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RNS

Half-year Report

Released 07:00 03-Aug-2017

RNS Number : 9646M
London Stock Exchange Group PLC
03 August 2017
 



3 August 2017

LONDON STOCK EXCHANGE GROUP PLC

 

INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2017

 

Unless otherwise stated, all figures below refer to continuing operations1 for the six months ended 30 June 2017.  Comparative figures are for continuing operations for the six months ended 30 June 2016 (H1 2016). 

·     Strong financial performance with income growth across all business areas and 23% AEPS growth

 

·     Successful strategy based on customer partnership, innovation and an Open Access model strongly positions the Group to make further progress as a global financial markets infrastructure business

 

H1 2017 Highlights

 

·     Continued strong financial performance with income growth across core business areas - in particular, in Information Services, including strong results at FTSE Russell, and OTC clearing at LCH

 

·     Revenue up 18% to £853 million (H1 2016: £722 million); total income up 20% to £946 million (H1 2016: £786 million)

 

·     Adjusted operating profit2 up 20% at £398 million (H1 2016: £333 million), with underlying operating expenses on an organic and constant currency basis up 5% as the Group continues to invest in growth and efficiencies 

 

·     On a reported basis: operating profit of £305 million (H1 2016: £199 million); profit before tax up 69% to £277 million (H1 2016: £164 million);  profit after tax of £208 million (H1 2016: £114 million) and £186 million including discontinued operations (H1 2016: loss of £16 million)

 

·     Adjusted EPS2 up 23% at 71.2 pence (H1 2016: 57.7 pence); basic EPS up 84% to 50.4 pence (H1 2016: 27.4 pence)

 

·     Interim dividend increased 20% to 14.4 pence per share (H1 2016: 12.0 pence per share) in line with our stated dividend policy; £200 million share buyback ongoing

 

·     Strong balance sheet position with leverage of 1.2 times adjusted pro forma net debt:EBITDA, notwithstanding continued investment spend, acquisition of Mergent and ongoing share buybacks

 

·     Announced acquisition of The Yield Book and Citi Fixed Income Indices, including the World Government Bond Index, for total cash consideration of $685 million (£535 million)

 

·     Investor Update event in June highlighted the good progress in executing our strategy, with new information on targeted revenue growth and continued cost control - expected to deliver further improvement to operating leverage, delivering enhanced operating margins and shareholder value

 

Commenting on performance for the period, Xavier Rolet, Group Chief Executive, said:

 

"The Group has produced a strong financial performance, with good income growth across all of our core business areas.  FTSE Russell and LCH OTC clearing services performed strongly, with double-digit growth at both businesses.

 

"As well as continuing to deliver organic growth, during the period we announced the acquisition of The Yield Book and Citi Fixed Income Indices business.  At our Investor Update in June, we set out targets for further strong financial performance, based on continued execution of our successful growth strategy.  The Group remains well placed, diversified both by business activity and by geography.  Our Open Access approach and strong customer partnerships also position us well for the implementation of MiFID II, starting in just over 20 weeks' time."

 

1 continuing operations exclude business sold, being Russell Investment Management

2 before amortisation of purchased intangible assets and non-recurring items

Organic growth is calculated in respect of businesses owned for at least 6 months in either period and so excludes ISPS, Mergent, SwapMatch and Russell Investment Management. The Group's principal foreign exchange exposure arises from translating our European based Euro and US based USD reporting businesses into Sterling.

Further information is available from:

London Stock Exchange Group plc

Lucie Holloway/Ramesh Chhabra - Media

Paul Froud - Investor Relations

+44 (0) 20 7797 1222


+44 (0) 20 7797 3322

 

Additional information on London Stock Exchange Group can be found at www.lseg.com

The Group will host a conference call of its Interim Results for analysts and institutional shareholders today at 08:30am. On the call will be Xavier Rolet (CEO), David Warren (CFO) and Paul Froud (Head of Investor Relations). 

To access the telephone conference call dial 0800 694 0257 or +44 (0) 1452 555 566

Conference ID: 5665 0921

For further information, please call the Group's Investor Relations team on +44 (0) 20 7797 3322.

Chief Executive's Statement

Overview

The Group has delivered a strong H1 2017 performance as we continue to execute successfully on our strategy, further developing our position as a global, open access market infrastructure business.  We launched new products, including the SwapAgent service at LCH for uncleared products and the International Securities Market, a market for primary debt issuance, in London.  During the period we completed the acquisition of Mergent, a US-based data and analytics business, and announced the acquisition of The Yieldbook and Citi Index business from Citi, which will strengthen our index and data capabilities in fixed income products.  Although the planned merger with Deutsche Börse was not successful, in June we set out clear plans for continued growth in our core business lines and provided targets for further financial improvements over the next two years.

The Group's results reflect strong top line growth in both the Information Services division and at LCH.  FTSE Russell delivered a double-digit increase in revenue and Mergent provided additional contribution as it was integrated into the business.  At LCH, the OTC clearing services produced another strong performance, with further growth in the established SwapClear business, as well as notable pick-up in CDS and Forex clearing operations.  In Capital Markets, the Primary markets businesses showed good progress with an increase in the number of new issues and money raised.  Against strong comparatives and challenging trading conditions, Secondary markets saw lower year-on-year trading levels and a small reduction in underlying revenues. Similarly, clearing activity in our Italian post trade businesses reflected the lower trading volumes, offset by stronger settlement, custody and net treasury income.

Underlying operating costs (on an organic and constant currency basis, and excluding cost of sales) increased by 5%.  We are benefitting from ongoing cost savings and integration efficiencies, while also continuing to invest in growth opportunities as well as Group infrastructure as our size and geographic scale increases.  As we set out at our Investor Update in June, we are confident of delivering further cost savings and holding cost increases to an average of just 4% until the end of 2019

Our balance sheet remains strong, notwithstanding the investments during the period, as well as the commencement of a £200 million share buyback programme.  In line with the Group's progressive dividend policy, we have increased the interim dividend by 20%, to 14.4 pence per share. 

Key developments over the period are highlighted below:

-     LSEG to acquire The Yield Book and Citi Fixed Income Indices

-     The Government Pension Investment Fund of Japan - the largest pension fund in the world with over $1.3 trillion in assets - selected the new FTSE Blossom Japan index as a core ESG benchmark through its flagship fund. The index is constructed using FTSE Russell's ESG Ratings data model

-     Launch of LCH SwapAgent, a service designed to simplify the processing, margining and settlement of non-cleared derivatives

-     CDSClear launched client clearing

-     LCH SA commenced repo clearing on German debt

-     International Securities Market, a market for primary debt issuance, launched in London

-     AIM reached £100 billion capital raised since launch, of which 60% has been through  further issues by existing companies

-     ELITE reached more than 600 companies from 25 countries and, in July, announced partnerships with CDP and NUO to help further expand its offering globally

-     1,000 Companies to Inspire Britain 2017 report issued

-     LSEG ESG Reporting Guidance published, responding to demand from investors for a more consistent approach to ESG reporting

 

Further commentary on the Group's performance from continuing operations in the six month period is provided below.

Operational Performance

Revenue for Information Services, the Group's largest business segment, increased 24% to £355 million (up 13% on an organic constant currency basis).  This result reflects the continued strong performance by FTSE Russell, with revenue up 16% on an organic constant currency basis to £261 million, as well as the first time contribution of £15 million from Mergent, the US data business acquired at the start of the year. In addition, revenue from real time data increased 3% while other information services grew 8%, both on an organic constant currency basis.  Cost of sales on an organic constant currency basis rose 9%, with 13% growth in gross profit on an equivalent basis at £325 million.

Total income for Post Trade Services - LCH, the Group's majority-owned global clearing business, rose 31% to £270 million (up 22% at constant currency).  OTC clearing revenue increased 19% on a constant currency basis, driven by another strong performance at SwapClear.  As well as a 35% increase in IRS notional cleared, the principal drivers of this growth were a 33% rise in clearing of client trades and further growth in compression services, with $312 trillion compressed in H1 (H1 2016: $178 trillion).  There was good progress also at both the CDSClear and ForexClear services, with member numbers up 18% and 17% respectively, and uplift in the notional value cleared by both businesses.

Non-OTC products clearing revenue rose 14% (up 5% at constant currency).  Cash equities clearing volume increased 21%, while the Fixed Income and Derivative services recorded 23% and 9% growth respectively in volumes cleared.  LCH net treasury income increased 45% at constant currency, with an increase in average cash collateral, up 41% to €86.5 billion, driven in large part by the growth in IRS client clearing.  Cost of sales for LCH rose 58% in constant currency terms, mainly reflecting the share arrangements across a number of the clearing services, with a resulting 17% increase in gross profit on a constant currency basis, at £230 million.

Total income for Post Trade Services in Italy, comprising CC&G and Monte Titoli, increased 8% to £74 million (down 2% at constant currency).  Cost of sales increased 47% (charges for using the T2S service), while gross profit rose 5% to £66 million (down 5% at constant currency).  Clearing revenue was flat on a reported basis (declined 10% at constant currency), reflecting lower clearing volumes in Italian equities, derivatives and fixed income markets.  Settlement and custody revenue rose 27% (up 15% at constant currency) principally reflecting a small increase in settlement instructions and assets under custody up 2% to €3.24 trillion.  Treasury income reduced 16% on a constant currency basis to £19 million, reflecting lower spreads over the period.

Capital Markets increased H1 revenue by 4% while cost of sales reduced by 23% following a lower contribution from Turquoise, resulting in a 6% increase in gross profit to £181 million (in constant currency terms, revenue was 1% lower while gross profit rose 1%).  In primary markets revenue rose 8%, in part reflecting an increase in number of new issues to 84 in the first half of the year (H1 2016: 74), plus growth in UK and Italian money raised, to £23.8 billion raised (H1 2016: £11.8 billion).  

In secondary markets, equities trading revenue increased 1% (down 2% in constant currency), reflecting lower trading levels at Turquoise and at Borsa Italiana, partly offset by a 7% rise in UK value traded.  Fixed income and derivatives trading revenue increased 7% (down 3% at organic constant currency), with a 14% decline in derivatives volumes and a 7% reduction in repo and cash trading at MTS.

Technology Services revenue increased 8% (flat on an organic and constant currency basis), to £41 million.

Financial Summary

Unless otherwise stated, all figures below refer to continuing operations for the six months ended 30 June 2017.  Comparative figures are for continuing operations for the six months ended 30 June 2016 (H1 2016).  Variances are also provided on an organic and constant currency basis. 






Organic and



Six months ended

constant



30 June

currency



2017

2016

Variance

variance1

Continuing operations


£m

£m

%

%







Revenue






Information Services 1


355 

286 

24%

13% 

Post Trade Services - LCH


207 

167 

24%

17% 

Post Trade Services - CC&G and Monte Titoli


55 

48 

15%

4% 

Capital Markets 1


190 

182 

4%

(1%)

Technology Services


41 

38 

8%

0% 

Other revenue


1 

- 

- 

Total revenue


853 

722 

18%

10% 







Net treasury income through CCP business


75 

56 

34%

22% 

Other income


18 

8 

- 

- 

Total income


946 

786 

20%

12% 

Cost of sales


(102)

(77)

32%

22% 

Gross profit


844 

709 

19%

11% 







Operating expenses before depreciation and amortisation

(399)

(337)

18%

4% 

Depreciation and amortisation


(46)

(36)

28%

18% 

Total operating expenses


(445)

(373)

19%

5% 

Share of loss after tax of associate


(1)

(3)

- 

- 

Adjusted operating profit 2


398 

333 

20%

18% 







Add back Depreciation and amortisation


46 

36 

28%

18% 

Earnings before interest, tax, depreciation and amortisation


444 

369 

20%

18% 







Profit on disposal of business


- 

- 

- 

Amortisation of purchased intangible assets and non-recurring items


(98)

(134)

(27%)

(31%)

Operating profit


305 

199 

53%

55% 







Earnings per share






Basic earnings per share (p)


50.4 

27.4 

84%


Adjusted basic earnings per share (p) 2


71.2 

57.7 

23%








Dividend per share (p)


14.4 

12.0 

20%


1 Organic growth is calculated in respect of businesses owned for at least 6 months in either period and so excludes ISPS, Mergent, SwapMatch and Russell Investment Management. The Group's principal foreign exchange exposure arises from translating our European based Euro and US based USD reporting businesses into Sterling.

 

2 before amortisation of purchased intangible assets and non-recurring items

The Group has performed well.  Revenue increased 18% to £853 million (H1 2016: £722 million), and up 10% on an organic and constant currency basis.  As described in the operational performance section above, all core business segments reported headline year-on-year increases, with strong contributions from LCH and Information Services.  Total income rose 20% to £946 million (H1 2016: £786 million), including a one-off gain of £6.6 million for disposal of a non-core asset, and up 12% on an organic and constant currency basis.  Cost of sales increased 22% in underlying terms to £102 million, (up 32% as reported) primarily as a result of the growth in LCH and FTSE Russell, with gross profit increasing 19% to £844 million. 

Operating expenses rose by 5% on an organic and constant currency basis and excluding cost of sales.  On a headline basis, costs excluding depreciation and amortisation were 18% higher at £399 million (H1 2016: £337 million), which includes one-off foreign exchange items of £11 million reflecting  the closing out of balance sheet positions (mainly related to the Russell Investment Management disposal) and £6 million relating to one-off  minor restructurings and other expenses.  We remain in a period of heightened investment in organic growth and efficiency projects as we build up Group infrastructure on an increasingly international basis.  Depreciation at £46 million is 28% higher than last year, reflecting investments across the Group over the past year.

Adjusted operating profit for the period, before amortisation of purchased intangible assets and non-recurring items, increased 20% to £398 million (H1 2016: £333 million).  Operating profit was £305 million (H1 2016: £199 million).

Net finance costs were £28 million (H1 2016: £35 million) following the redemption of a £250 million bond last year and €180 million Preferred Securities at LCH in May 2017.  Profit before tax was £277 million (H1 2016: £164 million).  The underlying effective Group tax rate for the period was 23.8%, slightly higher, as expected, than the rate for the year ended 31 December 2016 (22.3%).

Adjusted basic EPS, before amortisation of purchased intangible assets and non-recurring items, increased 23% to 71.2 pence (H1 2016: 57.7 pence) while basic EPS was 50.4 pence (H1 2016: 27.4 pence).

On a reported basis, including discontinued operations (principally relating to Russell Investment Management, which was sold 1 June 2016), profit after tax was £186 million (H1 2016: £(16) million), with basic earnings per share of 44.1 pence (H1 2016: basic loss per share of 10.4 pence).

Net cash inflow from operating activities was £275 million (H1 2016: £28 million), the increase reflecting stronger cash generation as well as lower comparative tax payments which last year included a gain on sale of Russell Investment Management.  Capital expenditure in the period amounted to £88 million, excluding £5 million proceeds on disposals (H1 2016: £57 million).  Looking ahead, we expect capex to run at a slightly higher level in H2 as we continue to invest in further product development and projects to help scale-up our businessNet cash generated after capex, other investing activities (excluding Mergent acquisition) and dividends, was £79 million (H1 2016: £276 million, including Russell Investment Management proceeds and tax paid).  Free cash flow per share on the same basis was 59.4p pence (30 June 2016: 107.7 pence).

Committed, undrawn credit lines available for Group purposes at 30 June 2017 totalled over £1 billion, extending out to 2021. During the period, the Group took the opportunity to extend its £600 million revolving credit facilities to increase financial flexibility.  It also arranged a $750 million committed, revolving credit line on similar terms to comfortably accommodate the funding requirements related to the acquisition of the Citi Yield Book and Fixed Income Indices businesses which is on track to close in H2 2017.  The Group will continue to explore its refinancing options as it moves through 2017, taking opportunities that present themselves to underpin the debt capital structure of the Group.

At 30 June 2017, adjusted net debt had increased to £1,005 million (after setting aside £843 million of cash for regulatory and operational support purposes).  The increase was primarily driven by the acquisition of Mergent at the start of the period, redemption in full of the LCH Group Preferred Securities and the buying back of its own shares by LSEG under the £200m programme, announced at the end of March 2017.  Adjusted pro forma net debt: EBITDA increased as a result to 1.2 times (from 1.1 times at 31 December 2016), reflecting the continued strong organic cash generation during the period.  On a pro forma basis with the inclusion of the proposed acquisition of The Yield Book and Citi Fixed Income Indices, for total cash consideration of $685 million (£535 million), net debt:EBITDA is 1.8 times. 

During the period, Standard & Poor's upgraded its long term rating of LSEG to A- with a stable outlook and withdrew the rating of LCH Group at that issuer's request following the redemption of its securities noted above.  Moody's upgraded LSEG in July, to an A3 rating with a stable outlook.

The Group had net assets of £3,507 million at 30 June 2017 (31 December 2016: £3,614 million), including £1,170 million in cash and cash equivalents (31 December 2016: £1,151 million).

The Group's principal foreign exchange exposure arises as a result of translating and revaluing its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling. For the 6 months to 30 June 2017, for continuing operations, the main translation exposures for the Group were its Euro reporting businesses (accounting for c.33% of Group income and c.30% of Group expenses) and its US dollar reporting businesses (accounting for c.25% of income and c.16% of expenses).  A 10 Euro cent movement in the average £/€ rate for the six months and a 10 cent movement in the average £/US$ rate for the six months would have changed the Group's operating profit for the period before amortisation of purchased intangible assets and non-recurring items by approximately £10 and £5 million in each event.

The Group continues to manage its translation risk exposure by matching the currency of its debt (including debt effectively swapped from Sterling into currency) to the currency of its earnings, where possible, to ensure its key financial ratios are protected from material foreign exchange rate volatility.

Interim Dividend 

In line with the Group's dividend policy, the interim dividend is calculated as one-third of the prior full year dividend.  Accordingly, the Directors have declared an interim dividend of 14.4 pence per share, an increase of 20% (H1 2016: 12.0 pence per share).  The interim dividend will be paid on 19 September 2017 to shareholders on the register on 25 August 2017.

Outlook

The Group has performed well in H1, with our core businesses continuing to grow and further investments made in new products and acquisitions.  We expect to deliver increased shareholder returns and in June we set out targets for continued growth and improving financial performance, comprising the following:

 

FTSE Russell

·     Continued double-digit revenue growth - 2017-2019

LCH

·     Continued double-digit revenue growth in OTC clearing - 2017-2019

·     Accelerating EBITDA margin growth - approaching 50% by 2019 (2016: 35.6%)

LSEG

·     Group operating expenses held at c.4% p.a. increase 2017-2019 while Group continues to develop and deliver revenue growth

·     Next phase cost saves of £50m p.a. - by exit 2019

·     Group EBITDA margin c.55% by 2019 (2016: 46.5%)

 

The Group's global businesses are well positioned in a changing regulatory environmentNew services and product innovation, diversification by business activity and geography, strong customer partnerships and operating a full range of open access market infrastructure services will support the achievement of our targets.

 

Xavier R Rolet KBE

Group Chief Executive

3 August 2017

 

 

Operating Performance - Key statistics

To assist investors in understanding the underlying performance of the Group, percentage changes are also presented on an organic constant currency basis.

 

Information Services

 

The Information Services division consists of global indices products, real time data products and a number of other discrete businesses including trade processing operations, desktop and work flow products. 

 

Information Services









Organic and


Six months ended


constant


30 June


currency


2017

2016

Variance

variance1


£m

£m

%

%

Revenue





FTSE Russell Indexes

260.5 

193.5 

35% 

16%

Real time data

47.4 

44.5 

7% 

3%

Other information services

47.0 

47.9 

(2%)

8%

Total revenue

354.9 

285.9 

24%

13%

Cost of sales

(30.0)

(24.9)

20%

9%

Gross profit

324.9 

261.0 

24%

13%

 

1 Excludes Mergent from FTSE Russell Indexes and ISPS from Other information services


As at



30 June

Variance


2017


2016

%

ETF assets under management benchmarked ($bn)





FTSE

315


229

38% 

Russell Indexes

215


161

34% 

Total

530


390

36% 






Terminals





UK

70,000


73,000

(4%)

Borsa Italiana Professional Terminals

127,000


130,000

(2%)

 

Post Trade Services - LCH

 

This LCH division principally comprises the Group's majority owned global clearing business.   

 


Six months ended


Constant


30 June


currency


2017

2016

Variance

variance


£m

£m

%

%

Revenue





OTC - SwapClear, ForexClear & CDSClear

112.6 

89.0 

27%

19%

Non-OTC - Fixed income, Cash equities and Listed derivatives

66.0 

57.7 

14%

5%

Other

28.6 

20.4 

40%

45%

Total revenue

207.2 

167.1 

24%

17%

Net treasury income

55.5 

35.0 

59%

45%

Other income

7.0 

4.4 

-

-

Total income

269.7 

206.5 

31%

22%

Cost of sales

(40.4)

(23.2)

74%

58%

Gross profit

229.3 

183.3 

25%

17%

 


Six months ended



30 June

Variance


2017


2016

%






OTC derivatives





SwapClear





IRS notional cleared ($tn)

468


346

35%

SwapClear members

106


102

4%

Client trades ('000)

610


460

33%

CDSClear





Notional cleared (€bn)

297.7


241.8

23%

CDSClear members

13


11

18%

ForexClear





Notional value cleared ($bn)

4,857


576

743%

ForexClear members

27


23

17%

Non-OTC





Fixed income - Nominal value (€tn)

42.9


34.9

23%

Listed derivatives (contracts m)

76.4


70.0

9%

Cash equities trades (m)

419.3


345.5

21%






Average cash collateral (€bn)

86.5


61.3

41%

 

Post Trade Services - CC&G and Monte Titoli

 

This division comprises the Group's Italian-based clearing, settlement and custody businesses.   

 


Six months ended


Constant


30 June


currency


2017

2016

Variance

variance


£m

£m

%

%

Revenue





Clearing

20.6 

20.7 

(0%)

(10%)

Settlement, Custody & other

34.7 

27.4 

27%

15% 

Total revenue

55.3 

48.1 

15% 

4% 

Net treasury income

19.4 

21.0 

(8%)

(16%)

Total income

74.7 

69.1 

8% 

(2%)

Cost of sales

(8.4)

(5.7)

47% 

35% 

Gross profit

66.3 

63.4 

5% 

(5%)

 


Six months ended



30 June

Variance


2017


2016

%

CC&G Clearing





Contracts (m)

60.1


68.5

(12%)

Initial margin held (average €bn)

12.8


11.8

8% 






Monte Titoli





Settlement instructions (trades m)

22.9


22.5

2% 

Custody assets under management (average €tn)

3.24


3.17

2% 

 

Capital Markets

 

Capital Markets comprises the Group's primary markets activities, providing access to capital for corporates and others, and the secondary market trading of cash equities, derivatives and fixed income. 

 





Organic and


Six months ended


constant


30 June


currency


2017

2016

Variance

variance1


£m

£m

%

%

Revenue





Primary Markets

47.7 

44.2 

8% 

5% 

Secondary Markets - Equities

83.9 

83.1 

1% 

(2%)

Secondary Markets - Fixed income, derivatives and other

58.0 

54.3 

7% 

(3%)

Total revenue

189.6 

181.6 

4% 

(1%)

Cost of sales

(9.0)

(11.7)

(23%)

(26%)

Gross profit

180.6 

169.9 

6% 

1% 

 

1 Excludes SwapMatch from Secondary Markets - Equities

Capital Markets - Primary Markets










Six months ended



30 June

Variance


2017


2016

%

New Issues





UK Main Market, PSM & SFM

42


25

68% 

UK AIM

28


41

(32%)

Borsa Italiana

14


8

75% 

Total

84


74

14% 






Money Raised (£bn)





UK New

2.5


1.9

32% 

UK Further

8.4


6.0

40% 

Borsa Italiana new and further

12.9


3.9

231% 

Total (£bn)

23.8


11.8

102% 

 

Capital Markets - Secondary Markets










Six months ended



30 June

Variance

Equity

2017


2016

%

Totals for period





UK value traded (£bn)

683


637

7%

Borsa Italiana (no of trades m)

37.5


40.6

(8%)

Turquoise value traded (€bn)

556


759

(27%)






SETS Yield (basis points)

0.63


0.63

0%






Average daily





UK value traded (£bn)

5.5


5.1

8%

Borsa Italiana (no of trades '000)

295


320

(8%)

Turquoise value traded (€bn)

4.4


6.0

(27%)






Derivatives (contracts m)





LSE Derivatives

3.2


2.4

33%

IDEM

20.4


25.2

(19%)

Total

23.6


27.6

(14%)






Fixed Income





MTS cash and BondVision (€bn)

1,902


2,042

(7%)

MTS money markets (€bn term adjusted)

41,355


44,425

(7%)

 

Technology Services

 

Technology Services comprises technology connections and data centre services for clients of London Stock Exchange and Borsa Italiana, plus the MillenniumIT software business, based in Sri Lanka, which provides technology for the Group as well as third party sales and enterprise services.

 


Six months ended


Constant


30 June


currency


2017

2016

Variance

variance

Revenue

£m

£m

%

%

MillenniumIT & other technology

41.1 

38.1 

8%

0% 

Cost of sales

(12.7)

(10.6)

20%

9% 

Gross profit

28.4 

27.5 

3%

(4%)

 

Basis of Preparation

 

Results for the European and US businesses have been translated into Sterling using the exchange rates set out below.  Constant currency growth rates have been calculated by translating prior period results at the average exchange rate for the current period.

 


Average rate


Average rate



6 months ended

Closing rate at

6 months ended

Closing rate at


30 June 2017

30 June 2017

30 June 2016

30 June 2016

GBP : EUR

1.16

1.14

1.28

1.20

GBP : USD

1.26

1.30

1.43

1.33











Condensed CONSOLIDATED Income Statement

 



Six months ended 30 June 2017

(Unaudited)


Six months ended 30 June 2016

(Unaudited)



Before acquisition amortisation and non-recurring items

Acquisition amortisation and non-recurring items

Total


Before acquisition amortisation and non-recurring items

Acquisition amortisation and non-recurring items

Total



£m

£m

£m


£m

£m

£m







Re-presented1,2

Re-presented1,2

Re-presented1,2


Notes


(See note 4)




(See note 4)


Continuing operations









Revenue

2

853

-

853


722

-

722

Net treasury income through CCP business

2

75

-

75


56

-

56

Other income

2

18

-

18


8

-

8

Total income


946

-

946


786

-

786

Cost of sales

2

(102)

-

(102)


(77)

-

(77)

Gross profit


844

-

844


709

-

709










Expenses









Operating expenses before depreciation and amortisation

3

(399)

(24)

(423)


(337)

(60)

(397)

Profit on disposal of business


-

5

5


-

-

-

Share of loss after tax of associates


(1)

-

(1)


(3)

-

(3)










Earnings before interest, tax, depreciation and amortisation


444

(19)

425


369

(60)

309

Depreciation and amortisation

3

(46)

(74)

(120)


(36)

(74)

(110)










Operating profit/(loss)

2

398

(93)

305


333

(134)

199










Finance income


4

-

4


2

-

2

Finance expense


(32)

-

(32)


(37)

-

(37)

Net finance expense

5

(28)

-

(28)


(35)

-

(35)

Profit/(loss) before tax from continuing operations


370

(93)

277


298

(134)

164










Taxation

6

(88)

19

(69)


(77)

27

(50)

Profit/(loss) for the financial period from continuing operations


282

(74)

208


221

(107)

114










Discontinued operations









(Loss)/profit after tax for the period from discontinued operations

7

-

(22)

(22)


18

(148)

(130)

Profit/(loss) for the financial period


282

(96)

186


239

(255)

(16)










Profit/(loss) attributable to:


















Equity holders









Profit/(loss) for the period from continuing operations


247

(72)

175


201

(106)

95

(Loss)/profit for the period from discontinued operations

7

-

(22)

(22)


17

(148)

(131)



247

(94)

153


218

(254)

(36)



















Non-controlling interests









Profit/(loss) attributable to non-controlling interests from continuing operations


35

(2)

33


20

(1)

19

Profit/(loss) attributable to non-controlling interests from discontinued operations

7

-

-

-


1

-

1



35

(2)

33


21

(1)

20



282

(96)

186


239

(255)

(16)










Earnings per share attributable to equity holders









Basic earnings/(loss) per share

8



44.1p




(10.4)p

Diluted earnings/(loss) per share

8



43.2p




(10.3)p

Adjusted basic earnings per share

8



71.2p




62.5p

Adjusted diluted earnings per share

8



69.8p




61.8p










Earnings per share for continuing operations attributable to equity holders









Basic earnings per share

8



50.4p




27.4p

Diluted earnings per share

8



49.4p




27.1p

Adjusted basic earnings per share

8



71.2p




57.7p

Adjusted diluted earnings per share

8



69.8p




57.1p










Dividend per share in respect of the financial period









Dividend per share paid during the period

9



31.2p




25.2p

Dividend per share declared for the period

9



14.4p




12.0p

1.  Comparative amounts have been re-presented to reflect the presentation of a columnar format by presenting profit for the period before amortisation of purchased intangible assets and non-recurring items.

2.  Comparatives have been re-presented to reflect earnings before interest, tax, depreciation and amortisation ('EBITDA') by separately identifying depreciation and amortisation, with no impact to profit before tax or after tax for the period.


Condensed CONSOLIDATED STATEMENT of comprehensive income

 




Six months ended 30 June




2017

2016




Unaudited

Unaudited




£m

£m

Profit/(loss) for the financial period



186

(16)

Other comprehensive income/(loss):





Items that will not be subsequently reclassified to profit or loss





Defined benefit pension scheme remeasurement gain/(loss)



11

(4)

Income tax relating to these items



(4)

1




7

(3)

Items that may be subsequently reclassified to profit or loss





Net investment hedge



(8)

(58)

Exchange (loss)/gain on translation of foreign operations



(15)

350

Available for sale financial assets:





Net gains from changes in fair value



6

-

Net gains reclassified to the consolidated income statement on disposal



(8)

-




(25)

292

Other comprehensive (loss)/income, net of tax



(18)

289

Total comprehensive income for the financial period



168

273






Attributable to non-controlling interests



45

64

Attributable to equity holders



123

209

Total comprehensive income for the financial period



168

273







Condensed CONSOLIDATED balance sheet

 



30 June 2017

30 June 2016


31 December 2016



Unaudited

Unaudited










Notes

£m

£m


£m

Assets






Non-current assets






Property, plant and equipment


113

97


108

Intangible assets

10

4,185

4,018


4,124

Investment in associates


3

5


3

Deferred tax assets


49

53


68

Available for sale investments

12

83

35


28

Retirement benefit assets


14

25


2

Other non-current receivables

11, 12

82

153


88



4,529

4,386


4,421

Current assets






Inventories


3

6


3

Trade and other receivables

11, 12

726

458


637

Derivative financial instruments

12

-

6


-

CCP financial assets


526,546

525,608


504,833

CCP cash and cash equivalents (restricted)


63,253

44,337


53,553

CCP clearing business assets

12

589,799

569,945


558,386

Current tax


102

6


124

Assets held at fair value

12

2

54


74

Cash and cash equivalents

12

1,170

1,002


1,151



591,802

571,477


560,375

Total assets


596,331

575,863


564,796

Liabilities






Current liabilities






Trade and other payables

12, 13

756

618


601

CCP clearing business liabilities

12

589,862

569,946


558,478

Current tax


62

54


61

Borrowings

12, 14

758

534


619

Provisions

12

1

1


1



591,439

571,153


559,760

Non-current liabilities






Borrowings

12, 14

548

547


547

Derivative financial instruments

12

26

12


19

Deferred income


-

1


-

Deferred tax liabilities


660

684


705

Retirement benefit obligations


77

45


75

Other non-current payables

12, 13

64

54


66

Provisions

12

10

10


10



1,385

1,353


1,422

Total liabilities


592,824

572,506


561,182

Net assets


3,507

3,357


3,614

Equity






Capital and reserves attributable to the Company's equity holders





Ordinary share capital


24

24


24

Share premium


961

961


961

Retained earnings


125

146


260

Other reserves


1,861

1,751


1,861

Total shareholders' funds


2,971

2,882


3,106

Non-controlling interests


536

475


508

Total equity


3,507

3,357


3,614


Condensed CONSOLIDATED cash flow statement

 




Six months ended 30 June




2017

2016




Unaudited

Unaudited



Notes

£m

£m

Cash flow from operating activities





Cash generated from operations


16

371 

236 

Interest received



3 

2 

Interest paid



(37)

(39)

Corporation tax paid



(59)

(171)

Withholding tax paid



(3)

- 

Net cash inflow from operating activities



275 

28 






Cash flow from investing activities





Purchase of property, plant and equipment



(27)

(12)

Proceeds from disposal of property, plant and equipment



5 

 - 

Purchase of intangible assets



(61)

(45)

Net (payments)/proceeds from sale of a disposal group


7

(2)

594 

Cash disposed as a part of disposal group



 - 

(185)

Investment in other acquisition



 - 

(1)

Acquisition of business, net of cash acquired


17

(118)

 - 

Investment in associates



 - 

(8)

Proceeds from disposal of available for sale financial assets



7 

 - 

Proceeds from disposal of business


4

9 

 - 

Dividends received from associates



 - 

1 

Net cash (outflow)/inflow from investing activities



(187)

344 






Cash flow from financing activities





Dividends paid to shareholders


9

(109)

(88)

Dividends paid to non-controlling interests



(18)

(11)

Purchase of treasury shares relating to share buyback



(98)

 - 

Redemption of preferred securities



(155)

 - 

Capital contributions in relation to non-controlling interests



 - 

20 

Proceeds from own shares on exercise of employee share options



1 

1 

Purchase of own shares by ESOP Trust



(5)

 - 

Repayments of finance lease



 - 

(3)

Net proceeds/(repayment) of borrowings



296 

(571)

Net cash outflow from financing activities



(88)

(652)






Increase/(decrease) in cash and cash equivalents



 - 

(280)

Cash and cash equivalents at beginning of period



1,151 

1,176 

Exchange gain on cash and cash equivalents



19 

106 

Cash and cash equivalents at end of period



1,170 

1,002 






 

Group cash flow does not include cash and cash equivalents held by the Group's Post Trade operations on behalf of its clearing members for use in its operation as manager of the clearing and guarantee system. These balances represent margins and default funds held for counterparties for short periods in connection with this operation.

 

Condensed CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 


Attributable to equity holders




Ordinary share capital

Share premium

Retained earnings/ (losses)

Other reserves

Total attributable to equity holders

Non-

controlling interests

Total equity


£m

£m

£m

£m

£m

£m

£m

31 December 2015

24

960

255

1,505

2,744

452

3,196









(Loss)/profit for the period

-

-

(36)

-

(36)

20

(16)

Other comprehensive (loss)/income for the financial period

-

-

(1)

246

245

44

289

Issue of shares

-

1

-

-

1

-

1

Final dividend relating to the year ended 31 December 2015 (Note 9)

-

-

(88)

-

(88)

-

(88)

Employee share scheme expenses

-

-

12

-

12

-

12

Tax in relation to employee share scheme expenses

-

-

3

-

3

-

3

Dividend payments to non-controlling interests

-

-

-

-

-

(18)

(18)

Net contributions in relation to non-controlling interests

-

-

-

-

-

15

15

Disposal of business

-

-

1

-

1

(38)

(37)









30 June 2016 (Unaudited)

24

961

146

1,751

2,882

475

3,357









31 December 2016

24

961

260

1,861

3,106

508

3,614









Profit for the period

-

-

153

-

153

33

186

Other comprehensive income/(loss) for the financial period

-

-

1

(31)

(30)

12

(18)

Final dividend relating to the year ended 31 December 2016 (Note 9)

-

-

(109)

-

(109)

-

(109)

Dividend payments to non-controlling interests

-

-

-

-

-

(18)

(18)

Employee share scheme expenses

-

-

14

-

14

-

14

Tax in relation to employee share scheme expenses

-

-

6

-

6

1

7

Share buyback 1

-

-

(200)

-

(200)

-

(200)

Disposal of business (Note 7)

-

-

-

31

31

-

31









30 June 2017 (Unaudited)

24

961

125

1,861

2,971

536

3,507

 

The other reserves are set out on page 116 of the Group's Annual Report for the year ended 31 December 2016. The movement in the current period includes a charge of £23m to the foreign exchange reserves and a charge of £8m to the hedging reserve.

 

The Board approved the allotment and issue of 10,984 ordinary shares of par value 679/86p at £11.64 each in the Company to satisfy options granted under the Company's Save-As-You-Earn and International Sharesave Plans.

 

The Group also issued 136,408 ordinary shares at par value to the Employee Benefit Trust in relation to the Group's employee share option scheme.

 

1 During the period, the Company entered into an irrevocable commitment with its corporate brokers to purchase shares which in part covers the close period from 1 July 2017 up to the announcement of the Group's half year results.  As at 30 June 2017, the remaining obligation in relation to the share purchase commitment was £102m and is presented within trade and other payables.

 

 

NOTES TO THE interim condensed consolidated financial statements

 

The Interim Report for the London Stock Exchange Group plc (the 'Group' or the 'Company') for the six months ended 30 June 2017 was approved by the Directors on 3 August 2017.

 

1.   Basis of preparation and accounting policies

The interim condensed consolidated financial statements of London Stock Exchange Group plc and its subsidiaries (collectively, the 'Group') for the six months ended 30 June 2017 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard 34 (IAS 34), 'Interim Financial Reporting' as adopted by the European Union.

 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2016.

 

The principal accounting policies adopted in the preparation of these interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2016.

 

The Group has adopted a columnar format for the presentation of its condensed consolidated income statement. The change in presentation enables the Group to aid the reader's understanding of its results by presenting profit for the period before amortisation of purchased intangible assets and non-recurring items. This is the profit measure used to calculate adjusted earnings per share. Additionally, the interim condensed consolidated financial statements have changed its reporting from one decimal place to whole numbers.

 

The condensed consolidated income statement for period ended 30 June 2017 includes an additional performance measure, being earnings before interest, tax, depreciation and amortisation ('EBITDA'), on the face of the income statement. This inclusion is to further assist users in understanding the financial performance of the Group and does not impact previously reported profit before tax or profit after tax for the period.

 

All comparative amounts relate to the six months ended 30 June 2016, unless otherwise stated.

 

All other notes to the financial statements include amounts for continuing operations, unless otherwise stated.

 

There were no standards, interpretations or amendments issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee of the IASB (IFRIC), effective as of 1 January 2017 that have been newly adopted in these interim condensed consolidated financial statements.

 

The following standards and interpretations were issued by the IASB and IFRIC, but have not been adopted either because they were not endorsed by the European Union (EU) at 30 June 2017 or they are not yet mandatory and the Group has not chosen to early adopt.  The impact on the Group's financial statements of the future standards, amendments and interpretations is still under review, and where appropriate, a description of the impact of certain standards and amendments is provided below:

 

International accounting standards and interpretations           

Effective date

Amendment to IAS 7, 'Statement of cash flows' on changes in liabilities arising from financing activities

1 January 2017

Amendment to IAS 12, 'Income taxes' on recognition of deferred tax assets for unrealised losses

1 January 2017

Amendment to IFRS 2, 'Share-based payment' on classification and measurement of share-based payment transactions

1 January 2018

Amendment to IFRS 4 'Insurance contracts' regarding the implementation of IFRS 9, 'Financial instruments'

1 January 2018

IFRS 9, 'Financial instruments' on classification and measurement and amendments regarding general hedge accounting

1 January 2018

IFRS 15, 'Revenue from contracts with customers'

1 January 2018

Amendments to IAS 40, 'Transfers of investment property'

1 January 2018

IFRS 16, 'Leases'

1 January 2019

IFRS 17, 'Insurance contracts'

1 January 2021

IFRIC 22, 'Foreign currency transactions and advance consideration'

1 January 2018

IFRIC 23, 'Uncertainty over income tax treatments'

1 January 2019

Annual improvements 2014-2016

1 January 2017- 2018

 

IFRS 15 'Revenue from contracts' with customers introduces new accounting principles for revenue recognition for all types of sales of goods or services. It is effective from 1 January 2018 and as a result the Group will adopt IFRS 15 in both the interim and annual 2018 financial statements. IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers, and replaces the separate models for goods, services and construction contracts currently included in IAS 11 'Construction Contracts' and IAS 18 'Revenue'.

 

Based on the provisional assessment, the key areas of judgement expected on initial adoption of IFRS 15 are in relation to: (i) the timing of revenue recognition for services provided; (ii) the measurement of variable consideration which changes against factors outside of the Group's control; and (iii) how performance obligations are satisfied in contracts providing several services to customers. The Group will continue to assess the impact throughout the year.

 

IFRS 9 'Financial instruments' is effective for the year ended 31 December 2018 and will simplify the classification of financial instruments for measurement purposes.  The implementation of IFRS 9 is not currently expected to have a significant impact on the interim condensed consolidated financial statements.

 

IFRS 16 'Leases' is effective for the year ended 31 December 2019 (not yet endorsed by the EU) and will require all leases to be recognised on the balance sheet. Currently, IAS 17 'Leases' only requires leases categorised as finance leases to be recognised on the balance sheet, with leases categorised as operating leases not recognised. In broad terms, the impact will be to recognise a lease liability and corresponding asset for the operating lease commitments.

 

The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim condensed consolidated financial statements.  Although these estimates and assumptions are based on management's best judgement at the date of the interim condensed consolidated financial statements, actual results may differ from these estimates.

 

The statutory financial statements of London Stock Exchange Group plc for the year ended 31 December 2016, which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain a statement under section 498 of the Companies Act 2006.

 

The interim condensed consolidated financial statements are unaudited but have been reviewed by the auditors and their review opinion is in included in this report. 

 

The interim condensed consolidated financial statements do not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

 

2. Segmental information

Segmental disclosures for the six months ended 30 June 2017 are as follows:











Capital

Markets

 

Post Trade Services - CC&G

and Monte Titoli

 

 

Post Trade Services - LCH

Information

Services

Technology

Services

Other

Eliminations

Group

Unaudited

£m

£m

£m

£m

£m

£m

£m

£m

Revenue from external customers

190

55

207

355

41

5

-

853

Inter-segmental revenue

-

-

-

-

8

-

(8)

-

Revenue

190

55

207

355

49

5

(8)

853

Net treasury income through CCP business

-

19

56

-

-

-

-

75

Other income

-

-

7

-

-

11

-

18

Total income

190

74

270

355

49

16

(8)

946

Cost of sales

(9)

(8)

(40)

(30)

(13)

(2)

-

(102)

Gross profit

181

66

230

325

36

14

(8)

844

Share of loss after tax of associate

-

-

-

-

-

(1)

-

(1)

Operating profit/(loss) before amortisation of purchased intangible assets and non-recurring items

85

30

91

198

(2)

(3)

(1)

398

Amortisation of purchased intangible assets








(74)

Non-recurring items








(19)

Operating profit








305

Net finance expense








(28)

Profit before tax from continuing operations








277










Other income statement items









Depreciation and software amortisation

(6)

(6)

(22)

(9)

(3)

(1)

1

(46)

 

Net treasury income through CCP business of £75m comprises gross interest income of £351m less gross interest expense of £276m.

Segmental disclosures for the six months ended 30 June 2016 are as follows:











Capital

Markets

 

Post Trade Services - CC&G

and Monte Titoli

 

 

Post Trade Services - LCH

Information

Services

Technology

Services

Other

Eliminations

Group

Unaudited

£m

£m

£m

£m

£m

£m

£m

£m

Revenue from external customers

182

48

167

286

38

1

-

722

Inter-segmental revenue

-

-

-

-

5

-

(5)

-

Revenue

182

48

167

286

43

1

(5)

722

Net treasury income through CCP business

-

21

35

-

-

-

-

56

Other income

-

-

4

-

-

4

-

8

Total income

182

69

206

286

43

5

(5)

786

Cost of sales

(12)

(6)

(23)

(25)

(11)

-

-

(77)

Gross profit

170

63

183

261

32

5

(5)

709

Share of loss after tax of associates

-

-

-

-

-

(3)

-

(3)

Operating profit/(loss) before amortisation of purchased intangible assets and non-recurring items

88

31

55

158

1

1

(1)

333

Amortisation of purchased intangible assets








(74)

Non-recurring items








(60)

Operating profit








199

Net finance expense








(35)

Profit before tax from continuing operations








164










Other income statement items









Depreciation and software amortisation

(4)

(5)

(16)

(9)

(3)

-

1

(36)

 

Net treasury income through CCP business of £56m comprises gross interest income of £193m less gross interest expense of £137m.

 

3. Expenses by nature





Expenses comprise the following:












Six months ended 30 June




2017

2016




Unaudited

Unaudited




£m

£m






Employee costs



231

223

IT costs



59

42

Other costs



109

72

Operating expenses before depreciation and amortisation



399

337

Depreciation and non-acquisition software amortisation



46

36

Total operating expenses



445

373

 

4. Acquisition amortisation and non-recurring items








Six months ended 30 June




2017

2016




Unaudited

Unaudited



Note

£m

£m

Amortisation of purchased intangible assets



74

74

Transaction costs



17

55

Restructuring costs



5

-

Integration costs



2

5

Profit on disposal of business



(5)

-




19

60

Total affecting profit before tax



93

134






Tax effect on items affecting profit before tax





Deferred tax on amortisation of purchased intangible assets



(20)

(20)

Current tax on amortisation of purchased intangible assets



(1)

(1)

Tax effect on other items affecting profit before tax



2

(6)

Total tax effect on items affecting profit before tax



(19)

(27)






Total charge to continuing income statement



74

107

Loss after tax from discontinued operations


7

22

148

Total charge to income statement



96

255

 

Transaction costs comprise charges incurred for ongoing services related to proposed or completed merger and acquisition transactions.

 

Restructuring and integration costs principally relate to the restructuring of LCH Group and integration of Mergent Inc. (Mergent).

 

The £5m profit of disposal of a subsidiary relates to the sale of Information Services Professional Solutions (ISPS), a business line of BIt Market Services S.p.A, for a cash consideration of €10m (£9m).  The net assets disposed contained brands, intellectual property and capitalised research and development investments, used for carrying out the ISPS' business along with identified agreements with suppliers and clients and employment relationships.

 

Loss after tax on discontinued operations relates to the disposal of Russell Investment Management business. See note 7 for further details. 

 

5. Net finance expense













Six months ended 30 June




2017

2016




Unaudited

Unaudited




£m

£m

Finance income





Bank deposit and other interest income



1

1

Defined benefit pension scheme interest income



-

1

Other finance income



3

-




4

2






Finance expense





Interest payable on bank and other borrowings



(28)

(35)

Defined benefit pension scheme interest cost



(1)

(1)

Other finance expenses



(3)

(1)




(32)

(37)

Net finance expense



(28)

(35)






Net finance expense includes amounts where the Group earns negative interest on its cash deposits.

 

6. Taxation












Six months ended 30 June




2017

2016




Unaudited

Unaudited

Taxation charged to the income statement



£m

£m






Current tax:





UK corporation tax for the period



39

39

Overseas tax for the period



55

35

Adjustments in respect of previous years



-

1




94

75

Deferred tax:





Deferred tax for the period



(4)

(4)

Adjustments in respect of previous years



-

(1)

Deferred tax liability on amortisation of purchased intangible assets



(21)

(20)




(25)

(25)

Taxation charge



69

50

The adjustments in respect of previous years' corporation tax are mainly in respect of tax returns submitted to relevant tax authorities.

Taxation on items not credited/(charged) to income statement









Six months ended 30 June




2017

2016




Unaudited

Unaudited




£m

£m






Current tax credit:





Tax allowance on share options/awards in excess of expense recognised


1

5






Deferred tax (expense)/credit:





Tax allowance on defined benefit pension scheme remeasurements


(4)

1

Tax allowance on share options/awards in excess of expense recognised


6

(2)




3

4






Factors affecting the tax charge for the period





The income statement tax charge for the period differs from the standard rate of corporation tax in the UK of 19.25% (30 June 2016: 20%) as explained below:









Six months ended 30 June




2017

2016




Unaudited

Unaudited



Notes

£m

£m

Profit before taxation from continuing operations



277

164

(Loss)/profit before taxation from discontinued operations


7

(23)

78




254

242

Profit multiplied by standard rate of corporation tax in the UK


49

48






Profit on disposal of discontinued operations



-

169

Expenses not deductible



12

11

Overseas earnings taxed at higher rate



10

35

Amortisation of purchased intangible assets at overseas rates


(3)

(5)

Taxation charge



68

258

Income tax from continuing operations



69

50

Income tax attributable to discontinued operations


7

(1)

208




68

258






The tax rate applied as at 30 June 2017 is the expected rate for the full financial year.

 

Judgements and estimates

 

An amount of £1m has been provided for uncertain tax positions. This reflects ongoing discussions with the tax authorities regarding the uncertainty arising from the introduction of UK Diverted Profits Tax.

 

7. Discontinued operations

 

In the prior period, the Group completed the sale of the Russell Investment Management business to TA Associates and Reverence Capital Partners for US$1,150m (£794m) total consideration.

 

The Group incurred a non-recurring loss of $29m (£23m) in the period (30 June 2016: £49m gain) relating to the disposal of the Russell Investment Management business.

 

During the period, the Group recognised $18m (£14m) current tax and other receivable in relation to the disposed business.  Subsequently, the Group recorded a $21m (£17m) adjustment to the disposal balance sheet relating to tax balances at the disposal date and a $8m (£6m) reduction to the net proceeds received on disposal as a result of the finalisation of the completion statement, which resulted in a $2m (£2m) cash payment by the Group.  The disposal accounting and final tax position will be finalised on completion of the relevant tax returns.

 

The results of the Russell Investment Management business for the five month period to 31 May 2016 are included in the comparatives as discontinued operations in the Group's interim condensed consolidated income statement.

 

The results of discontinued operations are presented below:




Six months ended 30 June




2017

2016




Unaudited

Unaudited




£m

£m

Revenue



-

390

Other income



-

1

Total income



-

391






Cost of sales



-

(200)






Expenses





Expenses before non-recurring items

-

(163)

Non-recurring items



(23)

49






Operating (loss)/profit



(23)

77






Net finance income



-

1

(Loss)/profit before tax from discontinued operations



(23)

78






Taxation on profit before non-recurring items

-

(11)

Taxation on non-recurring items

1

(197)

Total taxation



1

(208)

Loss for the period from discontinued operations

(22)

(130)






Attributable to:





Equity holders



(22)

(131)

Non-controlling interests



-

1




(22)

(130)

 

The net cash flows incurred by discontinued operations during the period are as follows:




Six months ended 30 June




2017

2016




Unaudited

Unaudited




£m

£m

Cash flow from operating activities



-

59

Cash flow from investing activities



-

(8)

Cash flow from financing activities



-

20

Net cash inflow



-

71

 

8. Earnings per share
















Earnings per share is presented on four bases: basic earnings per share; diluted earnings per share; adjusted basic earnings per share; and adjusted diluted earnings per share. Basic earnings per share is in respect of all activities and diluted earnings per share takes into account the dilution effects which would arise on conversion or vesting of share options and share awards under the Employee Share Ownership Plans (ESOP). Adjusted basic earnings per share and adjusted diluted earnings per share exclude amortisation of purchased intangible assets and non-recurring items and to enable a better comparison of the underlying earnings of the business with prior periods.


Six months ended 30 June


2017


2016


Unaudited


Unaudited


Continuing

Discontinued

Total


Continuing

Discontinued

Total

Basic earnings/(loss) per share

50.4p

(6.3)p

44.1p


27.4p

(37.8)p

(10.4)p

Diluted earnings/(loss) per share

49.4p

(6.2)p

43.2p


27.1p

(37.4)p

(10.3)p

Adjusted basic earnings per share

71.2p

-

71.2p


57.7p

4.8p

62.5p

Adjusted diluted earnings per share

69.8p

-

69.8p


57.1p

4.7p

61.8p









Profit and adjusted profit for the financial period attributable to the Company's equity holders


Six months ended 30 June


2017


2016


Unaudited


Unaudited


Continuing

Discontinued

Total


Continuing

Discontinued

Total


£m

£m

£m


£m

£m

£m

Profit/(loss) for the financial period attributable to the Company's equity holders

175

(22)

153


95

(131)

(36)









Adjustments:








Amortisation and non-recurring items








Amortisation of purchased intangible assets

74

-

74


74

-

74

Transaction costs

17

-

17


55

-

55

Restructuring costs

5

-

5


-

-

-

Integration costs

2

-

2


5

-

5

(Profit)/loss on disposal of business

(5)

23

18


-

(49)

(49)


93

23

116


134

(49)

85









Other adjusting items:
















Tax effect of amortisation of purchased intangibles and non-recurring items

(19)

(1)

(20)


(27)

197

170

Amortisation of purchased intangible assets, non-recurring items and taxation attributable to non-controlling interests

(2)

-

(2)


(1)

-

(1)

Adjusted profit for the financial period attributable to the Company's equity holders

247

-

247


201

17

218









Weighted average number of shares - million



347




348

Effect of dilutive share options and awards - million



7




4

Diluted weighted average number of shares - million



354




352









The weighted average number of shares excludes those held in the employee benefit trust and treasury shares held by the Group.

 

9. Dividends





Six months ended 30 June



2017

2016



Unaudited

Unaudited



£m

£m





Final dividend for 31 December 2016 paid 31 May 2017: 31.2p per Ordinary share


109

-

Final dividend for 31 December 2015 paid 1 June 2016: 25.2p per Ordinary share


-

88



109

88





The Board has proposed an interim dividend in respect of the six month period ended 30 June 2017 of 14.4p per share, amounting to an estimated £50m, to be paid on 19 September 2017.  This is not reflected in these interim condensed consolidated financial statements.

10.  Intangible assets









Purchased intangible assets




Goodwill

Customer and supplier relationships

Brands

Software, licenses and intellectual property

Software and other

Total

Unaudited

£m

£m

£m

£m

£m

£m

30 June 2016

2,027

1,672

918

430

440

5,487

Acquisition of subsidiaries

1

-

-

-

-

1

Additions

-

-

-

-

67

67

Disposals

-

-

-

-

(8)

(8)

Foreign exchange

69

59

53

4

4

189

31 December 2016

2,097

1,731

971

434

503

5,736

Acquisition of subsidiary

73

54

1

14

11

153

Additions

-

-

-

-

65

65

Disposal of business

-

-

-

-

(8)

(8)

Foreign exchange

9

(4)

(37)

-

11

(21)

30 June 2017

2,179

1,781

935

448

582

5,925








Accumulated amortisation and impairment:







30 June 2016

492

427

93

262

195

1,469

Impairment

-

-

-

-

8

8

Amortisation charge for the period

-

44

24

14

30

112

Disposals

-

-

-

-

(7)

(7)

Foreign exchange

8

10

5

1

6

30

31 December 2016

500

481

122

277

232

1,612

Amortisation charge for the period

-

46

19

9

34

108

Disposal of business

-

-

-

-

(6)

(6)

Foreign exchange

12

8

(3)

1

8

26

30 June 2017

512

535

138

287

268

1,740








Net book values:







30 June 2017 (Unaudited)

1,667

1,246

797

161

314

4,185

31 December 2016

1,597

1,250

849

157

271

4,124

30 June 2016 (Unaudited)

1,535

1,245

825

168

245

4,018

 

The fair values of the purchased intangible assets were principally valued using discounted cash flow methodologies and are being amortised over their useful economic lives, which do not normally exceed 25 years. The remaining amortisation periods of the Group's purchased intangible assets range between: 1 and 15 years for the Italian Group; 1 and 20 years for the LCH Group and the FTSE Group; and 1 and 23 years for the Frank Russell Group.

 

During the period, the Group acquired the entire share capital of Mergent which resulted in an increase of goodwill in the Group of £73m. Further details are provided in Note 17.

 

In the prior year, the Group acquired a 60% equity shareholding in Turquoise SwapMatch Limited (SwapMatch) for a cash consideration of £1.5m and recognised £1m in goodwill.

 

Following a review of software assets across the Group, no impairment charge was recognised in the period (30 June 2016: nil).

 

During the period, additions relating to internally generated software amounted to £65m (30 June 2016: £46m).

 

The carrying value of licenses held under finance leases at 30 June 2017 amounted to nil (30 June 2016: £1m).

 

11. Trade and other receivables









30 June




2017

2016




Unaudited

Unaudited




£m

£m

Current





Trade receivables



377

242

Less: Provision for impairment of receivables



(16)

(11)

Trade receivables - net



361

231

Prepayments and accrued income



214

164

Amounts due from an associate



28

-

Other receivables



123

63




726

458

Non-current





Other receivables



82

153




82

153






Total



808

611

Other non-current receivables include £81m (30 June 2016: £99m) of deferred consideration.

 

The carrying values less impairment provision of trade and other receivables are reasonable approximations of fair values.

 

Trade receivables that are not past due are not considered to be impaired.

 

12. Financial assets and financial liabilities






Financial instruments by category





The financial instruments of the Group at 30 June 2017 are categorised as follows:






30 June 2017

Loans and receivables

Available for sale at fair value through OCI

Financial instruments at fair value through profit or loss

Total

Unaudited

£m

£m

£m

£m

Assets as per balance sheet





Financial assets of the CCP clearing businesses:





- CCP trading assets

-

-

367,726

367,726

- Receivables for repurchase transactions

124,083

-

-

124,083

- Other receivables from clearing members

9,078

-

-

9,078

- Other financial assets

15

20,679

4,965

25,659

- Cash and cash equivalents of clearing members

63,253

-

-

63,253

Financial assets of the CCP clearing businesses

196,429

20,679

372,691

589,799






Available for sale investments

-

83

-

83

Other non-current receivables

82

-

-

82

Trade and other receivables

726

-

-

726

Cash and cash equivalents

1,150

20

-

1,170

Assets held at fair value

-

2

-

2






Total

198,387

20,784

372,691

591,862

 

There were no transfers between categories during the period.

30 June 2017



Financial liabilities at amortised cost

Financial liabilities at fair value through profit and loss

Total

Unaudited



£m

£m

£m

Liabilities as per balance sheet












Financial liabilities of the CCP clearing business:






- CCP trading liabilities



-

367,726

367,726

- Liabilities under repurchase transactions



124,083

-

124,083

- Other payables to clearing members



98,053

-

98,053

Total financial liabilities of the CCP clearing business



222,136

367,726

589,862






Trade and other payables



756

-

756

Borrowings



1,306

-

1,306

Provisions



11

-

11






Other non-current payables:






- Put options over non-controlling interests



-

48

48

- Other non-current payables



16

-

16




16

48

64

Derivatives used for hedging:






Net investment hedges:






- Cross currency interest rate swaps



-

26

26

Total



224,225

367,800

592,025







There were no transfers between categories during the period.

 

The financial instruments of the Group at 30 June 2016 are categorised as follows:






30 June 2016

Loans and receivables

Available for sale at fair value through OCI

Financial instruments at fair value through profit or loss

Total

Unaudited

£m

£m

£m

£m

Assets as per balance sheet










Financial assets of the CCP clearing business:





- CCP trading assets

-

-

339,611

339,611

- Receivables for repurchase transactions

151,426

-

-

151,426

- Other receivables from clearing members

11,032

-

-

11,032

- Financial assets

-

10,721

12,818

23,539

- Cash and cash equivalents of clearing members

44,337

-

-

44,337

Financial assets of the CCP clearing business

206,795

10,721

352,429

569,945






Other non-current receivables

153

-

-

153

Trade and other receivables

458

-

-

458

Cash and cash equivalents

992

10

-

1,002

Assets held at fair value

-

54

-

54

Available for sale investments

-

35

-

35






Derivatives not designated as hedges:





- Foreign exchange forward contracts

-

-

1

1






Derivatives used for hedging:





Net investment hedges:





- Cross currency interest rate swaps

-

-

5

5






Total

208,398

10,820

352,435

571,653






 

There were no transfers between categories during the prior period.

30 June 2016



Financial liabilities at amortised cost

Financial liabilities at fair value through profit and loss

Total

Unaudited



£m

£m

£m

Liabilities as per balance sheet












Financial liabilities of the CCP clearing business:






- CCP trading liabilities



-

339,611

339,611

- Liabilities under repurchase transactions



151,426

-

151,426

- Other payables to clearing members



78,891

-

78,891

- Financial liabilities held at fair value



-

18

18

Total financial liabilities of the CCP clearing business



230,317

339,629

569,946







Trade and other payables



618

-

618

Borrowings



1,081

-

1,081

Provisions



11

-

11







Other non-current payables:






- Put options over non-controlling interests



-

37

37

- Other non-current payables



17

-

17




17

37

54







Derivatives used for hedging:






Net investment hedges:






- Cross currency interest rate swaps



-

12

12

Total



232,044

339,678

571,722







 

There were no transfers between categories during the prior period.

The following table provides the fair value measurement hierarchy of the Group's financial assets and liabilities as at 30 June 2017:

30 June 2017

Quoted prices in active markets

(Level 1)

Significant observable inputs

(Level 2)

Significant unobservable inputs

(Level 3)

Total

fair value

Unaudited

£m

£m

£m

£m

Financial assets measured at fair value:










CCP trading assets:





Derivative instruments:





- Futures

4,697

-

-

4,697

- Options

1,638

-

-

1,638

- Commodities derivatives

59

-

-

59






Non-derivative instruments:





- CCP transactions

60

361,272

-

361,332






Financial assets held at fair value:





- Government bonds

25,644

-

-

25,644