 21 August 2017 (the “Additional Facilities Notice”), the Company and Equiniti Holdings Limited have established the $92m Additional Term Loan Facility and the £49m Increase Revolving Facility under the Senior Facilities Agreement to be provided by the New Lenders.
(d) Capital expenditures
Capital expenditures relate in part to the costs of the ongoing maintenance of the Group’s IT platforms and mainly to the development of new functionality to drive growth. Since Financial Year 2007, over £110 million has been invested developing the platforms and focusing on proprietary technology. Some of the other major capital expenditures that have been incurred during the periods under review include those relating to:
◦ Compendia Touch, which is a new award winning version of the Group’s proprietary Pensions administration platform;
◦ the new Selftrade web-front end trading platform and its interfaces with Xanite, the Group’s proprietary trading and custody platform;
◦ investment in the Group's IT infrastructure including the development of cloud computing capacity;
◦ ongoing enhancement of the Group's key product platforms; and
◦ regulatory development including compliance with MiFID II.
The Directors expect that the Group will invest approximately £28 million in capital expenditure during the current financial year, which will include:
◦ completion of system changes to ensure compliance with MiFID II;
◦ the completion of the development of the Selftrade web-front end trading platform; and
◦ the ongoing enhancement and scalability of the Group's key product platforms.
The Enlarged Group expects to incur approximately $28 million (£22 million) of capital expenditure on implementation of a standalone IT platform for WFSS and transition to the Sirius platform, with approximately 80% of this expenditure being incurred in 2018. Going forward, one of the medium term objectives for the Group is to maintain capital expenditure at approximately 6% of Adjusted Revenue per annum (including future capital expenditure relating to WFSS after the Acquisition, IT implementation and the transition to Sirius).
Contractual obligations
The following table summarises the Group’s material contractual obligations as at 30 June 2017:
179 Senior Revolving Secured Credit £m Loan Facility Cash Total Carrying 250.0 76.0 (69.6) 256.4 amount
Off-balance sheet arrangements
The Group does not have any off-balance sheet financing arrangements with any of its affiliates or with any unconsolidated entities.
Contingent liabilities
The Group does not have any contingent liabilities as at 30 June 2017.
Quantitative and qualitative disclosures on market risk
The Group’s exposure to market risk is a function of its borrowing and business activities. The Group is exposed to market risk from changes in both foreign currency exchange rates and interest rates. It faces foreign exchange risk to the extent that its business’s sales, costs, assets or liabilities are denominated in currencies other than pounds sterling.The Group has very limited sensitivity to movements in interest rates and does not hold or issue derivative or other financial instruments for trading purposes.
Interest rate risk
The Group has two primary forms of exposure to interest rates:
• The Group earns income on client balances that it administers and earns fee income which is related to interest income generated by SAYE balances that it administers where income is based on the UK’s Bank of England base rate. As such the group will benefit from interest rate rises. The Group seeks to reduce the variability arising from floating rate income derived by UK Bank of England base by entering into three year interest rate swaps with certain investment banks. Currently interest hedges are in place for two thirds of client interest bearing cash which expire in July and August 2018 totalling £650 million and in July 2020 of £380 million. In addition, the Group continues to monitor closely its ongoing exposure to income related to base rate.
• The Group has term debt financing (described above). The £250 million of variable Term Loan which accrues interest based on LIBOR has been swapped to a fixed rate to October 2018. The Group does not hedge variable rate interest incurred on Revolving Credit Facility advances.
The Group does not currently intend to hedge variable rate interest incurred on the US dollar denominated Term Loan, as this liability will be offset against interest income received on US client cash balances.
Foreign exchange risk
The Group is not currently exposed to material foreign exchange risk, but continues to monitor foreign currency denominated costs, to ensure that any material exposures are identified and hedged if appropriate. The Group adopts a rolling hedge programme using forward foreign exchange contracts to purchase Indian rupees up to 18 months in advance to reduce variability in rupee denominated costs.
Impact of inflation
A portion of the Group’s costs is affected by inflation, but the Directors do not believe that the Group is subject to material inflation risk.
Critical accounting policies and judgments, estimates and assumptions
In the application of its accounting policies, which are described in Note 1 to the Group’s consolidated historical financial information in Part XII (Operating and Financial Review of Equiniti), the Group is required to make judgments, estimates and assumptions, the most critical of which are described below. It makes
180 such judgments, estimates and assumptions based on historical experience and other factors that it considers to be relevant. Actual results may differ from these estimates given the uncertainty surrounding the assumptions and conditions on which they are based.
Accounting estimates and judgements
Fair values of intangible assets
Fair values of intangibles have been calculated by estimating the net present value of future revenues generated by the assets over their estimated useful lives.
Third party valuations are used to fair value the Group’s derivatives. The valuation techniques use inputs such as interest rate yield curves and currency prices / yields, volatilities of underlying instruments and correlations between inputs.
Deferred tax
Under IAS 12 “Income taxes” deferred tax assets are recognised to the extent that taxable profits will be available against which the deductible temporary differences can be utilised. As at the year end the directors consider that the IAS 12 recognition criteria are satisfied.
Pension assumptions
The present value of the net defined benefit pension obligation is dependent on a number of factors that are determined on an actuarial basis, using a number of assumptions. These assumptions include salary rate increases, interest rates, inflation rates, the discount rate and mortality assumptions. Any changes in these assumptions will impact the carrying value of the pension obligation.
The discount rate used for calculating the present value of future pension liability cash flows is based on interest rates of high-quality corporate bonds that have terms to maturity approximating to the terms of the related pension obligation.
Provisions
Dilapidations provisions have been made for properties which the Group currently lease based upon the cost to make good the property in accordance with lease terms where applicable, if the Group were to vacate at the period end as assessed by a chartered surveyor with reference to current market rates.
The constructive compliance provision is the Directors’ best estimate of the cost of meeting the change in requirement of payment systems of which the Group is contractually required. The exact requirements are uncertain as to the timing and so could require additional or less cost.
Provisions for deferred consideration have been made in relation to acquisitions the Group has made. There are various criteria that need to be satisfied in order for a payment to be made. The Group have made provisions as appropriate based on the relevant accounting standards and the Directors’ best estimate of the criteria for settlement being fulfilled.
Provisions for contract costs have been made for the exceptional irrecoverable costs associated with a complex long-term contract that has been terminated by mutual agreement.
Exceptional items
Exceptional items are recognised to the extent that they meet the definition outlined in the accounting policy set out in the historical financial information of the Group in Part XII (Operating and Financial Review of Equiniti). This requires a certain amount of judgement that is applied consistently by management.
181 PART XIII - OPERATING AND FINANCIAL REVIEW OF WFSS
1 OVERVIEW
1.1 Financial information presented
WFSS was founded in 1929, and is currently operating within the Corporate Trust Services division of Wells Fargo. The historical financial information provided below is that of the WFSS business, although it should be noted that the business is not a separate legal entity, and figures at present account for the fact that WFSS is being carved out of Wells Fargo. Wells Fargo is the largest subsidiary of Wells Fargo & Company, a diversified financial services company with $1.93 trillion in assets as of June 30, 2017. The historical financial information has been prepared from the management accounts information provided by Wells Fargo.
1.2 WFSS
WFSS is currently the shareowner services business within Wells Fargo, serving approximately 1,200 public and private companies and approximately 5.0 million active shareholders. WFSS utilises the capabilities of four distinct service areas: plan services, corporate actions, transfer agent and annual meeting services.
2 FACTORS AFFECTING RESULTS
In addition to the principal drivers affecting WFSS’s historical financial information presented, WFSS’s results may also be affected by a number of more general factors, many of which are beyond its control. Please see Part III (Risk Factors). WFSS’s results may have been affected, and could be affected in the future, by a variety of factors, including the following:
2.1 Interest rates
A limited portion of WFSS’s revenues, $7.6 million or 7.4% of WFSS’s revenue for Financial Year 2016, is derived from interest income earned on balances administered on behalf of clients. These revenues have increased over the periods under review driven by growth of number of clients and stable interest rates. Fluctuations in US interest rates can however impact such revenues. The Directors expect increased revenues from balances administered on behalf of clients if interest rates increase.
2.2 Corporate activity
Corporate actions are recurrent in nature but recur in relatively irregular patterns, thus generating an unpredictable impact on underlying trading in any given period. Services related to corporate actions services contributed $12.7 million and $13.8 million to WFSS’s revenue for the Financial Years 2015 and 2016 respectively, representing 13.3% and 13.4% respective of WFSS revenue in those periods.
In general, the Directors believe that a robust economic climate leads to higher levels of corporate action activity. However, corporate actions undertaken by WFSS’s larger clients may have a disproportionate impact on earnings in any given period. WFSS has a customer base of approximately 650 customers. WFSS brings long term quality relationships with Fortune 500 companies, into which Equiniti’s portfolio of technology-rich products can be sold.
2.3 New client wins
WFSS seeks to leverage its high client loyalty, leading satisfaction ratings and reputation for high quality service delivery to secure new client wins increasing its market share. There has been year on year increases in new customer wins, resulting in growth in both revenue and total shareholders served.
Two large new customer wins in the year ended 31 December 2016, namely Proctor & Gamble and Pepco Holdings, are WFSS's 6th and 8th largest customers based on 2016 revenue. Other full Year 2016 wins include The Southern Company, The Kraft Heinz Company and General Electric Company.
182 3 CURRENT TRADING AND PROSPECTS
The strong financial performance of WFSS has continued as of the date of the Prospectus. This performance underpins the Board’s confidence that WFSS enjoys excellent prospects for the current year and for long term growth.
4 EXPLANATION OF INCOME STATEMENT ITEMS
4.1 Revenue
Revenue of the WFSS business comprises fixed periodic administration fees, transaction processing fees, fees for managing corporate actions, fees for professional and IT services and fees earned on the administration of client funds. Periodic administration fees are recognised evenly over the contract period. Transaction based fees are recognised at the time of processing the related transactions. Fees in relation to administration of client funds are recognised as they accrue.
4.2 Operating costs
Operating costs for the WFSS business consist primarily of the following items:
• Employee benefit expense to deliver WFSS’s products and technology, customer operations and support centre departments, including bonuses and retirement benefit costs;
• Bought in services including the cost of contractors;
• Other administrative expenses such as costs associated with supporting WFSS’s property and IT infrastructure, travel, recruitment, training and licence fees incurred as a result of providing certain third party services and other incidental support function costs; and
• Depreciation and amortisation expenses related to capital expenditure on WFSS's infrastructure and software development.
4.3 Taxation
Income taxes charged to the WFSS Income Statement consist of Federal and State taxation payable on profits. For the period of the Historic Financial Information, as set out in Part XIV (Historical Financial Information of WFSS), this has been estimated to be a combined rate of 38% of the WFSS profit before tax. Tax payable is an obligation of the wider Wells Fargo group and so has not been included on the WFSS business's Statement of Financial Position but forms part of the WFSS net investment reserve (see note 2.2 in Part XIV (Historical Financial Information of WFSS)).
4.4 Amortisation and depreciation
Amortisation is charged on internally developed computer software over the useful life of the asset. The Historical Financial Information for WFSS has been prepared under Equiniti accounting policies from 1 January 2015 onwards. Equiniti's accounting policy on software development expenditure is to capitalise costs that meet the criteria of IAS 38. Under Wells Fargo accounting policies, WFSS expensed all costs. Therefore software shown on the WFSS Statement of Financial Position on page 188 constitutes only software development capitalised under Equiniti's accounting policies since 1 January 2015 and the related amortisation on these assets.
Depreciation is charged on tangible fixed assets on a straight line basis over the estimated useful lives of each part of an item of property, plant or equipment.
Significant software development is expected during 2018 and 2019, resulting in significant expected capital expenditure and higher amortisation charges. After 2019 the depreciation and amortisation of software investments of WFSS is expected to be generally in line with WFSS's annual capital expenditures for the foreseeable future.
183 4.5 EBITDA
EBITDA represents the WFSS business's operating profit before depreciation and amortisation.
The historical financial information of WFSS has been prepared from carve out management accounts information provided by Wells Fargo. After the integration of the WFSS business into the Equiniti business, EBITDA will be affected by a number of factors, as shown below.
WF Corporate Internal Per section overhead Technology revenue Standalone Year ended 31 December 2016 XIV (note 1) (note 2) share (note 3) costs (note 4) Underlying Revenue Fee revenue 95.5 - - (0.8) - 94.7 Interest revenue 7.6 - - - - 7.6 103.2 - - (0.8) - 102.4 General and administrative expenses (91.1) 14.0 0.1 0.4 (7.8) (84.4) EBITDA 12.1 14.0 0.1 (0.4) (7.8) 18.0
The above adjustments are explained below.
(1) The removal of general Wells Fargo cost allocations to WFSS which the Directors do not view as directly supporting WFSS business operations.
(2) The removal of the costs associated with technology applications shared across the Wells Fargo group which the Directors do not view as directly supporting the WFSS business.
(3) The removal of revenue and costs associated with mutual fund fees generated from the current Wells Fargo shared relationship. The Directors believe these fees and costs will not continue after the Acquisition.
(4) Directors' expectation of incremental costs to be incurred in running WFSS as a business separate from Wells Fargo.
5 RESULTS OF OPERATIONS
Revenue
Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 $m $m $m $m Continuing operations Revenue 95.8 103.2 52.2 61.9 Operating expenses (86.3) (91.1) (46.3) (54.0) Earnings before interest, depreciation and amortisation 9.5 12.1 5.9 7.9 (EBITDA)
Reported revenue for year ended 31 December 2016 increased by 7.7% to $103.2 million (2015: $95.8 million). Revenue was $61.9 million for six months ended 30 June 2017, an increase of $9.7 million, or 18.6% from $52.2 million for the six months ended 30 June 2016. This increase in both periods reflected an increase in interest income earned on balances administered on behalf of clients and also reflected the impact of significant new client wins in the second half of 2016.
Revenue from interest for the year ended 31 December 2016 was 31.8% higher than for the year ended 31 December 2015 due to a 29 bps increase in the underlying interest rate. Average funds held decreased slightly.
184 Operating expenses and EBITDA
Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 $m $m $m $m Salary and benefits-related expenses 21.0 22.5 11.3 12.4 Other administrative expenses 17.8 18.3 10.2 11.0 Corporate overheads allocated from Wells Fargo 47.5 50.3 24.8 30.6 Operating expenses 86.3 91.1 46.3 54.0
Total operating expenses were $91.1 million for the year ended 31 December 2016, an increase of $4.8 million, or 5.6% from $86.3 million in the year ended 31 December 2015. For the six months ended 30 June 2017, total operating expenses were $54.0 million, an increase of $7.7 million, or 16.6% from $46.3 million for the six months ended 30 June 2016. The increase in operating expenses for both periods is principally due to an increase in staff costs and administrative costs reflecting additional work performed to fulfil the new client wins in the second half of the year ended 31 December 2016. Employee numbers increased from an average of 409 for the six months ended 2016 to 460 for the six months ended 30 June 2017. The business also saw an increase in the corporate overheads allocated from Wells Fargo in Half Year 2017 due to additional support needed to earn the higher levels of revenue and an increase in staff costs and administrative costs reflecting additional work performed to fulfil the new client wins in the second half of Financial Year 2016.
EBITDA was $12.1 million for the year ended 31 December 2016, an increase of $2.6 million, or 27.4% from $9.5 million for the year ended 31 December 2015. EBITDA for the six months ended 30 June 2017 was $7.9 million, an increase of $2.0 million, or 33.9% from $5.9 million for the six months ended 30 June 2016. This increase reflected the impact from new client wins achieved in the second half of 2016 and also reflected higher interest rates on funds administered on behalf of clients.
Amortisation of intangible assets and depreciation of tangible assets was $0.8 million in the six months ended 30 June 2017, an increase of $0.1 million, or 14% from $0.7 million for the six months ended 30 June 2016, due to a higher capital costs bases following investment in software and leasehold assets.
Profit before taxes
Profit before taxes was $10.7 million for year ended 31 December 2016, an increase of $2.4 million, or 28.9% from $8.3 million for the year ended 31 December 2015. For the six months ended 30 June 2017, profit before taxes was $7.1 million, an increase of $1.9 million, or 36.5% from $5.2 million for the six months ended 30 June 2016. The increase in profit before taxes was principally due to the higher level of EBITDA, discussed above, less additional depreciation and amortisation charged on a higher capitalised cost base.
6 CAPITAL EXPENDITURE
Capital expenditures relate, in part, to the costs of the ongoing maintenance of WFSS’s IT platforms and mainly to the development of new functionality to drive growth. It also relates to improvements made to leasehold properties held in Mendota Heights.
The Historical Financial Information of WFSS (set out in Part XIV (Historical Financial Information of WFSS)) has been prepared using Equiniti's accounting policies from 1 January 2014 to the date of this prospectus. Equiniti’s accounting policy on software is to capitalise expenditure incurred on software development if the expenditure meets the criteria prescribed by IAS 38. WFSS’s accounting policy was to expense software development costs as incurred. Therefore any qualifying software development spend since1 January 2014 has been capitalised in the Historical Financial Information of WFSS.
Significant software development is expected during 2018 and 2019 , resulting in significant expected capital expenditures and higher amortization charges. After2019, the depreciation and amortisation of software investments of WFSS is expected to be generally in line with WFSS's annual capital expenditures
185 for the foreseeable future.
186 PART XIV - HISTORICAL FINANCIAL INFORMATION OF WFSS
The following financial information relates to the Shareholder Services business of the group headed by Wells Fargo & Company. Such financial information is unaudited. The basis of preparation is explained in more detail in note 2 below.
Income statement
Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 Note $m $m $m $m Revenue 5.1 95.8 103.2 52.2 61.9
Operating expenses (excluding depreciation and 5.2 (86.3) (91.1) (46.3) (54.0) amortisation) Earnings before interest, depreciation and 9.5 12.1 5.9 7.9 amortisation (EBITDA) Amortisation of software 6.1 - (0.2) (0.1) (0.1) Depreciation of property, plant and equipment 6.2 (1.2) (1.2) (0.6) (0.7)
Total operating costs (87.5) (92.5) (47.0) (54.8) Profit before taxes 8.3 10.7 5.2 7.1
Income taxes 10.1 (3.2) (4.1) (2.0) (2.7) Profit and total comprehensive income for the year 5.1 6.6 3.2 4.4
The notes on pages 191-204 form part of this historical financial information.
187 Statement of financial position
As at 31 December As at 30 June 2015 2016 2016 2017 Note $m $m $m $m Assets Non-current assets Software 6.1 4.4 4.9 4.7 5.1 Property, plant and equipment 6.2 4.4 3.8 4.2 3.3 Total non current assets 8.8 8.7 8.9 8.4
Current assets Trade and other receivables 7.1 14.1 15.3 20.7 17.0 Cash and cash equivalents 8.1 - - - - Total current assets 14.1 15.3 20.7 17.0 Total assets 22.9 24.0 29.6 25.4
Equity and Liabilities Equity Equity attributable to owners of the parent Net investment reserve 19.4 16.6 21.9 16.2 Total equity 19.4 16.6 21.9 16.2
Current liabilities Trade and other payables 7.2 3.5 7.4 7.7 9.2 Total current liabilities 3.5 7.4 7.7 9.2
Total liabilities 3.5 7.4 7.7 9.2 Total equity and liabilities 22.9 24.0 29.6 25.4
The notes on pages 191-204 form part of this historical financial information.
188 Statement of changes in equity
Net Total investment equity reserve $m $m Balance at 1 January 2015 17.6 17.6 Net profit for period 5.1 5.1 Total comprehensive income 22.7 22.7 Net transfers to owners (3.3) (3.3) Balance at 31 December 2015 19.4 19.4
Balance at 1 January 2016 19.4 19.4 Net profit for period 6.6 6.6 Total comprehensive income 26.0 26.0 Net transfers to owners (9.4) (9.4) Balance at 31 December 2016 16.6 16.6
Balance at 1 January 2016 19.4 19.4 Net profit for period 3.2 3.2 Total comprehensive income 22.6 22.6 Net transfers to owners (0.7) (0.7) Balance at 30 June 2016 21.9 21.9
Balance at 1 January 2017 16.6 16.6 Net profit for period 4.4 4.4 Total comprehensive income 21.0 21.0 Net transfers to owners (4.8) (4.8) Balance at 30 June 2017 16.2 16.2
The notes on pages 191-204 form part of this historical financial information.
189 Statement of cash flows
Year ended 31 December Six months ended 30 June 2015 2016 2016 2017 $m $m $m $m Cash flows from operating activities Profit for the period 5.1 6.6 3.2 4.4 Adjustments to reconcile net operating profit to net cash used in operating activities: Non-cash items: Amortisation of software - 0.2 0.1 0.1 Depreciation of property, plant and equipment 1.2 1.2 0.6 0.7 Changes in operating assets and liabilities: Accounts receivable, net (2.3) (1.3) (7.1) (1.2) Other financial assets Prepaid expenses and other current assets (1.1) 0.1 0.5 (0.5) Deferred revenues - 2.5 3.3 (0.7) Accounts payable and accrued expenses 2.7 1.4 0.9 2.5 Net cash inflow from operating activities 5.6 10.7 1.5 5.3
Cash flows from investing activities Purchase of property, plant and equipment (0.1) (0.6) (0.4) (0.2) Purchase of software (2.2) (0.7) (0.4) (0.3) Net cash outflow from investing activities (2.3) (1.3) (0.8) (0.5)
Cash flows from financing activities Net transactions with Wells Fargo & Company (3.3) (9.4) (0.7) (4.8) Net cash outflow from financing activities (3.3) (9.4) (0.7) (4.8)
Net movement in cash and cash equivalents - - - - Cash and cash equivalents at beginning of period - - - -
Cash and cash equivalents at end of period - - - -
The notes on pages 191-204 form part of this historical financial information.
190 Notes to the Historical Financial Information
1 GENERAL INFORMATION ON REPORTING ENTITY
The principal activity of Wells Fargo Shareowner Services ("WFSS") is that of share registration services, which includes the maintenance of shareholder registers, the management of share transfers and the processing of corporate actions.
2 BASIS OF PREPARATION
2.1 Statement of Compliance
This financial information relates to the Shareholder Services business of the group headed by Wells Fargo & Company, hereafter referred to as WFSS. The financial information of WFSS has been prepared for the purposes of the Prospectus in accordance with the basis of preparation, which explains how International Financial Reporting Standards ("IFRS") have been applied, except as described below.
The financial information for the two years ended 31 December 2016 and 2015 and for the two six months periods ended 30 June 2017 and 2016 has been prepared specifically for the purpose of this Circular and Prospectus in accordance with the UK Listing Rules and in accordance with this basis of preparation. The accounting policies applied to the historical financial information are consistent with the accounting policies adopted in Equiniti Group PLC's next published annual accounts. The historical financial information of WFSS may not be indicative of its future performance and does not necessarily reflect what the results of operations, financial position and cash flows would have been had WFSS operated as a stand-alone business during the periods under review.
The financial information was authorised for issue by the Directors of Equiniti Group PLC (the "Directors") on 12 September 2017.
2.2 Basis of Preparation
This basis of preparation describes how the HFI has been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union and IFRIC interpretations (‘‘IFRS’’), except as described below. The HFI has been prepared on a historical cost basis.
WFSS is a division of Wells Fargo & Company and does not constitute a separate legal entity. WFSS's historical financial information (the "HFI") has been prepared from the divisional management accounts information of WFSS prepared in accordance with Wells Fargo’s internal accounting policies, which are themselves based on US GAAP. In order to prepare this financial information, the Directors have applied IFRS 1 by analogy, including to prepare an opening balance sheet at 1 January 2015 (see note 11.2).
Whilst divisional management accounts information contains a fully separated income statement for WFSS no statement of financial position on a divisional basis was previously prepared. In deriving the balance sheet the directors have applied judgement in allocating specifically identifiable Wells Fargo assets and liabilities to WFSS. Any amounts that are not represented by assets or liabilities of WFSS are subsumed in an amount described as net investment reserve and presented as equity, as described further below.
The carve-out HFI is presented in U.S. dollars, which is WFSS’s presentation and functional currency. The results have been rounded to the nearest thousand dollars.
The HFI has been prepared on a going concern basis. WFSS meets its day-to-day working capital and financing requirements through its cash generated from operations. The Directors, after making enquiries and on the basis of current financial projections , as well as taking into account the facilities which will be available to WFSS on completion of the transaction, believe that WFSS has adequate financial resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparation of the HFI.
IFRSs as adopted by the EU do not provide for the preparation of carve-out financial information, and accordingly in preparing the financial information certain accounting conventions commonly used for the preparation of HFI for inclusion in investment circulars as described in the Annexure to SIR 2000
191 (Investment Reporting Standard applicable to public reporting engagements on historical financial information) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in material departures from IFRSs as adopted by the EU and these are explained below. In other respects, IFRSs as adopted by the EU have been applied and the financial information relating to WFSS has been prepared in a form that is consistent with the accounting policies adopted in Equiniti Group PLC's next annual accounts.
The following summarises the accounting and other principles applied in preparing the carve-out financial information and the basis for any significant allocations:
• The net assets of WFSS are represented by the cumulative investment of Wells Fargo in WFSS and no analysis of this amount into components of equity is presented. This is shown in the Statement of Financial Position as equity attributable to owners of the parent.
• Due to the nature of the carve out, charges have been borne by Wells Fargo in respect of WFSS. Where these have been allocated to WFSS (see below) no formal liability exists between these parties in relation to such amounts and the related balance sheet entries have been recognised in the net investment reserve rather than creating an asset or liability. In addition, Wells Fargo receive all cash receipts from clients in respect of revenue earned by WFSS, for which no formal asset is recognised and is therefore recognised in the net investment reserve. As such the cash flow statement comprises the notional cash flows from WFSS’s operations and a notional financing cash flow equal to the amount in the net investment reserve.
• The directors have allocated certain head office costs to WFSS based on headcount, principally: selling, general and administrative expenses from Wells Fargo for certain shared services of $50.3 million and $47.5 million for the years ended 31 December 2016 and 2015 and $30.6 million and $24.8 million for the six month periods ended 30 June 2017 and 2016, respectively. Historically, the centralised functions have included executive senior management, finance, accounting, internal audit, shared services, information technology, tax, treasury, legal, human resources and payroll, employee incentive plans, regulatory, health safety and environment, insurance, facilities, and strategy and development. However, these amounts are not necessarily representative of the amounts that would have been incurred by WFSS as a separate entity.
• Wells Fargo has performed cash management functions on behalf of WFSS. Wells Fargo manages certain cash pooling activities among WFSS’s operating units, including the arrangement of borrowings from and loans to related parties and the transfer of cash balances to Wells Fargo. None of Wells Fargo’s cash and cash equivalents has been allocated to WFSS in the Balance Sheets. Transfers to and from Wells Fargo are recorded as adjustments to the Net Investment Reserve.
• WFSS is not subject to taxation as a separate entity. Tax has been imputed in the historical financial information on an effective tax rate basis using a rate commensurate with the tax jurisdictions in which WFSS operates. Neither income tax nor deferred tax assets/ liabilities have been recognised in the Statement of Financial Position, rather tax balance sheet entries form part of the net investment reserve.
2.3 Subsequent Events
In preparing the historical financial information for the period to 31 December 2016 and the comparative period, subsequent events from these dates have been considered up to the date of this HFI and have been adjusted for where applicable.
2.4 Use of Judgements and Estimates
Going Concern
The Directors have undertaken a rigorous assessment of the forecast assumptions that support the going concern basis, taking into account the whole cycle of cash generation in the business, which encompasses trading performance through to costs associated with the transaction and the debt and equity funding that will be made available. The directors have further applied a range of sensitivity analyses to the
192 base forecast, for example reductions in revenue (fewer corporate actions), further interest rate reductions (loss of income), increased cash collection times (working capital strain) and assessed potential mitigating actions (for example cutting operating costs and capital expenditure). After applying these sensitivities and mitigations, the directors forecast that WFSS has sufficient headroom to continue as a going concern.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in this historic financial information and in preparing the opening statement of financial position as of 1 January 2015 for the purpose of preparing this HFI. The accounting policies have been applied consistently.
3.1 Foreign Currency Translation
The financial information is presented in US Dollars. Transactions in foreign currencies are translated into the functional currency of WFSS using the exchange rates prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency on the balance sheet date. Exchange differences are recognised in profit or loss. Non-monetary balances that are not re-measured at fair value are translated to the functional currency at the exchange rate prevailing on the transaction date.
3.2 Financial Instruments
(a) Financial Assets
WFSS's financial assets consist of cash and cash equivalents and trade and other receivables. WFSS determines the classification of financial assets at initial recognition depending on the purpose for which the financial assets were acquired. WFSS's financial assets are classified into the category of loans and receivables.
Loans and receivables are non-derivative financial assets with fixed and determinable payments that are not quoted on active markets. These financial assets are carried at the amounts expected to be received less any allowance for doubtful debts. Provisions are made where there is evidence of a risk of non-payment, taking into account ageing, previous experience and economic conditions. When a trade receivable is determined to be uncollectible, it is written off against the available provision and then to the statements of comprehensive income. Trade and other receivables are included in current assets, unless maturities are greater than 12 months after the end of the reporting period.
(b) Financial Liabilities
WFSS's financial liabilities consist of accrued expenses and deferred income. Accrued expenses related to payroll accruals which are short term in nature. Deferred income relates to services that have been invoiced but have not yet been performed.
(c) Fair value of financial assets and liabilities
The fair value of the financial instruments approximates to their carrying value.
3.3 Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. The estimated useful lives are as follows:
Asset Category Useful Lives
193 Office equipment 3 - 5 years Leasehold improvements 5 - 8 years
3.4 Software
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design, development and testing of identifiable and unique software products controlled by the WFSS are recognised as intangible assets when the following criteria are met:
• it is technically feasible to complete the software product so that it will be available for use;
• management intends to complete the software product and use or sell it;
• there is an ability to use or sell the software product;
• it can be demonstrated how the software product will generate probable future economic benefits;
• adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and
• the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
The criterion for directly attributable costs to be reliably measurable has only been met since 1 January 2014. Prior to this date development costs were not capitalised.
Amortisation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of software. The estimated useful life of software is five years.
3.5 Impairment
(a) Impairment of non-financial assets
WFSS reviews the carrying amounts of its property and equipment and intangible assets at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. The recoverable amount is the higher of an asset's fair value less cost of disposal and value in use. An impairment loss is recognised when an asset's carrying amount exceeds its recoverable amount. For the purposes of impairment testing, assets are grouped at the lowest levels for which there are largely independent cash flows. If a non financial asset instrument is impaired, an impairment loss is recognised in the Income Statement.
(b) Impairment of financial assets measured at amortised cost
WFSS assesses financial assets measured at amortised cost for impairment at each reporting period. These financial assets are impaired if one or more loss events occurs after initial recognition that impact the estimated future cash flows of the asset. An impairment loss is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate and is recognised in the Income Statement.
3.6 Revenue Recognition
Revenue, which excludes sales tax, represents the invoiced value of services supplied and interest on funds under administration of WFSS, and is almost entirely attributable to the United States of America.
194 WFSS holds cash on behalf of clients which are held in client specific accounts for which the title is held with the client. Accordingly, these are not recognised within cash and cash equivalents on the Statement of Financial Position.
Revenue comprises fixed periodic administration fees, transaction processing fees, fees for managing corporate actions, fees for professional and IT services and fees earned on the administration of client funds.
Periodic administration fees are recognised evenly over the contract period. Transaction based fees are recognised at the time of processing the related transactions. Fees in relation to administration of client funds are recognised as they accrue.
3.7 Taxation
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
3.8 Operating Leases
WFSS classifies leases as either finance or operating leases at inception, depending on whether substantially all the risks and rewards of ownership transfer to WFSS. Leases where the lessee has substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases. WFSS had only operating leases during the reporting periods. Payments made under operating leases are recognised in profit or loss on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
3.9 Employee Benefits
(a) Short term employee benefits
Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if WFSS has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
(b) Defined contribution plans
A defined contribution plan is a post employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in the periods during which related services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
3.10 Related Party Transactions
Related party transactions arise from transactions between WFSS and WFC. Due to the nature of the carve out, charges have been borne by WFC in respect of WFSS. Conversely, WFC receive all cash payments received by clients in respect of revenue earned by WFSS. The total effect of these transactions is reflected in the Statement of Cash Flows as a financing activity and in the Statement of Financial Position in the net investment reserve.
4 CHANGES IN ACCOUNTING POLICIES
The following new standards and amendments to standards have been adopted with respect to all periods of the carve-out HFI:
195 • IAS 1 (amendment) Presentation of financial statements
• IAS 16 (amendment) Property, plant and equipment
• IAS 19 (amendment) Employee benefits
• Annual improvements to IFRS
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017 and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the financial statements of WFSS, except the following set out below:
IFRS 9, ‘Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through P&L. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss, with the irrevocable option at inception to present changes in fair value in other comprehensive income not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio' to be the same as the one management actually uses for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The standard is not expected to have a material impact on the results of WFSS.
IFRS 15, ‘Revenue from contracts with customers' deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue' and IAS 11 ‘Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier adoption is permitted. The impact of IFRS 15 is currently being assessed and, at this stage, the Directors do not believe there will be a material impact on the HFI results.
IFRS 16, 'Leases' sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (lessee) and the supplier (lessor). The standard provides a single lease accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset value is low. The standard replaces IAS 17 'Leases' and related interpretations and is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted, subject to EU endorsement and if IFRS 15 ‘Revenue from contracts with customers' has also been applied. The impact of IFRS 16 is currently being assessed and the Directors expect that there will be a material impact on both non-current assets and finance lease liabilities.
There are no other IFRSs or IFRS IC interpretations that are not yet effective that would be expected to have a material impact on WFSS.
5 OPERATING PROFIT
5.1 Revenue
Revenue recorded in the statement of comprehensive loss consists of the following:
196 Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 $m $m $m $m Fee income 90.0 95.6 49.0 55.4 Interest on funds under administration 5.8 7.6 3.2 6.5 Total revenue 95.8 103.2 52.2 61.9
5.2 Operating Expenses
The average number of persons employed by WFSS during the year, analysed by category, was as follows:
Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 Operations 153 159 156 173 Support functions 39 41 40 43 Sales and marketing 194 186 213 244 Total 386 386 409 460
The aggregate payroll costs of these persons were as follows:
Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 $m $m $m $m Salaries and wages 17.3 18.6 9.3 10.0 Healthcare benefits 1.7 1.8 0.9 1.0 Contributions to defined contribution plans 0.6 0.7 0.3 0.4 Payroll taxes 1.2 1.2 0.7 0.8 Other payroll costs 0.2 0.2 0.1 0.2 Total 21.0 22.5 11.3 12.4
Total operating expenses were as follows:
Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 $m $m $m $m Salary and benefits-related expenses 21.0 22.5 11.3 12.4 Other administrative expenses 17.8 18.3 10.2 11.0 Corporate overheads allocated from WFC 47.5 50.3 24.8 30.6 Amortisation of software - 0.2 0.1 0.1 Depreciation of property, plant and equipment 1.2 1.2 0.6 0.7 Total operating costs 87.5 92.5 47.0 54.8
All operating expenses are deemed to be cost of sales.
197 6 NON CURRENT ASSETS
6.1 Software
Software $m Cost Balance at 1 January 2015 2.2 Additions 2.2 Balance at 31 December 2015 4.4
Balance at 1 January 2016 4.4 Additions 0.7 Balance at 31 December 2016 5.1
Balance at 1 January 2016 4.4 Additions 0.4 Balance at 30 June 2016 4.8
Balance at 1 January 2017 5.1 Additions 0.3 Balance at 30 June 2017 5.4
Accumulated depreciation Balance at 1 January 2015 - Depreciation - Balance at 31 December 2015 -
Balance at 1 January 2016 - Depreciation (0.2) Balance at 31 December 2016 (0.2)
Balance at 1 January 2016 - Depreciation (0.1) Balance at 30 June 2016 (0.1)
Balance at 1 January 2017 (0.2) Depreciation (0.1) Balance at 30 June 2017 (0.3)
Software, net Balance at 31 December 2015 4.4 Balance at 31 December 2016 4.9 Balance at 30 June 2016 4.7 Balance at 30 June 2017 5.1
6.2 Property, Plant and Equipment
Property, plant and equipment, net, consists of the following:
198 Leasehold Office improvements equipment Total $m $m $m Cost Balance at 1 January 2015 9.6 0.8 10.4 Additions, net of transfers 0.1 - 0.1 Disposals - (0.2) (0.2) Balance at 31 December 2015 9.7 0.6 10.3
Balance at 1 January 2016 9.7 0.6 10.3 Additions, net of transfers 0.3 0.3 0.6 Disposals (0.1) - (0.1) Balance at 31 December 2016 9.9 0.9 10.8
Balance at 1 January 2016 9.7 0.6 10.3 Additions, net of transfers 0.1 0.3 0.4 Balance at 30 June 2016 9.8 0.9 10.7
Balance at 1 January 2017 9.9 0.9 10.8 Additions, net of transfers 0.2 - 0.2 Balance at 30 June 2017 10.1 0.9 11.0
Accumulated depreciation Balance at 1 January 2015 (4.3) (0.6) (4.9) Depreciation (1.1) (0.1) (1.2) Disposals - 0.2 0.2 Balance at 31 December 2015 (5.4) (0.5) (5.9)
Balance at 1 January 2016 (5,4) (0.5) (5.9) Depreciation (1.1) (0.1) (1.2) Disposals 0.1 - 0.1 Balance at 31 December 2016 (6.4) (0.6) (7.0)
Balance at 1 January 2016 (5.4) (0.5) (5.9) Depreciation (0.5) (0.1) (0.6) Balance at 30 June 2016 (5.9) (0.6) (6.5)
Balance at 1 January 2017 (6.4) (0.6) (7.0) Depreciation (0.6) (0.1) (0.7) Balance at 30 June 2017 (7.0) (0.7) (7.7)
Property and Equipment, net Balance at 31 December 2015 4.3 0.1 4.4 Balance at 31 December 2016 3.5 0.3 3.8 Balance at 30 June 2016 3.9 0.3 4.2 Balance at 30 June 2017 3.1 0.2 3.3
Depreciation of property and equipment is included in general and administrative expenses in the consolidated statement of comprehensive income.
199 7 WORKING CAPITAL
7.1 Trade And Other Receivables
As at 31 December As at 30 June 2015 2016 2016 2017 $m $m $m $m Trade receivables 6.8 8.1 13.9 9.3 Accrued income 7.3 7.2 6.7 7.6 Other receivables - - - - Prepayments - - 0.1 0.1 Total trade and other receivables 14.1 15.3 20.7 17.0
7.2 Trade and Other Payables
As at 31 December As at 30 June 2015 2016 2016 2017 $m $m $m $m Accrued expenses 3.5 4.9 4.4 7.4 Deferred income - 2.5 3.3 1.8 Total trade and other payables 3.5 7.4 7.7 9.2
7.3 Operating Leases
Future aggregate minimum lease payments, relating to property, are payable as follows:
As at 31 December As at 30 June 2015 2016 2016 2017 $m $m $m $m Within one year 0.7 0.7 0.7 0.7 Between one and five years 3.0 3.1 3.1 3.2 More than five years 1.7 0.9 1.3 0.4 Total minimum lease payments 5.4 4.7 5.1 4.3
Total rent expense under these leases was approximately $0.7m, and $0.7m during the years ended 31 December 2015 and 2016, respectively and $0.4m, and $0.4m during the six months ended 30 June 2016 and 2017, respectively. Rent expense is included in general and administrative expenses in the consolidated statement of comprehensive income.
8 CAPITAL STRUCTURE
8.1 Cash and Cash Equivalents
As at 31 December As at 30 June 2015 2016 2016 2017 $m $m $m $m Cash and cash equivalents per statement of financial position - - - - Cash and cash equivalents per statement of cash flows - - - -
WFSS holds certain cash balances with banks in a number of segregated accounts. These balances represent client money under management and hence are not included in WFSS's balance sheet. The
200 number of accounts and balances held vary significantly throughout the year.
8.2 Financial Risk Management
WFSS's financial strategy policy is managed by WFC. WFC's policy is to support its strategic priorities, maintain investor and creditor confidence, and to sustain future development of the business. Management monitors the level of capital deployed and available for deployment in subsidiary projects. WFC seeks to maintain a balance between the higher returns that might be possible with higher levels of deployed capital and the advantages and security afforded by a sound capital position.
Wells Fargo's Directors have overall responsibility for establishment and oversight of WFSS's risk management framework.
WFSS has exposure to the following risks arising from financial instruments:
(a) Credit risk
Credit risk is the risk of financial loss to WFSS if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject WFSS to concentrations of credit risk consist principally of trade receivables. WFSS held the following balances:
As at 31 December As at 30 June 2015 2016 2016 2017 $m $m $m $m Trade receivables 6.8 8.1 13.9 9.3 Total 6.8 8.1 13.9 9.3
The credit quality of customers is assessed, taking into account their financial position, past experience and other factors. Trade receivables are due from primarily US listed companies which have few occurrences of defaults in the past.The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to credit ratings (if available) or to historical information about counterparty default rates.
The aging of trade and other receivables that were not impaired are as follows:
As at 31 December As at 30 June 2015 2016 2016 2017 $m $m $m $m Neither past due nor impaired 3.8 3.8 12.4 5.8 Past due 0 - 30 days 2.4 2.6 1.2 2.2 Past due 30 - 90 days 0.6 1.6 0.3 0.9 Past due 90 - 365 days - 0.1 - 0.4 Total 6.8 8.1 13.9 9.3
(b) Liquidity risk
Liquidity risk is the risk that WFSS will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. WFSS actively manages its risk of a shortage of funds by closely monitoring the maturity of its financial assets and liabilities and projected cash flows from operations, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to WFSS's reputation. The table below summarises the maturity profile of WFSS's financial liabilities as at 31 December 2016 based on contractual undiscounted payments:
The maximum exposure to liquidity risk at the reporting dates was as follows:
201 31 December 2015
Within 3 3 to 12 1 to 5 Total months months years Note $m $m $m $m Trade and other payables 6.2 3.5 - - 3.5 Total 3.5 - - 3.5
31 December 2016
Within 3 3 to 12 1 to 5 Total months months years Note $m $m $m $m Trade and other payables 6.2 7.4 - - 7.4 Total 7.4 - - 7.4
30 June 2016
Within 3 3 to 12 1 to 5 Total months months years Note $m $m $m $m Trade and other payables 6.2 7.7 - - 7.7 Total 7.7 - - 7.7
30 June 2017
Within 3 3 to 12 1 to 5 Total months months years Note $m $m $m $m Trade and other payables 6.2 9.2 - - 9.2 Total 9.2 - - 9.2
(c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect WFSS's income or the value of its holdings of financial instruments. Since WFSS does not have any foreign currency balances or interest bearing assets or liabilites, its exposure to market risk is minimal.
9 GOVERNANCE
9.1 Related party transactions
Transactions with WFC
WFSS acts as a subdivision within Wells Fargo. As such Wells Fargo incurs costs on behalf of the group as a whole which is then allocated to the various business lines. In return, all cash and cash equivalents received by revenue from clients are pooled centrally within Wells Fargo.
As at 31 December As at 30 June 2015 2016 2016 2017 $m $m $m $m Allocation of corporate overheads 47.5 50.3 24.8 30.6 Cash transferred to WFC (50.8) (59.7) (25.5) (35.4) Net movement in net investment reserve (3.3) (9.4) (0.7) (4.8)
202 10 INCOME TAXES
10.1 Amounts recognised in profit or loss
Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 $m $m $m $m Net profit 5.1 6.6 3.2 4.4 Income taxes expense 3.2 4.1 2.0 2.7 Net loss before taxes 8.3 10.7 5.2 7.1
10.2 Recognised income tax expense
Year ended 31 Six months ended 30 December June 2015 2016 2016 2017 $m $m $m $m Federal 3.0 3.8 1.8 2.5 State 0.2 0.3 0.2 0.2 Total current income tax expense 3.2 4.1 2.0 2.7
10.3 Effective tax rate
The income tax charge is calculated based on an effective tax rate derived from the operations of WFSS.
The Federal tax charge is calculated at 35% of profit before tax. State tax charge is calculated at 3% of profit before tax. The effective state tax charge has been estimated by reviewing the revenue earned in each state and applying the applicable state tax rate, net of Federal deduction. The average rate across the states has been calculated to be 3%.
The income tax liability is settled by WFC and therefore this forms part of the net investment reserve.
11 OTHER DISCLOSURES
11.1 Subsequent events
On 12 July 2017, Equiniti Group PLC announced the Proposed Acquisition of Wells Fargo's Shareowner Services business for total cash consideration of $227m. WFSS provides share registration, corporate actions and investment plan services to c. 1,200 public and private US companies and other global companies and c. 9.2 million shareholder records processed in the United States of America.
11.2 Explanation of transition to adopted IFRS
As stated in basis of preparation (paragraph 2.2), the WFSS financial statements have been prepared in accordance with the basis of preparation which explains how adopted IFRS has been reflected for the first time, and consequently applied IFRS 1 by analogy.
The accounting policies set out in paragraph 3 have been applied in preparing the financial statements for the year ended 31 December 2016, the comparative information presented in these financial statements for the year ended 31 December 2015 and in the preparation of an opening balance sheet at 1 January 2015 (WFSS's date of transition) in accordance with the basis of preparation, which explains how adopted IFRS have been reflected.
WFSS have not previously prepared financial statements under a previous basis of accounting. Therefore,
203 no reconciliation of the impact of the transition on WFSS’s financial performance, financial position and cash flows has been provided.
Statement of financial position
1 January 2015 $m
Assets Non-current assets Property, plant and equipment, net 5.5 Intangible assets, net 2.2 Total non current assets 7.7
Current assets Trade and other receivables 10.7 Cash and cash equivalents - Total current assets 10.7 Total assets 18.4
Equity and Liabilities Equity Equity attributable to owners of the parent Net Investment Reserve 17.6 Total equity 17.6
Current liabilities Trade and other payables 0.8 Total current liabilities 0.8
Total liabilities 0.8 Total equity and liabilities 18.4
204 PART XV - UNAUDITED PRO FORMA STATEMENTS OF THE ENLARGED GROUP
SECTION A – PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of net assets and pro forma income statement of the Enlarged Group set out below have been prepared on the basis set out in the notes below to illustrate the impact of (i) the Rights Issue and (ii) the Acquisition on the net assets of Equiniti as at 30 June 2017 as if they had taken place at that date and on the income statement of Equiniti for the year ended 31 December 2016 and the six months ended 30 June 2017 as if they had taken place at the beginning of those financial periods. The unaudited pro forma financial information has been prepared on the basis of, and should be read in conjunction with, the notes set out below.
The unaudited pro forma financial information has been prepared in a manner consistent with the accounting policies adopted by Equiniti in preparing its consolidated financial statements for the year ended 31 December 2016.
The unaudited pro forma information has been prepared for illustrative purposes only and, by its nature, addresses a hypothetical situation and does not, therefore, represent the Enlarged Group’s actual financial position or results.
The unaudited pro forma information does not constitute financial statements within the meaning of Section 434 of the Companies Act 2006. Shareholders should read the whole of this document and not rely solely on the summarised financial information contained in this Part XV.
205 Unaudited Pro Forma Statement of Net Assets
Adjustments Equiniti WFSS Draw down of Acquisition Pro Forma at 30 June 2017 at 30 June 2017 Rights Issue new facilities costs Enlarged Group £m £m £m £m £m £m (Note 2) (Note 3) (Note 4) (Note 5) (Note 6) Non-current assets Property, plant and equipment 16.4 2.6 - - - 19.0 Intangible assets 677.9 3.9 - - 162.1 843.9 Other financial assets 4.5 - - - - 4.5 Deferred income tax assets 28.1 - - - - 28.1 726.9 6.5 - - 162.1 895.5 Current assets Trade and other receivables 74.8 13.1 - - - 87.9 Agency broker receivables 36.5 - - - - 36.5 Other financial assets 0.1 - - - - 0.1 Cash and cash equivalents 69.6 - 117.8 70.8 (174.6) 83.6 181.0 13.1 117.8 70.8 (174.6) 208.1 Total assets 907.9 19.6 117.8 70.8 (12.5) 1,103.6
Non-current liabilities External loans and borrowings 322.1 - - 70.8 - 392.9 Post-employment benefits 23.9 - - - - 23.9 Provisions for other liabilities and 23.2 0.1 - - - 23.3 charges Other financial liabilities 3.7 - - - - 3.7 372.9 0.1 - 70.8 - 443.8 Current liabilities Trade and other payables 99.6 7.0 - - - 106.6 Agency broker payables 36.5 - - - - 36.5 Income tax payable 1.0 - - - - 1.0 Provisions for other liabilities and ------charges Other financial liabilities 0.5 - - - - 0.5 137.6 7.0 - - - 144.6 Total liabilities 510.5 7.1 - 70.8 - 588.4 Net assets 397.4 12.5 117.8 - (12.5) 515.2
206 Unaudited Pro Forma Income Statement for the year ended 31 December 2016
Adjustments Equiniti WFSS for the year ended for the year ended Draw down of new Pro Forma 31 December 2016 31 December 2016 facilities Acquisition costs Enlarged Group £m £m £m £m £m (Note 2) (Note 3) (Note 5) (Note 7) Revenue 382.6 75.9 - - 458.5 Operating costs (290.2) (67.0) - - (357.2) before exceptional costs, depreciation and amortisation EBITDA prior to 92.4 8.9 - - 101.3 exceptional items Operating costs - (5.0) - - (10.6) (15.6) exceptional items EBITDA 87.4 8.9 - (10.6) 85.7 Depreciation of (5.4) (0.9) - - (6.3) property, plant and equipment Amortisation of (16.0) (0.1) - - (16.1) software Amortisation of (25.3) - - - (25.3) acquisition related intangible assets Total operating costs (341.9) (68.0) - (10.6) (420.6) Earnings before 40.7 7.9 - (10.6) 38.0 interest and tax Finance income 0.2 - - - 0.2 Finance costs before (12.4) - (2.3) - (14.7) exceptional items Finance costs ------exceptional items Net finance costs 12.2 - (2.3) - (14.5) Profit before 28.5 7.9 (2.3) (10.6) 23.5 income tax Income tax credit 4.9 (3.0) 0.9 2.0 4.8 Profit for the year 33.4 4.9 (1.4) (8.6) 28.3
207 Unaudited Pro Forma Income Statement for the year ended 30 June 2017
Adjustments Equiniti WFSS for the six months for the six months ended 30 June ended 30 June Draw down of new Pro Forma 2017 2017 facilities Acquisition costs Enlarged Group £m £m £m £m £m (Note 2) (Note 3) (Note 5) (Note 7) Revenue 194.8 49.1 - - 243.9 Operating costs (152.8) (42.8) - - (195.6) before exceptional costs, depreciation and amortisation EBITDA prior to 42.0 6.3 - - 48.3 exceptional items Operating costs - (3.9) - - (10.6) (14.5) exceptional items EBITDA 38.1 6.3 - (10.6) 33.8 Depreciation of (3.0) (0.5) - - (3.5) property, plant and equipment Amortisation of (7.7) (0.1) - - (7.8) software Amortisation of (13.3) - - - (13.3) acquisition related intangible assets Total operating costs (180.7) (43.4) - (10.6) (234.7) Earnings before 14.1 5.7 - (10.6) 9.2 interest and tax Finance income 0.5 - - - 0.5 Finance costs before (5.9) - (1.1) - (7.0) exceptional items Finance costs ------exceptional items Net finance costs (5.4) - (1.1) - (6.5) Profit before 8.7 5.7 (1.1) (10.6) 2.7 income tax Income tax credit (1.5) (2.2) 0.4 2.0 (1.3) Profit for the year 7.2 3.5 (0.7) (8.6) 1.4
Notes
(1) The unaudited pro forma financial information has been compiled from underlying financial statements prepared in accordance with IFRS as applied by Equiniti and reflects the transaction to create the Enlarged Group.
The unaudited pro forma financial information should be read in conjunction with the underlying financial information of Equiniti, which is incorporated by reference and WFSS, which is included in Part XIV (Historical Financial Information of WFSS) of this document.
(2) The net assets of Equiniti used in the pro forma consolidated net asset statement as at 30 June 2017 have been extracted without adjustment from the unaudited consolidated interim financial statements for the six months ended 30 June 2017.
The financial information for Equiniti used in the pro forma consolidated income statement for the year ended 31 December 2016 has been extracted without adjustment from the audited consolidated financial statements for the year ended 31 December 2016.
208 The financial information for Equiniti used in the pro forma consolidated income statement for the six months ended 30 June 2017 has been extracted without adjustment from the unaudited consolidated interim financial statements for the six months ended 30 June 2017.
(3) The net assets of WFSS used in the pro forma consolidated net asset statement as at 30 June 2017 have been extracted without adjustment from the unaudited historical financial information included in Part XIV, translated at an exchange rate of $1.30:£1.00, being the closing rate as at 30 June 2017.
The financial information for WFSS used in the pro forma consolidated income statement for the year ended 31 December 2016 has been extracted without adjustment from the unaudited historical financial information included in Part XIV, translated at an exchange rate of $1.36:£1.00, being the average exchange rate for the year ended 31 December 2016.
The financial information for WFSS used in the pro forma consolidated income statement for the six months ended 30 June 2017 has been extracted without adjustment from the unaudited historical financial information included in Part XIV, translated at an exchange rate of $1.26:£1.00, being the average exchange rate for the six months ended 30 June 2017.
(4) The net proceeds of the Rights Issue of £117.8 million are calculated on the basis that the Company issues 64,309,150 New Shares at a price of 190 pence per share, net of estimated expenses in connection with the Rights Issue of approximately £4.3 million.
(5) Equiniti has established an additional term loan facility of $92 million and has increased the Revolving Credit facility by £49 million to partially fund the acquisition of WFSS. It is estimated that $92 million (£70.8 million at $1.30:£1.00) will be drawn under these new facilities to fund the balance of the estimated purchase consideration of £174.6 million after deduction of £103.8 million, being the proportion of the proceeds of the Rights Issue used to part fund the estimated purchase consideration.
The additional borrowings incur interest at the same rate as existing facilities. Interest charge adjustments of £2.3 million and £1.1 million have been made in the unaudited pro forma income statements for the year ended 31 December 2016 and the six months ended 30 June 2017 respectively.
The estimated tax benefits of the above adjustments are £0.9 million and £0.4 million in the proforma income statements for the year ended 31 December 2016 and the six months ended 30 June 2017 respectively. This estimate reflects the effective tax rate of WFSS where the pro forma adjustment is assumed to occur.
(6) The adjustments arising as a result of the Acquisition are set out below:
(a) Estimated purchase consideration is $227 million (£174.6 million at $1.30:£1.00).
(b) The unaudited pro forma statement of net assets has been prepared on the basis that the Acquisition will be treated as a business combination in accordance with IFRS 3. However, it does not reflect any fair value adjustments to the acquired assets and liabilities as the fair value measurement of these items will only be performed as at the date of Completion. For the purposes of the pro forma statement of net assets, the excess purchase consideration over the carrying amount of the net assets of WFSS has been attributed to goodwill. The fair value adjustments, when finalised following Completion of the Acquisition, may be material. The preliminary goodwill arising has been calculated as follows:
£m Consideration 174.6 WFSS net assets (12.5) Pro forma goodwill adjustment 162.1
209 (7) £10.6 million of transaction related costs have been incurred which do not qualify to be capitalised as part of the estimated purchase consideration. None of these items were initially recorded as expenses in the Equiniti or WFSS income statements. Therefore, an adjustment has been made to include these expenses incurred because the pro forma income statements have been prepared as if the transaction had been completed at the start of the periods stated. These expenses are non-recurring in nature and are not expected to have a continuing impact on the consolidated results. The estimated tax benefit of the above adjustment is £2.0 million in the pro forma income statements for the year ended 31 December 2016 and the six months ended 30 June 2017 based on current corporation tax rates.
(8) The pro forma income statements do not include amortisation of intangible assets on acquisition as this will not be determined until the purchase price allocation exercise is completed.
(9) The pro forma income statements do not include the following potential adjustments estimated by the Directors:
◦ the removal of $14.0 million (£10.3 million) of general Wells Fargo cost allocations which the Directors do not view as directly supporting WFSS business operations;
◦ the removal of $0.4 milion (£0.3 million) of revenue and costs associated with mutual fund fees generated from the current Wells Fargo shared relationship. The Directors believe that these costs and expenses will not continue after the Acquisition; and
◦ the inclusion of $7.8 million (£5.7 million) of incremental costs which the Directors believe will be incurred in running WFSS as a business separate from Wells Fargo.
If these adjustments were applied to the WFSS pro forma income statement for the year ended 31 December 2016 this would increase WFSS EBITDA to approximately $18 million (£13.2 million).
(10) No adjustment has been made to reflect the trading results of Equiniti or of WFSS since 30 June 2017.
210 SECTION B – ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA FINANCIAL
INFORMATION ON THE ENLARGED GROUP
KPMG LLP Transaction Services Arlington Business Park Theale Reading RG7 4SD United Kingdom Private & confidential The Directors Your ref Equiniti Group plc Sutherland House Our ref bc/hr Russell Way Crawley Contact West Sussex RH10 1UH
12 September 2017
Ladies and Gentlemen
Equiniti Group plc
We report on the pro forma financial information (the ‘Pro forma financial information’) set out in Part XV of the prospectus dated 12 September 2017, which has been prepared on the basis described in the notes to the Pro forma financial information, for illustrative purposes only, to provide information about how the proposed rights issue by Equiniti Group plc and the proposed acquisition by Equiniti Group plc of WFSS might have affected the financial information presented on the basis of the accounting policies adopted by Equiniti Group plc in preparing the financial statements for the period ended 31 December 2016. This report is required by paragraph 7 of Annex II of the Prospectus Directive Regulation and is given for the purpose of complying with that paragraph and for no other purpose.
Responsibilities
It is the responsibility of the directors of Equiniti Group plc to prepare the Pro forma financial information in accordance with Annex II of the Prospectus Directive Regulation.
It is our responsibility to form an opinion, as required by paragraph 7 of Annex II of the Prospectus Directive Regulation, as to the proper compilation of the Pro forma financial information and to report that opinion to you.
Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the prospectus.
211 Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the directors of Equiniti Group plc.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of Equiniti Group plc.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.
Opinion
In our opinion:
• the Pro forma financial information has been properly compiled on the basis stated; and
• such basis is consistent with the accounting policies of Equiniti Group plc.
Declaration
For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation.
Yours faithfully
KPMG LLP
212 PART XVI - SECTION A: UK TAXATION
The following statements are intended only as a general guide to certain UK tax considerations relevant to the Rights Issue and the New Shares. They do not purport to be a complete analysis of all potential UK tax consequences of the acquisition, holding or disposal of Rights or New Shares. They are based on current UK tax law and what is understood to be the current published practice of HMRC (which may not be binding upon HMRC) as at the date of this Prospectus, both of which are subject to change, possibly with retrospective effect. The following statements relate only to Shareholders who are resident (and, in the case of individuals, resident and domiciled) for UK tax purposes in (and only in) the UK (except insofar as express reference is made to the treatment of non-UK residents), who hold their Rights, Existing Shares and/or New Shares (as the case may be) as an investment (other than under an individual savings account or a self-invested personal pension) and who are the absolute legal and beneficial owners of the Rights, Existing Shares and/or New Shares (as the case may be) and any dividends paid on any such shares. The tax position of certain categories of Shareholders who are subject to special rules, such as persons who acquire (or are deemed to acquire) their New Shares in connection with their (or another person’s) office or employment (whether current, historical or prospective), traders, brokers, dealers in securities, insurance companies, banks, financial institutions, investment companies, tax-exempt organisations, persons connected with the Company or the Group, persons holding Rights, Existing Shares and/or New Shares (as the case may be) as part of hedging or conversion transactions, Shareholders who are not domiciled or not resident in the UK, collective investment schemes, trusts and those who hold (or will hold as a result of the Rights Issue) 5% or more of the Shares, are not considered by the following statements. Nor do the following statements consider the tax position of any person holding investments in any HMRC-approved arrangements or schemes, including any enterprise investment scheme or venture capital scheme, able to claim any inheritance tax relief or holding Rights, Existing Shares and/or New Shares (as the case may be) in connection with a trade, profession or vocation carried on in the UK (whether through a branch or agency or, in the case of a corporate Shareholder, a permanent establishment or otherwise).
The statements below do not include a consideration of the potential UK inheritance tax consequences of the Rights Issue or the holding of Existing Shares or New Shares. Holders or prospective holders of Existing Shares or New Shares or Rights should consult their own professional advisers in relation to the potential UK inheritance tax consequences of holding them.
Prospective investors who are in any doubt as to their tax position or who may be subject to tax in a jurisdiction other than the UK are strongly recommended to consult their own professional advisers.
1 TAXATION OF DIVIDENDS
1.1 UK resident individuals
Individual Shareholders resident for UK tax purposes in the UK (“Individual Shareholders”) are subject to a nil rate of income tax for the first £5,000 of dividend income which they receive in any tax year (the “nil- rate band”). The effect of this is to exempt from UK income tax the first £5,000 of a UK taxpayer’s dividend income in any tax year. As a result, if an Individual Shareholder receives a dividend from the Company, he or she will not be liable to UK income tax on that dividend to the extent that (taking account of any other dividend income received by that Shareholder in the same tax year) such dividend falls within the nil-rate band.
An Individual Shareholder who is subject to UK income tax:
(a) at the basic rate (but not the higher or additional rate) will be liable to income tax on any dividend received from the Company at the rate of 7.5%, to the extent that Individual Shareholders' dividend income exceeds the nil-rate band;
(b) at the higher rate (but not the additional rate) will be liable to income tax on any dividend received
213 from the Company at the rate of 32.5%;
(c) at the additional rate will be liable to income tax on any dividend received from the Company at the rate of 38.1%, in each case to the extent that such dividend income (after taking into account any other dividend income received by that Shareholder in the same tax year), exceeds the threshold for the previous rate band. For the avoidance of doubt, the figures given above are for the 2017/2018 tax year.
Dividend income that is within the nil-rate band nevertheless counts towards an Individual Shareholder’s basic or higher rate limits, and the rate of tax that is due on any dividend income. In calculating into which UK income tax band any dividend income over the nil-rate band falls, savings and dividend income are treated as the highest part of an individual’s income. Where an individual has both savings and dividend income, the dividend income is treated as the top slice.
The UK Government announced in its Spring Budget 2017 that the nil-rate band would be reduced from £5,000 per annum to £2,000 per annum from April 2018. Draft provisions were included in the Finance Bill 2017, but due to the UK General Election, these provisions were omitted from the Finance Act 2017. The UK Government has indicated that it is committed to introducing provisions omitted from the Finance Act 2017 at the earliest possible opportunity.
1.2 UK resident companies
Shareholders within the charge to UK corporation tax which are “small companies” for the purposes of Chapter 2 of Part 9A of the Corporation Tax Act 2009 will not be subject to UK corporation tax on any dividend received from the Company provided certain conditions are met (including an anti-avoidance condition).
Other Shareholders within the charge to UK corporation tax will not be subject to UK corporation tax on dividends received from the Company so long as the dividends fall within an exempt class and certain conditions are met. However, the exemptions are not comprehensive and are subject to anti-avoidance rules.
If the conditions for exemption are not met or cease to be satisfied, any anti-avoidance rule applies, or a Shareholder within the charge to UK corporation tax elects for an otherwise exempt dividend to be taxable, the Shareholder will be subject to UK corporation tax on dividends received from the Company at the rate of corporation tax applicable to that Shareholder (currently 19%).
1.3 Withholding taxes
The Company is not required to withhold UK tax at source from dividend payments it makes to Shareholders.
2 TAXATION OF CHARGEABLE GAINS
2.1 Rights Issue – issue of New Shares
For the purposes of UK taxation of chargeable gains, the issue of New Shares to existing Shareholders who take up their rights pursuant to the Rights Issue should be regarded as a reorganisation of the share capital of the Company (a “Reorganisation”).
Accordingly, Shareholders resident in the UK that take up their entitlement to New Shares pursuant to the Rights Issue should not be treated as making a disposal of all or part of their Existing Shares, such that no immediate liability to UK taxation on chargeable gains should arise. The New Shares issued to such a Shareholder are instead treated as the same asset, and as if they were acquired at the same time as, that Shareholder’s Existing Shares. Such a Shareholder's Existing Shares and New Shares will then be treated as a single pool of shares, and the base cost of the Existing Shares will then be spread pro rata between those shares and the New Shares received. Any amounts paid for the New Shares would be added to the base cost of the Existing Shares when making this apportionment of cost across the total Shareholding.
214 However, Shareholders resident in certain territories may not, for regulatory reasons, be able to receive an allocation under the Rights Issue. In order to meet the definition of a Reorganisation, UK tax law requires that all Shareholders are allocated rights in respect of, and in proportion to, their existing shareholding in the Company. In circumstances where some Shareholders are not able, and therefore do not receive, an allocation, that rights issue would not strictly constitute, for UK chargeable gains purposes, a Reorganisation; as a result, the UK chargeable gains treatment of the Rights Issue for Shareholders resident in the UK is not beyond doubt. Nevertheless, past practice indicates that HMRC will often still treat a rights issue which is not made to all Shareholders as a Reorganisation for UK chargeable gains purposes.
In the event that Reorganisation treatment does not apply for UK chargeable gains purposes to the Rights Issue, Shareholders resident in the UK that take up their rights would be treated as acquiring New Shares in the Company. If the New Shares are offered at a discount to their market value, such a Shareholder could be regarded as having made a part disposal of their Existing Shares in return for the amount of such discount.
2.2 Disposal of New Shares - UK resident individual Shareholders
For an individual Shareholder within the charge to UK capital gains tax, a disposal (or deemed disposal) of New Shares may give rise to a chargeable gain or an allowable loss for the purposes of UK capital gains tax (depending on the Shareholder’s personal circumstances including other capital gains or income for the relevant period and subject to certain reliefs and exemptions). The applicable rate of UK capital gains tax is generally 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers (in each case for the 2017/2018 tax year), although an individual Shareholder is entitled to realise an exempt amount of gains (£11,300 for the 2017/2018 tax year) in each tax year without being liable to UK capital gains tax.
2.3 Disposal of New Shares - UK resident corporate Shareholders
For a corporate Shareholder within the charge to UK corporation tax, a disposal (or deemed disposal) of New Shares may, depending on the circumstances, give rise to a chargeable gain or an allowable loss for the purposes of UK corporation tax. Indexation allowance for the cost of acquiring the New Shares may be available to reduce the amount of the chargeable gain which would otherwise arise on the disposal, although this allowance is generally only available from the date the Rights Issue Price for the New Shares is paid, and not from the time of the acquisition of the relevant Shareholder’s Existing Shares.
Subject to indexation allowance, and to any exemptions, reliefs and/or allowable losses, chargeable gains of a Shareholder within the charge to UK corporation tax will (currently) be taxed at the rate of 19%.
2.4 Disposal of New Shares - non-UK resident Shareholders
A Shareholder who is not resident in the UK for UK tax purposes will generally not be subject to UK tax on chargeable gains on the disposal (or deemed disposal) of New Shares, unless they carry on a trade, profession or vocation in the UK through a branch or agency (or, in the case of a non-UK resident corporate Shareholder, a permanent establishment) to which the New Shares are attributable.
An individual Shareholder who acquires New Shares whilst UK resident and who subsequently ceases to be resident for UK tax purposes in the UK and then disposes of the New Shares during that period of non- residence may be liable, on his return to the UK, to UK capital gains tax in respect of any gain arising from the disposal (subject to any available exemption or relief).
2.5 Disposal or lapse of Rights to subscribe for New Shares
Shareholders disposing of all or part of their Rights, or allowing all or any part of such Rights to lapse in return for a cash payment, may (depending on the particular circumstances) incur a liability to UK taxation of chargeable gains.
However, if the proceeds resulting from such disposal or lapse of such Rights are “small” as compared with the value of the Existing Shares in respect of which such Rights arose, the Shareholder will generally be treated as not making a disposal for the purposes of UK taxation of chargeable gains; however, the relevant proceeds will, provided they do not exceed the acquisition cost of the Shareholder’s Existing Shares, be deducted from the Shareholder’s base cost in that existing holding. HMRC normally treats
215 proceeds as “small” if the amount of the proceeds does not exceed five per cent. of the market value of that Shareholder’s Existing Shares, or £3,000 (regardless of whether the value of the disposal also passes the five per cent. test).
3 STAMP DUTY AND STAMP DUTY RESERVE TAX
3.1 General
The following statements are intended as a general guide to the current UK stamp duty and/or stamp duty reserve tax (“SDRT”) position and apply regardless of whether or not the prospective holder of New Shares is resident in the UK. Certain categories of person, including intermediaries, brokers, dealers and persons connected with depositary receipt systems and clearance services may not be liable to stamp duty or SDRT or may be liable at a higher rate or may, although not primarily liable for tax, be required to notify and account for it under applicable UK Regulations.
3.2 Issue of Rights
No UK stamp duty or SDRT will generally be payable on the issue of Provisional Allotment Letters or split of Provisional Allotment Letters (provided that they are renounceable within six months of issue) in respect of the New Shares, or on the crediting of Rights to accounts in CREST.
3.3 Dealing in Rights
A person who purchases rights to subscribe for New Shares represented by Provisional Allotment Letters or split Provisional Allotment Letters (whether nil paid or fully paid but provided their life does not exceed six months) or Rights held in CREST on or before the latest time for registration or renunciation will not generally be liable to pay stamp duty. However, they will normally be liable for SDRT at the rate of 0.5% of the amount or value of the consideration.
Where such a purchase is effected through a stockbroker or other financial intermediary, that person will normally account to HMRC for the SDRT and should indicate that this has been done in any contract note issued to the purchaser of such rights. In other cases, the purchaser is liable to pay the SDRT and must account for it to HMRC. In the case of transfers of Nil Paid Rights or Fully Paid Rights within CREST, the SDRT should be collected through CREST and accounted for to HMRC in accordance with the CREST rules.
3.4 Lapse of Rights
No UK stamp duty or SDRT should be payable on the lapse of rights to New Shares represented by a Provisional Allotment Letter or a split Provisional Allotment Letter or on the disablement of Nil Paid Rights or Fully Paid Rights in CREST.
3.5 Issue of New Shares
Subject to the comments relating to depositary receipt systems and clearance services which are set out below, no UK stamp duty or SDRT should be payable on the issue of New Shares in certificated form or on the issue of New Shares in uncertificated form by way of credit to CREST accounts.
3.6 Subsequent transfers of New Shares
Except in relation to depositary receipt systems and clearance services (to which the special rules outlined below apply), any subsequent dealings in New Shares will ordinarily be subject to stamp duty or SDRT in the normal way. Subject to an exemption for certain low-value transfers, a purchaser of New Shares held in certificated form will generally be liable to pay UK stamp duty on the transfer of such New Shares at the rate of 0.5% of the amount or value of the consideration given for such transfer (rounded up to the nearest multiple of £5).
A charge to UK SDRT will also generally arise on an unconditional agreement to the transfer of New Shares, or on a transfer effected in CREST, at the rate of 0.5% of the amount or value of the consideration payable.
216 Generally, it is the purchaser or transferee of the New Shares who will be responsible for paying such stamp duty or SDRT.
3.7 New Shares held through CREST
Paperless transfers of New Shares within CREST should generally be liable to UK SDRT, rather than UK stamp duty, at the rate of 0.5% of the amount or value of the consideration payable. CREST is obliged to collect SDRT on relevant transactions settled within the CREST system.
Generally, no UK stamp duty or UK SDRT will arise on a deposit of New Shares into the CREST system unless such a transfer is made for consideration in money or money’s worth.
3.8 New Shares held through depositary receipt systems and clearance services
Subject to the comments that follow, where New Shares are issued or transferred to a person whose business is or includes either the provision of clearance services or the issuing of depositary receipts (or such person’s agent or nominee), UK stamp duty or UK SDRT will generally be payable at the higher rate of 1.5% of the amount or value of the consideration payable or, in certain circumstances, the value of the New Shares (rounded up to the next multiple of £5, in the case of stamp duty). Although this liability will strictly be for the account of the depositary or clearance service operator (or their nominee or agent) as the case may be, in practice it will generally be reimbursed by participants in the clearance service or depositary receipt arrangements. Transfers within the clearance service, and transfer of depositary receipts, may then generally be made free of UK SDRT or UK stamp duty. Alternatively, clearance services may opt, provided certain conditions are satisfied, for the normal rates of UK stamp duty or SDRT to apply to issues or transfers of New Shares into, and to transactions within, such services.
Notwithstanding the above, HMRC has confirmed that it will not seek to apply the 1.5% UK SDRT charge on an issue of shares to a clearance system or depositary receipts arrangement on the basis that such a charge is not compliant with EU law. However, HMRC’s view is that the 1.5% UK stamp duty or UK SDRT charge will continue to apply to transfers of shares into a clearance service or depositary receipts arrangement, unless such transfers are an integral part of an issue of share capital.
Specific professional advice should be sought before paying the 1.5% stamp duty or SDRT charge in any circumstances.
217 SECTION B: CERTAIN US FEDERAL INCOME TAX CONSEQUENCES
Subject to the limitations described below, the following is a discussion of certain US federal income tax consequences to a US Holder with respect to the receipt, exercise, ownership and disposition of Nil Paid Rights received pursuant to the Rights Issue, and the receipt, ownership and disposition of the Fully Paid Rights received as a result of the exercise of such Nil Paid Rights and the New Shares received through the ownership of Fully Paid Rights. Non-US Holders are urged to consult their own tax advisers regarding the US federal income tax consequences to them of the receipt, exercise, ownership and disposition of Nil Paid Rights received pursuant to the Rights Issue, and the receipt, ownership and disposition of the Fully Paid Rights received as a result of the exercise of such Nil Paid Rights and the New Shares received through the ownership of Fully Paid Rights. This discussion is limited to consequences relevant to a US Holder (except with respect to the potential application of FATCA to non-US Holders, as discussed under “Foreign Account Tax Compliance Act” in paragraph 10 below). For purposes of this discussion, a “US Holder” means a beneficial owner of Nil Paid Rights, Fully Paid Rights, or New Shares that is:
(a) an individual who is a citizen or resident alien of the US for US federal income tax purposes;
(b) a corporation (or other entity taxed as a corporation for US federal income tax purposes) created or organised in or under the laws of the US or any of its political subdivisions;
(c) an estate, whose income is includible in gross income for US federal income tax purposes regardless of its source; or
(d) a trust if: (i) a court within the US is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust; or (ii) it has a valid election in effect to be treated as a US person.
A “non-US Holder” is any individual, corporation, trust or estate that is a beneficial owner of Nil Paid Rights, Fully Paid Rights, or New Shares and is not a US Holder.
This discussion is based on the current provisions of the US Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable US Treasury Regulations promulgated thereunder and administrative and judicial decisions, all as in effect on the date hereof and all of which are subject to change, possibly on a retroactive basis, any change to which could affect the continuing accuracy of this discussion.
This discussion does not purport to be a comprehensive description of all of the tax considerations that may be relevant to each person’s decision to invest in the Rights and the New Shares. This discussion does not address all aspects of US federal income taxation that may be relevant to any particular US Holder based on such holder’s particular circumstances. In particular, this discussion considers only US Holders that hold Nil Paid Rights, Fully Paid Rights and New Shares as capital assets within the meaning of section 1221 of the Internal Revenue Code and does not address the potential application of US federal alternative minimum tax or Medicare tax on certain net investment income or the US federal income tax consequences to US Holders that are subject to special treatment, including:
(a) broker dealers or insurance companies;
(b) US Holders who have elected mark-to-market accounting;
(c) tax-exempt organisations or pension funds;
(d) regulated investment companies, real estate investment trusts, financial institutions or “financial services entities”;
(e) US Holders who hold the Nil Paid Rights, Fully Paid Rights or New Shares as part of a “straddle”, “hedge”, “constructive sale” or “conversion transaction” or other integrated investment;
218 (f) US Holders who own or owned, directly, indirectly or by attribution, at least 10% of the voting power or the value of the Ordinary Shares;
(g) US Holders whose functional currency is not the US dollar;
(h) US Holders who received the Nil Paid Rights, Fully Paid Rights or New Shares as compensation;
(i) persons who are residents of or ordinarily resident in the UK or whose Nil Paid Rights, Fully Paid Rights or New Shares are attributable to a trade or business carried on within the UK;
(j) certain expatriates or former long-term individual residents of the US; and
(k) US Holders who hold Section 306 stock.
This discussion does not consider the tax treatment of holders that are partnerships (including entities treated as partnerships for US federal income tax purposes) or other pass-through entities or persons who hold the Nil Paid Rights, the Fully Paid Rights or the New Shares through a partnership or other pass-through entity. In addition, this discussion does not address any aspect of state, local or non-US tax laws, or the possible application of US federal gift or estate tax.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH INVESTOR IS URGED TO CONSULT WITH ITS TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE RECEIPT, EXERCISE, EXPIRATION OR DISPOSITION OF THE NIL PAID RIGHTS AND THE RECEIPT, OWNERSHIP AND DISPOSITION OF THE FULLY PAID RIGHTS AND NEW SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-US TAX LAWS, AS WELL AS US FEDERAL TAX LAWS AND APPLICABLE TAX TREATIES.
1 RECEIPT OF NIL PAID RIGHTS
Under section 305 of the Internal Revenue Code, a shareholder who receives a right to acquire shares will, in certain circumstances, be treated as having received a taxable dividend in an amount equal to the value of such right. In particular, a shareholder who receives a right to acquire New Shares generally will be treated as having received a taxable dividend if the shareholder’s proportionate interest in the earnings and profits or assets of the Company is increased and any other shareholder receives a distribution of cash or other property. For the purposes of the preceding sentence, the term “shareholder” includes holders of warrants, options and convertible securities. There is uncertainty regarding the manner in which the Rights Issue should be treated under the provisions of section 305 of the Internal Revenue Code and US Holders may be required to include in taxable income as a dividend the fair market value of the Nil Paid Rights received by such US Holder. In that event, the distribution would be taxable as described under “Taxation of Dividends” in paragraph 5 below, and the US Holder’s tax basis in the Nil Paid Rights received would be equal to their fair market value on the date of distribution. US Holders are strongly urged to consult their own tax advisers regarding the risk of having a taxable distribution as a result of the receipt of Nil Paid Rights.
If the distribution is treated as a non-taxable distribution of rights to acquire stock (the New Shares), the basis and holding period consequences are as follows:
If the fair market value of the Nil Paid Rights on the date of their distribution equals or exceeds 15% of the fair market value on such date of the shares with respect to which the Nil Paid Rights are distributed, the tax basis in such shares must be allocated between such shares and the Nil Paid Rights. Such an allocation must be made in proportion to the fair market value of the shares and the fair market value of the Nil Paid Rights on the date the Nil Paid Rights are distributed.
If the fair market value of the Nil Paid Rights on the date of their distribution is less than 15% of the fair market value on such date of the shares with respect to which the Nil Paid Rights are distributed, the tax basis in such Nil Paid Rights will be zero and the basis for the shares with respect to which the Nil Paid Rights are distributed will remain unchanged. Notwithstanding the foregoing sentence, however, US Holders may affirmatively elect (in a statement attached to the US Holders’ federal income tax return for the year in which the Nil Paid Rights were received) to allocate to the Nil Paid Rights a portion of the
219 basis in such shares in the manner described in the immediately preceding paragraph. Any such election is irrevocable and must be applied to all of the Nil Paid Rights received by a US Holder pursuant to the Rights Issue.
2 EXERCISE OF NIL PAID RIGHTS
A US Holder will not recognise any gain or loss upon the receipt of Fully Paid Rights through the exercise of Nil Paid Rights or the receipt of New Shares through the ownership of Fully Paid Rights. The initial basis in the Fully Paid Rights acquired upon exercise of the Nil Paid Rights (and the New Shares acquired through the ownership of such Fully Paid Rights) generally will be equal to the amount of cash (in US dollar value of the pounds sterling denominated Issue Price determined on the date of purchase) plus the US Holder’s basis (if any) in the Nil Paid Rights in US dollars. If the Fully Paid Rights are treated as traded on an “established securities market” and the US Holder is either a cash basis taxpayer, or an accrual basis taxpayer who has made a special election, the US Holder will determine the US dollar value of the pounds sterling paid for such Fully Paid Rights by translating the amount paid at the spot rate of exchange on the settlement date of the exercise. If the US Holder exercises the Nil Paid Rights using previously-held pounds sterling, the US Holder will recognise any gain or loss arising from exchange rate fluctuations with respect to such pounds sterling, which will be US source ordinary income or loss. The holding period for Fully Paid Rights acquired upon the exercise of the Nil Paid Rights (and the New Shares received through the ownership of such Fully Paid Rights) will begin on the date of exercise.
3 TAXATION OF DISPOSALS OF RIGHTS
Subject to the discussion in "Passive Foreign Investment Company Considerations" in paragraph 7 below, upon a sale or other taxable disposition of a Nil Paid Right or a Fully Paid Right, a US Holder will generally recognise capital gain or loss in an amount equal to the difference between the amount realised and the US Holder’s adjusted basis in the Nil Paid Right or Fully Paid Right.
The amount realised on a sale or other taxable disposition of a Nil Paid Right or Fully Paid Right generally will be the amount of cash received in such sale or other disposition for such Nil Paid Right. If the consideration received is paid in pounds sterling, the amount realised will generally be the US dollar value of the consideration received (as determined on the date of the sale or other disposition). However, if the Nil Paid Rights or the Fully Paid Rights are treated as traded on an “established securities market” and the US Holder is a cash basis taxpayer, or an accrual basis taxpayer who has made a special election, the US Holder will determine the US dollar value of the cost in pounds sterling by translating the amount paid at the spot rate of exchange on the settlement date of the sale. Any gain or loss a US Holder recognises on the sale or other disposition of a Nil Paid Right to a third party will generally be long-term capital gain or loss if the US Holder’s holding period in the Nil Paid Right is deemed to be greater than one year. If the receipt of the Nil Paid Rights is treated as a taxable event for US federal income tax purposes, a US Holder’s holding period in a Nil Paid Right would begin on the day of receipt of the Nil Paid Rights, otherwise it should include the holding period in the Existing Shares with respect to which the Nil Paid Rights were distributed. The gain or loss recognised on the sale or other disposition of a Fully Paid Right will likely be short-term capital gain or loss. Short-term capital gain or loss of a non-corporate US Holder is generally taxed at the same rates as ordinary income. Any gain of loss will generally be treated as US source gain or loss. The deductibility of capital losses is subject to limitations.
Notwithstanding the foregoing, if the receipt of the Nil Paid Rights is not a taxable event for US federal income tax purposes and if a US Holder allows a Nil Paid Right to expire without the Nil Paid Right being exercised, sold or exchanged, and does not receive any amount, including any amount described in paragraph 6 "Procedure in respect of New Shares not taken up" of Part IX (Terms and Conditions of the Rights Issue), the US Holder should not recognise a gain or loss for US federal income tax purposes. In addition, if the US Holder has previously allocated to the Nil Paid Rights a portion of the basis of the Ordinary Shares held by the US Holder, that basis will be re-allocated to such Ordinary Shares. If the receipt of the Nil Paid Rights is a taxable event for US federal income tax purposes, a US Holder should recognise a short-term capital loss for US tax purposes equal to its basis in the Nil Paid Rights.
4 TAXATION OF PREMIUMS
The US federal income tax treatment of a US Holder that, in connection with the Rights Issue, receives
220 “premiums” as a result of the sale by the Joint Bookrunners of the New Shares at a premium over the Issue Price (as described in paragraph 6 "Procedure in respect of New Shares not taken up" of Part IX (Terms and Conditions of the Rights Issue)) is not free from doubt. A US Holder may be treated as receiving any such amount as a distribution paid with respect to such US Holder’s Ordinary Shares, which would be taxable as described under “Taxation of Dividends” in paragraph 5 below. Alternatively, a US Holder may be treated, for US federal income tax purposes, either as having sold the Nil Paid Rights (as described above) or as having exercised the Nil Paid Rights and sold the corresponding New Shares. A US Holder that is treated as having sold the New Shares will likely recognise a short-term capital gain or loss as described in “Taxation of Disposals of New Shares” in paragraph 6 below, regardless of the holding period of the Nil Paid Rights. US Holders that receive amounts in respect of lapsed Nil Paid Rights or in lieu of receiving Nil Paid Rights should consult their own tax advisers regarding the US federal income tax treatment of such amounts.
5 TAXATION OF DIVIDENDS
Subject to the discussion in "Passive Foreign Investment Company Considerations" in paragraph 7 below, because the Company does not determine its earnings and profits for US federal income tax purposes, a US Holder will be required to include in gross income as ordinary income the US dollar amount of any distribution paid on the New Shares.
Cash distributions paid in pounds sterling will be included in the income of US Holders at a US dollar amount equal to the spot rate of exchange in effect on the date the dividends are included in the income of the US Holders, regardless of whether the payment is in fact converted to US dollars, and US Holders will have a tax basis in such pounds sterling for US federal income tax purposes equal to such US dollar value. If a US Holder converts a distribution paid in pounds sterling into US dollars on the day the dividend is includible in the income of the US Holder, the US Holder generally should not be required to recognise gain or loss arising from exchange rate fluctuations. If a US Holder subsequently converts the pounds sterling, any subsequent gain or loss in respect of such pounds sterling arising from exchange rate fluctuations will be US source ordinary income or loss.
Dividends paid to non-corporate US Holders should generally qualify for a reduced rate of taxation, as “qualified dividend income”, provided the New Shares are regularly traded on the London Stock Exchange within the meaning of the US-UK tax treaty (or the Company is otherwise eligible for the benefits of the such treaty), the Company was not a PFIC, as defined in paragraph 7 below, in the year the dividend is paid or in the prior year and the US Holder satisfies certain eligibility requirements. In particular, a US Holder will not be entitled to a reduced rate:
(a) if the US Holder has not held the New Shares for at least 61 days of the 121-day period beginning on the date which is 60 days before the ex-dividend date; or
(b) to the extent the US Holder is under an obligation to make related payments on substantially similar or related property.
Any days during which a US Holder has diminished its risk of loss on the New Shares are not counted towards meeting the 61-day holding period. US Holders should consult their own tax advisers on their eligibility for reduced rates of taxation with respect to any dividends paid by the Company.
Distributions paid on the New Shares generally will be foreign source passive income for US foreign tax credit purposes and will not qualify for the dividends received deduction generally available to corporations.
6 TAXATION OF DISPOSALS OF NEW SHARES
Subject to the discussion in "Passive Foreign Investment Company Considerations" in paragraph 7 below, a US Holder generally will recognise gain or loss on the taxable sale or exchange of the New Shares in an amount equal to the difference between the US dollar amount realised on such sale or exchange (determined in the case of New Shares sold or exchanged for currencies other than the US dollar by reference to the spot exchange rate in effect on the date of the sale or exchange or, if the New Shares are traded on an established securities market and the US Holder is a cash basis taxpayer or an electing accrual basis taxpayer, the spot exchange rate in effect on the settlement date) and the US Holder’s
221 adjusted tax basis in such New Shares determined in US dollars. The initial tax basis of the New Shares to a US Holder will be as described under “Exercise of Nil Paid Rights” in paragraph 2 above.
Gain from the sale, exchange or other disposition of the New Shares held for more than one year generally will be treated as long-term capital gain and is eligible for a reduced rate of taxation for non-corporate holders. Gain or loss recognised by a US Holder on a sale or exchange of New Shares generally will be treated as US source income or loss for US foreign tax credit purposes. The deductibility of a capital loss recognised on the sale or exchange of the New Shares is subject to limitations. A US Holder that receives pounds sterling upon disposition of the New Shares and converts such pounds sterling into US dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of such currencies against the US dollar between the time when such proceeds were included in the holder’s income and the time of conversion to US dollars. Such foreign exchange gain or loss generally will be US source ordinary income or loss.
Any UK stamp duty payable upon the sale, exchange or other disposition of the New Shares is not a creditable tax for US federal income tax purposes. For a discussion of the applicability of UK stamp duty to a holder of the New Shares, see paragraph 3 of Section A of this Part XVI.
7 PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
Special US federal income tax rules apply to US persons owning stock of a passive foreign investment company for US federal income tax purposes (a "PFIC"). A non-US corporation will be considered a PFIC for any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable “look through” rules, either: (a) at least 75% of its gross income is “passive” income (the “income test”); or (b) at least 50% of the average value of its assets is attributable to assets that produce passive income or are held for the production of passive income, including cash attributable to the net proceeds of the Rights Issue (the “asset test”). For purposes of determining whether a non-US corporation will be considered a PFIC, such non-US corporation will be treated as holding its proportionate share of the assets and receiving directly its proportionate share of the income of any other corporation in which it owns, directly or indirectly, at least 25% (by value) of the stock. If the Company is classified as a PFIC for any year during which a US Holder owns Ordinary Shares, the Company generally will continue to be treated as a PFIC with respect to such US Holder in all succeeding years, regardless of whether the Company continues to meet the income test or asset test discussed above.
If the Company is classified as a PFIC, the adverse tax consequences described below will apply separately to a US Holder’s Ordinary Shares and indirect interest in any members of the Group which are PFICs. If the Company were a PFIC for any taxable year during which a US Holder owned Ordinary Shares, such US Holder would be subject to increased tax liability upon the sale or other disposition of the Ordinary Shares or upon the receipt of excess distributions. Distributions on Ordinary Shares received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or the holding period for the Ordinary Shares would be treated as excess distributions. Gain on the sale or other disposition of the Ordinary Shares would be subject to tax as excess distributions. Under these special tax rules:
(a) the excess distribution or gain would be allocated ratably over the holding period for the Ordinary Shares;
(b) the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which the Company was a PFIC, would be treated as ordinary income; and
(c) the amount allocated to each other year would be subject to tax at the highest tax rate in effect for that year and an interest charge generally applicable to underpayments of tax would be imposed on the resulting tax attributable to each such year.
Gain on the sale or other disposition of Nil Paid Rights or Fully Paid Rights may be subject to tax as excess distributions under these special tax rules. Certain elections might be available to a US Holder if the Company were a PFIC that may alter these special tax rules. The Company does not anticipate providing US Holders with the information necessary to make one of these elections, and does not undertake to inform investors of its PFIC status in any given year.
222 The Directors believe that the Company was not a PFIC for Financial Year 2016, and they do not expect it to become a PFIC in the future; however no definitive analysis was performed. Because PFIC status is fundamentally factual in nature, status generally cannot be determined until the close of the taxable year in question and is determined annually, no assurance can be given that the Company will not become a PFIC for the current taxable year or future years. In particular, it is not certain whether certain receivables and cash deposits maintained for the benefit of customers or other third parties should be treated as assets of the Company. If these items were treated as assets of the Company, the Company may be classified as a PFIC.
If the Company is a PFIC, generally, each US Holder of Ordinary Shares must make an annual return on US Internal Revenue Service (“IRS”) Form 8621, with respect to each PFIC in which the US Holder holds a direct or indirect interest. If a US Holder does not file a required IRS Form 8621, the statute of limitations on the assessment and collection of all US federal income taxes of such US Holder for the related tax year may not close before the date which is three years after the date on which such report is filed. US Holders should consult their own tax advisers regarding the potential application of the PFIC rules.
8 US INFORMATION REPORTING AND BACKUP WITHHOLDING
A US Holder is generally subject to information reporting requirements with respect to dividends paid on the New Shares and proceeds paid from the sale, exchange, redemption or other disposition of the New Shares within the US or by a US related person. A US Holder is generally subject to backup withholding at a rate of 28% on such payments unless the US Holder is a corporation, provides an IRS Form W-9 or otherwise establishes a basis for exemption.
Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a US Holder’s US federal income tax liability, and a US Holder may obtain a refund from the IRS of any excess amount withheld under the backup withholding rules, provided that certain information is timely furnished to the IRS. Holders are urged to consult their own tax advisers regarding the application of backup withholding and the availability of and procedures for obtaining an exemption from backup withholding in their particular circumstances.
9 OTHER REPORTING OBLIGATIONS
Section 6038D of the Internal Revenue Code generally requires US individuals (and certain entities that have US individual owners or beneficiaries) to file IRS Form 8938 if they hold certain “specified foreign financial assets”, the aggregate value of which exceeds certain thresholds. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, the New Shares. If a US Holder does not file a required IRS Form 8938, such holder may be subject to substantial penalties and the statute of limitations on the assessment and collection of all US federal income taxes of such US Holder for the related tax year may not close before the date which is three years after the date on which such report is filed. US Holders should discuss these reporting obligations with their own tax advisers.
US persons that transfer cash to non-US corporations generally are required to file an information report (IRS Form 926) with respect to such transfer if (i) immediately after the transfer the person holds directly or indirectly at least 10% of the total voting power or the total value of the non-US corporation or (ii) the amount of cash transferred by the person to the non-US corporation during the 12-month period ending on the date of the transfer exceeds $100,000. The exercise of the Nil Paid Rights generally will constitute a cash transfer subject to these reporting requirements.
10 FOREIGN ACCOUNT TAX COMPLIANCE ACT
Under the provisions of US law commonly known as the Foreign Account Tax Compliance Act (“FATCA”), a “foreign financial institution” may be required to withhold US tax at the rate of 30% on “foreign passthru payments” made after December 31, 2018 (at the earliest) to persons that are not compliant with FATCA or that do not provide the necessary information or documents, to the extent such payments are treated as attributable to certain US source payments. The Company has determined that it is a foreign financial institution and therefore may potentially be subject to foreign passthru payment withholding. The UK (and other non-US governments) have entered into agreement with the US to implement FATCA in a manner
223 that may alter the rules described herein. Holders should consult their own tax advisers on how these rules may apply to their investment in the New Shares.
224 PART XVII - KEY TRANSACTION TERMS
1 ACQUISITION STRUCTURE
The acquisition is structured as an acquisition of certain assets and liabilities of Wells Fargo related to its Shareowner Services business. The acquisition will be made by a newly-formed, wholly-owned subsidiary of Equiniti which will have the appropriate regulatory approvals under relevant US law to carry on the business (the "Business"). The consideration for the acquisition is US$227,000,000 in cash payable on closing, subject to adjustment as set out below. Wells Fargo has agreed to provide certain transitional services to the Business after Closing and to enter into certain ancillary commercial agreements with Equiniti with respect to the Business.
2 PRINCIPAL TERMS OF THE ASSET PURCHASE AGREEMENT
2.1 Parties and Business
The parties to the Asset Purchase Agreement are Wells Fargo and Equiniti. Equiniti has agreed to purchase (itself or through a subsidiary) the assets of the Business and to assume its liabilities. The assets to be purchased include the leases of two sites in Minnesota where the Business principally operates, its contracts with customers and suppliers, its books and records, its accounts receivable as at closing, certain technology assets and the goodwill of the Business. The liabilities to be assumed include liabilities arising out of acquired contracts but exclude liabilities for taxes, indebtedness and litigation relating to the Business.
2.2 Consideration
The consideration payable to Wells Fargo is US$227,000,000 in cash, subject to a standard working capital adjustment based on the working capital of the Business as at Closing. The Asset Purchase Agreement contains provisions which apply in the event of a dispute as to the amount of such working capital as at Closing.
2.3 Seller Warranties
Except as otherwise required by the Asset Purchase Agreement or applicable law, as previously disclosed to Equiniti, or with the prior consent of Equiniti, Wells Fargo has given certain representations and warranties to Equiniti, including as to authority and enforceability, title and sufficiency of assets, certain matters relating to the acquired contracts, legal proceedings, taxes, and various matters relating to the employees to whom offers of employment will be made (see 2.5 below).
2.4 Purchaser Warranties
Equiniti has given certain representations and warranties to Wells Fargo, including as to authority and enforceability, absence of legal proceedings, financing of the acquisition and consents and approvals required by it.
2.5 Pre-Completion Undertakings
Except as otherwise required by the Asset Purchase Agreement or applicable law, as previously disclosed to Equiniti, or with the prior consent of Equiniti, Wells Fargo has undertaken to carry on the Business in the ordinary course between signing and closing of the Asset Purchase Agreement. It has also given some specific undertakings to Equiniti, including undertakings as to sale of any of the acquired assets, changes to the terms of employment of the transferring employees, and amendments to the acquired contracts.
The parties have agreed, acting reasonably and in good faith, to use their reasonable best efforts to negotiate and enter into agreements under which Wells Fargo will provide the Business with deposit taking services, cheque and clearing services, trade execution services, bank custodian and trade settlement services and print and mail services, and an agreement for the continued provision of transfer agent services by the Business to Wells Fargo & Company. These agreements will be for a minimum duration of
225 three years from closing and pricing and other matters will be consistent with that in effect on the date of the Asset Purchase Agreement, subject to certain adjustments.
Wells Fargo has also agreed that it will, for a period of two years from closing, pay interest on cash balances belonging to clients of the Business that are deposited with Wells Fargo at a rate at least equal to the upper end of the range of the target federal funds rate published by the Open Market Committee of the Federal Reserve.
Each party has agreed to use its reasonable best efforts to ensure the fulfilment of the conditions referred to in 2.6 below. In particular, Equiniti has given certain undertakings relating to the process of its applications for relevant regulatory approvals in the United States.
Equiniti has agreed to make offers of continued employment to the employees currently working in the Business (subject to certain exceptions) on terms which reflect the salary and benefits currently due to them.
2.6 Conditions to Completion
The principal conditions to completion of the Asset Purchase Agreement are (i) the approval of the acquisition by Equiniti Shareholders and (ii) Equiniti obtaining the appropriate US regulatory approvals. These approvals include (i) the approval of the New York Department of Financial Services for the establishment of a new trust corporation (or, if applicable, the approval of the Office of the Comptroller of the Currency for the formation of a federally chartered limited purpose trust company) to acquire the Business; (ii) certain approvals necessary to enable the new corporation to operate in certain states of the United States; (iii) approval of the new corporation by the US Securities and Exchange Commission as a transfer agent and; (iv) the expiry of waiting periods under the US Hart-Scott-Rodino Act. The Asset Purchase Agreement also contains a condition in favour of Equiniti that the representations and warranties given by Wells Fargo remain true and correct on closing except (in the case of most such representations and warranties) to an extent which would not have a material adverse effect on the Business.
2.7 Termination
The Asset Purchase Agreement may be terminated in various circumstances, including if the approval of Equiniti Shareholders is not obtained at the General Meeting or any adjournment thereof. If all conditions have not been satisfied or waived by 12 April 2018, the Asset Purchase Agreement may also be terminated. If the Asset Purchase Agreement is terminated because (i) Equiniti does not obtain shareholder approval to enter into the acquisition or (ii) the closing does not occur by 12 April 2018 because of Equiniti's failure to obtain necessary approvals, Equiniti must pay Wells Fargo a termination fee of US$9,300,000.
2.8 Tax
The Asset Purchase Agreement contains provisions relating to sharing of taxes relating to the Business and the transfer of assets under the Asset Purchase Agreement.
2.9 Indemnification
The representations and warranties given by Wells Fargo expire (subject to certain exceptions) 18 months after closing. Damages for breaches of such representations and warranties are also subject to certain financial limitations.
2.10 Post-Completion Undertakings
Wells Fargo has agreed not to compete with the Business in certain respects for a period of two years after closing. It has also agreed not to solicit the employment of any of the transferred employees during the same period. Equiniti has agreed not to undertake any business in the United States which competes with Wells Fargo's core business during the same period or solicit any employees involved in providing transaction services. Each of these undertakings is subject to certain customary exceptions.
226 2.11 Transition Services Agreement
Equiniti and Wells Fargo have agreed to enter into a TSA on closing under which Wells Fargo will continue to provide certain services currently provided by it to the Business for a period until 31 March 2019 at the latest. The services to be provided include certain data processing services, customer call centre services, payment and treasury management services and accounting services. The services will be supplied at cost and on a basis which reflects the current basis on which they are supplied to the Business.
227 PART XVIII - ADDITIONAL INFORMATION
1 RESPONSIBILITY STATEMENT
The Directors, whose names appear on page 74, and the Company accept responsibility for the information contained in the Prospectus. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.
2 INCORPORATION AND ACTIVITY OF THE COMPANY
The Company was incorporated and registered in England and Wales on 30 November 2009 and is domiciled in the UK. Its registered office and head office is Sutherland House Russell Way, Crawley, West Sussex RH10 1UH (telephone number 0371 384 2335). It changed its name to Equiniti Group plc and was re-registered as a public limited company on 28 September 2015.
The principal legislation under which the Company operates and under which the Shares were created is the Companies Act and the regulations made thereunder. The Company operates in conformity with its constitution.
3 STATUTORY AUDITOR
The auditor of the Company for the period from incorporation to the date of the Prospectus is PricewaterhouseCoopers LLP, whose registered office is at 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is registered to carry out audit work by the Institute of Chartered Accountants in England and Wales.
4 SHARE CAPITAL OF THE COMPANY
4.1 Share capital
As at 11 September 2017 (being the latest practicable date prior to the publication of this document), the Company had 300,109,369 Shares in issue.
4.2 History of share capital
On 24 September 2015, the Company implemented an out of court capital reduction process to reduce the nominal value of its share capital and cancel share premium. In addition, on 28 September 2015, the Company re-registered as a public limited company.
Between 1 January 2016 and the latest practicable date, the Company issued 109,369 Ordinary Shares in total. The following table shows the movements in the issued and fully paid up share capital between 1 January 2016 and the latest practicable date:
Allotted, issued and fully paid Number of ordinary shares At 1 January 2016 Allotment pursuant to the 2015 Equiniti Group plc UK Sharesave 3 year plan (SAYE) 12,911 At 1 January 2017 Allotment pursuant to the 2015 Equiniti Group plc UK Sharesave 3 year plan (SAYE) 73,985
The Shares are, or will be when issued, in registered form and capable of being held in uncertificated form. No temporary documents of title have been or will be issued in respect of the Shares. The Shares rank equally in all respects, including for all dividends and other distributions declared, made or paid on the Shares. The Shareholders will have the right to receive notice of and to attend and vote at all general meetings of the Company.
228 As at the date of this Prospectus, the Company holds no treasury shares. No Shares have been issued which are not fully paid. No Shares are held by any of the Company’s subsidiaries.
The ISIN of the Shares is GB00BYWWHR75.
Further information on the rights attaching to the Shares is set out in paragraph 5 below, and further information on dealing arrangements and CREST is set out in Part IX (Terms and Conditions of the Rights Issue).
5 INFORMATION ABOUT THE ORDINARY SHARES
5.1 Description of the type and class of securities being offered
The Ordinary Shares being offered have a nominal value of £0.001 each. Upon Admission, the Company will have one class of issued shares (Ordinary Shares), rights of which will be set out in the Articles, a summary of which is set out in paragraph 6 below.
The Ordinary Shares are, or will when issued be, credited as fully paid and free from all liens, equities, charges, encumbrances and other interests.
5.2 Legislation under which the Ordinary Shares have been and will be created
The Ordinary Shares have been and will be created under the Companies Act.
5.3 Listing of New Shares
All of the Ordinary Shares are admitted to the premium listing segment of the Official List and are trading on the main market for listed securities of the London Stock Exchange. An application has been made to the FCA for all of the New Shares to be admitted to the premium listing segment of the Official List and to the London Stock Exchange and for those New Shares to be admitted to trading on the main market for listed securities of the London Stock Exchange. No application has been, or is currently intended to be, made for the Shares to be admitted to listing or trading on any other stock exchange.
5.4 Form and currency of the New Shares
The New Shares are in registered form and will be capable of being held in certificated and uncertificated form. The Registrar of the Company is Equiniti Limited of Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA.
Title to the certificated New Shares (if any) will be evidenced by entry in the register of members of the Company and title to uncertificated New Shares will be evidenced by entry in the operator register maintained by the Registrar (which will form part of the register of members of the Company).
The New Shares are denominated in pounds sterling.
5.5 Rights attached to the Ordinary Shares
Each Ordinary Share ranks equally in all respects with each other Ordinary Share and has the same rights (including voting and dividend rights and rights on a return of capital) and restrictions as each other Ordinary Share, as set out in the Company’s articles of association (the “Articles”).
Except in relation to dividends which have been declared and rights on a liquidation of the Company, the Shareholders have no rights to share in the profits of the Company.
The Ordinary Shares are not redeemable. However, the Company may purchase or contract to purchase any of the Ordinary Shares on or off-market, subject to the Companies Act and the requirements of the Listing Rules. The Company may purchase Ordinary Shares only out of distributable reserves or the proceeds of a new issue of shares made to fund the repurchase.
Further details of the rights attached to the Ordinary Shares in relation to dividends, attendance and voting at general meetings, entitlements on a winding-up of the Company and transferability of shares are set out
229 in paragraph 6 below.
5.6 Description of restrictions on free transferability of the Ordinary Shares
Save as set out below, the Ordinary Shares are freely transferable and there are no restrictions on transfer in the UK.
Paragraph 6 below sets out certain circumstances in which Ordinary Shares may not be transferable and in which the Board may refuse to register a transfer of Ordinary Shares.
The Company may, under the Companies Act, send statutory notices to those persons whom it knows or has reasonable cause to believe have an interest in its shares, asking for details of those who have an interest and the extent of their interest in a particular holding of shares. When a person receives a statutory notice and fails to provide any information required by the notice within the time specified in it, the Company can apply to the court for an order directing, among other things, that any transfer of shares which are the subject of the statutory notice is void.
6 SUMMARY OF THE ARTICLES
The Articles (which will remain the same after the Rights Issue) contain (among others) provisions to the following effect:
6.1 Unrestricted objects
The objects of the Company are unrestricted.
6.2 Limited liability
The liability of the Company’s members is limited to any unpaid amount on the shares in the Company held by them.
6.3 Change of name
The Company can change its name by resolution of the Directors. This is in addition to the Company’s statutory ability to change its name by special resolution under the Companies Act.
6.4 Share rights
Subject to the Companies Act, any resolution passed by the Company under the Companies Act and existing Shareholders’ rights, the Company may issue shares with any rights or restrictions attached to them. These rights or restrictions can either be decided by an ordinary resolution passed by the Shareholders or by the Directors as long as there is no conflict with any resolution passed by the Shareholders. These rights and restrictions will apply as if they were set out in the Articles. Redeemable shares may be issued, subject to existing Shareholders’ rights. The Directors can decide on the terms and conditions and the manner of redemption of any redeemable shares. These terms and conditions will apply as if they were set out in the Articles. Subject to the Articles, the Companies Act, any resolutions passed by the Shareholders and existing Shareholders’ rights, the Directors can decide how to deal with any shares in the Company.
6.5 Voting rights
Shareholders are entitled to vote at a general meeting or at a separate meeting of the holders of a class of shares (in this paragraph 6, a “class meeting”), whether on a show of hands or a poll, as follows:
(a) on a show of hands every Shareholder present in person or by proxy at a general meeting of the Company and every duly authorised corporate representative shall have one vote. If a proxy has been duly appointed by more than one Shareholder entitled to vote on the resolution and the proxy has been instructed by one or more of those Shareholders to vote for the resolution and by one or more other of those Shareholders to vote against it then the proxy shall have one vote for and one vote against the resolution. If a proxy has been duly appointed by more than one Shareholder
230 entitled to vote on the resolution and has been granted both discretionary authority to vote on behalf of one or more of those Shareholders and firm voting instructions on behalf of one or more other Shareholders, the proxy shall not be restricted by the firm voting instructions in casting a second vote in any manner he so chooses under the discretionary authority conferred upon him; and
(b) on a poll every Shareholder present in person or by proxy shall have one vote for every share held by him and every person appointed as proxy of a Shareholder shall have one vote for every share in respect of which he is appointed as a proxy provided always that where a Shareholder appoints more than one proxy, this does not authorise the exercise by such proxies taken together of more extensive voting rights than could be exercised by the Shareholder in person and every duly authorised corporate representative may exercise all the powers on behalf of the company which authorised him to act as its representative and shall have one vote for every share in respect of which he is appointed the corporate representative.
This is subject to any rights or restrictions which are given to any shares or on which shares are held.
If the Company has issued unlisted shares then only listed shares carry voting rights on certain matters set out in the Listing Rules.
If more than one joint Shareholder votes (including voting by proxy), the only vote which will count is the vote of the person whose name is listed before the other voters on the register for the Ordinary Share.
6.6 Dividends and other distributions
The Company may by ordinary resolution from time to time declare and pay dividends not exceeding the amount recommended by the Board. Subject to the Companies Act, the Board may declare and pay interim dividends, and also any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. If the Board acts in good faith, it is not liable for any loss that Shareholders may suffer because a lawful dividend has been paid on other shares that rank equally with or behind their shares.
Unless the rights attached to any shares or the terms of any shares say otherwise, all dividends will be divided and paid in proportions based on the amounts paid up on the shares during any period for which the dividend is paid, and dividends may be declared or paid in any currency.
The Board may, if authorised by an ordinary resolution, offer Shareholders the right to choose to receive extra shares which are credited as fully paid instead of some or all of their cash dividend.
Any dividend unclaimed after a period of 12 years from the date when it was declared or became due for payment will be forfeited and go back to the Company unless the Board decides otherwise.
6.7 Variation of rights
Subject to the provisions of the Companies Act, all or any of the rights for the time being attached to any class of shares for the time being issued may from time to time (whether or not the Company is being wound up) be varied either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class (excluding any shares of that class held as treasury shares) or with the sanction of a special resolution passed at a class meeting of the relevant class of shares.
6.8 Transfers of shares
The shares are in registered form. Any shares in the Company may be held in uncertificated form and, unless the Articles say otherwise, a shareholder may transfer some or all of his uncertificated shares through CREST. Provisions of the Articles do not apply to any uncertificated shares to the extent that those provisions are inconsistent with the holding of shares in uncertificated form, with the transfer of shares through CREST, with the CREST Regulations or with the Company doing anything through CREST.
Other than in the circumstances set out below, a Shareholder may transfer all or any of his certificated shares. The transfer must be either in the usual standard form or in any other form which the Board may approve. The share transfer form must be signed or made effective in some other way by or on behalf of
231 the person making the transfer. In the case of a partly-paid share, it must also be signed or made effective in some other way by, or on behalf of, the person to whom the share is being transferred.
The person transferring the shares will continue to be treated as a Shareholder until the name of the person to whom it is transferred is put on the register for that share.
The Board can refuse to register the transfer of any shares which are not fully paid. The Board may also refuse to register the transfer of any shares in the following circumstances:
Certificated shares
(a) a share transfer form cannot be used to transfer more than one class of shares. Each class needs a separate form;
(b) transfers may not be in favour of more than four joint holders; and
(c) the share transfer form must be properly stamped or certified or otherwise shown to the Board to be exempt from stamp duty and must be accompanied by the relevant share certificate and such other evidence of the right to transfer as the Board may reasonably require.
Uncertificated shares
(a) registration of a transfer of uncertificated shares can be refused in the circumstances set out in the CREST Regulations; and
(b) transfers may not be in favour of more than four joint holders.
6.9 Restrictions on shares
Where the holder of any shares in the Company, or any other person appearing to be interested in those shares, fails to comply within 14 days following service of any notice under section 793 of the Companies Act in respect of those shares (in this paragraph 6.9, a “statutory notice”), the Company may give the holder of those shares a further notice (in this paragraph 6.9, a “restriction notice”) to the effect that from the service of the restriction notice those shares shall be subject to some or all of the relevant restrictions (as defined below), and from service of the restriction notice those shares shall be subject to those relevant restrictions accordingly.
If, after the service of a restriction notice in respect of any shares, the Board is satisfied that all information required by any statutory notice relating to those shares from their holder (or from any other person appearing to be interested in such shares) has been supplied, the Company shall, within seven days, cancel the restriction notice. The Company may at any time at its discretion cancel any restriction notice or exclude any shares from it. A restriction notice shall automatically cease to have effect in respect of any shares transferred where the transfer is pursuant to an arm’s length sale of those shares.
Any Ordinary Shares issued in respect of any shares subject to a restriction notice shall also be subject to the restriction notice, and the Board may make any right to an allotment of the Ordinary Shares subject to restrictions corresponding to those which will apply to those shares by reason of the restriction notice when such shares are issued.
The relevant restrictions referred to above are, in the case of a restriction notice served on a person having an interest in shares in the Company which comprise in total at least 0.25% in number or nominal value of the shares of the Company (calculated exclusive of any treasury shares), or of any class of such shares, that:
(a) the shares shall not confer on the holder any right to attend or vote either personally or by proxy at any general meeting of the Company or at any separate general meeting of the holders of any class of shares in the Company or to exercise any other right conferred by membership in relation to attending general meetings and voting;
232 (b) The Board may withhold payment of all or any part of any dividends (including shares issued in lieu of dividends) payable in respect of the shares; and
(c) the Board may (subject to the requirements of the CREST Regulations) decline to register a transfer of the shares or any of them unless such a transfer is pursuant to an arm’s length sale, and in any other case means only the restriction specified in sub-paragraph (a) above.
6.10 General meetings
Under the Companies Act, the Board shall convene and the Company shall hold general meetings as annual general meetings in accordance with the requirements of the Companies Act, and the Board may convene a general meeting whenever it thinks fit.
Under the Companies Act, an annual general meeting must be called by notice of at least 21 clear days. The Company is a “traded company” for the purposes of the Companies Act and as a result is required to give at least 21 clear days’ notice of any other general meeting unless a special resolution reducing the period to not less than 14 clear days has been passed at the immediately preceding annual general meeting or at a general meeting held since that annual general meeting. By a resolution of the Company it has been resolved that a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice. Under the Companies Act, notice of a general meeting must be given in hard copy form, in electronic form, or by means of a website and must be sent to every member and every Director, and it must state the time and date and the place of the meeting and the general nature of the business to be dealt with at the meeting. As the Company is a traded company, the Companies Act also requires that the notice also state the website address where information about the meeting can be found in advance of the meeting, the voting record time, the procedures for attending and voting at the meeting, details of any forms for appointing a proxy, procedures for voting in advance (if any are offered), and the right of members to ask questions at the meeting. In addition, a notice calling an annual general meeting must state that the meeting is an annual general meeting. By a resolution of the Company passed at the Annual General Meeting in April 2017, it was resolved that general meetings may be held electronically and appropriate amendments were made to the Articles.
The Companies Act also requires notice of every general meeting shall be given to all Shareholders other than any who, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to the Company’s auditors.
Before a general meeting carries out business, there must be a quorum present. Unless the Articles state otherwise in relation to a particular situation, under the Companies Act a quorum for all purposes is two Shareholders present in person or by proxy or by a duly authorised corporate representative and entitled to vote.
6.11 Notices to Shareholders
Any notice, document (including a share certificate) or other information may be served on or sent or supplied to any Shareholder by the Company personally, by post, by means of a relevant system, by sending or supplying it in electronic form to an address notified by the Shareholder to the Company for that purpose, where appropriate, by making it available on the Website and notifying the Shareholder of its availability, or by any other means authorised in writing by the Shareholder.
6.12 Directors
(a) Number
Unless otherwise determined by ordinary resolution of the Company, the number of Directors (disregarding alternate directors) shall not be less than two nor more than 15.
(b) No shareholding qualification
The Directors are not required to hold any shares in the Company.
233 (c) Appointment
Directors may be appointed by ordinary resolution of the Company or by the Board. If required by the Listing Rules, the appointment or re-appointment by shareholders of an independent director (within the meaning of the UK Corporate Governance Code) must also be approved by independent shareholders (within the meaning of the Listing Rules). If a resolution is passed to appoint or re-appoint an independent director but the approval of independent shareholders is not obtained, that person may be appointed or re-appointed as an independent director by shareholders passing a second ordinary resolution at a later general meeting. Any second resolution will not require the approval of independent shareholders, but may only be voted on within time periods specified by the Listing Rules (between 90 and 120 days after the vote on the first resolution).
(d) Retirement
At every annual general meeting of the Company, every Director shall retire from office. Any Director who retires at an annual general meeting may offer himself for re-appointment by the Shareholders.
(e) Removal
In addition to any powers of removal conferred by the Companies Act, the Company may by special resolution remove any Director before the expiration of his period of office.
(f) Vacation of office
Any Director automatically ceases to be a Director if, among other things:
(i) he gives the Company a written notice of resignation or he offers to resign and the Board accepts such offer;
(ii) all of the other Directors pass a resolution or sign a written notice removing him as a Director;
(iii) he has missed meetings of the Board for a continuous period of six months without permission from the Board and the Board passes a resolution removing him as a Director;
(iv) a bankruptcy order is made against him or he makes any arrangement or composition with his creditors generally; or
(v) he is prohibited from or ceases to be a Director under the Companies Act or the Articles.
If a Director stops being a Director for any reason, he will also automatically cease to be a member of any committee or sub-committee of the Board.
(g) Alternates
Any Director can appoint any person (including another Director) to act as an alternate Director. The appointment requires the approval of the Board, unless previously approved by the Board or unless the appointee is another Director.
(h) Powers
The Board shall manage the Company’s business and can use all the Company’s powers except where the Articles say that powers can only be used by the Shareholders voting to do so at a general meeting. The Board is also subject to any regulations laid down by the Shareholders by passing a special resolution at a general meeting.
In particular, the Board may exercise all the Company’s powers to borrow money, to guarantee, to indemnify, to mortgage or charge all or any of the Company’s undertaking, property and assets
234 (present and future) and uncalled capital, to issue debentures and other securities and to give security for any debt, liability or obligation of the Company or of any third party.
(i) Proceedings
The Board can decide when and where to have meetings and how they will be conducted. They can also adjourn their meetings. If no other quorum is fixed by the Board, two Directors are a quorum. A Board meeting at which a quorum is present can exercise all the powers and discretions of the Board.
The Board can appoint any Director as chairman or as deputy chairman and can remove him from that office at any time. Matters to be decided at a Board meeting will be decided by a majority vote. If votes are equal, the chairman of the meeting has a second, casting vote.
All or any of the Directors can take part in a meeting of the Board by way of a telephone conference or any communication equipment which allows everybody to take part in the meeting by being able to hear each of the other people at the meeting and by being able to speak to all of them at the same time. A person taking part in this way will be treated as being present at the meeting and will be entitled to vote and be counted in the quorum.
The Board can delegate any of their powers or discretions (with the power to sub-delegate) to committees of one or more persons as they think fit provided that there must be more Directors on a committee than persons who are not Directors. If a committee consists of more than one person, the Articles which regulate Board meetings and their procedure will also apply to committee meetings unless these are inconsistent with any regulations for the committee which have been laid down under the Articles.
(j) Remuneration, expenses, pensions and gratuities
Subject to the requirements of the Companies Act, the Directors shall be paid out of the funds of the Company by way of fees for their services as directors, such sums (if any) and such benefits in kind as the Board may from time to time determine and such remuneration shall be divided between the Directors as the Board shall agree or, failing agreement, equally. Such remuneration shall be deemed to accrue from day to day.
Any Director who is appointed to any executive office or who performs services which in the opinion of the Board or any committee authorised by the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board or any committee authorised by the Board may in its discretion decide, subject to the requirements of the Companies Act.
The Company may pay the reasonable travel, hotel and incidental expenses of each Director incurred in attending and returning from general meetings, meetings of the Board or committees of the Board or any other meetings which as a Director he is entitled to attend. The Company will pay all other expenses properly and reasonably incurred by each Director in connection with the Company’s business or in the performance of his duties as a Director. The Company can also fund a Director’s or former Director’s expenditure for the purposes permitted by the Companies Act and can do anything to enable a Director or former Director to avoid incurring such expenditure all as provided in the Companies Act.
The Board or any committee authorised by the Board may decide whether to provide pensions or other benefits to any Director or former Director, or any relation or dependant of, or person connected to, such a person. However, if the Board want to provide a benefit to a Director or former Director who has not been employed by or held an office or executive position in the Company or any of its subsidiary undertakings or former subsidiary undertakings or any predecessor in business of the Company or any such other company, or to relations or dependants of, or persons connected to, these Directors or former Directors, the Company’s Shareholders must also pass an ordinary resolution to approve the payment.
235 (k) Indemnification
As far as the Companies Act allows this, the Company can indemnify any Director or former Director of the Company or of any associated company against any liability and can purchase and maintain insurance against any liability for any Director or former Director of the Company or of any associated company.
(l) Interests
The Board may, subject to the Articles, authorise any matter which would otherwise involve a Director breaching his duty under the Companies Act to avoid conflicts of interest. Where the Board gives authority in relation to a conflict of interest or where any of the situations described in (i) to (v) below applies in relation to a Director, the Board may: (A) require that the relevant Director is excluded from the receipt of information, the participation in discussion and/or the making of decisions related to the conflict of interest or situation; (B) impose upon the relevant Director such other terms for the purpose of dealing with the conflict of interest or situation as they think fit; and (C) provide that where the relevant Director obtains (otherwise than through his position as a Director of the Company) information that is confidential to a third party, the Director will not be obliged to disclose that information to the Company, or to use or apply the information in relation to the Company’s affairs, where to do so would amount to a breach of that confidence. The Board may revoke or vary such authority at any time. A Director does not have to hand over to the Company or the Shareholders any benefit he receives or profit he makes as a result of a conflict of interest authorised by the Board or anything allowed under the above provisions nor is any contract which is allowed or authorised under these provisions liable to be avoided.
If a Director has disclosed the nature and extent of his interest in accordance with the Companies Act and the Articles, a Director can do any one or more of the following:
(i) have any kind of interest in a contract with or involving the Company or another company in which the Company has an interest;
(ii) hold any other office or place of profit with the Company (except that of auditor) in conjunction with his office of Director for such period and upon such terms, including as to remuneration, as the Board may decide;
(iii) alone, or through a firm with which he is associated, do paid professional work for the Company or another company in which the Company has an interest (other than as auditor);
(iv) be or become a director or other officer of, or employed by or a party to a transaction or arrangement with, or otherwise be interested in any parent undertaking or subsidiary undertaking of the Company or any other company in which the Company has an interest; and
(v) be or become a director of any other company in which the Company does not have an interest and which cannot reasonably be regarded as giving rise to a conflict of interest at the time of his appointment as a director of that other company.
(m) Restrictions on voting
A Director cannot vote or be counted in the quorum on a resolution relating to appointing that Director to a position with the Company or a company in which the Company has an interest or the terms or termination of the appointment save to the extent permitted specifically in the Articles.
Subject to certain exceptions set out in the Articles, a Director cannot vote on, or be counted in a quorum in relation to, any resolution of the Board on any contract in which he has an interest and, if he does vote, his vote will not be counted.
Subject to the Companies Act, the Shareholders may by ordinary resolution suspend or relax to any
236 extent the provisions relating to Directors’ interests or restrictions on voting or ratify any contract which has not been properly authorised in accordance with such provisions.
If any question arises at any meeting of the Board as to whether the interest of a Director gives rise to a conflict, or could reasonably be regarded as likely to give rise to a conflict, with the interests of the Company or as to the entitlement of any Director to vote or be counted in the quorum and the question is not resolved by him voluntarily agreeing to abstain from voting or not to be counted in the quorum, the question shall be decided by a resolution of the Board (for which purpose the Director in question shall not be counted in the quorum and provided that the resolution was agreed to without the Director in question voting or would have been agreed if their votes had not been counted) and the resolution shall be conclusive except in a case where the nature or extent of the interest of the Director (so far it as is known to him) has not been fairly disclosed to the Board.
7 MANDATORY BIDS AND COMPULSORY ACQUISITION RULES RELATING TO THE ORDINARY SHARES
Other than as provided by the City Code and Chapter 28 of the Companies Act, there are no rules or provisions relating to mandatory bids and/or squeeze-out and sell-out rules relating to the Company.
(a) Mandatory bids
The City Code applies to the Company. Rule 9 of the City Code provides that if any person or group of persons acting in concert with each other (“Concert Parties”) acquire an interest in shares which: (i) when taken together with shares in which Concert Parties are already interested would increase their aggregate interests to an amount carrying 30% or more of the voting rights in the Company; or (ii) where Concert Parties are interested in shares which in aggregate carry more than 30% of the voting rights in the Company but do not hold shares carrying more than 50% of such voting rights, would increase their percentage of shares carrying voting rights in which they are interested, the Concert Parties, would be required (except with the consent of the Takeover Panel) to make a cash offer for the outstanding shares in the Company at a price not less than the highest price paid for interests in shares in the Company by the acquirer or its Concert Parties during the previous 12 months.
(b) Squeeze-out
Under the Companies Act, if an offeror were to make a “takeover offer” (as defined in section 974 of the Companies Act) to acquire all of the shares in the Company not already owned by it and were to acquire 90% of the shares to which such takeover offer related, it could then compulsorily acquire the remaining 10%. The offeror would do so by sending a notice to outstanding members telling them that it will compulsorily acquire their shares and then, six weeks later, it would deliver a transfer of the outstanding shares in its favour to the Company which would execute the transfers on behalf of the relevant members, and pay the consideration to the Company which would hold the consideration on trust for outstanding members. The consideration offered to the members whose shares are compulsorily acquired under this procedure must, in general, be the same as the consideration that was available under the original offer unless a member can show that the takeover offer value is unfair.
(c) Sell-out
The Companies Act also gives minority members a right to be bought out in certain circumstances by an offeror who has made a takeover offer. If a takeover offer related to all the shares in the Company and, at any time before the end of the period within which the takeover offer could be accepted, the offeror held or had agreed to acquire not less than 90% of the shares, any holder of shares to which the takeover offer related who had not accepted the takeover offer could by a written communication to the offeror require it to acquire those shares. The offeror would be required to give any member notice of his/her right to be bought out within one month of that right arising. The offeror may impose a time limit on the rights of minority members to be bought out, but that
237 period cannot end less than three months after the end of the acceptance period or, if later, three months from the date on which notice is served on members notifying them of their sell-out rights. If a member exercises his/her rights, the offeror is entitled and bound to acquire those shares on the terms of the takeover offer or on such other terms as may be agreed.
8 SUBSIDIARY UNDERTAKINGS
The Company is the holding company of the Group, which comprises the Company and its subsidiary undertakings named below, all of which, unless stated otherwise: (i) are incorporated in England and Wales; and (ii) are directly or indirectly 100% owned by the Company.
Ownership % Name of controlled Registered office address Principal activities 31 Dec 2016 entity Direct Investments Equiniti Holdings Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Holding company 100 Indirect Investments Charter.Net Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Charter Systems Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Software service provider 100 Charter UK Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Software service provider 100 Circle of Insight Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Claybrook Computing Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH Computer software 100 Limited consultancy Connaught Secretaries 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Dormant 100 Limited Custodian Nominees Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Holding company 100 Limited David Venus & Company 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Dormant 50 LLP David Venus (Health & 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Dormant 100 Safety) Limited Equiniti 360 Clinical Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Business process 100 Limited outsourcing Equiniti Corporate 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Nominees Limited Equiniti David Venus 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Company secretarial 100 Limited Equiniti Employee 102B Newlands Plaza, CNR Lois & Dely, Newlands, 00181, South Africa Computer software 100 Services (PTY) Limited development Equiniti Financial Services Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Financial services 100 Limited Equiniti India (Private) DLF IT Park, 1/124, Mt Poonamalle High Road, Ramapuram, Chennai, Tamil Technology enabled 100 Limited Nadu 600 089, India services Equiniti ICS Limited 205 Airport Road West, Belfast, BT3 9ED Business process 100 outsourcing Equiniti ISA Nominees 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Limited Equiniti Jersey Limited 26 New Street, St Helier, JE2 3RA, Jersey Registrars 100 Equiniti KYC Solutions Donker Curtiusstraat 7, Unit 117-118, 1051 JL Amsterdam, The Netherlands Software service provider 100 B.V. Equiniti KYC Systems B.V. Donker Curtiusstraat 7, Unit 117-118, 1051 JL Amsterdam, The Netherlands Software service provider 100 Equiniti Limited Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Registrars 100 Equiniti Nominees Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Equiniti Registrars 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Nominees Limited Equiniti Savings 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Nominees Limited Equiniti Services Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Holding company 100 Equiniti Share Plan Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Trustee company 100 Trustees Limited Equiniti Shareview Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Equiniti Solutions Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Pensions administration 100 Information Software 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Holding company 100 Solutions Limited
238 Ownership % Name of controlled Registered office address Principal activities 31 Dec 2016 entity Invigia International 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Limited Invigia Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Software service provider 100 KYCnet BV Donker Curtiusstraat 7, Unit 117-118, 1051 JL Amsterdam, The Netherlands Holding company 100 L R Nominees Limited Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Non trading 100 Marketing Source Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Software service provider 100 MyCSP Limited Park Square, Bird Hall Lane, Stockport, SK3 0XN Pensions administration 51 MyCSP Trustee Company Park Square, Bird Hall Lane, Stockport, SK3 0XN Non trading 51 Limited MyCustomerfeedback.com 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Software service provider 100 Limited Pancredit Systems Ltd 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Business process 100 outsourcing Paymaster (1836) Limited Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH Pensions administration 100 Peter Evans & Associates Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Business process 100 Limited outsourcing Prism Communications & 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Company secretarial 100 Management Limited Prism Cosec Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Prosearch Asset Solutions Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Asset recovery 100 Limited RiskFactor Solutions 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Software service provider 100 Limited RiskFactor Software 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Software service provider 100 Limited SLC Corporate Services 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Dormant 100 Limited SLC Registrars Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Dormant 100 Toplevel Computing 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Software service provider 100 Limited Toplevel Development 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Dormant 100 Limited Toplevel Holding Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Holding company 100 Toplevel Software Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Dormant 100 TransGlobal Payment 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ International payment 100 Solutions Limited services Trust Research Services 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100 Limited Wealth Nominees Limited Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA Non trading 100 Yes Offers Limited 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ Non trading 100
9 INTERESTS OF MAJOR SHAREHOLDERS
As at the date of this Prospectus:
(a) the Company is not aware of any persons who, directly or indirectly, jointly or severally, will exercise or could exercise control over the Company; and
(b) the Ordinary Shares will be the only class of share capital of the Company. All Shareholders have equal voting rights.
10 DIRECTORS AND SENIOR MANAGERS
10.1 Other directorships and partnerships
The details of those companies and partnerships outside the Group of which the Directors and Senior Managers are currently directors or partners, or have been directors or partners at any time during the previous five years prior to the date of this Prospectus, are as follows:
239 Name Position Company/Partnership Position still held (Y/N) Kevin Beeston Director Severn Trent plc Y Director Severn Trent Water Limited Y Director Taylor Wimpey plc Y Director The Football Association Premier League Limited Y Director Marston Corporate Limited Y Director Elysium Healthcare Limited Y Operating Partner Advent International N Director Domestic General Insurance plc N Director Domestic & General Acquisitions 1 Limited N Director Domestic & General Acquisitions Holdings Limited (Jersey) N Director IMI plc N Director Galaxy Midco 1 Limited (Jersey) N Director Carevehicle Limited N
Guy Wakeley Director Social Infrastructure Limited Y Director Morrison Limited N Director Manchester Working Limited N Director Morrison Facilities Services Limited N Director Mears Scotland (Services) Limited N Director Morrison Veolia Limited N
John Stier Director Rebus Group Limited N Director Arinso People Services Limited N Director Arinso UK Limited N Director Blue 8 Systems Limited N Director Blue 8 Technologies (UK) Limited N Director Blue 8 Technologies Limited N Director Boundary Way One Limited N Director Boundary Way Two Limited N Director Braid Hill Holdings Limited N Director Braid Hill Software Limited N Director Business Computer Technology Limited N Director Business Information Management Limited N Director C M E Software Limited N Director C.I.M Software Limited N Director Capita Managed IT Solutions Limited N Director Cara Information Technology Limited N Director CME Systems Limited N Director D.P.S Scotland Limited (DISSOLVED) N Director Daman Limited N Director First Software Limited N Director First Software UK Limited N Director Harvest Limited N Director HR Link Limited N Director Human & Legal Resources Limited N Director Ideal Technology Services Limited N Director Imasys Local Government Limited N Director Jamy Investments Limited N Director Kendric Ash Limited N Director Kendric Ash Trustees Limited N Director Lansdowne Creative Marketing Limited N Director Learnserve Limited N Director Leo Computer Company Limited N Director Link Group Consultants Limited N Director LiquidHR Limited N Director Marketwide Systems Limited N Director McDonnell Limited N Director Micro Surveys Property Systems Limited N Director Microcentre Limited N
240 Name Position Company/Partnership Position still held (Y/N) Director Mills Associates Limited N Director Moorepay Compliance Limited N Director Moorepay Group Limited N Director Moorepay Limited N Director MVM Central Land Charges Company Limited N Director MVM Cleaveland Limited N Director MVM Holdings Limited N Director MVM Infrastructure Management Solutions Limited N Director MVM Pickwick Limited N Director NIS Acquisitions Limited N Director NIS Receivable No.1 Limited N Director NIS Receivables No. 2 Limited N Director Northgate Computer Services Limited N Director Northgate HR Pensions Holdings Limited N Director Northgate HR Pensions Limited N Director Northgate Information Solutions Holdings Limited N Director Northgate Information Solutions Limited N Director Northgate Public Services (UK) Limited N Director Northgate PWA Empower Limited N Director Northgate Recruitment Limited N Director Northgate UK Company N Director Northgatearinso Peoplechecking Limited N Director Northgatearinso UK Limited N Director NPS (Holdings) Limited N Director NPS (UK1) Limited N Director NPS (UK10) Limited N Director NPS (UK2) Limited N Director NPS (UK4) Limited N Director NPS (UK5) Limited N Director NPS (UK6) Limited N Director NPS (UK7) Limited N Director NPS (UK8) Limited N Director NPS (UK9) Limited N Director PBSD Limited N Director Personnel Computer Services Limited N Director Peterbourough Software (UK) Limited N Director Pro-IV Holdco Limited N Director Pro IV Limited N Director Prolog Business Solutions Limited N Director PWA Group Limited N Director Rave Technologies (UK) Limited N Director Rebus Group Limited N Director Rebus Holdings Limited N Director Rebus HR Holdings Limited N Director Rebus HR Management Limited N Director Rebus Human Resource Services Limited N Director Rebus Human Resources Limited N Director Rebus Personnel Services Limited N Director Rebus Software Limited N Director Sheridan Systems Limited N Director SX3 Limited N Director Techsas Limited N Director The Policy Network Limited N Director Transform Systems & Solutions Limited N Director XBS Limited N
Victoria Jarman Director Hays Plc Y Director De La Rue Plc N Director Greater London Fund For The Blind N
241 Name Position Company/Partnership Position still held (Y/N) Director Pound Farm Trading Limited N
Sally-Ann Hibberd Director Shawbrook Bank Limited Y Director Shawbrook Group plc Y Director The National Farmers Union Mutual Insurance Society Limited Y Governing Body NED Loughborough University Y Advisory Board Member OEE Consulting Y
Tim Miller LLP Member Eclipse Film Partners No. 5 LLP Y LLP Member Eclipse Film Partners No. 7 LLP Y LLP Member Eclipse Film Partners No.35 LLP Y LLP Member Grosvenor Park 2004 Film Partnership No.1 LLP Y LLP Member The Invicta Film Partnership No.8, LLP Y LLP Member The Invicta Film Partnership No.9, LLP Y Director Otis Gold Corporation Y Chairman The Academy of St Martin in the Fields Y Director Optitune plc N Director Pagegroup plc N Director Standard Chartered Bank N Director The Girl's School Trust N Chairman Governing Body of the School of Oriental and African Studies N
John Parker Director Honorat Associates Limited Y Director Link MS Services Pty Limited (Australia) Y
Darren Pope Director Virgin Money Holdings (UK) plc Y Director Virgin Money plc Y Director TSB Banking Group plc N Director TSB Bank plc N Director TSB Scotland (Investment) Nominees Limited N Director TSB Scotland Nominees Limited N
Philip Yea Director Greene King plc Y Director Marshall of Cambridge (Holdings) Limited Y Director Computacentre Plc Y Director Aberdeen Asian Smaller Companies Investment Trust plc Y Director Farm Street Advisers Limited Y Director The Francis Crick Institute Limited Y Director Vodafone Group plc N Director 27 Farm Street Management Company Limited N Director British Heart Foundation N Director Bwin.Party Digital Entertainment plc Y Designated Member The Rose Partnership LLP N
Mark Churley Director Death Knell Games Limited N Director Mercer Gibbs Limited (Dissolved) N
Adam Green Director Syntomy Limited Y Director Fellow Apparel Limited N Director Spendr Ltd N
Liam McGrath n/a n/a n/a
Mark Taylor Deakin Oak Limited Y Abundance Investment Ltd Y CES 2011 Limited N
Paul Matthews n/a n/a n/a
242 10.2 Confirmations
As at the date of this Prospectus, no Director or Senior Manager has during the last five years:
(a) been convicted in relation to fraudulent offences;
(b) been associated with any bankruptcy, receivership or liquidation while acting in the capacity of a member of the administrative, management or supervisory body of or senior manager of any company;
(c) been subject to any official public incrimination and/or sanctions by any statutory or regulatory authorities including, where relevant, designated professional bodies; or
(d) been disqualified by a court from acting as a member of the administrative, management or supervisory body of an issuer or from acting in the management or conduct of the affairs of any issuer.
There are no family relationships between any of the Directors or Senior Managers.
10.3 Interests of Directors and Senior Managers in the Ordinary Shares
The direct and indirect interests of the Directors and Senior Managers in the Ordinary Shares as at the latest practicable date prior to the date of this Prospectus are as follows:
Director/Senior Status Effective Own Holding Spouse/ Related Total Issued % Issued Share Manager Person's Shares Held Capital Holding Kevin Beeston Chair 27/10/2015 506,304 - 506,304 0.17% Philip Yea Chair Designate 03/07/2017 40,000 - 40,000 0.01% Victoria Jarman SID 27/10/2015 31,713 - 31,713 0.01% Tim Miller NED 27/10/2015 64,676 - 64,676 0.02% Sally-Ann NED 01/08/2016 - - - 0.00% Hibberd Darren Pope NED 01/12/2016 - - - 0.00% John Parker NED 27/10/2015 57,669 - 57,669 0.02% Guy Wakeley CE 27/10/2015 1,341,289 - 1,341,289 0.45% John Stier CFO 27/10/2015 299,813 - 299,813 0.10% Adam Green PDMR 27/10/2015 42,517 - 42,517 0.01% Liam McGrath PDMR 01/01/2017 229 - 229 0.00% Mark Taylor PDMR 01/01/2017 - - - 0.00% Paul Matthews PDMR 27/10/2015 65,188 - 65,188 0.02% Mark Churley PDMR 14/08/2017 - - - 0.00%
10.4 Transactions with Directors
None of the Directors has or has had any interest in any transaction which is or was unusual in its nature or conditions or significant to the business which was effected by any member of the Group during the current or immediately preceding financial year, or which was effected during an earlier financial year and remains in any respect outstanding or unperformed.
None of the Directors has or has had a beneficial interest in any contract to which any member of the Group was a party during the current or immediately preceding financial year.
There are no outstanding loans (with the exception of loans to Guy Wakeley and Adam Green) or guarantees granted or provided by any member of the Group for the benefit of any of the Directors.
There are no conflicts of interest between the Directors' private interests or other duties and the interests of and Director's duties to the Company.
243 10.5 Executive Directors’ service agreements
The Executive Directors have entered into service contracts with the Company on the following dates: Guy Wakeley (Chief Executive) on 7 September 2015 and John Stier (Chief Financial Officer) on 11 September 2015. The principal terms of these contracts are set out below:
(a) General terms
The annual salaries of the Executive Directors are to be reviewed, but not necessarily increased, annually. The Executive Directors will receive the following benefits under the terms of their service agreements:
◦ the right to participate in one of the Group’s DC pension plans (although both Executive Directors have opted out of such participation and will receive an annual cash allowance equal to 15% of their basic annual salary);
◦ an annual bonus of up to 100% of basic annual salary upon the achievement of targets or up to 150% of basic annual salary for over performance against target;
◦ reimbursement of relevant business expenses;
◦ an annual company car allowance of £15,000;
◦ directors and officers liability insurance;
◦ life assurance at the rate of four times annual salary and to participate in a private medical cover scheme (which includes cover for their families); and
◦ eligibility to be considered in such long-term incentive plans established for senior executives of the Company from time to time.
(b) Termination provisions
The Executive Directors’ service agreements can be terminated by not less than 12 months’ prior written notice given by either party.
The Executive Directors may be placed on garden leave and their employment may be terminated by their employer making a payment in lieu of notice equal to the Executive Director’s basic salary car allowance, the cost to the Company of providing private medical insurance and life insurance cover, and the amount of any Company pension contributions or cash allowance paid in lieu of such pension contributions for the notice period. On termination of employment, the Executive Directors are also entitled to receive a pro-rata bonus for the year of termination.
The employment of each of the Executive Directors is terminable with immediate effect without notice in certain circumstances including where such Executive Director has committed any material or persistent breach of any of the terms of his service agreement, commits any act of gross misconduct affecting the business of the Group, is guilty of any fraud, dishonesty or other conduct which brings the Group into disrepute, is declared bankrupt, is charged with or convicted of any criminal offence (excluding certain road traffic offences) or is prohibited by law from acting as a director.
The service agreements of the Executive Directors also contain post-termination restrictions. These include 12-month restrictions on being employed by or concerned in the business of a competitor of the Group, soliciting and/or dealing with customers and/or prospective customers of the Group, interfering with the continuance of supplies to the Group by any of the Group’s suppliers and a 12-month restriction on soliciting and/or employing certain categories of the Group’s employees.
244 10.6 Non-Executive Directors’ appointment letters
(a) General terms
The Non-Executive Directors have entered into letters of appointment which will become effective on Admission. Each of the Non-Executive Directors has been appointed for an initial term of three years, terminable by either the Non-Executive Director or the Company at any time on three months’ prior written notice. The appointment of each Non-Executive Director is subject to annual re-election by the Shareholders at the Company’s annual general meeting and to any requirements of the Listing Rules, and is contingent on continued satisfactory performance. If the Shareholders do not reappoint a Non-Executive Director, or if the Non-Executive Director is retired from office in accordance with the Articles, then the Non-Executive Director’s appointment shall terminate immediately without compensation.
A Non-Executive Director’s appointment may be terminated with immediate effect if such director has materially breached a term of their appointment letter, committed a serious or repeated breach of his duties to the Company, been found guilty of fraud, dishonesty or certain criminal offences, acted in a way likely to bring the Company into disrepute or which is materially adverse to the Company, been declared bankrupt, been disqualified from acting as a director or failed to comply with the Bribery Act 2010.
Each Non-Executive Director has agreed to commit such time to the Company as is necessary for the proper performance of his duties, and has been made aware that this is likely to include a specified number of days per year, and will normally include attendance at all Board meetings per year and various other committee meetings. Each Non-Executive Director is also entitled to reimbursement of reasonable expenses. The Non-Executive Directors are not entitled to participate in the Company’s share, bonus or pension schemes. Kevin Beeston is entitled to receive private medical and life insurance cover of four times his annual aggregate fees.
Pursuant to the UK Corporate Governance Code’s recommendations, the Company has taken out directors and officers liability insurance in respect of certain legal action against its Directors. Subject to the provisions of Companies Act, the Company will also indemnify the Directors against certain liabilities that may be incurred as a result of their office.
(b) Specific terms
In addition to the general terms set out above, each Non-Executive Director's appointment is subject to the following specific terms:
Individual Directorate Type Additional Roles Date of plc Date of Contract Anticipated End Fees /annum Appointment Commencement of Current Term Kevin Beeston Non-Executive Chairman, Nom 01/09/2011 27/10/2015 30/09/2017 £210,000 Chair Philip Yea Non-Executive Chairman 03/07/2017 03/07/2017 03/07/2020 £200,000 Designate Victoria Jarman Non-Executive SID, Audit Chair, 01/05/2014 27/10/2015 27/10/2018 £75,000 Nom, Rem, Risk Tim Miller Non-Executive Rem Chair, Audit, 01/02/2015 09/10/2015 09/10/2018 £65,000 Nom, Risk Sally-Ann Hibberd Non-Executive Risk Chair, Audit, 01/08/2016 27/06/2016 27/06/2019 £65,000 Nom, Rem Darren Pope Non-Executive Audit, Nom, Risk 01/12/2016 01/12/2016 01/12/2019 £55,000 John Parker Non-Executive Global Share 01/01/2014 07/09/2015 30/09/2017 £75,000 Alliance Chair, Nom, Risk
The fees listed above will be reviewed, but not necessarily increased, on an annual basis. Such payment will be made by the Company: (a) allotting and issuing such number of Ordinary Shares as is equal to: (i) the payment, less any applicable deductions for tax and/or National Insurance contributions; divided by (ii) the Offer Price; and (b) as to the amount of the payment not satisfied by such allotment and issuance of Ordinary Shares, the Company paying such amount in cash.
245 10.7 Directors’ remuneration
Under the terms of their service agreements, letters of appointment and applicable incentive plans, the remuneration and benefits paid to the Directors (in respect of Financial Year 2016) who served during Financial Year 2015 were as set out in the table below.
Name Position Basic salary/fee Discretionary Benefits in kind Pension 2016 Total £'000 bonus paid 2017 contribution in respect of 2016 Guy Wakeley Chief Executive £ 460,000 £ 393,362 £ 19,154.00 £ 69,000.00 965 John Stier CFO £ 309,600 £ 294,569 £ 18,514.00 £ 46,440.00 679 Kevin Beeston Chairman, NED £ 210,000 £ - £ 866.88 £ - 228 Victoria Jarman SID, NED £ 75,000 £ - £ - £ - 75 Tim Miller NED £ 115,000 £ - £ - £ - 115 John Parker NED £ 75,000 £ - £ - £ - 81 Sally-Ann NED £ 65,000 £ - £ - £ - 27 Hibberd Darren Pope NED £ 55,000 £ - £ - £ - 5
The following tables report the total remuneration receivable by each Director during the year and previous year:
Salary and Annual Employer Pension £’000 fees Benefits1 Bonus2 PSP3 Contribution4 Other5 Total Executive Guy Wakeley 2016 460 47 393 - 65 - 965 2015 368 19 343 - 38 1,975 2,743 John Stier 2016 305 33 295 - 46 - 679 2015 181 10 179 - 8 1,385 1,763
1 Benefits include car allowance (£15,000), private medical insurance (£2,082), life assurance (£1,899 for Guy Wakeley and £1,259 for John Stier) and benefit in kind charge payable on loans (£27,842 for Guy Wakeley and £14,311 for John Stier). 2 For 2016, annual bonus is paid in cash and 30% is compulsory deferred into an award of shares which are held for three years. 3 The first awards under the PSP were made in 2015 and therefore no awards vested during the year. 4 Guy Wakeley and John Stier receive a cash allowance of 15% of salary in lieu of pension contributions. Prior to the IPO in October 2015, Guy Wakeley received 11% of salary and John Stier received no pension 5 Other remuneration includes the value of shares transferred to certain directors of the Group by Advent on IPO, in recognition of their contribution and management of the IPO process. The shares immediately vested but were subject to lockup until October 2016. As previously disclosed in the Prospectus and later in this report, interest free loans were granted to the Directors to fund their tax and national insurance liabilities arising from the transaction. The loans are to be repaid within three years or the Directors' departure from Equiniti. As defined by current accounting standards and policies, the loans will be treated as a benefit in kind for income tax purposes with the benefit in kind value being included in the single figure in future years.
The Chairman is paid a single consolidated fee. The non-executives are paid a basic fee with Chairs of the Board committees and the Senior Independent Director paid additional fees to reflect their extra responsibilities.
£’000 Salary and fees Benefits1 Other2 Total Non-executive Kevin Beeston 2016 210 18 - 228 2015 168 1 1,444 1,613 Sir Rod Aldridge3 2016 58 - - 58 2015 100 - - 100 Sally-Ann Hibberd4 2016 27 - - 27 2015 - - - -
246 £’000 Salary and fees Benefits1 Other2 Total Victoria Jarman 2016 75 - - 75 2015 67 - 99 166 Haris Kyriakopoulos5 2016 - - -- - 2015 - - - - Tim Miller6 2016 115 - - 115 2015 73 - - 73 John Parker7 2016 81 - - 81 2015 151 - - 151 Darren Pope8 2016 5 - - 5 2015 - - - -
1 The Chairman is provided with life assurance benefits (£867). Benefits also includes benefit in kind charge on his loan (£16,746). 2 Other remuneration includes the value of shares transferred to certain directors of the Group by Advent on IPO in recognition of their contribution and management of the IPO process. The shares immediately vested but were subject to lockup until October 2016. As previously disclosed in the Prospectus and later in this report, interest free loans were granted to the Directors to fund their tax and national insurance liabilities arising from the transaction. The loans are to be repaid within three years or on the Directors’ departure from Equiniti. As defined by current accounting standards and policies, the loans will be treated as a benefit in kind for income tax purposes with the benefit in kind value being included in the single figure in future years. 3 Sir Rod Aldridge stepped down from the Board and left the Company on 1 August 2016. Fees shown are for the seven months he served in 2016. 4 Sally-Ann Hibberd joined Equiniti on 1 August 2016. Fees shown are for the five months she served in 2016. 5 Haris Kyriakopoulos resigned from the Board on 4 August 2016 following the holding of Equiniti (Luxembourg) Sàrl (the “Advent Shareholder”) reducing to 7.9% of the Ordinary Shares in issue in accordance with the terms of the relationship agreement between the Advent Shareholder and Equiniti dated 14 October 2015, under which the Advent Shareholder ceases to be entitled to appoint a nominee director as result of the Ordinary Shares held by the Advent Shareholder and its associates no longer representing, in aggregate, 10% or more of the Ordinary Shares or voting rights in the Company. 6 The fees for Dr Tim Miller include the £50,000 that he receives for serving on the board of EFSL. 7 The fees for John Parker include additional fees for the period that he served as chair to the Risk Committee in advance of Sally-Ann Hibberd joining. 8 Darren Pope joined Equiniti on 1 December 2016. Fees shown are for the month that he served in 2016.
10.8 Senior Managers’ remuneration
Under the terms of their service agreements and applicable incentive plans, the aggregate remuneration and benefits to the Senior Managers (excluding the Executive Directors) who served during Financial Year 2016, was £1,264,870.
11 SHARE INCENTIVE SCHEMES
The Company has a Performance Share Plan (the “PSP”), a Deferred Annual Bonus Plan (the “DABP”) and a Sharesave Plan (the “New Share Plans”). The Company has also established a discretionary Employee Benefit Trust (“EBT”).
The PSP and the DABP (together, the “Executive Share Plans”) cater for discretionary share based incentive awards to selected employees within the Group, whereas the Sharesave Plan provides the flexibility for a broad based “all-employee” share incentive policy. The EBT is primarily used in conjunction with the PSP and DABP; although it may also be used to satisfy options under the Sharesave Plan or any other employee incentive scheme or arrangement that may be operated in the future.
The following paragraphs describe: (i) the unique features of the PSP, DABP and Sharesave; (ii) the features which are common to the New Share Plans; and (iii) the terms of the EBT.
11.1 Summary of the PSP
(a) Operation and Eligibility
The Remuneration Committee supervises the operation of the PSP. Any employee (including an Executive Director) of the Company and its subsidiaries is eligible to participate in the PSP at the discretion of the Remuneration Committee.
(b) Grant of awards under the PSP
247 The Remuneration Committee may grant awards as conditional shares or as nil (or nominal) cost options. The Remuneration Committee may also decide to grant cash-based awards of an equivalent value to share-based awards or to satisfy share-based awards in cash, although it does not currently intend to do so.
(c) Timing of grants
The Remuneration Committee is able to grant awards within six weeks following the Company’s announcement of its results for any period. The Remuneration Committee may also grant awards at any other time when it considers there to be exceptional circumstances which justify the granting of awards.
(d) Individual limit
Other than the initial PSP awards made shortly after the IPO (the "Initial PSP Awards"), which were made over Shares having a market value (on grant) of up to 450% of their annual base salary, an employee may not receive awards in any financial year over Shares having a market value (on grant) in excess of 200% of their annual base salary in that financial year. In exceptional circumstances, this limit may be increased to 300% at the discretion of the Remuneration Committee.
For the purposes of calculating the number of shares over which an award is granted under the PSP, the market value of a share is based on the market value of shares on the dealing day immediately preceding the grant of an award (or an average market value calculated by reference to a short averaging period of no more than five consecutive dealing days) except that in the case of the Initial PSP Awards the market value of a share shall be treated as being equal to the IPO price.
(e) Performance conditions
The vesting of awards granted to Executive Directors of the Company are subject to performance conditions set by the Remuneration Committee on or prior to grant, which normally shall be measured at the end of a period of not less than three years. The extent of vesting of awards granted to other participants may, but need not, be subject to performance conditions set by the Remuneration Committee.
The Initial PSP Awards that were granted to the Executive Directors were subject to two performance conditions, each condition applying to 50% of the total number of shares over which the Initial PSP Award will be granted and the Initial PSP awards will normally vest on the third anniversary of the date of the IPO.
The earnings per share condition
The extent to which 50% of the Initial PSP awards will vest is subject to the earnings per share growth achieved by the Company. This was determined by reference to the average annual growth in fully diluted normalised earnings per share achieved by the Company for Financial Years 2016 and 2017 as follows:
Average annual growth in fully diluted normalised earnings per share for Financial Years 2016 Percentage of award subject to and 2017 the earnings per share condition that vests Less than 6% 0% 6% 25% 6% to 12% On a straight line basis between 25% and 100% 12% or more 100%
The relative TSR condition
The extent to which the remaining 50% of the Initial PSP awards will vest will be subject to
248 the relative total shareholder return (“TSR”) performance of the Company measured against the performance of companies comprising the FTSE 250 index. Performance will be assessed by reference to the ranking of the Company’s TSR (starting from the Offer Price) to that of the companies constituting the FTSE 250 index on the date of Admission (excluding investment trusts but including the Company) over a three year period to the third anniversary of the IPO as follows:
Rank of the Company based on TSR performance over the three year period to the third Percentage of award subject to anniversary of the date of Admission the TSR condition that vests Less than median 0% Median 25% Median to upper quartile On a straight line basis between 25% and 100% based on ranking Upper quartile or above 100%
The Remuneration Committee may set different performance conditions from those described above for future awards. Details of the performance conditions set for any awards to the Executive Directors of the Company will be disclosed in the Company’s annual directors’ remuneration report and operate within the relevant policy approved by shareholders.
The Remuneration Committee may vary the performance conditions applying to existing awards if an event has occurred which causes the Remuneration Committee to consider that it would be appropriate to amend the performance conditions, provided the Remuneration Committee considers the varied conditions to be fair and reasonable and not materially less challenging than the original conditions would have been but for the event in question.
(f) Vesting of awards
Awards normally vest on the third anniversary of grant or, if later, when the Remuneration Committee determines the extent to which any performance conditions have been satisfied. In the case only of the Initial PSP Awards, these awards shall normally vest on the third anniversary of the date of the IPO.
Where awards are granted in the form of options, these will then normally be exercisable up until the tenth anniversary of grant (or such shorter period specified by the Remuneration Committee at the time of grant) unless they lapse earlier. Shorter exercise periods shall apply in the case of “good leavers” and/or vesting of awards in connection with corporate events.
The Remuneration Committee may, in its discretion, grant an award to an eligible employee who is not also an Executive Director of the Company at the time of grant, which may normally vest on a date earlier than the third anniversary of grant.
(g) Leaving employment
As a general rule, an award will lapse upon a participant ceasing to hold employment or ceasing to be a director within the Group.
If, however, the participant ceases to be an employee or a director within the Company’s group because of his death, injury, disability, retirement, his employing company or the business for which he works being sold out of the Group or in other circumstances at the discretion of the Remuneration Committee, then his award will vest on the date when it would have vested as if he had not ceased such employment or office. The extent to which an award shall vest in these situations will depend upon two factors: (i) the extent to which the performance conditions (if any) have been satisfied over the original performance period; and (ii) the pro-rating of the award to reflect the period of time between the date of grant and the date of cessation relative to the normal vesting period, although the Remuneration Committee can decide to reduce or disapply the pro- rating of an award if it regards it as appropriate to do so in the particular circumstances.
Alternatively, if a participant ceases to be an employee or director in the Company’s group for one of the “good leaver” reasons specified above (or in other circumstances at the discretion of the
249 Remuneration Committee), the Remuneration Committee can decide that their award shall vest on or shortly following the date of cessation, subject to: (i) the satisfaction of the performance conditions (if any) measured over a shortened period; and (ii) pro-rating by reference to the time of cessation as described above.
(h) Corporate events
In the event of a takeover or winding up of the Company (not being an internal corporate reorganisation), all awards shall vest early, subject to: (i) the extent that the performance conditions (if any) have, in the opinion of the Remuneration Committee, been satisfied at that time; and (ii) the pro-rating of the awards to reflect the period of time between their grant and vesting relative to the normal vesting period, although the Remuneration Committee can decide to reduce or disapply the pro-rating of an award if it regards it as appropriate to do so in the particular circumstances.
In the event of an internal corporate reorganisation, awards will be replaced by equivalent new awards over shares in a new holding company unless the Remuneration Committee decides that awards should vest on the basis which would apply in the case of a takeover.
If a demerger, special dividend or other similar event is proposed which, in the opinion of the Remuneration Committee, would affect the market price of shares to a material extent, then the Remuneration Committee may decide that awards will vest on the basis which would apply in the case of a takeover as described above.
(i) Holding periods
Unless the Remuneration Committee determines otherwise, the Company’s Executive Directors (and any other participant that the Remuneration Committee selects) will normally be required to retain their net of tax number of vested shares (if any) delivered under the PSP (or the full number of the vested shares whilst held under an unexercised nil (or nominal) cost option) for at least two years from point of vesting (the “Holding Period”). The Holding Period shall end early on or shortly prior to the occurrence of a takeover or winding up of the Company, the death of a participant or upon the occurrence of any other event or date that the Remuneration Committee, acting fairly and reasonably, in its absolute discretion determine. The Remuneration Committee may also, in its discretion, allow such participants to sell, transfer, assign or dispose of some or all of such shares before the end of the Holding Period or take up any rights they may have in relation to those shares, subject to such additional terms and conditions that the Remuneration Committee may specify from time to time. The terms and basis upon which shares must be held during the Holding Period shall be determined by the Remuneration Committee, in its discretion.
(j) Dividend equivalents
The Remuneration Committee may decide that participants will receive a payment (in cash and/or Shares) on or shortly following the vesting of their awards of an amount equivalent to the dividends that would have been paid on those shares between the time when the awards were granted and the time when they vest (or where an award is structured as an option and subject to a holding period, the date of expiry of the holding period or if earlier the exercise of such award). This amount may assume the reinvestment of dividends. Alternatively, participants may have their awards increased as if dividends were paid on the shares subject to their award and then reinvested in further shares.
(k) Recovery and withholding
The PSP includes recovery and withholding provisions under which the Remuneration Committee may, in its discretion, reduce the number of shares held under an award before it vests and/or decide within three years from the date on which an award vests to seek to recover some or all of any overpayment of shares and/or cash. The recovery and withholding provisions may be operated by the Remuneration Committee where there has been a material misstatement of the Company’s results or accounts and/or an error is made in assessing the satisfaction of a performance condition
250 and such material misstatement and/or error resulted (directly or indirectly) in an award being granted over a larger number of shares and/or an award vesting to a greater degree than would otherwise have been the case. The Remuneration Committee may also operate the recovery and withholding provisions where a participant has committed an act of gross misconduct.
(l) Participants’ rights
Awards of conditional shares and options will not confer any shareholder rights until the awards have vested or the options have been exercised and the participants have received their shares.
(m) Variation of share capital
In the event of any variation of the Company’s share capital or in the event of a demerger, payment of a special dividend or similar event which materially affects the market price of the shares, the Remuneration Committee may make such adjustment as it considers appropriate to the number of shares subject to an award and/or the exercise price payable (if any).
11.2 Summary of DABP
(a) Operation and eligibility
The Remuneration Committee will supervise the operation of the DABP. Any employee (including an Executive Director) of the Company and its subsidiaries will be eligible to participate in the DABP at the discretion of the Remuneration Committee and subject to their being entitled to receive a bonus.
(b) Overview
The general purpose of the DABP is to facilitate the deferral of part of an Executive Director’s annual bonus into shares at the discretion of the Remuneration Committee. The decision (if any) to require such bonus deferral in any year, and the portion of any bonus which will be deferred, will be determined by the Remuneration Committee.
(c) Grant of awards under the DABP
The Remuneration Committee may grant awards to acquire shares as conditional shares or as nil (or nominal) cost options. The Remuneration Committee may also decide to grant cash-based awards of an equivalent value to share-based awards or to satisfy share-based awards in cash, although it does not currently intend to do so.
(d) Timing of grants
The Remuneration Committee may grant awards within six weeks following either: (i) the date of announcement of the Company’s results for any period; or (ii) the date on which bonuses are determined; or (iii) the date on which any related cash bonus is paid. The Remuneration Committee may also grant awards at any other time when it considers there to be exceptional circumstances which justify the granting of awards.
(e) Individual limit
An employee may not receive awards in any financial year over shares having a value (on grant) in excess of 100% of the relevant bonus being deferred under the DABP.
For the purposes of the DABP, the value of shares over which an award is granted shall be determined by the committee, based on the market value of shares on the dealing day (or an average market value calculated by reference to a short averaging period of no more than five consecutive dealing days) either: (i) immediately preceding the date of grant of an award; or, (ii) immediately preceding the date of determination or payment of a bonus; or (iii) immediately following the date of announcement of the first set of results of the Company following the end of
251 the relevant bonus performance period.
(f) Vesting of awards
The normal vesting date for awards will be the third anniversary of grant (or such other later or earlier date (or dates) as the Remuneration Committee may specify).
Vesting will normally be dependent on the participant still being a director or employee within the group on the date of vesting.
Where awards are granted in the form of options, these will then normally be exercisable up until the tenth anniversary of grant (or such shorter period specified by the Remuneration Committee at the time of grant) unless they lapse earlier. Shorter exercise periods shall apply in the case of “good leavers” and/or vesting of awards in connection with corporate events.
(g) Leaving employment
As a general rule, an award will lapse upon a participant ceasing to hold employment or ceasing to be a director within the Company’s group.
If, however, the participant ceases to be an employee or a director within the Company’s group because of his death, injury, disability, retirement, his employing company or the business for which he works being sold out of the Group or in other circumstances at the discretion of the Remuneration Committee, then his award then his award will vest in full on the date when it would have vested as if he had not ceased such employment or office unless the Remuneration Committee exercises its discretion and allows the award to vest in full on or shortly following the date of cessation. Time pro-rating will not apply.
(h) Corporate events
In the event of a takeover or winding up of the Company (not being an internal corporate reorganisation), all awards will vest early in full.
In the event of an internal corporate reorganisation, awards will be replaced by equivalent new awards over shares in a new holding company unless the Remuneration Committee decides that awards should vest on the basis which would apply in the case of a takeover.
If a demerger, special dividend or other similar event is proposed which, in the opinion of the Remuneration Committee, would affect the market price of shares to a material extent, then the Remuneration Committee may decide that awards will vest on the basis which would apply in the case of a takeover as described above.
(i) Holding periods
Unless the Remuneration Committee determines otherwise, the Company’s Executive Directors (and any other participant that the Remuneration Committee selects) will normally be required to retain their net of tax number of vested shares (if any) delivered under the PSP (or the full number of the vested shares whilst held under an unexercised nil (or nominal) cost option) for at least two years from point of vesting (the “Holding Period”). The Holding Period shall end early on or shortly prior to the occurrence of a takeover or winding up of the Company, the death of a participant or upon the occurrence of any other event or date that the Remuneration Committee, acting fairly and reasonably, in its absolute discretion determine. The Remuneration Committee may also, in its discretion, allow such participants to sell, transfer, assign or dispose of some or all of such shares before the end of the Holding Period or take up any rights they may have in relation to those shares, subject to such additional terms and conditions that the Remuneration Committee may specify from time to time. The terms and basis upon which shares must be held during the Holding Period shall be determined by the Remuneration Committee, in its discretion.
(j) Dividend equivalents
252 The Remuneration Committee may decide that participants will receive a payment (in cash and/or Shares) on or shortly following the vesting of their awards of an amount equivalent to the dividends that would have been paid on those shares between the time when the awards were granted and the time when they vest (or where an award is structured as an option and subject to a holding period, the date of expiry of the holding period or if earlier the exercise of such award). This amount may assume the reinvestment of dividends. Alternatively, participants may have their awards increased as if dividends were paid on the shares subject to their award and then reinvested in further shares.
(k) Recovery and withholding
The PSP includes recovery and withholding provisions under which the Remuneration Committee may, in its discretion, reduce the number of shares held under an award before it vests and/or decide within three years from the date on which an award vests to seek to recover some or all of any overpayment of shares and/or cash. The recovery and withholding provisions may be operated by the Remuneration Committee where there has been a material misstatement of the Company’s results or accounts and/or an error is made in assessing the satisfaction of a performance condition and such material misstatement and/or error resulted (directly or indirectly) in an award being granted over a larger number of shares and/or an award vesting to a greater degree than would otherwise have been the case. The Remuneration Committee may also operate the recovery and withholding provisions where a participant has committed an act of gross misconduct.
(l) Participants’ rights
Awards of conditional shares and options will not confer any shareholder rights until the awards have vested or the options have been exercised and the participants have received their shares.
(m) Variation of share capital
In the event of any variation of the Company’s share capital or in the event of a demerger, payment of a special dividend or similar event which materially affects the market price of the shares, the Remuneration Committee may make such adjustment as it considers appropriate to the number of shares subject to an award and/or the exercise price payable (if any).
11.3 Summary of Sharesave
(a) Operation
The operation of the Sharesave will be supervised by the Board.
It is intended that the Sharesave will meet the requirements of Schedule 3 to the ITEPA as amended and re-enacted from time to time in order to provide UK tax-advantaged options to UK employees.
(b) Eligibility
Employees and full-time directors of the Company and any designated participating subsidiary who are UK resident tax payers are eligible to participate. The Board may require employees to have completed a qualifying period of employment of up to five years before the grant of options. The Board may also allow other employees to participate.
(c) Grant of options
Options can only be granted to employees who agree to enter into HMRC approved savings contracts, under which monthly savings are normally made over a period of three or five years. Options must be granted within 30 days (or 42 days if applications are scaled back) of the first day by reference to which the option price is set. The number of shares over which an option is granted will be such that the total option price payable for those shares corresponds to the proceeds on maturity of the related savings contract. It is currently intended that the first offer of options under
253 the Sharesave will be made shortly after the date of Admission.
(d) Individual participation
Monthly savings by an employee under all savings contracts linked to options granted under any Sharesave scheme may not exceed the statutory maximum (currently £500). The Board may set a lower limit in relation to any particular grant.
(e) Option price
The price per share payable upon the exercise of an option will not be less than the higher of: (i) 80% of the average middle-market quotation of a share on the London Stock Exchange over the three days preceding a date specified in an invitation to participate in the Sharesave (or such other day or days as may be agreed with HMRC); and (ii) if the option relates only to new issue shares, the nominal value of a share.
The option price will be determined by reference to dealing days which fall within six weeks of the announcement by the Company of its results for any period or at any other time when the Board considers there to be exceptional circumstances which justify offering options under the Sharesave.
(f) Exercise of options
Options will normally be exercisable for a six month period from the third or fifth anniversary of the commencement of the related savings contracts. Earlier exercise is permitted, however, in the following circumstances:
◦ following cessation of employment by reason of death, injury, disability, redundancy, retirement or the business or company that the employee works for ceasing to be part of the Group;
◦ where employment ceases more than three years from grant for any reason other than dismissal for misconduct; and
◦ in the event of a takeover, amalgamation, reconstruction or winding-up of the Company, except in the case of an internal corporate re-organisation when the Board may decide to exchange existing options for equivalent new options over shares in a new holding company.
Except where stated above, options will lapse on cessation of employment or directorship within the Group prior to the third anniversary of grant. If a participant ceases to be a director or employee three or more years after the date of grant they may exercise their option early unless they ceased by reason of misconduct in which case their option shall lapse.
Shares will be allotted or transferred to participants within 30 days of exercise.
(g) Participant’s rights
Options will not confer any shareholder rights until the options have been exercised and the participants have received their shares.
(h) Variation of capital
If there is a variation in the Company’s share capital then the Board may make such adjustment as it considers appropriate to the number of shares under option and/or the option price.
11.4 Principal terms common to the New Share Plans
(a) Life of Plans
An award or option may not be granted more than 10 years after the date on which the New Share
254 Plans were adopted.
No payment is required for the grant of an award.
Awards are not transferable, except on death. Awards are not pensionable.
(b) Rights attaching to Shares
Any shares allotted will rank equally with shares then in issue (except for rights arising by reference to a record date prior to their allotment).
(c) Overall limits
The New Share Plans may operate over new issue shares, treasury shares or shares purchased in the market.
In any 10 calendar year period, the Company may not issue (or grant rights to issue) more than 10% of the issued ordinary share capital of the Company under the New Share Plans and any other share incentive plan (executive or otherwise) adopted by the Company.
Furthermore, in the same period as noted above, the Company may not issue (or grant rights to issue) more than 5% of the shares in issue under the Executive Share Plans and any other executive share plan adopted by the Company.
Treasury shares will count as new issue shares for the purposes of these limits unless shareholders decide that they need not count.
The number of shares that have been issued and which count towards the 5% and 10% in 10 calendar year limit described above may be notionally adjusted by the Remuneration Committee or the Board (as the case may be) to take account of any adjustments made to the number of shares held under awards following a variation to the Company’s share capital (and in the case of the Executive Share Plans only, in the event of a demerger, payment of a special dividend or similar event) provided that such adjustments are made on a fair and reasonable and consistent basis.
Shares issued or to be issued under or pursuant to awards or options granted before Admission will not count towards these limits.
(d) Alterations
The Remuneration Committee may, at any time, amend the New Share Plans in any respect, provided that the prior approval of the Company’s shareholders is obtained for any amendments that are to the material advantage of participants in respect of the rules governing eligibility, limits on participation, the overall limits on the issue of shares or the transfer of treasury shares, the basis for determining a participant’s entitlement to, and the terms of, the shares or cash to be acquired and the adjustment of awards.
The requirement to obtain the prior approval of shareholders will not, however, apply to any minor alteration made to benefit the administration of the New Share Plans, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants or for any company in the Company’s group. Shareholder approval will also not be required for any amendments to any performance condition applying to an award amended in line with its terms.
(e) Overseas plans
The New Share Plans allow the Remuneration Committee or Board, as relevant, to establish further plans or schedules for overseas territories, any such plan or schedule to be similar to the relevant New Share Plan, but modified to take account of local tax, exchange control or securities laws, provided that any shares made available under such further plans or schedules are treated as
255 counting against the limits on individual and overall participation in the relevant New Share Plan.
11.5 Employee benefit trust
At the time of the IPO, the Company approved the establishment of the EBT. The EBT is primarily used in conjunction with the PSP and DABP, although it may also be used to satisfy options under the Sharesave Plan or any other employee incentive scheme or arrangement that may be operated in the future. The trustee of the EBT has power to subscribe for Ordinary Shares (at a price determined by the Board, provided it is not less than the nominal value of a share) or acquire shares in the market or from treasury, but will not be permitted to hold more than 5% of the Company’s issued ordinary share capital (excluding any shares it holds as nominee) at any one time without the prior approval of the Company’s shareholders in general meeting.
The class of beneficiaries of the EBT includes the employees and former employees of the Company and its subsidiaries, any holding company of the Company or any subsidiaries of that holding company and certain classes of their family and dependants.
The trustee of the EBT has wide powers of investment and is permitted to borrow monies. However, in practice, the EBT is funded by loans and/or gifts from the Company or any of its subsidiaries and only invests in shares for use in relation with the Company’s employees’ share plans or otherwise for allocation to beneficiaries.
The trustee of the EBT is independent of the Company. The current trustee of the EBT is based offshore. The Company has the power to appoint new or additional trustees and remove any trustee. A professional trustee may charge fees in the normal course of business for acting as a trustee of the Trust.
12 PENSIONS
The Group operates three defined benefit pension schemes, all of which are now closed to new members and, apart from a small sub-section of the Paymaster (1836) Limited scheme, are closed to future accrual of benefits. For accounting purposes, the projected benefit obligations of the Paymaster Pension Scheme, the Equiniti ICS Pension Scheme and the MyCSP Pension Scheme (together the “Defined Benefit Schemes”) exceeded the fair value of the plan assets by £1.6 million, £20.9 million and £1.4 million, respectively, as at 31 December 2016. This is primarily as a result of historically low gilt yields and, to a lesser extent, lower than expected returns on assets.
The actuarial methodology and assumptions for the periodic actuarial valuations for cash funding purposes may be different from those used for funding deficit purposes. The current P&L costs in respect of future accrual for the Paymaster Pension Scheme and the MyCSP Pension Scheme amount to £0.6 million per annum and £1.0 million per annum respectively which is in line with Directors’ expectation of future deficit contributions. Higher contributions may be required to the Defined Benefit Schemes in the future as a result of valuation discussions with the pension trustees. The most recent triennial funding valuation of the Paymaster Pension Scheme was carried out at 5 April 2015. The most recent triennial funding valuation of the Equiniti ICS Pension Scheme was carried out at 5 April 2015. The most recent triennial funding valuation of the MyCSP Pension Scheme was carried out at 31 December 2012.
The Group also operates a number of defined contribution (“DC”) pension schemes and participates in a trust based DC pension scheme, the National Pension Trust, which is a multi-employer pension scheme administered by Xafinity Ltd in which non-Group companies also participate. Employees who are not eligible to join the Defined Benefit Schemes are eligible to join one of the Group’s DC pension plans. The Directors believe the Group has taken necessary measures to be in compliance with regulations requiring it to automatically enrol their employees into a pension plan and pay a certain minimum level of contribution to the pension plan on behalf of all employees enrolled.
13 SIGNIFICANT CHANGE
There has been no significant change in the Group’s financial or trading position since 30 June 2017, being the date to which the consolidated historical financial information in Part XII (Operating and Financial Review of Equiniti) was prepared.
256 14 LITIGATION AND DISPUTES
There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) which may have, or have had during the 12 months preceding the date of this Prospectus, a significant effect on the Company’s and/or Group’s financial position or profitability.
15 MATERIAL CONTRACTS
Set out below is a summary of: (i) each material contract (other than a contract in the ordinary course of business) to which the Company is a party which has been entered into within the two years immediately preceding the date of this Prospectus; and (ii) any other contract (other than a contract in the ordinary course of business) entered into by any member of the Group which contains a provision under which any member of the Group has any obligation or entitlement which is material to the Company and/or the Group as at the date of this Prospectus.
15.1 Underwriting Agreement
(a) Underwriting and allocation of the New Shares
The Company, the Joint Bookrunners and Greenhilll have entered into the Underwriting Agreement dated the date of this Prospectus pursuant to which, on the terms and subject to the conditions contained therein (which are customary in agreements of this nature):
(i) the Company has agreed, subject to certain conditions, to allot and issue, at the Rights Issue Price, the New Shares to be issued in connection with the Rights Issue; and
(ii) the Joint Bookrunners have severally agreed, subject to certain conditions, to procure subscribers or, failing which, themselves to subscribe for the New Shares (in such proportions as are set out in the Underwriting Agreement) at the Rights Issue Price
(b) Conditions
The rights issue is conditional upon among other things, Admission occurring not later than 8.00 a.m. on 29 September 2017 (or such later date and time, not being later than 8.00 a.m. on 17th October 2017, as Joint Bookrunners may agree with the company) and the Undrwritting Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms. The Underwritting commitment of each Underwriter will cease to be conditional at the point of Admission. If the conditions to the underwriting Agreement have not been satisfied, or if each Underwriter otherwise ceases to underwrite its position of the Offer in accordance with the terms of the Underwriting Agreement, Admission will not occur.
(c) Termination
The Underwriting Agreement can be terminated at any time prior to Admission in certain customary circumstances set out in the Underwriting Agreement.
(d) Commissions, expenses and taxes
The Underwriting Agreement provides for the Joint Bookrunners to be paid a commission by the Company in respect of the New Shares underwritten. The aggregate commission will be equal to 1.95% of the Rights Issue Price, multiplied by the aggregate number of such shares. Any commissions received by the Underwriters may be retained and any New Shares acquired by them as Underwriters may be retained or dealt in, by them, for their own benefit.
The Company has agreed to pay or cause to be paid (together with any applicable irrecoverable amounts in respect of VAT) certain costs, charges, fees and expenses of or arising in connection with or incidental to, the Rights Issue.
257 (e) Representations, warranties, undertakings and indemnities
The Company has given customary representations, warranties and undertakings to the Underwriters, and the Company has given certain indemnities to the Advisers. The liability of the Company is unlimited as to amount and time.
(f) Lock-up arrangements
The Company has agreed that, subject to certain exceptions, during the period of 180 days from the date of Admission, it will not, without the prior written consent of the Joint Bookrunners, issue or contract to issue, or grant any option or other subscription right over, any new Ordinary Shares.
15.2 New Senior Facilities Agreement
Please refer to paragraph titled “Additional Debt Facilities” of Part XII (Operating and Financial Review of Equiniti) for a description of the New Senior Facilities Agreement.
16 RELATED PARTY TRANSACTIONS
Between 1 January 2016 and the date of this Prospectus, no member of the Group entered into any related party transactions.
17 WORKING CAPITAL STATEMENT
The Company is of the opinion that, taking into account the net proceeds of the Rights Issue receivable by the Company and the facilities available to the Group, the Group has sufficient working capital for its present requirements, that is, for at least the next 12 months from the date of the publication of this Prospectus.
18 PROPERTY AND ENVIRONMENT
The Group’s business operates the following properties:
Location Tenure Kemps Farm, London Road, Balcombe, West Sussex Leasehold 205 Airport Rd West, Belfast Long Leasehold 9 Heron Ave, Belfast Leasehold Basement, Rushmere House, 46 Cadogan Park, Belfast (Disaster Recovery Site) Leasehold Kingsgate House, 54 Pershore Road South, Birmingham Leasehold 5th Floor, Castlemead, Lower Castle Street, Bristol Leasehold 1 Driscoll Buildings, Capital Quarter, Cardiff Leasehold Sutherland House, Russell Way, Crawley Leasehold Regus - Princes Street, Edinburgh License Ada House, Pynes Hill, Rydon Lane, Exeter Leasehold Senito House, Pynes Hill, Exeter Freehold 1 Discovery Place, Columbus Drive, Farnborough Leasehold Brims House East, Brims House, Forss Business and Technology Park, Forss, Thurso Leasehold Holmfield Mill, Holdsworth Road, Halifax Leasehold Aspect House, Spencer Road, Lancing Leasehold 10 Moorfield Business Park, Moorfield Close, Yeadon, Leeds Leasehold 12 Moorfield Business Park, Moorfield Close, Yeadon, Leeds Leasehold First Floor, Lancaster House, 16 Moorfield Business Park, Yeadon, Leeds Leasehold Level 6 Broadgate Tower, 20 Primrose Street, London Leasehold Regus - Level 12 Broadgate Tower, 20 Primrose Street, London Licence 5 Fulwood Park, Caxton Road, Fulwood, Preston Leasehold 27 Kings Road, Reading Leasehold The Hollies, Newport Road, Stafford Leasehold Scotia House, Castle Business Park, Stirling Leasehold Unit 500, Stonehouse Park, Sperry Way, Stonehouse, Gloucestershire Leasehold Part Ground Floor, Ashley Park House, 42-50 Hersham Rd, Walton-on-Thames Leasehold
258 Location Tenure 2nd Floor, Ashley Park House, 42-50 Hersham Rd, Walton-on Thames Leasehold 4 The Triangle, Wildwood Drive, Worcester Leasehold Highdown House, Yeoman Way, Worthing Leasehold Sentio House, Pynes Hill, Exeter Freehold Ada House, Pynes Hill, Exeter Leasehold 5th Floor, Castlemead, Lower Castle St, Bristol BS1 3AG Leasehold 2nd & 3rd floor, Danzigerkade 23, Amsterdam Leasehold Parking at 17-19 Soverign Road, Kings Norton, Birmingham Leasehold Block 10, DLF IT Park @ Chennai, 1/124, Shivaji Gardens, Moonlight Stop, Nandambakkam Post, Leasehold Manapakkam, Chennai, India Part 1st Floor, 25 South Gyle Crescent, South Gyle Business Park, Edinburgh, EH12 9EB Leasehold 1st Floor Offices, Newlands Shopping Centre, Cnr Lois & Dely Road, Newlands, Pretoria, South Africa Leasehold Part Groudn Floor, 5 Fulwood Park, Caxton Road, Fulwood, Preston Leasehold
The Directors are currently not aware of any material environmental issues which may affect the Group’s utilisation of its properties, or that the Group has any material environmental liabilities or compliance costs.
19 CONSENTS
KPMG LLP has given and has not withdrawn its written consent to the inclusion in this Prospectus of its report concerning the unaudited pro forma financial information included in Part XV (Unaudited pro forma statements of the Enlarged Group) in the form and context in which they appear and has authorised the contents of its reports for the purposes of PR 5.5.3R(2)(f) of the Prospectus Rules.
A written consent under the Prospectus Rules is different from a consent filed in the U.S. Securities and Exchange Commission under section 7 of the Securities Act. As the New Shares have not been and will not be registered under the Securities Act, KPMG LLP has not filed a consent under section 7 of the Securities Act.
20 EXPENSES OF THE RIGHTS ISSUE
The total costs and expenses of, and incidental to, the Rights Issue (including the listing fees, printer’s fees, advisers’ fees, professional fees and expenses, the costs of printing and distribution of documents including non-recoverable VAT) to be borne by the Company are estimated to be approximately £15.9 million. Included within the total are commissions which are expected to be up to approximately £2.7 million payable to the Underwriters.
21 DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents may be inspected at the registered office of the Company (Sutherland House Russell Way, Crawley, West Sussex RH10 1UH) and the offices of Weil, Gotshal & Manges (London) LLP, 110 Fetter Lane, London EC4A 1AY during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) until the closing date of the Rights Issue:
(a) the Articles;
(b) the reports of KPMG LLP set out in Part XIV (Historical Financial Information of WFSS) and Part XV (Unaudited pro forma statements of the Enlarged Group);
(c) the consent letters referred to in paragraph 19 of this Part XVIII (Additional Information) above; and
(d) a copy of this Prospectus.
For the purposes of PR 3.2.4 of the Prospectus Rules, this Prospectus will be published in printed form and available free of charge, during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) for the duration of the Offer at the registered office of the Company (Sutherland House Russell Way, Crawley, West Sussex RH10 1UH) and the offices of Weil, Gotshal & Manges (London) LLP, 110 Fetter Lane, London EC4A 1AY. In addition, the Prospectus will be published in electronic form and available on the Website, subject to access restrictions.
259 PART XIX - INFORMATION INCORPORATED BY REFERENCE
The following documentation, which was sent to Shareholders at the relevant time and/or is available as described below, contains information that is relevant to the Rights Issue and is incorporated by reference into this prospectus:
• Pages 114 to 185 of the Annual Report of Equiniti for the year ended 31 December 2016;
• Pages 102 to 172 of the Annual Report of Equiniti for the year ended 31 December 2015;
• Pages 68 to 136 of the Annual Report of Equiniti for the year ended 31 December 2014; and
• the announcement of the results of Equiniti for the six months ended 30 June 2017 made on 28 July 2017 (which includes unaudited financial information in respect of that six month period).
All such documents are available on www.equiniti.com and from the registered office of the Company. The parts of such documents not incorporated by reference into this Prospectus are either not relevant to investors or are repeated elsewhere in this Prospectus.
260 PART XX - DEFINITIONS
The following definitions apply throughout this Prospectus unless the context requires otherwise:
“2010 PD Amending Directive” Directive 2010/73/EU; “Additional Debt Facilities” the Additional Term Facility and Increased Revolving Credit Facility; “Additional Term Facility” the $92 million additional term facility which the Lenders have agreed to provide to the Company pursuant to the Additional Facilities Notice; “Acquisition” the acquisition of the assets and liabilities of WFSS by the Company; “Admission” admission of the Rights and the New Shares to the premium listing segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange becoming effective in accordance with LR 3.2.7G of the Listing Rules and paragraph 2.1 of the Admission and Disclosure Standards published by the London Stock Exchange; "Advisers" Barclays, Citi and Greenhill; “Articles” the articles of association of the Company; "Asset Purchase Agreement" the agreement dated 12 July 2017 under which the Company agreed with Wells Fargo to acquire the assets and liabilities of WFSS “Audit Committee” the audit committee of the Board; “BPO” business process outsourcing; "Barclays" Barclays Bank plc; “Business Day” any day which is not a Saturday or Sunday, Christmas Day, Good Friday or a bank holiday in the UK; “CBPE” CBPE Capital; "Citi" Citigroup Global Markets Limited; “City Code” the City Code on Takeovers and Mergers, as amended; "Closing" closing of the Acquisition pursuant to the Asset Purchase Agreement; "CN" contribution notice; “Companies Act” the Companies Act 2006, as amended; “Company” Equiniti Group plc, a public limited company incorporated under the laws of England and Wales with registered number 07090427 having its registered office at Sutherland House, Russell Way, Crawley, West Sussex RH10 1UH; “CREST” the electronic transfer and settlement system for the paperless settlement of trades in listed securities operated by Euroclear UK & Ireland Limited; “CREST Regulations” the Uncertificated Securities Regulations 2001 (SI 2001/3755), as amended; “DC” defined contribution; “Defined Benefit Schemes” the Paymaster Pension Scheme, the ICS Pension Scheme and the MyCSP Fund; “Directors” or “Board” the directors of the Company from time to time; "Enlarged Group" the Group as enlarged by the Acquisition; "Equiniti" or the "Group" the Company and its subsidiary undertakings from time to time (not including WFSS);
261 “EUR”, “€”, and “Euro” the single currency of the participating Member States in the Eurozone; “European Economic Area” or “EEA” the European Union, Iceland, Norway and Liechtenstein; “European Union” or “EU” an economic and political union of 27 Member States which are located in Europe; “Eurozone” the Member States of the European Union that have adopted the euro as their common currency and sole legal tender; “Exchange Act” the US Securities Exchange Act of 1934, as amended; "Excluded Territories" Australia, Canada and South Africa; “Executive Directors” Guy Wakeley and John Stier, each a Director as at the date of this Prospectus; “Existing Shares” the Ordinary Shares in issue immediately prior to Admission; “FCA” the Financial Conduct Authority; “Financial Year 2014” the 52 weeks to 31 December 2014; “Financial Year 2015” the 52 weeks to 31 December 2015; “Financial Year 2016” the 52 weeks to 31 December 2016; "FSCS" the Financial Services Compensation Scheme established by FSMA; "FSD" financial support direction; “FSMA” the Financial Services and Markets Act 2000, as amended; "Fully Paid Rights" the rights to subscribe for the New Shares, fully paid “GBP”, “£” and “pounds sterling” the lawful currency of the UK; "GDPR" the General Data Protection Regulation; "Greenhill" Greenhill & Co. International LLP "GVQ Investment Management" comprises Nortrust Nominees Limited; "Half Year 2016" the 26 weeks to 30 June 2016; "Half Year 2017" the 26 weeks to 30 June 2017; “HMRC” HM Revenue and Customs; “ICS Pension Scheme” Equiniti ICS Limited defined benefit scheme; “IFRS” International Financial Reporting Standards as adopted by the European Union; “Increased Revolving Credit Facility” the £49 million increase to the Company's Revolving Facility which the Lenders have agreed to provide pursuant to the Additional Facilities Notice; “Independent Non Executive Directors” the Non Executive Directors, excluding the Chairman; “IPO” Initial Public Offering; “ISA” an individual savings account; “ISIN” International Securities Identification Number; “Joint Bookrunners” Barclays and Citi; "Joint Sponsor" Citi and Greenhill “LIBOR” London Interbank Offered Rate; “Listing Rules” the listing rules made by the FCA under Part VI of FSMA, as amended; “London Stock Exchange” London Stock Exchange plc; “Member State” a member state of the European Economic Area; "MiFID" the Markets in Financial Instruments Directive (2004/39/EC) as amended, supplemented or replaced from time to time; "MIFID II" the revised EU Directive on Markets in Financial Instruments
262 (2014/65/EU) and the accompanying Regulation (Regulation 600/2014); "MLR 2017" the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017; “MyCSP” MyCSP Limited; “MyCSP Fund” defined benefit plan, part of the Prudential Platinum Pension Scheme, to which MyCSP Limited contributes; “New Lenders” Bank of China (UK) Limited, The Bank of Tokyo-Mitsubishi, UFJ, Ltd., Citizens Bank N.A., Mediobanca International (Luxembourg) S.A., Mizuho Bank, Ltd, The Royal Bank of Scotland plc, Santander UK plc, Sumitomo Mitsui Banking Corporation Europe Ltd and The Governor and Company of the Bank of Ireland; “New Shares” those Ordinary Shares to be issued by the Company pursuant to the Rights Issue as described in Part IX (Details of the Rights Issue); "Nil Paid Rights" rights to subscribe for the New Shares, nil paid; “Nomination Committee” the nomination committee of the Board; “Non Executive Directors” the non executive directors of the Company; “Official List” the Official List maintained by the FCA; “Ordinary Shares” the ordinary shares of £0.001 each in the capital of the Company; “Original Lenders” Barclays Bank PLC, Citibank N.A. London Branch, Credit Suisse AG, London Branch, Goldman Sachs Bank USA, Lloyds Bank PLC, Mizuho Bank, Ltd., The Royal Bank of Scotland plc, Santander UK plc, Sumitomo Mitsui Banking Corporation Europe Ltd and The Governor and Company of the Bank of Ireland; "Overseas Shareholder" means the Qualifying Shareholders with registered addresses in, or who are citizens, residents or nationals of, jurisdictions outside of the United Kingdom; “Paymaster” Paymaster (1836) Limited; “Paymaster Pension Scheme" Paymaster (1836) Limited defined benefit scheme; “PCS” Public & Commercial Services Union; “PD Regulation” the Prospectus Directive Regulation (2004/809/EC); “Prospectus” this document; “Prospectus Directive” Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive to the extent implemented in the Relevant Member State), including any relevant implementing measure in each Relevant Member State; “Prospectus Rules” the prospectus rules made by the UK Listing Authority under Part VI of FSMA, as amended; "Provisional Allotment Letter" a provisional allotment letter relating to Rights and the New Shares; "QIB" a qualified institutional buyer as defined in Rule 144A of the Securities Act; “Qualified Institutional Buyer” or “QIB” a Qualified Institutional Buyer, as defined in Rule 144A; "Qualifying CREST Shareholders" the Qualifying Shareholders holding Ordinary Shares in uncertificated form; "Qualifying Non CREST Shareholders" the Qualifying Shareholders holding Ordinary Shares in certificated form;
263 "Qualifying Shareholders" holders of Existing Shares other than, subject to certain limited exceptions, those in Excluded Territories; "Receiving Agent" or “Registrar” Equiniti Limited of Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA; "Regulated Entities" Equiniti Financial Services Limited, Paymaster (1836) Limited, The Nostrum Group Limited and Marketing Source Limited; “Regulation S” Regulation S under the Securities Act; "Regulatory Information Service" a primary information provider (PIP) approved by the FCA; “Relevant Member State” each Member State that has implemented the Prospectus Directive; “Remuneration Committee” the remuneration committee of the Board; "Rights" the Nil Paid Rights and Fully Paid Rights; "Rights Issue" the offer of New Shares to Qualifying Shareholders at the Rights Issue Price made pursuant to this Prospectus; "Rights Issue Price" 190p per New Share “Rule 144A” Rule 144A under the Securities Act; “SAYE” save as you earn; “SAYE Scheme” the Company’s save as you earn option scheme; “SDRT” stamp duty reserve tax; "SEC" the US Securities and Exchange Commission; “Securities Act” the US Securities Act of 1933, as amended; “SEDOL” Stock Exchange Daily Official List; “Senior Managers” those persons identified as senior managers of the Group in Part VII (Directors, Senior Managers and corporate governance); “Shareholder” a holder of Ordinary Shares; "Shares" the Existing Shares and the New Shares "Sharesave" an HMRC-approved share-based SAYE scheme in which employees of corporate clients contract to make monthly deposits into a savings account over three, five or seven year periods; “SID” senior independent non executive director; “SIP” share incentive plan; "SMCR" senior management and certification regime; “Takeover Panel” the UK Panel on Takeovers and Mergers; "TSA" transitional services agreement; “UK” the United Kingdom of Great Britain and Northern Ireland; “UK Corporate Governance Code” the UK Corporate Governance Code dated September 2012 issued by the Financial Reporting Council; “UK GAAP” Generally Accepted Accounting Practice in the UK; “UK Listing Authority” the FCA acting in its capacity as the competent authority for the purposes of Part VI of FSMA; “Underwriting Agreement” the underwriting agreement, dated the date of this Prospectus, between the Company, Greenhill and the Joint Bookrunners; “US” or "United States" the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia; "United States Hart-Scott-Rodino Act" the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
264 “US dollar”, “$” and “USD” the lawful currency of the US; “US Holder” a beneficial owner of Rights or New Shares, for US federal income tax purposes; “US Stock Option Plan” the Company’s stock option plan available to the Company’s US employees “VAT” value added tax; “Website” www.equiniti.co.uk; "Wells Fargo" Wells Fargo Bank, N.A.; and "WFSS" Wells Fargo's Shareowner Services business.
265 NOTICE OF GENERAL MEETING
Equiniti Group plc (incorporated and registered in England & Wales with registered number 07090427)
Notice is hereby given that a general meeting of Equiniti Group plc (“Company”) will be held at 9:00 a.m. on 28 September 2017 at the offices of Weil, Gotshal & Manges (London) LLP, 110 Fetter Lane, London, EC4A 1AY (“General Meeting”) for the purpose of considering and, if thought fit, passing the following resolution, which will be proposed as an ordinary resolution:
ORDINARY RESOLUTION
That the proposed acquisition by the Company of Wells Fargo Shareowner Services, as described in the prospectus dated 12 September 2017, substantially on the terms and subject to the conditions set out in the Asset Purchase Agreement dated 12 July 2017 (“Acquisition”) be, and is hereby, approved and the board of directors of the Company (“Board”) (or any duly constituted committee thereof) be and is hereby authorised to take all necessary or appropriate steps and to do all necessary or appropriate things to implement or complete, or to procure the implementation or completion of, the Acquisition and to give effect thereto with such modifications, variations, revisions, waivers or amendments (not being modifications, variations, revisions, waivers or amendments of a material nature) as the Board (or any duly authorised committee thereof) may deem necessary, expedient or appropriate.
By order of the board of directors of the Company
Kathy Cong Company Secretary Equiniti Group plc
12 September 2017
Registered office: Sutherland House Russell Way, Crawley, West Sussex, RH10 1UH
Registered Number: 07090427 www.equiniti.com
ENTITLEMENT TO ATTEND AND VOTE
(1) Only those shareholders registered in the Company’s register of members at 6.30 p.m. on 26 September 2017, or if this meeting is adjourned, at 6.30 p.m. on the day two days prior to the adjourned meeting, shall be entitled to attend and vote at the meeting. Changes to the register of members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting.
WEBSITE GIVING INFORMATION REGARDING THE MEETING
(2) Information regarding the meeting, including the information required by section 311A of the 2006 Act, can be found at http://investors.equiniti.com/investors.
ATTENDING IN PERSON
(3) The doors will open at 8.30 a.m. and you may wish to arrive by 8.45 a.m. to enable you to take your seat in good time.
(4) If you have any special needs or require wheelchair access to the General Meeting venue, please
266 contact the Company Secretary at [email protected] or 01903 706160 in advance of the meeting.
APPOINTMENT OF PROXIES
(5) A shareholder who wishes to appoint a proxy should complete the Form of Proxy ("Proxy") which accompanies this Notice of General Meeting and which includes full details of how to appoint a proxy. If you do not have a Proxy and believe that you should have one, or if you require additional Proxies, please contact the Company’s helpline on 0371 384 2030 (+44 121 415 7047 if calling from overseas) (lines are open between 8.30am and 5.30pm Monday to Friday). As an alternative to completing a hard copy Proxy, proxies may be appointed electronically in accordance with Note 7.
(6) A copy of this Notice has been sent for information only to persons who have been nominated by a shareholder to enjoy information rights under section 146 of the 2006 Act (a "Nominated Person"). The rights to appoint a proxy cannot be exercised by a Nominated Person; they can only be exercised by a shareholder. However, a Nominated Person may have a right under an agreement with the shareholder by whom they were nominated to be appointed as a proxy for the General Meeting. If a Nominated Person does not have such a right or does not wish to exercise it, they may have a right under such an agreement to give instructions to the shareholder as to the exercise of voting rights.
(7) In order to be valid, a proxy appointment must be returned (together with any authority under which it is executed or a copy of the authority certified in ink by a bank, a stockbroker or a solicitor) by one of the following methods:
◦ online at www.sharevote.co.uk where full instructions on the procedure are given. The Voting ID, Task ID and Shareholder Reference Number printed on the Form of Proxy will be required to use this electronic proxy appointment system. Alternatively, shareholders who have already registered with the Company's Registrars’ online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk and clicking on the link to vote.
◦ in hard copy form by post, by courier or by hand to the Company’s registrar at the address shown on the Proxy.
◦ in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures set out in Note 9.
The appointment of a proxy in each case must formally be received by the Company’s registrar by no later than 9.00 a.m. on 26 September 2017.
(8) To change your proxy instructions you may return a new proxy appointment using the methods set out above. Where you have appointed a proxy using the hard copy Proxy and would like to change the instructions using another hard copy Proxy, please contact the Company as set out in Note 5. The deadline for receipt of proxy appointments (see Note 7) also applies in relation to amended instructions. Any attempt to terminate or amend a proxy appointment received after the relevant deadline will be disregarded. Where two or more valid separate appointments of proxy are received in respect of the same share in respect of the same meeting, the one which is last sent shall be treated as replacing and revoking the other or others. If the Company is unable to determine which is last sent, the one which is last received shall be so treated. If the Company is unable to determine either which is last sent or which is last received, none of them shall be treated as valid in respect of the relevant share(s).
(9) CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so by utilising the procedures described in the CREST Manual on the Euroclear website (www.euroclear.com). CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should
267 refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruction) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (EUI) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID number RA19) by 9.00 a.m. on 26 September 2017 (the latest time(s) for receipt of proxy appointments specified in this Notice of AGM). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in regulation 35(5) (a) of the Uncertificated Securities Regulations 2001.
ISSUED SHARES AND TOTAL VOTING RIGHTS
(10) As at 11 September 2017, the Company’s issued share capital comprised 300,109,369 Ordinary Shares of £0.001 each. Each Ordinary Share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 11 September 2017 is 300,109,369. The website referred to in Note 2 above will include information on the number of shares and voting rights.
(11) Under section 319A of the 2006 Act, the Company must answer any question relating to the business being dealt with at the General Meeting which is put by a shareholder attending that meeting, except in certain circumstances, including if it is undesirable in the interests of the Company or the good order of the meeting that the question be answered or if to do so would interfere unduly with the preparation for the General Meeting or involve the disclosure of confidential information or if the answer has already been given on a website in the form of an answer to a question.
(12) Under sections 338 and 338A of the 2006 Act, members meeting the threshold requirements in those sections have the right to require the Company (i) to give, to members of the Company entitled to receive notice of the meeting, notice of a resolution which may properly be moved and is intended to be moved at the meeting; and/or (ii) to include in the business to be dealt with at the meeting any matter (other than a proposed resolution) which may be properly included in the business. A resolution may properly be moved or a matter may properly be included in the business unless (a) (in the case of a resolution only) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company’s constitution or otherwise), (b) it is defamatory of any person, or (c) it is frivolous or vexatious. Such a request may be in hard copy form or in electronic form, must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it, must be received by the Company not later than the date six clear weeks before the meeting, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request.
VOTING
(13) Voting on all Resolutions will be conducted by way of a poll rather than on a show of hands. As soon as practicable following the General Meeting, the results of the voting at the meeting and the numbers of proxy votes cast for and against and the number of votes actively withheld in respect of each of the Resolutions will be announced via a Regulatory Information Service and also placed on the Company’s website: http://investors.equiniti.com/investors.
COMMUNICATION
(14) Except as provided above, shareholders who have general queries about the meeting should use the following means of communication (no other methods of communication will be accepted):
268 ◦ calling our shareholder helpline as set out in Note 5.
◦ by email to [email protected].
◦ by post to Equiniti Group plc, Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH.
You may not use any electronic address provided in this Notice of Meeting to communicate with the Company for any purposes other than those expressly stated.
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