EZINE > JULY 2013 INSIDE THIS ISSUE: PERSPECTIVE ● Equiniti’s Share Registration Conference tackles the big industry issues ● Sunday Times Economics Editor on UK outlook CLIENT FOCUS Alent’s demerger and register consolidation UPDATE ● Global Equity Organisation award winners ● Great results from our latest EBS survey Q&A Shareview gets a make-over 10 MINUTE GUIDE The latest developments in Employee Share Plans
MP Jo Swinson was one of the high profile speakers at Equiniti’s Share Registration Conference. Find out more about the conference in the Perspective section.
PERSPECTIVE
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A packed Equiniti Share Registration Conference featured some of the industry’s best-informed speakers covering the latest key issues
THE EQUINITI SHARE REGISTRATION CONFERENCE 2013 With so much critical legislation currently passing through Westminster and Brussels, the 2013 Equiniti Share Registration Conference wasn’t lacking in hot topics – with developments in reporting, dematerialisation and executive pay at the fore. Around 180 people, including clients, advisors and market contacts attended the conference at 30 Euston Square in London on June 25. Expert speakers included Parliamentary Under Secretary of State for Employment Relations and Consumer Affairs, Jo Swinson, Director of Corporate Law and Governance for the Department for Business, Innovation and Skills, Richard Carter, and the Economics Editor of the Sunday Times, David Smith. Panels chaired by Equiniti’s highly experienced team brought a broad range of insight and opinion to the
Delegates discuss the issues of the day during a break at Equiniti’s Share Registration Conference at Euston Square in London.
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PERSPECTIVE
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day’s discussions, including from the company secretarial and investor perspectives. Equiniti Managing Director, John Parker, started proceedings by saying that the group continues to explore further acquisition opportunities to enhance the services Equiniti provides to its clients, their shareholders and employees. Managing Director of Registration Services, Stuart Ellen, outlined a terrific year for Equiniti with 107 contract renewals, many new clients and a 100% service satisfaction rate, before turning to one of the big issues of the afternoon – dematerialisation. “There is a real determination in Europe now to make this happen and the discussion has moved from ‘if’ to ‘how and when?’.” Stuart also added that the critical issues now are building the detailed solution around the proposed UK market operating model, the issue of costs, and importantly, how these are distributed among market participants, communication to and education of shareholders and, of course, timing of implementation. On this last point, as Stuart suspected at the conference, the EU Council of Minsters did not approve the Council text for the Central Securities Depositaries Regulation
There is a real determination in Europe now to make dematerialisation happen and the discussion has moved from ‘if’ to ‘how and when?’ Stuart Ellen
(CSDR) at the June meeting, so completing this now passes to the Lithuanian presidency. When questioned about Government plans for any publicity campaign to ensure a smooth transition to dematerialisation, Jo Swinson sought to reassure attendees that she fully understood the need to effectively communicate the changes to private shareholders. She also voiced concerns about a loss of momentum in encouraging boardroom diversity and urged businesses to redouble their efforts to ensure voluntary regulation continues, with quotas remaining on the agenda in Europe.
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“This is an issue about business performance and diversity of views leading to better performance,” she added. During his presentation, Richard Carter concentrated on even more pressing issues with narrative reporting regulations having just been laid before parliament to be debated during July. He said the new reporting arrangements offered a real opportunity to get back to basics and to ‘tell the company story’, communicate its business model and explain what makes it different from its rivals. And he urged company secretaries to take this ‘clean sheet of paper’ approach into the annual report and accounts.
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Turning to executive remuneration, Richard said the proposals, which have also just gone before parliament, were designed to ‘take the drama out of pay’. He also outlined – for the first time for many people in the room – how the Government intends to handle the transition to the new system of remuneration policy and implementation reports. The binding shareholder vote on remuneration policies was discussed in the first of the day’s panel discussions with Jennifer Walmsley, Director - Head of UK and Australian Engagement for Hermes Equity Ownership Services Ltd, saying that she felt the binding vote would be used by shareholders as an escalation tool and pointing out that they could already use advisory notes when challenging aspects of remuneration reports. However, she added that there may be more instances of the binding vote being used because there will be information not previously seen by shareholders. A second panel session on the strengths and weaknesses of board effectiveness reviews provoked some lively debate. There was a call from facilitators for more of the findings of reviews to be shared with shareholders; meanwhile clients called on facilitators to share
“The subjects covered couldn’t have been more topical given the legislation that is fast approaching. Thank you to everyone who attended for making the conference such a stimulating and informative day.”
More than 180 attended the event best practice drawn from previous assignments during the review process. The Sunday Times’ Economics Editor David Smith ended, proceeding on an upbeat note by concluding his round-up of the UK’s economic progress since the financial crisis by saying that he felt ‘durable’ growth was returning to the UK (see page 5 for a full report). “Yet again Equiniti delivered an event which brought together some of the best informed speakers in the industry,” said John Parker.
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PERSPECTIVE
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Durable growth is returning to the UK, Sunday Times Economics Editor David Smith told the Equiniti Share Registration Conference
MANAGING THE ‘AGE OF INSTABILITY’ With the sixth anniversary of the start of the global financial crisis fast approaching, David Smith, Economics Editor of the Sunday Times since 1989, told Equiniti’s Share Registration Conference 2013 that the markets remain unstable, with two hangovers from the crash still restricting recovery.
“Credit growth is the oxygen of the modern economy. There was too much of it before the financial crisis, when we were seeing 10-15% credit growth. That’s all changed – we’ve had zero credit growth in the past four-to-five years.
“The first, of course, is the banking hangover, and the second is the fiscal hangover, the big deficits and rising debts which emerged as a result of the crisis are still being dealt with,” he said. “There are also other problems on our doorstep, mainly with the Eurozone. The complication in the Eurozone is that they are all locked into a single currency and subject to the same monetary policy. Around four years ago, people thought that when countries joined the Euro it was a badge of economic and financial respectability, and no country that joined the Euro would default on its sovereign debt. We now know that’s not the case.”
Prior to the financial crisis, the UK had 66 consecutive quarters where GDP grew in every single quarter. Following the crisis there have been 15 quarters since the economy turned and five of them have been negative. David blamed this on a number of factors, including fiscal austerity, regulatory limits and poor credit growth.
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“In my opinion, the single biggest reason why domestic demand and consumer spending isn’t stronger is down to the squeeze on real incomes. Wages have been falling since about 2009, which has an impact on consumer spending. Consumer spending accounts for two-thirds of GDP. If you don’t have consumers spending, you don’t have a lot of economic growth and you can’t have a proper economic recovery.” During this difficult period for UK GDP, Equiniti has gone against the negative curve with consistent growth and acquisitions. Stuart Ellen, Managing Director, Registration Services, said: “Equiniti has bucked the trend throughout. During five years in which many businesses were forced to close or severely contract
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PERSPECTIVE due to dwindling profits, we have gone from strength to strength. We have enjoyed excellent customer retention and made smart acquisitions to strengthen our offering. With the IPO market coming back to life we have won several new contracts and plan to build on this success as the picture continues to improve.” And for David there are signs that the rest of the economy could be entering a brighter period. “On a more positive note, we have seen an adjustment in the burden of household debt, which has come down in a way that we haven’t really seen before. Normally, household debt rises, but we haven’t seen that in recent years,” he said. “Fiscal tightening needed to happen. Once we had a budget deficit of 11% GDP – the biggest we’d had in our time – the Government could no longer work on the assumption that we could just grow our way out of it. Something had to be done. The disturbing thing is that even if you raise taxes you don’t do much in terms of raising the proportion of tax in relation to GDP. To make a difference, you need to squeeze public spending.”
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We are still struggling to break out of these postcrisis hangovers but I do think growth is underway, and this time it seems more durable. As a result of the recession – the worst we have seen in the post-war period – the economy is much smaller than we expected it to be. In real terms, we’ve lost around an eighth of our economy to the financial crisis. This will take time to build up again. But David said: “We are seeing stronger signs from manufacturing, construction and services. The economy in all these areas seems to be coming back to life. We saw better growth than was expected – 0.3% in the first quarter – and the second quarter looks like it will be even better.” “We are still struggling to break out of these post-crisis hangovers but I do think growth is underway, and this time it seems more durable. And, I predict that interest rates will stay at
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the current low level for at least another three years, which will help. It’s by no means a rip-roaring recovery, but growth is definitely starting to slowly build.” Stuart said: “At Equiniti, we are cautiously optimistic about the positive signs in the economy, but we have seen false dawns already during recent years. The most important thing for us is that we are prepared to capitalise on an improving economy when it does come, and are ready to make the most of the bounce back for our clients. “In the meantime we have the expert team to continue adding value to our clients’ businesses. We can help them achieve their goals and our customer survey results demonstrate we are already doing this. And with events like today’s, we ensure we are at the forefront of all the debates and discussions in the industry as they unfold, and are ready to put what we learn into action for our clients.”
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CLIENT FOCUS
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Equiniti supported Alent’s new company secretary through its recent demerger and a share register consolidation.
SHARE DEAL SUPPORT During a “phenomenally busy” period new Company Secretary, Simon O’Hara has overseen Alent’s demerger from British engineering group Cookson and managed a major reduction in the new firm’s share register, all with Equiniti’s help. Cookson split its two core businesses in December 2012 to form Alent plc, which supplies advanced, consumable speciality chemicals and engineered materials; and Vesuvius plc, which supplies engineered ceramics. “The Cookson board conducted a strategic review last year and concluded that a demerger was the best option for maximising the value of the Group and creating value for its shareholders,” says Simon. “For Alent, as a stand-alone business, we now have the opportunity to build on our position as the preferred supplier of high performance materials and chemistry across the electronics, industrial
and automotive markets. We were delighted with the support we had from Equiniti, who we have used for previous corporate actions.” Cookson shareholders were issued with one share in each of the new companies for each Cookson share they had, which was a “complex operation”, but one that Simon says went smoothly. Equiniti Relationship Manager, Marc Mills says: “Equiniti was involved in all aspects of the demerger that directly impacted the Cookson shareholders, from the preparation and despatch of documentation, through contact centre services and general meeting management, to the ultimate creation of the two new registers. I’m proud that we hit every target and had no negative feedback.” With the new company established, Equiniti suggested running an immediate share dealing
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Alent, which supplies speciality chemicals and engineered materials, is one of two companies established by the demerger of Cookson overseen by Equiniti and Company Secretary, Simon O’Hara.
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CLIENT FOCUS programme to reduce the number of ordinary shareholders on the new register. Previous corporate tasks had led Cookson to have around 4,200 private shareholders with fewer than 100 shares. Simon says: “It was a characteristic of Cookson, and is a characteristic of Alent after demerger, that we have a very illiquid shareholding pattern. For a FTSE250 company we have a very concentrated number of shareholders holding a large percentage of the shares – 65% held by the top 10 and 80% by the top 20. The number of ordinary shareholders and the cost was disproportionate. So, for Equiniti to offer this was excellent. It was well communicated and we were happy with the number of people who took it up. I couldn’t be more complimentary about how the service was run and its outcomes.” At the end of the task the register had been reduced by more than 11%. Marc says: “We wanted to lead things and put Simon’s mind at ease and always think proactively about what was coming down the line. We could demonstrate that by offering such a share dealing programme. Alent would save its costs of AGM and dividend mailings.”
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In his first six months as a company secretary Simon has also held a successful AGM and set up and run the first dividend payments. “I have found Equiniti very supportive guiding the company through the processes. They have been very helpful and proactive,” he says. “It has certainly been challenging delivering the demerger and also setting up the corporate entity of Alent. The first half of this year has been phenomenally busy with a new board, a new team and new functions to set up. But, it’s been very enjoyable. We have a strong board and a great business with an exciting future.”
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UPDATE
THE LATEST INDUSTRY NEWS FROM EQUINITI
GEO NEWS Equiniti clients scoop prestigious GEO Awards while GEO Board reappoints Phil Ainsley Congratulations to Smith & Nephew, Edwards Group and GlaxoSmithKline who won awards at the Global Equity Organisation’s (GEO’s) 14th Annual International Conference, held in Munich during June. Nominated and entered by Equiniti, Smith & Nephew and Edwards Group were both announced as winners in the Best Plan Effectiveness section. Regarded as the most strategic award category, entries must demonstrate exceptional measureable results in order to win. Both winners launched international plans whilst overcoming hugely complex logistical, language and legal barriers with strategies based on solid and clear objectives that included: encouraging share ownership,
effective employee engagement, acquiring and retaining new talent and strengthening corporate identity. The award submissions were a collaboration between the client, Equiniti’s marketing department, and Service Delivery Managers at Equiniti. Phil Ainsley, Managing Director of Employee Benefit Solutions at Equiniti said: “It is a fantastic achievement for the clients and those supporting them to win these awards. The teams have worked incredibly hard to ensure the plans launched seamlessly. Managing a launch in up to 27 countries is a complex task, so achieving take up rates way beyond expectations and industry averages is a real credit to the hard work and diligence put in by everyone involved.”
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It is a fantastic achievement for the clients and those supporting them to win these awards. Phil Ainsley Further congratulations go to GlaxoSmithKline, also an Equiniti client, for winning awards in two categories, Best Plan Communication and Best Financial Education.
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UPDATE PHIL AINSLEY’S RE-APPOINTMENT TO GEO
Phil Ainsley first joined the GEO Board in 2006 and we are delighted that he has just been re-elected to serve for another three-year term. This year’s elected board members were chosen from a field of 18 exceptionally qualified nominees. GEO proudly recognises the newly appointed directors, as well as the continuing Board members, who represent a truly diverse and accomplished group of professionals. Phil says: “I am really pleased to be able to represent GEO and continue working with the leading lights of the global equity marketplace. I also have specific responsibilities for expanding Chapter activity, with the newest one set up in Canada and we’re looking to establish one later this year in South Africa. I would encourage anyone not yet a member to join up (www. globalequity.org). The regular newsletters, webcasts and blogs are a useful source of information and the member articles are a fantastic resource for share plan managers in both the UK and around the world. GEO is on Twitter, LinkedIn and also Instagram.”
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GEO AWARD WINNERS
BEST PLAN EFFECTIVENESS
ABOUT GEO
GEO was founded in 1999 to support corporate executives and equity compensation professionals dealing with the challenges of creating, managing and administering employee share plans large and small, national and global. GEO has more than 4,500 individual members representing more than 1,500 companies and professional firms in more than 60 countries around the world.
GEO’S MISSION
BEST PLAN COMMUNICATION AND BEST FINANCIAL EDUCATION
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GEO is a member-founded and memberdriven not-for-profit organisation dedicated to advancing knowledge and understanding of equity compensation worldwide through a global community of wellinformed professionals. GEO provides its members - regardless of location, position or affiliation - opportunities to share and learn about the strategic, governance, financial, cultural, legal, tax, communication and administrative issues affecting equitybased employee compensation around the world, from the fundamentals to the latest market intelligence.
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UPDATE
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EBS SURVEY RESULTS Our most recent survey results demonstrate that our investment in people and technology has paid off, says Phil Ainsley, Director of Employee Benefit Solutions at Equiniti Thanks to all of you who completed the recent EBS survey. With a 75% completion rate, we are confident that the responses we gained will help us to
understand what we are doing well, whilst making us aware of the areas where we need to improve. We’re sure you will find the following highlights of particular interest.
EBS 60 SECOND SURVEY – APRIL 2013 HIGHLIGHTS The figures below show the percentage of clients contacted that rated us as good or very good.
We are pleased to report that even though the participation levels have stayed the same, overall the scores and average scores have increased from the previous survey. The Service Delivery Manager feedback has also improved survey-upon-survey, with 100% of respondents rating their Service Delivery Manager a score of four or five, compared to 88% in the December 2012 survey. The contact centre has also seen the average score increase, with 77% of respondents giving a rating of four or five. We’ve invested a significant amount, both in training our people and in technology over the past two years, which has proved to be very beneficial. You will see more developments and service enhancements in the coming months and into 2014.
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Shareview gets a make-over, our Q&A explains all you need to know
FASTER, EASIER, BETTER Q A
Why are we making changes to the Shareview site? The current Shareview service has worked well for many users. However, we have listened to and want to address shareholder feedback given via the contact centre and usage surveys. The experience of using our Shareview service should be to help the beginner whilst being engaging for the more expert investor.
Q A
What differences will shareholders notice straight away? Users will now be able to log in more easily with their own ID rather than having to remember an eight-digit pin. Users will be prompted to set this up when they log in. Registration has also been simplified, greatly reducing the number of steps leading to account activation.
Q A
How easy is it to navigate the new site? The new hierarchy and navigation structure simplifies the user experience, helping users more easily find the content they require. Where the user does need more information, they are introduced to all the key features of the section. The section headings are clear and often accompanied by a graphic icon, which provides visual guidance and reference too. It will also be easy to retrace steps using ‘breadcrumb’ thread navigation
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The new Shareview site is now more intuitive, easier to navigate and richer in function than before and further extends our market leading Shareview offer. Kevin Hepburn Head of Web, Group IT, Equiniti
and locate the main site menus. The menu choices will now feel more logical and relevant and we won’t overload with unnecessary information, which can sometimes feel overwhelming.
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Q&A The language we use, is as jargon free as possible. It will also be ‘action related’ so you know where to access help and further information. If shareholders need help or wish to contact us another way, we will facilitate this for them.
Q A
What new tools are there for the investor? For investors we have provided an even better market information page including: market news, price charting, heat maps, market diaries, broker views, director deals and a company A-Z directory. On the portfolio pages, each holding will now have its own page detailing transactions and dividends that can be easily printed for record keeping.
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optimized portfolio gadget. You will also now be notified if you have new inbox items and emails regarding transactions.
Q A
What if shareholders or investors have a query? The contact centre staff have been fully trained and briefed and are ready for any queries that come their way.
IN NUMBERS Shareview
20,000
unique users per day
Q A
What new functions might I notice? We have integrated our Shareview and ESP Portal onto the same framework. This consolidated service will mean you do not access the systems separately as before. New users will be presented with the offer of setting up a portfolio, similar to that currently being used in the ESP Portal system. Services will be offered and targeted according to users likely needs such as: mandate services, e-communication preferences and a mobile
250,000
users per month
ESP Portal
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• Live since May 2011 • More than 100 clients
IF YOU WOULD LIKE MORE INFORMATION Please contact your relationship manager or visit Shareview.co.uk
10
MINUTE GUIDE
EQUINITI EZINE > JULY 2013
A round-up of the latest ESP developments starting with the UK Parliament’s Finance Act 2013
EMPLOYEE SHARE PLANS UPDATE Following the Office of Tax Simplification (OTS) review, the Government announced that there were to be a series of changes to approved employee share plans. To implement some of these, there needed to be amendments to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). These were scheduled to be brought in with the 2013 Finance Act. The Act received Royal Assent on 17 July 2013. Changes to approved employee share plans include: ■■ Dividend reinvestment limit – Part 8 of Schedule 2 to ITEPA 2003 has been amended so that the £1,500 limit on SIP dividend reinvestment can be removed along with the three year carry forward rule. ■■ SAYE exercises at reaching the specified age without retiring – Section 31 (requirement to have a specified age) and section 33 (exercise of options: reaching
specified age without retiring) have been removed from Part 6 of Schedule 3 of ITEPA. This repeals the current provision allowing exercise of SAYE options by those who reach the specified age without retiring. This change applies to approved options granted from the
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date of Royal Assent. However it has no effect in relation to options granted before Royal Assent. ■■ Retirement provisions – Previously, legislation set out ‘retirement’ by reference to an age specified in plan rules which could
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10 MINUTE GUIDE differ between plans. This led to the use of the term ‘early retirement’ where a participant had retired but not yet reached a specified age. Changes to Part 7 of ITEPA 2003 mean that plan rules no longer contain a specified age. Instead tax benefits are available following the participant ceasing employment by reason of retirement, with the definition of retirement being determined by companies. Companies now set out and then apply their own set of criteria (which is age neutral) to determine whether retirement has taken place.
Save As You Earn (Sharesave) savings arrangements New Prospectus from July
Following the OTS review, the Government also announced that there were to be changes to the Sharesave savings prospectus. A new prospectus came into force on 23 July 2013 and no longer contains a seven-year savings period. This is a momentous change in terms of Sharesave history as the seven-year savings period has been a feature since its introduction in 1980. However, as few people are now saving under Sharesave for this length of time, change became inevitable. The more popular three and five-year savings terms still remain.
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The change impacts Sharesave schemes launched from 23 July 2013.
HMRC consults on changes to unapproved share schemes
The OTS has also been looking at potential changes to non-tax advantaged employee share plans. HMRC published a consultation paper in May and if you have any comments or feedback the deadline is 16 August 2013. The paper contains recommendations in relation to: ■■ Share for share exchanges and rollovers ■■ The availability of corporation tax relief following takeover of a company ■■ The taxation of Employment Related Securities (ERS) awarded to internationally mobile employees ■■ Section 222 of ITEPA, and the rules concerning the ‘making good’ of amounts paid by an employer in respect of tax on ERS; and ■■ The valuation rules for listed company shares Other work being carried by HMRC relates to recommendations not currently within scope of the present consultation and includes: ■■ Marketable security – tax may not become due until a security could be sold for cash ■■ Employee shareholding vehicle – to manage
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employee share arrangements and create a market for shares ■■ Form 42 and PAYE recommendations As we prepare hundreds of annual returns for our clients (Form 42 – Unapproved, Form 39 Share Incentive Plan, Form 35 - Company Share Option Plan and Form 34 - Save As You Earn), we are working closely with clients and HMRC to review changes to the forms and how they are filed. The Government’s initial response to the consultation should be published in autumn 2013 and any legislation required, is expected to be included in the Finance Bill 2014. The Finance Bill 2014 consultation document can be accessed online.
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