TIDMLSEG
RNS Number : 2663R
London Stock Exchange Group PLC
05 March 2021
5 March 2021
LONDON STOCK EXCHANGE GROUP PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2020
Unless stated otherwise, all figures in the highlights below
refer to 12 months to 31 December 2020 and comparisons with the
prior 12 month period on the same basis.
-- Strong financial performance - revenue growth continues
across our businesses despite challenging market conditions
-- Strong operational resilience across the Group's data, trading and clearing platforms
-- Successful completion of the acquisition of Refinitiv in
January 2021 - transformational transaction brings together two
highly complementary global businesses with a shared commitment to
an Open Access philosophy, working in partnership with
customers
-- Acquisition will accelerate the Group's growth strategy and
position as a leading global financial markets infrastructure and
data provider - increasing its global footprint and adding leading
data, analytics and multi-asset class capital markets
capabilities
-- The Group is focused on delivering the strategic benefits of
the transaction for customers, shareholders and broader
stakeholders - extensive integration programme roll-out underway
across the three core operating divisions: Data & Analytics,
Capital Markets, and Post Trade
2020 Financial Highlights
-- Total revenue up 3% to GBP2,124 million (2019: GBP2,056
million) and total income up 6% to GBP2,444 million (2019: GBP2,314
million) (up 5% on a constant currency basis)
-- FTSE Russell revenue up 3% to GBP668 million (2019: GBP649
million) with growth in subscription revenues offset by a decline
in asset-based revenues following significantly lower ETF AUM
levels in H1
-- Post Trade revenue up 7% to GBP751 million (2019: GBP700
million), driven by strong growth in LCH; record activity in CDS,
FX and cash equities clearing; total income up 12% to GBP1,070
million (2019: GBP955 million), largely reflecting higher cash
margin held
-- Capital Markets revenue broadly flat on a reported basis at
GBP427 million, and up 8% on a like-for-like basis excluding the
one-off benefit of an IFRS 15 adjustment in prior year with strong
performance in secondary markets
-- Adjusted operating expenses, before depreciation and
amortisation(1) , were up 6% (up 5% on a constant currency basis)
to GBP887 million (2019: GBP839 million)
-- Adjusted operating profit(2) up 5% to GBP1,118 million (2019:
GBP1,065 million); operating profit up 2% to GBP755 million (2019:
GBP738 million); adjusted EBITDA(2) up 5% to GBP1,329 million
(2019: GBP1,265 million) and EBITDA margin of 54.4%
-- Adjusted EPS(2) up 5% to 209.7 pence (2019: 200.3 pence);
basic EPS up 1% to 120.3 pence (2019: 119.5 pence)
-- Proposed final dividend of 51.7 pence per share, resulting in
a 7% increase in the full year dividend to 75.0 pence per share,
reflecting good performance and confident outlook for the new
Group
Continued organic and inorganic development, including:
-- FTSE Russell index selected by BlackRock for the first
climate risk-adjusted Government Bond ETF utilising the FTSE
Advanced Climate EGBI
-- FTSE Russell signed long-term expanded index derivative
agreements with Cboe Global Markets and Singapore Stock
Exchange
-- LCH continued leadership on global reference rate reform -
the transition to SOFR discounting saw US$120 trillion in notional
transitioning to the risk-free rate in October 2020. LCH also
became the first clearing house to offer Singapore Dollar swaps
benchmarked to SORA
-- ForexClear became the first service to launch clearing for
non-deliverable FX options across nine currency pairs
-- Over GBP718 billion raised on our fixed income markets of
which GBP75 billion raised through Covid-19 response bonds
-- China Yangtze Power Co. raised US$1.83 billion through
Shanghai-London Stock Connect, the first Chinese issuer to receive
London Stock Exchange's Green Economy Mark, highlighting London's
position as an international centre for sustainable finance
(1) Before depreciation, amortisation and non-underlying
items.
(2) Before amortisation of purchased intangible assets and
non-underlying items.
Commenting on performance for the year, David Schwimmer, Chief
Executive Officer, LSEG:
" The Covid-19 pandemic and broader geo-political events
presented unprecedented challenges in 2020. Despite this
environment, and with the vast majority of employees working
remotely across our global locations, LSEG has delivered for its
customers and provided a strong financial performance,
demonstrating strong operational resilience. We continue to
innovate and work in partnership with our customers to develop our
services, in areas such as reference rate reform and sustainable
investment.
"Completion of the acquisition of Refinitiv in early 2021 marked
an important milestone in LSEG's history. This transformational
transaction brings together two highly complementary global
businesses with a shared commitment to Open Access. LSEG is now
truly global with a significant presence in North America, Europe,
Asia and emerging markets, bringing together exceptional skills and
experience at scale. While early days, the work we have done so far
confirms the quality of the business and the extent of the
opportunities across the Group as we focus on integration and
delivering the strategic and financial benefits of the transaction
to our customers, shareholders and other stakeholders. LSEG is well
positioned for long-term sustainable growth in a continually
evolving landscape as a leading global financial markets
infrastructure and data provider."
Financial Summary
Unless otherwise stated, all figures below refer to continuing
operations for the year ended 31 December 2020. Comparative figures
are for continuing operations for the year ended 31 December 2019.
Variance is also provided on an organic and constant currency
basis.
Organic
and
Twelve months ended constant
31 December currency
-------------------------------
variance
2020 2019 Variance (1)
Continuing operations GBPm GBPm % %
--------------------------------------- --------- --------- --------- ---------
Revenue
Information Services(1) 882 855 3% 3%
Post Trade 751 700 7% 7%
Capital Markets 427 426 0% (0%)
Technology 61 66 (7%) (7%)
Other revenue 3 9 - -
---------------------------------------- --------- ---------
Total revenue 2,124 2,056 3% 3%
Net treasury income through CCP
businesses 319 255 25% 24%
Other income 1 3 - -
---------------------------------------- --------- ---------
Total income 2,444 2,314 6% 5%
Cost of sales (224) (210) 7% 6%
---------------------------------------- --------- ---------
Gross profit 2,220 2,104 6% 5%
---------------------------------------- --------- --------- --------- ---------
Adjusted operating expenses before
depreciation, amortisation and
impairment (887) (839) 6% 5%
Underlying depreciation, amortisation
and impairment (211) (200) 5% 5%
---------------------------------------- --------- ---------
Adjusted operating expenses (1,098) (1,039) 6% 4%
Income from equity investments - 7 - -
Share of loss after tax of associates (4) (7) - -
---------------------------------------- --------- ---------
Adjusted operating profit (2) 1,118 1,065 5% 6%
---------------------------------------- --------- --------- --------- ---------
Add back underlying depreciation,
amortisation and impairment 211 200 5% 5%
Adjusted earnings before interest,
tax, depreciation, amortisation
and impairment (2) 1,329 1,265 5% 5%
--------- --------- ---------
Amortisation and impairment of
purchased intangible assets and
goodwill and non-underlying items (363) (327) 11% 11%
--------- ---------
Operating profit 755 738 2% 3%
---------------------------------------- --------- --------- --------- ---------
Earnings per share
Basic earnings per share (p) 120.3 119.5 1%
Adjusted basic earnings per share
(p) (2) 209.7 200.3 5%
Dividend per share (p) 75.0 70.0 7%
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.
Contacts:
London Stock Exchange Group plc
Lucie Holloway/ Rhiannon
Davies 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 (Chief
Executive Officer), Anna Manz (Chief Financial Officer) and Paul
Froud (Group Head of Investor Relations).
To access the telephone conference call or audio-only webcast
please pre-register in advance using the following link and
instructions below:
https://www.lsegissuerservices.com/spark/LondonStockExchangeGroup/events/4b5831b0-bf11-4b71-9750-e9a396d225e9
-- Please register with your full name, company name and email address
-- If you wish to participate in Q&A then you will also need
to register for the telephone conference call. The telephone
conference registration link can be found in the link above.
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 2020, which was approved by the
Board of Directors on 5 March 2021, 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 2019 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 2020 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 2020.
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 2020.
CEO's statement
The Covid-19 pandemic and broader geopolitical events presented
unprecedented challenges in 2020. Throughout, LSEG has been focused
on ensuring the welfare of our employees and continuity of services
to our customers. Our systemic role has perhaps never been clearer:
maintaining access to our capital markets; managing risk through
our clearing operations; and providing important information
services to market participants.
Despite this unparalleled environment, and with the vast
majority of employees working remotely across our global locations,
LSEG has delivered a strong financial performance and demonstrated
strong operational resilience. The Group also remains highly cash
generative. As our financial performance demonstrates, our focus on
product and service development is delivering results across our
businesses. Our Open Access and Customer Partnership approach
remains key to our strategy as we work with customers to innovate
in a range of areas, from reference rate reform to sustainable
investment. We have also continued to invest in our business as we
grow, while remaining focused on efficiency and operational
excellence to maintain and enhance our resiliency, deliver system
scalability and support our growing global footprint. For example,
LCH successfully implemented a new clearing platform for its
EquityClear service in March. The platform offers next generation
clearing, operations and risk functionality, increasing operational
efficiencies and enabling enhanced risk management for the
service.
We keep a close eye on the broader macro-economic, technological
and regulatory factors which continue to drive change in our
industry. The digital transformation of financial markets
infrastructure is driving customer demand to work with global
providers that are better positioned to do more for them across the
financial markets value chain.
In January, we successfully completed the Refinitiv transaction.
LSEG's acquisition of Refinitiv will enable us to shape the
industry's evolution, accelerating our strategy to be a leading
global financial markets infrastructure and data provider. This
transformational combination will deliver value to customers,
helping them to access data, trading tools, analytics, liquidity
and risk management across the financial markets and around the
globe. LSEG is now truly global with a significant presence in
North America, Europe, Asia and emerging markets, operating in 70
countries, bringing together exceptional skills and experience at
scale. The Group is firmly focused on delivering the strategic
benefits of the transaction to our shareholders, customers and
other stakeholders. Integration of the businesses is fully underway
as we implement the various multi-year opportunities identified
across the three core operating divisions: Data & Analytics;
Capital Markets; and Post Trade. I look forward to working with
David Craig, the wider Executive Committee and our global team to
execute on our strategy. I would also like to thank colleagues
within the Borsa Italiana Group for their significant contribution
to the Group's success, under the leadership of Raffaele
Jerusalmi.
Sustainable Investment
The growing demand from asset owners and managers to incorporate
sustainable investment approaches into their strategies has
persisted through the pandemic. LSEG has many touch points with
stakeholders that put us in a strong position to play a key role in
the investment chain on sustainable investment. For example, FTSE
Russell is working closely with customers to calibrate indices to
their requirements to integrate climate and other environmental,
social and governance (ESG) themes. The FTSE TPI Climate Transition
Index, which was launched in early 2020, was the first global index
to enable investors to align a broad equity portfolio with climate
transition and the goals of the Paris Agreement. And in October,
BlackRock selected FTSE Russell's 'Advanced Climate EGBI' as the
benchmark for the first climate risk-adjusted government bond ETF
in the market. In Capital Markets, London Stock Exchange's 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. Its Sustainable Bond Market welcomed 43 new
issues in 2020 raising GBP14 billion across its sustainability,
social and issuer-level segments.
LSEG has been a public supporter of the Task Force for
Climate-related Financial Disclosures, TCFD, since its launch in
2017. In July, Mark Carney, UN special envoy for climate and
finance, and I launched an initiative with the United Nations
Sustainable Stock Exchanges (UN SSE) to work with exchanges around
the world to help their issuers transition towards net zero. LSEG
is now chairing a UN SSE advisory group, alongside the Johannesburg
Stock Exchange to develop reporting guidance based on TCFD. These
guidelines can then be used by corporate issuers, wherever they are
listed, to ensure globally consistent disclosures.
In February 2021, LSEG also confirmed that it had become a
signatory to the Business Ambition for 1.5(o) C, and a member of
the United Nations Climate Change 'Race to Zero'. The Group's
ambitious, science-based targets to reduce emissions in alignment
with the Paris Agreement have also been approved by the Science
Based Targets initiative (SBTi).
Customer partnership
LSEG remains focused on building long-term partnerships with our
customers to develop value-add products and services across the
investment cycle. FTSE Russell continues to be a leader in the
global index industry and is well positioned in growth segments
such as passive investing. Passive assets under management are
estimated to grow to US$36.6 trillion in the next five years and
FTSE Russell's multi-asset capabilities are a key differentiator
enabling product innovation across global equities and fixed
income. Despite a challenging macro-economic environment, 44 ETFs
linked to FTSE Russell benchmarks were launched in 2020 including
China's first onshore Bond ETF listed in Singapore. At the end of
2020, the value of ETF assets tracking its indices was US$869
billion, up 16% on the previous year.
FTSE Russell's close partnerships with exchange groups resulted
in a number of contract wins including a 10-year extension to our
index derivatives agreement with Cboe Global Markets. FTSE Russell
also strengthened its longstanding partnerships with SGX and
Johannesburg Stock Exchange to provide a comprehensive range of
derivatives and fixed income indices.
In Post Trade, LCH has engaged closely with the relevant
government authorities and industry participants to support the
global transition to alternative reference rates. In October, LCH
successfully completed the transition to SOFR discounting. More
than one million contracts transitioned with a total notional of
US$120 trillion including cleared interest rate swaps in SwapClear,
deliverable and non-deliverable forwards and options in ForexClear,
and cross-currency swaps in SwapAgent. FTSE Russell has also
partnered with market participants in the development of a new
sterling interest rate benchmark based on overnight indexed swaps
and has begun publication of daily indicative Term SONIA Reference
Rates.
Market Access
2020 clearly demonstrated the importance of markets remaining
open to enable price discovery and access to liquidity. Despite
extreme market conditions, particularly in Q1, all of our markets
continued to operate as normal with record volumes executed on our
trading and clearing platforms. For example, 44.8 million trades
were executed on London Stock Exchange's Order Book in March, 74%
higher than the previous record. LCH's SwapClear processed US$1.1
quadrillion in notional in 2020, from a record 6.4 million trades.
US$747.2 trillion in notional, and 5.2 million trades were
compressed over the period, enabling members and their clients to
save approximately US$33 billion in capital over the course of the
year. LCH has embedded various anti-procyclical measures within its
risk models, as a result of this prudent risk management approach,
during the market stress and increased volatility of March and
April 2020, LCH risk models behaved in a very predictable and
incremental manner with very modest gradual increases in initial
margin.
The pandemic and the resulting economic disruption highlighted
the importance of access to liquidity and the ability for firms to
raise equity capital efficiently. In 2020, 526 businesses raised
GBP34.4 billion in follow-on capital, 113% more than in 2019 and
the most in a decade. Many of these firms are listed on AIM, London
Stock Exchange's growth market, which celebrated its 25th
anniversary in June. GBP9.2 billion was raised through IPOs, up 27%
from 2019. In fixed income, over GBP718 billion was raised, a 77%
increase on 2019. Of this, over GBP75 billion was raised through
Covid-19 response bonds, including social bonds from development
banks across the world.
As part of LSEG's commitment to broadening retail investor
access to public equity markets, the Group made a minority
investment in PrimaryBid, a technology platform which connects
retail investors with listed companies raising capital. LSEG's
investment builds on collaboration with PrimaryBid to support
innovation in capital markets allowing retail investors to access
capital raisings on the same terms as institutional investors.
Following the UK's departure from the European Union and the end
of the transition period on 31 December 2020, LSEG continues to
advocate strongly for the prevention of the fragmentation of
systems designed to make the financial markets efficient, stable
and safe. In September, the European Securities and Markets
Authority confirmed that LCH Ltd will remain an authorised Tier 2
CCP under the EMIR 2.2 supervisory framework until 30 June 2022. As
such, LCH Ltd continues to offer clearing for all products and
services to all members and clients. LCH will also engage and
cooperate with the relevant regulatory authorities in respect of
the long-term permanent recognition of LCH Ltd under EMIR 2.2.
Turquoise Europe also successfully launched offering customers
trading European stocks with a complete continuity of service.
Our Purpose
As a leading global financial markets infrastructure and data
provider, LSEG provides high value services to customers around the
world. 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 acutely aware of the role LSEG can play
in the economic recovery driving financial stability and
sustainable growth by enabling businesses and customers to fund
innovation, manage risk and create jobs.
Events from across 2020, in particular the Black Lives Matter
movement, have also led us to reflect on the importance and urgency
of strengthening LSEG's commitment to diversity and inclusion,
particularly racial inclusion. In June we launched six workstreams
to improve our focus on ethnic diversity and make LSEG a more
inclusive environment. Those six workstreams are: Culture,
Wellbeing, Hiring, Training, Mentoring and Data. At the heart of
this approach is the desire to create real, substantive and
sustainable change across the Group. We have laid some of the
foundations to improve diversity and strengthen inclusion at LSEG
and we have grown our Inclusion Networks. We have also made public
commitments on race and disability equality through the Race at
Work Charter and The Valuable 500. There is clearly much more to do
but LSEG is fully committed to that effort.
Looking forward
With our trusted expertise, global scale, and foundational
financial and transaction services, our whole organisation is
focused on partnering with our customers, helping them to access
data, trading tools, analytics, liquidity and risk management
across the financial markets and at scale around the globe.
The Group is well positioned for future growth despite an
uncertain macro-economic and regulatory environment. The Group will
also continue to invest in new products and services as well as
operational excellence and resiliency. I look forward to working
with the Executive Team to deliver for our customers, shareholders
and other stakeholders.
Finally, I would like to take the opportunity to thank all of
our people across the Group for their hard work in delivering
another successful performance in uncertain and challenging
times.
Financial review
The financial review covers the financial year ended 31 December
2020.
Commentary on performance uses variances on a continuing organic
and constant currency basis, unless otherwise stated. Constant
currency is calculated by rebasing 2019 at 2020 foreign exchange
rates. Sub-segmentation of revenues are unaudited and are shown to
assist the understanding of performance.
Highlights
-- Total revenue of GBP2,124 million (2019: GBP2,056 million) increased by 3%
-- Total income of GBP2,444 million (2019: GBP2,314 million) increased by 5%
-- Adjusted EBITDA (1) of GBP1,329 million (2019: GBP1,265 million) increased by 5%
-- Adjusted operating profit (1) of GBP1,118 million (2019: GBP1,065 million) increased by 6%
-- Operating profit of GBP755 million (2019: GBP738 million) increased by 3%
-- Adjusted basic earnings per share (1) of 209.7 pence (2019: 200.3 pence) increased by 5%
-- Basic earnings per share of 120.3 pence (2019: 119.5 pence) increased by 1%
-- Total dividend per share of 75.0 pence (2019: 70.0 pence) increased by 7%
There were no discontinued operations in 2020. The assets
included in the divestment of the Borsa Italiana Group have been
classified as discontinued from 13 January 2021.
Anna Manz
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 31 Dec 2020 12 months ended 31 Dec 2019 Organic and constant currency variance(2)
%
GBPm GBPm
Variance
Revenue %
====================== =========================== =========================== ========= =========================================
Information Services 882 855 3 3
Post Trade Services 751 700 7 7
Capital Markets 427 426 - -
Technology Services 61 66 (7) (7)
Other revenue 3 9 - -
====================== =========================== =========================== ========= =========================================
Total revenue 2,124 2,056 3 3
Net Treasury Income
from CCP clearing
business 319 255 25 24
Other income 1 3 - -
---------------------- --------------------------- --------------------------- --------- -----------------------------------------
Total income 2,444 2,314 6 5
====================== =========================== =========================== ========= =========================================
Cost of sales (224) (210) 7 6
====================== =========================== =========================== ========= =========================================
Gross profit 2,220 2,104 6 5
---------------------- --------------------------- --------------------------- --------- -----------------------------------------
Adjusted operating
expenses before
depreciation,
amortisation and
impairment(1) (887) (839) 6 5
Income from equity
Investments - 7 - -
Share of loss after
tax of associates (4) (7) - -
---------------------- --------------------------- --------------------------- --------- -----------------------------------------
Adjusted earnings
before interest, tax,
depreciation,
amortisation and
impairment(1) 1,329 1,265 5 5
====================== =========================== =========================== ========= =========================================
Underlying
depreciation,
amortisation and
impairment (1) (211) (200) 5 5
====================== =========================== =========================== ========= =========================================
Adjusted operating
profit (1) 1,118 1,065 5 6
====================== =========================== =========================== ========= =========================================
Amortisation of
purchased intangible
assets and
non-underlying items (363) (327) 11 11
====================== =========================== =========================== ========= =========================================
Operating profit 755 738 2 3
====================== =========================== =========================== ========= =========================================
Adjusted basic
earnings per share
(1) 209.7p 200.3p 5
====================== =========================== =========================== ========= =========================================
Basic earnings per
share 120.3p 119.5p 1
====================== =========================== =========================== ========= =========================================
(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
Information Services
12 months ended Dec 12 months ended Dec
2020 2019 Variance Organic and constant currency variance(1)
Revenue GBPm GBPm % %
======================= =================== =================== ======== =========================================
Index - Subscription 443 418 6 6
Index - Asset based 225 231 (2) (2)
----------------------- ------------------- ------------------- -------- -----------------------------------------
FTSE Russell(2) 668 649 3 3
Real time data 105 97 9 8
Other information
services(1,2) 109 109 - (1)
======================= =================== =================== ======== =========================================
Total revenue 882 855 3 3
======================= =================== =================== ======== =========================================
Cost of sales (68) (72) (6) (7)
======================= =================== =================== ======== =========================================
Gross profit 814 783 4 4
======================= =================== =================== ======== =========================================
Adjusted operating
expenses before
depreciation,
amortisation and
impairment(3) (304) (300) 1 -
======================= =================== =================== ======== =========================================
Adjusted earnings
before interest, tax,
depreciation,
amortisation and
impairment(3) 510 483 6 -
======================= =================== =================== ======== =========================================
Underlying
depreciation,
amortisation and
impairment(3) (55) (49) 12 -
======================= =================== =================== ======== =========================================
Adjusted operating
profit(3) 455 434 5 -
----------------------- ------------------- ------------------- -------- -----------------------------------------
(1) Organic growth is calculated in respect of businesses owned
for at least 12 months in either period and so excludes Beyond
Ratings
(2) UnaVista and some other minor items (previously reported in
Other information services) are now included in Post Trade.
Historical comparatives have been adjusted to reflect this
(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 a wide range of information and
data products including indices and benchmarks, analytics, real
time pricing data and product identification reporting. Total
revenue was GBP882 million (2019: GBP855 million).
FTSE Russell's revenue increased by 3% to GBP668 million (2019:
GBP649 million). Good subscription renewal rates and sales activity
contributed to 6% revenue growth in index subscription products,
partly offset by a 2% decrease in asset-based revenues, reflecting
a challenging year in asset valuations and asset based products as
a result of market volatility associated with the global
pandemic.
Real time data revenue increased by 8% to GBP105 million (2019:
GBP97 million) driven by increased licence sales and demand for
non-display data, particularly in Asia which saw strong growth in
the number of retail customers accessing the service. This was
partially offset by a 4% decline in terminal usage.
Cost of sales reduced by 7% to GBP68 million (2019: GBP72
million), primarily due to lower payments to FTSE Russell business
partners related to the decline of asset based product revenue.
Adjusted operating expenses excluding depreciation, amortisation
and impairment increased by 1% to GBP304 million (2019: GBP300
million). Underlying depreciation, amortisation and impairment rose
12% to GBP55 million (2019: GBP49 million) reflecting continued
investment to support growth of the business and enhance the
underlying infrastructure.
Adjusted operating profit increased by 5% to GBP455 million
(2019: GBP434 million).
Operational highlights
2020 was a strong year for FTSE Russell ETFs with 44 ETFs
launched based on our indices by partner clients and we also saw
the highest number of fixed income ETFs (16) and the highest number
of sustainability ETFs (11) launched in a single year (including
use of the FTSE Advanced Climate Risk-Adjusted EMU Government Bond
Index adopted by iShares).
Other highlights include the launch of the Green Revenues 2.0
Data Model, which measures the green revenue exposure of more than
16,000 listed companies across 48 developed and emerging markets.
This represents 98.5% of the total global market value of listed
companies and significantly enhances FTSE Russell's sustainability
offering and future new products.
FTSE Russell also entered into a long term strategic partnership
with the Singapore Exchange (SGX) to develop a comprehensive Asian
and Emerging Markets focused, multi-asset index derivatives
offering, and support growing demand across Asia for index-based
listed derivatives, including in sustainable investment.
Going forward, FTSE Russell, the real time data business in the
UK, and the majority of other information services will be
incorporated into the newly formed Data & Analytics division.
Real time data revenues in relation to Borsa Italiana terminals,
are included in the Borsa Italiana Group divestment and will be
classified as discontinued from 13 January 2021.
Post Trade
Organic and
12 months 12 months constant
ended Dec ended Dec currency
2020 2019 Variance variance
Revenue GBPm GBPm % %
=================================== ========== ========== ======== ===========
OTC - SwapClear, ForexClear
& CDSClear 309 307 1 1
Non-OTC - Fixed income,
Cash equities & Listed
derivatives 164 140 17 16
LCH other revenue 118 103 14 14
=================================== ========== ========== ======== ===========
Total LCH revenue 591 550 7 7
=================================== ========== ========== ======== ===========
Clearing (CC&G) 43 43 1 -
Settlement, Custody &
other (Monte Titoli) 63 60 4 3
Total Post Trade Italy
revenue 106 103 3 1
=================================== ========== ========== ======== ===========
UnaVista 54 47 16 16
----------------------------------- ---------- ---------- -------- -----------
Total revenue 751 700 7 7
----------------------------------- ---------- ---------- -------- -----------
LCH - Net treasury income 269 206 31 30
CC&G - Net treasury income 50 49 2 1
----------------------------------- ---------- ---------- -------- -----------
Total income 1,070 955 12 12
=================================== ========== ========== ======== ===========
Cost of sales (144) (122) 18 17
=================================== ========== ========== ======== ===========
Gross profit 926 833 11 11
=================================== ========== ========== ======== ===========
Adjusted operating expenses
before depreciation, amortisation
and impairment (1) (355) (332) 7 -
=================================== ========== ========== ======== ===========
Adjusted earnings before
interest, tax, depreciation,
amortisation and impairment(1) 571 501 14 -
=================================== ========== ========== ======== ===========
Underlying depreciation,
amortisation and impairment(1) (98) (90) 9 -
=================================== ========== ========== ======== ===========
Adjusted operating profit
(1) 473 411 15 -
----------------------------------- ---------- ---------- -------- -----------
(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 provides clearing, settlement, custody and regulatory
reporting activities. Revenue was GBP751 million (2019: GBP700
million). Total income was GBP1,070 million (2019: GBP955
million).
OTC clearing revenue increased by 1% to GBP309 million (2019:
GBP307 million), driven by higher activity levels in SwapClear in
H1 as the market reacted to Covid-19. Annual member and client
revenues both increased marginally in the year. Member revenues are
largely tiered fixed-fee arrangements based on annual volume levels
but grew slightly as some members moved up to higher fee tariffs.
Client revenues, which vary more directly with service activity
levels, also increased with client trade volume up 6% to 1,784,000
(2019: 1,681,000) year on year, driven by the significant volumes
in H1 (volumes were up 24% in H1). In Q3 2020, Rates market
activity levels reduced from H1 highs, and as Q4 2020 volumes began
to normalise to levels more in line with Q4 2019 (up 5%), revenues
remained resilient. Reflecting the market activity levels, US$1.1
quadrillion of total member and client notional was cleared across
6.4 million trades in the year (2019: US$1.2 quadrillion, 6.1
million). ForexClear membership increased to 35 members (2019: 34)
while notional value cleared grew by 5% to US$19.0 trillion (2019:
US$18.0 trillion). Of this, US$167 billion was client cleared
notional, up significantly from the previous year (2019: US$61
billion). CDSClear client cleared notional increased to EUR193
billion (2019: EUR42.9 billion).
Non-OTC clearing revenue increased by 16% to GBP164 million
(2019: GBP140 million), reflecting high trading volumes across
equities and fixed income markets. Cleared trades in EquityClear
increased 41%, to 1,963 million trades (2019: 1,397 million) with
the service demonstrating the resilience of its new clearing
platform which was successfully launched during the height of
market volatility.
LCH other revenue, which mainly includes fees from non-cash
collateral management and compression services, increased by 14% to
GBP118 million (2019: GBP103 million), reflecting high activity
levels across the clearing services.
UnaVista, the regulatory reporting business, revenues increased
by 16% to GBP54 million (2019: GBP47 million) driven by the launch
of the Securities Financing Transaction Regulation (SFTR) in July,
which enhances the transparency of securities financing markets by
requiring participants to report relevant transactions to a Trade
Repository, and volatility.
LCH Net Treasury Income (NTI) increased by 30% to GBP269 million
(2019: GBP206 million). The growth reflects a 12% rise in average
cash collateral held to EUR110 billion (2019: EUR98 billion),
primarily driven by volumes cleared and market volatility during
H1. In 2020, NTI comprised approximately 70% handling fee income
and 30% investment return. The investment return component in H1
was elevated due to the higher quantum of cash posted by members
and the rapid reduction in central bank interest rates. In H2 cash
collateral levels normalised down to an average of EUR103 billion,
broadly in line with H2 2019 and short-term investments reflected
the new lower interest rates. The Group expects NTI to stabilise
around the levels seen in Q4 2020 if cash collateral levels and
interest rates remain stable, and therefore c.GBP48 million of NTI
in 2020 is unlikely to be repeated in 2021.
Cost of sales increased 17% to GBP144 million (2019: GBP122
million), reflecting the higher income and sharing within the
SwapClear agreement.
Adjusted operating expenses excluding depreciation, amortisation
and impairment increased by 7% to GBP355 million (2019: GBP332
million) and depreciation, amortisation and impairment increased by
9% to GBP98 million (2019: GBP90 million) driven by increased IT
costs and investment to ensure the resilience of the Group's
infrastructure.
Adjusted operating profit increased by 15% to GBP473 million
(2019: GBP411 million).
Operational highlights
LCH experienced record activity in CDSClear, ForexClear,
EquityClear and SwapClear client clearing, with volumes driven by
volatile market conditions. LCH remained operationally resilient
whilst simultaneously investing in and significantly upgrading
software and hardware across multiple platforms.
During the year, LCH continued to drive and support the global
efforts to reform reference rates, successfully completing the
switch to Euro short-term rate (EURSTR) discounting in July 2020,
with EUR81.3 trillion in notional transitioned. The transition to
the Secured Overnight Financing Rate (SOFR) discounting saw US$120
trillion in notional transitioning to the risk-free rate in October
2020.
SwapClear also became the first clearing service to offer
Singapore Dollar swaps benchmarked to SORA and launched clearing
for Israeli Shekel-denominated swaps in September 2020. SwapClear
now offers clearing for interest rate derivatives across 27
currencies. In 2020, ForexClear launched clearing for non-
deliverable FX options across nine currency pairs, complementing
clearing of non-deliverable FX forwards, deliverable FX options and
deliverable FX forwards. Clearing the new product creates further
opportunities for clearing members and their clients to achieve
operational and capital efficiencies through portfolio netting with
products already cleared at ForexClear. CDSClear went live with US
credit index options.
Capital Markets
Organic and constant
12 months ended Dec 2020 12 months ended Dec 2019 Variance currency variance
Revenue GBPm GBPm % %
=========================== ======================== ======================== ======== ===========================
Primary Markets 131 151 (13) (13)
Secondary Markets -
Equities 171 151 13 13
Secondary Markets - Fixed
income, derivatives and
Other 125 124 - (1)
=========================== ======================== ======================== ======== ===========================
Total revenue 427 426 - -
=========================== ======================== ======================== ======== ===========================
Cost of sales (4) (5) (23) (23)
=========================== ======================== ======================== ======== ===========================
Gross profit 423 421 - -
=========================== ======================== ======================== ======== ===========================
Adjusted operating expenses
before depreciation,
amortisation and
impairment(1) (203) (192) 6 -
=========================== ======================== ======================== ======== ===========================
Share of loss after tax of
associates - (1) - -
=========================== ======================== ======================== ======== ===========================
Adjusted earnings before
interest, tax,
depreciation, amortisation
and impairment(1) 220 228 (4) -
--------------------------- ------------------------ ------------------------ -------- ---------------------------
Underlying depreciation,
amortisation and
impairment(1) (35) (32) 9 -
--------------------------- ------------------------ ------------------------ -------- ---------------------------
Adjusted operating profit
(1) 185 196 (6) -
--------------------------- ------------------------ ------------------------ -------- ---------------------------
(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 Market capital raising and
Secondary Market trading activities. Revenue was GBP427 million
(2019: GBP426 million). Excluding the one-off impact of the GBP32
million balance sheet adjustment under IFRS 15 in 2019, underlying
revenue grew 8%.
Primary Markets revenue decreased by 13% to GBP131 million in
2020 (2019: GBP151 million), however removing the one-off impact of
the balance sheet adjustment underlying Primary Markets revenue
grew 10%. The underlying revenue growth was driven by the total
amount of capital raised across the Group's markets, through new
and further issues, which increased by 91% to GBP44.8 billion
(2019: GBP23.4 billion). The number of new issues in 2020 across
the Group's markets was 108, largely in-line with prior year (2019:
109). The increase in total capital raised was mainly due to the
GBP35.3 billion (2019: GBP16.6 billion) of further issuance,
demonstrating the ability of public markets to respond quickly to
the new capital needs of issuers during the pandemic.
Secondary Markets revenue increased by 13% to GBP171 million
(2019: GBP151 million). London Stock Exchange revenue is directly
linked to average orderbook daily value traded, which increased by
4% to GBP4.9 billion (2019: GBP4.7 billion) as a result of the
pandemic driving increased trading amidst heightened market
volatility, particularly in March and November. Italian equity
trading volumes, which directly relate to revenue, increased by 35%
year on year, with an average of 345,000 trades per day (2019:
255,000).
Turquoise, the Group's pan-European equities platform, saw
record volumes on Turquoise Plato and Turquoise Plato Lit Auctions
orderbooks in 2020, up 14% and 28% respectively on 2019
performance. This was offset by a fall in Lit volumes of 11% where
Lit market liquidity tended towards the primary listing venues
rather than MTFs, overall Turquoise saw a 4% decrease in average
daily equity value traded to EUR2.0 billion (2019: EUR2.1
billion).
Fixed income, derivatives and other revenue remained broadly
flat year on year at GBP125 million (2019: GBP124 million). MTS
fixed income saw strong performance with the Cash market value
traded up 25% this was partially offset by a decline in money
market volumes, down 13%. Our Italian derivatives market's
performance was impacted by decreased market volumes as a result of
a short-selling ban implemented during the year.
Cost of sales decreased by 23% to GBP4 million (2019: GBP5
million), primarily driven by the removal of the revenue share in
January 2020 for TRADEcho, London Stock Exchange's MiFiD II
reporting service.
Adjusted operating expenses excluding depreciation, amortisation
and impairment increased by 6% to GBP203 million (2019: GBP192
million) while depreciation, amortisation and impairment increased
9% to GBP35 million (2019: GBP32 million), driven by increased IT
costs and investment to ensure the resilience of the Group's
infrastructure and market operations.
Share of loss after tax of associates in 2019 relates to the
Group's share of the HUB Exchange funding platform.
Adjusted operating profit decreased by 6% to GBP185 million
(2019: GBP196 million).
Operational highlights
In the year LSEG saw a number of notable IPOs, including
international and technology listings, and three companies issued
GDRs through the Shanghai-London Stock Connect service, raising
US$4.1 billion. The Group continued to support innovative and
dynamic SMEs through AIM and AIM Italia. Demonstrating LSEG as a
global hub for sustainable investment, the number of ESG ETFs
listed in London increased 110% to 61, while the Group continued to
develop the Sustainable Bond Market.
London Stock Exchange and Borsa Italiana's equity trading venues
remained resilient throughout the year, successfully managing
periods of high volatility. Turquoise was authorised to operate an
MTF in the Netherlands, launching in November to ensure continued
access for traders to the European market, post the UK leaving the
EU.
Borsa Italiana and MTS are included in the Borsa Italiana Group
divestment and have been classified as discontinued from 13 January
2021.
Technology Services
12 months ended Dec 12 months ended Dec Organic and
2020 2019 Variance constant currency
GBPm GBPm % variance%
============================================== =================== =================== ======== ==================
Revenue 61 66 (7) (7)
Inter-segmental revenue 22 17 29 29
---------------------------------------------- ------------------- ------------------- -------- ------------------
Total revenue 83 83 - -
============================================== =================== =================== ======== ==================
Cost of sales (7) (7) - -
============================================== =================== =================== ======== ==================
Gross profit 76 76 - -
============================================== =================== =================== ======== ==================
Adjusted operating expenses before
depreciation, amortisation and impairment(1) (34) (21) (62) -
============================================== =================== =================== ======== ==================
Adjusted earnings before interest, tax,
depreciation, amortisation and impairment(1) 42 55 (24) -
---------------------------------------------- ------------------- ------------------- -------- ------------------
Underlying depreciation , amortisation and
impairment(1) (21) (25) 16 -
---------------------------------------------- ------------------- ------------------- -------- ------------------
Adjusted operating profit / (loss) (1) 21 30 (30) -
---------------------------------------------- ------------------- ------------------- -------- ------------------
(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 reduced by GBP5 million to GBP61 million
(2019: GBP66 million), driven by Covid-19 challenges and focus on
delivery of internal technology requirements.
Adjusted operating expenses excluding depreciation, amortisation
and impairment increased by GBP13 million to GBP34 million (2019:
GBP21 million), and depreciation, amortisation and impairment
decreased GBP4 million to GBP21 million (2019: GBP25 million).
The Technology segment made a profit of GBP21 million (2019:
GBP30 million).
With effect from 2021, Technology Services division will be
incorporated into the Capital Markets division and its revenue
recognised in the Secondary Markets - Fixed income, derivatives and
other line, reflecting a move to focus on internal delivery.
Operating Expenses
Group operating expenses (including depreciation, amortisation
and impairment) before amortisation of purchased intangible assets
and non-underlying items, were GBP1,098 million (2019: GBP1,039
million).
Total operating expenses increased by 5%. Within this, expenses
excluding depreciation, amortisation and impairment increased
5%.
The expense increase is partly driven by spend to support the
Group's growth through new product development and route to market
in income generating segments. IT spend also increased to support
the resilience of the Group's infrastructure and adoption of
transformative technology, including enhanced cyber security and
increased transfer from physical assets to cloud-based services.
The Group also increased spend in non-IT related resilience,
including teams supporting market operations and corporate
functions.
The Group made a net cost saving of GBP15 million during the
pandemic with extra costs from donations to Covid-19 relief
charities, additional holiday carryover for employees and
impairments to sublease income, more than offset by savings on
travel, marketing events and facilities costs.
The Group successfully achieved the GBP30 million run-rate cost
saving announced as part of the global headcount programme
announced in March 2019. The 2020 benefit of the savings was GBP10
million.
Depreciation and amortisation increased by 5% reflecting go-live
of projects over the last year from ongoing investment in
infrastructure and resilience. This is lower than previously guided
due to the impact of Covid-19 restrictions on the volume and speed
of investment in the year.
Looking ahead, investment in 2021 is expected to increase,
reflecting not only the continuation of spend on resilience across
all parts of the new enlarged Group, but also further expenditure
on efficiency-related projects and development of new products and
services to drive future growth. Capital expenditure is expected to
be in the region of c.GBP850 million, with associated operating
costs of GBP150 million. Reflecting this increased level of
investment, plus recent small acquisitions by Refinitiv, and net of
in-year cost savings, 2021 operating expenses, excluding
depreciation, amortisation and impairment, are anticipated to
increase by mid-single-digits. Depreciation and amortisation is
also expected to rise, to c.GBP830 million in 2021.
Income from Equity Investments and Share of Loss After Tax of
Associates
No income from equity investments was received in the current
year (2019: GBP7 million) as the expected dividend from the Group's
4.92% share in Euroclear was postponed following guidance from
Euroclear's regulators in view of the Covid-19 crisis.
The share of loss after tax of associates primarily reflects the
Group's 44% minority share of the operating loss of CurveGlobal of
GBP4 million (2019: GBP6 million share of loss).
Non-underlying Items
Non-underlying operating items increased by GBP36 million to
GBP363 million (2019: GBP327 million). Non-underlying items in 2020
included amortisation and impairment of goodwill and purchased
intangible assets of GBP195 million (2019: GBP195 million). Within
this, GBP10 million relates to accelerated amortisation in relation
to Mergent CGU and a further GBP10 million relates to impairment of
goodwill and purchased intangibles of Mergent CGU, driven by lower
expected future cash flows than forecast at the time of
acquisition.
In relation to acquisitions, the Group has incurred GBP173
million (2019: GBP96 million) of transaction costs.
The Group incurred GBP13 million (2019: GBP16 million) of
non-underlying financing commitment fees in relation to the
Refinitiv acquisition for the two tranches of bridge financing
facility of US$9.325 billion and EUR3.58 billion, which were
resized to US$7.325 billion and EUR3.08 billion.
Non-underlying items
2020 2019
Year ended 31 December GBPm GBPm
================================================================================================== ===== =====
Transaction costs 173 96
Restructuring (credit)/costs (5) 32
Integration costs - 4
================================================================================================== ===== =====
Non-underlying operating expenses before interest, tax, depreciation, amortisation and impairment 168 132
================================================================================================== ===== =====
Amortisation of purchased intangible assets 164 180
Impairment of goodwill and purchased intangibles 10 15
Impairment of software 21 -
================================================================================================== ===== =====
Non-underlying operating expenses before interest and tax 363 327
================================================================================================== ===== =====
Non-underlying finance expense 13 16
================================================================================================== ===== =====
Total non-underlying expenses included in profit before tax 376 343
-------------------------------------------------------------------------------------------------- ----- -----
Finance Income and Expense and Taxation
Underlying net finance costs were GBP57 million, down GBP14
million on the prior year primarily due to refinancing the October
2019 GBP250 million 9.125% per annum coupon bond, using existing
bank facilities 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 24.4% (2019: 23.7%). This reflects the mix of
profits across a largely stable tax base without any material
changes in underlying rates but does include a one off increase in
the rate resulting from disputes with overseas tax authorities.
Adjusting for this item, the underlying tax rate was 23.4%.
The Group continues to monitor the evolving tax landscape and
potential developments with US tax reform. While there are no
material changes to the underlying tax base or rates for 2021, we
note that the recent UK budget announcement indicates the UK
corporate tax rate will increase to 25% from April 2023.
Accordingly, we have considered the impact of the increased rate on
the revaluation of the Group's deferred tax assets and liabilities,
which will be required during 2021 .
Therefore, considering the mix of profits for the organisation
combined with Refinitiv, the Group should expect to record a
reported tax rate on an underlying basis of between 22% to 24% for
2021, which forms our best estimate of forward guidance.
Cash Flow, Balance Sheet and Financing
The Group's business continued to be strongly cash generative
during the year, with cash generated from operations of GBP1,283
million (2019: GBP1,089 million). Cash generation, after organic
and inorganic investments and other normal course payment
obligations, was positive.
At 31 December 2020, the Group had net assets of GBP4,125
million (2019: GBP3,801 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
2020 2019
Year ended 31 December GBPm GBPm
===================================== ======= =======
Gross borrowings 1,951 2,085
Cash and cash equivalents (1,785) (1,493)
Net derivative financial liabilities 17 38
===================================== ======= =======
Net debt 183 630
===================================== ======= =======
Regulatory and operational cash 1,242 1,125
===================================== ======= =======
Operating net debt 1,425 1,755
------------------------------------- ------- -------
At 31 December 2020, the Group had operating net debt of
GBP1,425 million after setting aside GBP1,242 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.
Total regulatory cash increased during the year in response to
Covid-19 market volatility. The Group's operating net debt
decreased during the year.
Net leverage (operating net debt to EBITDA updated to account
for the EBITDA of acquisitions or disposals undertaken in the
period) decreased to 1.1 times at 31 December 2020 (31 December
2019: 1.4 times) and positions the Group near the bottom of its
targeted range of 1-2 times.
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), increased to
18.8 times in the 12 months to 31 December 2020 (31 December 2019:
14.4 times) as more expensive bond debt was replaced with cheaper
bank facility borrowing and EBITDA improved.
During the financial year the Group retained its GBP1.2 billion
of committed bank facilities for general corporate purposes, and
made further arrangements to ensure availability of funding
capacity to replace Refinitiv's debt upon completion of the
acquisition.
On 16 December 2020, the dual tranche US$9.325 billion and
EUR3.580 billion syndicated committed Bridge Facility, taken out
during 2019 in preparation for refinancing Refinitiv's debt, was
resized being partially replaced with two three -year term loan
facilities of US$2 billion and EUR500 million. At the same time,
the Group entered into an additional GBP1,075 million syndicated
committed facility agreement to replace the GBP600 million facility
maturing in November 2022, and signed an Amendment and Restatement
agreement which increases the GBP600 million Revolving Credit
Facility agreement maturing in December 2024 to GBP1,425
million.
These new facilities were undrawn at 31 December 2020 and
remained available to draw contingent upon the completion of the
Group's proposed acquisition of Refinitiv. The combined new
facilities offer the Group sufficient acquisition headroom, while
at the same time providing an additional flexible financing
capacity of GBP1.3 billion for general corporate purposes. The
terms of the new agreements are consistent with those of the
Group's existing facilities and appropriate for an investment grade
borrower including change of control provisions.
With GBP 886 million of undrawn committed bank lines (after
taking into account committed, swingline backstop coverage for the
EUR189 million commercial paper in issuance), the Group continues
to be well positioned to fund planned growth. The new banking
facilities, are also expected to provide an appropriate level of
financial flexibility to the Group in its planning at the end of
2020.
At the end of 2020, the Group's long-term credit ratings were A3
and A with Moody's and S&P respectively, with both agencies
having moved their ratings to a negative outlook in anticipation of
the impact of the Refinitiv acquisition on net leverage. Subsequent
to the completion of the Refinitiv acquisition, both agencies
affirmed their ratings with Moody's revising its outlook to stable
and S&P maintaining a negative outlook.
Foreign exchange
2020 2019
================================== ==== ====
Spot GBP/EUR rate at 31 December 1.11 1.17
================================== ==== ====
Spot GBP/US$ rate at 31 December 1.36 1.31
================================== ==== ====
Average GBP/EUR rate for the year 1.13 1.14
================================== ==== ====
Average GBP/US$ rate for the year 1.28 1.28
---------------------------------- ---- ----
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 2020, the main exposures for the Group were
its European based Euro reporting businesses and its US based
operations, principally Russell Indices, 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 GBP38.2 million and GBP12.5
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 5% increase in adjusted basic earnings per
share, which excludes amortisation of purchased intangible assets
and non-underlying items, to 209.7 pence (2019: 200.3 pence). Basic
earnings per share were 120.3 pence (2019: 119.5 pence).
Dividend
The Board is proposing a final dividend of 51.7 pence per share,
which together with the interim dividend of 23.3 pence per share
paid to shareholders in September 2020, results in a 7% increase in
the total dividend to 75.0 pence per share. The final dividend will
be paid on 26 May 2021 to shareholders on the register as at 30
April 2021.
Historic Financial Information relevant to acquisition of
Refinitiv
The below table presents pro-forma financial information as if
the enlarged group (excluding Borsa Italiana Group) had existed for
all of 2019 and 2020.
-- The tables show the pro-forma underlying results of the
Group, combining the results of LSEG plc, Refinitiv and deducting
the results of Borsa Italiana Group.
-- All historic financial information provided on the enlarged
Group is presented on an IFRS basis and is consistent with LSEG
accounting policies. The combined results are unaudited and do not
include adjustments for intercompany transactions, reallocations of
costs, any fair value adjustments arising out of the purchase price
allocation exercise, any future changes to accounting estimates or
judgements, and are therefore subject to change.
-- The LSEG plc financial information has been extracted from
the audited consolidated financial statements of LSEG plc for the
years ended 31 December 2020 and 31 December 2019.
-- The Refinitiv financial information has been extracted from
US GAAP financial statements of the Refinitiv Parent for the years
ended 31 December 2020 and 31 December 2019. These results have
been adjusted to be on an IFRS basis and are unaudited.
-- An average rate of exchange of US$1.28 to GBP1 has been used
to convert the financial information of Refinitiv Parent into
pounds sterling for the year ended 31 December 2020 and year ended
31 December 2019. This reflects the average rate used in the
respective year ends for the LSEG consolidated financial
statements.
-- The Borsa Italiana Group financial information has been
extracted from the audited consolidated financial statements of
LSEG plc for the years ended 31 December 2020 and 31 December
2019.
-- Average rates of exchange of EUR1.13 to GBP1 and EUR1.14 to
GBP1 have been used to convert the financial information of the
Borsa Italiana Group into pounds sterling for the year ended 31
December 2020 and 31 December 2019 respectively.
-- The recurring/non-recurring income analysis has been
presented based on management's current basis of recognition which
differs to that disclosed in the Prospectus issued on 9 December
2020.
Pro-Forma 12 months ended 12 months ended
31 Dec 2020 31 Dec 2019
GBPm GBPm Variance
%
==================================================================== =============== =============== ==============
Data & Analytics 4,675 4,574 2
Capital Markets 1,170 1,099 6
Post Trade(1) 915 803 14
Other 3 9 -
==================================================================== =============== =============== ==============
Total income (excluding recoveries) 6,763 6,485 4
Recoveries(2) 340 328 4
Total income (including recoveries) 7,103 6,813 4
==================================================================== =============== =============== ==============
Cost of sales (970) (941) 3
==================================================================== =============== =============== ==============
Gross profit 6,133 5,872 4
-------------------------------------------------------------------- --------------- --------------- --------------
Adjusted operating expenses before depreciation, amortisation and
impairment (2,937) (3,037) (3)
Income from equity Investments - 7 -
Share of loss after tax of associates (4) (5) -
-------------------------------------------------------------------- --------------- --------------- --------------
Adjusted earnings before interest, tax, depreciation, amortisation
and impairment 3,192 2,837 13
==================================================================== =============== =============== ==============
Underlying depreciation, amortisation and impairment (781) (687) 14
==================================================================== =============== =============== ==============
Adjusted operating profit 2,411 2,150 12
==================================================================== =============== =============== ==============
Income split by type
------------------------------------ ----- -----
Recurring 5,060 4,952 2
Non-recurring(1) 2,043 1,861 10
==================================== ===== =====
Total income (including recoveries) 7,103 6,813 4
==================================== ===== =====
(1) Includes NTI of GBP206m in 2019 and GBP269m in 2020
(2) Recoveries revenue is collected from customers and passed
through to third-party providers who provide access to their
content via Refinitiv's platform.
Financial Targets
At the time of the announcement of the Refinitiv acquisition on
1 August 2019, the Group set out financial targets for the combined
company. These targets remain unchanged, except to reflect the
divestment of Borsa Italiana and the consequent faster timescale to
move back within the target leverage range.
The financial targets are provided below:
Target
5-7% Total Income (excluding recoveries) CAGR over the first
three years(1)
In excess of GBP225 million of annual run rate revenue synergies
phased over five years(2)
Target phasing (run-rate rather than in-year revenue achievement):
Year three - 60%
Year five - 100%
In excess of GBP350 million of annual run rate cost synergies
phased over five years(2,3)
Target phasing (run-rate rather than in-year savings achievement):
Year one - 25%
Year three - 70%
Year five -100%
50% Adjusted EBITDA margin (excluding recoveries) over the medium
term
Leverage to reduce to within 1-2x target range within 24 months
of completion(4)
Adjusted EPS accretion after the first year of completion in
excess of 30% and increasing in years two and three(4)
(1) Total income growth target to be measured off the 2020
pro-forma Total Income (excluding recoveries) of GBP6,763 million
and runs until 31 December 2023
(2) Revenue and cost synergy targets run to 31 December 2025
(3) Year one cost synergy phasing refers to the full 12 months
to 31 December 2021
(4) Measured from the date of Completion of the Refinitiv
transaction: 29 January 2021
Appendix to Historical Financial Information relevant to
acquisition of Refinitiv
The following tables summarise the constituent elements of the
Historical Financial Information between LSEG consolidated
financial information, Refinitiv financial information presented on
an IFRS basis, and the removal of Borsa Italiana financial
information.
Pro-Forma for 12 months ended Refinitiv
December 2020 (IFRS basis unaudited)
LSEG consolidated 12 months ended Borsa Italiana Pro-Forma
12 months ended 31 Dec 2020 12 months ended 12 months ended
31 Dec 2020 GBPm 31 Dec 2020 31 Dec 2020
GBPm GBPm GBPm
================================== =================== ======================= ================= =================
Data & Analytics 864 3,852 (41) 4,675
Capital Markets 506 881 (217) 1,170
Post Trade 1,071 - (156) 915
Other 3 - - 3
================================== =================== ======================= ================= =================
Total income (excluding
recoveries) 2,444 4,733 (414) 6,763
Recoveries - 340 - 340
Total income (including
recoveries) 2,444 5,073 (414) 7,103
================================== =================== ======================= ================= =================
Cost of sales (224) (762) 16 (970)
================================== =================== ======================= ================= =================
Gross profit 2,220 4,311 (398) 6,133
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Adjusted operating expenses before
depreciation, amortisation and
impairment (887) (2,188) 138 (2,937)
Income from equity Investments - - - -
Share of loss after tax of
associates (4) - - (4)
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Adjusted earnings before interest,
tax, depreciation, amortisation
and impairment 1,329 2,123 (260) 3,192
================================== =================== ======================= ================= =================
Underlying depreciation,
amortisation and impairment (211) (600) 30 (781)
================================== =================== ======================= ================= =================
Adjusted operating profit 1,118 1,523 (230) 2,411
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Income split by type
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Recurring 1,058 4,149 (147) 5,060
Non-recurring 1,386 924 (267) 2,043
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Total income (including
recoveries) 2,444 5,073 (414) 7,103
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Pro-Forma for 12 months ended Refinitiv
December 2019 (IFRS basis unaudited)
LSEG consolidated 12 months ended Borsa Italiana Pro-Forma
12 months ended 31 Dec 2019 12 months ended 12 months ended
31 Dec 2019 GBPm 31 Dec 2019 31 Dec 2019
GBPm GBPm GBPm
================================== =================== ======================= ================= =================
Data & Analytics 839 3,771 (36) 4,574
Capital Markets 508 795 (204) 1,099
Post Trade 955 - (152) 803
Other 12 - (3) 9
================================== =================== ======================= ================= =================
Total income (excluding
recoveries) 2,314 4,566 (395) 6,485
Recoveries - 328 - 328
Total income (including
recoveries) 2,314 4,894 (395) 6,813
================================== =================== ======================= ================= =================
Cost of sales (210) (748) 17 (941)
================================== =================== ======================= ================= =================
Gross profit 2,104 4,146 (378) 5,872
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Adjusted operating expenses before
depreciation, amortisation and
impairment (839) (2,331) 133 (3,037)
Income from equity Investments 7 - - 7
Share of loss after tax of
associates (7) 2 - (5)
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Adjusted earnings before interest,
tax, depreciation, amortisation
and impairment 1,265 1,817 (245) 2,837
================================== =================== ======================= ================= =================
Underlying depreciation,
amortisation and impairment (200) (516) 29 (687)
================================== =================== ======================= ================= =================
Adjusted operating profit 1,065 1,301 (216) 2,150
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Income split by type
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Recurring 1,037 4,059 (144) 4,952
Non-recurring 1,277 835 (251) 1,861
---------------------------------- ------------------- ----------------------- ----------------- -----------------
Total income (including
recoveries) 2,314 4,894 (395) 6,813
---------------------------------- ------------------- ----------------------- ----------------- -----------------
INCOME STATEMENT
Year ended 31 December
2020
2020 2019
----------------------------------- ----------------------------------
Underlying Non-underlying Total Underlying Non-underlying Total
Continuing operations Notes GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 3 2,124 - 2,124 2,056 - 2,056
Net treasury income
from CCP clearing
business 3 319 - 319 255 - 255
Other income 3 1 - 1 3 - 3
--------------------------- ----- ---------- -------------- ------- ---------- -------------- ------
Total income 2,444 - 2,444 2,314 - 2,314
Cost of sales 3 (224) - (224) (210) - (210)
Gross profit 2,220 - 2,220 2,104 - 2,104
Expenses
Operating expenses
before depreciation,
amortisation and
impairment 4, 6 (887) (168) (1,055) (839) (132) (971)
Income from equity
investments 3 - - - 7 - 7
Share of loss after
tax of associates 3 (4) - (4) (7) - (7)
--------------------------- ----- ---------- -------------- ------- ---------- -------------- ------
Earnings before interest,
tax, depreciation,
amortisation and
impairment 1,329 (168) 1,161 1,265 (132) 1,133
Depreciation, amortisation
and impairment 6, 11 (211) (195) (406) (200) (195) (395)
Operating profit/(loss) 1,118 (363) 755 1,065 (327) 738
Finance income 7 - 7 14 - 14
Finance expense (64) (13) (77) (85) (16) (101)
---------- -------------- ------- ---------- -------------- ------
Net finance expense 6, 7 (57) (13) (70) (71) (16) (87)
Profit/(loss) before
tax 1,061 (376) 685 994 (343) 651
Taxation 6, 8 (257) 59 (198) (236) 50 (186)
Profit/(loss) for
the year 804 (317) 487 758 (293) 465
--------------------------- ----- ---------- -------------- ------- ---------- -------------- ------
Profit/(loss) attributable
to:
Equity holders 734 (313) 421 699 (282) 417
Non-controlling interests 70 (4) 66 59 (11) 48
Profit/(loss) for
the year 804 (317) 487 758 (293) 465
--------------------------- ----- ---------- -------------- ------- ---------- -------------- ------
Earnings per share attributable to
equity holders
Basic earnings per
share 9 120.3p 119.5p
Diluted earnings
per share 9 118.9p 118.1p
Adjusted basic earnings
per share 9 209.7p 200.3p
Adjusted diluted
earnings per share 9 207.3p 198.0p
Dividend per share in respect of the
financial year
Dividend per share
paid during the year 10 23.3p 20.1p
Dividend per share
declared for the
year 10 51.7p 49.9p
--------------------------- ----- ---------- -------------- ------- ---------- -------------- ------
STATEMENT of comprehensive income
Year ended 31 December 2020
2020 2019
Notes GBPm GBPm
Profit for the year 487 465
Other comprehensive income:
Items that will not be subsequently reclassified to
profit or loss:
Defined benefit pension scheme remeasurement
(loss)/ gain (1) 7
Gain on equity instruments designated at fair
value through other comprehensive income 6 -
Income tax relating to these items 8 1 -
6 7
--------------------------------------------------- ----- ---- -----
Items that may be subsequently reclassified to profit
or loss:
Net (losses)/gains on net investment hedges (64) 71
Debt instruments at fair value through other
comprehensive income:
- Net gains from changes in fair value 26 16
- Net gains reclassified to the consolidated
income statement on disposal (4) (2)
Exchange gains/(losses) on translation of foreign
operations 86 (218)
Income tax relating to these items 8 (5) (5)
39 (138)
--------------------------------------------------- ----- ---- -----
Other comprehensive income/ (loss) net of tax 45 (131)
--------------------------------------------------- ----- ---- -----
Total comprehensive income for the year 532 334
--------------------------------------------------- ----- ---- -----
Total comprehensive income attributable to:
Equity holders 449 298
Non-controlling interests 83 36
Total comprehensive income for the year 532 334
--------------------------------------------------- ----- ---- -----
balance sheet
At 31 December 2020
2020 2019
Notes GBPm GBPm
Assets
Non-current assets
Property, plant and equipment 297 288
Intangible assets 11 4,324 4,421
Investment in associates 25 28
Deferred tax assets 51 49
Investments in financial assets 12 280 266
Retirement benefit asset 81 66
Trade and other receivables 12 14 19
5,072 5,137
--------------------------------------------- ------- ------- -------
Current assets
Trade and other receivables 12 594 566
Derivative financial instruments 12 - 2
Clearing member financial assets 758,510 729,094
Clearing member cash and cash equivalents 83,011 67,118
------- -------
Clearing member assets 12 841,521 796,212
Current tax 77 160
Investments in financial assets 12 92 81
Cash and cash equivalents 1,785 1,493
844,069 798,514
Total assets 849,141 803,651
--------------------------------------------- ------- ------- -------
Liabilities
Current liabilities
Trade and other payables 12 613 620
Contract liabilities 168 157
Derivative financial instruments 12 6 1
Clearing member liabilities 12 841,553 796,102
Current tax 24 127
Borrowings 12, 13 605 512
Provisions 1 19
--------------------------------------------- ------- ------- -------
842,970 797,538
Non-current liabilities
Borrowings 12, 13 1,346 1,573
Derivative financial instruments 12 11 39
Contract liabilities 94 88
Deferred tax liabilities 411 432
Retirement benefit obligations 18 17
Other non-current payables 12 152 150
Provisions 14 13
2,046 2,312
--------------------------------------------- ------- ------- -------
Total liabilities 845,016 799,850
--------------------------------------------- ------- ------- -------
Net assets 4,125 3,801
--------------------------------------------- ------- ------- -------
Equity
Capital and reserves attributable to the Company's equity holders
Ordinary share capital 15 24 24
Share premium 15 971 967
Retained earnings 911 668
Other reserves 1,805 1,796
Total shareholders' funds 3,711 3,455
Non-controlling interests 414 346
--------------------------------------------- ------- ------- -------
Total equity 4,125 3,801
--------------------------------------------- ------- ------- -------
cash flow statement
Year ended 31 December 2020
2020 2019
Notes GBPm GBPm
--------------------------------------------------------- ------ ----- -----
Cash flow from operating activities
Cash generated from operations 16 1,283 1,089
Interest received 4 6
Interest paid (78) (103)
Royalties paid (1) (2)
Corporation tax paid (232) (153)
Withholding tax paid (4) -
--------------------------------------------------------- ------ ----- -----
Net cash inflow from operating activities 972 837
--------------------------------------------------------- ------ ----- -----
Cash flow from investing activities
Purchase of property, plant and equipment (33) (41)
Purchase of intangible assets 11 (189) (154)
Proceeds from sale of businesses (1) 29 30
Acquisition of business, net of cash acquired
(2) 18 - (14)
Investment in associates - (11)
Investments in financial assets classed as FVOCI
(3) (2) (247)
Investment in government bonds - (3)
Proceeds from divestment of government bonds 2 -
Net cash outflow from investing activities (193) (440)
--------------------------------------------------------- ------ ----- -----
Cash flow from financing activities
Dividends paid to shareholders 10 (257) (221)
Dividends paid to non-controlling interests (21) (40)
Purchase of non-controlling interests (4) - (9)
Purchase of own shares by the employee benefit
trust (4) (5)
Proceeds from exercise of employee share options 10 5
Investment in convertible debt - (4)
Loan to associate - (1)
Arrangement fee paid (4) -
Bond repayment - (250)
Repayment towards commercial paper (101) -
Repayments made towards bank credit facilities (127) (35)
Additional drawdowns from bank credit facilities 4 261
Trade finance loans 1 -
Principal element of lease payments (43) (41)
Net cash outflow from financing activities (542) (340)
--------------------------------------------------------- ------ ----- -----
Increase in cash and cash equivalents 237 57
Cash and cash equivalents at beginning of year 1,493 1,510
Exchange gain/(loss) on cash and cash equivalents 55 (74)
Cash and cash equivalents at end of year 1,785 1,493
--------------------------------------------------------- ------ ----- -----
(1) Proceeds from sale of businesses represent deferred consideration
of GBP29 million (2019: GBP30 million) received by the Group from
its disposal of Russell Investment Management in 2016.
(2) Acquisition of business, net of cash acquired, in the prior
year relates to the Group's acquisition of Beyond Ratings for GBP14
million.
(3) Investments in financial assets classed as FVOCI in the current
year relate to the Group's minority investment of GBP2 million
in PrimaryBid. In the prior year, the Group made equity investments
in Nivaura Limited of GBP3 million and in Euroclear of GBP244 million.
(4) Purchase of non-controlling interests in the prior year relates
to the Group's purchase of the remaining 30% interest in EuroTLX
SIM S.p.A.
The Group's net cash inflow from operating activities of GBP972
million (2019: GBP837 million) includes GBP95 million (2019: GBP98
million) of expenses related to non-underlying items. The Group's
net cash outflow from investing activities of GBP193 million (2019:
GBP440 million) includes cash payments towards non-underlying purchases
of fixed assets of GBP1 million (2019: nil).
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
2020
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 2018 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
15) - 2 - - 2 - 2
Final dividend relating
to the year ended 31
December 2018 (note 10) - - (151) - (151) - (151)
Interim dividend relating
to the year ended 31
December 2019 (note 10) - - (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 - - 2 - 2 (1) 1
31 December 2019 24 967 668 1,796 3,455 346 3,801
Profit for the year - - 421 - 421 66 487
Other comprehensive income
for the year - - 19 9 28 17 45
Issue of shares (note
15) - 4 - - 4 - 4
Final dividend for the
year ended 31 December
2019 (note 10) - - (175) - (175) - (175)
Interim dividend for
the year ended 31 December
2020 (note 10) - - (82) - (82) - (82)
Dividend payments to
non-controlling interests - - - - - (16) (16)
Employee share scheme
expenses - - 51 - 51 - 51
Tax in relation to employee
share scheme expenses - - 9 - 9 1 10
31 December 2020 24 971 911 1,805 3,711 414 4,125
---------------------------- -------- -------- --------- --------- ------------- --------------- -------
Other reserves comprise the following:
- Merger reserve of GBP1,305 million ( 2019 : 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 ( 2019 : GBP514
million), a reserve set up as a result of a court approved capital
reduction.
- Reverse acquisition reserve of GBP(512) million ( 2019 :
GBP(512) million), a reserve arising on consolidation as a result
of the capital reduction scheme.
- Foreign exchange translation reserve of GBP608 million ( 2019
: GBP535 million), a reserve reflecting the impact of exchange rate
movement on the retranslation of non-UK Sterling subsidiary
companies. A net gain of GBP73 million was recorded in the year
(2019: loss of GBP218 million) in the statement of other
comprehensive income. The balance remains in equity until the
subsidiary company is sold or disposed of by the Group.
- Hedging reserve of GBP(110) million ( 2019 : GBP(46) 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. The
balance remains in equity until the hedging and underlying
instrument are derecognised.
Purchase of non-controlling interests in the prior year relates
to the Group's acquisition of the remaining 30% of EuroTLX SIM
S.p.A.
The number of shares held by the Employee Benefit Trust to
settle exercises of employee share awards was 487,866 ( 2019 :
517,563).
Employee share scheme expenses include costs related to the
issue and purchase of own shares for employee share schemes of
GBP(8) million ( 2019 : GBP(5) million), subscriptions, net of
sundry costs, received on the vesting of employee share schemes of
GBP10 million ( 2019 : GBP5 million) and equity-settled share
scheme expenses for the year of GBP49 million ( 2019: GBP37
million).
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation and accounting policies
Basis of preparation
The Group's consolidated financial statements are prepared in
accordance with International Financial Reporting Standards (IFRS)
and IFRS Interpretations Committee (IFRIC) interpretations adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union), and in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006.
From 1 January 2021, the Group will apply UK-adopted
International Accounting Standards under the Companies Act 2006. No
standards have been early adopted during the year.
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 provides the reader with
supplemental data relating to the financial condition and results
of operations. The Group presents profit for the year before any
non-underlying items as this highlights more clearly trends in the
Group's business and gives an indication of the Group's ongoing
sustainable performance. Items of income and expense that are
material by their size and/or nature are not considered to be
incurred in the normal course of business and are classified as
non-underlying items on the face of the income statement within
their relevant category.
Consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiary companies with all
inter-company balances and transactions eliminated, together with
the Group's attributable share of the results of associates. The
results of subsidiary companies sold or acquired in the period are
included in the income statement up to, or from, the date that
control passes. Control is achieved when the Group is exposed, or
has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its
power over the investee.
The acquisition of subsidiary companies is accounted for using
the acquisition method. The cost of the acquisition is measured at
the aggregate of the fair values, at the date of exchange, of
assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the
acquiree. Upon completion of the Group's fair value exercise,
comparatives are revised up to 12 months after the acquisition
date, for the final fair value adjustments. Further details are
provided in Note 18 . Adjustments to fair values include those made
to bring accounting policies into line with those of the Group.
The Group applies a policy of treating transactions with
non-controlling interests through the economic entity model.
Transactions with non-controlling interests are recognised in
equity.
Critical accounting judgements and estimates
Judgements and estimates are regularly evaluated based on
historical experience, current circumstances and expectations of
future events. The Group has considered and exercised judgements in
evaluating the ongoing impact of COVID-19 on preparation of these
financial statements. In addition to sources of estimation
uncertainty, a number of areas have been impacted by COVID-19 as
explained in note 2.
Going concern
In assessing whether the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
Management's base case forecasts reflect the completed all-share
acquisition of Refinitiv and draw down of the bridge financing
facility to refinance Refinitiv's debt. The base case forecasts
also reflect the impact of the disposal of the Borsa Italiana Group
and the acquisition of GIACT Systems by Refinitiv, and the related
transaction, separation, integration and financing/funding
costs.
The Group's combined businesses are profitable, generate strong
free cash flow and operations are not significantly impacted by
seasonal variations. The Group maintains sufficient liquid
resources to meet its financial obligations as they fall due.
Management monitors forecasts of the Group's cash flow and
overlays sensitivities to these forecasts to reflect assumptions
about more difficult market conditions or stress events. The
forecasts reflect the outcomes that the Directors consider most
likely, based on the information available at the date of signing
the financial statements.
To assess the Group's resilience to more adverse outcomes, its
forecast performance was sensitised to reflect a reasonable
worst-case downside scenario, causing a significant market
dislocation and included the observed impact of the COVID pandemic
on the business.
The Directors consider there to be no material uncertainties
that may cast significant doubt on the Group's ability to continue
to operate as a going concern. The Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future, being at least 12
months from the date of signing the financial statements.
Accordingly, they continue to adopt the going concern basis in the
preparation of these financial statements.
Recent accounting developments
The following amendments have been endorsed by the EU and
adopted in these financial statements:
Amendments to References to the Conceptual Framework in IFRS
Standards
Amendments to IFRS 3, 'Business Combinations'
Amendments to IAS 1 and IAS 8: Definition of Material
Amendments to IFRS 9, IAS 39 & IFRS 7: Interest Rate Benchmark
Reform
Amendments to IFRS 16 'Leases' Covid-19-Related Rent Concessions
The impact of adopting these amendments on the Group's financial
results 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 and as
applicable. The impact on the Group's financial statements of the
future standards, amendments and interpretations is still under
review, but the following amendments and standards are not expected
to have a material impact on the results of the Group.
International accounting standards and interpretations Effective date
------------------------------------------------------- ---------------
Amendments to IAS 1 'Presentation of Financial 1 January 2023
Statements' classification of liabilities
Amendments to IFRS 3, IAS 16 and IAS 37 and 1 January 2022
Annual Improvements 2018-2020
Amendments to IFRS 4 'Insurance Contracts' - 1 January 2021
deferral of IFRS 9
Amendments to IFRS 9, IAS 39 & IFRS 7: Interest 1 January 2021
Rate Benchmark Reform - Phase 2
IFRS 17, 'Insurance Contracts', including Amendments 1 January 2023
to IFRS 17
------------------------------------------------------- ---------------
2. Significant judgements and estimates
Judgements and estimates are regularly evaluated based on
historical experience, current circumstances and expectations of
future events. A number of areas have been impacted by COVID-19
when exercising judgements and estimates and these are identified
below.
Estimates:
For the year ended 31 December 2020, the following areas require
the use of estimates:
Impairment of intangible assets, goodwill and investment in
subsidiaries - these assets form a significant part of the balance
sheet and are key assets for the Group's businesses. 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. The Group has
reviewed the impact of COVID-19 on future cash flows along with the
impact on the weighted average cost of capital applied to each cash
generating unit and long-term growth rates. Following this review
there was no direct impact to any cash generating units for
COVID-19. Details are provided in note 11.
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. The value of the liabilities within the scheme have
increased as the discount rates have fallen due to the global
impact of COVID-19 on bond rates, but this has been offset by the
growth in the assets leading to an overall growth in the Group's
pension surplus.
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. The Group estimates
that a one year decrease in the deferral period would cause an
estimated GBP22 million increase in revenue and a one year increase
in the deferral period would cause an estimated GBP20 million
decrease in revenue recognised in the year.
Expected credit losses - the Group has factored into impairment
reviews of financial assets the expectations of future events
including COVID-19. The measured lifetime expected credit losses
associated with these assets have not been materially impacted. The
Group continues to monitor events and review whether additional
provisions will be required in future periods.
Judgements:
In preparing the financial statements for the year ended 31
December 2020, 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.
Taxation
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. Additional details
are provided in note 8.
US Tax Position - The Group has used its judgement in assessing
the financial reporting implications of its ongoing discussions
with the IRS in relation to its funding structure of its US
subsidiaries. The Group has used guidance under IFRIC 23
"Uncertainty over Income Tax Treatments" to determine the possible
outcomes and to assign a probability to each of those outcomes.
Additional details are provided in note 8.
Lease terms - The Group uses its judgement when assessing the
lease term of property assets where options exist to either extend
or curtail the lease term. The Group takes into account the
location and likely use of the property when making its
judgement.
Italian group disposal - the Group has judged that due to the
uncertainty surrounding the potential disposal of Borsa Italiana
and its associated businesses (Italian group) the sale was not
highly probable at 31 December 2020, and has therefore not been
treated as a disposal group. The sale was dependent on the
completion of the Refinitiv transaction, which itself was uncertain
at 31 December 2020 and thus the Group determined that the sale
while likely, was not highly probable. The Italian group will be
treated as a discontinued operation in 2021 from the date the sale
becomes highly probable (further details provided in note 19).
Pension assets - under current accounting standards, the Group
judges that it can expect any remaining pension surplus to be
refunded in full to the Group on the winding up of the schemes. It
therefore continues to recognise these assets on the balance
sheet.
3 . Segmental information
The Group is organised into operating units based on its service
lines and has five operating segments: Information Services, Post
Trade Services, 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 - Fees based on CCP and clearing services
provided, fees from settlement and custody service, non-cash
collateral management and net interest earned on cash held for
margin and default funds;
-- 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 Group has realigned its segmental reporting to reflect
management structure changes so that all Post Trade Services are
now combined in one operating segment. The new operating segment
includes the previous segments of LCH Group and the Post Trade
businesses in Italy, Monte Titoli and CC&G, as well as the
results of UnaVista, which were previously included in the
Information Services Division. There has been no impact on the
allocation of goodwill and the cash generating units of LCH Group
and Post Trade Services in Italy remain separate. The segmental
results for the comparative period have been re-presented to align
with the new structure. There is no change to the overall
result.
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 2020 are
as follows:
Post
Information Trade Capital Technology
Services Services Markets Services Other Eliminations Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----------- --------- -------- ---------- ----- ------------ -----
Revenue from external
customers 882 751 427 61 3 - 2,124
Inter-segmental revenue - - - 22 - (22) -
--------------------------------- ----------- --------- -------- ---------- ----- ------------ -----
Revenue 882 751 427 83 3 (22) 2,124
Net treasury income from
CCP clearing business - 319 - - - - 319
Other income - - - - 1 - 1
--------------------------------- ----------- --------- -------- ---------- ----- ------------ -----
Total income 882 1,070 427 83 4 (22) 2,444
--------------------------------- ----------- --------- -------- ---------- ----- ------------ -----
Cost of sales (68) (144) (4) (7) (1) - (224)
Gross profit 814 926 423 76 3 (22) 2,220
--------------------------------- ----------- --------- -------- ---------- ----- ------------ -----
Share of loss after tax
of associates - - - - (4) - (4)
Adjusted earnings before
interest, tax, depreciation,
amortisation and impairment 510 571 220 42 3 (17) 1,329
Underlying depreciation,
amortisation and impairment (55) (98) (35) (21) (8) 6 (211)
Adjusted operating profit/(loss)
(before non-underlying
items) 455 473 185 21 (5) (11) 1,118
Amortisation and impairment
of goodwill and purchased
intangible assets (195)
Other non-underlying
items affecting operating
profit (note 6) (168)
Operating profit 755
Net finance expense (including
non-underlying items) (70)
Profit before tax 685
--------------------------------- ------------
Revenue from external customers principally comprises fees for
services rendered of GBP2,060 million (2019: GBP1,981 million) and
Technology Services of GBP61 million (2019: GBP66 million).
Presented within revenue are net settlement expenses from the
CCP clearing businesses of net GBP8 million (2019: nil) which
comprise gross settlement income of GBP39 million (2019: GBP30
million) less gross settlement expense of GBP31 million (2019:
GBP30 million).
Net treasury income
Net treasury income of GBP319 million (2019: GBP255 million)
from the CCP clearing businesses comprises gross interest income of
GBP766 million (2019: GBP1,337 million) less gross interest expense
of GBP447 million (2019: GBP1,082 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 2020 is shown below:
Post
Revenue from external Information Trade Capital Technology
customers Services Services Markets Services Other Group
GBPm GBPm GBPm GBPm GBPm GBPm
Major product and service
lines
FTSE Russell Indexes -
subscription 443 - - - - 443
FTSE Russell Indexes -
asset based 225 - - - - 225
Real time data 105 - - - - 105
Other information services 109 - - - - 109
Clearing - 634 - - - 634
Settlement, custody and
other - 63 - - - 63
UnaVista - 54 - - - 54
Primary capital markets - - 131 - - 131
Secondary capital markets
- equities - - 171 - - 171
Secondary capital markets
- fixed income,
derivatives
and other - - 125 - - 125
Capital markets software
licences - - - 61 - 61
Other - - - - 3 3
Total revenue from
contracts
with customers 882 751 427 61 3 2,124
Timing of revenue
recognition
Services satisfied at
a point in time 7 721 278 4 3 1,013
Services satisfied over
time 875 30 149 57 - 1,111
Total revenue from
contracts
with customers 882 751 427 61 3 2,124
Segmental disclosures for the year ended 31 December 2019 are
as follows:
Post
Information Trade Capital Technology
Services Services Markets Services Other Eliminations Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from external
customers 855 700 426 66 9 - 2,056
Inter-segmental revenue - - - 17 - (17) -
Revenue 855 700 426 83 9 (17) 2,056
Net treasury income
from CCP clearing
business - 255 - - - - 255
Other income - - - - 3 - 3
Total income 855 955 426 83 12 (17) 2,314
Cost of sales (72) (122) (5) (7) (4) - (210)
Gross profit 783 833 421 76 8 (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 483 501 228 55 4 (6) 1,265
Underlying depreciation,
amortisation and
impairment (49) (90) (32) (25) (8) 4 (200)
Adjusted operating
profit/(loss) (before
non-underlying items) 434 411 196 30 (4) (2) 1,065
Amortisation and
impairment
of goodwill and purchased
intangible assets (195)
Other non-underlying
items affecting operating
profit (note 6) (132)
Operating profit 738
Net finance expense
(including non-underlying
items) (87)
Profit before tax 651
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
Information Trade Capital Technology
Services Services Markets Services Other Group
Revenue from external customers GBPm GBPm GBPm GBPm GBPm GBPm
Major product and service
lines
FTSE Russell Indexes - subscription 418 - - - - 418
FTSE Russell Indexes - asset
based 231 - - - - 231
Real time data 97 - - - - 97
Other information services 109 - - - - 109
Clearing - 593 - - - 593
Settlement, custody and
other - 60 - - - 60
UnaVista - 47 - - - 47
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 855 700 426 66 9 2,056
Timing of revenue recognition
Services satisfied at a
point in time 42 686 283 11 - 1,022
Services satisfied over
time 813 14 143 55 9 1,034
Total revenue from contracts
with customers 855 700 426 66 9 2,056
4. Expenses by nature
Expenses comprise the following:
2020 2019
Notes GBPm GBPm
Employee costs 5 564 529
IT costs 156 146
Short-term lease costs - 2
Lease costs for low value items 1 2
Other costs(1) 159 163
Foreign exchange losses/(gains) 7 (3)
Adjusted operating expenses before depreciation,
amortisation and impairment 887 839
Non-underlying operating expenses before
depreciation, amortisation and impairment 6 168 132
Operating expenses before depreciation,
amortisation and impairment 1,055 971
(1) Other costs include GBP60 million in relation to professional
fees (2019: GBP49 million).
5. Employee costs
Employee costs comprise the following:
2020 2019
GBPm GBPm
Salaries and other benefits 416 397
Social security costs 72 71
Pension costs 31 26
Share-based compensation 45 35
Total 564 529
Employee 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:
2020 2019
UK 1,829 1,631
USA 683 664
Italy 652 643
France 200 185
Sri Lanka 1,236 1,082
Other 619 493
Total 5,219 4,698
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.
6. Non-underlying items
2020 2019
Note GBPm GBPm
Transaction costs 173 96
Restructuring costs - 32
Restructuring credit (5) -
Integration costs - 4
Non-underlying operating expenses before
interest, tax, depreciation, amortisation
and impairment 168 132
Amortisation of purchased intangible assets 11 164 180
Impairment of goodwill and purchased intangibles 11 10 15
Impairment of software 21 -
Non-underlying operating expenses before
interest and tax 363 327
Non-underlying finance expense 13 16
Total non-underlying expenses included
in profit before tax 376 343
Tax on non-underlying expenses:
Deferred tax on amortisation of purchased
intangible assets (21) (31)
Current tax on amortisation of purchased
intangible assets (15) (11)
Tax on other items (23) (8)
(59) (50)
Total non-underlying charge to income
statement 317 293
Transaction costs comprise charges incurred for services
relating to the Refinitiv transaction and proposed disposal of the
Borsa Italiana group.
Restructuring credit relates to the release of accruals
recognised in relation to the cost savings programme announced in
March 2019.
Integration costs in 2019 related to the activities to integrate
the Mergent and Yield Book businesses into the Group.
Non underlying a mortisation of purchased intangible assets
includes accelerated amortisation of GBP10 million (2019: GBP25
million) in relation to the Mergent CGU (note 11).
The goodwill of the Mergent CGU was impaired by GBP10 million
(2019: GBP6 million). In 2019 the goodwill of the Turquoise CGU was
impaired by GBP8 million and purchased intangible assets by GBP1
million (note 11).
The software impairment of GBP21 million relates to asset write
downs resulting from ongoing transactions.
Financing costs relate to fees for establishing a Bridge
Financing facility to refinance the Refinitiv notes and term loans
in full following completion of the Group's Refinitiv transaction.
Further details of the facility are provided in note 14.
The tax impact of the Group's non-underlying items and its
adjustment to income statements of the individual entities of the
Group to which the non-underlying items relate, is computed based
on the tax rates applicable to the respective territories in which
the entity operates. There is no tax impact arising on
non-underlying items which are neither taxable nor
tax-deductible.
Non-underlying deferred tax includes deferred tax in relation to
the amortisation of purchased intangible assets.
7. Net finance expense
2020 2019
GBPm GBPm
Finance income
Expected return on defined benefit
pension scheme assets 1 1
Bank deposit and other interest income 4 9
Other finance income 2 4
Underlying finance income 7 14
Finance expense
Interest payable on bank and other
borrowings (56) (73)
Lease interest payable (4) (4)
Other finance expenses (4) (8)
Underlying finance expense (64) (85)
Underlying net finance expense (57) (71)
Non-underlying finance expense (13) (16)
Net finance expense (70) (87)
Bank deposit and other interest income includes negative interest
earned on the Group's borrowings. Interest payable includes amounts
where the Group suffers 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 GBP58 million (2019:
GBP72 million) of underlying net interest expense on financial
assets and financial liabilities held at amortised cost, comprising
GBP6 million (2019: GBP13 million) gross finance income and GBP64
million (2019: GBP85 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.
8. Taxation
The standard UK corporation tax rate for the year
was 19% (2019: 19%).
2020 2019
Taxation recognised in profit or loss GBPm GBPm
Current tax
UK corporation tax for the year 74 84
Overseas tax for the year 145 134
Adjustments in respect of previous
years 4 (3)
223 215
Deferred tax
Deferred tax for the year 2 2
Adjustments in respect of previous
years (6) -
Deferred tax liability on amortisation and impairment
of purchased intangible assets (21) (31)
(25) (29)
Taxation 198 186
The adjustments in respect of previous years' corporation tax are
mainly in respect of tax returns agreed with relevant tax authorities.
2020 2019
Taxation on items not recognised in profit
or loss GBPm GBPm
Current tax
Tax allowance on share awards in excess of
expense recognised 12 7
12 7
Deferred tax
Tax allowance on defined benefit pension
scheme remeasurements 1 (2)
Tax allowance on share options/awards in
excess of expense recognised (3) 10
Tax on movement in fair value of financial
assets (5) (5)
Adjustments relating to change in defined
benefit pension tax rate - 2
5 12
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% (2019: 19%) as explained
below:
2020 2019
GBPm GBPm
Profit before tax 685 651
Profit multiplied by standard rate of corporation
tax in the UK 130 124
Expenses not deductible (5) 9
Adjustment arising from change in tax rates (9) 7
Overseas earnings taxed at higher rate 70 38
Adjustments in respect of previous years (2) (3)
Adjustment arising from changes in tax rates
on amortisation of purchased intangible assets 5 4
Deferred tax provided for withholding tax
on distributable reserves (1) 2
Deferred tax not recognised 10 5
Taxation 198 186
On 22 July 2020, the Finance Act 2020 received Royal Assent
enacting the UK corporation tax rate would remain at 19% from 1
April 2020 onward instead of reducing to 17%, the previously
enacted rate. This has impacted the valuation of UK deferred tax
balances giving rise to an increase in deferred tax assets of GBP2
million.
Following the UK budget on the 3 March 2021 and the announcement
that the UK rate of corporation tax will increase from 19% to 25%
effective 1 April 2023 with legal enactment of the new rate
expected in 2021, the Group has assessed the impact on its deferred
tax assets and liabilities unwinding post 1 April 2023. The Group
expects that the higher rate would lead to additional deferred tax
liabilities of GBP10 million should the change have been reflected
in the balance sheet at 31 December 2020.
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
UK legislation up to December 2018 does partially represent illegal
State Aid.
Both the Group, among a number of other UK PLCs, and the UK
Government have submitted appeals to the EU General Court to annul
the EU Commission's findings.
The UK Government is required to continue the process of
recovering the State Aid whilst the decision is under appeal. HMRC
issued its first round of determinations in December 2019, focusing
on the financial year 2015 due to the expiry of statutory time
limits. One of these determinations was issued to the Group and
required one of its two affected subsidiaries to pay over GBP1.2
million to HMRC. At the same time the Group appealed to HMRC
against the determination. As at 31 December 2020, no further
determinations had been received. Subsequent to the year-end
however, the Group received additional determinations from HMRC of
GBP8.1 million excluding compound interest.
Under new recovery powers granted to HMRC, the Group must settle
the additional amounts by 28 March 2021. This is also the deadline
for filing any appeal against HMRC's decisions for issuing the
determination. The Group will meet both of these deadlines.
The appeal against the determination to HMRC is likely to be
stayed until the final outcome of all appeals to the EU Courts in
respect of the EU Commission's original decision are known.
The issuance and settlement of any such determinations does not
however change the Group's view that in light of the appeals made
by UK PLCs (including the Group), the UK Government's own appeal,
and in consideration of management's own internal view, no
provision is required in relation to the investigation.
Additionally, and in accordance with the provisions of IFRIC 23,
the Group has continued to recognise a receivable against the HMRC
determination paid in January 2020 and also intends to recognise a
receivable against the new HMRC determination described above.
As previously disclosed, the Group has made claims under the CFC
regime and still considers that the maximum potential amount of
additional tax payable excluding compound interest remains between
nil and GBP65 million depending on the basis of calculation.
IRS Audit
The Group is currently under audit in the US by the IRS in
relation to the interest rate applied on certain cross border
intercompany loans from the UK to the US. During the year the IRS
issued a Notice of Proposed Adjustment (NOPA) which seeks to apply
the safe haven rate under the US regulations to the interest
charged on cross border loans.
The maximum exposure under the NOPA is $130 million, however
this the upper bound of a range of nil to $130 million plus
interest and penalties over the lifetime of the loans. The Group
disagrees with the NOPA assessment and has sought legal advice to
support its position that the safe haven rate is arbitrary and
should not be sustained. The NOPA has been appealed by the Group
and the audit is ongoing.
Other
The Group does not have any other uncertain tax positions as at
31 December 2020 (2019: nil).
9. Earnings per share
Earnings per share is presented on four bases: basic earnings per
share, diluted earnings per share, adjusted basic earnings per
share, and adjusted diluted earnings per share. Basic earnings
per share is in respect of all activities. 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 non-underlying items to enable a better comparison of the
underlying earnings of the business with prior periods.
2020 2019
Basic earnings per share 120.3p 119.5p
Diluted earnings per share 118.9p 118.1p
Adjusted basic earnings per share 209.7p 200.3p
Adjusted diluted earnings per share 207.3p 198.0p
------
Profit and adjusted profit for the year attributable to the Company's
equity holders:
2020 2019
GBPm GBPm
Profit for the financial year attributable to the Company's
equity holders 421 417
Adjustments
Total non-underlying items net of tax (note 6) 317 293
Non-underlying items attributable to non-controlling
interests (4) (11)
------
Adjusted profit for the year attributable to the Company's
equity holders 734 699
Weighted average number of shares - millions 350 349
Effect of dilutive share options and awards - millions 4 4
------
Diluted weighted average number of shares - millions 354 353
------
The weighted average number of shares for the current year excludes
those held in the Employee Benefit Trust. The weighted average
number of shares for the prior year excludes those held in the
Employee Benefit Trust and treasury shares held by the Group.
10. Dividends
2020 2019
GBPm GBPm
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
Final dividend for 31 December 2019 paid 27
May 2020: 49.9p per Ordinary share 175 -
Interim dividend for 31 December 2020 paid 22
September 2020: 23.3p per Ordinary share 82 -
257 221
Dividends are only paid out of available distributable
reserves.
The Board has proposed a final dividend in respect of the year
ended 31 December 2020 of 51.7p per share, which is estimated to
amount to an expected payment of GBP417 million in May 2021. This
is not reflected in the financial statements.
11. 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 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 translation (104) (64) (24) (12) (39) (243)
31 December 2019 2,357 1,826 980 568 1,023 6,754
Additions - - - - 221 221
Disposals and write-off - - - - (18) (18)
Foreign exchange translation 45 21 (27) 1 34 74
31 December 2020 2,402 1,847 953 569 1,260 7,031
Accumulated amortisation and
impairment:
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 translation (27) (26) (5) (6) (22) (86)
31 December 2019 515 752 232 318 516 2,333
Amortisation charge
for the year - 101 40 23 139 303
Impairment 10 - - - 23 33
Disposals and write-off - - - - (18) (18)
Foreign exchange translation 21 15 (7) 4 23 56
31 December 2020 546 868 265 345 683 2,707
Net book values
31 December 2020 1,856 979 688 224 577 4,324
31 December 2019 1,842 1,074 748 250 507 4,421
Goodwill
There were no additions to goodwill in the current year.
In 2019, the Group acquired Beyond Ratings, which resulted in
additions to goodwill of GBP14 million (note 18). Beyond Ratings
was included in the FTSE Group CGU.
During the year, the fair value of the goodwill and purchased
intangibles relating to the acquisition of Beyond Ratings were
finalised, with no adjustment to the goodwill recognised required
(note 18).
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.
Purchased intangible assets
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 6 to 22 years.
Following a reassessment of useful economic lives GBP10 million
accelerated amortisation has been recognised in Customer and
Supplier relationships in relation to Mergent Inc. In the prior
year following a reassessment of useful economic lives the Group
recognised GBP25 million acceleration of amortisation in relation
to Mergent Inc.
Brands
Brand name assets have been recognised on a number of major
acquisitions, including FTSE, LCH, Frank Russell, and Yield Book.
Included within brands are trade names relating to Frank Russell
Group of GBP491 million (2019: GBP538 million). Other assets are
not individually material and the remaining amortisation periods on
these assets are between 2 and 22 years.
Software, licences and intellectual property
These assets have been recognised on acquisition of subsidiary
companies and have a remaining amortisation period of 1 to 17
years.
There are no other individual purchased intangible assets with a
carrying value that is considered material to each asset class.
Internally developed software and other intangible assets
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. These
assets have a useful economic life of up to 12 years.
During the year, consideration for additions comprises GBP189
million ( 2019 : GBP154 million) in cash additions relating to
internally generated software of GBP203 million ( 2019 : GBP176
million).
The cost of self-developed software products includes GBP188
million ( 2019 : GBP100 million) representing assets not yet
brought into use. No amortisation has been charged on these assets
and instead they are tested for impairment annually.
Other amounts represent capitalised contract costs and
right-of-use assets. These assets have a useful economic life of up
to 7 years.
During the year the Group recognised additions of GBP10 million
(2019: GBP21 million) as right-of-use assets, with a corresponding
amortisation charge of GBP7 million (2019: GBP7 million).
Impairment tests for internally developed software and other
intangible assets
Following a review of software assets in the year the Group
recognised GBP23 million (2019: GBP9 million) impairment in
relation to assets with a recoverable amount less than its value in
use.
During the year the Group recognised disposals and write-offs of
assets no longer in use of GBP18 million with nil net book value
(2019: GBP16 million).
12. Financial assets and financial liabilities
Financial instruments by category
The financial instruments of the Group are categorised as follows:
Financial assets
Fair value
Fair value through
Amortised through profit
cost OCI or loss Total
31 December 2020 GBPm GBPm GBPm GBPm
Clearing business financial assets:
- Clearing member trading assets 98,736 - 632,699 731,435
- Other receivables from clearing
members 2,484 - - 2,484
- Other financial assets - 24,591 - 24,591
- Clearing member cash and cash equivalents 83,011 - - 83,011
184,231 24,591 632,699 841,521
Trade and other receivables 544 - 5 549
Cash and cash equivalents 1,785 - - 1,785
Investments in financial assets -
debt instruments - 111 - 111
Investments in financial assets -
equity instruments - 261 - 261
Total 186,560 24,963 632,704 844,227
There were no transfers between categories during the year.
Prepayments and contract assets within trade and other receivables
are not classified as financial instruments.
Financial liabilities
Fair value
through
Amortised profit
cost and loss Total
31 December 2020 GBPm GBPm GBPm
----------
Clearing business financial liabilities:
- Clearing member trading liabilities 98,736 632,699 731,435
- Other payables to clearing members 110,118 - 110,118
208,854 632,699 841,553
Trade and other payables 747 - 747
Borrowings 1,951 - 1,951
Derivative financial instruments - 17 17
Total 211,552 632,716 844,268
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. Accruals reflect obligations for which the invoice
has not been received and are included within financial liabilities.
The financial instruments of the Group for the prior year were
as follows:
Financial assets
Fair Fair value
value through
Amortised through profit
cost OCI or loss Total
31 December 2019 GBPm GBPm GBPm GBPm
Clearing business 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
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
Prepayments and contract assets within trade and other receivables
are not classified as financial instruments.
Financial liabilities
Fair value
through
Amortised profit
cost or loss Total
31 December 2019 GBPm GBPm GBPm
Clearing business financial liabilities:
- Clearing member trading liabilities 122,299 574,889 697,188
- Other payables to clearing members 98,914 - 98,914
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
Social security and other tax liabilities within trade and
other payables are not classified as financial instruments.
13. Borrowings
2020 2019
GBPm GBPm
Current
Bank borrowings 135 256
Commercial paper 170 256
Bonds 300 -
605 512
Non-current
Bonds 1,347 1,573
Trade finance loans 1 -
Bank borrowings (2) -
1,346 1,573
Total 1,951 2,085
The Group's GBP300 million bond issued in 2012 is due for repayment
in November 2021.
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 2020 2020
Type GBPm GBPm %
Dual-currency bridge facility Jan 2022(1) 8,156 (8) LIBOR + 0.3
Multi-currency revolving
credit facility Nov 2022(2) 600 / 0 6 LIBOR + 0.45
Multi-currency revolving
credit facility Dec 2024(3) 600 / 1,425 138 LIBOR + 0.30
Multi-currency revolving
credit facility Dec 2025(4) 0 / 1075 (1) LIBOR + 0.475
Committed bank facilities 135
Commercial paper(5) Jan 2020 170 170 (0.380)
EUR500 million term loan Dec 2023(6) 451 - LIBOR + 0.725
$2,000 million term loan Dec 2023(6) 1,468 (2) LIBOR + 0.725
Committed term loans (2)
GBP300 million bond, issued
November 2012 Nov 2021 300 300 4.750
EUR500 million bond, issued
September 2017 Sep 2024 451 450 0.875
EUR500 million bond, issued
December 2018 Dec 2027 451 448 1.750
EUR500 million bond, issued
September 2017 Sep 2029 451 449 1.750
Bonds 1,647
Total committed facilities
and unsecured notes 1,950
(1) Terminates January 2022, with an option to extend for a
further 6 months.
(2) This facility is to be cancelled at the time of the Refinitiv
acquisition and replaced with a new GBP1,075m 5 year facility.
(3) This facility will be amended to increase the facility
limit to GBP1,425m at the time of the Refinitiv deal close.
(4) This facility will become effective when the Refinitiv
acquisition closes and will replace the GBP600m facility maturing
in November 2022.
(5) The Commercial paper interest rate reflected is the average
interest rate achieved on the outstanding issuances.
(6) These term loan facilities will be effective at the time
of the Refinitiv acquisition and partially replace and term
out the bridge facilities.
Committed bank facilities
Revolving credit facilities
The Group retained its total committed revolving credit bank
facilities of GBP1,200 million throughout the period. In December
2020, the Group arranged an additional GBP1,075 million syndicated
committed facility agreement to replace the GBP600 million facility
maturing in November 2022, and signed an Amendment and Restatement
agreement which increases the GBP600 million Revolving Credit
Facility agreement maturing in December 2024 to GBP1,425 million.
These new facility arrangements will become effective at the time
of the Refinitiv deal close. The revolving credit facilities were
partially drawn at 31 December 2020 with a carrying value of GBP143
million (2019: GBP264 million).
Bridge facility
In December 2020 the Group resized its US$9.325 billion and
EUR3.58 billion Bridge Facilities to US$7.325 billion and EUR3.08
billion (GBP8.156 billion), and partially replaced them with 3 year
term loan facilities of US$2 billion and EUR500 million, which
become effective at the time of the Refinitiv acquisition. The
Bridge Facility remained undrawn, but has a carrying value of
GBP(8) million (2019: GBP(8) million) which represents deferred
arrangement fees.
Commercial paper
The Group maintained its GBP1 billion Euro Commercial Paper
Programme. Outstanding issuances at 31 December 2020 of EUR188
million (GBP170 million) (2019: EUR300 million (GBP256 million))
may be reissued upon maturity in line with the Group's liquidity
requirements.
Term loan facilities
In December 2020, the group arranged US$2 billion and EUR500
million 3 year term loan facilities which become effective at the
time of the Refinitiv acquisition and mature in December 2023. The
term loans are undrawn at the year end, but had a carrying value of
GBP(2) million which represents deferred arrangement fees.
Bonds
In November 2012, the Group issued a GBP300 million bond under
its Euro Medium-Term Notes Programme 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.
In September 2017, the Group issued EUR1 billion of bonds in two
EUR500 million (GBP451 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.
In December 2018, the Group issued a EUR500 million (GBP451
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.
Other
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 2020 (2019: 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.
During the year, the Group entered into a sale and leaseback
arrangement which is classified as a trade finance loan. Under this
arrangement, the Group borrowed GBP1 million, repayable over three
years at an effective interest rate of 7.3%.
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.
Fair values
The fair values of the Group's
borrowings are as follows:
2020 2019
Carrying Carrying
value Fair value value Fair value
GBPm GBPm GBPm GBPm
Borrowings
- within 1 year 605 616 512 512
- after more than
1 year 1,346 1,466 1,573 1,676
1,951 2,082 2,085 2,188
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:
2020 2019
Drawn Swapped Effective Drawn Swapped Effective
Currency GBPm GBPm GBPm GBPm GBPm GBPm
Sterling 421 - 421 420 - 420
Euro 1,530 (613) 917 1,557 (637) 920
US dollar - 613 613 108 637 745
Total 1,951 - 1,951 2,085 - 2,085
14. Analysis of net debt
Group net debt comprises cash and cash equivalents less interest
bearing loans and borrowings and derivative financial instruments.
2020 2019
GBPm GBPm
Due within 1 year:
Cash and cash equivalents 1,785 1,493
Bank borrowings (135) (256)
Commercial paper (170) (256)
Bonds (300) -
Derivative financial assets - 2
Derivative financial liabilities (6) (1)
1,174 982
Due after 1 year:
Bank borrowings and trade finance loans 1 -
Bonds (1,347) (1,573)
Derivative financial liabilities (11) (39)
Net debt (183) (630)
Reconciliation of net cash flow to movement in net debt
2020 2019
GBPm GBPm
Increase/(decrease) in cash and cash equivalents 237 57
Net repayments made towards commercial paper 101 -
Additional drawdowns from bank credit facilities (4) (261)
Repayments made towards bank credit facilities 127 35
Trade finance loans received (1) -
Repayment of bonds - 250
Change in net debt resulting from cash flows 460 81
Foreign exchange (36) 14
Movement on derivative financial assets
and liabilities 21 9
Bond valuation adjustment - (2)
Movement in bank credit facility arrangement
fees 2 8
Net debt at 1 January (630) (740)
Net debt at 31 December (183) (630)
15. Share capital and share premium
Ordinary shares issued and fully paid
Number
of Ordinary Share
shares shares (1) premium Total
millions GBPm GBPm GBPm
1 January 2019 351 24 965 989
Issue of shares to the Employee
Benefit Trust - - 2 2
31 December 2019 351 24 967 991
Issue of shares to the Employee
Benefit Trust - - 4 4
31 December 2020 351 24 971 995
(1) Ordinary shares of 6 (79/86) pence
The Board approved the allotment and issue of 775,000 ordinary
shares at par and a further 139,970 ordinary shares at a price of
3,111 pence to the Employee Benefit Trust ( 2019 : 68,020 ordinary
shares of par value 6 (79/86) pence at 2,238 pence), to settle
employee 'Save As You Earn' share plans. This generated a premium
of GBP4 million ( 2019 : GBP2 million).
The Ordinary Share Capital of 351 million shares in the current
and prior years do not include treasury shares.
16. Net cash flow generated from operations
2020 2019
Notes GBPm GBPm
Profit before tax 685 651
Adjustments for depreciation, amortisation
and impairments:
Depreciation and amortisation 11 372 369
Impairment of software and intangible assets 11 33 24
Impairment of property, plant and equipment - 2
Adjustments for other non-cash items:
Loss on disposal of property, plant and equipment 1 -
Loss on disposal of intangible assets - 2
Share of loss of associates 4 7
Net finance expense (1) 7 71 87
Share scheme expenses 5 49 35
Royalties 1 1
Movements in pensions and provisions (32) (2)
Net foreign exchange differences (6) (27)
Research and development tax credit - (1)
(Increase)/decrease in receivables and contract
assets (42) 203
(Decrease)/increase in payables and contract
liabilities (45) 37
Movement in other assets and liabilities relating
to operations:
(Increase)/decrease in clearing member financial
assets (3,635) 6,525
Increase/(decrease) in clearing member financial
liabilities 3,818 (6,796)
Movements in derivative assets and liabilities 9 (28)
Cash generated from operations 1,283 1,089
(1) excludes items related to pension and provisions
17. Commitments and contingencies
As at 31 December 2020, the Group had commitments of GBP18
million for professional fees relating to the merger with
Refinitiv. The amounts were payable on the successful completion of
the merger (31 December 2019: nil).
The Group has commitments of GBP19 million for professional fees
relating to the proposed divestment of Borsa Italiana. The amounts
are payable on the successful completion of the divestment (31
December 2019: nil).
As at 31 December 2020, the Group had a commitment of GBP8
million in relation to its investment in PrimaryBid (see note
19).
In the normal course of business, the Group receive legal claims
in respect of commercial, employment and other matters. Where a
claim is more likely than not to result in an economic outflow of
benefits from the Group, a provision is made representing the
expected cost of settling such claims.
18. Business combinations
Acquisitions in the year to 31 December 2020
There were no acquisitions in the year.
Acquisitions in the year to 31 December 2019
On 31 May 2019, the Group acquired 100% of 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 Group has completed its fair value review of the business
acquired and considers that the fair value of the assets acquired
was immaterial and has therefore concluded that the total value of
the consideration should be regarded as goodwill. The business is
highly complementary to the Group's existing business and there is
expected to be future cash flow growth from the combined
business.
19. Events after the reporting period
Business combination after the reporting date
On the 29 January 2021, the Group completed the acquisition of
Refinitiv Parent Limited (Refinitiv Parent), a company incorporated
in the Cayman Islands and headquartered in London and New York.
Refinitiv is a leading global provider of market and financial data
and infrastructure, delivering data, insight and analytics tailored
to strategic workflows.
Refinitiv Parent holds an approximate 52% economic interest in
Tradeweb Markets Inc. and its subsidiaries. Tradeweb Markets Inc.
(Tradeweb) is a Delaware company and the holding company of
Tradeweb Markets LLC, which offers electronic marketplaces for
trading fixed income, derivatives, money market and equity
products. Tradeweb operates as a standalone, publicly listed
entity.
Under the terms of the Stock Purchase Agreement, LSEG plc
(directly and through certain wholly owned subsidiaries) acquired
the entire issued share capital of Refinitiv Parent and, in
exchange, LSEG plc issued 204,225,968 shares (comprising
136,870,442 listed LSEG ordinary shares; and 67,355,526 unlisted
LSEG limited-voting ordinary shares). The limited-voting ordinary
shares rank pari passu with the LSEG ordinary shares. Based on LSEG
plc's issued share capital as at completion, the total shares
amounted to an economic interest in LSEG plc of approximately 37%;
and less than 30% of the total voting rights in LSEG plc.
Of the total number of shares issued, 179,610,123 shares were
issued on 29 January 2021 and the remaining 24,615,845 shares were
issued on 1 March 2021. Assuming an equivalent value for each
listed LSEG ordinary share and each unlisted LSEG limited-voting
ordinary share, upon issue, the total value of the shares was
GBP17.5 billion(1) .
On Completion, the Group refinanced Refinitiv third-party debt
by drawing down $9.936 billion and EUR3.629 billion under the
Bridge Facility, term loan, and the new and amended multi-currency
revolving credit facilities. Further details of the facilities are
provided in note 13.
The acquisition of Refinitiv is a transformational transaction,
strategically and financially, and positions the Group for
long-term sustainable growth. Refinitiv brings highly complementary
capabilities in data, analytics and capital markets.
The combination of LSEG and Refinitiv will deliver significant
benefits for customers, and in particular to:
-- transform LSEG's position and create a global financial
markets infrastructure leader of the future;
-- strengthen LSEG's global footprint and accelerate its
successful growth strategy across multiple key financial centres
and jurisdictions, including in North America (the world's largest
financial market), Asia and fast-growing emerging markets;
-- significantly enhance LSEG's customer proposition in data and
analytics, utilising the Combined Business' intellectual property
to offer innovative new services;
-- complement LSEG's existing multi-asset class growth strategy
to create a global multi-asset class capital markets business with
the addition of high-growth foreign exchange and fixed income
venues; and
-- deepen and expand LSEG's and Refinitiv's shared core
principles of open access and customer partnership.
The Group is currently completing the steps in applying the
acquisition method in terms of IFRS 3 Business Combinations, to
determine what is part of the business combination transaction, to
recognise and measure the identified net assets acquired and
non-controlling interests; and to determine the consideration
transferred.
However, given the size of the transaction and the short period
of time between the completion and the date when the Annual Report
is authorised for issue, the Group is unable to reasonably estimate
and determine the:
-- fair value of the consideration transferred;
-- fair value of the net assets acquired;
-- non-controlling interests in Refinitiv; and
-- resulting goodwill.
As part of the fair value exercise the Group will consider the
recognition criteria in terms of IFRS 3 and may identify the
following classes of purchased intangible assets:
-- Customer contracts and relationships;
-- Technology - acquired software;
-- Technology - internally developed;
-- Databases and content;
-- Licences; and
-- Trade names.
The Group has 12 months from the date of acquisition to complete
the valuation exercise.
(1) Calculated by reference to the opening share price of LSEG
ordinary shares on 29 January 2021 (GBP83.94) and 1 March 2021
(GBP96.90).
Disposal after the reporting date
As a result of the completion of the Refinitiv acquisition, the
disposal of the Italian Group for EUR4.325 billion (GBP3.9 billion)
is expected to complete in the first half of 2021. The Italian
Group will represent a disposal group and a discontinued operation
within the Group's Interim results.
Other investments
The Group invested a further GBP5 million in PrimaryBid on 3
February 2021 as part of its commitment to invest a total of GBP10
million in the company.
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END
FR UVSORAAUORRR
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