TIDMLSE
RNS Number : 4237E
London Stock Exchange Group PLC
28 February 2020
28 February 2020
LONDON STOCK EXCHANGE GROUP PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2019
Unless stated otherwise, all figures in the highlights below
refer to 12 months to 31 December 2019 and comparisons with the
prior 12 month period on the same basis.
-- Strong financial performance - revenue growth continues
across our businesses as the Group continues to invest successfully
for growth
-- Acquisition of Refinitiv will accelerate the Group's growth
strategy and position as a global financial markets infrastructure
leader - increasing its global footprint and adding leading data
and analytics and multi-asset class capital markets
capabilities
-- Detailed integration planning underway to ensure delivery of
Refinitiv transaction benefits; regulatory approvals processes
ongoing and on track for completion in H2 2020
2019 Financial Highlights
-- Total revenue and total income both up 8% to GBP2,056 million
(2018: GBP1,911 million) and GBP2,314 million (2018: GBP2,135
million) respectively
-- FTSE Russell delivered 10% revenue growth (up 6% on a constant currency basis)
-- LCH OTC revenues up 15% (up 13% on a constant currency basis)
driven by record SwapClear volumes with over $1.2 quadrillion of
notional cleared
-- Cost of sales decreased 8%, in part driven by an updated
SwapClear agreement with partner banks delivering a more than GBP30
million reduction in the year
-- Continued cost discipline, operating expenses (excluding
depreciation and amortisation)(1) up only 1%, helped by achievement
of cost savings; total costs up 7% reflecting higher depreciation
and amortisation mainly arising from increased capital
investment
-- Adjusted operating profit(2) up 14% to GBP1,065 million
(2018: GBP931 million); operating profit down 2% to GBP738 million
(2018: GBP751 million); adjusted EBITDA(2) up 19% to GBP1,265
million (2018: GBP1,066 million) and EBITDA margin of 54.7%
-- Adjusted EPS(2) up 15% to 200.3 pence (2018: 173.8 pence);
basic EPS down 14% to 119.5 pence (2018: 138.3 pence)
-- Proposed final dividend of 49.9 pence per share, resulting in
a 16% increase in the full year dividend to 70.0 pence per share,
reflecting good performance and confident outlook for the Group
Continued organic and inorganic development, including:
-- Acquisition of Beyond Ratings, a provider of Environmental,
Social and Governance (ESG) data for fixed income investors
-- FTSE Russell launched Climate WGBI, an innovative government
bond index incorporating climate risk factors
-- Record volumes reported by all LCH OTC clearing services -
SwapClear, CDSClear, ForexClear and RepoClear
-- LCH continues to facilitate migration to alternative
reference rates and was the first CCP to launch clearing for EURSTR
swaps
-- ForexClear launched the clearing of deliverable FX Forwards
-- Acquisition of a 4.92% minority stake in Euroclear with a
seat on the Board, strengthening the commercial relationship
between the businesses
-- Capital Markets launched Shanghai-London Stock Connect with
Huatai Securities as its first issuer
-- Capital Markets launched the Green Economy Mark, enabling
investors to identify issuers that generate 50% or more of their
revenues from green initiatives; and the Sustainable Bond Market, a
new dedicated segment for social and sustainability bonds
(1) Before depreciation, amortisation and non-underlying
items.
(2) 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 Beyond Ratings.
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 Schwimmer, CEO,
LSEG said:
"It was another strong year for London Stock Exchange Group -
delivering a good financial performance, making meaningful progress
executing on our strategic objectives, and taking significant steps
on a number of Group-wide initiatives. The Group continued to
perform well, navigating an evolving macroeconomic and geopolitical
landscape and remains well positioned for the future. We continue
to partner with our customers to develop innovative services in a
range of areas, from reference rate reform to sustainable
investment.
"Our proposed acquisition of Refinitiv, a leading provider of
data, analytics and financial markets services, will significantly
accelerate our strategy to be a leading global financial markets
infrastructure provider. Refinitiv brings highly complementary
capabilities in data, analytics and capital markets as well as deep
customer relationships across a global business. Detailed
integration planning is underway to ensure we are ready to deliver
the benefits of the transaction to our shareholders, customers and
other stakeholders. We remain on track to close the transaction in
the second half of this year."
Financial Summary
Unless otherwise stated, all figures below refer to continuing
operations for the year ended 31 December 2019. Comparative figures
are for continuing operations for the year ended 31 December 2018.
Variance is also provided on an organic and constant currency
basis.
Organic
and
Twelve months ended constant
31 December currency
---------------------------
2019 2018 Variance Variance(1)
Continuing operations GBPm GBPm % %
----------------------------------------- -------- ------ --------- ------------
Revenue
Information Services(1) 902 841 7% 5%
Post Trade Services - LCH 550 487 13% 13%
Post Trade Services - CC&G and
Monte Titoli 103 102 1% 2%
Capital Markets 426 407 5% 5%
Technology 66 65 2% 1%
Other revenue 9 9 - -
------------------------------------------ -------- ------ --------- ------------
Total revenue 2,056 1,911 8% 6%
Net treasury income through CCP
businesses 255 218 17% 16%
Other income 3 6 - -
------------------------------------------ -------- ------ --------- ------------
Total income 2,314 2,135 8% 7%
Cost of sales (210) (227) (8%) (8%)
------------------------------------------ -------- ------ --------- ------------
Gross profit 2,104 1,908 10% 9%
------------------------------------------ -------- ------ --------- ------------
Operating expenses before depreciation,
amortisation and impairment (839) (834) 1% (1%)
Underlying depreciation, amortisation
and impairment (200) (135) 49% 49%
------------------------------------------ -------- ------ --------- ------------
Total operating expenses (1,039) (969) 7% 6%
Income from equity investments 7 - - -
Share of loss after tax of associate (7) (8) (12%) (12%)
Adjusted operating profit(2) 1,065 931 14% 13%
------------------------------------------ -------- ------ --------- ------------
Add back underlying depreciation,
amortisation and impairment 200 135 49% 49%
------------
Adjusted earnings before interest,
tax, depreciation, amortisation
and impairment(2) 1,265 1,066 19% 17%
-------- ------ --------- ------------
Amortisation of purchased intangible
assets and non-underlying items (327) (180) 81% 78%
Operating profit 738 751 (2)% (3%)
------------------------------------------ -------- ------ --------- ------------
Earnings per share
Basic earnings per share (p) 119.5 138.3 (14%)
Adjusted basic earnings per share
(p) (2) 200.3 173.8 15%
Dividend per share (p) 70.0 60.4 16%
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.
(1) Organic growth is calculated in respect of businesses owned
for at least 12 months in either period and so excludes Beyond
Ratings.
(2) Before amortisation of purchased intangible assets and
non-underlying items.
Variances in table are calculated from unrounded numbers.
Board of Directors - change of Senior Independent Director
Stephen O'Connor will assume the role of Senior Independent
Director from Paul Heiden after the conclusion of the AGM in April
2020, when, as previously announced, Paul will step down from the
Board. Stephen was appointed to the LSEG Board in June 2013 and is
Chairman of the Risk Committee.
Contacts:
London Stock Exchange Group plc
Gavin Sullivan/Lucie Holloway Media +44 (0) 20 7797 1222
Paul Froud Investor Relations +44 (0) 20 7797 3322
Further information
The Group will host a presentation and conference call on its
Preliminary Results for analysts and institutional shareholders
today at 09:00am (GMT). On the call will be David Schwimmer (CEO),
David Warren (CFO) and Paul Froud (Group Head of Investor
Relations).
To access the telephone conference call please pre-register
using the following link and instructions below:
http://emea.directeventreg.com/registration/1384568
-- Please register in advance using the link above. Upon
registering with your full name, company name and email address,
you will be provided with participant dial-in numbers, Direct Event
passcode and unique registrant ID
-- In the 10 minutes prior to the call start time, you will need
to use the conference access information provided in the email
received at the point of registering
Note: Due to regional restrictions some participants may require
operator assistance when joining this conference call and will not
be automatically connected.
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 2019, which was approved by the
Board of Directors on 28 February 2020, 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
2018 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 2019 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 2019.
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 2019.
CEO's statement
Overview
2019 was another eventful year of macroeconomic and
geo-political events directly influencing global financial markets.
Despite this complex backdrop, it was also another strong year for
London Stock Exchange Group - delivering a strong financial
performance; making meaningful progress executing on our strategic
objectives; and taking significant steps on a number of Group-wide
initiatives. We announced the proposed acquisition of Refinitiv,
which will accelerate our strategy, while continuing to progress
financially, strategically and operationally across our core
businesses of Information Services, Post Trade and Capital Markets.
Our successful strategy is underpinned by the continuation of our
Open Access and customer partnership approach to deliver innovative
solutions across the financial markets value chain.
At the end of 2018, the Board and the executive team evaluated
the Group's strategy in order to ensure that LSEG is well
positioned for the decade ahead. We carried out this evaluation
from a position of strength, building on the successful execution
of the strategy and financial performance of recent years. Over the
last 20 years, the financial market landscape has changed
significantly - driven by technology, regulatory and macroeconomic
factors - and change is happening at an even greater pace today. We
are consistently hearing from our clients that they want to trade
across different regions and asset classes, with fewer providers
that are better positioned to do more for them across the financial
markets value chain, while maintaining an open access model built
on customer choice.
LSEG is looking to drive that evolution and position the Group
for long-term sustainable growth. In August 2019 we announced the
transformational acquisition of Refinitiv in an all-share
transaction for an enterprise value of approximately US$27 billion,
as at 1 August 2019. The proposed acquisition, which has been well
received by the market and approved by shareholders, significantly
accelerates our existing strategy to be a leading global financial
markets infrastructure provider. Refinitiv brings highly
complementary capabilities in data, analytics and capital markets
as well as deep customer relationships across a truly global
business. As a result, we will significantly expand our data and
analytics offering to create a global multi-asset class capital
markets business. Shortly after the announcement of the proposed
Refinitiv transaction, we received an unsolicited approach from
Hong Kong Exchanges and Clearing Limited (HKEX). The Board
reflected fully on the conditional proposal and highlighted
fundamental concerns about the deliverability, value and strategic
benefit of the approach. HKEX later announced that it would not
proceed with an offer. The Board remains convinced that the
Refinitiv transaction provides superior benefits, and we continue
to make good progress towards achieving regulatory approvals. We
remain on target to close the transaction in the second half of
2020.
Information Services
In our Information Services division, FTSE Russell is a key
contributor to Group revenues, delivering 10% revenue growth over
the course of the year. This included strong growth in subscription
revenues, up 12% in 2019, reflecting new sales across a number of
indices.
The growth in passive investing continues and is now increasing
at approximately 20% per year, with assets expected to reach $30
trillion by 2023. FTSE Russell is well placed to capitalise on
these industry trends, with increased demand for its data and
analytical tools. At the end of 2019, the value of ETF assets
tracking its indices was US$765 billion, up 26% on the previous
year.
LSEG's Information Services business is also responding to the
rapidly growing demand among asset owners to integrate
sustainability and Environmental, Social and Governance (ESG)
considerations. In June, we announced the acquisition of Beyond
Ratings, a highly regarded provider of ESG data for fixed income.
Beyond Ratings is very complementary to FTSE Russell's existing ESG
index and data offering as well as the analytics tools provided
through The Yield Book.
In July, FTSE Russell launched the first climate risk-adjusted
government bond index, which allows the market to access a
quantitative climate risk assessment for sovereign debt. FTSE
Russell has worked with institutions across the globe to develop
indices that meet their sustainability criteria as well as the
underlying benchmarks for exchange traded funds. FTSE Russell will
continue to help develop and promote more global standards for
measuring progress against ESG and sustainable development
goals.
FTSE Russell successfully began inclusion of China A Shares and
Saudi Arabia securities into its global equity benchmarks, marking
significant developments for these emerging markets. We have
received positive feedback from index users with many passive asset
managers moving quickly to adjust portfolios. We estimate that the
inclusion of these countries within the FTSE Emerging Index will
equate to around US$15 billion in net passive inflows of assets
under management.
Post Trade
The Group's post trade divisions continued to perform well. LCH
delivered a strong performance with income up 14% to GBP756
million. Post Trade - Italy saw income increase by 5% to GBP152
million. In January 2019, LSEG also announced the purchase of a
4.92% minority stake in Euroclear, a leading provider of
settlement, custody and collateral management services across
Europe, which further strengthened LSEG's and Euroclear's existing
operational and commercial relationship to the benefit of our
respective customers.
LCH's OTC clearing services continued to set new records in 2019
and have seen good growth in member and client clearing. SwapClear
remains the largest OTC rates liquidity pool in the world,
processing over US$1.2 quadrillion in notional volume in 2019.
Alongside this, the increased use of its compression services has
enabled members and customers to save approximately US$35.1 billion
in capital over the course of the year. In October, LCH became the
first clearing house to offer clearing of Euro-denominated swaps
benchmarked to the new reference rate EURSTR, as the industry
adopts new interest rate benchmarks. The move follows its launch of
clearing for SOFR swaps and SONIA Futures in 2018, and SARON swaps
in 2017. Through SwapAgent, LCH has the opportunity to expand its
offering in the non-cleared OTC derivatives space, which represents
around 25% of the global OTC interest rate derivatives market.
ForexClear has also expanded its product offering to include the
clearing of deliverable FX forwards. In Italy, the Group's central
securities depository (CSD), Monte Titoli, is implementing a
digital transformation programme to deliver increased efficiency,
risk reduction and simplification for clients.
In October, we announced that we would align our Post Trade
businesses in one division from January 2020, under the leadership
of Daniel Maguire. The new Post Trade division includes LCH Group,
CC&G, Monte Titoli and UnaVista, our trade reporting business
that previously sat within Information Services. The new division
will ensure greater Group-wide collaboration and benefits for
customers, while continuing to operate on an open-access basis with
no changes to local legal entity governance and regulatory
oversight.
The withdrawal agreement in relation to the UK's departure from
the European Union provides for a transition period until 31
December 2020 during which the UK will continue to apply European
Union Law. As such, LCH Ltd remains an EMIR 'Authorised' UK CCP and
continues to offer clearing for all products and services to all
members and clients. LCH Ltd also continues to engage in the
application process under the revised supervisory framework for EU
and third country CCPs ('EMIR 2.2') to ensure a smooth transition
to being a recognised, third country CCP.
Capital Markets
Capital Markets continued to perform well despite macroeconomic
headwinds with revenue up 5% to GBP426 million.
While IPO activity globally has been slower this year due to
macroeconomic and political uncertainty, London Stock Exchange and
Borsa Italiana attracted significant listings with a total of
GBP23.4 billion raised by firms in new and further issues across
the Group's markets. London Stock Exchange retained its status as
the leading European exchange in terms of money raised and Borsa
Italiana recorded the highest number of new listings in Europe.
AIM, which will celebrate its 25th anniversary in 2020, remains
the world's largest growth market, helping firms to raise over
GBP3.8 billion in new and further issues during 2019. As part of
our ongoing commitment to broadening our services to help make
markets more accessible, London Stock Exchange also signed an
agreement with PrimaryBid to enable retail investors real time
access to listings. AIM Italia welcomed 31 companies to its
markets, the highest number since it launched in 2009. In fixed
income, a number of companies and sovereign issuers chose London to
raise capital, including Aramco's inaugural international $12
billion bond in April.
After four years of development, including close work with the
UK and Chinese Governments and regulators, we launched
Shanghai-London Stock Connect, welcoming Huatai Securities as the
first issuer of GDRs on the new segment in June. While we expect it
will take a while to build, it is a significant achievement in our
relationship with China.
LSEG continued to support issuers and investors in the
transition to a sustainable, low-carbon economy throughout 2019.
Over a third of the GBP6.9 billion total capital raised by
investment funds through IPOs and further issues this year has been
raised by green funds. Borsa Italiana's third Italian
Sustainability Day welcomed a record number of participants amidst
the growing focus on sustainable investment. In October, London
Stock Exchange launched two green initiatives to recognise the
increased interest from issuers and investors. The new Green
Economy Mark recognises listed companies with 50% or more of their
revenues derived from products and services that contribute to the
global green economy. The Sustainable Bond Market builds on the
success of the Green Bond Segment, launched in 2015, and includes
new sustainability, social and issuer-level segments, based on
independently verified frameworks and use of proceeds.
CurveGlobal, the interest rate derivatives business, continued
to innovate and build momentum. CurveGlobal trading volumes rose by
78% in 2019, compared to 2018, as it continues to drive competition
in the futures markets. CurveGlobal is supporting the transition
away from LIBOR-based derivatives, enhancing price discovery and
helping the market manage risk. It has also introduced a unique
uncapped pre-paid trading scheme to encourage further use of
CurveGlobal services.
Leadership
During the course of the year, we announced some changes to
strengthen further our executive management team. David Shalders
joined the Group as Chief Integration Officer and Chief Operating
Officer and Anthony McCarthy was appointed Chief Information
Officer, following Chris Corrado's decision to leave the Group. As
noted in last year's report, Waqas Samad was appointed Group
Director, Information Services in January 2019, while Daniel
Maguire, CEO LCH Group was appointed Group Director, Post Trade
following the creation of a single Post Trade division. Tim Jones,
Group Head of Human Resources, and Gavin Sullivan, Group
Communications Director, both joined the executive management team
from 1 January 2020, reflecting the importance of these roles as
the Group continues to develop. From 1 April 2020, Murray Roos will
join LSEG as Group Director, Capital Markets as Raffaele Jerusalmi
steps down from that role, while continuing as CEO, Borsa
Italiana.
Finally, in October we announced that David Warren, Group Chief
Financial Officer had informed the Group of his intention to retire
from the company. David will continue in his current role as Group
CFO and a member of the Board through to the close of the Refinitiv
transaction to ensure a smooth transition to his successor.
However, I would like to express my thanks now for David's
significant contribution to the Group's success.
Our purpose
LSEG supports global financial stability and sustainable
economic growth by enabling businesses and economies to fund
innovation, manage risk and create jobs. As a global financial
markets infrastructure business, LSEG provides critical services to
clients around the world. We understand the vital role we play in
supporting and enabling a financial ecosystem that fosters
long-term sustainable economic growth, for the benefit of all
participants in capital markets - issuers, investors and
intermediaries. We run businesses that are of systemic importance
and recognise that in doing so we hold an important position in the
financial ecosystem with a broad set of responsibilities to our
stakeholders.
We are also cognisant of our responsibilities to our people and
to the wider communities in which we operate. We are committed to
supporting a culture of collaboration and embracing the diversity
of the Group. In 2019, we launched our Inclusion Network (IN) which
will support networks embracing all forms of diversity. Colleagues
in all locations have actively supported cultural initiatives from
mentoring to organising activities that promote our values. It is
also encouraging to see a rise in the number of colleagues
participating in our paid volunteering days initiative to support
various local charities around the world. You can read more in our
separate Corporate Sustainability report available on our
website.
Looking forward
We keep a close eye on the broader macroeconomic, technology and
regulatory factors which continue to drive change in our industry.
We have continued to invest across our businesses, working in
partnership with customers to deliver innovative products and
services, while also controlling costs. The Group remains well
positioned for future growth in this evolving environment as a
global financial markets infrastructure leader.
Finally, I would like to take the opportunity to thank all
colleagues across the Group for their hard work in delivering
another successful performance.
Financial review
The financial review covers the financial year ended 31 December
2019.
Commentary on performance uses variances on a continuing organic
and constant currency basis, unless otherwise stated. Constant
currency is calculated by rebasing 2018 at 2019 foreign exchange
rates. Sub-segmentation of revenues are unaudited and are shown to
assist the understanding of performance.
Highlights
-- Total income of GBP2,314 million (2018: GBP2,135 million)
increased by 7% and total revenue of GBP2,056 million (2018:
GBP1,911 million) increased by 6%
-- Adjusted EBITDA (1) of GBP1,265 million (2018: GBP1,066 million) increased by 17%
-- Adjusted operating profit (1) of GBP1,065 million (2018: GBP931 million) increased by 13%
-- Operating profit of GBP738 million (2018: GBP751 million) decreased by 3%
-- Adjusted basic earnings per share (1) of 200.3 pence (2018: 173.8 pence) increased by 15%
-- Basic earnings per share of 119.5 pence (2018: 138.3 pence) decreased by 14%
-- Total dividend per share of 70.0 pence (2018: 60.4 pence) increased by 16%
There were no discontinued operations in 2019.
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 EBITDA,
adjusted operating profit and adjusted earnings per share all
exclude amortisation and impairment of purchased intangible assets
and goodwill and non-underlying items
Continuing Operations 12 months ended 12 months ended Variance Variance at organic and constant currency(2)
Dec 2019 Dec 2018 % %
GBPm GBPm
Revenue
====================== =============== =============== ======== ============================================
Information Services 902 841 7 5
Post Trade Services -
LCH 550 487 13 13
Post Trade Services -
CC&G and Monte Titoli 103 102 1 2
Capital Markets 426 407 5 5
Technology Services 66 65 2 1
Other 9 9 - -
====================== =============== =============== ======== ============================================
Total revenue 2,056 1,911 8 6
Net treasury income
from CCP clearing
business 255 218 17 16
Other income 3 6 - -
---------------------- --------------- --------------- -------- --------------------------------------------
Total income 2,314 2,135 8 7
====================== =============== =============== ======== ============================================
Cost of sales (210) (227) (8) (8)
====================== =============== =============== ======== ============================================
Gross profit 2,104 1,908 10 9
---------------------- --------------- --------------- -------- --------------------------------------------
Operating expenses
before depreciation,
amortisation and
impairment(1) (839) (834) 1 (1)
Income from equity
Investments 7 - - -
Share of loss after
tax of associates (7) (8) (12) (12)
---------------------- --------------- --------------- -------- --------------------------------------------
Adjusted earnings
before interest, tax,
depreciation,
amortisation and
impairment(1) 1,265 1,066 19 17
====================== =============== =============== ======== ============================================
Depreciation,
amortisation and
impairment (1) (200) (135) 49 49
====================== =============== =============== ======== ============================================
Adjusted operating
profit (1) 1,065 931 14 13
====================== =============== =============== ======== ============================================
Amortisation of
purchased intangible
assets and
non-underlying items (327) (180) 81 78
====================== =============== =============== ======== ============================================
Operating profit 738 751 (2) (3)
====================== =============== =============== ======== ============================================
Adjusted basic
earnings per share
(1) 200.3p 173.8p 15
====================== =============== =============== ======== ============================================
Basic earnings per
share 119.5p 138.3p (14)
====================== =============== =============== ======== ============================================
(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 excludes Beyond
Ratings
Note: Variances in all tables are calculated from unrounded
numbers
Information Services
12 months ended Dec 12 months ended Dec Variance at organic and
2019 2018 Variance constant currency(1)
Revenue GBPm GBPm % %
========================================= =================== =================== ======== =======================
Index - Subscription 418 373 12 8
Index - Asset Based 231 219 6 2
----------------------------------------- ------------------- ------------------- -------- -----------------------
FTSE Russell(2) 649 592 10 6
Real Time Data 97 94 3 3
Other Information Services(1,2) 156 155 1 (1)
========================================= =================== =================== ======== =======================
Total revenue 902 841 7 5
========================================= =================== =================== ======== =======================
Cost of sales (74) (70) 5 2
========================================= =================== =================== ======== =======================
Gross profit 828 771 7 5
========================================= =================== =================== ======== =======================
Operating expenses before depreciation,
amortisation and impairment(3) (323) (302) 7 -
========================================= =================== =================== ======== =======================
Earnings before interest, tax,
depreciation, amortisation and
impairment(3) 505 469 7 -
========================================= =================== =================== ======== =======================
Depreciation, amortisation and
impairment(3) (56) (29) 93 -
========================================= =================== =================== ======== =======================
Operating profit(3) 449 440 2 -
----------------------------------------- ------------------- ------------------- -------- -----------------------
(1) Organic growth is calculated in respect of businesses owned
for at least 12 months in either period and so excludes Beyond
Ratings
(2) Mergent and some other minor items (previously reported in
FTSE Russell subscriptions) are now included in Other Information
Services for both periods
(3) Operating expenses before depreciation, amortisation and
impairment; earnings before interest, tax, depreciation,
amortisation and impairment; depreciation, amortisation and
impairment; 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 index products, real time
pricing data, product identification, reporting and reconciliation
services. Revenue was GBP902 million (2018: GBP841 million).
FTSE Russell's revenue was GBP649 million (2018: GBP592
million). On a reported basis, revenue increased by 10% and growth
on a constant currency basis was 6% driven by strong subscription
renewal rates and data sales, as well as increases in average AUM
levels in benchmarked ETFs and other investable products.
Real Time Data revenue increased by 3% to GBP97 million (2018:
GBP94 million) driven by increased licence sales, partially offset
by the revenue impact of a 4% decline in the number of terminals to
167,000 (2018: 174,000).
Other Information Services revenue is broadly in line with last
year at GBP156 million (2018: GBP155 million), with recurring
licence growth in data products offset by a decline in
transactional revenues in UnaVista.
Cost of sales increased by 2% to GBP74 million (2018: GBP70
million), primarily as a result of increased data charges and
partnership costs, in relation to growth in FTSE Russell
revenue.
Reported operating expenses excluding depreciation, amortisation
and impairment (D&A) increased by 7% to GBP323 million (2018:
GBP302 million), and D&A rose 93% to GBP56 million (2018: GBP29
million) reflecting continued investment to support growth of the
business and share of IFRS 16 right of use asset amortisation. The
increase in total cost contributed to a marginal operating profit
margin decline.
Reported operating profit increased by 2% to GBP449 million
(2018: GBP440 million). The Group remains on track to achieve the
financial performance announced as part of the Yield Book
acquisition.
Post Trade Services - LCH
12 months ended Dec 12 months ended Dec Variance at
2019 2018 Variance constant currency
Revenue GBPm GBPm % %
============================================== =================== =================== ======== ==================
OTC 307 268 15 13
Non-OTC 140 136 3 4
Other 103 83 25 24
============================================== =================== =================== ======== ==================
Total revenue 550 487 13 13
============================================== =================== =================== ======== ==================
Net treasury income 206 175 18 17
Total income 756 662 14 14
============================================== =================== =================== ======== ==================
Cost of sales (114) (123) (8) (7)
============================================== =================== =================== ======== ==================
Gross profit 642 539 19 18
============================================== =================== =================== ======== ==================
Income from equity investments 7 - - -
============================================== =================== =================== ======== ==================
Operating expenses before depreciation,
amortisation and impairment (1) (234) (235) - -
============================================== =================== =================== ======== ==================
Earnings before interest, tax, depreciation,
amortisation and impairment(1) 415 304 36 -
============================================== =================== =================== ======== ==================
Depreciation, amortisation and impairment(1) (76) (62) 23 -
============================================== =================== =================== ======== ==================
Operating profit (1) 339 242 40 -
---------------------------------------------- ------------------- ------------------- -------- ------------------
(1) Operating expenses before depreciation, amortisation and
impairment; earnings before interest, tax, depreciation,
amortisation and impairment; depreciation, amortisation and
impairment; 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 GBP756 million (2018:
GBP662 million).
2019 performance is in line with the Group's double-digit growth
revenue target for OTC clearing. OTC clearing revenue increased by
13% to GBP307 million (2018: GBP268 million), driven by SwapClear,
with strong growth in client clearing where client trade volume
increased by 13% to 1,681,000 (2018: 1,487,000). ForexClear
membership increased to 34 members (2018: 32) while notional value
cleared grew by 5% to US$18.0 trillion (2018: US$17.2 trillion). Of
this, $61 billion was client cleared notional, up significantly
from the previous year (2018: $8 billion).
Non-OTC clearing revenue increased by 4% to GBP140 million
(2018: GBP136 million), reflecting continued strong performance in
RepoClear. RepoClear reached a record nominal value cleared of
EUR106 trillion (2018: EUR98.7 trillion) up 7% largely as a result
of strong growth in the underlying Repo market, particularly in
Europe as a result of excess liquidity with members realising
netting and other benefits from the newly consolidated Euro debt
pool in LCH SA.
Other revenue, which includes fees from non-cash collateral
management, compression services, recharged pass through costs and
revenue sharing arrangements, increased by 24% to GBP103 million
(2018: GBP83 million).
Net treasury income increased by 17% to GBP206 million (2018:
GBP175 million). The growth reflects a 13% rise in average cash
collateral held to EUR98.4 billion (2018: EUR86.7 billion),
primarily driven by volumes cleared and market volatility.
Increased capacity with investment counterparties as well as
continued expansion of the range of products invested in for asset
allocation optimisation continued to support NTI growth. The Group
expects NTI to stabilise around the levels seen in H2 2019 if
collateral levels remain unchanged.
Cost of sales decreased 7% to GBP114 million (2018: GBP123
million), reflecting the updated SwapClear agreement which came
into effect at the start of the year, which exceeded the GBP30
million benefit previously communicated.
Reported operating expenses excluding D&A remained flat and
D&A increased by 23% to GBP76 million (2018: GBP62 million),
driven by investment to support growth and IFRS 16 right of use
asset amortisation.
LCH EBITDA margin increased by nine percentage points to 55%
(2018: 46%), significantly exceeding the target of approaching 50%
by 2019.
Reported operating profit increased by 40% to GBP339 million
(2018: GBP242 million).
Post Trade Services - CC&G and Monte Titoli
Variance at
12 months ended Dec 2019 12 months ended Dec 2018 Variance constant currency
Revenue GBPm GBPm % %
==================================== ======================== ======================== ======== ==================
Clearing (CC&G) 43 41 3 4
Settlement, Custody and Other (MT) 60 61 - 1
------------------------------------ ------------------------ ------------------------ -------- ------------------
Inter-segmental revenue - 1 - -
==================================== ======================== ======================== ======== ==================
Total revenue 103 103 1 2
==================================== ======================== ======================== ======== ==================
Net treasury income (CC&G) 49 43 14 15
==================================== ======================== ======================== ======== ==================
Total income 152 146 5 6
==================================== ======================== ======================== ======== ==================
Cost of sales (7) (7) 6 6
==================================== ======================== ======================== ======== ==================
Gross profit 145 139 5 6
==================================== ======================== ======================== ======== ==================
Operating expenses before
depreciation, amortisation and
impairment(1) (44) (47) (6) -
==================================== ======================== ======================== ======== ==================
Earnings before interest, tax,
depreciation, amortisation and
impairment(1) 101 92 10 -
==================================== ======================== ======================== ======== ==================
Depreciation, amortisation and
impairment(1) (9) (9) - -
==================================== ======================== ======================== ======== ==================
Operating profit (1) 92 83 11 -
------------------------------------ ------------------------ ------------------------ -------- ------------------
(1) Operating expenses before depreciation, amortisation and
impairment; earnings before interest, tax, depreciation,
amortisation and impairment; depreciation, amortisation and
impairment; 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 was GBP152
million (2018: GBP146 million).
CC&G clearing revenues increased by 4% to GBP43 million
(2018: GBP41 million) mainly due to growth in bonds clearing
volumes, mirroring trading performance on MTS Repo market, jointly
with higher guarantee deposit fees and fails commissions.
Underlying Monte Titoli revenues were flat year on year as result
of higher Custody revenues, largely due to the rise in assets under
custody, offset by lower settlement revenues recorded in the year
following a decrease in settlement instructions.
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
increased by 15% to GBP49 million (2018: GBP43 million) as result
of higher average daily initial margin at EUR14.4 billion, 31%
higher than 2018 (2018: EUR11.0 billion).
Cost of sales was in line with 2018.
Reported operating expenses excluding D&A decreased by 6% to
GBP44 million (2018: GBP47 million), driven by lower IT costs from
efficiency and lower staff costs. D&A was flat year on
year.
Reported operating profit increased by 11% to GBP92 million
(2018: GBP83 million).
Capital Markets
Variance at
12 months ended Dec 2019 12 months ended Dec 2018 Variance constant currency
Revenue GBPm GBPm % %
==================================== ======================== ======================== ======== ==================
Primary Markets 151 113 34 34
Secondary Markets Equities 151 169 (11) (11)
Secondary Markets - Fixed Income,
Derivatives and Other 124 125 - 1
==================================== ======================== ======================== ======== ==================
Total revenue 426 407 5 5
==================================== ======================== ======================== ======== ==================
Cost of sales (5) (16) (67) (67)
==================================== ======================== ======================== ======== ==================
Gross profit 421 391 8 8
==================================== ======================== ======================== ======== ==================
Operating expenses before
depreciation, amortisation and
impairment(1) (192) (189) 2 -
==================================== ======================== ======================== ======== ==================
Share of loss after tax of
associates (1) (1) - -
==================================== ======================== ======================== ======== ==================
Earnings before interest, tax,
depreciation, amortisation and
impairment(1) 228 201 13 -
------------------------------------ ------------------------ ------------------------ -------- ------------------
Depreciation, amortisation and
impairment(1) (32) (17) 88 -
------------------------------------ ------------------------ ------------------------ -------- ------------------
Operating profit (1) 196 184 7 -
------------------------------------ ------------------------ ------------------------ -------- ------------------
(1) Operating expenses before depreciation, amortisation and
impairment; earnings before interest, tax, depreciation,
amortisation and impairment; depreciation, amortisation and
impairment; 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 GBP426 million (2018: GBP407 million).
Primary Markets revenue increased by 34% to GBP151 million in
2019 (2018: GBP113 million) with underlying revenue remaining
stable despite uncertainty due to Brexit delays and the UK general
election. The Group benefited from a change in estimate relating to
IFRS 15 due to a reduction in the length of time initial admissions
and further issue revenues are required to be recognised, which
resulted in a GBP32 million one-off balance sheet release. The
total amount of capital raised across the Group's markets, through
both new and further issues, decreased by 18% to GBP23.4 billion
(2018: GBP28.7 billion), however four new admissions each raised
over GBP1 billion (2018: one admission over GBP1 billion). Although
there was a 38% decrease in the number of new issues across the
Group's markets to 109 (2018: 176), the average market
capitalisation of companies joining the Group's UK markets
increased by 50% to GBP849 million (2018: GBP565 million). Further
issuance from investment funds accounted for GBP4.2 billion (2018:
GBP2.6 billion) with 55% of prior year listings raising further
capital in 2019 (2018: 21%) following the trend that funds are able
to upscale expediently on the Group's markets to advance their
strategies after listing.
Secondary Markets revenue decreased by 11% to GBP151 million
(2018: GBP169 million). UK average order book daily value traded
fell by 19% to GBP4.7 billion (2018: GBP5.8 billion) in line with
the subdued volume trend impacting European equity markets in 2019.
Following on the same trend, Italian equity trading volumes also
decreased by 10% year on year, with 255,000 trades per day (2018:
282,000). Turquoise, the Group's pan-European equities platform,
was similarly impacted with a 36% reduction in average daily equity
value traded to EUR2.1 billion (2018: EUR3.2 billion). Lower market
volumes on Turquoise Lit Book were partly offset by Turquoise Plato
and Turquoise Plato Lit Auctions which had record years, up 3% and
9% respectively on 2018 performance.
Fixed Income, Derivatives and Other revenue remained broadly
flat year on year at GBP124 million (2018: GBP125 million). MTS
Fixed Income revenue saw a 4% increase with strong performance by
Repo up 24% partially offset by a decline of Cash and BondVision
down 6% and 3% respectively. Derivatives performance was down 16%
driven by the removal of Equity derivatives in the UK during the
year and lower volumes on the Italian IDEM market. Growth in ELITE
continued, with increased membership revenue in both the UK and
Italy.
Cost of sales decreased by 67% to GBP5 million (2018: GBP16
million), primarily driven by Turquoise commercial policy changes
from rebate model to discount scheme.
Reported operating expenses excluding D&A increased by 2% to
GBP192 million (2018: GBP189 million) while D&A increased 88%
to GBP32 million (2018: GBP17 million), reflecting ongoing
investment and IFRS 16 right of use asset amortisation.
Share of loss after tax of associates relates to the Group's
share of the HUB Exchange funding platform.
Reported operating profit increased by 7% to GBP196 million
(2018: GBP184 million).
Technology Services
Variance at constant
12 months ended Dec 2019 12 months ended Dec 2018 Variance currency
GBPm GBPm % %
=========================== ======================== ======================== ======== ===========================
Revenue 66 65 2 1
Inter-segmental revenue 17 21 (19) (19)
--------------------------- ------------------------ ------------------------ -------- ---------------------------
Total revenue 83 86 (3) (3)
=========================== ======================== ======================== ======== ===========================
Cost of sales (7) (9) (23) (23)
=========================== ======================== ======================== ======== ===========================
Gross profit 76 77 (1) (1)
=========================== ======================== ======================== ======== ===========================
Operating expenses before
depreciation, amortisation
and impairment(1) (20) (59) 66 -
=========================== ======================== ======================== ======== ===========================
Earnings before interest,
tax, depreciation,
amortisation and
impairment (1) 56 18 211 -
--------------------------- ------------------------ ------------------------ -------- ---------------------------
Depreciation , amortisation
and impairment(1) (25) (20) 25 -
--------------------------- ------------------------ ------------------------ -------- ---------------------------
Operating profit / (loss)
(1) 31 (2) - -
--------------------------- ------------------------ ------------------------ -------- ---------------------------
(1) Operating expenses before depreciation, amortisation and
impairment; earnings before interest, tax, depreciation,
amortisation and impairment; depreciation, amortisation and
impairment; and operating profit / (loss) 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 server location solutions, client
connectivity and software products for the Group and third
parties.
Third party revenue increased by 1% to GBP66 million (2018:
GBP65 million), driven by an expanding product suite and higher
sales volumes.
Reported operating expenses excluding D&A decreased by 66%
to GBP20 million (2018: GBP59 million), and D&A increased 25%
to GBP25 million (2018: GBP20 million), driven by continued Group
technology investment.
The Technology segment made a profit of GBP31 million (2018:
GBP2 million loss).
Operating Expenses
Group operating expenses (including D&A) before amortisation
of purchased intangible assets and non-underlying items, were
GBP1,039 million (2018: GBP969 million).
Reported operating expenses increased by 7% (6% on an organic
and constant currency basis). Within this, reported expenses
excluding D&A were well controlled, with a 1% increase driven
by salary and IT costs as the Group continues to invest in new
products and resilient infrastructure.
D&A increased by 49%. Within this increase was a GBP26
million amortisation charge relating to implementation of IFRS 16,
which requires items categorised as finance leases to be recognised
on the balance sheet as an asset and the right to use the asset
amortised. Reflecting the 2019 capital expenditure of GBP195
million and ongoing investment, underlying D&A in 2020 is
expected to increase by a similar amount as in 2019.
Inorganic expenses increased by GBP1 million due to the
acquisition of Beyond Ratings, which supports product expansion in
FTSE Russell ESG indices.
The Group continues to integrate Yield Book and continues with
the global headcount programme announced in March 2019, delivering
a benefit of GBP17 million in 2019. The Group expects to achieve
the announced run rate savings of GBP30 million by the end of
2020.
Income from Equity Investments and Share of Loss After Tax of
Associates
Income from equity investments of GBP7 million reflects the
dividend from the Group's 4.92% share in Euroclear. As the
acquisition was in January 2019 there is no prior year
comparative.
The share of loss after tax of associates primarily reflects the
Group's 44.1% minority share of the operating loss of CurveGlobal
of GBP6 million (2018: GBP7 million share of loss). CurveGlobal
volumes continued to grow and open interest at the end of 2019 was
up 14%, to 395,000 contracts (2018: 348,000 contracts). The Group
recognised a GBP1 million share of loss on the Group's investment
in the HUB Exchange funding platform (2018: GBP1 million share of
loss).
Non-underlying Items
Non-underlying operating items increased by GBP147 million to
GBP327 million (2018: GBP180 million). Non-underlying items in 2019
included amortisation and impairment of goodwill and purchased
intangible assets of GBP195 million (2018: GBP159 million). Within
this, GBP25 million relates to accelerated amortisation in relation
to Mergent Inc; GBP15 million relates to impairment of goodwill and
purchased intangibles, Turquoise Global Holdings Ltd GBP9 million,
driven by uncertainty of future cash flows; and Mergent Inc GBP6
million, driven by lower expected future cash flows than forecast
at the time of acquisition.
The Group incurred restructuring costs of GBP32 million (2018:
nil) in relation to implementation of the headcount programme
announced in March 2019. Integration costs of GBP4 million (2018:
GBP12 million) relate to integration of Yield Book.
In relation to acquisitions, the Group has incurred GBP96
million (2018: GBP9 million) of transaction costs.
The Group incurred GBP16 million (2018: nil) of non-underlying
financing fees for establishing a bridge financing facility in two
tranches of $9.325 billion and EUR3.58 billion (Bridge Facility) in
relation to the Refinitiv acquisition.
Finance Income and Expense and Taxation
Net finance costs were GBP71 million, up GBP5 million on the
prior year driven by GBP4 million of lease interest recognised as a
result of IFRS 16. In October 2019, upon its maturity, the Group
repaid a GBP250 million bond with a coupon of 9.125% per annum,
drawing down on existing facilities to refinance at significantly
lower rates of interest.
The effective tax rate for the period in respect of continuing
underlying operations and excluding the effect of prior year
adjustments was 23.7% (2018: 21.6%).
This reflects the Group's mix of profits across a largely stable
tax base without any material changes in underlying rates but does
include several one-off items increasing the rate. These items
include the write off of Turquoise Global Holding Ltd's deferred
tax assets, London Stock Exchange Plc's pension asset being
subjected to a temporary higher rate of tax, increased exposure to
US state taxes and a one off increase in US federal tax arising
from changes in the US legislation. Excluding one-off items the
underlying effective tax rate was 22%.
While the UK corporation tax rate was due to fall to 17% from 1
April 2020 it was made clear during the 2019 general election that
the Conservative Party intends to amend this and hold the UK
Corporation Tax rate at 19%. With regards to the Group's UK
deferred tax assets and liabilities, these are measured on
substantially enacted future rates at the balance sheet date, which
remains at 17% with the next UK budget schedule for 11 March
2020.
From a sustainability perspective, we do not expect there to be
any material changes to both the underlying tax base and tax rates
(assuming the UK remains at 19%). If the mix of profits remains
constant with 2019 and each sub group achieves a tax rate close to
the local statutory rate the Group should expect to record a
reported tax rate of between 22% to 23% for 2020.
Cash Flow and Balance Sheet
The Group's business continued to be strongly cash generative
during the year, with cash generated from operations of GBP1,089
million (2018: GBP969 million).
At 31 December 2019, the Group had net assets of GBP3,801
million (2018: GBP3,698 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
2019 2018
Year ended 31 December GBPm GBPm
===================================== ======= =======
Gross borrowings 2,085 2,203
Cash and cash equivalents (1,493) (1,510)
Net derivative financial liabilities 38 47
===================================== ======= =======
Net debt 630 740
===================================== ======= =======
Regulatory and operational cash 1,125 1,120
===================================== ======= =======
Operating net debt 1,755 1,860
------------------------------------- ------- -------
At 31 December 2019, the Group had operating net debt of
GBP1,755 million after setting aside GBP1,125 million of cash and
cash equivalents held to support regulatory and operational
requirements, including cash and cash equivalents at LCH Group and
amounts covering regulatory requirements at other LSEG companies.
There was little movement in total capital amounts during the year
and the Group's operating net debt decreased as cash generated,
after organic and inorganic investments and other normal course
payment obligations, was applied to pay down borrowings.
In August 2019, the Group arranged a Bridge Facility in
connection with its proposed acquisition of Refinitiv. The Bridge
Facility offers the Group greater certainty of availability of
funds, to potentially refinance the debt it takes on at completion
as a result of the acquisition. The Bridge Facility has been
arranged on terms appropriate for an investment grade borrower and
is available in two tranches, one of $9.325 billion and one of
EUR3.580 billion. As at 31 December 2019, the Bridge Facility was
undrawn.
In addition to the Bridge Facility, the Group retained total
committed bank facilities for general corporate purposes of GBP1.2
billion during the financial year. The maturity of the five-year
GBP600 million facility arranged in December 2017 was extended
during the period for a further year to December 2024. The Group
therefore continues to be well positioned to fund future growth.
Strong cash generation, GBP678 million of undrawn committed bank
lines (after taking into account committed, swingline backstop
coverage for the EUR300 million euro commercial paper in issuance)
and the Bridge Facility, continued to provide an appropriate level
of financial flexibility to the Group in its planning at the end of
2019.
The Group's interest cover, the coverage of net finance expense
by EBITDA (consolidated earnings before net finance charges,
taxation, impairment, depreciation and amortisation, foreign
exchange gains or losses and non-underlying items), decreased to
14.4 times in the 12 months to 31 December 2019 (31 December 2018:
16.1 times) due to the additional costs of the Bridge Facility. Net
leverage (operating net debt to EBITDA updated to account for the
EBITDA of acquisitions or disposals undertaken in the period)
decreased to 1.4 times at 31 December 2019 (31 December 2018: 1.8
times) and returns the Group to the middle of its targeted range of
1-2 times.
At the end of 2019, the Group's long-term credit ratings were A3
and A with Moody's and S&P respectively, with both agencies
having moved their ratings to a negative outlook in anticipation of
the impact of the Refinitiv acquisition on net leverage. Both
agencies are positive about the strategic rationale for the
transaction and note the Group's clearly positioned de-leveraging
plans. Prior to the announcement of the Refinitiv acquisition on 1
August 2019, S&P had upgraded LSEG by one notch to the current
A rating and Moody's had applied a positive outlook to its A3,
reflecting their views on the Group's continued progress as it
diversifies and strengthens its businesses and resulting
earnings.
Foreign exchange
2019 2018
=================================== ==== ====
Spot GBP/EUR rate at 31 December 1.17 1.11
=================================== ==== ====
Spot GBP/US$ rate at 31 December 1.31 1.27
=================================== ==== ====
Average GBP/EUR rate for the year 1.14 1.13
=================================== ==== ====
Average GBP/ US$ rate for the year 1.28 1.34
----------------------------------- ---- ----
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 2019, the main exposures for the Group were
its European based Euro reporting businesses and its US based
operations, principally Russell Indexes, 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 operating profit for the year
before amortisation of purchased intangible assets and
non-underlying items by approximately GBP29 million and GBP34
million, respectively.
The Group continues to manage its translation risk exposure by,
where possible, matching the currency of its debt to the currency
of its earnings, to ensure its key financial ratios are protected
from material foreign exchange rate volatility.
Earnings per share
The Group delivered a 15% increase in adjusted basic earnings
per share, which excludes amortisation of purchased intangible
assets and non-underlying items, to 200.3 pence (2018: 173.8
pence). Basic earnings per share were 119.5 pence (2018: 138.3
pence).
Dividend
The Board is proposing a final dividend of 49.9 pence per share,
which together with the interim dividend of 20.1 pence per share
paid to shareholders in September 2019, results in a 16% increase
in the total dividend to 70.0 pence per share. The final dividend
will be paid on 27 May 2020 to shareholders on the register as at 1
May 2020.
Financial Targets
At an Investor Update event in June 2017, the Group set out
financial targets for 2017-2019, with the 2019 outcome provided
below.
Financial Targets to 2019 Performance
-----------------------------
FTSE Double-digit growth to continue 2019: Up 10% on a reported
Russell 2017-2019 basis; up 6% on a constant
currency basis
--------- -------------------------------- -----------------------------
LCH Double-digit OTC revenue growth 2019: Up 15% on a reported
to continue basis; up 13% on a constant
currency basis
Adjusted EBITDA margin growth 2019: 55%
- approaching 50% by 2019
--------- -------------------------------- -----------------------------
Targets relating to increases in operating expenses and Group
EBITDA margin of c55% were stepped away from at the end of 2018.
The Group achieved an EBITDA margin of 54.7% in 2019.
Capital Management Framework
The Group has reviewed its Capital Management Framework, which
remains broadly unchanged (shown below). The Group continues to
focus on maintaining a prudent balance sheet while also continuing
to deploy capital for select organic and inorganic investments.
Returns to shareholders, including share buy-backs, will continue
to be kept under review.
Prudent Balance Sheet Flexibility to operate within this range
management for normal investment / development and
Maintain existing leverage to go above this range in the short term
target of 1.0-2.0x Net for compelling strategic opportunities
Debt / EBITDA Manage credit rating, debt profile, and
regulatory requirements
-----------------------------------------------
Investment for growth Selective inorganic investment opportunities
Preserve flexibility - meeting high internal hurdles
to pursue growth both Continued organic investments
organically and through
'bolt-on'/strategic M&A
---------------------------- -----------------------------------------------
Ordinary dividend policy Progressive dividend - reflects confidence
Progressive ordinary in strong future financial position
dividend policy Operating in target 2.5-3.0x dividend
cover range
Interim dividend payment of 1/3 of prior
full year dividend results
---------------------------- ---------------------------------------------
Other capital returns Continue to keep other returns under review
---------------------------- ---------------------------------------------
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2019
2019 2018
---------------------------------- ----------------------------------
Underlying Non-underlying Total Underlying Non-underlying Total
Continuing operations Notes GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 4 2,056 - 2,056 1,911 - 1,911
Net treasury income
from CCP clearing business 4 255 - 255 218 - 218
Other income 4 3 - 3 6 - 6
--------------------------------- ----- ---------- -------------- ------ ---------- -------------- ------
Total income 2,314 - 2,314 2,135 - 2,135
Cost of sales 4 (210) - (210) (227) - (227)
Gross profit 2,104 - 2,104 1,908 - 1,908
Expenses
Operating expenses before
depreciation, amortisation 5,
and impairment 7 (839) (132) (971) (834) (21) (855)
Income from equity investments 4 7 - 7 - - -
Share of loss after
tax of associates 4 (7) - (7) (8) - (8)
--------------------------------- ----- ---------- -------------- ------ ---------- -------------- ------
Earnings before interest,
tax, depreciation, amortisation
and impairment 1,265 (132) 1,133 1,066 (21) 1,045
Depreciation, amortisation
and impairment 7 (200) (195) (395) (135) (159) (294)
Operating profit/(loss) 1,065 (327) 738 931 (180) 751
Finance income 14 - 14 13 - 13
Finance expense (85) (16) (101) (79) - (79)
---------- -------------- ------ ---------- -------------- ------
7,
Net finance expense 8 (71) (16) (87) (66) - (66)
Profit/(loss) before
tax 994 (343) 651 865 (180) 685
7,
Taxation 9 (236) 50 (186) (187) 55 (132)
Profit/(loss) for the
year 758 (293) 465 678 (125) 553
--------------------------------- ----- ---------- -------------- ------ ---------- -------------- ------
Profit/(loss) attributable
to:
Equity holders 699 (282) 417 603 (123) 480
Non-controlling interests 59 (11) 48 75 (2) 73
Profit/(loss) for the
year 758 (293) 465 678 (125) 553
--------------------------------- ----- ---------- -------------- ------ ---------- -------------- ------
Earnings per share attributable
to equity holders
Basic earnings per share 10 119.5p 138.3p
Diluted earnings per
share 10 118.1p 136.0p
Adjusted basic earnings
per share 10 200.3p 173.8p
Adjusted diluted earnings
per share 10 198.0p 170.8p
Dividend per share in
respect of the financial
year
Dividend per share paid
during the year 11 20.1p 17.2p
Dividend per share declared
for the year 11 49.9p 43.2p
--------------------------------- ----- ---------- -------------- ------ ---------- -------------- ------
CONSOLIDATED STATEMENT of comprehensive income
Year ended 31 December 2019
2019 2018
Notes GBPm GBPm
Profit for the year 465 553
Other comprehensive income:
Items that will not be subsequently reclassified
to profit or loss:
Defined benefit pension scheme remeasurement
gain/(loss) 7 (12)
Income tax relating to these items 9 - 5
7 (7)
------------------------------------------------- ----- ----- ----
Items that may be subsequently reclassified to profit
or loss:
Net gains/(losses) on net investment hedges 71 (55)
Debt instruments at fair value through other
comprehensive income:
- Net gains/(losses) from changes in fair
value 16 (21)
- Net (gains)/losses reclassified to the
consolidated income statement on disposal (2) 4
Exchange (losses)/gains on translation of
foreign operations (218) 168
Income tax relating to these items 9 (5) 4
(138) 100
------------------------------------------------- ----- ----- ----
Other comprehensive income net of tax (131) 93
------------------------------------------------- ----- ----- ----
Total comprehensive income for the year 334 646
------------------------------------------------- ----- ----- ----
Total comprehensive income attributable to:
Equity holders 298 572
Non-controlling interests 36 74
Total comprehensive income for the year 334 646
------------------------------------------------- ----- ----- ----
balance sheet
At 31 December 2019
2019 2018
Notes GBPm GBPm
Assets
Non-current assets
Property, plant and equipment 288 149
Intangible assets 12 4,421 4,687
Investment in associates 28 25
Deferred tax assets 49 42
Investments in financial assets 13 266 31
Retirement benefit asset 66 46
Trade and other receivables 13 19 33
5,137 5,013
------------------------------------------ ------ ------- -------
Current assets
Trade and other receivables 13 566 785
Derivative financial instruments 13 2 -
Clearing member financial assets 729,094 764,411
Clearing member cash and cash equivalents 67,118 70,927
------- -------
Clearing member assets 13 796,212 835,338
Current tax 160 147
Investments in financial assets 13 81 53
Cash and cash equivalents 1,493 1,510
------------------------------------------ ------ ------- -------
798,514 837,833
------------------------------------------ ------ ------- -------
Total assets 803,651 842,846
------------------------------------------ ------ ------- -------
Liabilities
Current liabilities
Trade and other payables 13 620 538
Contract liabilities 157 153
Derivative financial instruments 13 1 30
Clearing member liabilities 13 796,102 835,508
Current tax 127 61
Borrowings 13, 14 512 561
Provisions 19 2
------------------------------------------ ------ ------- -------
797,538 836,853
Non-current liabilities
Borrowings 13, 14 1,573 1,642
Derivative financial instruments 13 39 17
Contract liabilities 88 118
Deferred tax liabilities 432 475
Retirement benefit obligations 17 22
Other non-current payables 13 150 11
Provisions 13 10
2,312 2,295
------------------------------------------ ------ ------- -------
Total liabilities 799,850 839,148
------------------------------------------ ------ ------- -------
Net assets 3,801 3,698
------------------------------------------ ------ ------- -------
Equity
Capital and reserves attributable to
the Company's equity holders
Ordinary share capital 16 24 24
Share premium 16 967 965
Retained earnings 668 424
Other reserves 1,796 1,930
Total shareholders' funds 3,455 3,343
Non-controlling interests 346 355
------------------------------------------ ------ ------- -------
Total equity 3,801 3,698
------------------------------------------ ------ ------- -------
cash flow statement
Year ended 31 December 2019
2019 2018
Notes GBPm GBPm
----------------------------------------------------------- ------ ----- -----
Cash flow from operating activities
Cash generated from operations 17 1,089 969
Interest received 6 3
Interest paid (103) (76)
Royalties paid (2) (2)
Corporation tax paid (153) (173)
Withholding tax received - 1
----------------------------------------------------------- ------ ----- -----
Net cash inflow from operating activities 837 722
----------------------------------------------------------- ------ ----- -----
Cash flow from investing activities
Purchase of property, plant and equipment (41) (50)
Purchase of intangible assets 12 (154) (144)
Proceeds from sale of businesses (1) 30 58
Cash disposed as part of the sale of businesses - (2)
Acquisition of business, net of cash acquired
(2) 19 (14) 3
Investment in associates (11) (28)
Investments in financial assets classed as FVOCI 13 (247) -
Investment in government bonds (3) -
Net cash outflow from investing activities (440) (163)
----------------------------------------------------------- ------ ----- -----
Cash flow from financing activities
Dividends paid to shareholders 11 (221) (189)
Dividends paid to non-controlling interests (40) (42)
Purchase of non-controlling interests (3) (9) (452)
Purchase of own shares by the employee benefit
trust (5) (4)
Proceeds from exercise of employee share options 5 7
Issue of convertible debt to external party (4) -
Loan to associate (1) -
Arrangement fee paid - (4)
Proceeds from the issue of bonds - 445
Bond repayment (250) -
Proceeds from the issue of commercial paper - 255
Repayments made towards bank credit facilities (35) (489)
Additional drawdowns from bank credit facilities 261 -
Principal element of lease payments (2018: Payments
towards lease obligations) (41) (2)
Net cash outflow from financing activities (340) (475)
----------------------------------------------------------- ------ ----- -----
Increase in cash and cash equivalents 57 84
Cash and cash equivalents at beginning of year 1,510 1,382
Exchange (loss)/gain on cash and cash equivalents (74) 44
Cash and cash equivalents at end of year 1,493 1,510
----------------------------------------------------------- ------ ----- -----
The Group's net cash inflow from operating activities of GBP837
million includes GBP98 million of expenses related to non-underlying
items.
(1) Proceeds from sale of businesses include deferred consideration
of GBP29 million received by the Group from its disposal of Russell
Investment Management in 2016 and a further GBP1 million received
in the current year for the disposal of Exactpro Systems Limited
and its subsidiaries in the prior year. Proceeds from sale of businesses
in the prior year relates to GBP58 million deferred consideration
received by the Group from its disposal of Russell Investment Management.
(2) Acquisition of business, net of cash acquired, in the current
year relates to the Group's acquisition of 100% of Beyond Ratings
SAS for GBP14 million. In the prior year, the Group received GBP3
million from the vendors of the Yield Book business on finalisation
of the purchase price.
(3) Purchase of non-controlling interests relates to the Group's
purchase of the remaining 30% interest in EuroTLX SIM S.p.A. from
non-controlling equity holders for GBP9 million (EUR10.2 million).
During the prior year, the Group completed the purchase of shareholdings
from non-controlling equity holders in LCH Group Holdings Limited
and FTSE Global Debt Capital Markets Limited for cash consideration
of GBP413 million and GBP39 million respectively.
Group cash flow does not include cash and cash equivalents held
by the Group's Post Trade operations on behalf of their clearing
members for use in their operations as managers of the clearing and
guarantee systems. These balances represent margins and default
funds held for counterparties for short periods in connection with
these operations.
STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2019
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 2017 24 964 324 1,820 3,132 525 3,657
Profit for the year - - 480 - 480 73 553
Other comprehensive
income for the year - - (18) 110 92 1 93
Issue of shares (note
16) - 1 - - 1 - 1
Final dividend relating
to the year ended 31
December 2017 (note
11) - - (129) - (129) - (129)
Interim dividend relating
to the year ended 31
December 2018 (note
11) - - (60) - (60) - (60)
Dividend payments to
non-controlling interests - - - - - (42) (42)
Employee share scheme
expenses - - 38 - 38 - 38
Tax in relation to
employee share scheme
expenses - - 7 - 7 - 7
Purchase of non-controlling
interest within acquired
subsidiary - - (218) - (218) (202) (420)
31 December 2018 24 965 424 1,930 3,343 355 3,698
Impact of adoption
of IFRS 16 (note 2) - - (23) - (23) - (23)
---------------------------- -------- -------- --------- --------- ------------- --------------- -------
1 January 2019 (restated) 24 965 401 1,930 3,320 355 3,675
Profit for the year - - 417 - 417 48 465
Other comprehensive
income for the year - - 15 (134) (119) (12) (131)
Issue of shares (note
16) - 2 - - 2 - 2
Final dividend relating
to the year ended 31
December 2018 (note
11) - - (151) - (151) - (151)
Interim dividend relating
to the year ended 31
December 2019 (note
11) - - (70) - (70) - (70)
Dividend payments to
non-controlling interests - - - - - (44) (44)
Employee share scheme
expenses - - 37 - 37 - 37
Tax in relation to
employee share scheme
expenses - - 17 - 17 - 17
Purchase of non-controlling
interest within acquired
subsidiary - - 2 - 2 (1) 1
31 December 2019 24 967 668 1,796 3,455 346 3,801
---------------------------- -------- -------- --------- --------- ------------- --------------- -------
Shares held in the Employee Benefit Trust to settle exercises of
employee share awards were 517,563 ( 2018 : 573,672).
Employee share scheme expenses include costs related to the
issue and purchase of own shares for employee share schemes of
GBP(5) million ( 2018 : GBP(4) million), subscriptions, net of
sundry costs, received on the vesting of employee share schemes of
GBP5 million ( 2018 : GBP6 million) and equity-settled share scheme
expenses for the year of GBP37 million ( 2018: GBP36 million).
Purchase of non-controlling interests in the year relates to the
Group's acquisition of the remaining 30% of interest in EuroTLX SIM
S.p.A. In the prior year, the Group acquired an additional 16.68%
interest in LCH Group Holdings Limited and the remaining 27.26%
interest in FTSE Global Debt Capital Markets Limited.
Other reserves comprise the following:
Merger reserve of GBP1,305 million ( 2018 : GBP1,305 million), a
reserve that arose when the Company issued shares as part of the
consideration to acquire subsidiary companies.
Capital redemption reserve of GBP514 million ( 2018 : GBP514
million), a reserve set up as a result of a court approved capital
reduction.
Reverse acquisition reserve of GBP(512) million ( 2018 :
GBP(512) million), a reserve arising on consolidation as a result
of the capital reduction scheme.
Foreign exchange translation reserve of GBP535 million ( 2018 :
GBP740 million), a reserve reflecting the impact of foreign
currency changes on the translation of foreign operations.
Hedging reserve of GBP(46) million ( 2018 : GBP(117) million), a
reserve representing the cumulative fair value adjustments
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 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.
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 19 . 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.
Recent accounting developments
The following standards and amendments have been endorsed by the
EU and adopted in these financial statements:
-- IFRS 16, 'Leases'
-- IFRIC 23, 'Uncertainty over Income Tax Treatments'
-- Amendments to IAS 28, 'Long-term interest in Associates and Joint Ventures'
-- Amendments to IAS 19, 'Plan amendment, curtailment or settlement'
-- Amendments to IFRS 9, 'Prepayment features with negative compensation'
-- Annual improvements to IFRS standards 2015-2017
The impact of adopting IFRS 16 on the Group's financial results
is described in detail in note 2. The adoption of the other
amendments did not have a material impact on the results of the
Group.
The following standards and interpretations have been issued by
the International Accounting Standards Board (IASB) and IFRIC, but
have not been adopted because 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 and interpretations Effective date
------------------------------------------------------- ---------------
Amendments to References to the Conceptual Framework
in IFRS Standards 1 January 2020
Amendments to IFRS 3, 'Business Combinations' 1 January 2020
Amendments to IAS 1 and IAS 8: Definition of
Material 1 January 2020
Amendments to IFRS 9, IAS 39 & IFRS 7: Interest
Rate Benchmark Reform 1 January 2020
IFRS 17, 'Insurance Contracts' 1 January 2021
------------------------------------------------------- ---------------
The above amendments and standards are not expected to have a
material impact on the results of the Group.
2. Adoption of new accounting standards and interpretations
On 1 January 2019, the Group adopted IFRS 16 'Leases'. The
impact of adopting the new standard has been reflected through
transition adjustments to the Group's opening retained earnings at
the start of the current year, as presented in the consolidated
statement of changes in equity. The table below provides a summary
of the impact at the date of transition:
As Impact After
reported of adoption adoption
31 December 1 January
2018 2019
GBPm GBPm GBPm
-------------------------------- ----------- ------------- ---------
Property, plant and equipment 149 172 321
Investment in leases - 3 3
Assets 149 175 324
--------------------------------- ----------- ------------- ---------
Lease liabilities - current 4 39 43
Lease liabilities - non-current 1 162 163
Trade and other payables -
accruals 355 (3) 352
Deferred tax liabilities 475 (4) 471
Provisions 12 4 16
--------------------------------- ----------- ------------- ---------
Liabilities 847 198 1,045
--------------------------------- ----------- ------------- ---------
Retained earnings 424 (23) 401
Equity 424 (23) 401
--------------------------------- ----------- ------------- ---------
The Group adopted IFRS 16 on 1 January 2019 using the modified
retrospective transitional arrangements and consequently the
comparative amounts have not been restated.
The standard requires the Group to recognise a 'right-of-use'
asset where the Group has a long-term arrangement to benefit from
an asset which it controls in return for regular consideration (a
lease). This definition includes the majority of the Group's
offices around the world, and these form the largest group of
assets recognised on 1 January 2019. Other assets include motor
vehicles.
The Group has recognised right-of-use assets and corresponding
liabilities for all leased assets, except for those with only
short-term commitment (less than 12 months) or for individual
assets of a value less than GBP5,000. In such cases, the Group
recognises the associated lease payments as an expense on a
straight-line basis over the lease term.
Right-of-use assets for property or equipment are included
within property, plant and equipment on the face of the balance
sheet. Assets relating to the right-of-use of an intangible are
included within intangible assets on the face of the balance
sheet.
The cost of right-of-use assets was calculated as if the Group
had always applied the new standard but using an incremental
borrowing rate calculated as at 31 December 2018. The value
recognised for lease liabilities is the present value of the
remaining lease payments, discounted to 1 January 2019 using the
same rate.
The following practical expedients have been applied by the
Group:
-- The use of hindsight to determine the lease term, if the
contract included extensions or break clauses
-- Application of the short-term lease exemption to leases that
expired before 31 December 2019
-- Excluding initial direct costs from the measurement of the cost of the asset
-- Applying a single discount rate to groups of leases with
similar characteristics, e.g. similar period and location
A reconciliation of the new liabilities recognised to the
amounts disclosed at 31 December 2018 as lease commitments is given
below:
GBPm
----------------------------------------------------------- ----
Lease commitments at 31 December 2018 226
Discounted lease commitments at 1 January 2019 198
Less:
Lease liabilities recognised as short-term leases (2)
Add:
Leases not previously recognised 5
Adjustments in respect of change in treatment of extension
options 5
----------------------------------------------------------- ----
Lease liabilities as at 1 January 2019 206
----------------------------------------------------------- ----
Weighted average incremental borrowing rate as at 1 January
2019 2.4%
3. Significant judgements and estimates
Judgements and estimates are regularly evaluated based on
historical experience, current circumstances and expectations of
future events.
Estimates:
For the year ended 31 December 2019, the following areas require
the use of estimates:
Impairment of intangible assets and goodwill - these assets form
a significant part of the balance sheet and are key assets for the
cash generating business in the Group. The recoverable amounts of
relevant cash generating units are based on value in use
calculations using management's best estimate of future performance
and estimates of the return required by investors to determine an
appropriate discount rate. Details are provided in note 12;
Defined benefit pension asset or liability - determined based on
the present value of future pension obligations using assumptions
determined by the Group with advice from an independent qualified
actuary; and
Estimated service period for admission and listing services
within the Primary Markets business - the Group determines the
estimated period for admission services using historical analysis
of listing durations in respect of the companies on our markets.
The estimated service period inherently incorporates an element of
uncertainty in relation to the length of a customer listing which
is subject to factors outside of the Group's control. The estimated
service periods are reassessed at each reporting date to ensure the
period reflects the Group's best estimates. T he Group estimates
that a one year decrease in the deferral period would cause an
estimated GBP19 million increase in revenue and a one year increase
in the deferral period would cause an estimated GBP17 million
decrease in revenue recognised in the year.
Judgements:
In preparing the financial statements for the year ended 31
December 2019, the following judgement has been made:
Clearing member trading assets and trading liabilities - The
Group uses its judgement to carry out the offsetting within
clearing member balances. The carrying values of the balances are
offset at what the Group considers an appropriate level to arrive
at the net balances reported in the balance sheet. The Group has an
aligned approach for its CCP subsidiaries to ensure the principles
applied are consistent across similar assets and liabilities. The
approach is reviewed on a timely basis to ensure the approach used
is the most appropriate.
EU State Aid - The Group has used its judgement to assess any
obligations arising in relation to EU State Aid investigations.
Considering the appeals made by the UK PLCs (including the Group),
UK Government, and management's internal view, the Group does not
consider any provision is required in relation to this
investigation. Additional details are provided in note 9.
4. 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. The Executive
Committee primarily uses a measure of adjusted earnings before
interest, tax, depreciation, and amortisation (EBITDA) to assess
the performance of the operating segments.
Sales between segments are carried out at arm's length and are
eliminated on consolidation.
Segmental disclosures for the year ended 31 December 2019 are as
follows:
Post
Trade
Post Services
Trade - CC&G
Information Services and Monte Capital Technology
Services - LCH Titoli Markets Services Other Eliminations Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----------- ---------- ---------- -------- ---------- ----- ------------ -----
Revenue from external
customers 902 550 103 426 66 9 - 2,056
Inter-segmental revenue - - - - 17 - (17) -
----------------------------- ----------- ---------- ---------- -------- ---------- ----- ------------ -----
Revenue 902 550 103 426 83 9 (17) 2,056
Net treasury income
from CCP clearing
business - 206 49 - - - - 255
Other income - - - - - 3 - 3
----------------------------- ----------- ---------- ---------- -------- ---------- ----- ------------ -----
Total income 902 756 152 426 83 12 (17) 2,314
----------------------------- ----------- ---------- ---------- -------- ---------- ----- ------------ -----
Cost of sales (74) (114) (7) (5) (7) (3) - (210)
Gross profit 828 642 145 421 76 9 (17) 2,104
----------------------------- ----------- ---------- ---------- -------- ---------- ----- ------------ -----
Income from equity
investments - 7 - - - - - 7
Share of loss after
tax of associates - - - (1) - (6) - (7)
----------------------------- ----------- ---------- ---------- -------- ---------- ----- ------------ -----
Earnings before interest,
tax, depreciation,
amortisation and impairment 505 415 101 228 56 (34) (6) 1,265
Underlying depreciation,
amortisation and impairment (56) (76) (9) (32) (25) (6) 4 (200)
Operating profit/(loss)
before non-underlying
items 449 339 92 196 31 (40) (2) 1,065
Amortisation and impairment
of goodwill and purchased
intangible assets (195)
Other non-underlying
items (132)
----------------------------- ------------ -----
Operating profit 738
Net finance expense
including non-underlying
items (87)
Profit before tax 651
Revenue from external customers principally comprises fees for
services rendered of GBP1,981 million (2018: GBP1,837 million) and
Technology Services of GBP66 million (2018: GBP65 million).
Net treasury income from CCP clearing businesses of GBP255
million (2018: GBP218 million) comprises gross interest income of
GBP1,337 million (2018: GBP1,025 million) less gross interest
expense of GBP1,082 million (2018: GBP807 million).
During the year the Group recognised a total of GBP29 million
(2018: GBP106 million) of net treasury income on financial assets
and financial liabilities held at amortised cost comprising
GBP1,028 million (2018: GBP732 million) gross treasury income and
GBP999 million (2018: GBP626 million) gross treasury expense.
GBP226 million net income (2018: GBP112 million net gain) on
assets held at fair value was recognised, comprising GBP309 million
(2018: GBP293 million) income and GBP83 million (2018: GBP181
million) expense.
Presented within revenue are net settlement expenses from the
CCP clearing businesses of net nil (2018: GBP2 million) which
comprise gross settlement income of GBP30 million (2018: GBP24
million) less gross settlement expense of GBP30 million (2018:
GBP26 million).
The Group's revenue from contracts with customers disaggregated
by segment, major product and service line, and timing of revenue
recognition for the year ended 31 December 2019 is shown below:
Revenue from
external
customers
Post
Trade
Post Services
Trade - CC&G
Information Services and Monte Capital Technology
Services - LCH Titoli Markets Services Other Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Major product &
service
lines
FTSE Russell
Indexes -
subscription 418 - - - - - 418
FTSE Russell
Indexes -
asset based 231 - - - - - 231
Real time data 97 - - - - - 97
Other
information
services 156 - - - - - 156
Clearing - 550 43 - - - 593
Settlement,
custody and
other - - 60 - - - 60
Primary capital
markets - - - 151 - - 151
Secondary
capital markets
- equities - - - 151 - - 151
Secondary
capital markets
- fixed income,
derivatives
and other - - - 124 - - 124
Capital markets
software
licences - - - - 66 - 66
Other - - - - - 9 9
Total revenue
from contracts
with customers 902 550 103 426 66 9 2,056
Timing of
revenue
recognition
Services
satisfied at
a point in time 42 544 95 283 4 7 975
Services
satisfied over
time 860 6 8 143 62 2 1,081
Total revenue
from contracts
with customers 902 550 103 426 66 9 2,056
Segmental disclosures for the year ended 31 December 2018 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 841 487 102 407 65 9 - 1,911
Inter-segmental
revenue - - 1 - 21 - (22) -
Revenue 841 487 103 407 86 9 (22) 1,911
Net treasury
income
from CCP
clearing
business - 175 43 - - - - 218
Other income - - - - - 6 - 6
Total income 841 662 146 407 86 15 (22) 2,135
Cost of sales (70) (123) (7) (16) (9) (2) - (227)
Gross profit 771 539 139 391 77 13 (22) 1,908
Share of loss
after
tax of
associates - - - (1) - (7) - (8)
Earnings before
interest,
tax,
depreciation,
amortisation
and
impairment 469 304 92 201 18 (5) (13) 1,066
Underlying
depreciation,
amortisation
and
impairment (29) (62) (9) (17) (20) (2) 4 (135)
Operating
profit/(loss)
before
non-underlying
items 440 242 83 184 (2) (7) (9) 931
Amortisation and
impairment of
goodwill
and purchased
intangible
assets (159)
Other
non-underlying
items (21)
Operating profit 751
Net finance
expense (66)
Profit before
tax 685
The Group's revenue from contracts with customers disaggregated
by segment, major product and service line, and timing of revenue
recognition for the year ended 31 December 2018 is shown below:
Revenue from external customers
Post
Trade
Services
Post - CC&G
Trade and
Information Services Monte Capital Technology
Services - LCH Titoli Markets Services Other Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Major product &
service
lines
FTSE Russell
Indexes
- subscription 373 - - - - - 373
FTSE Russell
Indexes
- asset based 219 - - - - - 219
Real time data 94 - - - - - 94
Other
information
services 155 - - - - - 155
Clearing - 487 41 - - - 528
Settlement,
custody
and other - - 61 - - - 61
Primary capital
markets - - - 113 - - 113
Secondary
capital
markets -
equities - - - 169 - - 169
Secondary
capital
markets - fixed
income,
derivatives and
other - - - 125 - - 125
Capital markets
software
licences - - - - 65 - 65
Other - - - - - 9 9
---------
Total revenue
from
contracts with
customers 841 487 102 407 65 9 1,911
Timing of
revenue
recognition
Services
satisfied
at a point in
time 45 479 93 237 2 8 864
Services
satisfied
over time 796 8 9 170 63 1 1,047
---------
Total revenue
from
contracts with
customers 841 487 102 407 65 9 1,911
31 December 2018 comparatives have been re-presented in line
with current year classification.
5. Expenses by nature
Expenses comprise the following:
2019 2018
Notes GBPm GBPm
Employee costs 6 529 510
IT costs 146 136
Short-term lease costs 2 -
Lease costs for low value items 2 -
Other costs 163 193
Foreign exchange gains (3) (5)
Underlying operating expenses before depreciation,
amortisation and impairment 839 834
Non-underlying operating expenses before
depreciation, amortisation and impairment 7 132 21
Operating expenses before depreciation, amortisation
and impairment 971 855
Other costs include GBP49 million in relation to professional fees
(2018: GBP60 million). Previously property costs included within
other costs are now recognised as depreciation under IFRS 16 (note
2).
6. Employee costs
Employee costs comprise the following:
2019 2018
GBPm GBPm
Salaries and other benefits 397 387
Social security costs 71 62
Pension costs 26 25
Share-based compensation 35 36
Total 529 510
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:
2019 2018
UK 1,631 1,628
USA 664 659
Italy 643 612
France 185 166
Sri Lanka 1,082 1,025
Other 493 315
Total 4,698 4,405
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.
7. Non-underlying items
2019 2018
Note GBPm GBPm
Amortisation and impairment of goodwill
and purchased intangible assets 12 195 159
Transaction costs 96 9
Restructuring costs 32 -
Integration costs 4 12
Operating expenses before depreciation,
amortisation and impairment 132 21
Total affecting operating profit 327 180
Non-underlying finance expense 16 -
Total affecting profit before tax 343 180
Tax effect on items affecting profit before
tax
Deferred tax on amortisation of purchased
intangible assets (31) (33)
Current tax on amortisation of purchased
intangible assets (11) (11)
Tax effect on other items (8) (11)
Total tax effect on items affecting profit
before tax (50) (55)
Total non-underlying charge to income
statement 293 125
During the year the Group incurred a GBP180 million (2018:
GBP154 million) amortisation charge in relation to purchased
intangible assets, which includes GBP25 million accelerated
amortisation in relation to Mergent Inc. In the prior year GBP5
million expense was recognised in relation to written-off work in
progress assets no longer required for development.
The Group impaired goodwill of GBP8 million and purchased
intangible assets of GBP1 million in relation to Turquoise Global
Holdings Ltd and the Group impaired goodwill of GBP6 million in
relation to Mergent Inc (note 12).
Transaction costs comprise charges incurred for services
relating to potential merger and acquisition transactions.
Restructuring costs comprise one-off implementation costs
arising from the cost savings programme announced in March
2019.
Integration costs in the current and prior year relate to the
activities to integrate the Mergent and Yield Book businesses into
the Group.
Financing costs relate to fees for establishing a Bridge
Financing to refinance the Refinitiv notes and term loans in full
following completion of its proposed acquisition. Further details
of the facility are provided in note 14.
8. Net finance expense
2019 2018
GBPm GBPm
Finance income
Expected return on defined benefit
pension scheme assets 1 1
Bank deposit and other interest income 9 8
Other finance income 4 4
Underlying finance income 14 13
Finance expense
Interest payable on bank and other
borrowings (73) (72)
Defined benefit pension scheme interest
cost - (1)
Lease interest payable (4) -
Other finance expenses (8) (6)
Underlying finance expense (85) (79)
Non-underlying (16) -
Net finance expense (87) (66)
Bank deposits and other income includes negative interest earned
on the Group's borrowings. Interest payable includes amounts where
the Group earns negative interest on its cash deposits.
Other finance income includes amounts relating to the unwind of
discount on net investments in leases. These amounts are immaterial.
During the year the Group recognised a total of GBP72 million (2018:
GBP66 million) of net interest expense on financial assets and
financial liabilities held at amortised cost, comprising GBP13
million (2018: GBP12 million) gross finance income and GBP85 million
(2018: GBP78 million) gross finance expense. Presented within finance
income and finance expense are amounts in relation to defined benefit
pension schemes which are measured at fair value.
9. Taxation
The standard UK corporation tax rate for the year
was 19% (2018: 19%).
2019 2018
Taxation charged to the income statement GBPm GBPm
Current tax:
UK corporation tax for the year 84 53
Overseas tax for the year 134 107
Adjustments in respect of previous
years (3) (12)
215 148
Deferred tax:
Deferred tax for the year 2 15
Adjustments in respect of previous
years - 2
Deferred tax on amortisation of purchased intangible
assets (31) (33)
(29) (16)
Total taxation charge 186 132
The adjustments in respect of previous years' corporation tax are
mainly in respect of tax returns submitted to relevant tax authorities.
2019 2018
Taxation on items not recognised in the
income statement GBPm GBPm
Current tax credit:
Tax allowance on share awards in excess
of expense recognised 7 5
7 5
Deferred tax (charge)/credit:
Tax on defined benefit pension scheme remeasurement (2) 5
Adjustments relating to change in defined
benefit pension tax rate 2 -
Tax allowance on share options/awards in
excess of expense recognised 10 2
Tax on movement in value of investments
in financial assets (5) 4
12 16
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% (2018: 19%) as explained
below:
2019 2018
GBPm GBPm
Profit before tax 651 685
Profit multiplied by standard rate of corporation
tax in the UK 124 130
Expenses not deductible/(income not taxable) 9 (7)
Adjustment arising from change in tax rates 7 -
Overseas earnings taxed at higher rate 38 25
Adjustments in respect of previous years (3) (10)
Adjustment arising from changes in tax rates
on amortisation of purchased intangible
assets 4 (2)
Deferred tax provided for withholding tax
on distributable reserves 2 -
Derecognition of deferred tax 5 (4)
Taxation 186 132
The UK Finance Bill 2016 was enacted in September 2016, reducing
the standard rate of corporation tax to 17% effective from 1 April
2020. Accordingly, the UK deferred tax balances at December 2019
have been stated at the rate dependent on when the temporary
differences are expected to reverse. The deferred tax balances in
other countries are recognised at the substantively enacted rates
at the balance sheet date.
Uncertain tax positions
EU State Aid
The Group continues to monitor developments in relation to EU
State Aid investigations. On 25 April 2019, the EU Commission's
final decision regarding its investigation into the UK's Controlled
Foreign Company (CFC) regime was published. It concludes that the
legislation up until December 2018 does partially represent State
Aid.
Both the Group and the UK Government, among a number of other UK
PLCs, have since submitted appeals to the EU general court to annul
the EU Commission's findings.
The UK Government are required to commence the process of
recovering the State Aid while the decision is under appeal,
issuing their first round of determinations in December 2019
focusing on the financial year 2015 due to the expiry of certain
time limits.
The Group received a determination in respect of one of its two
affected subsidiaries for GBP1 million, which was both paid by the
Group and appealed against separately to HMRC in January 2020. The
appeal against the determination to HMRC is likely to stay until
the conclusion of the appeals to the EU general court to annul the
original EU Commission's decision.
Considering the appeals made by the UK PLCs (including the
Group), UK Government, and management's internal view, the Group
does not consider any provision is required in relation to this
investigation. Additionally, in accordance with the provisions of
IFRIC 23 'Uncertainty over Income Tax Treatments' and IAS 12
'Income Taxes', the Group will recognise a receivable for the
determination paid in January 2020.
As previously disclosed, the Group has made claims under the CFC
legislation and considers that the potential amount of tax payable,
excluding compound interest, remains between nil and GBP65
million.
Other
The Group does not have any other uncertain tax positions as at
31 December 2019 (2018: nil).
10. 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. Diluted earnings per share takes
into account the dilutive effects that would arise on conversion
or vesting of all outstanding share options and share awards under
the Group's share option and award schemes. 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.
2019 2018
Basic earnings per share 119.5p 138.3p
Diluted earnings per share 118.1p 136.0p
Adjusted basic earnings per share 200.3p 173.8p
Adjusted diluted earnings per share 198.0p 170.8p
Profit and adjusted profit for the year attributable to the Company's
equity holders:
2019 2018
GBPm GBPm
Profit for the financial year attributable to the
Company's equity holders 417 480
Adjustments:
Total non-underlying items (note 7) 293 125
Amortisation of purchased intangible assets, non-underlying
items and taxation attributable to non-controlling
interests (11) (2)
Adjusted profit for the year attributable to the
Company's equity holders 699 603
Weighted average number of shares - millions 349 347
Effect of dilutive share options and awards - millions 4 6
Diluted weighted average number of shares - millions 353 353
The weighted average number of shares excludes those held in the
Employee Benefit Trust and treasury shares held by the Group.
11. Dividends
2019 2018
GBPm GBPm
Final dividend for 31 December 2017 paid 30
May 2018: 37.2p per Ordinary share - 129
Interim dividend for 31 December 2018 paid
18 September 2018: 17.2p per Ordinary share - 60
Final dividend for 31 December 2018 paid 29
May 2019: 43.2p per Ordinary share 151 -
Interim dividend for 31 December 2019 paid
17 September 2019: 20.1p per Ordinary share 70 -
221 189
Dividends are only paid out of available distributable
reserves.
The Board has proposed a final dividend in respect of the year
ended 31 December 2019 of 49.9p per share, which is estimated to
amount to an expected payment of GBP174 million in May 2020. This
is not reflected in the financial statements.
12. Intangible assets
Purchased intangible assets
Software,
Customer licences
and supplier and intellectual Software
Goodwill relationships Brands property and other Total
Cost: GBPm GBPm GBPm GBPm GBPm GBPm
31 December 2017 2,377 1,848 960 584 678 6,447
Additions - - - - 187 187
Disposals - (6) - (14) (4) (24)
Transfer of asset - - - - 3 3
Write-off - - - - (5) (5)
Foreign exchange 70 50 45 12 13 190
31 December 2018 2,447 1,892 1,005 582 872 6,798
Acquisition of subsidiaries 14 - - - - 14
Additions - - - - 206 206
Disposals and write-off - (2) (1) (2) (16) (21)
Foreign exchange (104) (64) (24) (12) (39) (243)
31 December 2019 2,357 1,826 980 568 1,023 6,754
Accumulated amortisation and
impairment:
31 December 2017 521 566 151 291 317 1,846
Amortisation charge
for the year - 91 39 24 102 256
Impairment - - - - 1 1
Disposals - (6) - (14) (4) (24)
Write-off - - - - (1) (1)
Foreign exchange 7 11 7 3 5 33
31 December 2018 528 662 197 304 420 2,111
Amortisation charge
for the year - 117 41 22 123 303
Impairment 14 1 - - 9 24
Disposals and write-off - (2) (1) (2) (14) (19)
Foreign exchange (27) (26) (5) (6) (22) (86)
31 December 2019 515 752 232 318 516 2,333
Net book values:
31 December 2019 1,842 1,074 748 250 507 4,421
31 December 2018 1,919 1,230 808 278 452 4,687
Goodwill
On 31 May 2019, the Group acquired Beyond Ratings SAS ("Beyond
Ratings"), which resulted in additions to goodwill of GBP14 million
(note 19).
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.
During the year an impairment has been recognised in relation to
Turquoise Global Holdings Ltd due to uncertainties in the
underlying future cash flows resulting in an impairment of GBP8
million in goodwill.
An impairment has been recognised in relation to Mergent due to
lower forecast cash flows, driven by revenue performance below
expectations set at the time of acquisition. This has resulted in
an impairment of GBP6 million in goodwill.
Purchased intangible assets
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 and supplier relationships
These assets have been recognised on acquisition of major
subsidiary companies by the Group. The amortisation periods
remaining on these assets are between 7 to 23 years. Following a
reassessment of useful economic lives the Group has recognised a
GBP25 million acceleration of amortisation charge in the year.
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 GBP538 million (2018: GBP583 million). The remaining
amortisation period on these assets are between 3 to 23 years.
Software, licences and intellectual property
These assets have been recognised on acquisition of subsidiary
companies and have a remaining amortisation period of 2 to 18
years.
There are no other individual purchased intangible assets with a
carrying value that is considered material to each asset class.
Following a review of purchased intangible assets no longer in
use, the Group disposed of assets with costs of GBP2 million of
customer relationships, GBP1 million of brands and GBP2m of
software licences, all with a nil net book value.
Impairment tests for purchased intangible assets
Turquoise
An impairment of GBP1 million has been recognised in relation to
Customer and Supplier Relationships which represents the recurring
source of income from customers' existing at the time of
acquisition. The impaired asset belongs to the Capital Markets
reportable segment.
The recoverable amount has been determined based on a value in
use calculation using cash flow projections from financial budgets
and forecasts approved by senior management covering a three year
period. The pre tax discount rate applied to cash flow projections
is 8.8% (2018: 9.7%) and cash flows beyond the three-year period
are extrapolated using a 3.4% growth rate (2018: 3.5%). The
projected cash flows have been impacted by weaker demand in the
'lit' trading book, coupled with increased costs of additional
investment in information technology to support the business. This
has resulted in the carrying value exceeding the value in use and
the Group has recognised an impairment of GBP1 million in the
current year taking the carrying value to nil.
Software and other
As a part of the business operating model the Group develops
technology solutions where software products are developed
internally, for use within the Group or to sell externally. The
cost of self-developed software products in the year includes
GBP100 million ( 2018 : GBP133 million) representing assets not yet
brought into use. No amortisation has been charged on these assets
and instead they are tested for impairment annually.
During the year, additions relating to internally generated
software amounted to GBP176 million ( 2018 : GBP175 million).
Research expenditure of GBP16 million (2018: GBP4 million) has been
recognised in the income statement in the year.
Other amounts represent the internally built and developed
trading systems within the various business lines, licences,
capitalised contract costs and right-of-use assets. In general,
these assets have a useful economic life of up to 7 years.
During the year, the Group capitalised GBP9 million (2018: GBP10
million) of incremental contract costs in respect of revenue
generating contracts with customers and recognised a GBP7 million
(2018: GBP6 million) amortisation charge relating to contract cost
assets. No impairment was recognised in the year (2018: nil) in
relation to contract cost assets.
Previously, the Group recognised licences held under finance
leases with a carrying value of GBP6 million at 2018 . On 1 January
2019, the Group adopted IFRS 16 (note 2) and these assets are now
included with other right-of-use assets within 'software and
other'. During the year the Group recognised additions of GBP21
million of right-of-use assets, with a corresponding amortisation
charge of GBP7 million.
Following a review of software assets in the year the Group
recognised GBP9 million impairment in relation to assets no longer
in use.
During the year the Group recognised disposals and write-offs of
assets no longer in use with a cost of GBP16 million, comprising
GBP14 million nil net book value assets and GBP2 million of assets
not yet brought into use.
13. Financial assets and financial liabilities
Financial instruments by category
The financial instruments of the Group are categorised as follows:
Financial assets
Financial Financial
assets instruments
Financial at fair at fair
assets value value through
at amortised through profit
cost OCI or loss Total
31 December 2019 GBPm GBPm GBPm GBPm
Clearing member financial
assets:
- Clearing member trading
assets 122,299 - 574,889 697,188
- Other receivables from
clearing
members 8,330 - - 8,330
- Other financial assets - 23,576 - 23,576
- Clearing member cash and cash
equivalents 67,118 - - 67,118
Clearing member business assets 197,747 23,576 574,889 796,212
Trade and other receivables 521 - 5 526
Cash and cash equivalents 1,493 - - 1,493
Investments in financial assets
- debt instruments - 106 - 106
Investments in financial assets
- equity instruments - 241 - 241
Derivative financial
instruments - - 2 2
Total 199,761 23,923 574,896 798,580
There were no transfers between categories during the year.
Prepayments and contract assets within trade and other receivables
are not classified as financial instruments.
The Group no longer recognises bonds with less than three months
maturity as cash and cash equivalents. They remain within investments
in financial assets - debt.
Financial liabilities
Financial
liabilities
at fair
Financial value
liabilities through
at amortised profit
cost and loss Total
31 December 2019 GBPm GBPm GBPm
Clearing member financial liabilities:
- Clearing member trading liabilities 122,299 574,889 697,188
- Other payables to clearing members 98,914 - 98,914
Clearing member business liabilities 221,213 574,889 796,102
Trade and other payables 747 - 747
Borrowings 2,085 - 2,085
Derivative financial instruments - 40 40
Total 224,045 574,929 798,974
There were no transfers between categories during the year.
Social security and other tax liabilities within trade and other
payables, and contract liabilities are not classified as financial
instruments.
The financial instruments of the Group at the previous year's balance
sheet date were as follows:
Financial assets
Financial
Financial instruments
assets at fair
Financial at fair value
assets value through
at amortised through profit
cost OCI or loss Total
31 December 2018 GBPm GBPm GBPm GBPm
Clearing member financial
assets:
- Clearing member trading
assets 138,153 - 604,303 742,456
- Other receivables from
clearing members 2,261 - - 2,261
- Other financial assets - 19,694 - 19,694
- Clearing member cash and cash
equivalents 70,927 - - 70,927
Clearing member business assets 211,341 19,694 604,303 835,338
Trade and other receivables 761 - - 761
Cash and cash equivalents 1,510 - - 1,510
Investments in financial assets
- debt
instruments - 84 - 84
Total 213,612 19,778 604,303 837,693
Prepayments and contract assets within trade and other receivables
are not classified as financial instruments.
Contract assets that have been reclassified as fees receivable
are included within trade and other receivables.
Financial liabilities
Financial
liabilities
at fair
Financial value
liabilities through
at amortised profit
cost or loss Total
31 December 2018 GBPm GBPm GBPm
Clearing member financial
liabilities:
- Clearing member trading
liabilities 138,153 604,303 742,456
- Other payables to
clearing members 93,052 - 93,052
Clearing member business
liabilities 231,205 604,303 835,508
Trade and other payables 510 10 520
Borrowings 2,203 - 2,203
Derivative financial
instruments - 47 47
Total 233,918 604,360 838,278
Social security and other tax liabilities within trade and other
payables are not classified as financial instruments.
14. Borrowings
2019 2018
GBPm GBPm
Current
Bank borrowings 256 41
Commercial paper 256 270
Bonds - 250
512 561
Non-current
Bonds 1,573 1,642
1,573 1,642
Total 2,085 2,203
The Group has the following committed bank facilities and unsecured
notes:
Interest rate
Carrying value percentage
at at
Expiry 31 December 31 December
date Notes/facility 2019 2019
Type GBPm GBPm %
Drawn value of Facilities
Dual-currency bridge facility Jan 2022(1) 10,167 (8) LIBOR + 0.3
Multi-currency revolving credit
facility Nov 2022 600 115 LIBOR + 0.45
Multi-currency revolving credit
facility Dec 2024 600 149 LIBOR + 0.3
Total committed bank facilities 256
Commercial paper Jan 2020 256 256 (0.330) (2)
GBP300 million bond, issued
November 2012 Nov 2021 300 299 4.750
EUR500 million bond, issued
September 2017 Sep 2024 427 426 0.875
EUR500 million bond, issued
December 2018 Dec 2027 427 424 1.750
EUR500 million bond, issued
September 2017 Sep 2029 427 424 1.750
Total bonds 1,573
Total committed facilities
and unsecured notes 2,085
(1) Terminates 12 months after the earlier of Refinitiv business
acquisition or the end of January 2022.
(2) The Commercial paper interest rate reflected is the average
interest rate achieved on the outstanding issuances.
Current borrowings
The Group retained total committed revolving credit bank
facilities of GBP1,200 million during the financial year. The final
one year extension option on the five year GBP600 million facility
arranged in December 2017 was taken up to push the final maturity
out to December 2024. In August 2019 the Group arranged a Bridge
Facility comprising tranches of US$9.325 billion and EUR3.58
billion. The revolving credit facilities were partially drawn at 31
December 2019 and the Bridge Facility remained undrawn, with total
facilities carrying value of GBP256 million (2018: GBP41 million)
which includes GBP10 million of deferred arrangement fees (2018:
GBP2 million). Further details of the Bridge Facility arrangement
fees amortised to the income statements are provided in note 7.
The Group maintained its GBP1 billion Euro Commercial Paper
Programme. Outstanding issuances at 31 December 2019 of EUR300
million (GBP256 million) (2018: of EUR300 million (GBP270 million))
may be reissued upon maturity in line with the Group's liquidity
requirements.
In October 2019, the Company redeemed the 2009 GBP250 million
unsecured bond using funding drawn from its bank credit facilities.
The issue price of the bond was GBP99.548 per GBP100 nominal. The
coupon on the bond was dependent on the Company's credit ratings
with Moody's and Standard & Poor's, which were unchanged at A3
and A- respectively. The bond coupon remained at 9.125% per annum
for the period outstanding.
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
total EUR420 million at 31 December 2019 (2018: 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 Principles 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 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 (GBP427 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.
In December 2018, the Company issued a EUR500 million (GBP427
million) bond under its updated Euro Medium Term Notes Programme.
The bond is unsecured and due for repayment in December 2027.
Interest is paid annually in arrears in December each year. The
issue price was EUR99.547 per EUR100 nominal. The coupon on the
bond is fixed at 1.75% per annum.
Fair values
The fair values of the Group's
borrowings are as follows:
2019 2018
Carrying Carrying
value Fair value value Fair value
GBPm GBPm GBPm GBPm
Borrowings
- within 1 year 512 512 561 561
- after more than
1 year 1,573 1,676 1,642 1,914
2,085 2,188 2,203 2,475
-------------------------------
Bonds are classified as Level 1 in the Group's hierarchy for
determining and disclosing the fair value of financial instruments.
Bond fair values are as quoted in the relevant fixed income
markets.
Bank borrowings and commercial paper are classified as Level 2
in the Group's hierarchy for determining and disclosing the fair
value of financial instruments. The fair values of these
instruments are based on discounted cash flows using a rate based
on borrowing cost. Bank borrowings bear interest at an appropriate
inter-bank reference rate plus and agreed margin, and commercial
paper attracts interest at a negotiated rate at the time of
issuance.
The carrying amounts of the Group's borrowings are
denominated in the following currencies:
2019 2018
Drawn Swapped Effective Drawn Swapped Effective
Currency GBPm GBPm GBPm GBPm GBPm GBPm
Sterling 420 - 420 572 (270) 302
Euro 1,557 (637) 920 1,631 (361) 1,270
US dollar 108 637 745 - 631 631
Total 2,085 - 2,085 2,203 - 2,203
15. Analysis of net debt
Group net debt includes interest bearing loans and borrowings and
derivative financial instruments less cash and cash equivalents.
2019 2018
GBPm GBPm
Due within 1 year
Cash and cash equivalents 1,493 1,510
Bank borrowings (256) (41)
Commercial paper (256) (270)
Bonds - (250)
Derivative financial assets 2 -
Derivative financial liabilities (1) (30)
982 919
Due after 1 year
Bonds (1,573) (1,642)
Derivative financial liabilities (39) (17)
Total net debt (630) (740)
Reconciliation of net cash flow to movement in net debt
2019 2018
GBPm GBPm
Increase in cash in the year 57 84
Bond issue proceeds - (445)
Commercial paper issuance - (255)
Additional drawdowns from
bank credit facilities (261) -
Net repayments made towards
bank credit facilities 35 489
Repayment of bonds 250 -
Change in net debt resulting
from cash flows 81 (127)
Foreign exchange 14 4
Movement on derivative financial
assets and liabilities 9 (22)
Bond valuation adjustment (2) 3
Movement in bank credit facility
arrangement fees 8 (1)
Net debt at the start of the
year (740) (597)
Net debt at the end of the
year (630) (740)
16. 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 2018 350 24 964 988
Issue of shares to the Employee
Benefit Trust 1 - 1 1
31 December 2018 351 24 965 989
Issue of shares to the Employee
Benefit Trust - - 2 2
31 December 2019 351 24 967 991
(1) Ordinary Shares of 6 (79/86) pence
The Board approved the allotment and issue of 68,020 ordinary
shares of par value 6 (79/86) pence at a weighted average exercise
price of 2,238 pence to the Employee Benefit Trust ( 2018 : 72,763
ordinary shares of par value 6 (79/86) pence at 2,042 pence), to
settle employee 'Save As You Earn' share plans. This generated a
premium of GBP2 million ( 2018 : GBP1 million).
The Ordinary Share Capital of 351 million shares is shown net of
1 million treasury shares, recorded at par.
17. Net cash flow generated from operations
2019 2018
Notes GBPm GBPm
Profit before tax 651 685
Adjustments for depreciation, amortisation and
impairments:
Depreciation and amortisation 369 287
Impairment of software and intangible assets 24 5
Impairment of property, plant and equipment 2 2
Adjustments for other non-cash items:
Loss on disposal of intangible assets 2 -
Share of loss of associates 7 8
Net finance expense 8 87 66
Share scheme expense 6 35 36
Royalties 1 3
Movement in pensions and provisions (2) (19)
Net foreign exchange differences (27) 30
Research and development tax credit (1) -
Decrease/(increase) in receivables and contract
assets 203 (107)
Increase in payables and contract liabilities 37 3
Movement in other assets and liabilities relating
to operations:
Decrease/(increase) in clearing member financial
assets 6,525 (101,678)
(Decrease)/increase in clearing member financial
liabilities (6,796) 101,646
Movement in derivative assets and liabilities
(1) (28) 2
Cash generated from operations 1,089 969
(1) Movement in derivative assets and liabilities includes GBP10
million relating to the Group's exercise of its option to purchase
the remaining interest in Euro TLX SIM S.p.A, a subsidiary of the
Group and GBP1 million from the revaluation of the derivative option
attached to the convertible loan to Nivaura Limited.
18. Commitments and contingencies
The Group has no contracted capital commitments or any other
commitments not provided for in the financial
statements as at 31 December 2019 ( 2018 : 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.
19. Business combinations
Acquisitions in the year to 31 December 2019
On 31 May 2019, the Group acquired 100% of Beyond Ratings SAS
(Beyond Ratings), a provider of financial analysis that includes
Environmental, Social and Governance criteria based in France. The
consideration of GBP14 million (EUR15 million) cash was paid in two
instalments during the year.
The provisional fair value of the net assets acquired was nil,
including fixed assets of GBP1 million, current assets of GBP1
million and liabilities of GBP2 million. The fair value of assets
acquired will be finalised within 12 months of acquisition. There
were no purchased intangible assets. The Group provisionally
recognised GBP14 million in goodwill which represents the potential
growth of future income streams expected as the Beyond Ratings
business is highly complementary to the Group's analytics tools and
the index and data products.
The post-acquisition revenues and operating profit from the
continuing operations of Beyond Ratings were not material to the
Group. If the acquisition had taken place at the beginning of the
year there would have been no material effect on the Group.
Acquisition related costs incurred have been recognised in the
income statement during the year, but were immaterial.
Acquisitions in the year to 31 December 2018
There were no acquisitions in the year ended 31 December 2018
.
20. Events after the reporting period
In January 2020 the Group created a Post Trade Division. The
division will include LCH Group and the post trade businesses in
Italy, Monte Titoli and CC&G, which are currently reported
separately as part of our financial results. The Post Trade
division will also include UnaVista, the trade reporting business
that currently sits in the Information Services Division.
The Group will disclose segmental information for the Post Trade
Division in future financial reporting.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UBUURRNUUUUR
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