Shaping the global payments landscape. - VocaLink Connectconnect.vocalink.com/media/1292/voc4189_annualreport2014.pdf · Financial review 11 ... P Emney Barclays Bank plc J Coyle

Head OfficeVocaLinkDrake HouseThree Rivers CourtHomestead RoadRickmansworthWD3 1FXUnited Kingdom

[email protected]

Registered No. 6119036

www.vocalink.com

VocaLink Holdings LimitedAnnual Report & Accounts 2014

Shaping the global payments landscape.

Contents

Highlights of the year 3

Company leadership 4

Chairman’s foreword 5

CEO update 6

Corporate strategy and our innovation agenda 8

Financial review 11

Enterprise-wide risk management 12

Our customer service 15

Responsible business 16

The board of directors and executives 18

Directors’ disclosure of relevant information to the auditor 20

Statement of directors’ responsibilities 22

Independent auditor’s report to the members of VocaLink Holdings Limited 23

Consolidated profit and loss account 26

Consolidated balance sheet 27

Consolidated cash flow statement 28

Consolidated statement of total recognised gains and losses 29

Reconciliation of movements in shareholders' funds 29

Company balance sheet 30

Notes to the financial statements 31

VocaLink is a global payments partner relied on by financial institutions, corporates and governments to provide highly available and resilient payment solutions. We operate world class-leading payment clearing systems and ATM switching platforms which underpin the majority of UK account to account payments.

Our proven capability of implementing real-time payment systems in the UK has led to the development of similar solutions for other countries.

Our platforms have made it easier to make payments confidently, securely and cost effectively. In 2014, weprocessed over 10 billion transactions with a value in excess of £6 trillion, with service levels close to 100%.

We provide the platform forBacs and the Current AccountSwitch Service, the real-timeplatform for the Faster PaymentsService (FPS), and the LINK ATMNetwork, giving businesses and consumers simple, instantand reliable ways to access and move money.

We are also leaders in the development of mobilepayments with Zapp, the UK’s leading mobile paymentinnovation, which will empowerconsumers to be able to make

secure real-time consumer to merchant payments, via existing mobile banking services.

VocaLink is at the forefront of payments innovation, a fact that has been recognised in the numerous awards we have won in 2014.

Central BankingAward

Payments and Clearing Technology Provider

of the Year for 2014

This award recognises VocaLink’s outstanding

performance as a market practitioner in the central banking industry.

The PaymentsAwards 2014

winners

Technology Provider of the Year

Mobile Proxy Platform.

Payments Team of the Year Current Account Switch Service.

Payments Pioneer AwardDavid Yates.

The Banker Awards

The Banker’s Back Office Technology

Award

Current Account Switch Service.

FinancialWorld

InnovationAwards 2014

Technology Vendors – Most

Innovative FinancialServices Solution Current Account

Switch Service team.

Banking TechnologyAwards 2014

winners

Best Industry Infrastructure Initiative

Mobile Proxy Platform.

Best IT team Current Account

Switch Service team.

VOCALINK HOLDINGS LIMITED ANNUAL REPORT AND ACCOUNTS 2014 PAGE 3

• Renewal of the coreinfrastructure providercontracts for the FasterPayments Service and Bacs Service.

• Delivering the technology for the Paym mobilepayment service, confirmingour ability to deliver mobileand digital based solutions.

• The launch of the VocaLink ImmediatePayments Solution inSingapore, underpinning the Singapore “FAST”(real-time payments)platform.

• Business in the Community:In March 2014 we achieved a 93% rating in the Corporate ResponsibilityIndex, giving VocaLinkCorporate ResponsibilityGold status. This puts us on a par with top FTSE 100 companies and as arecognised leader in thefinancial services sector.

• Financial performanceremained strong with profitbefore tax (excluding Zappdevelopment spend of£29.3m) up £4m (9%) to£46.3m. Cash balances morethan doubled to £88.4m.

Highlights of the year

VocaLink’s strategy is to retain and enhance core payment processing services and develop new strategic capabilities. 2014 was a year of building on the foundations laid in 2013. We achieved majorsuccesses against this strategy during the year, including:

Contents




CEO update 6


Financial review 11















VOCALINK HOLDINGS LIMITED ANNUAL REPORT AND ACCOUNTS 2014 PAGE 5VOCALINK HOLDINGS LIMITED ANNUAL REPORT AND ACCOUNTS 2014PAGE 4

A year of achievement, with thepromise of more success in 2015.

It is a time of great change for thepayments industry and an exciting timefor the company.

The banking industry has remained inthe regulatory spotlight throughout theyear and the volume and complexity ofregulation continues to grow. 2014 sawthe creation of the Payment SystemsRegulator (“PSR”) as a subsidiary of the FCA. For the first time, banks andbuilding societies and the paymentsschemes and infrastructure companiesthat support them are becoming subjectto economic regulation. In particular,the PSR has announced that, in 2015,there will be a market review coveringthe role of the payments infrastructure,which could have far-reachingconsequences for VocaLink.

The PSR’s focus includes innovation; I am pleased to highlight that in 2014,VocaLink played a leading part in anumber of industry innovations. Inparticular, Paym was launched and has confirmed consumer appetite fornew ways to pay. In Singapore, we have successfully launched a new real-time payment system.

Our strategy remains to balance theexisting business with new revenuestreams from innovations in three areas: the establishment of Zapp, a newaccount to account mobile paymentsservice for consumers and businesses,the better use of the data associatedwith payments systems and the sale of real time payments systems outside the UK (building on VocaLink’s excellentcredentials as provider of the UK FasterPayments Service). The Singaporeimplementation was a first success forVocaLink’s Immediate Payments Serviceand we are engaged in a number ofother international opportunities. ForData and Zapp, 2014 has been a year ofdevelopment and building engagementswith our key partners. 2015 will be acritical test for us in launching newservices and will demonstrate again theimportant role this company plays inusing new technology to modernisepayments, to the benefit of householdsand businesses alike.

Our first responsibility - as ever - hasbeen maintaining the reliability andresilience of the core systems for whichwe are responsible. During 2014, sometemporary failures of bank systems havehighlighted just how critical payment

systems are and how minormalfunctions can have majorconsequences for the public andcompanies. It is only when things gowrong that the prime importance ofpayments is realised by everyone. I amdelighted therefore that our servicedelivery has been excellent across allthe core systems throughout the yearand that performance has been a keycontributory factor enabling us tosecure renewed contracts for thedelivery of Bacs and FPS. We willcontinue to invest in these systems tokeep them secure and reliable and toensure they are able to thwart thepersistent threat of cybercrime.

I congratulate and thank themanagement and staff of the companyfor their excellent performance in 2014. I also thank the board directors for their engagement, support andchallenge. They have played a vital role in setting the strategy for thecompany. In particular, I would like to thank Richard Hemsley, who left the Board at the end of the year, for his contribution over several years. We wish him well for the future.

We look forward to an exciting and challenging 2015.

Sir John GieveChairman, VocaLink

I am pleased to highlight that in 2014, VocaLink playeda leading part in a number of industry innovations.

‘‘

‘‘

Chairman’s forewordCompany leadership

Chairman Sir E J Gieve

Executive directors D G Yates (Chief Executive Officer)

C A Hafner (Chief Financial Officer)

Non-executive directors R Hooper CBE

A G MacLennan

G Gopalan

S Beauvallet Santander Group

P Emney Barclays Bank plc

J Coyle Lloyds Banking Group

A Potter Royal Bank of Scotland Group

A Slough HSBC Bank plc

P Horlock Nationwide Group

Auditor KPMG LLP

Secretary T Ensor-Clinch

Registered office Drake House, Three Rivers Court, Homestead Road, Rickmansworth, WD3 1FX


CEO update

2014 has been a highly successful year for VocaLink. Our service quality across VocaLink’s critical financial infrastructure has been exemplarythroughout 2014. This has been matched by a strongfinancial performance, which enables us to continue to invest heavily in infrastructure and people, to deliver the highest levels of service resilience as well as drive innovation for the benefit of UK consumers and business.

VocaLink met or exceeded all of its objectives for 2014. Our overallprofitability reflects the higheststandards of performance throughout our core businesses and a particularfocus on effective project delivery.

I am pleased to report that both Faster Payments and Bacs havecommitted to long-term contracts. In return for this pledge, VocaLink willinvest in a programme of sustainedinfrastructure investment, particularly in the increasingly important area ofcyber security, whilst also maintainingindustry-leading service level standards.

We have also invested significant time and energy in risk management to ensure that VocaLink has the rightprocesses, policies and effectivecontrols in place. I am pleased to report that no material issues haveoccurred during this year, nor have any been identified for 2015.

During the year we delivered several ground-breaking domesticinitiatives, most notably providing the technology that drives Paym, thePayments Council’s instant mobilepayment service. This has achievedtremendous momentum with over 1.5 million registrations to date.Similarly, the Current Account SwitchService has enabled a 25% increase in the number of consumer accountsswitched this year.

Our core business success has provided strong foundations from which to innovate. Our key investmentsin innovation have been in Zapp,International real time payment services and, most recently, Data.

Zapp represents a significant onwarddevelopment of the UK’s world-leading,real-time payments system. Zapp is the bridge which integrates the banksystems with the world of e-commerce.Consumers and businesses can useZapp to conduct e-commerce and m-commerce directly from their bankaccount with the highest standards ofsimplicity and security, whilst offeringboth certainty and control. Zapp putsfinancial control firmly into the hands of the consumer. Small businesses and merchants will be able to improvetheir e-commerce and m-commerceperformance using Zapp, which alsoensures that they receive instant valuefor goods sold and service provided.Consumers, merchants and acquirershave already shown tremendoussupport for Zapp and we expectprogress to accelerate next year.

Internationally, VocaLink continues to set new standards. BankGirot, theoperator of the Swedish paymentssystem, outsourced the developmentand processing of its AutoGiro systemsto VocaLink. Throughout 2014 theseservices have continued to perform at100%. In March 2014, the FAST projectlaunched in Singapore. This enablescustomers to perform real-timeinterbank transfers, including both debit and credit requests. VocaLink is very proud to have providedtechnology and support to BCS, theSingaporean payment operator, for this exemplary implementation, which is the first national real-time paymentsinfrastructure, outside of Europe, toutilise the ISO 20022 standard. Wecontinue to see a worldwide movementtowards real-time payment systems and there is significant internationalinterest in VocaLink’s capabilities and solutions.

Looking forward, VocaLink will continue to drive the pace ofinnovation. We will launch Zapp and aim to deliver data solutions to banks,their customers, and to government. We believe that VocaLink can play amajor role in helping to properly assess the affordability of lending to both consumers and smallbusinesses, by deploying much more accurate data.

Having secured long-term contracts for our domestic business, we willcontinue to explore and develop waysto streamline, simplify and improveaccess to UK payment systems. Thisreflects our steadfast belief that allpayment systems need to be real-timeto provide consumers with certaintyabout their funds. During the year, wehave held regular meetings with theregulator, the Bank of England andvarious industry bodies to understandthe industry impetus and direction of travel.

During 2015, we will continue to ensurethat all of our platforms remain robustand secure. This is particularly relevantwith growing widespread concernsaround cyber security. As part of ourown resilience measures, we are awareof the opportunity to use our ownresource to bolster the systems ofindividual member banks. We havedeveloped plans to do this and willdeliver this service during the year.

As VocaLink diversifies into new lines of business and international markets,our intellectual capital is continuallyenriched and the VocaLink team is

inspired to achieve more. Every newengagement adds to our capabilities,which, in turn, enables us to delivervalue to our customers, the economyand to our investors.

I would like to thank my colleagues at VocaLink for their hard work anddedication, our Board for their adviceand guidance and our customers andinvestors for their continuedcommitment and support.

I look forward to an exciting andprosperous 2015.

Our key investments ininnovation have been inZapp, International real time payment services and, most recently, Data.

‘‘

‘‘Singapore launched its real-time Fast And SecureTransfers (FAST) paymentsystem successfully in March2014. FAST was well receivedby users and its success was further affirmed when it was selected as one of the winners of the recentNational Infocomm Awards(NIA) 2014 in Singapore. As our partner for thedelivery of the FAST project,VocaLink has certainlycontributed to its success.We would like to thankVocaLink for its good servicesand excellent supportrendered to BCS for FAST.

‘‘

‘‘

Jimmy QuekManaging Director, Banking Computer Services Pte Ltd (BCS)

David YatesCEO, VocaLink


Corporate strategy and our innovation agenda

The payments industry continues to evolve through a once-in-a-generation shift in the way people pay.Consumers are demanding faster, safer and moreconvenient payment mechanisms. Regulators arepursuing an agenda of innovation and open access to payment infrastructures.

The UK’s new Payment Systems Regulator has stated its intention to bring all forms of payment systems under its auspices and drive innovation and access forward. New business models and technologicaladvances are threatening to disrupt the traditionalpayments value chain.

This has created significant opportunities for VocaLink to build upon its reputation as a secure, reliable and efficientprovider at the heart of the UK payments industry, with the innovative and technical know-how to provide newservices both at home and abroad.

Looking forwardVocaLink has a strategic vision to be the leading real-time network provider, anchored by our core UK services, connecting our customers and their customersthrough innovative transaction processing and delivery of related opportunities in new markets.

To achieve this vision, VocaLink has identified four strategic priorities:

Access and Data.Payment systems are being asked to meet the needs of a broader set

of stakeholders and we are investing to provide secure ubiquitous

access to our payment systems as a platform for innovation.

At the same time we are exploring the ways in which we can use data to

provide banks and other industryshareholders a richer set of insights.

These insights can reduce risk and fraud and improve the suitability of banking products and services to

meet customer needs.

Securing VocaLink's core business, of Bacs, LINK and Faster Payments,

which represent both VocaLink’s largestcurrent source of revenue and the most important foundation for the

development of future services. This includes the renewal of key contracts

for Faster Payments (completed inFebruary 2014) and Bacs (completed in

October 2014). VocaLink will seek tocontinually improve the supporting

platforms to ensure they are fit for purpose, reflect our customers’

requirements, as well as those of newgovernance and regulatory models,

whilst providing real resilience and contingency.

Expanding our business internationally, leveraging

our real-time and Alternative Payments capabilities.

In 2014, Singapore launched real-time payments, using a solution

designed and implemented withVocaLink. We will build on this successful

international deployment to target further opportunities where, throughgovernment intervention or market

development, we can drive value from our real-time clearing, data insights,

access platforms and AlternativePayments capabilities and skills.

Building and developing ourAlternative Payments capability

with the potential to deliver new value forboth banks and VocaLink. Our mobilepayments service, Zapp, has alreadyachieved significant backing and is

planned to launch in 2015.

VocaLink aims to build on this support to gain critical mass across banking

participants, retailers and other sectors to enable us to achieve network

effectiveness, thereby maximising valuefor all stakeholders. In addition, Paym

went live in the UK in 2014 and the systemsolution behind it now forms part of

our international offering.

Continued focus on our strategicobjectives has delivered a successfulyear, with revenue of £177.1m (2013: £190.6m, including delivery of the Current Account Switch Service project). Continued strongprofitability and strong growth incash balances have supported higher levels of investment in our core business and in our product development.

Strong profitability in the core businesswas offset by a £14.6m increase in Zappdevelopment costs to £29.3m (2013:£14.7m), causing operating profit beforeexceptional items and interest to fall by£16.0m to £16.5m (2013: £32.5m). Therewere no exceptional costs in 2014 (2013:£4.6m). Net interest receivable was£0.5m compared to net interest payablein 2013 of £0.3m. Profit before tax fell by£10.6m to £17.0m (2013: £27.6m).

After a tax charge of £5.1m (2013:£7.0m), which had no cash impact dueto the brought forward tax losses, profitafter tax was £11.9m (2013: £20.6m). No dividends have been paid, with all profits being retained to fund further growth.

Capital expenditure was £16.5m (2013: £14.5m), focused on continuedstrengthening of the core infrastructure.

Trade debtors fell by £37.4m to £4.2m (2013: £41.6m), principally due to collection of the 2013 charge for Account Switching development in January 2014.

The deficit for the Voca Final SalaryPension Scheme increased by £7.6m to £51.5m (2013: £43.9m) after tax.Deficit reduction contributions remain at £14.6m per annum. These were offsetby an increase in liabilities, primarily due to a lower discount rate based oncorporate bond yields, which, net of theimpact of hedging and tax, gave rise to a £19.9m charge in the statement of recognised gains and losses.

Net cash balances grew by £46.4m to£88.4m through strong cash generationin the core business which, togetherwith new committed lending facilities of £70m, provide the funding capacityto deliver key strategic objectives.

Claire HafnerChief Financial Officer


Financial review

2014 has been an excellent year. We have achieved our revenue and profit targets and look forward to a strong and exciting year ahead.


Enterprise-wide risk management

Governance and risk management

CorporateCorporate governance standards are maintained throughout VocaLink.VocaLink conducts regular reviews of the external and internal governancearrangements to ensure that appropriatedirection, decision making and controlsare being maintained to deliver theGroup’s strategic objectives.

Risk managementVocaLink adopts an enterprise-wide risk management approach to identify,assess, measure, manage and report riskin accordance with our risk appetite andbusiness strategy. The risk governanceframework adopts a tiered structure withauthority delegated from the Board tothe Audit and Risk Committee, and thenthrough Group risk policies applied bythe executive and management withineach business area. See figure 1.

The VocaLink risk framework is subject to on-going reviews and isbenchmarked against risk practices and techniques used within theFinancial Services sector.

Risk is assessed, managed andmonitored at functional, operationaland product levels within the company through:

• a clearly defined risk appetitestatement, with supporting risk policies;

• risk management processes thatincorporate control identification,assessments and clear ownership;

• risk registers informed by independentcontrol assurance activity performedby internal audit, external audit andthird party assurance providers;

• risk event/incident managementprocesses;

• risk reporting within the riskgovernance framework; and

• the application of a number of risk measurement, assessment anddata capture tools.

See figure 2.

Three Lines of Defence VocaLink operates a three line of defence model to ensure riskmanagement is embedded across all aspects of the Group’s operations,with a robust risk governance structure which reports into theVocaLink Holding’s board.

1st Line of DefenceAssessing, evaluating and measuring the risk management activities undertaken by the business. This includes adherence to the riskframework and Group policies,identifying issues and taking remedial action where required.

2nd Line of DefenceThe Chief Risk Officer and Chief LegalOfficer functions are responsible forsetting and monitoring the applicationof the Group regulatory compliance, risk control frameworks, risk appetiteand policies, and for providing oversightand reporting to the Risk Committee,Executive Committee, and the Auditand Risk Committee of the Board.

3rd Line of DefenceIndependent assurance to executive management, customers and shareholders is given throughinternal audit reporting, independentexternal ISAE 3000 service audits and ISO certifications.

VocaLink is certified to ISO/IEC27001:2005 Information SecurityManagement System (ISMS) and ISO 22301 Business ContinuityManagement System.

VocaLink remains compliant with thePayment Card Industry Data SecurityStandard (PCI DSS), in respect ofprotecting customer transactional datathrough the provision of ATM services.

Key risks

Concentration Risk The foundation of the VocaLink business is the processing of paymenttransactions for the Bacs, FasterPayments and LINK payment schemes.

The retention of the processingarrangements for these services is a key strategic objective for VocaLink.The loss of any of these processingarrangements or key customers wouldhave a material adverse impact on the Company. Contractual terms forboth the Bacs and Faster Paymentsprocessing have recently been renewed until 2020. The contract for the LINK scheme processingoperates on a rolling basis.

VocaLink continues to invest in its core services and products. In light ofthe likely impact of regulatory reformacross the payments industry and otherexternal factors, VocaLink continues to leverage its capability, expertise and brand credentials to developcommercial opportunities which willreduce the core service concentrationrisk and diversify the business.

VocaLink has a proven track record of a high level of service dependability,and uninterrupted provision of serviceto its customers.

Business Resilience, Recovery and Resolution Risk As a provider of technology-basedproducts and services, there is aninherent risk that VocaLink may suffer a significant technical or operationalfailure. A proactive approach, includingthe monitoring and evaluation ofexternal payment services incidents, isadopted to minimise the likelihood ofany service-affecting incidents which could have a detrimental impact on the provision of payment services to our customers.

The importance VocaLink attaches to this risk is reflected in the level ofcontinuous investment made in itsinfrastructure, delivered through arobust change control environment.

VocaLink has supported resilience andrecovery scenario activities in conjunctionwith the payments industry, to developdetailed plans, in response to heightenedassurance requirements from regulators.

Reputational Risk VocaLink provides electronic payment services and solutions to the global financial services markets.The management of reputational risk is therefore an area of key importanceto VocaLink, with specific focus placedupon the prevention of negativepublicity, litigation or loss of existing or new client business. VocaLinkcustomers operate within highlyregulated markets and place significanttrust in VocaLink to provide a highlyavailable, secure and reliable paymentsinfrastructure. VocaLink has dedicated IT Security and Business Resiliencefunctions, which identify external threats and ensure the technologyinfrastructure and operations haveappropriate resilience and recoverystrategies in place.

Figure 1: Risk management Figure 2: Risk culture

Risk Tools

Risk Reporting

Risk Registers

Risk Management Policy

Risk Management Process

Risk EventPolicy

Risk EventProcess

Risk Appetite

Business Areas

Executive and Management

Audit & Risk Committee

Board


Regulatory Risk VocaLink faces increasing exposure toregulatory scrutiny and change. Failureto meet the standards required wouldimpact the Company’s ability tooperate. In October 2014, HM Treasury(HMT) issued a consultation papersetting out those payment systems itintends to designate under section 43 ofthe Financial Services (Banking Reform)Act 2013 which includes Bacs, FasterPayments and LINK. The new PaymentsSystems Regulator (PSR) will becomefully operational on 1 April 2015 and isexpected to focus on industry strategy,innovation, ownership, control andgovernance of payment systems, directaccess to payment system operators,indirect access to interbank systems,interchange fees and regulatory tools.As infrastructure provider to several ofthe designated payment systems,certain of VocaLink’s activities will beregulated by the PSR.

VocaLink activities are not formallydesignated in accordance with Part 5 of the Banking Act 2009 and as such,VocaLink is not formally overseen by theBank of England. However, due to theimportance of the continuity of supplyof VocaLink core services and theconsequential impact that anoperational failure could have on theeffective functioning of the paymentsmarkets, VocaLink operates inaccordance with many of the

CPSS-IOSCO (Committee on Paymentand Settlement Systems – InternationalOrganisation of Securities Commissions)Principles for Financial MarketInfrastructures.

Cyber Security Risk Security breaches may arise from theactivities of individuals, criminalorganisations or nation states seeking a new challenge, publicity, financial gainor other malicious intent. The proactivemanagement of cyber security risk is akey priority for VocaLink; we continue to work closely with customers and thewider payment industry stakeholders to assess the constantly evolving ‘threat landscape’ and develop suitable mitigation strategies.

VocaLink maintains a multi layeredcontrol framework to reduce securityrisk, which includes:

• a Company-wide information security policy, which provides the mandate for security governance within VocaLink;

• ongoing external and internal audits to provide independentoversight of security management,including ISO27001 and PCI DSS;

• a regime of regular penetrationtesting to ensure that VocaLinksystems are free from exploitablevulnerabilities; and

• maintenance and expansion of robust authentication mechanisms to control external and internalprivileged access to high impact systems.

Change Management Risk VocaLink recognises that successfulexecution of the Company’s strategicobjectives requires robust projectgovernance and a continuousevaluation of resourcing to ensure thesuccessful delivery and management ofprojects. This is particularly importantwhere change activities impact nationalpayments infrastructures operated byVocaLink, or relate to large strategicprogrammes aimed at providing newservices to the payments industry.

The VocaLink change governanceframework is applied to the end-to-endchange management processes. This is supported by a dedicated ProjectAssurance function that providesprogramme oversight and performancereporting across the delivery of strategicprojects and change activities. VocaLinkutilises a number of key risk indicatorsto provide early identification of projectrisk, particularly across financialmanagement, execution and resourcedemand and supply.

Bijal DesaiChief Risk Officer

With a view to strengthening our customers’ experience, in January 2014 we joined the Instituteof Customer Service (ICS) for more focus on improving customerexperience and were assessed against their ServiceMarkaccreditation.

We are pleased to say that weachieved the ServiceMark in 2014,following an assessment of ouremployee engagement in relation to our organisation's customer service strategy and customersatisfaction feedback.

We were also assessed against theService Desk Institute (SDI) standards on our Customer Service Deskcapability, and in December the SDIreconfirmed that we deliver services to a 4 star level, placing VocaLink in the top quartile of performance against the UK industry benchmark.

Customer Service is a key focus for us; a corporate objective which is measured by the percentage ofcustomers who are satisfied withVocaLink as a company to work with.Based on our survey conducted inNovember 2014, 91.9% of ourcustomers told us they were satisfied, an increase of 15.4% on the previousyear. We also achieved a high score of +58 for our Net Promoter Score*, an increase of 19 points on the previous year.

As a result of this year’s surveyresponses, we are proud to haveimproved upon our already strongperformance. The key objectives forcustomer service in 2015 will see acontinued focus on our customermanagement approach, as well aslistening and acting on the feedback we received from our customers with a fully committed customer experience programme.

Our customer service

We are dedicated to providing world class customer service, and this has been reflected in the quality of our service performance and customer survey results for 2014.

15.4%increase in customersatisfaction on 2013

*Net Promoter Score – Measure of customer advocacy that asks ‘How likely is it that you would recommend [your company] to a friend or colleague?’


Responsible business

We seek to drive beyond industry best practice in everything we do and set the standard as an innovative business partner. This includes the way that we think about our own sustainability programme, and the positive impact that we can have incommunities where people use payments to support their day to day lives.

Over the last 7 years, we haveworked to minimise any key socialand environmental impacts, in orderto improve our business sustainability,delivering long-term stability andvalue, not just short-termperformance.

Innovation in society 2014 was an exciting year for VocaLink.We received a number of industryrespected accolades for the innovativepayments services that our technologyenables, including Paym.

We have continued to work on thesustainable options that encouragesocial benefit, by working with the UKGovernment and Payments Council todeliver services that encouragecompetitiveness in industry, improvingcashflow, and opening up opportunitiesto more consumers and demographics.

Considering the planet Facilitating economic growth inevitablyrequires more capacity from our datacentres, which means an increase in the electricity and water consumptionrequired to run our technology. The consideration of key environmentalimpacts is therefore a primary focus andis embedded within our data centre andinfrastructure processes as part of our ITstrategy. Our commitment to minimisingany environmental impact is reflected inour technology choices, which place anincreasing emphasis on suchconsiderations.

Resilience for our customers There is an expectation that VocaLinkwill provide the “never fail” highlyavailable and resilient payment solutionswhich underpin the UK economy. High quality of service is thereforeparamount. This year, as part of ourcustomer service programme, we askedour customers how important theythought responsible business was, andwhat they thought of our initiatives inthis area. This is valuable in helping us to shape how we think about ourResponsible Business Programme, whatit means to our customer community,and how we can champion consumersacross the UK and beyond.

Transforming the way we workWe were awarded the Investors inPeople (IiP) Gold standard in 2013 forgoing above and beyond in the way we develop, support and motivate ourpeople. In 2014 we extended this evenfurther. Engaging employees from the beginning, we embarked on aprogramme of initiatives to improve the way we communicate and shareinformation within the organisation,transforming the way we work.

This vision for a better staff experienceincludes our working environment, not only in our office layouts, but also in the technology we use to support the demand for a more mobile andcollaborative way of working.

More than philanthropy We partner with local charities to helpthem grow and develop, by offeringbusiness skills as well as financialdonations. They benefit from ourknowledge as we do from theirs,introducing more commercial thinkingand sharing resources; we also helpthem improve their fundraisingopportunities.

Supporting local charities is animportant part of our ResponsibleBusiness Programme. As a largeemployer in the areas around our main offices, we are very much aware of our responsibilities to the local area. This year, we made contributionstotalling £32,068 (2013: £39,208) tocharity and community projects. Nocontributions to political parties were made.

You can visit vocalink.com to read more about our material environmentaland social issues, programmes andperformance, in our ResponsibleBusiness report.

Proven responsible businessEvery year we measure theeffectiveness of our responsiblebusiness vision and itsimplementation. In 2014, we wereproud to be awarded three and ahalf stars for achieving 93% on theBusiness In The Community (BITC)Corporate Responsibility Index(“Gold” status). Being a leader in the financial sector demonstratesthat we take our role within the UKeconomy seriously, by continuouslyimproving the way we work.

CR INDEX2014

2014 was an exciting year for VocaLink. We received a number of industryrespected accolades for the innovative paymentsservices that our technologyenables, including Paym.

‘‘‘‘

93%on the Business In The Community (BITC) Corporate Responsibility Index (“Gold” status).


Sir John GieveChairman

Sir John joined VocaLink as Chairman in July 2009. With more than thirty years experience of thefinancial sector, both in the UK andinternationally Sir John is leading theVocaLink board of directors to drive the company's continued growth inEurope and beyond.

Sir John was previously DeputyGovernor for Financial Stability at the Bank of England where he was a member of the Monetary PolicyCommittee and sat on the board of the Financial Services Association.

He has a deep knowledge of publicpolicy in the UK and internationally. He has held some of the most seniorpositions in the UK Treasury and other parts of government and led the delivery of many initiatives in the financial services sector.

David YatesChief Executive Officer

David Yates joined VocaLink as CEO in 2012 bringing to the role nearly 30years of experience in the payments and transaction processing industries.

Prior to joining VocaLink, David was President of Western Union where he oversaw the development of strategy for e-Commerce, MobilePayments, Business Payments and Pre-Paid Cards. Previously he spent six years at First Data Corporation(FDC), most recently as Executive Vice President. David has also served in executive roles with several majorinternational corporations, includingIBM, General Electric and AmericanManagement Systems.

David currently serves on the Board of WorldPay, Europe's largest acquirerand e-Commerce specialist. David has a master's degree in law fromOxford University and is fluent inGerman and French.


Claire joined VocaLink in August 2009 as Chief Financial Officer (CFO),and is responsible for all aspects of the company's financial management,including accounting, commercial and procurement.

Claire joined VocaLink from EvershedsLLP where she was Finance Director(FD). She was instrumental in turningaround the financial operations of thecompany and running the IT, facilitiesand procurement functions. She alsointroduced a new global accountmanagement system that helped thecompany to win the FT InnovationAward for its billing and fee offering.

Prior to Eversheds, Claire worked as the acting FD of LCH Clearnet, and before this as the first FD of the IT and Operations division at Barclays Bank. Claire also held several financedirector divisional roles at BritishTelecommunications as well as holding various board positions in BT's international joint ventures.Claire also sits on the Board of the West Bromwich Building Society.

Richard Hooper CBE

Paul HorlockNationwide Group

Angus MacLennan Geeta Gopalan

Marcelino CastrilloSantander Group

Paul EmneyBarclays Bank plc

Jim CoyleLloyds Banking Group

Richard HemsleyRoyal Bank of Scotland Group

Andrew SloughHSBC Bank plc

Executive directorsChairman

Tim Ensor-ClinchSecretary

Non executive directors

Secretary

Registered OfficeDrake HouseThree Rivers CourtHomestead RoadRickmansworthWD3 1FX

The board of directors and executives


Directors

The names of the directors of thecompany in 2014 are shown on page 4.The following changes have occurredsince 31 December 2014.

Name Resigned

R Hemsley 31 December 2014

M Castrillo 12 February 2015

Name Appointed

A Potter 12 February 2015

S Beauvallet 12 February 2015

Directors' disclosure of relevant information to auditorThe directors who held office at the date of approval of this directors’report confirm that, so far as they areeach aware, there is no relevant auditinformation of which the company’sauditor is unaware and each director has taken all the steps that he or sheought to have taken as a director, tomake himself or herself aware of anyrelevant audit information and toestablish that the company’s auditor is aware of that information.

AuditorPursuant to Section 487 of theCompanies Act 2006, the auditors will be deemed to be reappointed and KPMG LLP will therefore continue in office.

By order of the Board

T Ensor-ClinchCompany Secretary

12 February 2015

Leadership team as at December 2014

David YatesChief Executive Officer

Bijal DesaiChief Risk Officer

Paul StoddartManaging Director Strategy and Business Development

Marc TerryManaging Director Commercial Services

Ian GausdenManaging Director LINK ATM Services

Chris RawsonChief Operating Officer


Tim Ensor-ClinchChief Legal Officer

Debbie LombardChief Human Resources Officer


Statement of directors' responsibilities in respect of the Annual Report and the financial statements

The directors are responsible forpreparing the Annual Report and thefinancial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law, they have elected to prepare the group and parent company financialstatements in accordance with UKAccounting Standards and applicablelaw (UK Generally Accepted Accounting Practice).

Under company law, the directors must not approve the financialstatements unless they are satisfied that they give a true and fair view of the state of affairs of the group andparent company and of their profit orloss for that period. In preparing each of the group and parent companyfinancial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable UKAccounting Standards have beenfollowed, subject to any materialdepartures disclosed and explained in the financial statements;

• prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the group and the parent companywill continue in business.

The directors are responsible forkeeping adequate accounting recordsthat are sufficient to show and explainthe parent company's transactions anddisclose with reasonable accuracy at anytime the financial position of the parentcompany and enable them to ensurethat its financial statements comply withthe Companies Act 2006. They havegeneral responsibility for taking suchsteps as are reasonably open to them,to safeguard the assets of the groupand to prevent and detect fraud andother irregularities.

The directors are responsible for the maintenance and integrity of thecorporate and financial informationincluded on the company's website.Legislation in the UK governing thepreparation and dissemination offinancial statements may differ fromlegislation in other jurisdictions.

By order of the Board.

T Ensor-ClinchCompany Secretary

12 February 2015

Independent auditor’s report to the members of VocaLink Holdings Limited

We have audited the financial statements of VocaLinkHoldings Limited for the year ended 31 December 2014 as set out on pages 26 to 45. The financial reportingframework that has been applied in their preparation is applicable law and UK Accounting Standards (UKGenerally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of theCompanies Act 2006. Our audit work has been undertaken sothat we might state to the company’s members those matterswe are required to state to them in an auditor’s report and forno other purpose. To the fullest extent permitted by law, wedo not accept or assume responsibility to anyone other thanthe company and the company’s members, as a body, for ouraudit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Directors’ ResponsibilitiesStatement set out on page 22, the directors are responsible for the preparation of the financial statements and for beingsatisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statementsin accordance with applicable law and International Standardson Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financialstatements is provided on the Financial ReportingCouncil’s website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statementsIn our opinion the financial statements:• give a true and fair view of the state of the

company’s affairs as at 31 December 2014 and of the group’s profit for the year then ended;

• have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by

the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not inagreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

John Ellacott(Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants15 Canada Square, London, E14 5GL.12 February 2015


Financial Statements 2014









Consolidated profit and loss accountFor the year ended 31 December

Consolidated balance sheetAs at 31 December

2014 2014 2013 2013Notes £m £m £m £m

Fixed assets

Intangible assets 9 6.4 11.4

Tangible assets 10 53.2 55.7

59.6 67.1

Current assets

Debtors 12 33.4 70.3

Deferred taxation 13 2.1 2.0

Cash at bank and in hand 88.4 42.0

123.9 114.3

Creditors

Amounts falling due within one year 14 (45.6) (44.3)

Net current assets 78.3 70.0

Total assets less current liabilities 137.9 137.1

Creditors

Amounts falling due after more than one year 15 (4.5) (2.6)

Provision for liabilities and charges 16 (8.3) (9.0)

Total net assets excluding pension liability 125.1 125.5

Pension liability 7b (51.5) (43.9)

Total net assets including pension liability 73.6 81.6

Capital and reserves

Called up share capital 18 133.4 133.4

Deferred shares 18 9.3 9.3

Share premium account 19 14.6 14.6

Capital reserves 19 2.9 2.9

Other reserves 19 (75.6) (75.6)

Profit and loss account 19 (11.0) (3.0)

Shareholders’ funds 73.6 81.6

These financial statements were approved by the Board of Directors on 12 February 2015 and signed on its behalf by:

D Yates C HafnerChief Executive Officer Chief Financial Officer

2014 2013Notes £m £m

Turnover 2 177.1 190.6

Administrative expenses on-going 3, 5, 7 (160.6) (158.1)

exceptional 4 - (4.6)

total (160.6) (162.7)

Operating profit 16.5 27.9

Operating profit / (loss) on-going 16.5 32.5


total 16.5 27.9

Profit on ordinary activities before finance charge 16.5 27.9

Interest receivable and similar income 6 1.2 0.3

Interest payable and similar charges 6 (0.7) (0.6)

Profit on ordinary activities before tax on-going 17.0 32.2


total 17.0 27.6

Tax on profit on ordinary activities 8 (5.1) (7.0)

Profit for the financial year on ordinary activities after taxation 11.9 20.6

All activities derive from continuing operations, with the exception of OneVu.


Consolidated cash flow statementFor the year ended 31 December

2014 2014 2013 2013Notes £m £m £m £m

Net cash inflow from operating activities 20 61.6 24.8

Returns on investment and servicing of finance

Interest received 0.3 0.4

Interest paid (0.4) (0.4)

(0.1) -

Capital expenditure and financial investments

Payments to acquire intangible fixed assets (2.5) (4.3)

Payments to acquire tangible fixed assets (12.6) (10.2)

(15.1) (14.5)

Increase in cash for the year 46.4 10.3

Reconciliation of net cash flow to movement in net cash 2014 2013£m £m

Change in net cash in the year 21 46.4 10.3

Net cash at 1 January 42.0 31.7

Net cash at 31 December 88.4 42.0

Consolidated statement of total recognised gains and losses

2014 2013Notes £m £m

Profit for the financial year 11.9 20.6

Actuarial loss recognised in the pension scheme 7b (24.8) (5.0)

Deferred tax relating to actuarial loss 4.9 (0.8)

Total recognised (loss) / profit (8.0) 14.8

Reconciliation of movements in shareholders’ funds

Group Group Company Company2014 2013 2014 2013£m £m £m £m

Profit for the year 11.9 20.6 0.3 0.2

Actuarial loss net of tax recognised in the pension scheme (19.9) (5.8) - -

Net (decrease) / increase in shareholders’ funds for the year (8.0) 14.8 0.3 0.2

Shareholders’ funds as at 1 January 81.6 66.8 170.7 170.5

Shareholders’ funds as at 31 December 73.6 81.6 171.0 170.7


Notes to the financial statements

1. Accounting policies

Accounting conventionThe financial statements have been prepared under thehistorical cost convention and in accordance with applicableUnited Kingdom accounting standards (UK GenerallyAccepted Accounting Practice). A summary of the keyaccounting policies is set out below.

Basis of consolidationThe consolidated financial statements include the financialstatements of the company and its subsidiary undertakingsmade up to 31 December 2014. The acquisition method ofaccounting has been adopted since the merger of Voca andLINK in 2007, for which merger accounting was used. UnderSection 408 of the Companies Act 2006, the Company isexempt from the requirement to present its own profit and loss account.

Going concernThe accounts have been prepared on a going concern basis. The directors confirm that, after making enquiries, they have a reasonable expectation that the Group hasadequate resources to continue in operational existence for the foreseeable future.

Income recognitionCharges for the Group’s automated money transmission,transaction switching and connectivity services are recognisedin the month of processing, excluding VAT.

The Group has a number of long-term contracts to developand deliver services for customers. Revenue on long-termcontracts is calculated by reference to the value of workperformed to date as a proportion of the total contract value.Where the outcome of a long-term contract cannot bemeasured reliably, contract revenue is recognised to theextent of contract costs incurred, when it is probable that such costs will be recovered. Where it is probable that totalcontract costs will exceed contract revenue, the expected loss is recognised as an expense immediately.

TaxationCurrent tax, including UK corporation tax, is provided atamounts expected to be paid (or recovered) using the taxrates and laws that have been enacted or substantivelyenacted at the balance sheet date.

Deferred tax is recognised in respect of all timing differencesthat have originated but not reversed at the balance sheetdate, where transactions or events that result in an obligationto pay more tax in the future or a right to pay less tax in thefuture have occurred at the balance sheet date. Timingdifferences are differences between the Group’s taxableprofits and its results, as stated in the financial statements,which arise from the inclusion of gains and losses in taxassessments in periods different from those in which they are recognised in the financial statements.

A net deferred tax asset is regarded as recoverable andtherefore recognised only to the extent that, on the basis of allavailable evidence, it can be regarded as more likely than notthat there will be suitable taxable profits from which the futurereversal of the underlying timing differences can be deducted.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timingdifferences are expected to reverse based on tax rates andlaws that have been enacted or substantively enacted by the balance sheet date.

Foreign currencyTransactions in foreign currencies are translated at theexchange rate at the date of the transaction. All exchangedifferences are taken to the profit and loss account.

DividendsDividends payable are accounted for in the accounting period in which they are proposed and declared. Dividendsare treated as a charge on reserves and accounted for throughthe reconciliation of movements in shareholders’ funds.

Intangible assets – development expenditureAll systems and programming development expenditure iswritten off when incurred except where such costs meet thecriteria stipulated under Statement of Accounting Practice 13 'Accounting for Research and Development'. In theseinstances, expenditure is capitalised as an intangible fixedasset and amortised over the shorter of its estimated usefullife and the contract period, commencing in the year in whichthe development becomes functional. Provision is made forany impairment based on an annual review. Impairment isbased on an assessment of future cash flows against thecurrent asset value.

Tangible fixed assetsTangible fixed assets are stated at cost net of depreciationand any provision for impairment. Depreciation is provided onall tangible fixed assets, other than assets under constructionand freehold land, at rates calculated to write off the cost, less estimated residual value, on a straight-line basis, over theestimated useful economic lives of the assets as set out below:

• Freehold buildings – 50 years• Leasehold land and buildings –Over the remaining period of the lease

• Plant and equipment – 4 to 20 years• Computers and ancillary equipment – 2 to 13 years• Fixtures and fittings – 3 to 10 years• Leased assets – The shorter of the term of the lease and the useful economic life of the asset

• Purchased software licences – The shorter of the useful economic life and the contract period

Certain items of ancillary equipment are depreciated overthe estimated useful economic life of the primary equipment.Provision is made for any impairment.

Company balance sheetAs at 31 December

2014 2014 2013 2013Notes £m £m £m £m

Fixed assets

Investments in subsidiaries 11 163.8 163.8

163.8 163.8

Current assets

Debtors 12 17.9 17.6

Cash at bank and in hand - -

17.9 17.6

Creditors

Amounts falling due within one year 14 (10.7) (10.7)

Net current assets 7.2 6.9

Total assets less current liabilities 171.0 170.7

Net assets 171.0 170.7

Capital and reserves

Called up share capital 18 133.4 133.4

Deferred shares 18 9.3 9.3

Share premium account 19 14.6 14.6

Capital reserves 19 2.9 2.9

Profit and loss account 19 10.8 10.5

Shareholders’ funds 171.0 170.7

These financial statements were approved by the Board of Directors on 12 February 2015 and signed on its behalf by:

D Yates C HafnerChief Executive Officer Chief Financial Officer Company No: 6119036


Notes to the financial statements(cont)

InvestmentsInvestments held as fixed assets are stated at cost less provision for permanent diminution in value.

LeasesRental costs under operating leases are charged to the profit and loss account in equal annual amounts over theperiod of the lease.

Share based paymentsThe Group operates a Long Term Incentive Plan (LTIP) for Executives and certain employees. Under FRS 20 this is deemed a share based payment scheme as the award is expected to be settled in cash, based on the future value of the shares.

For cash settled long term incentive plans, the fair value of the amount payable to the employee has been recognised as an expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spreadover the period during which the employee becomesunconditionally entitled to payment. The scheme has beenvalued using an option pricing approach, specifically, theMonte Carlo Simulation approach, taking into considerationthe terms and conditions upon which the instruments were granted.

The liability is revalued at each balance sheet date and settlement date with any changes to fair value beingrecognised in the profit and loss account.

Pension commitmentsDefined benefit schemeThe Group operates one defined benefit scheme in the UK which provides both pensions in retirement and deathbenefits to members. Pension benefits are related to themembers’ final salary at retirement and their length of service.The scheme closed to future accrual of new benefits on 31 July 2013, although members who remain in the Group’semployment retain a link to their final salary.

Pension scheme assets are measured at fair value andliabilities are measured on an actuarial basis using theprojected unit method and are discounted at the current rate of return on a high quality corporate bond of equivalentterm and currency to the liabilities. The increase in the present value of the liabilities of the Group's defined benefitpension scheme expected to arise from employee service in the period is charged to operating profit.

The expected return on the scheme's assets and the increaseduring the year in the present value of the Scheme’s liabilitiesarising from the passage of time, are included in other financeincome. Actuarial gains and losses are recognised in thestatement of Group Total Recognised Gains and Losses.

The assets of the scheme are held separately from those of the Group in an independently administered fund.

Defined contribution schemeThe Group operates a defined contribution scheme. The amounts charged to profit and loss in respect of thisscheme reflect the contributions payable in the year.

ProvisionsA provision is reflected in the balance sheet when the Group has a present legal or constructive obligation as aresult of a past event, and it is probable that an outflow ofeconomic benefits will be required to settle the obligation.Where the effect is material, provisions are discounted to net present value.

Provisions for losses on contracts are recognised when itbecomes probable that total estimated contract costs willexceed total contract revenues. Such provisions are recordedas a write-down of receivables for that portion of work whichhas already been recognised in the profit and loss accountand as liability provisions for the remainder. Losses aredetermined on the basis of estimated results over the life of the contract.

A provision for restructuring is recognised when the Grouphas approved a detailed and formal restructuring plan and the restructuring has either commenced or has been publiclyannounced. Future operating costs are not provided for.

Financial instruments – equityFinancial instruments issued by the Group are treated asequity (i.e. forming part of shareholders’ funds) only to theextent that they meet the following condition.

They include no contractual obligations upon the Company (or Group) to deliver cash or other financial assets or to exchange financial assets or financial liabilitieswith another party under conditions that are potentiallyunfavourable to the Company (or Group).

2014 2013£m £m

Transaction based 147.4 143.8

Maintenance/Subscription 15.9 14.9

Implementation and consultancy 13.8 31.9

177.1 190.6

2. Turnover

Turnover consists of the charges for the Group’s automated money transmission services and the provisionof secure connectivity, managed services, information, management and other professional services.

2014 2013Notes £m £m

Employee costs 7a 64.5 63.9

Other people costs 29.2 34.5

Maintenance, support and other costs 36.5 25.7

Rental of premises 2.2 2.0

Legal and professional 4.0 3.3

Depreciation 16.6 15.2

Research & development: Amortisation of deferred costs 7.6 18.1

160.6 162.7

Included in the above are Zapp development costs of £29.3m (2013: £14.7m).

After a review of the OneVu business, a decision was taken to close the service on 30 November 2014. OneVuhas serviced 800,000 consumers, linking to 4 banks and 25 biller brands as well as the MyBillsOnline service.

3. Administrative expenses

Operating profit from continuing operations is stated after charging:

2014 2013£m £m

Data centre consolidation costs - 4.6

Exceptional administrative expenses represent costs associated with an exercise to consolidate data centres.

4. Exceptional items

Exceptional Operating items



The aggregate remuneration of KPMG LLP and its associates for audit and other services (excluding value added taxes) is analysed below:

Audit and Audit andaudit-related Non-audit 2014 audit-related Non-audit 2013

services services Total services services Total£m £m £m £m £m £m

Fees payable for the statutory audit of the company and VocaLink consolidation 0.2 - 0.2 0.2 - 0.2

Fees payable for other services:

Services related to information technology 0.3 - 0.3 0.2 - 0.2

Other services - 0.4 0.4 - 0.6 0.6

Total other services 0.3 0.4 0.7 0.2 0.6 0.8

Total 0.5 0.4 0.9 0.4 0.6 1.0

5. Auditor’s remuneration

2014 2013£m £m

Interest payable on overdrafts and bank loans 0.6 0.6

Other finance costs 0.1 -

0.7 0.6

2014 2013£m £m

Interest receivable 0.4 0.3

Net pension scheme interest 0.8 -

1.2 0.3

6. Interest payable/receivable and similar charges

7. Information regarding employees and directors a) Employee costs (including Executive Directors)

b) Defined benefit pension scheme

VocaLink Holdings Limited operates one defined benefit scheme in the UK which provides both pensions in retirement and death benefits to members. Pension benefits are related to the members’ final salary atretirement and their length of service.

The scheme closed to future accrual of new benefits on 31 July 2013, although members retain a link totheir final salary. Contributions to the scheme for the year ending 31 December 2015 are expected to beapproximately £14.6million.

2014 2013£m £m

Wages and salaries 51.7 51.6

Social security 6.2 6.1

Pension costs

Defined benefit scheme - 1.7

Defined contribution schemes 6.6 4.5

Total employee costs 64.5 63.9

Number of persons employed (including part-time staff) 2014 2013No. No.

Average staff throughout the year 763 805

The major assumptions used by the actuary were (in nominal terms): 2014 2013

Discount rate 3.60% 4.60%

Inflation assumption (RPI) 3.10% 3.45%

Inflation assumption (CPI) 2.10% 2.45%

Rate of increase of salaries 3.75% 4.10%

Rate of increase in pensions in payment (Post 88 GMP) 1.90% 2.10%

Rate of increase in pensions in payment (Pre 97 Excess) 2.85% 3.05%

Rate of increase in pensions in payment (Post 97 pension) 3.05% 3.30%

Assumed life expectancies on retirement at age 60* are:2014 2013

Retiring today Males 28.5 28.4

Females 29.7 29.6

Retiring in 20 years time Males 30.0 29.9

Females 31.3 31.2

* With effect from 1 February 2007 the Normal Retirement Age (NRA) changed from 60 to 65 for service accrued from that date.



b) Defined benefit pension scheme (cont)

The assumptions used in determining the overall expected return of the scheme have been set with reference to yields available on government bonds and appropriate risk margins.

The assets in the scheme and the expected rate of return were:

Long-term Long-termrate of return Value rate of return Valueexpected at 2014 expected at 2013

2014 £m 2013 £m

Equities 6.15% 96.3 7.30% 64.1

Government bonds 2.45% 58.9 3.60% 33.0

Global/Broad bonds 5.15% 29.4 6.30% 32.8

Multi asset – Dynamic Asset Allocation n/a 0.0 7.30% 39.6

Cash 0.50% 3.0 0.50% 2.0

Insured pensioners 3.60% 3.9 4.60% 4.0

Absolute return funds 5.65% 6.9 6.80% 0.2

Swaps 2.45% 14.1 3.60% 0.2

Value Value2014 2013£m £m

Fair value of scheme assets 212.4 175.9

Present value of scheme liabilities (276.7) (230.8)

Deficit in the scheme (64.3) (54.9)

Related deferred tax asset 12.8 11.0

Net pension deficit (51.5) (43.9)

Analysis of the amount charged to operating profit2014 2013£m £m

Current service cost - 1.4

Past service cost - 0.3

Total operating charge - 1.7

Analysis of the amount credited to other finance income2014 2013£m £m

Expected return on pension scheme assets 11.3 9.2

Interest on pension scheme liabilities (10.5) (9.2)

Net interest 0.8 -

Analysis of amount recognised in statement of total recognised gains and losses2014 2013£m £m

Actuarial losses (24.8) (5.0)

2014 Reconciliation of opening and closing balances of the present value of the scheme liabilities and the fair value of scheme assets

Net PensionAsset/

Liabilities Assets (Liability)£m £m £m

Fair value of Scheme (Liabilities) / Assets at beginning of year (230.8) 175.9 (54.9)

Interest cost (10.5) - (10.5)

Expected return on scheme assets - 11.3 11.3

Contributions by employers - 14.6 14.6

Actuarial (loss) / gain (41.7) 16.9 (24.8)

Benefits paid 6.3 (6.3) -

Fair value of Scheme (Liabilities) / Assets at end of year (276.7) 212.4 (64.3)

2013 Reconciliation of opening and closing balances of the present value of the scheme liabilities and the fair value of scheme assets

Net PensionAsset/

Liabilities Assets (Liability)£m £m £m

Fair value of Scheme (Liabilities) / Assets at beginning of year (220.4) 161.0 (59.4)

Current service cost (1.4) - (1.4)

Interest cost (9.2) - (9.2)

Expected return on scheme assets - 9.2 9.2

Contributions by employers - 11.2 11.2

Actuarial loss (4.9) (0.1) (5.0)

Benefits paid 5.4 (5.4) -

Past service cost (0.3) - (0.3)

Fair value of Scheme (Liabilities) / Assets at end of year (230.8) 175.9 (54.9)



d) Share-based paymentsDuring the year, VocaLink introduced a new long-term incentive plan for the CEO and certain executives. The scheme provides a share of the growth in equity value of VocaLink Holdings Limited between 1 January2014 and each of 31 December 2018 and 31 December 2019. A payout equal to 1.8% of the growth in equityvalue (net of adjustments), above a hurdle rate of 6% and capped at 39%, is shared between the CEO andeligible executives. The VocaLink remuneration committee can exercise discretion over the plan including thevaluation outcome, award level and leavers. Amounts vesting in 2018 and 2019 will be settled in three equalcash instalments to be paid annually on the anniversary of determination.

The fair value of the scheme rights at 31 December 2014 has been assessed at £2.4m, resulting in an expense of £0.4m being recognised in 2014. The valuation methodology is based on the Monte CarloSimulation approach. Model inputs were expected volatility of 25% and a risk-free interest rate of 3.04%. The valuation was based on the multiple of earnings approach based on the underlying earnings of VocaLinkand a multiple based on comparable quoted companies. The value derived was discounted using a discountfor lack of marketability to reflect the time required to dispose of an investment in VocaLink.

Amounts are included in director’s emoluments when they vest.

History of experience gains and losses2014 2013 2012 2011 2010

Difference between the expected and actual return on scheme assets:

amount (£m) 16.9 (0.2) 0.4 (0.5) 5.2

percentage of scheme assets 8% 0% 0% 0% 4%

Experience adjustments arising on scheme liabilities

amount (£m) (1.3) (0.0) 6.4 (0.1) 0.2

percentage of scheme liabilities 0% 0% 3% 0% 0%

Total amount recognised in statement of total recognised gains and losses:

amount (£m) (24.8) (5.0) (9.4) (18.2) 4.3

percentage of the present value of the scheme liabilities 9% 0% 5% 10% 3%

b) Defined benefit pension scheme (cont)

2014 2013£m £m

Emoluments 2.6 2.5

Amounts receivable under long-term incentive schemes 0.1 0.2

Company contributions to money purchase pension schemes - 0.1

Amounts paid to third parties in respect of directors’ services 0.1 0.1

Total 2.8 2.9

No directors were members of the group’s defined benefit pension scheme.

Total emoluments of the highest paid director were £1,476,938 (2013: £1,453,671). Included in the total are deferred amounts due to be paid after more than one year of £0.6m (2013: £0.8m).

c) Directors’ remuneration and transactions

The taxation charge on the profit for the year comprises2014 2013£m £m

Corporation tax at 21.50% (2013 : 23.25%)

Current year 1.5 -

Prior years 0.6 -

Total current taxation 2.1 -

Deferred taxation

Origination and reversal of timing differences (1.7) 3.4

Adjustments in respect of prior periods 0.5 0.9

Write off of deferred tax re tax losses 1.2 -

Effect of decrease in tax rate on opening liability - 0.8

Pensions related 3.0 1.9

Total deferred taxation 3.0 7.0

Taxation charge 5.1 7.0

The actual tax charge for the current and previous year varies from the standard rate of 21.50% for the reasons set out in the following reconciliation.

2014 2013£m £m

Profit on ordinary activities before tax 17.0 27.6

Tax charge at 21.50% thereon (2013: 23.25%) 3.7 6.4

Effect of:

Expenses not deductible for tax purposes 0.1 0.1

Pension contribution in excess profit and loss charge (3.3) (2.2)

Capital allowances less than depreciation 1.1 1.3

Decrease in tax losses (0.1) (5.4)

Research and development in taxation credit - (0.2)

Prior year adjustment 0.6 -

Current tax charge 2.1 -

Due to changes in the group’s business, certain tax losses of the company will no longer be available tooffset future taxable profits. The deferred tax asset in relation to those losses has therefore been written off.

8. Tax on profit on ordinary activities



Development costsUK Payment

Schemes Other Total£m £m £m

Cost:

1 January 2014 168.3 73.2 241.5

Incurred and capitalised during the year 2.2 0.3 2.5

31 December 2014 170.5 73.5 244.0

Amortisation:

1 January 2014 158.7 71.4 230.1

Amortised in the year 6.6 1.0 7.6

31 December 2014 165.3 72.4 237.7

Net book value – 31 December 2014 5.3 1.1 6.4

Net book value – 1 January 2014 9.6 1.8 11.4

UK Payment Schemes development expenditure includes the cost of developing the VocaLink paymentplatforms (Bacs and the Faster Payments central infrastructure). Other development expenditure includesthe Bankgirot payments infrastructure and ATM Managed Services and Switching product development,together with the platforms for Current Account Switch Service, Cash ISA transfer and mobile payments.Amortisation is over the shorter of the useful economic life of the product and related customer contracts.These periods end between 2015 and 2018.

9. Intangible fixed assets

10. Tangible fixed assets

Freehold Leasehold Plant Computers FixturesLand & Land & & & ancillary &

buildings buildings equipment equipment fittings Total£m £m £m £m £m £m

Cost:

1 January 2014 8.2 17.5 20.2 128.2 3.8 177.9

Additions 0.2 0.1 0.4 13.3 - 14.0

Disposals - - - (0.4) - (0.4)

31 December 2014 8.4 17.6 20.6 141.1 3.8 191.5

Depreciation:

1 January 2014 4.2 15.0 16.6 83.7 2.7 122.2

Charge for the year 0.3 0.5 0.6 15.2 - 16.6

Diposals - - - (0.4) - (0.4)

31 December 2014 4.5 15.5 17.2 98.5 2.7 138.4

Net book value – 31 December 2014 3.9 2.1 3.5 42.6 1.1 53.2

Net book value – 1 January 2014 4.0 2.5 3.6 44.5 1.1 55.7

Company£m

At 1 January 2014 and 31 December 2014 163.8

The company has taken advantage of merger relief in recording its investment in Voca Limited and LINK Interchange Network Limited.

Principal investments are as follows:Proportion of equity share capital held

2014 2013

Subsidiaries

VocaLink Limited 100% 100%

Voca Limited 100% 100%

LINK Interchange Network Limited 100% 100%

All subsidiaries are incorporated in the United Kingdom which is their principal country of operation. The principal activity is the provision of payment services.

VocaLink Limited is a trading entity. The other subsidiaries are dormant.

11. Fixed Asset Investments


Trade debtors 4.2 41.6 - -

Other debtors 2.8 0.1 - -

Amounts due from Group undertakings - - 17.9 17.3

Prepayments 12.2 15.6 - 0.3

Accrued income 14.2 13.0 - -

33.4 70.3 17.9 17.6

All debtors fall due within one year.

12. Debtors: amounts falling due within one year



PAGE 42 VOCALINK HOLDINGS LIMITED ANNUAL REPORT AND ACCOUNTS 2014

Deferred taxation assetsProvided

2014 2013£m £m

Accelerated tax allowances on plant and machinery 1.4 (0.4)

Short term timing differences 0.7 0.7

Trading losses - 1.7

Deferred tax asset as at 31 December 2.1 2.0

Deferred taxation at the end of the year has been recognised at a rate of 20% (2013: 20%).

14. Creditors: amounts falling due within one year


Trade creditors 3.7 5.2 - -

Other taxation and social security 5.1 4.9 - -

Accruals 29.2 24.9 0.1 0.1

Other creditors 1.8 0.5 - -

Amounts due to Group undertakings - - 10.6 10.6

Deferred income 5.8 8.8 - -

45.6 44.3 10.7 10.7

13. Deferred taxation 16. Provision for liabilities and charges

Group Group GroupContract Restructure Reorganisation Other Group

Provision Provision Provision Total£m £m £m £m

At 1 January 2014 3.8 0.8 4.4 9.0

Charged to profit and loss account 0.1 2.2 0.7 3.0

Utilised / released (0.2) (1.7) (1.8) (3.7)

At 31 December 2014 3.7 1.3 3.3 8.3

During the year £0.2m of a brought forward provision to restructure a contract with a European customer was consumed.

£0.7m was charged to the profit and loss account during the year to cover property dilapidations andpotential claims on contracts. In addition to a brought forward reorganisation provision of £0.8m, a netcharge of £2.2m was made to the P&L of which £1.7m was utilised. Most provisions are expected to beutilised within 1 year, except for contract re-structuring (within 6 years) and dilapidations (within 11 years).

15. Creditors: amounts falling due after more than one year


Accruals for long term employee benefit scheme 1.7 2.6 - -

Deferred income 2.8 - - -

4.5 2.6 - -

17. Financial commitments and contingenciesa) Operating leases

At 31 December 2014 the Group was committed to making the following payments in respect of operating leases.

2014 2013Land and 2014 Land and 2013Buildings Other Buildings Other

£m £m £m £m

Lease expiring

within one year 0.9 - 0.5 -

between two and five years - 0.3 - 0.3

over five years 1.3 - 1.5 -

2.2 0.3 2.0 0.3

b) Capital commitments

At 31 December 2014 the Group was committed to purchasing the following fixed assets:

2014 2013Plant & Plant &

equipment equipment£m £m

Contracted but not provided for 0.9 0.1

c) Contingent liability

The company has guaranteed certain operational and contractual obligations of its subsidiary undertakings with their customers.

VOCALINK HOLDINGS LIMITED ANNUAL REPORT AND ACCOUNTS 2014 PAGE 45VOCALINK HOLDINGS LIMITED ANNUAL REPORT AND ACCOUNTS 2014 PAGE 45


PAGE 44 VOCALINK HOLDINGS LIMITED ANNUAL REPORT AND ACCOUNTS 2014

2014 2014 2013 2013 % Holding % Holding % Holding % Holding

(b) Shareholders (ordinary shares)

Lloyds Banking Group

Lloyds Bank Plc 14.29 14.29

Bank of Scotland Plc 10.81 10.81

25.10 25.10

The Royal Bank of Scotland Group

National Westminster Bank Plc 9.06 9.06

The Royal Bank of Scotland Plc 12.31 12.31

Coutts & Co. 0.03 0.03

21.40 21.40

HSBC 15.91 15.91

Barclays Bank Plc 15.18 15.18

Santander Group

Abbey National Plc 5.29 5.29

Alliance & Leicester Commercial Bank Plc 2.45 2.45

7.74 7.74

Nationwide Group 4.34 4.34

The Co-operative Bank Plc 3.31 3.31

National Australia Group/Clydesdale Bank Plc 3.24 3.24

Virgin Money Plc 0.79 0.79

AIB Group (UK) Plc 0.84 0.84

Coventry Building Society 0.73 0.73

Yorkshire Building Society 0.73 0.73

Bristol & West Plc 0.69 0.69

100.00 100.00

18. Called up share capital

2014 2013£m £m

(a) Share Capital

Authorised

190,698,425 ordinary shares of £1 each 190.7 190.7

9,301,575 deferred shares of £1 each 9.3 9.3

30,000,000 preference shares of £1 each - -

Allotted called up and fully paid

133,354,643 ordinary shares of £1 each at 31 December 133.4 133.4

9,301,575 deferred shares of £1 each at 31 December 9.3 9.3

Profit Capital Share Otherand loss Reserve Premium ReservesGroup Group Group Group

£m £m £m £m

At 1 January 2014 (3.0) 2.9 14.6 (75.6)

Actuarial loss on pension scheme net of deferred tax (19.9) - - -

Retained profit for the financial year 11.9 - - -

At 31 December 2014 (11.0) 2.9 14.6 (75.6)

The company has taken advantage of s408 of the Companies Act 2006 not to present its own profit and loss account. The company’s profit after tax for the year was £0.3m (2013: £0.2m). There was no othermovement in the company’s reserves.

“Other Reserves” arising on consolidation represent the merger reserve calculated from elimination of the share premium account and special reserve in 2007 against the book values of the merged businesses(Voca Limited and LINK Interchange Network Limited) on consolidation.

19. Movement in reserves

20. Reconciliation of operating profit to cash inflow from operating activities

2014 2013Notes £m £m

Group operating profit 16.5 27.9

Depreciation and amortisation 3 24.2 33.3

Decrease / (Increase) in debtors 35.2 (32.6)

(Decrease) / Increase in creditors (2.1) 6.0

Decrease in provisions 16 (0.7) (0.2)

Adjustment for pension contributions (11.5) (9.6)

Net cash inflow from operating activities 61.6 24.8

21. Analysis of changes in net cash

At Net Cash At1 January 2014 Inflows 31 December 2014

£m £m £m

Cash at bank and in hand 42.0 46.4 88.4

22. Related party transactions

The company has taken advantage of the exemption available under the terms of Financial ReportingStandard No. 8 not to disclose related party transactions with Group undertakings which have beeneliminated on consolidation. There were no further transactions with related parties.

The largest six shareholders as set out in Note 18(b) are represented on the Company’s Board of directors. Services are provided to these and other shareholders, principally through the Bacs, Faster Payments and LINK schemes.

PAGE 46

CreditsPortrait photography:Bob Wheeler

Design:pslondon

Print:W & J Linney Ltd

VOCALINK HOLDINGS LIMITED ANNUAL REPORT AND ACCOUNTS 2014

Head OfficeVocaLinkDrake HouseThree Rivers CourtHomestead RoadRickmansworthWD3 1FXUnited Kingdom

[email protected]

Registered No. 6119036

www.vocalink.com

VocaLink Holdings LimitedAnnual Report & Accounts 2014

Shaping the global payments landscape.

Contents




CEO update 6


Financial review 11















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Shaping the global payments landscape. - VocaLink Connectconnect.vocalink.com/media/1292/voc4189_annualreport2014.pdf · Financial review 11 ... P Emney Barclays Bank plc J Coyle