BRIEFING NOTE ON CHANGES TO ACCOUNTING POLICIES FOR YEAR ENDING 31 DECEMBER 2018

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Carol Lindsey
5 years ago
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1 BRIEFING NOTE ON CHANGES TO ACCOUNTING POLICIES FOR YEAR ENDING 31 DECEMBER 2018 Two new key accounting standards became effective for periods commencing 1 January 2018: - IFRS15: Revenue from contracts with customers - IFRS9: Financial instruments This note will explain the impact of these accounting standards on Equiniti s previously reported results. IFRS15 Revenue from Contracts with Customers IFRS15 became effective from periods starting 1 January 2018 and we have adopted it on a fully retrospective basis. The six months to 30 June 2018 is the first period reported under IFRS15 and the comparatives have been restated to reflect the changes in the timing of and cost recognition. IFRS15 will not impact upon the lifetime and profitability of contracts, the cash flows of contracts and does not affect the majority of the Group s streams. The main changes from the adoption of IFRS15 are on its fixed period software contracts and transition periods of multiperiod contracts, in particular: - Revenue recognised from fixed term right to use software licences will be recognised at a point in time rather than over the licence term - In some multi-period pensions administration contracts there is a transition phase where significant costs are incurred in transitioning customers from a previous supplier to Equiniti. Under previous accounting would be recognised in line with the cost and effort to provide these transitional services. Under IFRS15 transition activities are not a separate performance obligation and so these costs and associated are deferred over the life of the contract. - The Group s balance sheet includes reclassification adjustments for: o New contract fulfilment assets representing accrued income and costs capitalised to fulfil the contract o New contract fulfilment liabilities representing deferred income which is higher as a result of delayed recognition. Impact on financial statements Balance sheet In summary, the following adjustments were made to the amounts recognised in the balance sheet at the date of initial application (1 January 2018) to reflect the reclassification to contract fulfilment assets and liabilities and to reflect remeasurement changes to contract fulfilment assets, through recognition of addition accrued income and contract delivery costs, and to contract fulfilment liabilities through additional deferred income:

2 IAS18 carrying amount 31-Dec-17 Reclassification IFRS15 carrying amount 01-Jan- 18 m m Trade and other receivables 80.3 (35.8) 44.5 Contract fulfilment assets Trade and other payables 96.0 (15.2) 80.8 Contract fulfilment liabilities Income Statement The impact on the group s income statement for the six months 30 June is as follows: 6 months June reported 6 months June restated m m m Revenue Administrative costs (156.7) (0.2) (156.9) Depreciation of property, plant and equipment (3.0) - (3.0) Amortisation of software (7.7) - (7.7) Amortisation of acquisition related intangible assets (13.3) - (13.3) Finance income Finance costs (5.9) - (5.9) Profit before income tax 8.7 (0.2) 8.5 Income tax (charge)/credit (1.5) - (1.5) Profit for the year 7.2 (0.2) 7.0 Profit for the year attributable to: - Owners of the parent 5.6 (0.2) Non-controlling interests Profit for the year 7.2 (0.2) 7.0 Basic and diluted earnings per share attributable to owners of the parent: Basic earnings per share (pence) 1.9 (0.1) 1.8 Diluted earnings per share (pence) 1.9 (0.1) 1.8

3 On a segmental basis, the Intelligent Solutions and Pensions Solutions businesses are affected as follows: Segmental 6 months 30 June m m m Investment Solutions Intelligent Solutions 55.4 (0.2) 55.2 Pension Solutions Interest Total Underlying 6 months 30 June m m m Investment Solutions Intelligent Solutions 13.4 (0.2) 13.2 Pension Solutions Interest Total segments 48.8 (0.2) 48.6 Central costs (6.8) - (6.8) prior to exceptional items 42.0 (0.2) 41.8 The impact on the group s income statement for the year 31 December is as follows: Year December Year December reported restated m m m Revenue Administrative costs (318.1) (0.5) (318.6) Depreciation of property, plant and equipment (5.7) - (5.7) Amortisation of software (18.3) - (18.3) Amortisation of acquisition related intangible assets (26.7) - (26.7) Finance income Finance costs (12.5) - (12.5) Profit before income tax 25.6 (0.3) 25.3 Income tax (charge)/credit (10.0) - (10.0)

4 Profit for the year 15.6 (0.3) 15.3 Profit for the year attributable to: - Owners of the parent 11.9 (0.3) Non-controlling interests Profit for the year 15.6 (0.3) 15.3 Basic and diluted earnings per share attributable to owners of the parent: Basic earnings per share (pence) 3.6 (0.1) 3.5 Diluted earnings per share (pence) 3.6 (0.1) 3.5 On a segmental basis, the Intelligent Solutions and Pensions Solutions businesses are affected as follows: Segmental Year 31 December m m m Investment Solutions Intelligent Solutions (0.3) Pension Solutions Interest Total Underlying Year 31 December m m m Investment Solutions Intelligent Solutions 33.0 (0.3) 32.7 Pension Solutions Interest Total segments (0.3) Central costs (12.7) - (12.7) prior to exceptional items 98.5 (0.3) 98.2 Cash flow statement The timing of cash receipts and payments are not affected by the implementation of IFRS15 and therefore cash flow does not change.

5 IFRS9 Financial Instruments The group has adopted IFRS 9 Financial Instruments from 1 January The group has determined that there is no material change to the accounting or disclosure of financial assets and financial liabilities of the group as a result of the change in accounting policy and therefore there has been no reclassification or remeasurement of previously reported financial statements following the adoption of IFRS9.

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