TIDMLSE
RNS Number : 4779G
London Stock Exchange Group PLC
02 March 2018
2 March 2018
LONDON STOCK EXCHANGE GROUP PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2017
Unless stated otherwise, all figures in the highlights below
refer to continuing operations(1) for 12 months to 31 December 2017
and comparisons with the prior 12 month period on the same
basis.
-- Continued execution of strategy driving strong operational
and financial performance - deployment of capital for acquisitions
and organic investment to drive multiple growth opportunities
-- Strong financial results - headline growth across all core
business divisions - Information Services, Post Trade and Capital
Markets - underpins confidence in delivery of three-year financial
targets
-- Well positioned to drive further growth as a diversified,
global financial markets infrastructure business - operating on an
Open Access basis in partnership with customers
2017 Highlights
-- Total revenue up 17% to GBP1,768 million (2016: GBP1,515 million)
-- Total income up 18% to GBP1,955 million (2016: GBP1,657 million)
-- FTSE Russell delivered 33% revenue growth (up 15% on an
underlying basis); LCH OTC revenues up 21% (up 17% on an underlying
basis)
-- Adjusted operating expenses(2) up 6% on an organic and
constant currency basis reflecting continued investment in growth
and efficiency projects
-- Adjusted operating profit(3) up 18% at GBP812 million (2016:
GBP686 million); operating profit up 47% at GBP626 million (2016:
GBP427 million); adjusted EBITDA(2) up 19% at GBP915 million (2016:
GBP771 million)
-- Adjusted EPS(3) up 19% at 148.7 pence (2016: 124.7 pence);
basic EPS of 153.6 pence (2016: 63.8 pence)
-- Proposed final dividend increased to 37.2 pence per share - a
19% increase in the full year dividend to 51.6 pence per share -
reflecting the strong outlook for the Group
-- Capital management continues in-line with policy: GBP200
million share buyback completed; new medium term debt with EUR1
billion Eurobond issuance to support further growth and leverage
reduced to 1.7 times
-- New initiatives and achievements in the year include:
- SwapAgent started new service providing efficiencies for non-cleared products
- CurveGlobal making good progress one year on from launch and
investing for next stage developments
- Completed acquisitions of The Yield Book and Mergent, further
building data and analytics capabilities in our Information
Services businesses
- Increased shareholding in LCH Group to 65.9% (up from 57.8%);
expect to acquire a further 2% in March 2018
- Strong flow of IPOs in London and Italy helped companies raise
over GBP44 billion in new and further issues
- Turquoise Block Discovery saw 600% rise in total value traded
to EUR54.5 billion as customers started to adjust their trading
strategies ahead of MiFID II
-- Good progress on recruitment of new CEO with a strong field of high quality candidates
(1) Continuing operations exclude businesses sold, being Russell
Investment Management.
(2) Before depreciation, amortisation and non-underlying
items.
(3) Before amortisation of purchased intangible assets and
non-underlying items.
Organic growth is calculated in respect of businesses owned for
at least 12 months in either period and so excludes Russell
Investment Management, SwapMatch, ISPS, Mergent and The Yield Book.
The Group's principal foreign exchange exposure arises from
translating and revaluing its foreign currency earnings, assets and
liabilities into LSEG's reporting currency of Sterling.
Commenting on performance for the year, David Warren, CFO and
Interim Group Chief Executive, said:
"We have delivered another year of strong performance with
growth across all of our core businesses, including double-digit
revenue increases at FTSE Russell and LCH OTC. The Group has also
continued to invest in new initiatives and acquisitions to drive
further expansion of our global client offering. Reflecting the
strong results, as well as confidence in outlook and focus on
shareholder returns, the dividend per share increased in line with
earnings at 19%, and the Group completed a GBP200 million buyback
during the year.
"The Group is strategically, operationally and financially well
positioned to capitalise on a range of opportunities ahead and to
enhance shareholder returns. We also remain focused on delivering
the financial targets we have set for the next two years. Our Open
Access approach in partnership with customers will enable us to
benefit from MiFID II and to adapt to an evolving regulatory and
macroeconomic environment."
Financial Summary
Unless otherwise stated, all figures below refer to continuing
operations for the year ended 31 December 2017. Comparative figures
are for continuing operations for the year ended 31 December 2016.
Variance is also provided on an organic and constant currency
basis.
Organic
and
Year ended constant
31 December currency
-------------------------
2017 2016 Variance variance(1)
Continuing operations GBPm GBPm % %
------------------------------ ------ ------ --------- ------------
Revenue
Information Services (1) 736 595 24% 13%
Post Trade Services -
LCH 432 356 21% 17%
Post Trade Services -
CC&G and Monte Titoli 109 104 5% (2%)
Capital Markets (1) 391 368 6% 3%
Technology Services 91 88 3% -
Other revenue 9 4 - -
------------------------------- ------ ------ --------- ------------
Total revenue 1,768 1,515 17% 10%
Net treasury income through
CCP businesses 162 125 30% 22%
Other income 25 17 - -
------------------------------- ------ ------ --------- ------------
Total income 1,955 1,657 18% 11%
Cost of sales (215) (175) 23% 16%
------------------------------- ------ ------ --------- ------------
Gross profit 1,740 1,482 17% 10%
Operating expenses before
depreciation, amortisation
and impairment (816) (706) 15% 6%
Depreciation, amortisation
and impairment (103) (85) 22% 7%
------------------------------- ------ ------ --------- ------------
Total operating expenses (919) (791) 16% 6%
Share of loss after tax
of associate (9) (5) - -
Adjusted operating profit
(2) 812 686 18% 15%
------------------------------- ------ ------ --------- ------------
Add back depreciation,
amortisation and impairment 103 85 22% 7%
Adjusted earnings before
interest, tax, depreciation
and amortisation (2) 915 771 19% 14%
------------------------------- ------ ------ --------- ------------
Profit on disposal of
businesses 7 -
Amortisation of purchased
intangible assets and
non-underlying items (193) (259) (25%) (28%)
Operating profit 626 427 47% 44%
------------------------------- ------ ------ --------- ------------
Earnings per share
Basic earnings per share
(p) 153.6 63.8 141%
Adjusted basic earnings
per share (p) (2) 148.7 124.7 19%
Dividend per share (p) 51.6 43.2 19%
(1) Organic growth is calculated in respect of businesses owned
for at least 12 months in either period and so excludes Russell
Investment Management, SwapMatch, ISPS, Mergent and The Yield
Book.
The Group's principal foreign exchange exposure arises from
translating and revaluing its foreign currency earnings, assets and
liabilities into LSEG's reporting currency of Sterling.
(2) Before amortisation of purchased intangible assets and
non-underlying items.
Unless otherwise stated, all figures refer to the 12 months
ended 31 December 2017 and comparisons are against the same
corresponding period in the previous year.
Contacts:
London Stock Exchange Group plc
+44 (0) 20 7797
1222
Gavin Sullivan Media +44 (0) 20 7797
Paul Froud Investor Relations 3322
Corporate Brokers +44 (0) 20 7623
2323
Kunal Gandhi - Barclays +44 (0) 20 7653
Oliver Hearsey - RBC Capital Markets 4000
Further information
The Group will host a conference call on its Preliminary Results
for analysts and institutional shareholders today at 09:00am (GMT).
On the call will be David Warren (CFO and Interim CEO) and Paul
Froud (Head of Investor Relations).
Participant UK Dial-In Numbers: 0800 376 7922
Participant Std International Dial-In: +44 (0) 2071 928 000
Conference ID # 408 9059
Presentation slides can be viewed at
http://www.lseg.com/investor-relations
For further information, please call the Group's Investor
Relations team on +44 (0) 20 7797 3322.
The information in the preliminary announcement of the results
for the year ended 31 December 2017, which was approved by the
Board of Directors on 1 March 2018, does not constitute statutory
accounts as defined in Section 435 of the UK Companies Act 2006.
The financial statements for the year ended 31 December 2016 were
filed with the Registrar of Companies, and the audit report was
unqualified and contained no statements in respect of Sections 498
(2) and 498 (3) of the UK Companies Act 2006. The financial
statements for the year ended 31 December 2017 will be filed with
the Registrar of Companies in due course.
In accordance with the Listing Rules of the UK Listing
Authority, these preliminary results have been agreed with the
Company's auditors, Ernst &Young LLP, and the Directors have
not been made aware of any likely modification to the auditor's
report to be included in the Group's Annual Report and Accounts for
the year ended 31 December 2017.
The preliminary results have been prepared on a basis consistent
with the accounting policies set out in the Group's Annual Report
and Accounts for the year ended 31 December 2017.
Chief Executive's statement
Executing our Strategy
London Stock Exchange Group delivered another strong performance
in 2017. We continue to successfully execute our strategy to grow
and diversify the Group, operating on an Open Access basis in
partnership with our customers. We have seen growth across all of
our core business pillars - Intellectual Property, Risk and Balance
sheet management and Capital Formation - and have continued to
invest in new initiatives and acquisitions to drive further
expansion and efficiencies. The Group is strategically,
operationally and financially well positioned to capitalise on a
range of opportunities ahead and to enhance shareholder returns.
Confidence in our outlook led us to set financial targets at an
Investor Update event in June, which will deliver growth in Group
EBITDA margin to c.55% by 2019.
As a leading financial markets infrastructure group, we have
continued to grow our global footprint, including strengthening our
presence in Asia and in the United States. We have also made
selective acquisitions that develop our client offering, while
meeting our strict strategic and financial criteria. This included
increasing our majority shareholding in LCH, the acquisition of
Mergent and the acquisition of The Yield Book and Citi Fixed
Incomes Indices, which provides opportunities to significantly
enhance FTSE Russell's fixed income analytics and index business.
These acquisitions also help to expand LSEG's presence in the
United States, and our global distribution capabilities.
MiFID II Opportunities
The implementation of MiFID II, which took place on 3 January
2018, was a key focus for a number of our businesses and the
transition to the new regulatory regime has in overall terms been
very smooth for LSEG. I would like to thank everyone involved in
the programme, which was a truly collaborative effort across the
Group and provides us with further opportunities to differentiate
ourselves with our customers.
Importantly, MiFID II embeds and recognises Open Access as a key
principle in financial markets, and is one we have been operating
under for a number of years. The new rules will introduce greater
competition in financial markets, promoting transparency and
innovation while helping to reduce costs and leading to better risk
management. Our Open Access philosophy positions us well as we have
a proven track record of operating businesses in partnership with
our customers. As we stated in our Investor Update in June, a
number of these businesses, such as LCH, CurveGlobal, Turquoise and
MTS, are already beginning to benefit from the new MiFID II
environment and we expect that they will be able to further grow
their customer offerings.
Intellectual Property
In our Information Services Business, FTSE Russell continued to
perform strongly delivering double-digit revenue growth, up by more
than 30%. This is a consolidating sector where FTSE Russell has
successfully differentiated itself through its global reach and
breadth of offering. With the acquisition of The Yield Book, FTSE
Russell is the most diverse index business globally in product
terms and is well positioned to seek to benefit from the strong
underlying industry trends, including the demand for broader
multi-asset capabilities. As a result, FTSE Russell has further
enhanced its position as a leading global index provider with
approximately US$15 trillion of assets benchmarked to its
indexes.
Indexes are firmly embedded across the investment process and
FTSE Russell has the ability to provide customers with a
comprehensive product range and a deeper data and analytics
offering. Institutional clients remain the core client base for
FTSE Russell. The decisions made by these clients around index
selection, investment products and strategies have a great
influence on the entire investment sector, creating a demand for
products and services to execute the strategies, for example ETFs
and structured products, tracking the indexes they use. Currently,
over US$600 billion of ETF assets under management track FTSE
Russell indexes. FTSE Russell is also well positioned in emerging
markets with a strong track record of developing country-focused
benchmarks. A number of indexes and partnerships were launched over
the year including in Malaysia, China, Taiwan and Saudi Arabia.
The combination of client relationships and product capabilities
also drives innovation, often in partnership with our customers, in
areas such as environmental, social and governance (ESG). For
example, FTSE Russell announced that the world's largest pension
fund, The Government Pension Investment Fund of Japan (GPIF),
selected the new FTSE Blossom Japan Index as a core ESG benchmark.
The index uses FTSE Russell's innovative ESG Ratings data model and
highlights a growing trend among asset owners to integrate ESG
considerations into their investment strategies.
Also within Information Services, UnaVista, the Group's platform
for all matching, validation and reconciliation needs, continues to
help c.6,000 clients from around the world to meet their regulatory
reporting including additional requirements under MiFID II.
Risk and Balance Sheet Management
In our Post Trade business, LCH Group achieved another strong
performance with record volumes across multiple clearing services
in 2017, driven by new business as well as additional flow from
existing customers. SwapClear cleared over US$870 trillion of
notional driven by significant on-boarding of new clients across
Europe, the Americas and Asia Pacific. The SwapClear service now
has more than 100 members and over 200 dealers clearing in 55
countries and remains the leading OTC rates liquidity pool in the
world. Compression volumes also continued to rise, with over US$600
trillion compressed, up 59% on 2016, a further example of how the
cycle of trading, clearing and compressing is becoming increasingly
routine. The OTC clearing services delivered good, double-digit
revenue growth in the year.
LCH is well-placed to address capital and margin challenges
prevailing in the vast FX market, which trades around US$5 trillion
a day. The introduction of new bilateral margin rules has been a
catalyst for members to start centrally clearing with over US$11
trillion in notional cleared through ForexClear in 2017, compared
to US$3.2 trillion in the previous year. The search for greater
efficiencies is also driving growth in LCH's repo and CDS clearing
services, which both continued to expand their product offerings.
LCH SwapAgent, a new service for the non-cleared derivatives
market, processed its first trades and also extended the
efficiencies and infrastructure of clearing to the non-cleared
Cross-Currency Basis Swap market.
The Group's post trade services in Italy also recorded a good
performance with Monte Titoli delivering the benefits of T2S to its
members.
Capital Formation
LSEG's range of debt and equity markets provides firms across
the globe with access to deep and liquid pools of capital. Our
markets in London and Italy helped companies raise over GBP44
billion in new and further issues welcoming companies such as
Pirelli, Allied Irish Bank and Eddie Stobart. London Stock Exchange
was the largest European exchange with 108 IPOs in 2017 and second
globally by money raised. The ongoing success of London's AIM
market, which saw a near 45% increase in new capital raised, is
also being replicated on AIM Italia with 24 new admissions in
2017.
Our commitment to support growth SME companies was also
demonstrated through ELITE, which has continued to expand globally,
with partnerships secured in West Africa, Brazil, China and Saudi
Arabia in 2017. We also confirmed the launch of the first ELITE
Basket Bond, which is made up of ten innovative Italian ELITE
companies. Over 700 companies from across 27 countries are now part
of the ELITE community and we expect this number to continue to
grow over the coming year.
In May, we launched our new International Securities Market
(ISM) in London, an additional market for the issuance of primary
debt targeted at institutional and professional investors, with a
healthy pipeline of issuers. London Stock Exchange also continues
to be at forefront of innovative green finance with the number of
green bonds issued double that of the prior year.
CurveGlobal, the new interest rate derivatives platform, has
built a firm foundation since launch reflecting a growing appetite
for more capital-efficient and open alternatives to existing
derivatives trading services. CurveGlobal is proving itself to be a
highly efficient differentiator in the exchange traded derivatives
space, offering genuine choice and liquidity to the market.
Productive partnerships with inter-dealer brokers and technology
providers are also helping to increase flow to the platform.
Significantly, in the context of Best Execution rules under MiFID
II, CurveGlobal products listed on LSE Derivatives Market (LSEDM)
continue to be best price or tied the majority of the time.
Our pan-European trading platform, Turquoise, is working with
customers as they adjust their trading strategies in response to
MiFID II. Turquoise Plato Block Discovery, for example, set new
records in 2017 with total value traded in the year up 600% to
EUR54.5 billion.
LSEG Technology
The main focus of Technology is to underpin and support the
development of in-house solutions for our capital markets, clearing
and information businesses. Our technology, combined with our deep
expertise in financial markets infrastructure, enables us to
deliver market-leading services that put us at the forefront of new
product ideas and innovation. In 2017, we announced that we would
better position our technology offering by bringing several
products and businesses together under a new LSEG Technology brand.
As part of the re-organisation, we divested two small technology
assets as we focus on the key development opportunities ahead.
We have continued to work on the application of a range of
emerging technologies, including distributed ledger technology,
cloud-enabled computing, machine learning and big data. LSEG takes
an "active investment" approach, where we seek to combine the best
of our domain expertise in financial markets infrastructure and
technology with the best of the partner companies we choose to work
with. For example, we are collaborating with IBM to create a
distributed shared registry containing a record of all shareholder
transactions and helping to open up new opportunities for trading
and investing for European SMEs.
Summary
LSEG operates in a dynamic global industry and there will
continue to be both new challenges and opportunities ahead. LSEG
continues to perform strongly in an evolving macroeconomic,
regulatory and political environment, including Brexit. With the UK
set to leave the EU in March next year, LSEG has a responsibility
to ensure the orderly functioning of our markets and to contribute
to the financial stability of the global economy as a whole. LSEG
currently serves clients in a number of geographies across the
United Kingdom, Europe, United States and Asia and, as such, we
have plans and options for continuing to provide a seamless
service. Our partnership approach with our customers continues to
enable us to understand their needs against a changing regulatory
and market backdrop and to develop our products and services to
help our clients with the challenges they face.
In summary, our strategic ambition remains the same - to deliver
best in class capabilities, drive global growth and develop our
customer partnership approach. Our highly capable and experienced
management team remains focused on the opportunities ahead, to
deliver the financial targets we have set for the next two years,
while at the same time continuing to invest and expand. The Group
is well positioned for further successful development and
growth.
Financial review
The financial review covers the financial year ended 31 December
2017.
Commentary on performance uses variances on a continuing organic
and constant currency basis, unless otherwise stated. Constant
currency is calculated by rebasing 2016 at 2017 foreign exchange
rates. Sub-segmentation of revenues are unaudited and are shown to
assist the understanding of performance.
Cost of sales mainly comprise data and licence fees, data feed
costs, expenses incurred in respect of share of surplus
arrangements that are directly attributable to the construction and
delivery of customers' goods or services, and any other costs
linked and directly incurred to generate revenues and provide
services to customers.
Highlights
-- Total income of GBP1,955 million (2016: GBP1,657 million)
increased by 18% and total revenue of GBP1,768 million (2016:
GBP1,515 million) increased by 17%
-- Adjusted EBITDA(1) of GBP915 million (2016: GBP771 million) increased by 19%
-- Adjusted operating profit(1) of GBP812 million (2016: GBP686 million) increased by 18%
-- Operating profit of GBP626 million (2016: GBP427 million) increased by 47%
-- Adjusted basic earnings per share(1) of 148.7 pence (2016: 124.7 pence) increased by 19%
-- Basic earnings per share of 153.6 pence (2016: 63.8 pence) increased by 141%
Including discontinued operations:
-- Total income of GBP1,955 million (2016: GBP2,048 million)
decreased by 5%, and total revenue of GBP1,768 million (2016:
GBP1,905 million) decreased by 7%. Adjusted operating expenses(1)
of GBP919 million (2016: GBP955 million) decreased by 4%
-- Adjusted EBITDA(1) of GBP915 million (2016: GBP798 million) increased by 15%
-- Adjusted operating profit(1) of GBP812 million (2016: GBP713 million) increased by 14%
-- Operating profit of GBP603 million (2016: GBP530 million) increased by 14%
-- Adjusted basic earnings per share(1) of 148.7 pence (2016: 129.7 pence) increased by 15%
-- Cash generated from operations of GBP852 million (2016: GBP618 million) increased 38%
-- Year end operating net debt to pro-forma adjusted EBITDA at
1.7 times (2016: 1.1 times), within the Group's normal target range
of 1-2 times
David Warren
Group Chief Financial Officer
(1) London Stock Exchange Group uses non-GAAP performance
measures as key financial indicators as the Board believes these
better reflect the underlying performance of the business. As in
previous years, adjusted operating expenses, adjusted operating
profit, adjusted profit before tax and adjusted earnings per share
all exclude amortisation and impairment of purchased intangible
assets and goodwill and non-underlying items
12 months ended Dec 2017 12 months ended Dec 2016
============= ============================================
Variance
Continuing Discontinued Total Continuing Discontinued Total (Continuing) Variance at organic and constant currency(2)
Revenue GBPm GBPm GBPm GBPm GBPm GBPm % %
============== ========== ============ ====== ========== ============ ====== ============= ============================================
Information
Services 736 - 736 595 - 595 24 13
Post Trade
Services -
LCH 432 - 432 356 - 356 21 17
Post Trade
Services -
CC&G and
Monte Titoli 109 - 109 104 - 104 5 (2)
Capital
Markets 391 - 391 368 - 368 6 3
Technology
Services 91 - 91 88 - 88 3 -
Russell
Investment
Management - - - - 390 390 - -
Other 9 - 9 4 - 4 - -
============== ========== ============ ====== =========== ============ ====== ============= ============================================
Total revenue 1,768 - 1,768 1,515 390 1,905 17 10
Net treasury
income
through CCP
businesses 162 - 162 125 - 125 30 22
Other income 25 - 25 17 1 18 49 44
-------------- ---------- ------------ ------ ----------- ------------ ------ ------------- --------------------------------------------
Total income 1,955 - 1,955 1,657 391 2,048 18 11
============== ========== ============ ====== =========== ============ ====== ============= ============================================
Cost of sales (215) - (215) (175) (200) (375) 23 16
============== ========== ============ ====== =========== ============ ====== ============= ============================================
Gross profit 1,740 - 1,740 1,482 191 1,673 17 10
-------------- ---------- ------------ ------ ----------- ------------ ------ ------------- --------------------------------------------
Operating
expenses
before
depreciation,
amortisation
and
impairment(1) (816) - (816) (706) (164) (870) 15 6
Share of loss
after tax of
associates (9) - (9) (5) - (5) 80 86
-------------- ---------- ------------ ------ ----------- ------------ ------ ------------- --------------------------------------------
Adjusted
earnings
before
interest,
tax,
depreciation,
amortisation
and
impairment(1) 915 - 915 771 27 798 19 14
============== ========== ============ ====== =========== ============ ====== ============= ============================================
Depreciation,
amortisation
and
impairment (103) - (103) (85) - (85) 22 7
============== ========== ============ ====== =========== ============ ====== ============= ============================================
Adjusted
operating
profit(1) 812 - 812 686 27 713 18 15
============== ========== ============ ====== =========== ============ ====== ============= ============================================
Operating
profit/(loss) 626 (23) 603 427 103 530 47 44
============== ========== ============ ====== =========== ============ ====== ============= ============================================
Adjusted basic
earnings per
share(1) 148.7p - 148.7p 124.7p 5.0p 129.7p 19 -
============== ========== ============ ====== =========== ============ ====== ============= ============================================
Basic earnings
per share 153.6p (7.2p) 146.4p 63.8p (20.3p) 43.5p 141 -
============== ========== ============ ====== =========== ============ ====== ============= ============================================
(1) Before amortisation of purchased intangible assets and
non-underlying items
(2) Organic growth is calculated in respect of businesses owned
for at least 12 months in either period and so excludes ISPS,
Mergent, SwapMatch and The Yield Book
Note: Variances in all tables are calculated from unrounded
numbers
Commentary on the segments is done on a continuing basis unless
stated otherwise
Information Services
12 months ended Dec 12 months ended Dec Variance at organic and
2017 2016 Variance constant currency(1)
Revenue GBPm GBPm % %
=========================== =================== =================== ======== =======================
FTSE Russell Indexes 546 409 33 15
Real Time Data 94 91 3 1
Other Information Services 96 95 1 15
=========================== =================== =================== ======== =======================
Total revenue 736 595 24 13
=========================== =================== =================== ======== =======================
Cost of sales (62) (54) 14 4
=========================== =================== =================== ======== =======================
Gross profit 674 541 25 13
=========================== =================== =================== ======== =======================
Operating expenses(2) (291) (204) 43 -
=========================== =================== =================== ======== =======================
Operating profit(2) 383 337 14 -
--------------------------- ------------------- ------------------- -------- -----------------------
(1) Organic growth is calculated in respect of businesses owned
for at least 12 months in either period and so excludes ISPS,
Mergent and The Yield Book
(2) Operating expenses and operating profit variance percentage
is shown on a reported basis only i.e. not on a constant currency
basis. Variances will include underlying movements and foreign
exchange effects
Information Services provides global indices products, real time
pricing data, product identification, reporting and reconciliation
services. Revenue was GBP736 million (2016: GBP595 million).
FTSE Russell's revenue was GBP546 million (2016: GBP409
million), including first time contributions from Mergent and The
Yield Book. FTSE Russell revenue increased by 15%, with performance
in line with the Group's announced double-digit growth target for
FTSE Russell revenue. This performance was driven by increases in
AUM levels in benchmarked ETFs and other investable products, as
well as strong subscription renewal rates and data sales. Following
the 2014 acquisition of Frank Russell Company, targets were set for
both cost and revenue synergies, and in 2017 we achieved the three
year target of US$78 million for cost synergies on time and met the
five year target for revenue synergies of US$48 million, more than
two years early.
Real Time Data revenue increased by 1% year on year due to a
focus on enterprise licensing, while the number of terminals
decreased by 10% to 180,000 (2016: 200,000) with the reduction
largely in lower yield terminals.
Other Information Services revenues increased by 15%, mainly as
a result of growth in both UnaVista, driven by continued user base
expansion for regulatory reporting, trade confirmations and
reconciliations especially in anticipation of MiFID II
implementation in 2018, and SEDOL from continued licence
growth.
Cost of sales rose by 4% mainly as a result of increased data
charges and partnership costs, both related to growth in FTSE
Russell revenues. Gross profit margin expanded as a result of
revenue growth across the division.
Operating expenses of GBP291 million (2016: GBP204 million)
increased by 43%, driven by the GBP32million net impact of Mergent
and The Yield Book acquisitions and ISPS disposal, and foreign
exchange movements due to the weakening of Sterling relative to the
US Dollar. Cost increases were partially offset by the synergy
achievement from the Russell Index acquisition.
Operating profit rose by 14% to GBP383 million (2016: GBP337
million), driven largely by FTSE Russell revenue growth and
contribution from the acquisitions of Mergent and The Yield
Book.
Post Trade Services - LCH
12 months ended Dec 12 months ended Dec Variance at
2017 2016 Variance constant currency
Revenue GBPm GBPm % %
====================== =================== =================== ======== ==================
OTC 231 191 21 17
Non-OTC 133 116 14 7
Other 68 49 37 38
====================== =================== =================== ======== ==================
Total revenue 432 356 21 17
====================== =================== =================== ======== ==================
Net treasury income 120 82 46 39
Other income 10 9 14 9
====================== =================== =================== ======== ==================
Total income 562 447 26 21
====================== =================== =================== ======== ==================
Cost of sales (88) (56) 58 47
====================== =================== =================== ======== ==================
Gross profit 474 391 21 17
====================== =================== =================== ======== ==================
Operating expenses(1) (280) (268) 4 -
====================== =================== =================== ======== ==================
Operating profit(1) 194 123 58 -
---------------------- ------------------- ------------------- -------- ------------------
(1) Operating expenses and operating profit variance percentage
is shown on a reported basis only i.e. not on a constant currency
basis. Variances will include underlying movements and foreign
exchange effects
Post Trade Services - LCH comprises the Group's majority owned
global clearing business. Total income was GBP562 million (2016:
GBP447 million).
OTC clearing revenue increased by 17%, driven by SwapClear,
predominantly in client clearing with trade volume increasing by
29% to 1,227,000 (2016: 952,000). SwapAgent executed its first
trades in 2017, having launched in 2016, to simplify the
processing, margining and settlement of non-cleared derivatives.
2017 performance is in line with the Group's announced double-digit
growth target for OTC clearing.
Non-OTC clearing revenue increased by 7%, reflecting strong
growth in Fixed Income volumes cleared. Clearing in repo and cash
bond markets increased to EUR87.5 trillion (2016: EUR70.8
trillion). In 2017, RepoClear launched Sponsored Clearing, a
service offering buy-side firms direct access to LCH, enabling
firms to reduce their risk and maximise balance sheet
efficiencies.
Other revenue, which includes non-cash collateral management
fees and compression services grew by 38%.
Net treasury income increased by 39% to GBP120 million with a
26% increase in average cash collateral held to EUR84.5 billion,
due to increase in OTC and RepoClear volumes (2016: EUR67.0
billion).
Cost of sales increased 47%, mainly due to growth in SwapClear
and the associated increase in share of surplus. Gross profit
increased by 17% to GBP474 million.
Operating expenses increased by 4% with foreign exchange
movements due to the weakening in Sterling relative to the Euro and
higher depreciation from investment to support growth, partially
offset by the impact of cost saving initiatives.
LCH EBITDA margin increased by 8pp to 44% (2016: 36%), moving
towards the announced target of c.50% by 2019.
Operating profit increased by 58% to GBP194 million (2016:
GBP123 million).
Post Trade Services - CC&G and Monte Titoli
12 months ended Dec 12 months ended Dec Variance at
2017 2016 Variance constant currency
Revenue GBPm GBPm % %
=================================== =================== =================== ======== ==================
Clearing (CC&G) 39 43 (8) (14)
Settlement, Custody and Other (MT) 70 61 14 6
=================================== =================== =================== ======== ==================
Inter-segmental revenue 1 - - -
=================================== =================== =================== ======== ==================
Total revenue 110 104 6 (2)
=================================== =================== =================== ======== ==================
Net treasury income (CC&G) 42 43 (3) (9)
=================================== =================== =================== ======== ==================
Total income 152 147 3 (4)
=================================== =================== =================== ======== ==================
Cost of sales (17) (13) 36 28
=================================== =================== =================== ======== ==================
Gross profit 135 134 1 (7)
=================================== =================== =================== ======== ==================
Operating expenses(1) (64) (81) (21) -
=================================== =================== =================== ======== ==================
Operating profit(1) 71 53 34 -
----------------------------------- ------------------- ------------------- -------- ------------------
(1) Operating expenses and operating profit variance percentage
is shown on a reported basis only i.e. not on a constant currency
basis. Variances will include underlying movements and foreign
exchange effects
Post Trade Services provides clearing (CC&G), settlement and
custody activities (both Monte Titoli). Total income (excluding
inter-segmental income) was GBP151 million (2016: GBP147
million).
CC&G clearing revenues decreased by 14% influenced by a fall
in derivatives clearing volumes mirroring trading performance on
the Italian IDEM market. Monte Titoli revenues increased by 6%, due
to growth of custody revenues from domestic and international
clients who transferred their portfolios to Monte Titoli accounts,
and the benefit of a full year of a new domestic pricing structure
introduced from May 2016.
CC&G generates net treasury income by investing the cash
margin held, retaining any surplus after members are paid a return
on their cash collateral contributions. Net treasury income
decreased by 9% mainly due to unfavourable spreads and lower cash
held in 2017. The average daily initial margin at EUR11.1 billion
is down 9% (2016: EUR12.1 billion) due to lower volatility and
volumes from Italian fixed income markets.
Cost of sales rose by 28% largely as a result of the discount
phase-out of the settlement acquisition cost from T2S in November
2016.
Operating expenses decreased by 21%, driven by the absence of
2016 globeSettle impairment costs of GBP8 million.
Operating profit increased by 34% to GBP71 million (2016: GBP53
million).
Capital Markets
12 months ended Dec 2017 12 months ended Dec 2016 Variance Variance at organic and constant currency(1)
Revenue GBPm GBPm % %
============ ======================== ======================== ======== ============================================
Primary
Markets 110 91 21 19
Secondary
Markets
Equities 163 165 (1) (3)
Secondary
Markets -
Fixed
Income,
Derivatives
and Other 118 112 5 (2)
============ ======================== ======================== ======== ============================================
Total
revenue 391 368 6 3
============ ======================== ======================== ======== ============================================
Cost of
sales (16) (22) (28) (30)
============ ======================== ======================== ======== ============================================
Gross profit 375 346 8 5
============ ======================== ======================== ======== ============================================
Operating
expenses(2) (195) (169) 15 -
============ ======================== ======================== ======== ============================================
Operating
profit(2) 180 177 2 -
------------ ------------------------ ------------------------ -------- --------------------------------------------
(1) Organic growth is calculated in respect of businesses owned
for at least 12 months in either period and so excludes
SwapMatch
(2) Operating expenses and operating profit variance percentage
is shown on a reported basis only i.e. not on a constant currency
basis. Variances will include underlying movements and foreign
exchange effects
Capital Markets comprises Primary and Secondary Market
activities. Revenue was GBP391 million (2016: GBP368 million).
Revenue increased by 3%, largely driven by Primary Markets
performance, with revenue increasing by 19% as UK equity issuance
rebounded strongly in the Main Market after prior year uncertainty
following the UK referendum to leave the European Union.
The total amount of capital raised across our markets, both
through new and further issues, increased by 73% to GBP44.2 billion
(2016: GBP25.6 billion). There was a 45% increase with 194 new
issues across our markets (2016: 134). The pipeline of companies
looking to join our markets continues to look promising.
In Secondary Markets, in the UK average order book daily value
traded rose by 4% at GBP5.3 billion (2016: GBP5.1 billion). Italian
equity trading volumes decreased by 6% due to lower market
volatility at 276,000 trades per day (2016: 295,000). Trading on
Turquoise, our pan-European equities platform, decreased by 28% in
average daily equity value traded, against a strong 2016
performance to EUR3.9 billion (2016: EUR5.4 billion), with some
offset from growth in the higher margin Block Discovery
trading.
Fixed Income, Derivatives and Other revenue decreased by 2%. The
result reflects a 30% decrease in volumes on the Italian IDEM
market, Fixed Income decreased with a decline of 6% in MTS Cash and
BondVision notional value, and an 8% decline in MTS Repo.
Cost of sales decreased by 30% reflecting lower Turquoise lit
book revenues with gross profit up by 5%.
Operating expenses increased by 15% to GBP195 million (2016:
GBP169 million) with the main driver being foreign exchange
movements due to the weakening in Sterling relative to the
Euro.
Operating profit increased by 2% to GBP180 million (2016: GBP177
million).
Technology Services
12 months ended Dec 12 months ended Dec Variance at
2017 2016 Variance constant currency
GBPm GBPm % %
=========================== =================== =================== ======== ==================
Revenue 91 88 3 -
Inter-segmental revenue 20 16 25 -
=========================== =================== =================== ======== ==================
Total revenue 111 104 7 3
=========================== =================== =================== ======== ==================
Cost of sales (29) (28) 6 4
=========================== =================== =================== ======== ==================
Gross profit 82 76 8 3
=========================== =================== =================== ======== ==================
Operating expenses(1) (84) (64) 31 -
=========================== =================== =================== ======== ==================
Operating (loss)/profit(1) (2) 12 (117) -
--------------------------- ------------------- ------------------- -------- ------------------
(1) Operating expenses and operating profit variance percentage
is shown on a reported basis only i.e. not on a constant currency
basis. Variances will include underlying movements and foreign
exchange effects
Technology Services provides hosting solutions, client
connectivity and software products for the Group and third parties.
Third party revenue was GBP91 million (2016: GBP88 million).
Operating expenses increased by 31% to GBP84 million (2016:
GBP64 million), driven by continued Group technology investment,
centralisation of costs and foreign exchange movements due to the
weakening in Sterling relative to the Euro and US Dollar.
The Technology segment made a loss of GBP2 million (2016: GBP12
million profit).
The Group disposed of two Technology businesses: MillenniumIT
ESP was sold on 28 December 2017 and Exactpro was sold on 17
January 2018 post year end. These businesses generated a total of
GBP30 million revenue, GBP22 million of cost of sales and GBP8
million operating cost in 2017.
Operating Expenses (Continuing Operations)
On a continuing basis, Group operating expenses before
amortisation of purchased intangible assets and non-underlying
items were GBP919 million (2016: GBP791 million).
Operating expenses increased by 6%. The Group cost base was
adversely affected by GBP43 million of foreign exchange movements
arising as a result of translating and revaluing its foreign
currency costs, assets and liabilities into LSEG's reporting
currency of Sterling. The main drivers of the constant currency
cost base increase were variable staff costs and depreciation.
Depreciation, amortisation and impairment increased by 34% to
GBP103 million (2016: GBP77 million excluding GBP8 million
globeSettle impairment) during the year. A similar increase is
expected in 2018, as the Group continues to invest in core
technology, react to regulatory change and deliver new products. In
2017, the Group achieved the previously announced run rate synergy
targets for Frank Russell Company and LCH-related cost savings.
Offsetting this was a GBP32 million net impact of inorganic items,
being businesses owned for less than 12 months in either period,
principally ISPS, Mergent and The Yield Book. The Group continues
to exercise strong cost control and invest in new products to
support growth. 2018 will see the effect of a full year of The
Yield Book costs and recent Technology disposals.
Share of Loss after Tax of Associates
The GBP9 million loss reflects an increase in the Group's share
of the operating loss of CurveGlobal to 43.38% (2016: 26%)
following further investment, and a GBP4 million recognition of
historic losses due to increased ownership share. Despite client
focus on MiFID II implementation during 2017, CurveGlobal volumes
continued to grow and open interest at the end of 2017 was 162,000
contracts (2016: 39,000 contracts).
Non-Underlying Items and Purchased Intangible Assets
Amortisation of purchased intangible assets decreased by GBP4
million to GBP153 million (2016: GBP157 million). Additional
charges included GBP25 million of transaction-related costs, GBP7
million of restructuring costs and GBP8 million of integration
costs. These were partially offset by a profit after tax of GBP7
million relating to the disposal of ISPS and MillenniumIT ESP
businesses.
Finance Income and Expense and Taxation
Net finance costs were GBP62 million, down GBP1 million on the
prior year on a continuing basis.
The effective tax rate ('ETR') for the year in respect of
continuing underlying operations and including the effect of prior
year adjustments, is 22.4% (2016: 22.5%). This reflects reductions
in both the UK and Italian tax rates, the mix of profits in the
Group and finalisation of prior year tax returns. The underlying
ETR for 2017 excluding one-off items was 23.4%, and is expected to
be similar in 2018.
The contribution of continued underlying operations in the US
towards the ETR was stable in the period. US tax reform was signed
into law in December 2017 with effect from 2018. However, we do not
expect the lower Federal tax rate to have a material impact on the
Group's combined underlying effective tax rate. In part this is due
to the manner in which the US acquisitions have been financed and
the introduction of a new base erosion anti-abuse tax (the BEAT),
which will apply to intercompany transactions with the wider
Group.
Cash Flow and Balance Sheet
The Group's business continued to be strongly cash generative
during the year, with cash generated from continuing activities of
GBP852 million (2016: GBP618 million).
At 31 December 2017, the Group had net assets of GBP3,752
million (2016: GBP3,614 million). The central counterparty clearing
business assets and liabilities within LCH and CC&G largely
offset each other but are shown gross on the balance sheet as the
amounts receivable and payable are with different
counterparties.
Net debt
2017 2016
Year ended 31 December GBPm GBPm
===================================== ======= =======
Gross borrowings 1,953 1,166
Cash and cash equivalents (1,381) (1,151)
Net derivative financial liabilities 25 19
===================================== ======= =======
Net debt 597 34
===================================== ======= =======
Regulatory and operational cash 1,042 848
===================================== ======= =======
Operating net debt 1,639 882
------------------------------------- ------- -------
At 31 December 2017, the Group had operating net debt of
GBP1,639 million after setting aside GBP1,042 million of cash and
cash equivalents held to support regulatory and operational
requirements, including regulated cash and cash equivalents at LCH
Group, and amounts covering requirements at other LSEG companies.
Regulatory and operational cash increased by GBP194 million during
the period to 31 December 2017 as a result of over GBP100 million
surplus cash held in LCH, due to be distributed to LSEG in H1 2018,
with the balance comprising cash retained at Monte Titoli (to
support its CSDR obligations) and other regulatory and operational
requirements.
The Group's gross borrowings increased by GBP787 million during
the period to 31 December 2017, primarily due to the acquisitions
of The Yield Book and Mergent as well as the completion of a GBP200
million share buy back programme.
The Group retained total committed bank facilities of GBP1,200
million during the financial year. A new facility of GBP600 million
was arranged on improved terms whilst an existing facility, also of
GBP600 million, was extended for a further year to November 2022.
The new facility is a five-year commitment with two one-year
extension options available to the Group, subject to lender
approval.
In September 2017, the Group took advantage of favourable debt
capital market conditions and extended its debt maturity profile by
issuing EUR1 billion of bonds in two EUR500 million tranches under
its updated GBP2 billion euro medium term notes programme. The
bonds are unsecured and the tranches are due for repayment in
September 2024 and September 2029. The coupons are fixed at 0.875%
per annum and 1.75% per annum respectively. However, EUR700 million
of the proceeds of the bonds have been swapped into USD as part of
the Group's objective to match earnings in currency and protect key
ratios, resulting in an effective blended rate of interest of 2.8%
per annum overall. The Group redeemed in full LCH Group's EUR200
million Preferred Securities at the first Issuer Call date in May
2017; it also put in place a GBP1 billion euro commercial paper
programme later in 2017 which, at the end of the year, remained
unutilised.
With over GBP650 million of undrawn, committed bank lines
available, together with strong cash generation, the Group
continues to be well positioned to fund future growth, with scope
for further refinancing in 2018/19 to underpin its longer term debt
capital positioning.
The Group's interest cover, the coverage of net interest expense
by EBITDA (consolidated earnings before net finance charges,
taxation, impairment, depreciation and amortisation, foreign
exchange gains or losses and non-underlying items), increased to
15.5 times (2016: 13.0 times) in the 12 months to 31 December 2017.
This was driven primarily by earnings growth with interest costs
remaining in line with 2016. The Group's organic cash generation
remained strong but significant inorganic expansion increased
leverage (operating net debt to EBITDA updated to account for the
EBITDA of acquisitions or disposals undertaken in the period) to
1.7 times at 31 December 2017 (31 December 2016: 1.1 times).
Leverage remains well within the targeted range of 1-2 times.
The Group's long-term credit ratings were raised on the back of
strong growth and prudent leverage management. Moody's and S&P
increased their ratings of LSEG to A3 and A- respectively and
changed their outlooks to stable. LCH Group withdrew its rating
upon redemption of its Preferred Securities but initiated new long
term ratings with S&P at LCH Ltd and LCH SA to support business
lines, with both ratings set at A+ with a stable outlook.
Foreign exchange
2017 2016
================================== ==== ====
Spot GBP/EUR rate at 31 December 1.12 1.17
================================== ==== ====
Spot GBP/US$ rate at 31 December 1.35 1.23
================================== ==== ====
Average GBP/EUR rate for the year 1.14 1.22
================================== ==== ====
Average GBP/US$ rate for the year 1.29 1.36
---------------------------------- ---- ----
The Group's principal foreign exchange exposure arises as a
result of translating its foreign currency earnings, assets and
liabilities into LSEG's reporting currency of Sterling. For the 12
months to 31 December 2017, for continuing operations, the main
exposures for the Group were its European based Euro reporting
businesses and its US based operations, principally FTSE Russell,
Mergent and The Yield Book. A 10 Euro cent movement in the average
GBP/EUR rate for the year and a 10 cent movement in the average
GBP/US$ rate for the year would have changed the Group's continuing
operating profit for the year before amortisation of purchased
intangible assets and non-underlying items by approximately GBP23
million and GBP24 million, respectively
The Group continues to manage its translation risk exposure by
matching the currency of its debt to the currency of its earnings,
where possible, to ensure its key financial ratios are protected
from material foreign exchange rate volatility.
Earnings per share
The Group recorded an adjusted basic earnings per share, which
excludes amortisation of purchased intangible assets and
non-underlying items, of 148.7 pence (2016: 129.7 pence). Basic
earnings per share were 146.4 pence (2016: 43.5 pence).
Dividend
The Board is proposing a final dividend of 37.2 pence per share,
which together with the interim dividend of 14.4 pence per share
paid to shareholders in September 2017, results in a 19% increase
in the total dividend to 51.6 pence per share. The final dividend
will be paid on 30 May 2018 to shareholders on the register as at 4
May 2018.
Financial Targets
At the 12 June Investor Update event in 2017, the Group set out
financial targets as below and continues to progress against the
targets, as referenced earlier in the text.
Financial Targets to 2019
------------------------------------------------------------
FTSE Double-digit growth to continue
Russell Sustainable and attractive margins over
the same period
--------- -------------------------------------------------
LCH Double-digit OTC revenue growth to continue
Accelerating EBITDA margin growth - approaching
50% by 2019
--------- -------------------------------------------------
LSEG Operating expenses held at c.4% p.a. increase
while Group continues to deliver revenue
growth and improved margins
Next phase cost saves GBP50m p.a. by exit
2019
EBITDA margin of c.55%
--------- -------------------------------------------------
CONSOLIDATED INCOME STATEMENT
Year ended 31
December 2017
2017 2016
---------------------------------- -------------------------------------------------
Underlying Non-underlying Total Underlying Non-underlying Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
Re-presented(1) Re-presented(1) Re-presented(1)
Continuing
operations
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Revenue 2 1,768 - 1,768 1,515 - 1,515
Net treasury
income through
CCP business 2 162 - 162 125 - 125
Other income 2 25 - 25 17 - 17
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Total income 1,955 - 1,955 1,657 - 1,657
Cost of sales 2 (215) - (215) (175) - (175)
Gross profit 1,740 - 1,740 1,482 - 1,482
Expenses
Operating
expenses
before
depreciation,
amortisation 3,
and impairment 5 (816) (40) (856) (706) (102) (808)
Profit on
disposal
of businesses 5 - 7 7 - - -
Share of loss
after tax of
associates 2 (9) - (9) (5) - (5)
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Earnings before
interest, tax,
depreciation,
amortisation
and impairment 915 (33) 882 771 (102) 669
Depreciation,
amortisation 3,
and impairment 5 (103) (153) (256) (85) (157) (242)
Operating
profit/(loss) 812 (186) 626 686 (259) 427
Finance income 8 - 8 7 - 7
Finance expense (70) - (70) (70) - (70)
---------- -------------- ------ --------------- --------------- ---------------
Net finance
expense 6 (62) - (62) (63) - (63)
Profit/(loss)
before tax from
continuing
operations 750 (186) 564 623 (259) 364
Taxation 7 (168) 190 22 (140) 39 (101)
Profit/(loss)
for the year
from continuing
operations 582 4 586 483 (220) 263
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Discontinued
operations
(Loss)/profit
after tax for
the year from
discontinued
operations 8 - (25) (25) 18 (88) (70)
Profit/(loss)
for the year 582 (21) 561 501 (308) 193
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Equity holders
Profit/(loss)
for the year
from continuing
operations 513 17 530 436 (213) 223
(Loss)/profit
for the year
from
discontinued
operations 8 - (25) (25) 17 (88) (71)
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Profit/(loss)
for the year
attributable
to equity
holders 513 (8) 505 453 (301) 152
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Non-controlling
interests
Profit/(loss)
for the year
attributable
to
non-controlling
interests from
continuing
operations 69 (13) 56 47 (7) 40
Profit for the
year
attributable
to
non-controlling
interests from
discontinued
operations 8 - - - 1 - 1
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Profit/(loss)
for the year
attributable
to
non-controlling
interests 69 (13) 56 48 (7) 41
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
582 (21) 561 501 (308) 193
---------------- ----- ---------- -------------- ------ --------------- --------------- ---------------
Earnings per share attributable
to equity holders
Basic earnings
per share 9 146.4p 43.5p
Diluted earnings
per share 9 143.0p 42.6p
Adjusted basic
earnings per
share 9 148.7p 129.7p
Adjusted diluted
earnings per
share 9 145.3p 127.2p
Earnings per share for continuing
operations attributable to equity
holders
Basic earnings
per share 9 153.6p 63.8p
Diluted earnings
per share 9 150.1p 62.5p
Adjusted basic
earnings per
share 9 148.7p 124.7p
Adjusted diluted
earnings per
share 9 145.3p 122.3p
Dividend per share in
respect of the financial
year:
Dividend per
share paid
during
the year 10 14.4p 12.0p
Dividend per
share declared
for the year 10 37.2p 31.2p
---------------- ----- ---------- ---------------------- --------------- --------------- ---------------
(1) Comparatives have been re-presented to reflect
earnings before interest, tax, depreciation and amortisation
('EBITDA') by separately identifying depreciation
and amortisation, with no impact to profit before
tax or after tax for the year.
CONSOLIDATED STATEMENT of comprehensive income
Year ended 31 December 2017
2017 2016
Note GBPm GBPm
Profit for the financial year 561 193
Other comprehensive income/(loss):
Items that will not be subsequently
reclassified to profit or loss
Defined benefit pension scheme
remeasurement gain/(loss) 93 (58)
Income tax relating to these
items 7 (25) 15
------------------------------------ ---- ---- ----
68 (43)
------------------------------------ ---- ---- ----
Items that may be subsequently
reclassified to profit or loss
Net investment hedges 3 (74)
Available for sale financial
assets:
- Net gains from changes in
fair value 1 7
- Net gains reclassified to
the consolidated income statement
on disposal (8) -
Exchange (loss)/gain on translation
of foreign operations (64) 492
Income tax relating to these
items 7 2 (1)
(66) 424
------------------------------------ ---- ---- ----
Other comprehensive gains net
of tax 2 381
------------------------------------ ---- ---- ----
Total comprehensive income
for the financial year 563 574
------------------------------------ ---- ---- ----
Attributable to non-controlling
interests 81 98
Attributable to equity holders 482 476
------------------------------------ ---- ---- ----
Total comprehensive income
for the financial year 563 574
------------------------------------ ---- ---- ----
CONSOLIDATED balance sheet
At 31 December 2017
2017 2016
Notes GBPm GBPm
---------------------------------- ------ ------- -------
Assets
Non-current assets
Property, plant and equipment 129 108
Intangible assets 11 4,590 4,124
Investment in associates 5 3
Deferred tax assets 38 68
Derivative financial instruments 12 4 -
Available for sale assets 12 86 28
Retirement benefit asset 56 2
Other non-current receivables 12 55 88
4,963 4,421
---------------------------------- ------ ------- -------
Current assets
Inventories - 3
Trade and other receivables 12 688 637
-------
CCP financial assets 673,354 504,833
CCP cash and cash equivalents
(restricted) 61,443 53,553
------- -------
CCP clearing business assets 12 734,797 558,386
Current tax 126 124
Available for sale assets 12 19 74
Cash and cash equivalents 12 1,381 1,151
---------------------------------- ------ ------- -------
737,011 560,375
---------------------------------- ------ ------- -------
Assets held for sale 8 6 -
---------------------------------- ------ ------- -------
Total assets 741,980 564,796
---------------------------------- ------ ------- -------
Liabilities
Current liabilities
Trade and other payables 12 598 601
CCP clearing business liabilities 12 734,981 558,478
Current tax 70 61
Borrowings 12, 13 522 619
Provisions 1 1
---------------------------------- ------ ------- -------
736,172 559,760
---------------------------------- ------ ------- -------
Non-current liabilities
Borrowings 12, 13 1,431 547
Derivative financial instruments 12 29 19
Deferred tax liabilities 502 705
Retirement benefit obligations 36 75
Other non-current liabilities 12 49 66
Provisions 9 10
2,056 1,422
Total liabilities 738,228 561,182
---------------------------------- ------ ------- -------
Net assets 3,752 3,614
---------------------------------- ------ ------- -------
Equity
Capital and reserves attributable
to the Company's equity holders
Ordinary share capital 15 24 24
Share premium 15 964 961
Retained earnings 419 259
Other reserves 1,820 1,862
Total shareholders' funds 3,227 3,106
---------------------------------- ------ ------- -------
Non-controlling interests 525 508
---------------------------------- ------ ------- -------
Total equity 3,752 3,614
---------------------------------- ------ ------- -------
consolidated cash flow statement
Year ended 31 December 2017
2017 2016
Notes GBPm GBPm
------------------------------------ ----- ----- -----
Cash flow from operating activities
Cash generated from operations 16 852 618
Interest received 6 6
Interest paid (66) (67)
Corporation tax paid (130) (315)
Withholding tax paid (3) (1)
------------------------------------ ----- ----- -----
Net cash inflow from operating
activities 659 241
------------------------------------ ----- ----- -----
Cash flow from investing activities
Purchase of property, plant
and equipment (47) (34)
Purchase of intangible assets 11 (143) (112)
Proceeds from sale of businesses 5 14 594
Cash disposed as part of the
sale of businesses (5) (185)
Costs in relation to sale
of a disposal group - (12)
Acquisition of businesses 18 (644) (1)
Cash inflow from acquisition
of business 18 4 -
Investment in associates (2) (8)
Proceeds from the disposal
of available for sale financial
assets 7 -
Investment in government bonds
(1) (5) (10)
Dividends received - 1
------------------------------------ ----- ----- -----
Net cash (outflow)/ inflow
from investing activities (821) 233
------------------------------------ ----- ----- -----
Cash flow from financing activities
Dividends paid to shareholders 10 (159) (130)
Dividends paid to non-controlling
interests (19) (15)
Purchase of treasury shares
relating to share buyback (201) -
Redemption of preferred securities (157) -
Acquisition of non-controlling
interests (111) -
Proceeds from investment by
non-controlling interest 12 20
Arrangement fee paid (3) (1)
Purchase of own shares by
the employee benefit trust
(2) (26) (9)
Proceeds from exercise of
employee share options 2 -
Proceeds from issue of shares - 1
Proceeds from the issue of
bonds 885 -
Bond repayment (3) - (250)
Additional drawdowns from
bank credit facilities (3) 242 317
Repayments made towards bank
credit facilities (3) (87) (614)
Payments to shareholders on
exercise of options - (3)
Repayments of finance lease - (3)
Net cash inflow/(outflow)
from financing activities 378 (687)
------------------------------------ ----- ----- -----
Increase/(decrease) in cash
and cash equivalents 216 (213)
Cash and cash equivalents
at beginning of year 1,151 1,176
Exchange gain on cash and
cash equivalents 15 188
Cash and cash equivalents
at end of year 1,382 1,151
------------------------------------ ----- ----- -----
Cash and cash equivalents
at end of year from continuing
operations 12 1,381 1,151
Cash and cash equivalents
classified as held for sale 1 -
------------------------------------ ----- ----- -----
Cash and cash equivalents
at end of year 1,382 1,151
------------------------------------ ----- ----- -----
(1) Investments in available for sale financial assets have been
reclassified from net cash flow generated from operations to cash
flow from investing activities. Cash flows arising on available for
sale financial assets are now presented within investment in
government bonds. There is no impact to cash and cash equivalents
at the end of the year as a result of this change.
(2) Cash expenditure for the purchase of own shares by the
Employee Benefit Trust in the prior year of GBP9 million was
included in working capital movements.
(3) Within cash from financing activities, the prior year net
amount of receipts and repayments of borrowings has been
re-presented to show the gross cash flows.
Group cash flow does not include cash and cash equivalents held
by the Group's Post Trade operations on behalf of its clearing
members for use in its operation as manager of the clearing and
guarantee system. These balances represent margins and default
funds held for counterparties for short periods in connection with
this operation.
consolidated STATEMENT OF CHANGES IN EQUITY
Year ended 31
December 2017
Attributable to equity
holders
-------------------------------------------------------
Total
Ordinary attributable
share Share Retained Other to equity Non-controlling Total
capital premium earnings reserves holders interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- -------- --------- --------- ------------- --------------- -------
31 December 2015 24 960 255 1,505 2,744 452 3,196
Profit for the
year - - 152 - 152 41 193
Other comprehensive
(loss)/income
for the year - - (32) 356 324 57 381
Issue of shares
(Note 15) - 1 - - 1 - 1
Final dividend
relating to the
period ended 31
December 2015
(Note 10) - - (88) - (88) - (88)
Interim dividend
relating to the
year ended 31
December 2016
(Note 10) - - (42) - (42) - (42)
Dividend payments
to non-controlling
interests - - - - - (19) (19)
Net contributions
in relation to
non-controlling
interest - - - - - 15 15
Employee share
scheme expenses - - 20 - 20 - 20
Tax in relation
to employee share
scheme expenses - - 4 - 4 - 4
Purchase of non-controlling
interest within
acquired subsidiary - - (10) - (10) - (10)
Disposal of business - - - 1 1 (38) (37)
31 December 2016 24 961 259 1,862 3,106 508 3,614
Profit for the
year - - 505 - 505 56 561
Other comprehensive
income/(loss)
for the year - - 49 (72) (23) 25 2
Issue of shares
(Note 15) - 3 - - 3 - 3
Final dividend
relating to the
year ended 31
December 2016
(Note 10) - - (109) - (109) - (109)
Interim dividend
relating to the
year ended 31
December 2017
(Note 10) - - (50) - (50) - (50)
Dividend payments
to non-controlling
interests - - - - - (19) (19)
Employee share
scheme expenses - - 11 - 11 - 11
Tax in relation
to employee share
scheme expenses - - 12 - 12 - 12
Purchase of non-controlling
interest within
acquired subsidiary - - (21) - (21) (89) (110)
Purchase by non-controlling
interest - - (36) - (36) 44 8
Share buyback
(1) - - (201) - (201) - (201)
Disposal of business
(Note 8) - - - 30 30 - 30
31 December 2017 24 964 419 1,820 3,227 525 3,752
---------------------------- -------- -------- --------- --------- ------------- --------------- -------
(1) During the year, the Company completed a GBP199 million
share buyback programme, purchasing 5.5 million of its own shares
from the market, and subsequently transferred 1.8 million treasury
shares to the Employee Benefit Trust to satisfy the vesting of the
Group's various share schemes. Total costs directly attributable to
the share buyback programme amounted to GBP2 million. The Company
did not engage in any share buyback programmes in 2016.
Shares held in the Employee Benefit Trust to settle exercises on
employee share awards were 944,495 (2016: 376,456).
Employee share scheme expenses include costs related to the
issue and purchase of own shares for employee share schemes of
GBP(29) million (2016: GBP(9) million), subscriptions, net of
sundry costs, received on the vesting of employee share schemes of
GBP2 million (2016: GBP2 million) and equity-settled share scheme
expenses for the year of GBP38 million (2016: GBP27 million).
Purchase of non-controlling interest in the year relates to the
acquisition of shareholdings from non-controlling equity holders in
certain of the Group's subsidiaries, notably the LCH Group, Mercato
dei Titoli di Stato S.p.A. and Gatelab S.r.l..
Purchase by non-controlling interest relates to the purchase of
shareholdings by non-controlling equity holders in Group
subsidiaries in the year, principally the Elite S.p.A Group and LCH
SA, LCH Group's French-regulated operating subsidiary.
Other reserves comprise the following:
Merger reserve of GBP1,305 million (2016: GBP1,305 million), a
reserve arising on consolidation when the Company issued shares as
part of the consideration to acquire subsidiary companies.
Capital redemption reserve of GBP514 million (2016: GBP514
million), a reserve set up as a result of a court approved capital
reduction.
Reverse acquisition reserve of GBP(512) million (2016: GBP(512)
million), a reserve arising on consolidation as a result of the
capital reduction scheme.
Foreign exchange translation reserve of GBP575 million (2016:
GBP490 million), a reserve reflecting the impact of foreign
currency changes on the translation of foreign operations.
Hedging reserve of GBP(62) million (2016: GBP65 million), a
reserve representing the cumulative fair value adjustment
recognised in respect of net investment and cash flow hedges
undertaken in accordance with hedge accounting principles.
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation and accounting policies
The Group's consolidated financial statements are prepared in
accordance with International Financial Reporting Standards (IFRS)
and IFRS Interpretations Committee (IFRIC) interpretations endorsed
by the European Union (EU), and with those parts of the Companies
Act 2006 applicable to companies reporting under IFRS.
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all the periods
presented, unless otherwise stated.
The financial statements are prepared under the historical cost
convention as modified by the revaluation of assets and liabilities
held at fair value and on the basis of the Group's accounting
policies.
The Group uses a columnar format for the presentation of its
consolidated income statement. This enables the Group to aid the
reader's understanding of its results by presenting profit for the
year before any non-underlying items. Non-underlying items include
amortisation of purchased intangible assets and other income or
expenses not considered to drive the operating results of the
Group. This is the profit measure used to calculate adjusted
earnings per share. Profit before non-underlying items is
reconciled to profit before taxation on the face of the income
statement.
The Group consolidated income statement includes an additional
performance measure for the year ended 31 December 2017. Earnings
before interest, tax, depreciation and amortisation (EBITDA) is
included on the face of the income statement to further assist
users in understanding the financial performance of the Group. The
results for the year ended 31 December 2016 have been re-presented
accordingly. There is no impact on the previously reported profit
for the year as a result of this change. Additionally, the Group
consolidated financial statements have changed its reporting from
one decimal place to whole numbers.
Consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiary companies with all
inter-company balances and transactions eliminated, together with
the Group's attributable share of the results of associates. The
results of subsidiary companies sold or acquired in the period are
included in the income statement up to, or from, the date that
control passes. Control is achieved when the Group is exposed, or
has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its
power over the investee.
The acquisition of subsidiary companies is accounted for using
the acquisition method. The cost of the acquisition is measured at
the aggregate of the fair values, at the date of exchange, of
assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the
acquiree. Upon completion of the Group's fair value exercise,
comparatives are revised up to 12 months after the acquisition
date, for the final fair value adjustments. Further details are
provided in note 18. Adjustments to fair values include those made
to bring accounting policies into line with those of the Group.
The Group applies a policy of treating transactions with
non-controlling interests through the economic entity model.
Transactions with non-controlling interests are recognised in
equity. Where the non-controlling interest has an option to dispose
of their holding to the Group, then the amounts potentially due are
recognised at their fair value at the balance sheet date.
A disposal group qualifies as a discontinued operation if it is
a component of an entity that either has been disposed of, or is
classified as held for sale and:
a) represents a separate major line of business or geographical area of operations;
b) is part of a single co-ordinated plan to dispose of a
separate major line of business or geographic area of operations;
or
c) is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of
continuing operations and are presented as a single amount as
profit or loss after tax from discontinued operations in the income
statement. Comparatives are also re-presented to reclassify
disposed businesses or held for sale businesses which meet the
criteria for discontinued operations.
Recent accounting developments
The following amendments were endorsed by the EU during the year
and have been adopted in these financial statements:
-- Amendment to IAS 7, 'Statement of cash flows' on changes in
liabilities arising from financing activities
-- Amendment to IAS 12, 'Income taxes' on recognition of
deferred tax assets for unrealised losses
The adoption of these standards did not have a material impact
on the results of the Group.
The following standards and interpretations were issued by the
IASB and IFRIC, but have not been adopted either because they were
not endorsed by the EU at 31 December 2017 or they are not yet
mandatory and the Group has not chosen to early adopt. The Group
plans to adopt these standards and interpretations when they become
effective. The impact on the Group's financial statements of the
future standards, amendments and interpretations is still under
review, and where appropriate, a description of the impact of
certain standards and amendments is provided below:
International accounting standards Effective date
and interpretations
-------------------------------------------- ---------------
Amendment to IFRS 2, 'Share-based
payment' on classification and measurement
of share-based payment transactions 1 January 2018
Amendment to IFRS 4, 'Insurance contracts'
regarding the implementation of IFRS
9, 'Financial instruments' 1 January 2018
Amendments to IAS 40, 'Transfers
of Investment Property' 1 January 2018
IFRIC 22, 'Foreign Currency Transactions
and Advance Consideration' 1 January 2018
IFRS 9, 'Financial instruments' on
classification and measurement and
amendments regarding general hedge
accounting 1 January 2018
IFRS 15, 'Revenue from contracts
with customers' 1 January 2018
IFRS 16, 'Leases' 1 January 2019
IFRIC 23, 'Uncertainty over Income
Tax Treatments' 1 January 2019
-------------------------------------------- ---------------
IFRS 15 'Revenue from contracts with customers' introduces new
accounting principles for revenue recognition for all types of
sales of goods or services. It is effective for the year ending 31
December 2018 and as a result the Group will adopt IFRS 15 in both
the interim and annual 2018 financial statements. IFRS 15 provides
a single, principles-based five-step model to be applied to all
sales contracts, based on the transfer of control of goods and
services to customers, and replaces the separate models for goods,
services and construction contracts currently included in IAS 11
'Construction Contracts' and IAS 18 'Revenue'.
Based on the Group's assessment, the key areas of judgement
expected on initial adoption of IFRS 15 are in relation to the
timing of revenue recognition for services provided. The Group
continues to assess the impact the new standard will have on the
Group's future financially reported position and performance.
IFRS 9 'Financial instruments' is effective for the year ending
31 December 2018 and will simplify the classification of financial
assets for measurement purposes. The implementation of IFRS 9 will
not have a significant impact on the results of the Group.
IFRS 16 'Leases' is effective for the year ending 31 December
2019 and will require all leases to be recognised on the balance
sheet. Currently, IAS 17 'Leases' only requires leases categorised
as finance leases to be recognised on the balance sheet, with
leases categorised as operating leases not recognised. In broad
terms, the impact will be to recognise a lease liability and
corresponding asset for the operating lease commitments.
2. Segmental Information
The Group is organised into operating units based on its service
lines and has six reportable segments: Information Services, Post
Trade Services - LCH, Post Trade Services - CC&G and Monte
Titoli, Capital Markets, Technology Services and Other. These
segments generate revenue in the following areas:
-- Information Services - Subscription and licence
fees for data and index services provided;
-- Post Trade Services - LCH - Fees based on CCP
and clearing services provided, non-cash collateral
management and net interest earned on cash held
for margin and default funds;
-- Post Trade Services - CC&G and Monte Titoli -
Clearing fees based on trades and contracts cleared,
net interest earned on cash, securities held for
margin and default funds, and fees from settlement
and custody services;
-- Capital Markets - Admission fees from initial
listing and further capital raises, annual fees
charged for securities traded on the Group's markets,
and fees from our secondary market services;
-- Technology Services - Capital markets software
licences and related IT infrastructure, network
connection and server hosting services; and
-- Other - Includes events and media services.
The Executive Committee monitors the operating results of its
business units separately for the purpose of making decisions about
resource allocation and performance assessment.
Sales between segments are carried out at arm's length
and are eliminated on consolidation.
Segmental disclosures for the year ended 31 December
2017 are as follows:
Post
Trade
Services
Post -
Trade CC&G
Services and
Information - Monte Capital Technology
Services LCH Titoli Markets Services Other Eliminations Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- --------- --------- -------- ---------- ----- ------------ -----
Revenue from
external customers 736 432 109 391 91 9 - 1,768
Inter-segmental
revenue - - 1 - 20 - (21) -
------------------------ ----------- --------- --------- -------- ---------- ----- ------------ -----
Revenue 736 432 110 391 111 9 (21) 1,768
Net treasury
income through
CCP business - 120 42 - - - - 162
Other income - 10 - - - 15 - 25
------------------------ ----------- --------- --------- -------- ---------- ----- ------------ -----
Total income 736 562 152 391 111 24 (21) 1,955
Cost of sales (62) (88) (17) (16) (29) (3) - (215)
Gross profit 674 474 135 375 82 21 (21) 1,740
Share of loss
after tax of
associates - - - - - (9) - (9)
Earnings before
interest, tax,
depreciation,
amortisation
and impairment 400 245 82 194 5 1 (12) 915
Depreciation,
non-acquisition
software amortisation
and impairment (17) (51) (11) (14) (7) (6) 3 (103)
Operating profit/(loss)
before non-underlying
items 383 194 71 180 (2) (5) (9) 812
Amortisation
of purchased
intangible assets (153)
Non-underlying
items (33)
------------------------ ----------- --------- --------- -------- ---------- ----- ------------ -----
Operating profit 626
Net finance
expense (62)
------------------------ ----------- --------- --------- -------- ---------- ----- ------------ -----
Profit before
taxation from
continuing operations 564
------------------------ ----------- --------- --------- -------- ---------- ----- ------------ -----
Revenue from external customers principally comprises fees for
services rendered of GBP1,668 million (2016: GBP1,423 million) and
Technology Services of GBP91 million (2016: GBP88 million).
Net treasury income through CCP businesses of GBP162 million
(2016: GBP125 million) comprises gross interest income of GBP813
million (2016: GBP497 million) less gross interest expense of
GBP651 million (2016: GBP372 million). During the year the Group
recognised a total of GBP74 million (2016: GBP140 million) of net
treasury income on financial assets and liabilities held at
amortised cost comprising of GBP559 million (2016: GBP357 million)
gross treasury income and GBP485 million (2016: GBP217 million)
gross treasury expense, and GBP88 million net gain (2016: GBP15
million net loss) on assets held at fair value comprising of GBP254
million (2016: GBP140 million) fair value gain and GBP166 million
(2016: GBP155 million) fair value loss.
Presented within revenue are net settlement expenses from the
CCP business of GBP1 million (2016: GBP5 million expense) which
comprise gross settlement income of GBP22 million (2016: GBP16
million) less gross settlement expense of GBP23 million (2016:
GBP21 million).
Segmental disclosures for the year ended 31 December
2016 are as follows:
Post
Trade
Services
Post -
Trade CC&G
Services and
Information - Monte Capital Technology
Services LCH Titoli Markets Services Other Eliminations Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----------- --------- --------- -------- ---------- ----- ------------ -----
Revenue from
external customers 595 356 104 368 88 4 - 1,515
Inter-segmental
revenue - - - - 16 - (16) -
--------------------------------- ----------- --------- --------- -------- ---------- ----- ------------ -----
Revenue 595 356 104 368 104 4 (16) 1,515
Net treasury
income through
CCP business - 82 43 - - - - 125
Other income - 9 - - - 8 - 17
--------------------------------- ----------- --------- --------- -------- ---------- ----- ------------ -----
Total income 595 447 147 368 104 12 (16) 1,657
Cost of sales (54) (56) (13) (22) (28) (2) - (175)
Gross profit 541 391 134 346 76 10 (16) 1,482
Share of loss
after tax of
associates - - - - - (5) - (5)
Earnings before
interest, tax,
depreciation
and amortisation 350 159 71 188 18 (2) (13) 771
Depreciation, non-acquisition
software amortisation and
impairment (13) (36) (18) (11) (6) (3) 2 (85)
Operating profit/(loss)
before non-underlying
items 337 123 53 177 12 (5) (11) 686
Amortisation of purchased
intangible assets (157)
Non-underlying items (102)
-------- ---------- ----- ------------ -----
Operating profit 427
Net finance expense (63)
-------- ---------- ----- ------------ -----
Profit before taxation from
continuing operations 364
-------- ---------- ----- ------------ -----
3. Expenses by nature
Expenses comprise the following:
2017 2016
Note GBPm GBPm
Employee costs 4 497 429
IT costs 120 117
Other costs 199 160
Operating expenses before depreciation, non-acquisition software amortisation, and impairment 816 706
Depreciation, non-acquisition software amortisation and impairment 103 85
Total operating expenses 919 791
Other costs include foreign exchange losses of GBP17 million (2016: GBP3 million gain).
4. Employee costs
Employee costs comprise the following:
2017 2016
GBPm GBPm
Salaries and other benefits 368 329
Social security costs 64 52
Pension costs 27 21
Share-based compensation 38 27
Total 497 429
Staff costs include the costs of contract staff who are not on the payroll, but fulfil a similar
role to employees.
The average number of employees in the Group from total operations was:
2017 2016
UK 1,532 1,352
Italy 573 568
France 165 172
Sri Lanka 1,094 946
USA 626 258
Other 751 452
Total 4,741 3,748
Average staff numbers are calculated from the date of acquisition for subsidiary companies
acquired in the year and up to the date of disposal for businesses disposed in the year.
5. Non-underlying items
2017 2016
Notes GBPm GBPm
Amortisation of purchased intangible assets 11 153 157
Transaction costs 25 85
Restructuring costs 7 14
Integration costs 8 3
Profit on disposal of businesses (7) -
Total affecting operating profit 186 259
Tax effect on items affecting profit before tax
Deferred tax on amortisation of purchased intangible assets (184) (41)
Current tax on amortisation of purchased intangible assets (2) (2)
Tax effect on other items affecting profit before tax (4) 4
Total tax effect on items affecting profit before tax (190) (39)
Total (credit)/charge to continuing operations income statement (4) 220
Loss after tax from discontinued operations 8 25 88
Total charge to income statement 21 308
Transaction costs comprise charges incurred for ongoing services
relating to potential merger and acquisition transactions.
Restructuring and integration costs in the current year
principally relate to the restructuring of LCH Group and the
integration of the Mergent and Yield Book businesses. In the prior
year, the Group incurred restructuring costs in relation to the LCH
Group and integration and restructuring costs in relation to the
Frank Russell Company.
The GBP7 million profit on disposal comprises GBP5 million
profit in relation to the sale of Information Services Professional
Solutions (ISPS), a business line of BIt Market Services S.p.A, for
a cash consideration of GBP9 million. The net assets disposed
contained brands, intellectual property and capitalised research
and development investments, used for carrying out the ISPS
business along with identified agreements with suppliers and
clients and employment relationships. The remaining GBP2 million
profit on disposal relates to the sale of the Millennium Enterprise
Systems Integration business, a business that formed part of the
Technology Services segment and the MillenniumIT cash generating
unit, for cash consideration of GBP5 million.
Loss after tax on discontinued operations relates to the
disposal of Russell Investment Management business. See note 8 for
further details.
6. Net finance expense
2017 2016
GBPm GBPm
Finance income
Expected return on defined benefit pension scheme assets - 1
Bank deposit and other interest income 3 1
Other finance income 5 5
8 7
Finance expense
Interest payable on bank and other borrowings (63) (65)
Defined benefit pension scheme interest cost (2) (2)
Other finance expenses (5) (3)
(70) (70)
Net finance expense (62) (63)
Interest payable includes amounts where the Group earns negative interest on its cash deposits.
During the year the Group recognised a total of GBP60 million (2016: GBP62 million) of net
interest expense on financial assets and liabilities held at amortised cost, comprising of
GBP8 million (2016: GBP6 million) gross finance income and GBP68 million (2016: GBP68 million)
gross finance expense. Presented within finance income and finance expense are amounts in
relation to defined benefit schemes which are measured at fair value.
7. Taxation
The standard UK corporation tax rate was 19.25% (20% for the year ended 31 December 2016).
2017 2016
Taxation charged to the income statement GBPm GBPm
Current tax:
UK corporation tax for the year 76 46
Overseas tax for the year 95 88
Adjustments in respect of previous years (10) (3)
161 131
Deferred tax:
Deferred tax for the year (9) 7
Adjustments in respect of previous years 10 4
Deferred tax liability on amortisation of purchased intangible assets (184) (41)
Taxation (credit)/charge (22) 101
The adjustments in respect of previous years' corporation tax are mainly in respect of tax
returns submitted to relevant tax authorities.
2017 2016
Taxation on items not credited/(charged) to income statement GBPm GBPm
Current tax credit:
Tax allowance on share options/awards in excess of expense recognised 8 11
8 11
Deferred tax (charge)/credit:
Tax on defined benefit pension scheme remeasurement (25) 15
Tax allowance on share options/awards in excess of expense recognised 4 (7)
Tax on movement in value of available for sale financial assets 2 (1)
(11) 18
Factors affecting the tax charge for the year
The income statement tax charge for the year differs from the standard rate of corporation
tax in the UK of 19.25% (2016: 20%) as explained below:
2017 2016
GBPm GBPm
-----
Profit before taxation from continuing operations 564 364
(Loss)/profit before taxation from discontinued operations (23) 104
-----
541 468
Profit multiplied by standard rate of corporation tax in the UK 104 94
Expenses not deductible 9 18
Adjustment arising from change in tax rates 2 2
Overseas earnings taxed at higher rate 10 167
Adjustments in respect of previous years - 1
Adjustment arising from changes in tax rates on amortisation of purchased intangible assets (147) (6)
Deferred tax previously not recognised 2 (1)
-----
(20) 275
Income tax from continuing operations (22) 101
Income tax attributable to discontinued operations 2 174
-----
The UK Finance Bill 2015 was enacted in November 2015 reducing
the standard rate of corporation tax from 20% to 19% effective from
1 April 2017 and the UK Finance Bill 2016 was enacted in September
2016 reducing the standard rate of corporation tax further to 17%
effective from 1 April 2020. Accordingly, the UK deferred tax
balances at December 2017 have been stated at 19% or 17% dependent
on when the temporary differences are expected to reverse. The
Group recognised a one off deferred tax credit of GBP142 million
relating to the reduction in the deferred tax liability which
arises from consolidation of US acquisitions and reflects the lower
Federal tax rate of 21% substantively enacted following US tax
reform signed into law in December 2017. The deferred tax balances
in other countries are recognised at the substantively enacted
rates at the balance sheet date.
Uncertain tax positions
An amount of GBP2 million (2016: GBP1 million) has been provided
for in respect of uncertain tax positions in relation to
uncertainty arising from the introduction of UK Diverted Profits
Tax. In the prior year, an additional uncertain tax position of
GBP3 million was provided for, reflecting ongoing discussions with
the tax authorities regarding the tax effect of certain changes in
accounting policy for intangible assets. The Group no longer
considers this amount to be uncertain, following further
discussions with the tax authorities during the year.
Judgements
The Group is monitoring developments in relation to EU State Aid
investigation into the UK's Controlled Foreign Company regime. The
Group does not currently consider that any provision is required in
relation to EU State Aid.
8. Discontinued operations and assets and liabilities held for
sale
In the prior year, the Group completed the sale of the Russell
Investment Management business to TA Associates and Reverence
Capital Partners for US$1,150 million (GBP794 million) total
consideration.
The Group incurred a non-underlying loss of US$29 million (GBP23
million) in the year (2016: GBP76 million gain) relating to the
disposal of the Russell Investment Management business.
During the year, the Group recognised US$18 million (GBP13
million) current tax and other receivable in relation to the
disposed business. Subsequently, the Group recorded a US$21 million
(GBP17 million) adjustment to the disposal balance sheet relating
to tax balances at the disposal date and a US$8 million (GBP6
million) reduction to the net proceeds received on disposal as a
result of the finalisation of the completion statement, which
resulted in a US$2 million (GBP2 million) cash payment by the
Group. The disposal accounting and final tax position will be
finalised on completion of the relevant tax returns.
The results of the Russell Investment Management business for
the five month period to 31 May 2016 are included in the
comparatives as discontinued operations in the Group's consolidated
income statement.
The results of discontinued operations are presented below:
2017 2016
Note GBPm GBPm
Revenue - 390
Other income - 1
Total income - 391
Cost of sales - (200)
Gross profit - 191
Expenses
Expenses before amortisation of purchased intangible assets and non-underlying items - (164)
Non-underlying items (23) 76
Operating (loss)/profit (23) 103
Net finance income - 1
(Loss)/profit before tax from discontinued operations (23) 104
Taxation on profit before amortisation of purchased intangible assets and non-underlying items - (10)
Taxation on amortisation of purchased intangible assets and non-underlying items (2) (164)
----
Taxation 7 (2) (174)
----
Loss after tax from discontinued operations (25) (70)
----
Attributable to:
Equity holders (25) (71)
Non-controlling interests - 1
(25) (70)
There were no cash flows generated or incurred by discontinued
operations from operating, investing or financing activities in the
year ended 31 December 2017. In the prior year, the net cash inflow
from discontinued operations amounted to GBP71 million, which
comprised of GBP59 million cash inflow from operating activities,
GBP8 million outflow from investing activities and GBP20 million
inflow from financing activities.
During the year, the Group classified Exactpro Systems Limited
and its subsidiaries (Exactpro) as a disposal group held for sale,
a business that forms part of the Technology Services segment.
As at 31 December 2017, a total of GBP6 million of Exactpro
assets have been classified as held or sale on the Group's balance
sheet and comprise goodwill, property, plant and equipment, trade
receivables and cash and cash equivalents.
The Group completed the disposal of the Exactpro business on 17
January 2018. Further details are provided in note 19.
9. Earnings per share
Earnings per share is presented on four bases: basic earnings per share; diluted earnings
per share; adjusted basic earnings per share; and adjusted diluted earnings per share. Basic
earnings per share is in respect of all activities and diluted earnings per share takes into
account the dilution effects which would arise on conversion or vesting of all outstanding
share options and share awards under the Employee Share Ownership Plan (ESOP). Adjusted basic
earnings per share and adjusted diluted earnings per share exclude amortisation of purchased
intangible assets and non-underlying items to enable a better comparison of the underlying
earnings of the business with prior periods.
2017 2016
Continuing Discontinued Total Continuing Discontinued Total
Basic earnings per share 153.6p (7.2p) 146.4p 63.8p (20.3p) 43.5p
Diluted earnings per share 150.1p (7.1p) 143.0p 62.5p (19.9p) 42.6p
Adjusted basic earnings per share 148.7p - 148.7p 124.7p 5.0p 129.7p
Adjusted diluted earnings per
share 145.3p - 145.3p 122.3p 4.9p 127.2p
Profit and adjusted profit for the financial year attributable to the Company's equity holders:
2017 2016
Continuing Discontinued Total Continuing Discontinued Total
GBPm GBPm GBPm GBPm GBPm GBPm
Profit for the financial year
attributable to the Company's
equity holders 530 (25) 505 223 (71) 152
Adjustments:
Amortisation of purchased
intangibles and non-underlying
items:
Amortisation of purchased
intangible assets 153 - 153 157 - 157
Transaction costs 25 - 25 85 - 85
Restructuring costs 7 - 7 14 - 14
Integration costs 8 - 8 3 - 3
Profit on disposal of businesses (7) 23 16 - (76) (76)
Other adjusting items:
Tax effect of amortisation of
purchased intangible assets and
non-underlying items (190) 2 (188) (39) 164 125
Amortisation of purchased
intangible assets, non-underlying
items and taxation attributable
to non-controlling interests (13) - (13) (7) - (7)
Adjusted profit for the financial
year attributable to the
Company's equity holders 513 - 513 436 17 453
Weighted average number of shares
- million 345 349
Effect of dilutive share options
and awards - million 8 7
Diluted weighted average number of
shares - million 353 356
The weighted average number of shares excludes those held in the Employee Benefit Trust and
treasury shares held by the Group.
10. Dividends
2017 2016
GBPm GBPm
Final dividend for 31 December 2015 paid 1 June 2016: 25.2p
per Ordinary share - 88
Interim dividend for 31 December 2016 paid 20 September
2016: 12.0p per Ordinary share - 42
Final dividend for 31 December 2016 paid 31 May 2017: 31.2
per Ordinary share 109 -
Interim dividend for 31 December 2017 paid 19 September
2017: 14.4p per Ordinary share 50 -
------------
159 130
Dividends are only paid out of available distributable
reserves.
The Board has proposed a final dividend in respect of the year
ended 31 December 2017 of 37.2p per share, which is estimated to
amount to GBP129 million, to be paid in May 2018. This is not
reflected in the financial statements.
11. Intangible assets
Purchased intangible assets
Software, licences and
Goodwill Customer relationships Brands intellectual property Software and other Total
GBPm GBPm GBPm GBPm GBPm GBPm
31 December 2015 1,823 1,517 852 422 341 4,955
Additions 1 - - - 113 114
Disposals - - - - (8) (8)
Foreign exchange 273 215 119 12 56 675
31 December 2016 2,097 1,732 971 434 502 5,736
Acquisition of
subsidiaries 289 151 57 168 11 676
Additions - - - - 143 143
Disposal of business (1) - - - (8) (9)
Disposals - (15) (3) (12) (9) (39)
Reclassification to
assets held for sale (3) - - - - (3)
Transfer of asset - - - - (1) (1)
Foreign exchange (4) (20) (65) (6) 14 (81)
31 December 2017 2,378 1,848 960 584 652 6,422
Accumulated amortisation and
impairment:
31 December 2015 449 349 71 239 143 1,251
Impairment - - - - 8 8
Amortisation charge for
the year - 85 41 31 55 212
Disposals - - - - (6) (6)
Foreign exchange 51 48 10 7 31 147
31 December 2016 500 482 122 277 231 1,612
Amortisation charge for
the year - 90 38 25 76 229
Disposal of business - - - - (6) (6)
Disposals - (15) (3) (12) (9) (39)
Foreign exchange 21 9 (6) 1 11 36
31 December 2017 521 566 151 291 303 1,832
Net book values:
31 December 2017 1,857 1,282 809 293 349 4,590
31 December 2016 1,597 1,250 849 157 271 4,124
Transfers in the year relate to re-classification of software
intangibles to property, plant and equipment.
During the year, the Group acquired the entire share capital of
the Mergent and Yield Book businesses, which resulted in an
increase of GBP289 million in goodwill. Further details are
provided in note 18.
During the year, the Group disposed of the Millennium Enterprise
Systems Integration business, which resulted in a reduction of GBP1
million in goodwill.
During the year, the Group classified Exactpro as a disposal
group held for sale which resulted in GBP3 million of goodwill
being reclassified as an asset held for sale. Further details are
provided in note 8.
The goodwill arising on consolidation represents the growth
potential and assembled workforces of the Italian Group, LCH Group,
FTSE Group, MillenniumIT, the US Information Services Group and
Turquoise.
The fair values of the purchased intangible assets were
principally valued using discounted cash flow methodologies and are
being amortised over their useful economic lives, which do not
normally exceed 25 years. The Group's purchased intangible assets
include:
Customer relationships
These assets have been recognised on acquisition of major
subsidiary companies by the Group. The amortisation period
remaining on these assets are between ten to 25 years.
Brands
Brands have been recognised in a number of major acquisitions,
including FTSE, LCH, Russell and Yield Book. Included within brands
are trade names relating to the acquisition of Frank Russell Group
of GBP574 million (2016: GBP658 million). The remaining
amortisation period on these assets are between 20 to 25 years.
Software, licences and intellectual property
These assets have been recognised on acquisition of subsidiary
companies and have a remaining amortisation period of five to 20
years.
There are no other individual purchased intangible assets with a
carrying value that is considered material to each asset class.
Software
The cost of self-developed software includes GBP94 million
(2016: GBP67 million) representing assets not yet brought into use.
No amortisation has been charged on these assets and but instead
they are tested for impairment annually.
Following a review of software assets across the Group, no
impairment was recognised during the year (2016: GBP8 million).
Other amounts represent the internally built and developed
trading systems within the various business lines. In general these
assets have a useful economic life of five years.
During the year, additions relating to internally generated
software amounted to GBP143 million (2016: GBP113 million).
The carrying value of licences held under finance leases at 31
December 2017 was GBP7 million (2016: nil).
12. Financial assets and financial liabilities
Financial instruments by category
The financial instruments of the Group are categorised as follows:
Financial instruments at
Available for sale at fair value through
Loans and receivables fair value through OCI profit or loss Total
31 December 2017 GBPm GBPm GBPm GBPm
Financial assets
Financial assets of the
CCP clearing business:
- CCP trading assets 98,076 - 549,874 647,950
- Other receivables from
clearing members 3,303 - - 3,303
- Other financial assets - 18,436 3,665 22,101
- Cash and cash
equivalents of clearing
members 61,443 - - 61,443
Financial assets of the
CCP clearing business 162,822 18,436 553,539 734,797
Trade and other
receivables 702 - - 702
Cash and cash equivalents 1,381 - - 1,381
Available for sale
financial assets - 105 - 105
Derivative financial
instruments - - 4 4
Total 164,905 18,541 553,543 736,989
There were no transfers between categories during the year.
Prepayments within trade and other receivables are not classified as financial instruments.
Financial liabilities at
fair value through
Financial liabilities at amortised cost profit and loss Total
31 December 2017 GBPm GBPm GBPm
Financial liabilities
Financial liabilities of
the CCP clearing
business:
- CCP trading liabilities 98,076 549,874 647,950
- Other payables to
clearing members 87,031 - 87,031
Total financial
liabilities of the CCP
clearing business 185,107 549,874 734,981
Trade and other payables 502 18 520
Borrowings 1,953 - 1,953
Provisions 10 - 10
Derivative financial
instruments - 29 29
Total 187,572 549,921 737,493
There were no transfers between categories during the year.
Deferred income, social security and other tax liabilities within trade and other payables
are not classified as financial instruments.
The financial instruments of the Group at the previous year's balance sheet date were as follows:
Financial instruments at
Available for sale at fair fair value through profit
Loans and receivables value through OCI or loss Total
31 December 2016
(re-presented) GBPm GBPm GBPm GBPm
--------------------- ---------------------------
Financial assets
Financial assets of the CCP
clearing business:
- CCP trading assets 149,831 - 320,530 470,361
- Other receivables from
clearing members 9,077 - - 9,077
- Other financial assets - 15,975 9,420 25,395
- Cash and cash equivalents
of clearing members 53,553 - - 53,553
---------------------------
Financial assets of the CCP
clearing business 212,461 15,975 329,950 558,386
Trade and other receivables 686 - - 686
Cash and cash equivalents 1,151 - - 1,151
Available for sale financial
assets - 102 - 102
Total 214,298 16,077 329,950 560,325
---------------------------
There were no transfers between categories during the prior
year.
Consistent with the current year treatment, prepayments within
trade and other receivables are not classified as financial
instruments. The comparative table above has been re-presented from
that previously disclosed to reflect this treatment.
Financial liabilities at Financial liabilities at fair
amortised cost value through profit and loss Total
31 December 2016 (re-presented) GBPm GBPm GBPm
Financial liabilities
Financial liabilities of the CCP
clearing business:
- CCP trading liabilities 149,831 320,530 470,361
- Other payables to clearing members 88,117 - 88,117
Financial liabilities of the CCP
clearing business 237,948 320,530 558,478
Trade and other payables 527 18 545
Borrowings 1,166 - 1,166
Provisions 11 - 11
Derivative financial instruments - 19 19
Total 239,652 320,567 560,219
There were no transfers between categories during the prior
year.
Consistent with the current year treatment, deferred income,
social security and other tax liabilities within trade and other
payables are not classified as financial instruments.
Within trade and other payables, a deferred consideration
liability amounting to GBP30 million as at 31 December 2016 has
been re-presented from financial liabilities at fair value through
profit and loss to amortised cost, to reflect the measurement
principles applied to the balance.
The comparative table above has been re-presented from that
previously disclosed to reflect these treatments.
13. Borrowings
2017 2016
GBPm GBPm
Current
Bank borrowings 522 466
Preferred securities - 153
522 619
Non-current
Bonds 1,431 547
1,431 547
Total 1,953 1,166
The Group has the following committed bank facilities and unsecured notes:
Carrying value at Interest rate percentage at
Notes/Facility 31 December 2017 31 December 2017
Type Expiry Date GBPm GBPm %
Drawn value of Facilities
Multi-currency revolving credit facility Nov 2022 600 369 LIBOR + 0.45
Multi-currency revolving credit facility Dec 2022 600 153 LIBOR + 0.3
Total Bank Facilities 522
Bond due October 2019 Oct 2019 250 249 9.125
Bond due November 2021 Nov 2021 300 298 4.75
Bond due September 2024 Sep 2024 444 443 0.875
Bond due September 2029 Sep 2029 444 441 1.75
Total Bonds 1,431
Total Committed Facilities 1,953
The carrying value of drawn bank facilities and bonds at 31
December 2017 was GBP522 million (2016: GBP466 million) and
GBP1,431 million (2016: GBP547 million), respectively. The prior
year included GBP153 million in preferred securities.
Current borrowings
The Group retained total committed bank facilities of GBP1,200
million during the financial year. A new facility of GBP600 million
was arranged on improved terms whilst an existing facility, also of
GBP600 million, was extended for a further year to November 2022.
The new facility is a 5 year commitment with two 1 year extension
options available to the Group, subject to lender approval. These
facilities were partially drawn at 31 December 2017 with carrying
value of GBP522 million (2016: GBP465 million) which includes GBP3
million of deferred arrangement fees (2016: GBP2 million).
In May 2017, LCH Group exercised its call option on the net
EUR180 million Perpetual Preferred Securities previously issued
through Freshwater Finance plc, and repaid the outstanding amount
using a combination of free cash and Group committed bank
facilities. The coupon on these securities was fixed at 6.576% per
annum with interest paid annually.
Cassa di Compensazione e Garanzia S.p.A (CC&G) has direct
intra-day access to refinancing with the Bank of Italy to cover its
operational liquidity requirements in the event of a market stress
or participant failure. In addition, it has arranged commercial
bank back-up credit lines with a number of commercial banks, which
totalled EUR420 million at 31 December 2017 (2016: EUR420 million),
for overnight and longer durations to broaden its liquidity
resources consistent with requirements under the European Markets
Infrastructure Regulation (EMIR).
LCH SA has a French banking licence and is able to access
refinancing at the European Central Bank to support its liquidity
position. LCH Limited is deemed to have sufficient fungible liquid
assets to maintain an appropriate liquidity position, and has
direct access to certain central bank facilities to support its
liquidity risk management in accordance with the requirements under
the EMIR. In accordance with the Committee on Payments and Market
Infrastructures (CPMI), International Organization of Securities
Commissions (IOSCO) and Principals for Financial Market
Infrastructures (PFMIs), many Central Banks now provide for CCPs to
apply for access to certain Central Bank facilities.
In addition, a number of Group entities have access to
uncommitted operational, money market and overdraft facilities
which support post trade activities and day to day liquidity
requirements across its operations.
Non-current borrowings
In June 2009, the Company issued a GBP250 million bond which is
unsecured and is due for repayment in October 2019. Interest is
paid semi-annually in arrears in April and October each year. The
issue price of the bond was GBP99.548 per GBP100 nominal. The
coupon on the bond is dependent on the Company's credit ratings
with Moody's and Standard & Poor's, both of which improved
during the year by one notch to A3 and A- respectively. The bond
coupon remained at 9.125% per annum throughout the financial
year.
In November 2012, the Company issued a GBP300 million bond under
its euro medium term notes programme (launched at the same time)
which is unsecured and is due for repayment in November 2021.
Interest is paid semi-annually in arrears in May and November each
year. The issue price of the bond was GBP100 per GBP100 nominal.
The coupon on the bond is fixed at 4.75% per annum.
In September 2017, the Company issued EUR1 billion of bonds in
two EUR500 million tranches under its updated euro medium term
notes programme. The bonds are unsecured and the tranches are due
for repayment in September 2024 and September 2029 respectively.
Interest is paid annually in arrears in September each year. The
issue prices of the bonds were EUR99.602 per EUR100 nominal for the
2024 tranche and EUR99.507 per EUR100 nominal for the 2029 tranche.
The coupon on the respective tranches is fixed at 0.875% per annum
and 1.75% per annum respectively.
Fair values
The fair values of the Group's borrowings are as
follows:
2017 2016
Carrying value Fair value Carrying value Fair value
Group GBPm GBPm GBPm GBPm
Borrowings
- within one year 522 522 619 626
- after more than one year 1,431 1,520 547 643
1,953 2,042 1,166 1,269
Borrowings are classified as Level 2 in the Group's hierarchy
for determining and disclosing the fair value of financial
instruments. The fair values of borrowings are based on discounted
cash flows using a rate based on borrowing cost. Floating rate
borrowings bear interest at an agreed margin over LIBOR.
The carrying amounts of the Group's borrowings are denominated in the following currencies:
2017 2016
Drawn Swapped Effective Drawn Swapped Effective
Currency GBPm GBPm GBPm GBPm GBPm GBPm
Sterling 1,032 (267) 765 713 (256) 457
Euro 921 (355) 566 352 256 608
US Dollar - 622 622 101 - 101
Total 1,953 - 1,953 1,166 - 1,166
14. Analysis of net debt
2017 2016
GBPm GBPm
Due within one year
Cash and cash equivalents 1,381 1,151
Bank borrowings (522) (466)
Preferred securities - (153)
859 532
Due after one year
Bonds (1,431) (547)
Derivative financial assets 4 -
Derivative financial liabilities (29) (19)
Total net debt (597) (34)
Reconciliation of net cash flow to movement in net debt
2017 2016
GBPm GBPm
Increase/(decrease) in cash in the year 216 (213)
Bond issue proceeds (885) -
Redemption of preferred securities 157 -
Bond repayment - 250
Additional drawdowns from bank credit facilities (242) (317)
Repayments made towards bank credit facilities 87 614
Utilisation of drawn funds for financing activities 103 -
Change in net debt resulting from cash flows (564) 334
Foreign exchange movements 2 152
Movement on derivative financial assets and liabilities (6) (67)
Bond valuation adjustment 5 (1)
Reclassification of cash to assets held for sale (1) -
Movement in bank credit facility arrangement fees 1 -
Cash disposed of as part of discontinued operations - 185
Net debt at the start of the year (34) (637)
-------
Net debt at the end of the year (597) (34)
-------
15. Share capital and share premium
Ordinary shares issued and fully paid
Number of Ordinary Share
shares shares (1) premium Total
millions GBPm GBPm GBPm
1 January 2016 348 24 960 984
Issue of shares to the Employee Benefit Trust 2 - 1 1
31 December 2016 350 24 961 985
Issue of shares to the Employee Benefit Trust - - 3 3
31 December 2017 350 24 964 988
(1) Ordinary Shares of 6 (79/86) pence
The Board approved the allotment and issue of 224,965 ordinary
shares of par value 6(79/86) pence at a weighted average exercise
price of 1,251 pence to the Employee Benefit Trust (2016: 180,308
ordinary shares of par value 6 (79/86) pence at 755.34 pence), to
settle employee 'Save As You Earn' share plans. This generated a
premium of GBP3 million (2016: GBP1 million).
Included within the current year Ordinary Share Capital of 350
million shares are 4 million treasury shares, recorded at par.
16. Net cash flow generated from operations
2017 2016
Notes GBPm GBPm
Profit before tax from continuing operations 564 364
(Loss)/profit before tax from discontinued operations 8 (23) 104
Profit before tax 541 468
Adjustments for depreciation, amortisation and impairments:
Depreciation and amortisation 255 233
Impairment of software 11 - 8
Impairment of property, plant and equipment 1 -
Adjustments for other non-cash items:
Profit on disposal of businesses 5 (7) -
Loss/(profit) on disposal of investment in subsidiary 8 23 (76)
Gain on disposal of financial assets (7) (1)
Other (gains)/losses on disposal of assets (2) 1
Share of loss of associates 9 5
Net finance expense 6 62 63
Share scheme expense 4 38 37
Movement in pensions and provisions 31 2
Net foreign exchange differences (103) (10)
Movements in working capital:
Decrease in inventories 1 1
Increase in trade and other receivables (36) (215)
Decrease in trade and other payables (47) (66)
Movement in other assets and liabilities relating to operations:
Increase in CCP financial assets (162,005) (30,385)
Increase in CCP financial liabilities 162,095 30,506
Increase in assets held at fair value - (3)
Movement in derivative assets and liabilities 6 67
Purchase of investment fund - (19)
Unrealised (gain)/loss on the revaluation of financial assets (3) 2
Cash generated from operations 852 618
Comprising:
Ongoing operating activities 1,130 802
Non-underlying items (278) (184)
--------
852 618
Comparatives have been reclassified to align prior year disclosure to the current year.
17. Commitments and contingencies
The Group had commitments of nil as at 31 December 2017 (2016:
GBP54 million). The amounts for the prior year relate to
professional fees on the proposed merger with Deutsche Börse. The
amounts were payable on the successful completion of the
merger.
As at 31 December 2017, contracted capital commitments and other
contracted commitments not provided for in the financial statements
of the Group were nil (2016: nil).
In the normal course of business, the Group receives legal
claims in respect of commercial, employment and other matters.
Where a claim is more likely than not to result in an economic
outflow of benefits from the Group, a provision is made
representing the expected cost of settling such claims.
18. Business combinations
Acquisitions in the year to 31 December 2017
The Group made two acquisitions in the year ended 31 December
2017.
On 3 January 2017, the Group acquired the entire share capital
of Mergent, a leading global provider of business and financial
information on public and private companies. The cash consideration
paid by the Group at completion was US$146 million (GBP118 million)
and US$1 million (GBP1 million) was paid on finalisation of the
purchase price exercise. The acquisition will support the growth of
FTSE Russell's core index offering, supplying underlying data and
analytics for the creation of a wide range of indices.
On 31 August 2017, the Group acquired the entire share capital
of the Yield Book business, a leading global provider of fixed
income indices and analytics. The cash consideration paid by the
Group at completion was US$679 million (GBP525 million). The
acquisition enhances and complements LSEG's Information Services
data and analytics offering, building on FTSE Russell's US market
presence and fixed income client base globally.
Contribution post acquisition
Fair value of assets
Date acquired Total investment Goodwill acquired Revenue Operating profit
Acquisition GBPm GBPm GBPm GBPm GBPm
-------- --------------------------
Mergent 3 January 2017 119 74 45 29 -
Yield Book 31 August 2017 525 215 310 29 11
644 289 355 58 11
The Group acquired Mergent on 3 January 2017. If the acquisition
had occurred on 1 January 2017, the results of the additional
period of ownership would have had an immaterial impact on the
Group's revenue and operating profit from continuing operations for
the year ended 31 December 2017.
If the Yield Book acquisition had occurred on 1 January 2017,
the Group revenue from continuing operations for the year would
have been GBP1,823 million, with operating profit (before
acquisition amortisation and non-underlying items) of GBP834
million. These amounts have been calculated using the Group's
accounting policies and based on available information.
In the year ended 31 December 2017, a total of GBP9 million
transaction costs in respect of both acquisitions have been
recognised as a non-underlying expense in the Group income
statement.
The fair values of the identifiable assets and liabilities
arising out of each acquisition at the relevant acquisition date
are as follows:
Mergent Yield Book Total
Fair value Fair value Fair value
Notes GBPm GBPm GBPm
Non-current assets:
Intangible assets 11 80 307 387
Property, plant and equipment - 2 2
Deferred tax assets 4 2 6
Current assets:
Cash and cash equivalents 1 3 4
Other current assets 7 11 18
Current liabilities:
Trade and other payables (14) (15) (29)
Non-current liabilities:
Deferred tax liabilities (26) - (26)
Other non-current payables (7) - (7)
Net assets 45 310 355
Goodwill 11 74 215 289
119 525 644
Satisfied by:
Cash 119 525 644
Total investment 119 525 644
The valuation of the acquisition of Mergent was finalised in the
year and resulted in no change to the fair values attributed on
acquisition. The fair values attributed to the Yield Book
acquisition are preliminary and will be finalised within twelve
months of the acquisition date.
The fair value adjustments are explained below:
Mergent
The Group recognised GBP69 million of purchased intangible
assets arising on acquisition representing GBP54 million
attributable to customer relationships, GBP14 million attributable
to various technologies and GBP1 million relating to brands and
trade names. The deferred tax liability arising on the recognition
of these intangible assets was GBP19 million. The fair values of
these purchased intangible assets are being amortised over their
remaining useful lives from the date of completion.
The goodwill of GBP74 million arising on consolidation
represents the growth of future expected income streams from
Mergent's customer base and development of the Group's product
offering, along with the assembled workforce and value of expected
synergies arising from the acquisition. The goodwill recognised is
not deductible for tax purposes.
The Yield Book and Citi Fixed Income Indices
The Group recognised GBP307 million of intangible assets arising
on acquisition representing GBP97 million attributable to customer
relationships, GBP154 million attributable to various technologies
and GBP56 million relating to brands and trade names. The fair
values of these purchased intangible assets are being amortised
over their remaining useful lives from the date of completion.
The goodwill of GBP215 million arising on consolidation
represents the growth of future expected income streams from the
integration of Yield Book's enhanced data and analytics
capabilities to better serve the Group's global customer base, and
the value of the assembled workforce and expected synergies arising
from the acquisition. An election has been made to treat the
goodwill arising on acquisition to be deductible for tax
purposes.
Acquisitions in the year to 31 December 2016
The Group made one acquisition in the year ended 31 December
2016.
Turquoise SwapMatch Limited
On 11 July 2016, the Group acquired a 50% equity shareholding in
Turquoise SwapMatch Limited (SwapMatch) for a cash consideration of
GBP1 million. The main activity of SwapMatch is to provide a
neutral platform allowing prime brokers to match and net off
synthetic equity positions with other brokers. The fair value of
net assets acquired was nil and the Group recognised GBP1 million
in goodwill. Immediately following the acquisition, the Group made
a GBP1 million cash investment in exchange for an additional 10%
equity in SwapMatch.
The valuation on the acquisition of SwapMatch was finalised
during the current year and resulted in no change to the fair
values attributed on acquisition.
During the current year, the Group purchased the remaining 40%
equity interest of SwapMatch it did not already own. As at 31
December 2017, the Group holds a financial liability representing
the fair value of associated earn out payments attached to the
transaction.
19. Events after the reporting period
On 17 January 2018, the Group announced it had completed the
sale of Exactpro Systems Limited and its subsidiaries for an
aggregate consideration of GBP6 million, comprising a purchase
price of GBP3 million and an unconditional waiver of GBP3 million
of deferred consideration payable to the Exactpro purchasers and
recognised on the acquisition of Exactpro by the Group.
The Exactpro business was part of the Technology Services
segment and was contained within a stand alone CGU. The Group has
determined that there is no impairment of the carrying value of the
goodwill in Exactpro. Details are provided in note 8.
On 23 February 2018 the Group became committed to acquiring an
additional 2.04% interest of LCH Group Holdings Limited from
certain minority shareholders. This will increase the Group's
holding to 67.97%. The aggregate consideration to be paid by the
Group is EUR35 million. The transaction is expected to complete in
early March 2018.
For the purposes of DTR 6.4.2R, the Home State of London Stock
Exchange Group plc is the United Kingdom.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UUVURWNAORRR
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