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RNS
NEX Group PLC  -  NXG   

Full Year Results

Released 07:00 22-May-2018

RNS Number : 7980O
NEX Group PLC
22 May 2018
 

NEX Group plc - Full-year results

for the year ended 31 March 2018

NEX Group plc ("NEX" or the "Company") (NXG.L), a financial technology company at the centre of the global markets, announces today its audited results for the year ended 31 March 2018.


 

Year ended
31 March 2018

£m


Year ended
31 March 2017

£m

(restated)*

Continuing operations:




Revenue

591


541

Trading operating profit

147


152

Trading operating profit before one-off items

160


147

Operating profit (statutory)

147


153

Trading profit before tax

127


121

Profit before tax (statutory)

125


122

Trading operating profit margin             

25%


28%

Trading EPS (basic)

24.2


25.1

EPS (basic) (statutory)

29.9


27.0





Group (including continuing and discontinued operations):




EPS (basic) (statutory)

30.2


353.9

Dividend per share

11.15


38.5

* Year ended 31 March 2017 has been restated due to a change in accounting policy to no longer present an exceptional items column and due to NEX Exchange Limited becoming a discontinued operation in the year.

 

A reconciliation between statutory, trading and one-off items is provided on page 18.

Unless specifically stated otherwise all references are to continuing operations.

Highlights:

-      Revenue increased by 9% on both a reported basis and a constant currency basis to £591 million (2016/17: £541 million).

-      Trading operating profit decreased by 3% to £147 million (2016/17: £152 million). Trading operating profit excluding one-off items increased by 9% to £160 million (2016/17: £147 million). Operating profit (statutory) decreased by 4% to £147 million (2016/17: £153 million).

-      An additional £10 million of annualised cost savings have been identified taking the total annualised savings to £50 million with a cost to deliver of £19 million.

-      Trading EPS (basic) is down 4% to 24.2p (2016/17: 25.1p); trading EPS (basic) excluding one-off items is up 11% to 26.8p (2016/17: 24.1p). EPS (basic) (statutory) is up 11% to 29.9p (2016/17 27.0p).

-      Final dividend of 7.65p per share recommended (2016/17: 27.0p per share); full-year dividend of 11.15p per share (2016/17: 38.5p per share) is in line with dividend policy of between 40-50% of trading EPS (basic). The dividend will be paid on 27 July 2018 to shareholders on the register at close of business on 6 July 2018, with shares quoted ex-dividend from 5 July 2018.

-      NEX shareholders voted in favour of the offer from CME Group Inc (CME) for NEX (the Offer).

Michael Spencer, Group Chief Executive Officer, said: "Over the past year we have seen the continued growth of trading activity in emerging markets, increased demand for regulatory solutions and data analytics from the implementation of MiFID II, and the growing role of non-banks in our client base. In February, financial markets received a long awaited and much welcomed jolt of activity as volatility returned. Whilst it was short lived, the underlying level of market volatility is higher today than it was a year ago due to a sustained shift out of emerging market currencies into the US dollar and we have benefited from this. We had some notable and very hard won developments in the second half of the year. NEX Markets has delivered a 40% margin, NEX Optimisation recovered back to a 28% margin as promised, we saw a rebound in European repo trading and have been achieving continual record trading days in US repo. These are all important developments.

"Last week our shareholders voted overwhelmingly in favour of the acquisition of NEX by CME Group. CME is the best buyer of NEX. Scale matters in this industry and bringing these companies together creates exciting revenue, technology and synergy opportunities. Once complete, this will be a truly industry-defining transaction and one which will bring huge benefits to our clients, the market, and to the City of London through CME's commitment to maintain London as its European headquarters. As Britain continues its path to leave the EU, commitments like this matter".

 Analysts and investors Conference Call:

The call will be hosted by Michael Spencer at 10:00am on Tuesday 22 May 2018
Dial in number: +44 (0)20 3003 2701
Access Code: 3310400
A recording of this call will be available at www.nex.com

ENDS

Contact



Alex Dee, Head of Investor Relations

Bryony Bushnell, Head of Media Relations

Neil Bennett / Becky Mitchell, Maitland

+44 (0)20 7050 7420

+44 (0)20 7818 9689

+44 (0)20 7379 5151





NEX offers client better ways to execute trades and manage risk. Our products and services underpin the entire trade lifecycle pre-, during and post-execution. Our electronic trading platforms are industry standards. Clients use our lifecycle management and information services to optimise portfolios, control risk and reduce costs. We partner with emerging technology companies to bring greater efficiency, transparency and scale to the world's capital markets. NEX is headquartered in London with offices around the world. For more information, go to www.nex.com

Presentation of information

This document comprises the results for the year ended 31 March 2018 for NEX Group plc ('NEX' or the 'Company') and its subsidiary undertakings (together 'NEX' or 'the Group'). The financial information set out in this document for the years ended 31 March 2018 and 2017 does not constitute statutory accounts as defined in section 435 (1) and (2) of the Companies Act 2006, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Group's Annual General Meeting. The auditors' reports on both the 2018 and 2017 accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of Companies Act 2006.

Cautionary statement regarding forward-looking statements

This report contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Group. Certain statements that are not historical facts, including statements about the Group's beliefs and expectations, are forward-looking statements. Words such as 'expects', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'aspires', 'estimates', 'potential' and 'reasonably possible', variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made, and it should not be assumed that they have been revised or updated in the light of new information or subsequent events.

Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement.

 

Management Report

A reconciliation between statutory amounts and alternative performance measures is provided on page 18.

Financial performance

For the year ended 31 March 2018, the Group reported revenue of £591 million, an increase of 9% on the prior year both on a reported and on a constant currency basis. On a constant currency basis, revenue from NEX Markets was up 6% and from NEX Optimisation up 7%.

During the year, the Group's trading performance benefited from episodic increases in FX volatility, including Asian currency pairs and an increase in trading activity in EU repos.  The revenue performance also benefited from progression with the China Foreign Exchange Trade System (CFETS) contract, as well as an increase in demand for post trade services such as risk reduction and regulatory reporting solutions. This was partly offset by a decrease in revenue in some government bonds and a subdued performance in the basis risk mitigation services, Reset, which continues to be affected by low short-dated interest rate volatility in Europe.

The Group reported an operating profit of £147 million, a decrease of 4% on the prior year, and a trading operating profit of £147 million, a decrease of 3% on the prior year. Excluding one-off transformation programme costs in the current year and the one-off items in the prior year, trading operating profit was up £13 million (9%).

The Group's continuing operations reported a profit before tax (PBT) of £125 million (2016/17: £122 million), 2% up on the prior year, and a trading PBT of £127 million (2016/17: £121 million), 5% up on the prior year. Continuing trading EPS (basic) of 24.2p per share (2016/17: 25.1p per share) was down from the prior year as a 5 ppt increase in the trading effective tax rate (ETR) offset the 5% improvement on the trading PBT.

NEX transformation programme

The transformation programme has identified an additional £10 million of annualised cost savings since the first half of the financial year, taking the total to £50 million of annual run rate cost savings as NEX continues to reshape for tomorrow's financial markets and reduce costs. These are being derived from the redesign of operating models in sales, product management, operations, technology and finance as well as the rationalisation of infrastructure across the Group. The total one-off cost to achieve these savings will be approximately £19 million, which will not be treated as an exceptional item. We realised £15 million of these cost saves during the year ended 31 March 2018, with a cost to achieve of £13 million.

NEX Exchange

NEX is in discussions with a number of financial institutions in relation to a transaction for them to invest new funds into NEX Exchange. The new funds would be used to develop the business, and NEX would retain a significant shareholding in NEX Exchange. NEX Exchange is the listing venue for small and medium sized enterprises, originally purchased by the then ICAP plc in June 2012.

Outlook

In the year ahead NEX expects to make progress on its strategy to deliver against its growth objectives and drive operational leverage.

Review of operations

 

NEX Markets

NEX Markets is a leading electronic trading platforms and solutions business in FX and fixed income products. The BrokerTec and EBS platforms offer efficient and effective trading solutions to clients in more than 50 countries across a range of instruments including spot FX, FX forwards, US treasuries, European government bonds and EU and US repo. These electronic platforms are built on bespoke networks connecting participants in financial markets.

Revenue

Year ended

31 March

2018

£m

Year ended

31 March

2017

£m

Change
%

BrokerTec

155

155

n/m

EBS

151

145

4

CFETS contract

20

13

54

Total - reported

326

313

4

          - constant currency


309

6





Trading operating profit

121

116

4

Trading operating profit margin

37%

37%

-

For the year ended 31 March 2018, revenue increased by 4% on a reported basis to £326 million (2016/17: £313 million) and by 6% on a constant currency basis. Revenue growth was principally driven by increased trading activity on EBS and progression with the CFETS contract. The trading operating profit increased to £121 million (2016/17: £116 million) and the trading operating profit margin was flat for the year.  However, the trading operating profit margin in the second half of the year increased to 40% from 34% in the first half. This was as a result of the positive impact from increased volumes, change in the product mix and cost saves from the transformation programme.

BrokerTec

BrokerTec is a global electronic platform for the trading of US Treasuries, European government bonds and EU and US repo. It facilitates trading for banks and non-bank professional trading firms.

For the year ended 31 March 2018, revenue was flat on a reported basis at £155 million (2016/17: £155 million) and increased by 1% on a constant currency basis. This performance reflects a 2% increase in US Treasury average daily volume to $168 billion, a 10% increase in US repo to $241 billion and a 28% increase in EU repo to €238 billion.

During the final quarter a combination of an increase in the US federal funds rate, a shift in the US Treasuries yield curve and the expected impact of new tax legislation together resulted in a marked improvement in volatility and trading activity. BrokerTec has augmented its market share in US Treasuries at a time when higher yields are enticing new and former clients onto the platform. Despite competitive pressure from other venues, none of these appear to have gained any significant market share. BrokerTec remains the standard and primary source for trading and reference pricing.

EU repo trading continues to grow with a particularly strong second half of the year. Most international and regional bank clients have seen an increase in available balance sheet and during the past year the client base has steadily increased as more non-core, periphery institutions join the central counterparty and seek access to the sizeable liquidity pool available on BrokerTec. Trading activity in US repo continues to grow with new record days repeatedly recorded.

EBS

EBS, a global electronic platform for the FX markets, is a reliable and trusted source of executable and genuine liquidity across major and emerging market currencies. Both the anonymous and disclosed trading venues give clients multiple execution and distribution options and the benefit of an established and far-reaching distribution network of liquidity providers and consumers.

For the year ended 31 March 2018, revenue increased by 4% on a reported basis to £151 million (2016/17: £145 million) and by 6% on a constant currency basis and average daily volume increased by 4% to $86 billion. Revenue growth was underpinned by emerging markets currency pairs, whilst revenue trends in G10 currency pairs were strengthened in the final quarter by the return of overall market volatility.

EBS Market, the exchange-like central limit order book, remains the benchmark for the professional FX trading community. It has maintained its position as a primary interbank venue for the trading of the world's most actively traded currency pairs, including euro/dollar and dollar/yen.

During the year, EBS Market continued to develop and create liquidity in NDFs with average daily volume growing by more than 25% compared with last year. This was in part driven by the addition of non-bank participants to the NDF product offering. Volumes grew across most NDF pairs, in particular dollar/won and dollar/rupee.

NEX Markets continued to innovate throughout the year. NEX Quant Analytics, the FX market's most comprehensive community-based analytics tool for clients trading on the EBS platform, was launched in September. Using benchmark data taken from the entire EBS ecosystem, the analytics service delivers real and measurable insight for clients into their own trading activities and the ability to look at their performance versus that of their peers. New Aggregation Logic (NAL) was initially introduced across Europe and is now set for a full global roll-out over the coming months. NAL aims to increase the experience of executing on EBS Direct for both liquidity providers and consumers by improving both pricing and certainty of execution for larger order sizes.

EBS Direct is a platform that allows liquidity providers to stream tailored prices directly to liquidity consumers. Interest in the platform continues to grow and the platform has more than 50 liquidity providers and 400 liquidity consumers using the service. FX forwards also continue to grow, with a 100% increase in average daily volume over the prior period and more than $10 billion traded daily.

EBS eFix, the matching service that enables clients to execute Fix interest electronically on the EBS Market platform, has continued to deliver significant growth. Average daily volume increased by more than 25% over the year to more than $2 billion matched per day.

CFETS contract

In February 2018, CFETS launched CFETS FX2017, a next-generation trading platform for the renminbi FX market powered by NEX. It was a significant launch as it supported the evolution of the domestic renminbi FX market. NEX Markets has been able to leverage its trading technology expertise to develop FX2017 jointly with CFETS. As a result, the Chinese FX market now has access to multiple execution options in a robust and low-latency environment. The launch of this new central limit order book platform in mainland China will play a fundamental role in providing a public reference point for spot CNY pricing in the domestic FX market. The original CFETS contract has been amended to allow for a change in scope of the delivery and an extension of maintenance payments until 2022.

NEX Optimisation

NEX Optimisation offers a portfolio of services across the transaction lifecycle. Ranging from pre-execution credit checking to multilateral portfolio compression, NEX Optimisation's purpose is to simplify its clients' workflows and help them optimise their resources by mitigating risk, increasing efficiency, reducing costs and streamlining increasingly complex processes.

NEX Optimisation has reshaped its organisational structure during the year. The primary focus was to organise the business in a way that clients want to consume its services, matching the way they think about their financial, regulatory and operational challenges. This has been achieved by restructuring NEX Optimisation's legal entities and products to five business areas which resonate with clients: trade and portfolio management, financial resource optimisation, data insights, analytics, and regulatory reporting.

Revenue

 Year ended

31 March

2018

£m


Year ended

31 March

2017

£m

(restated)*

Change
%

Trade and portfolio management

102


97

5

Financial resource optimisation

91


84

8

Data insights

48


48

-

Analytics

10


9

11

Regulatory reporting

9


2

n/m

Total - reported

260


240

8

          - constant currency



243

7






Trading operating profit

64


72

(11)%

Trading operating profit margin

25%


30%

(5)ppt

*Restated due to the change in presentation of NEX Optimisation results to business areas

For the year ended 31 March 2018, revenue increased by 8% on a reported basis to £260 million (2016/17: £240 million) and by 7% on a constant currency basis, driven by increased demand for compression, reconciliation and regulatory reporting solutions. The trading operating profit fell to £64 million (2016/17: £72 million) and the trading operating profit margin reduced by 5 ppt to 25% for the year. Following the deterioration in the trading operating profit margin in the first half of the year, swift action was taken to ensure a significant improvement in the division's ongoing profitability and the trading operating profit margin recovered from 21% in the first half of the year to 28% in the second half. As a result, NEX Optimisation expects to reach its operating profit margin aspiration of more than 40% by the end of the year ending 31 March 2021, a year later than planned.

Trade and portfolio management

Trade and portfolio management comprises portfolio and margin reconciliation via triResolve and triResolve Margin, and monitoring pre trade risk and automating post trade processing of financial transactions via Traiana.

For the year ended 31 March 2018, revenue increased by 5% on a reported basis to £102 million (2016/17: £97 million) and by 3% on a constant currency basis. Revenue growth was driven by triResolve and triResolve Margin, which automates the reconciliation of swap portfolios and calculates the variation margin allowing clients to meet the new regulatory requirements which took effect in March 2017. There are now 2,130 institutions using triResolve compared with 1,900 at the end of the prior year and more than 115 clients have signed up to triResolve Margin. Additional asset classes such as FX forwards and swaps have been mandated for bilateral margining in early 2018.

Traiana solutions have become the market standard for post trade processing of FX, exchange-traded derivatives, fixed income, Credit Default Swaps (CDS) and synthetic and cash equity transactions. Traiana's Harmony network connects more than 1,000 global banks, broker/dealers, buy-side firms and trading platforms. New pricing structures which incentivise long-term client contracts are driving client retention and are core to the overall growth strategy.

Financial resource optimisation

Financial resource optimisation comprises portfolio compression via triReduce and basis risk mitigation via Reset as well as portfolio balancing via triBalance and derivative pricing and risk analytics via triCalculate, which currently has significantly lower revenue but materially higher growth potential.

For the year ended 31 March 2018, revenue increased by 8% on a reported basis to £91 million (2016/17: £84 million) and by 6% on a constant currency basis. The stringent leverage ratio included within the Basel III rules continues to drive demand from banks for the compression service triReduce. During the year, the compression service terminated $226 trillion of gross notional outstanding (2016/17: $191 trillion). Since launch, more than 260 financial institutions have participated in eliminating $1.2 quadrillion in total notional outstanding from the Over The Counter (OTC) derivatives market. triReduce continues to innovate and expand its product and market coverage. In April 2018, triReduce announced that four major clients have taken advantage of its new trade revision functionality. Trade revision is the latest evolution in triReduce's multilateral portfolio compression methodology. It enables clients to modify key economic parameters of their cleared OTC trades to improve their compression results. This additional flexibility provides a major step change in compression potential as it dramatically increases the compression efficiency.

The basis risk mitigation service, Reset, continues to be affected by low short-dated interest rate volatility in Europe. However, the recent uptick in volatility resulted in improved performance for Reset in the final quarter.

Data insights

Data insights delivers independent market intelligence and pricing information for OTC data to financial market participants using intelligence from NEX Markets, NEX Optimisation and third-party joint ventures.

For the year ended 31 March 2018, revenue was flat on a reported basis at £48 million (2016/17: £48 million) and increased 2% on a constant currency basis, driven by the launch of new pricing and analytics products and electronic transaction-backed indices.

The increased demand for transparency in the FX market and for data sourced from actual transactions and orders fuelled a collaboration of NEX Markets' EBS data with data insights' technical expertise to create EBS FX Benchmarks, a series of 30-minute transaction-backed FX fixings for 15 major currency pairs.

In February 2018, NEX Data was approved as one of the first Benchmark Administrators under the EU Benchmarks Regulation (BMR). The RepoFunds Rate suite of daily benchmarks for the euro, Italy, Germany, France, Spain, The Netherlands and Belgium will now fall under the BMR.

Analytics

ENSO delivers data, analytics and workflow tools that enable hedge funds and asset managers to manage their relationships with prime brokers more effectively. ENSO provides a complete view of an individual hedge fund's relationships across multiple counterparties, delivering insights on counterparty credit risk, collateral management, portfolio financing and treasury.

For the year ended 31 March 2018, revenue increased by 11 % on both a reported basis and constant currency basis to £10 million (2016/17: £9 million).   

Regulatory reporting

Regulatory reporting comprises end-to-end multi-regime reporting, data normalisation, enrichment, validation and cross-jurisdictional matching. The service acts as a reporting hub for European Market Infrastructure Regulation (EMIR) and as an Approved Reporting Mechanism (ARM) for the Markets in Financial Instruments Directive (MiFID).

For the year ended 31 March 2018, revenue increased by more than 300% on both a reported basis and constant currency basis to £9 million (2016/17: £2 million). Revenue growth was driven by Abide Financial, acquired in October 2016, which provides regulatory reporting solutions for MiFID II which came into force in January 2018.  In addition, Abide also provides regulatory reporting solutions for EMIR and other regulatory regimes.

On 24 November 2017, NEX received approval from the European Securities and Markets Authority (ESMA) for its Swedish-based trade repository under EMIR. The approval allows NEX Regulatory Reporting to operate a trade repository for European derivatives trades.

NEX Opportunities

Through NEX Opportunities, NEX is building an investment portfolio of emerging financial technology companies. It identifies and provides capital to companies delivering new platforms, business models and next-generation technologies with the objective to drive efficiencies, transparency and scale across the transaction lifecycle. Since its launch, NEX Opportunities has invested in 11 portfolio companies, two of which have subsequently been acquired by NEX.

Financial review

Summary consolidated income statement

 


Year ended 31 March 2018


Year ended 31 March 2017

(restated)*


Trading

£m

Statutory

£m


Trading

£m

Statutory

£m

Continuing operations:






Revenue

591

591


541

541

Operating profit

147

147


152

153

Net finance costs

(24)

(26)


(31)

(31)

Share of profit associates and joint ventures after tax

4

4


 

-

-

Profit before tax

127

125


121

122

Tax

(36)

(13)


(28)

(22)

Profit for the year

91

112


93

100







EPS (basic)

24.2p

29.9p


25.1p

27.0p

Full-year dividend per share


11.15p



38.5p

* The consolidated income statement for the year ended 31 March 2017 has been restated due to a change in accounting policy to no longer present an 'exceptional items' column and due to NEX Exchange Limited becoming a discontinued operation.

The financial review first focuses on the trading performance of the Group and then discusses acquisitions, disposals and similar items, which is the reconciling item between trading and statutory amounts. A reconciliation between statutory amounts and alternative performance measures is provided on page 18.

 

Continuing operations

Trading revenue

Trading revenue was £591 million, which is £50 million (9%) up on the prior year. Revenue benefited primarily from new businesses, the CFETS contract and £nil hedging impact in the current year compared with a £17 million hedging loss in the prior year.

Trading operating profit

The Group reported a £5 million (3%) decrease in trading operating profit. The trading operating profit of £147 million includes one-off items totalling £13 million expense. The trading operating profit for the prior year of £152 million included a net £5 million income that was one-off in nature and was presented as exceptional items in the prior year. Excluding one-off items, the trading operating profit was up £13 million (9%) on the prior year. This includes a net £16 million year-on-year favourable movement from hedging.

Trading profit before tax

Trading profit before tax was £6 million (5%) up on the prior year. There was a £7 million favourable movement in trading net finance cost driven by reduced drawings on the revolving credit facility (RCF), reduced facility fees and an increase in finance income. Excluding the year-on-year adverse impact of £18 million from one-off items, the trading profit before tax is up £24 million (21%) on the prior year.

Tax on trading profit

The Group's tax charge of £36 million on trading profit before tax represents an ETR of 28% (2016/17: 23%). The increase primarily relates to discrete prior year items, a one-off deemed repatriation charge following the commencement of the US tax reform and increased taxable profits following recent changes to UK tax legislation that restrict the deduction of certain interest payments.

Acquisitions, disposals and similar items

Acquisitions, disposals and similar items from continuing operations was a net £2 million expense (2016/17: £1 million income) before a tax credit of £23 million (2016/17: £6 million tax credit). The net £2 million expense before tax credit is a finance cost relating to the unwind of deferred and contingent consideration on various acquisitions.

There was £15 million of operating expenses which were offset by £15 million of other income. The £15 million of operating expenses include an £8 million impairment charge in relation to joint ventures and available-for-sale investments, a £3 million amortisation charge for intangible assets arising on consolidation and £4 million other acquisition and disposal-related costs. The £15 million of other income comprises a release of contingent consideration in relation to various past acquisitions. The majority of the release relates to Abide Financial due to the buy-out of certain non-controlling interests during the year.

Profit for the year (statutory) and EPS (basic) (statutory)

Profit for the year (statutory) is £112 million (2016/17: £100 million) and EPS (basic) (statutory) is 29.9p (2016/17: 27.0p). The £12 million increase in profit for the year (statutory) is driven by a combination of factors including the £15 million release of contingent consideration, £9 million decrease in the tax charge, £5 million favourable movement from net finance expenses and £4 million favourable movement from profit from associates and joint ventures, partially offset by the £18 million year-on-year adverse impact from one-off items.

Discontinued operations

Trading

Discontinued operations include trading revenue of £1 million (2016/17: £589 million), trading operating loss of £2 million (2016/17: £83 million profit) and trading loss for the year of £2 million (2016/17: £71 million profit). The current year discontinued operations relate to the results of NEX Exchange Limited which became a discontinued operation during the year (note 3).

Acquisitions, disposals and similar items

Acquisitions, disposals and similar items from discontinued operations resulted in an income of £3 million (2016/17: £1,133 million income) before a tax of £nil (2016/17: £7 million tax credit). The current year acquisitions, disposals and similar items from discontinued operations include a £3 million discounting of a receivable balance and £4 million adjustment to the carrying value of intangible assets arising from development expenditure and property and equipment, both of which were related to ICAP plc's global hybrid voice broking and information business (IGBB). This was partially offset by the £3 million release of an unutilised provision held at 31 March 2017 which related to transaction costs for the sale of IGBB.

Group

Dividend

In May 2017, NEX stated its dividend policy under which the dividend for the year ended 31 March 2018 would be between 40% and 50% of the post-tax trading profit for the year ended 31 March 2018, with a progressive dividend thereafter.

The directors recommend a final dividend of 7.65p per share (2016/17: 27.0p). The prior year final dividend reflects that of the Group including nine months of IGBB. If approved, the final dividend will be paid on 27 July 2018 to shareholders on the register at the close of business on 6 July 2018. The shares will be quoted ex-dividend from 5 July 2018.

The full-year dividend will be 11.15p per share (2016/17: 38.5p), including the interim dividend of 3.5p per share (2016/17: 11.5p). The full-year dividend per share is covered 2.1 times (2016/17: 1.2 times) by trading EPS (basic) from continuing and discontinued operations of 23.7p per share (2016/17: trading EPS (basic) of 44.5p per share).

Restatement

The consolidated balance sheet as at 31 March 2017 has been restated due to the recognition of cash held in the employee share trust of £32 million and the reclassification of a £30 million balance from current other receivables to non-current other receivables.

Trading free cash flow

 

Group

Year ended

31 March

2018

£m

Year ended

31 March

2017

£m

(restated)*

Cash generated by operations before one-off items and timing differences on unsettled matched principal trades

170

341

Interest and tax

(65)

(64)

Cash flow from trading activities

105

277

Capital expenditure on property and equipment and intangible development expenditure

(88)

(94)

Dividends from associates, joint ventures and investments

3

5

Trading free cash flow

20

188

Trading profit for the year

89

164

Trading free cash flow conversion (%)

22%

115%

* Trading free cash flow conversion the year ended 31 March 2017 has been restated due to the change in accounting policy to no longer present an 'exceptional items' column. Trading free cash flow includes discontinued operations.

 

During the period, the Group had trading free cash flow of £20 million (2016/17: £188 million), resulting in a trading cash flow conversion of 22% (2016/17: 115%). Prior year trading free cash flow represents that of the Group at that time including IGBB and included a net £47 million favourable working capital movement. The current year cash flow includes a net £35 million adverse working capital movement, primarily driven by the timing of receipts of revenue from the CFETS contract where there were receipts during the year ended 31 March 2017 and in April 2018. Excluding the adverse impact from working capital movements and timing of tax and interest payments, which are all expected to normalise, the trading free cash flow was £60 million with a trading free cash flow conversion of 67%.

In November 2017, we guided to a trading free cash flow conversion of around 60% for the full year, which is lower than the medium term range of 80% to 90% due to the excess in planned capital expenditure over amortisation and depreciation. In line with that expectation, our capital expenditure for the year ended 31 March 2018 was £88 million compared with amortisation and depreciation charges of £52 million.

We expect the capital expenditure for the year ending 31 March 2019 to increase further from the current level as we move into our new London office, the Fruit and Wool Exchange, and Infinity investment continues into the next year. We expect the trading free cash flow conversion for the year ending 31 March 2019 to be around 60%, in line with the previous guidance, as the adverse impact from increased capital expenditure is expected to be offset by the reversal of the working capital timing differences as at 31 March 2018.

We expect that by the end of the year ending 31 March 2020 the amortisation and depreciation charges and capital expenditure will converge. At that point and over the medium term, we expect the trading free cash conversion to be in the range of 80% to 90%. 

Balance sheet highlights

The Group's net assets at 31 March 2018 were £905 million (2016/17: £1,011 million), principally reflecting a £104 million loss from the retranslation of foreign currency net assets, largely driven by goodwill, and the £101 million payment of the 2016/17 final dividend and the £13 million payment of the 2017/18 interim dividend. This was partially offset by the profit for the period (statutory) from continuing and discontinued operations of £113 million.


As at

31 March 2018

£m

As at

31 March 2017

£m

(restated)*

Intangible assets arising on consolidation

936

1,026

Cash and cash equivalents

270

321

Restricted funds

18

103

Cash held in the employee share trust

20

32

Borrowings

(511)

(507)

Other net assets

172

36

Total net assets

905

1,011

* The balance sheet for the year ended 31 March 2017 has been restated due to recognition of cash held in an employee share trust.

Intangible assets arising on consolidation

The Group's goodwill and other intangible assets arising from consolidation as at 31 March 2018 were £936 million (2016/17: £1,026 million). The decrease mainly resulted from the appreciation of pound sterling against the dollar.

Management reviewed the Group's goodwill and other intangibles assets arising on consolidation for impairment as at 31 March 2018 and concluded that there was no impairment at the date (2016/17: no impairment). The review was based on certain estimates and assumptions, including future cash flow projections and discount rates. The estimates are most sensitive in relation to ENSO goodwill and other intangible assets arising on consolidation, the total of which is £82 million (2016/17: £95 million), due to the early stage nature of the business. For ENSO, the WACC rate is 8.1% and the cash flow projections in the final year of the three-year cash flow projections used for the impairment review would need to be adverse by more than 33% in order to lead to an impairment. The Audit Committee challenged management's judgments and estimates and has approved the appropriateness of management assumptions and conclusions.

Liquidity and funding

The Group's overall funding position remains strong. As at 31 March 2018, the Group had committed undrawn headroom under its core credit facilities of £350 million (2016/17: £300 million).

The gross debt position increased by £4 million to £511 million as at 31 March 2018. The increase relates to foreign exchange movements and the amortisation of the costs related to the issuance of debt.

As at 31 March 2018, the Group's long-term issuer ratings were Baa3 by Moody's and BBB by Fitch. Following the announcement of the Offer, both agencies have placed the Group on review for a potential upgrade.


As at

31 March

2018

£m

As at

31 March

2017

£m

(restated)*

Cash held in regulated trading entities

167

213

Cash held in unregulated entities

     41

52

Cash held in central treasury function

80

159

Cash held in the employee share trust

20

32

Total cash**

308

456

*   Total cash for the year ended 31 March 2017 has been restated due to recognition of cash held in an employee share trust.

**  Cash comprises cash and cash equivalents of £270 million (2016/17: £321 million), restricted funds of £18 million (2016/17: £103 million) and cash held in the employee share trust of £20 million (2016/17: £32 million). All restricted funds are held in regulated trading entities. Total cash excludes cash held within held-for-sale assets of £5 million (2016/17: £nil).

 

Borrowings

As at

31 March

2018

£m

As at

31 March

2017

£m

Interest

rate

Maturity

date

Five-year senior notes

306

298

4.0%

March 2019

Japanese yen loan

67

72

0.8%

September 2019

Retail bond

125

125

5.8%

July 2018

Ten-year senior notes

13

12

5.2%

May 2023

Total

511

507



 

Net debt

Net debt including restricted funds (excluding cash held in the employee share trust) increased by £135 million in the year to £218 million as at 31 March 2018. The primary driver behind the increase in net debt position is the payment of £101 million in July 2017 of the final dividend and payment of £13 million in February 2018 of the interim dividend.

 

Net debt (including restricted funds)

2017/18

£m

2016/17

£m

Net debt as at 1 April 2017

(83)

(89)

Trading free cash flow

20

188

Timing differences

-

80

Dividends paid

(114)

(142)

One-off items

(15)

(48)

Acquisitions and disposals

(4)

(114)

FX and other

(22)

42

Net debt as at 31 March 2018*

(218)

(83)


* Net debt including restricted funds includes borrowings of £511 million (2016/17: £507 million), cash and cash equivalents from continuing operations of £270 million (2016/17: £321 million), cash and cash equivalents included within held-for-sale assets of £5 million (2016/17: £nil) and restricted funds of £18 million (2016/17: £103 million)

Finance transformation

As part of the Group's overall transformation program we have created a new finance target operating model. This is designed to create a more efficient and effective centralised finance function, to enhance control and help drive the business towards its strategic priorities. An important aspect of this is improving the use of technology and clarifying roles and responsibilities to provide a finance function appropriate for NEX.

Alternative performance measures

In reporting financial information, NEX presents Alternative Performance Measures (APMs) that are not defined or specified under the requirements of International Financial Reporting Standards (IFRS). NEX believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the business.

Trading

The definition of trading amounts is statutory amounts before 'acquisitions, disposals and similar items'. The definition of 'acquisitions, disposals and similar items' is provided in the basis of preparation. Trading profit is the profit measure used to calculate trading EPS (note 4) and is the key indication of the Group's ability to pay dividends and finance future growth. The board and management use trading measures for planning and reporting purposes and a subset of those measures is also used by the remuneration committee and management in setting director and management remuneration.

Trading amounts and statutory amounts for each financial statement line item are presented on the face of the consolidated income statement. The reconciling item between trading amounts and statutory amounts is the 'acquisitions, disposals and similar items' column. We consider the prominence of this reconciliation on the primary financial statement to be helpful to users of the financial statements. A breakdown of 'acquisitions, disposals and similar items' for all relevant financial statement line items is provided in the table below.

 


Year ended 31

 

 March 2018

£m

Year ended 31

 

 March 2017

£m

Operating expenses:



Operating expenses (statutory)

(466)

(410)

Amortisation of intangible assets arising on consolidation

3

20

Impairment of investment in joint ventures and available-for-sale investments

8

-

Other acquisition costs

4

1

Trading operating expenses

(451)

(389)




Other income:



Other income (statutory)

22

22

Release of contingent consideration

(16)

-

Gain on equity interest

-

(20)

Other acquisition income

1

(2)

Trading other income

7

-




Net finance expense:



Net finance expense (statutory)

(26)

(31)

Unwind of discount on contingent consideration

2

-

Trading net finance expense

(24)

(31)




Tax:



Tax (statutory)

(13)

(22)

Tax credit on acquisitions, disposals and similar items

(23)

(6)

Trading tax

(36)

(28)

 

Before one-off items

NEX excludes certain material one-off items because, if included, these items could distort the understanding of our performance for the year and the comparability between periods. The directors believe that providing amounts before one-off items assists in providing additional useful information on the underlying trends, performance and position of the Group. This measure is also used in discussions with the investment analyst community. One-off items relate to one-off costs of transformation and one-off legacy items.

The reconciling items between financial statement line items before one-off items and trading financial statement line items are one-off items. A breakdown of one-off items for all relevant financial statement line items is provided in the table below.


Year ended 31

 

 March 2018

£m

Year ended 31

 

 March 2017

£m

Operating expenses:



Trading operating expenses

(451)

(389)

Regulatory matters (net of insurance claims)

3

2

One-off dividend receipts

(3)

-

Costs of transformation

13

-

Onerous lease provision release

-

(7)

Trading operating expenses before one-off items

(438)

(394)

 

We expect £6 million of one-off costs of transformation to be incurred in the year ending 31 March 2019 based on our annualised cost savings of £50 million.

 

Constant currency

Constant currency is calculated by applying the current period foreign exchange rate to prior year amounts in foreign currencies. This provides users with an analysis of the movement in the underlying performance of the Group, excluding translational effects from changes in foreign exchange rates.

The reconciling item between amounts under IFRS and amounts under constant currency in all cases is foreign exchange.

Trading free cash flow

Trading free cash flow is an APM used by management and investors. It is the cash amount that NEX is able to generate after spending the money required for capital expenditure and dividends to associates, joint ventures and investments. It is useful because it represents the cash that is available to NEX for pursuing opportunities that enhance shareholder value, such as developing new products, making acquisitions, paying dividends and reducing debt.

The calculation of trading free cash flow is provided in on page 14. 'Cash generated by operations before one-off items and timing differences on unsettled matched principal trades' and 'interest and tax' are from the 'reconciliation of Group profit before tax to net cash flow from operating activities' (note 7). 'Capital expenditure' and 'dividends from associates, joint ventures and investments' are from the consolidated statement of cash flow.

 

Consolidated income statement



Year ended 31 March 2018


Year ended 31 March 2017

(restated)


Note

Trading
£m

Acquisitions, disposals and similar items
£m

Total
£m


Trading
£m

Acquisitions, disposals and similar items
£m

Total
£m

Revenue

1

591

-

591


541

-

541

Operating expenses

2

(451)

(15)

(466)


(389)

(21)

(410)

Other income


7

15

22


-

22

22

Operating profit

1

147

-

147


152

1

153

Finance income


1

-

1


-

-

-

Finance costs


(25)

(2)

(27)


(31)

-

(31)

Share of profit of associates after tax


5

-

5


-

-

-

Share of loss of joint ventures after tax


(1)

-

(1)


-

-

-

Profit/(loss) before tax from continuing operations


127

(2)

125


121

1

122

Tax before prior year items and change in tax rate


(36)

3

(33)


(33)

7

(26)

Tax relating to prior year items


(1)

(6)

(7)


4

(1)

3

Tax relating to change in tax rate


1

26

27


1

-

1

Total tax


(36)

23

(13)


(28)

6

(22)

Profit for the year from continuing operations


91

21

112


93

7

100

(Loss)/profit for the year from discontinued operations


(2)

3

1


71

1,140

1,211

Profit for the year


89

24

113


164

1,147

1,311

Attributable to:









Owners of the Company


88

24

112


165

1,147

1,312

Non-controlling interests


1

-

1


(1)

-

(1)



89

24

113


164

1,147

1,311

Earnings per ordinary share (pence)









Continuing operations









-    basic

4

24.2


29.9


25.1


27.0

-    diluted

4

23.5


29.0


24.3


26.2

Discontinued operations









-    basic

4

(0.5)


0.3


19.4


326.9

-    diluted

4

(0.5)


0.3


18.9


317.5

Continuing and discontinued operations









-    basic

4

23.7


30.2


44.5


353.9

-    diluted

4

23.0


29.3


43.2


343.7

 

The consolidated income statement for the year ended 31 March 2017 has been restated due to a change in accounting policy to no longer present an 'exceptional items' column and due to NEX Exchange Limited becoming a discontinued operation in the year.

Consolidated statement of comprehensive income

 

 

Note

Year ended
31 March

2018

£m

Year ended
31 March

2017

£m

Profit for the year


113

1,311

Other comprehensive (expense)/income from continuing operations




Items that will be reclassified subsequently to profit or loss when specific conditions are met:


Revaluation loss of available-for-sale investments


(1)

-

Unrealised movement in cash flow hedges


4

(10)

Realised movement in cash flow hedges


1

17

Exchange differences


(104)

143

Current tax recognised in other comprehensive income


(1)

(1)

Deferred tax recognised in other comprehensive income


-

1

Other comprehensive (expense)/income for the year, net of tax,
from continuing operations


(101)

150

Other comprehensive income for the year, net of tax,
from discontinued operations


-

29

Total comprehensive income for the year


12

1,490

Total comprehensive income attributable to:




Owners of the Company


12

1,485

Non-controlling interests


-

5



12

1,490

 

Consolidated and Company balance sheet

 



Group


Company


Note

As at
31 March

2018

£m

As at
31 March

2017

£m

(restated)


As at
31 March

2018

£m

As at
31 March

2017

£m

(restated)

Non-current assets







Intangible assets arising on consolidation


936

1,026


-

-

Intangible assets arising from development expenditure


157

127


-

-

Property and equipment


36

36


-

-

Investment in subsidiaries


-

-


1,490

1,490

Investment in joint ventures


-

7


-

-

Investment in associates


48

42


-

-

Deferred tax assets


8

21


-

-

Trade and other receivables


34

47


-

-

Available-for-sale investments


17

20


-

-



1,236

1,326


1,490

1,490

Current assets







Trade and other receivables


162

144


217

240

Cash and cash equivalents

7

270

321


-

-

Cash held in the employee share trust

7

20

32


-

-

Restricted funds

7

18

103


-

-

Tax receivable


8

-


1

-

Available-for-sale investments


-

1


-

-

Held-for-sale assets

3

6

-


-

-



484

601


218

240

Total assets


1,720

1,927


1,708

1,730








Current liabilities







Trade and other payables


(163)

(197)


(1)

(46)

Borrowings

6

(498)

(72)


(125)

-

Tax payable


(24)

(28)


-

-

Provisions


(1)

(11)


-

-

Held-for-sale liabilities


-

-


-

-



(686)

(308)


(126)

(46)

Non-current liabilities



 




Trade and other payables


(43)

(61)


-

-

Borrowings

6

(13)

(435)


(13)

-

Deferred tax liabilities


(57)

(96)


-

-

Retirement benefit obligations


(4)

(4)


-

-

Provisions


(12)

(12)


-

-



(129)

(608)


(13)

-

Total liabilities


(815)

(916)


(139)

(46)

Net assets


905

1,011


1,569

1,684

 



Group


Company


Note

As at
31 March

2018

£m

As at
31 March

2017

£m

(restated)


As at
31 March

2018

£m

As at
31 March

2017

£m

(restated)

Equity







Capital and reserves







Called up share capital


66

66


66

66

Share premium account


-

-


-

-

Other reserves


2

49


-

-

Translation


154

257


-

-

Retained earnings


658

612


1,503

1,618

Equity attributable to owners of the Company


880

984


1,569

1,684

Non-controlling interests


25

27


-

-

Total equity


905

1,011


1,569

1,684

 

The consolidated balance sheet for the year ended 31 March 2017 has been restated due to recognition of cash held in an employee share trust and due to a reclassification of a current other receivable to a non-current other receivable. The company balance sheet for the year ended 31 March 2017 has been restated due to the recognition of an amount due from the employee share trust and amount due to a subsidiary. There is no impact on any financial statement line items as at 1 April 2016.

The Company reported a loss for the year ended 31 March 2018 of £4 million (2016/17: £1,238 million profit).

The financial statements and accompanying notes were approved by the board on 22 May 2018 and signed on its behalf by:

Samantha Wren

Group Chief Financial Officer and Chief Operating Officer

 

Consolidated statement of changes in equity

Year ended 31 March 2018

Share

capital

£m

Share

premium

£m

Other

reserves

£m

Translation

£m

Retained

earnings

£m

Attributable

to owners of

the Company

£m

Non-

controlling

interests

£m

Total

£m

Balance as at 1 April 2017

66

-

49

257

612

984

27

1,011

Profit for the year

-

-

-

-

112

112

1

113

Other comprehensive (expense)/income









Revaluation loss of available-for-sale investments

 

 

-

 

 

-

(1)

 

 

-

 

 

-

(1)

-

(1)

Unrealised movement in cash flow hedges

 

-

 

-

4

 

-

 

-

4

-

4

Realised movement in cash flow hedges

 

-

 

-

1

 

-

 

-

1

-

1

Exchange differences

-

-

-

(103)

-

(103)

(1)

(104)

Income tax

-

-

(1)

-

-

(1)

-

(1)

Total comprehensive income/(expense)
for the year

 

 

-

 

 

-

3

(103)

112

12

-

12

Share options exercised

-

-

-

-

2

2

-

2

Other movements in non-controlling interests

 

-

 

-

 

-

 

-

 

-

 

-

(2)

(2)

Share-based payments in the year

 

-

 

-

 

-

 

-

8

8

-

8

Reclassification of revaluation reserve

 

-

 

-

 

(50)

 

-

50

 

-

 

-

 

-

Movement in cash held in the employee share trust

 

-

 

-

 

-

 

-

(12)

(12)

-

(12)

Dividends paid in the year (note 5)

-

-

-

-

(114)

(114)

-

(114)

Balance as at 31 March 2018

66

-

2

154

658

880

25

905

 

 

Year ended 31 March 2017 (restated)

Share

capital

£m

Share

premium

£m

Other

reserves

£m

Translation

£m

Retained

earnings

£m

Attributable

to owners of

the Company

£m

Non-

controlling

interests

£m

Total

£m

Balance as at 1 April 2016

66

454

77

104

276

977

41

1,018

Profit for the year

-

-

-

-

1,312

1,312

(1)

1,311

Other comprehensive income/(expense)









Unrealised movement in cash flow hedges

-

-

(10)

-

-

(10)

-

(10)

Realised movement in cash flow hedges

-

-

17

-

-

17

-

17

Exchange differences

-

-

-

166

-

166

6

172

Income tax

-

-

(1)

-

1

-

-

-

Total comprehensive income for the year

-

-

6

166

1,313

1,485

5

1,490

Share options exercised

-

-

-

-

2

2

-

2

Other movements in non-controlling interests

-

-

-

-

-

-

1

1

Share-based payments in the year

-

-

-

-

11

11

-

11

Dividends paid in the year (note 5)

-

-

-

-

 (142)

 (142)

 (1)

 (143)

Capital reorganisation

-

(454)

(1)

-

455

-

-

-

Reclassification of cash held in the employee share trust

-

-

-

-

32

32

-

32

Distribution of discontinued operations

-

-

(33)

(13)

(1,335)

(1,381)

(19)

(1,400)

Balance as at 31 March 2017

66

-

49

257

612

984

27

1,011

 

The consolidated statement of changes in equity for the year ended 31 March 2017 has been restated due to recognition of cash held in an employee share trust.

 

Company statement of changes in equity

Year ended 31 March 2018

Share

capital

£m

Retained

earnings

£m

Total

£m

Balance as at 1 April 2017

66

1,618

1,684

Loss for the year

-

(4)

(4)

Total comprehensive expense for the year

-

(4)

(4)

Share options exercised

-

3

3

Dividends paid in the year

-

(114)

(114)

Balance as at 31 March 2018

66

1,503

1,569

 

Year ended 31 March 2017

Share

capital

£m

Retained

earnings

£m

Total

£m

Balance as at 1 April 2016

-

-

-

Profit for the year

-

1,238

1,238

Total comprehensive income for the year

-

1,238

1,238

Share options exercised

-

1

1

Capital reorganisation

66

379

445

Balance as at 31 March 2017

66

 1,618

 1,684

 

Consolidated and Company statement of cash flow



Group


Company

 

 

Note

Year ended
31 March

2018

£m

Year ended
31 March

2017

£m

(restated)


Year ended
31 March

2018

£m

Year ended
31 March

2017

£m

Cash flows from operating activities

7(a)

90

309


111

(1)

Cash flows from investing activities







Dividends received from associates


3

4


-

-

Dividends received from joint ventures


-

1


-

-

Payments to acquire property and equipment


(18)

(19)


-

-

Intangible development expenditure


(70)

(75)


-

-

Proceeds from disposal of available-for-sale investments


2

-


-

-

Acquisition of available-for-sale investments


(3)

(9)


-

-

Acquisition of interests in businesses, net of cash acquired


-

(46)


-

-

Acquisition of associates and joint ventures


(3)

(5)


-


Movement in restricted funds


85

(44)


-


Monies received in satisfaction of completion receivable


-

330


-

-

Derecognition of cash held in discontinued operations


-

(384)


-

-

Net cash flows from investing activities


(4)

(247)


-

-

Cash flows from financing activities







Dividends paid to owners of the Company


(114)

(142)


(114)

-

Dividends paid to non-controlling interest


-

(1)


-

-

Proceeds from exercise of share options


2

2


3

1

Repayment of borrowings


(139)

(151)


-

-

Funds received from borrowing, net of fees


139

51


-

-

Net cash flows from financing activities

7(b)

(112)

(241)


(111)

1

Net decrease in cash and cash equivalents


(26)

(179)


-

-

Net cash and cash equivalents at beginning of the year


321

433


-

-

FX adjustments


(20)

67


-

-

Net cash and cash equivalents at end of the year*

7(c)

275

321


-

-

*   Net cash and cash equivalents comprises cash and cash equivalents from continuing operations of £270 million (2016/17: £321 million), cash and cash equivalents held within held-for-sale assets of £5 million (2016/17: £nil) and overdrafts of £nil (2016/17: £nil). 

The consolidated cash flow statement for the year ended 31 March 2017 has been restated to include restricted funds in investing activities instead of financing activities. Restricted funds comprise cash held at a central counterparty (CCP) clearing house or a financial institution providing NEX with access to a CCP (note 7).

Cash flows of discontinued operations

Cash outflows from operating activities of £13 million (2016/17: £141 million), cashflows from investing activities of £nil (2016/17: £13 million) and cashflows from financing activities of £nil (2016/17: £1 million) were incurred relating to discontinued operations. Cash outflows of £13 million from operating activities comprised £10 million in relation to the settlement of certain provisions and accruals that existed as at 31 March 2017 in connection with the IGBB disposal and £3 million net cash outflow from the operating activities of NEX Exchange Limited.

Basis of preparation

Preparation of financial statements

The consolidated financial statements of the Group and the separate financial statements of the Company (together the Financial Statements) have been prepared in accordance with IFRS, as issued by the International Accounting Standards Body (IASB) and the interpretations issued by the IFRS Interpretations Committee (IFRIC) and their predecessor bodies, and as endorsed by the EU and the Companies Act 2006 applicable to companies reporting under IFRS. In publishing the separate financial statements of the Company here together with the consolidated financial statements of the Group, the Company has taken advantage of the exemption in section 408(3) of the Companies Act 2006 to not present its individual income statement, individual statement of comprehensive income and the related notes. The Financial Statements are presented in pound sterling, which is the functional currency of the Company and presented in millions.

The significant accounting policies adopted by the Group and the Company are included at the beginning of the notes to which they relate.

Judgments and estimates

Following the guidance provided by the FRC in 'Corporate Reporting Thematic Review: Judgments and Estimates, November 2017', management reassessed the critical judgments and estimates and resolved that the following were no longer considered critical: investment in joint ventures; investments in associates; the presentation of exceptional items; and the stage of completion of technology development revenue.

Investment in joint ventures and investments in associates are no longer considered a critical judgment because management does not believe that the judgments involved have materially affected the reported numbers. Presentation of exceptional items is no longer considered a critical judgment because there has been a change in accounting policy to no longer present an 'exceptional items' column. The stage of completion of technology development revenue is no longer considered a critical estimate because management does not believe that there is a significant risk that there will be a material adjustment required in the following period as a result of changes to the estimate of the stage of completion because the technology development stage of the CFETS contract is now almost complete.

Judgments (not involving estimation): Management considers the following items to be critical judgments (apart from those involving estimations) that were made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements:

-

The recognition and classification of litigation matters as contingent liabilities (note 8) or provisions under IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'. Recognising and classifying litigation matters as either contingent liabilities or provisions is a critical judgment because it involves management's view as to whether obligations arising from uncertain litigation matters are possible or probable. This can be judgmental because the litigation matters arise in multiple jurisdictions, are complex, relate to past events over multiple reporting periods and have a variety of potential outcomes, all of which requires regular reappraisal;

-

The presentation of acquisitions, disposals and similar items (note 2) under IAS 1 'Presentation of Financial Statements'. Management considers that the decision to present acquisitions, disposals and similar items separately from trading items in the consolidated income statement is a critical judgment because it materially impacts the view of the business by the users of the financial statements. Management believes that this presentation is appropriate because it provides more relevant and useful additional information to the users of the financial statements than not doing so (also see the 'presentation of the income statement' section of the basis of preparation); and

-

The capitalisation of costs as intangible assets arising from development expenditure  under IAS 38 'Intangible Assets'. Judgment is exercised in the expenditure that is capitalised or alternatively expensed as maintenance or research. This is governed by the Group's capitalisation policy which describes the nature and type of costs that should be capitalised to ensure consistency across the Group. Creation and application of this Group capitalisation policy requires judgment in how IFRS is applied to NEX in describing which expenditure qualifies for capitalisation as well as the thresholds that are applied. NEX has an internal threshold for capitalisation of £5,000 for individual assets and £125,000 for software-related projects.

Estimates: Management considers the following items to involve key assumptions concerning the future, or other key sources of estimation uncertainty, in the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

-

Impairment of goodwill and other intangible assets arising on consolidation under IAS 36 'Impairment of Assets'. The pre-tax cash flow projections, discount rate and terminal growth rate are significant estimates because management has to determine a budget for the business being evaluated. This can involve significant inherent uncertainty because management needs to forecast uptake for often new disruptive technologies where uncertain competition, regulation, delivery of product and demand from clients can impact the timing and price of services provided. The estimate is most sensitive in relation to ENSO goodwill and other intangible assets arising on consolidation, the total of which is £82 million (2016/17: £95 million), due to the early stage nature of the business. For ENSO, the base case WACC rate is 8.1% and the terminal growth rate is 4.25%, applied on management's cash flow projection over 3 years. The valuation is sensitive to changes to these key inouts and the cashflow forecasts. An increase in discount rate of 1.8 ppt or reduction in the terminal growth rate of 1.9 ppt would lead to an impairment as would a reduction in the year 3 cashflow by more than 33%. An alternative scenario with cashflows extended by 2 more years, a lower terminal growth rate of 3% and a higher discount rate of 9.5% was also considered and did not indicate impairment; and

-

The amount of amortisation recorded against intangible assets arising from development expenditure under IAS 38 'Intangible Assets' is significantly impacted by estimates of the useful economic life. The NEX general accounting policy is to charge amortisation to intangible assets arising from development expenditure to the consolidated income statement on a straight-line basis over the expected useful economic life of three to seven years. The useful economic life is a significant estimate due to the inherent uncertain speed of commercial development of new and competing technologies to meet changing requirements in the markets that NEX operates in. The estimate can be particularly judgmental when considering the impact on existing assets of new technology and enhancements to existing technology made during the period. The amortisation charge on intangible assets arising from development expenditure for the year ended 31 March 2018 is £38 million (2016/17: £29 million). An increase of one year to the average useful economic life would decrease the charge by approximately £8 million (2016/17: £6 million) and a decrease of one year to the average useful economic life would increase the charge by approximately £13 million (2016/17: £10 million).

Estimates and assumptions are periodically evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based on amounts which differ from those estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Discontinued operations

Disposal groups (including both the assets and liabilities of the disposal groups) are classified as held-for-sale when their carrying amounts will be recovered principally through sale, they are available for sale in their present condition and their sale is highly probable. Disposal groups are measured at the lower of their carrying amount and fair value less cost to sell, except for those assets and liabilities that are not within the scope of the measurement requirements of IFRS 5 'Non-current assets held-for-sale and discontinued operations'. Immediately before the initial classification as held-for-sale, the carrying amounts of the assets and liabilities in the disposal group are measured in accordance with the applicable IFRS.

When the Group has disposed of or intends to dispose of a business component that represents a major line of business or geographic area of operations, it classifies such operations as discontinued. The post-tax profit or loss of the discontinued operations is shown as a single line on the face of the consolidated income statement, separate from the other results of the Group. The consolidated income statement for the comparative periods is restated to show the discontinued operations separate from those generated by the continuing operations.

On 30 December 2016, the Group completed the disposal of IGBB to TP ICAP plc (TP ICAP). The results of the IGBB business were presented as discontinued operations in the consolidated income statement for the year ended 31 March 2017 as the sale was a single co-ordinated plan to dispose of a separate major line of business. Within the notes to the financial statements, disclosures for the year ended 31 March 2017 are presented on a continuing operations basis, where possible, to provide a more meaningful comparative to the disclosures for the year ended 31 March 2018.

NEX Exchange Limited became a discontinued operation during the year ended 31 March 2018 (note 3).

Presentation of the income statement

The Group maintains a columnar format for the presentation of its consolidated income statement. The columnar format enables the Group to continue its practice of improving the understanding of its results by presenting its trading profit separately from acquisitions, disposals and similar items. Trading profit is the profit measure used to calculate trading EPS (note 4) and is the key indication of the Group's ability to pay dividends and finance future growth. The board and management use trading measures for planning and reporting purposes and a subset of those measures are also used by the remuneration committee and management in setting director and management remuneration. Trading figures are reconciled to statutory figures on the face of the consolidated income statement.

The column 'acquisitions, disposals and similar items' includes items that are not part of the organic growth activities of the business and therefore are shown separately from the trading items so that the underlying performance of the Group can be separately monitored. The column 'acquisitions, disposals and similar items' includes: any gains, losses or other associated costs on the full or partial disposal of available-for-sale investments, associates, joint ventures or subsidiaries; costs associated with a business combination that do not constitute fees relating to the arrangement of financing; amortisation or impairment of intangible assets arising on consolidation; any re-measurement after initial recognition of contingent consideration which has been classified as a liability; any gains or losses on the revaluation of previous interests; impairment of investments in joint ventures, associates and available-for-sale investments; gains or losses on the settlement of pre-existing relationships with acquired businesses; and the re-measurement of liabilities that are above the value of indemnification.

Basis of consolidation

The Group's consolidated financial statements include the results and net assets of the Company, its subsidiaries and the Group's share of joint ventures and associates.

Foreign currencies

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pound sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the prior month closing exchange rate. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on transactions entered into to hedge certain foreign currency risks.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period where these approximate to the rate at the date of the transactions. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in a separate component of equity, attributed to non-controlling interests as appropriate.

On the disposal of a foreign operation, all of the exchange differences accumulated in a separate component of equity in respect of that operation attributable to the owners of the company are reclassified to profit or loss. In relation to a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or joint arrangements that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRS as sterling-denominated assets and liabilities. Exchange differences arising are recognised in other comprehensive income.

Future accounting developments

(a)    New standards, amendments and interpretations adopted

No new standards, amendments or interpretations, effective for the first time for the year ended 31 March 2018, have had a material impact on the Group or Company. The additional disclosures introduced by the amendments to IAS 7 'Statement of cash flows' are provided in note 7.

(b)   New standards, amendments and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2018, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Group or Company, except as set out below.

IFRS 9

In July 2014, the IASB issued IFRS 9 'Financial Instruments', which will replace IAS 39 'Financial Instruments: Recognition and Measurement'. IFRS 9 is effective for accounting periods beginning on or after 1 January 2018. NEX will adopt IFRS 9 for its financial statements for the year ending 31 March 2019.

IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost; fair value through other comprehensive income; and fair value through profit or loss. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income, not recycling. For financial liabilities, there are no changes to classification and measurement, except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. For equity investments currently accounted for as available-for-sale investments, NEX plans to take the irrevocable option at inception to present the changes in fair value in other comprehensive income. NEX does not expect any other significant impact in relation to classification and measurement.

An expected credit losses model replaces the incurred loss impairment model used in IAS 39. NEX expects a significant change to the process and methodology applied for estimating impairment but for there to be no material impact to the amount calculated and recognised in the financial statements.

IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright-line hedge effectiveness tests. To qualify for hedge accounting, it requires an economic relationship between the hedged item and hedging instrument, and for the 'hedged ratio' to be the same as the one that management actually uses for risk management purposes. Contemporaneous documentation is still required, but it is different from that currently prepared under IAS 39. There is an accounting policy choice to continue to account for all hedges under IAS 39. NEX plans to take the accounting policy choice to continue to account for all hedges under IAS 39.

NEX does not expect to restate comparatives on initial application of IFRS 9 on 1 April 2018 but will provide detailed transitional disclosures in accordance with the amendment requirements of IFRS 7. No material impact on transition or on profit for future periods is expected.

IFRS 15

In May 2014, the IASB issued IFRS 15 'Revenue from Contracts with Customers', which will replace IAS 18 'Revenue' and IAS 11 'Construction Contracts' and other related interpretations on revenue recognition. The standard will become effective for annual periods beginning on or after 1 January 2018. NEX will adopt IFRS 15 for its financial statements for the year ending 31 March 2019.

IFRS 15, 'Revenue from Contracts with Customers', deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with clients. Revenue is recognised when a client obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. Variable consideration is included in the transaction price if it is highly probable that there will be no significant reversal of the cumulative revenue recognised when the uncertainty is resolved.

For subscriptions where variable consideration is provided that spans reporting periods, under the existing accounting policy, revenue is recognised when the amounts can be reliably measured whereas under IFRS 15, revenue is recognised using the expected value or most likely amount method at the point it is considered highly probable there will be no significant reversal. NEX expects there to be a change in the methodology for accounting for variable consideration but for there to be no material impact to the amount calculated and recognised in the financial statements.

NEX plans to take the modified retrospective transition option and to apply the practical expedients for significant financing component and incremental costs of obtaining a contract. No material impact on transition or on profit for future periods is expected.

IFRS 16

In January 2016, the IASB issued IFRS 16 'Leases', which will replace IAS 17 'Leases' and other related interpretations on leases. The standard is effective for annual periods beginning on or after 1 January 2019. NEX intends to adopt IFRS 16 for its financial statements for the year ending 31 March 2020.

IFRS 16, 'Leases', addresses the definition of a lease, recognition and measurement of leases, and it establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that for lessees, leases previously classified as operating leases will be accounted for on the balance sheet. The present value of future lease payments will be recognised as a liability with a related asset being depreciated.

NEX expects that the main impact will be the accounting treatment of office rentals which are currently accounted for as operating leases and under IFRS 16 will lead to an increase in property and equipment, together with an additional lease liability. In 2017 NEX signed a 15-year lease for an office in New York and a 20-year lease for an office in London and therefore the impact will be larger than if NEX was closer to the end of its office leases. The operating lease expense will be replaced by a depreciation and interest expense.

NEX has not completed its IFRS 16 impact assessment. The impact on NEX financial statements from the adoption of IFRS 16 will be disclosed closer to the date of adoption.

 

Notes to the financial statements

 

1. Segmental information

The Group has determined its operating segments based on the management information including trading revenue and trading operating profit reviewed on a regular basis by the Company's board. The Group considers the executive members of the Company's board to be the Chief Operating Decision Maker (CODM). NEX has two reportable segments: NEX Markets and NEX Optimisation. NEX also presents a 'NEX Group and other' column which includes the Group's remaining activities that do not meet the definition of reportable segments. The 'NEX Group and other' column includes the activities of Shipping companies, NEX Exchange Limited, NEX Opportunities, certain joint venture and associate investments and Group costs.

NEX Opportunities moved from the 'NEX Optimisation' operating segment to the 'NEX Group and other' column in the management accounts during the year ended 31 March 2018. Segmental information for the year ended 31 March 2018 has incorporated this change in order to be consistent with the management accounts and segmental information for the year ended 31 March 2017 has been restated to make the comparative comparable.

Segmental information required by IFRS 8 'Operating Segments' that is not included in this note is excluded because the segmental information is not included in the management information reported to the Company's board and the cost to develop it would be excessive.

(a)       Nature of services

Revenue comprises transaction fees, access fees and technology development fees from its NEX Markets business, and fees from the provision of NEX Optimisation services.

NEX Markets

Transaction fees and access fees: The Group acts as an intermediary for FX and fixed income products through the Group's electronic platforms. Revenue is generated from transaction fees which are dependent on the trading volumes. The Group also charges access fees to use the electronic trading platform for access to liquidity in the FX or precious metal markets.

Matched principal business: The Group is involved in a non-advisory capacity as principals in the matched purchase and sale of financial instruments between our clients. Revenue is generated from transaction fees and is recognised in full at the time of the commitment by our clients to sell and purchase the financial instrument.

Technology development: The Group provides technology development services. Fees from the development of technology are recognised as revenue by reference to the stage of completion using the most appropriate method for each contract.

NEX Optimisation

The Group receives fees from the sale of financial information and provision of NEX Optimisation services to third parties. These are stated net of VAT, rebates and other sales taxes and recognised in revenue on an accruals basis to match the provision of the service.

TriOptima: The Group provides risk mitigation solutions for OTC derivatives, primarily through the elimination and reconciliation of outstanding transactions.

Traiana: The Group operates market infrastructure for pre- and post-trade processing, risk management and regulatory compliance across multiple asset classes.

NEX Data: The Group delivers pricing, analytics and index solutions to financial market participants from information received from NEX Markets and elsewhere. NEX Data generates subscription-based fees as well as licensing fees from other index administrators for the use of NEX Data in their indices.

Reset: The Group is a provider of risk mitigation services, reducing basis risk within trading portfolios in interest rate, FX, equity index and inflation derivatives.

ENSO: The Group delivers data, analytics and workflow tools that enable hedge funds and asset managers to more effectively manage their relationships with prime brokers. ENSO provides a complete view of an individual hedge fund's relationships across multiple counter parties, delivering insights on counter party credit risk, collateral management, portfolio financing and treasury.

Abide Financial: The Group provides regulatory reporting technology, supporting market participants with evolving compliance reporting obligations. Abide Financial acts as a reporting hub for EMIR, Approved Reporting Mechanism for MiFID and a Regulatory Reporting Mechanism for Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).

 

(b)       Segmental results

 


Year ended 31 March 2018

Group

NEX

Markets

£m

NEX

Optimisation

£m

NEX Group and other £m

Hedging impact £m

Group

£m

Continuing operations:






Trading revenue (note 1(c))

326

260

5

-

591

Trading operating expenses and other income before one-off items

(203)

(192)

(37)

1

(431)

Trading one-off items

(2)

(4)

(7)

-

(13)

Trading operating profit/(loss)

121

64

(39)

1

147

Share of profit of associates after tax

-

1

4

-

5

Share of loss of joint ventures after tax

-

-

(1)

-

(1)

Trading EBIT*

121

65

(36)

1

151

Reconciliation to the consolidated income statement:






Trading net finance cost**





(24)

Trading profit before tax





127

Acquisitions, disposals and similar items





(2)

Profit before tax from continuing operations





125

Tax on continuing operations





(13)

Profit for the year from continuing operations





112

Profit for the year from discontinued operations, net of tax





1

Profit for the year





113

Continuing operations:






Other segmental information:






Trading operating profit margin

37%

25%

n/m

n/m

25%

Trading depreciation

8

6

-

-

14

Trading amortisation

24

14

-

-

38

Trading EBITDA***

153

85

(36)

1

203

Capital expenditure on intangible developments

30

40

-

-

70

*           Trading EBIT is the trading profit before deducting net finance cost and tax.

**          Given the Group's debt financing arrangements are managed centrally through a treasury function, the board of NEX Group plc does not incorporate net finance cost in the assessment of the segments' performance, therefore this is presented on a total Group basis.

***       Trading EBITDA is the trading profit before deducting net finance cost, tax and amortisation, depreciation and    impairment charges.

 

 


Year ended 31 March 2017 (restated)

Group

NEX

Markets

£m

NEX

Optimisation

£m

NEX Group and other

£m

Hedging impact

£m

Group

£m

Continuing operations:






Trading revenue (note 1(c))

313

240

5

(17)

541

Trading operating expenses and other income before one-off items

(197)

(168)

(31)

  2

(394)

One-off items

-

-

5

-

5

Trading operating profit/(loss)

116

72

(21)

(15)

152

Share of profit of associates and joint ventures after tax

-

-

-

-

-

Trading EBIT*

116

72

(21)

(15)

152

Reconciliation to the consolidated income statement:






Trading net finance cost**





(31)

Trading profit before tax





121

Acquisitions, disposals and similar items





1

Profit before tax from continuing operations





122

Tax on continuing operations





(22)

Profit for the year from continuing operations





100

Profit for the year from discontinued operations, net of tax





1,211

Profit for the year





1,311

Continuing operations:






Other segmental information:






Trading operating profit margin

37%

30%

n/m

n/m

28%

Trading depreciation

7

4

-

-

11

Trading amortisation

19

9

1

-

29

Trading EBITDA***

142

85

(20)

(15)

192

Capital expenditure on intangible developments

30

28

1

-

59

*   Trading EBIT is the trading profit before deducting net finance cost and tax.

** Given the Group's debt financing arrangements are managed centrally through a treasury function, the board of NEX Group plc does not incorporate net finance cost in the assessment of the segments' performance, therefore this is presented on a total Group basis.

*** Trading EBITDA is the trading profit before deducting net finance cost, tax and amortisation, depreciation and impairment charges.

 

For reconciliation of alternative performance measures, see page 18.

Segmental information for the year ended 31 March 2017 has been restated due to a change in operating segments for the NEX Optimisation division and operating expenses hedging impact.

 

(c)       Revenue information

The hedging impact relates primarily to NEX Markets.

The Group did not earn more than 10% of its total revenue from any individual client (2016/17: did not). The Group earned revenue of £109 million (2016/17: £55 million) from entities in the UK, £199 million (2016/17: £221 million) from entities in the US, £102 million (2016/17: £86 million) from entities in Sweden, £36 million (2016/17: £38 million) from entities in Singapore and £145 million from entities in other countries (2016/17: £141 million). NEX regulated companies will meet Capital Requirements Directive (CRD) IV disclosure requirements, to the extent in scope, by disclosing the information in their 2017/18 financial statements or on the NEX website.

Revenue from the rendering of services recognised in the year was £571 million (2016/17: £528 million). Revenue from technology development recognised in the year was £20 million (2016/17: £13 million). The Group used the costs-incurred method to estimate the stage of completion of technology development revenue.

2. Operating expenses

 

(a)  Trading operating expenses and operating expenses





Year ended
31 March

2018

£m

Year ended
31 March

2017

£m

(restated)

Continuing operations:



Trading operating expenses:



Employee costs

239

220

IT costs*

111

87

Professional and legal fees (including auditor's remuneration)

28

22

Depreciation and impairment of property and equipment (excluding IT)

2

4

Operating lease rentals - minimum lease payments

19

15

Exchange adjustments

4

(2)

Onerous lease provisions release

-

(7)

Regulatory matters (net of insurance claims)

3

2

Other

45

48

Trading operating expenses

451

389




Acquisitions, disposals and similar items:



Amortisation of intangible assets arising on consolidation

3

20

Impairment of investment in joint ventures and available-for-sale investments

8

-

Other acquisition and disposal costs

4

1

Acquisitions, disposals and similar items

15

21




Operating expenses (statutory)

466

410

*   IT costs include £50 million (2016/17: £38 million) of depreciation and amortisation charges. The remaining £61 million (2016/17: £49 million) of costs incurred include purchase of assets that are individually below the Group's capitalisation threshold, maintenance expenditures, certain enhancements not eligible for capitalisation and research phase-related expenditures. IT costs do not include employee costs; these are presented within employee costs.

 

Trading operating expenses for the year ended 31 March 2017 has been restated due to the change in accounting policy to no longer present an 'exceptional items' column and due to NEX Exchange Limited becoming a discontinued operation in the year.

Employee costs for the year ended 31 March 2018 includes a £3 million charge which relates to periods for the year ended 31 March 2017 and earlier as employer national insurance contributions on share awards were not accrued. Exchange adjustments for the year ended 31 March 2018 includes a £3 million charge which relates to periods for the year ended 31 March 2017 and earlier due to a correction to historic foreign exchange swap balances. £2 million of the impairment of investment in joint ventures and available-for-sale investments for the year ended 31 March 2018 relates to periods for the year ended 31 March 2017 and earlier due to an equity accounting correction. 

(b)  Auditor's remuneration

 

Group

Year ended
31 March

2018

£m

Year ended
31 March

2017

£m

Auditor's remuneration



Fees payable to the Company's auditors for the audit of the parent Company's financial statements and Group's consolidated financial statements

0.9

1.0

Fees payable to the Company's auditors for other services:



- the auditing of any subsidiary of the Company

0.8

2.2

- taxation compliance services

-

0.2

- other assurance services

0.1

0.3

- corporate finance transaction services

0.2

0.7


2.0

4.4

 

The Group's external auditor for the year ended 31 March 2018 was Deloitte LLP and for the year ended 31 March 2017 was PricewaterhouseCoopers LLP.

(c)    Contractual arrangements

The Group places reliance on several key suppliers to carry out its business and has procedures to ensure that purchasing decisions balance cost against other factors, including service quality, global reach and resilience.

The settlement of matched principal and exchange-traded businesses requires access to clearing houses either directly or through third party providers of clearing and settlement services. In North America, the Group is a member of the Fixed Income Clearing Corporation (FICC) through which it clears US Treasury, Agency and Repo products for its client base. In Europe, clearing arrangements for exchange-traded transactions are outsourced to third parties.

3. Discontinued operations

The Group is in the process of selling part of NEX Exchange Limited which will result in deconsolidation. The disposal is subject to approval from regulatory authorities as well as the finalisation of certain commercial terms and is expected to be completed in 2018. The carrying value of NEX Exchange Limited will be recovered principally through a sale transaction and as a future investment in associate, rather than through continuing use as a subsidiary, and therefore is classified as held-for-sale as at 31 March 2018. The sale is a single co-ordinated plan to partly dispose of a separate major line of business and therefore the results of NEX Exchange Limited are presented as discontinued operations for the year ended 31 March 2018.

The results of the IGBB business were presented as discontinued operations for the year ended 31 March 2017 as the sale was a single co-ordinated plan to dispose of a separate major line of business. On 30 December 2016, the Group completed the disposal of its IGBB business to Tullett Prebon plc, now renamed TP ICAP. In addition to the results of NEX Exchange Limited, the discontinued income statement for the year ended 31 March 2018 includes an adjustment to the IGBB gain on sale which arose due to an adjustment to the net assets of IGBB and the release of an unutilised provision held at 31 March 2017 which related to transaction costs for the sale of IGBB.

As at 31 March 2018, held-for-sale assets relate to NEX Exchange Limited and consist of £5 million of cash and cash equivalents (2016/17: £nil) and £1 million of trade and other receivables (2016/17: £nil). There were no liabilities held-for-sale relating to NEX Exchange Limited (2016/17: £nil).

 










Year ended 31 March 2018


Year ended 31 March 2017

(restated)


Trading

£m

Acquisitions, disposals and similar items

£m

Total
£m


Trading

£m

Acquisitions, disposals and similar items

£m

Total
£m

Revenue

1

-

1


589

-

589

Operating expenses

(3)

(1)

(4)


(508)

(29)

(537)

Other income

-

-

-


2

-

2

Operating (loss)/profit from discontinued operations

(2)

(1)

(3)


83

(29)

54

Net finance income

-

-

-


2

-

2

Share of profit of associates and joint ventures after tax

-

-

-


4

-

4

Gain on sale of discontinued operations

-

4

4


-

1,162

1,162

(Loss)/profit before tax from discontinued operations

(2)

3

1


89

1,133

1,222

Tax on ordinary activities from discontinued operations

-

-

-


(18)

7

(11)

(Loss)/profit for the year from discontinued operations

(2)

3

1


71

1,140

1,211

Attributable to:








Owners of the Company

(2)

3

1


72

1,140

1,212

Non-controlling interests

-

-

-


(1)

-

(1)


(2)

3

1


71

1,140

1,211

 

Discontinued operations for the year ended 31 March 2017 has been restated due to the change in accounting policy to no longer present an 'exceptional items' column and due to NEX Exchange Limited becoming a discontinued operation in the year.

£1 million of the gain on sale of discontinued operations for the year ended 31 March 2018 relates to periods for the year ended 31 March 2017 and earlier due to the net effect of a £3 million charge arising on discounting of a receivable balance and a £4 million credit arising on an adjustment to the carrying values of intangible assets arising from development expenditure and property and equipment. 

4. Earnings per share

The Group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. The Group also calculates trading EPS (basic and diluted) from the trading profit for the year. The Group believes that this is the most appropriate measurement for assessing NEX performance, as explained in the basis of preparation.

The diluted EPS is calculated by adjusting share capital in issue for the additional weighted average number of ordinary shares that are likely to be issued under various employee share award schemes as at the balance sheet date.

Group

Year ended 31 March 2018


Year ended 31 March 2017 (restated)

Trading basic and diluted

Earnings

 

£m

Shares

 

millions

Earnings


per share

pence


Earnings

 

£m

Shares

 

millions

Earnings


per share

pence

Trading basic (continuing operations)

90

371

24.2


93

371

25.1

Trading basic (discontinued operations)

(2)

371

(0.5)


72

371

19.4

Trading basic (continuing and discontinued operations)

88

371

23.7


165

371

44.5

Dilutive effect of share options

-

11

(0.7)


-

11

(1.3)

Trading diluted (continuing operations)

90

382

23.5


93

382

24.3

Trading diluted (discontinued operations)

(2)

382

(0.5)


72

382

18.9

Trading diluted (continuing and discontinued operations)

88

382

23.0


165

382

43.2

 

Group

Year ended 31 March 2018


Year ended 31 March 2017 (restated)

Basic and diluted

Earnings

 

£m

Shares

 

millions

Earnings


per share

pence


Earnings

 

£m

Shares

 

millions

Earnings
per share

pence

Basic (continuing operations)

111

371

29.9


100

371

27.0

Basic (discontinued operations)

1

371

0.3


1,212

371

326.9

Basic (continuing and discontinued operations)

112

371

30.2


1,312

371

353.9

Dilutive effect of share options

-

11

(0.9)


-

11

(10.2)

Diluted (continuing operations)

111

382

29.0


100

382

26.2

Diluted (discontinued operations)

1

382

0.3


1,212

382

317.5

Diluted (continuing and discontinued operations)

112

382

29.3


1,312

382

343.7

 

Weighted average number of ordinary shares excludes shares held in the employee share trusts relating to employee share schemes on which dividends have been waived, being 8 million shares (2016/17: 7 million).

Earnings per share for the year ended 31 March 2017 has been restated due to the change in accounting policy to no longer present an 'exceptional items' column, due to NEX Exchange Limited becoming a discontinued operation in the year and to be calculated using earnings attributable to owners of the Company, as opposed to profit for the year which was previously used, as this is the appropriate calculation.

 

5. Dividends payable

The Company recognises the final dividend payable only when it has been approved by the shareholders of the Company in a general meeting. The interim dividend is recognised when it has been approved by the directors of the Company.





Year ended


31 March

2018

 

£m

Year ended


31 March

2017

 

£m

Amounts recognised as distributions to equity holders in the year



Final dividend for the year ended 31 March 2017 of 27.0p per ordinary share (2015/16: 27.0p)

101

100

Interim dividend for the year ended 31 March 2018 of 3.5p per ordinary share (2016/17: 11.5p)

13

42

Total dividend recognised in the year

114

142

 

The final dividend for the year ended 31 March 2017 was satisfied in full by a cash payment of £101 million. The interim dividend for the year ended 31 March 2018 was satisfied in full by a cash payment of £13 million. The interim dividend for the year ended 31 March 2018 was paid to the shareholders of NEX Group plc who were on the register at 22 December 2017. The shares were quoted ex-dividend from 21 December 2017.

The directors have proposed a final dividend of 7.65p per share (2016/17: 27.0p) for the year ended 31 March 2018. This has not been recognised as a liability of the Group at the year end as it has not yet been approved by shareholders. Based on the number of shares in issue at the year end, the total amount payable would be £28 million. Therefore, subject to shareholders' approval of the proposed final dividend, the full-year dividend will be 11.15p per share (2016/17: 38.5p), which will be covered 2.1 times (2016/17: 1.2 times) by the trading EPS (basic) of 23.7p per share (2016/17: trading EPS (basic) of 44.5p per share) and 2.7 times (2016/17: 9.2 times) by EPS (basic) of 30.2p per share (2016/17: EPS (basic) of 353.9p per share). The right to receive dividends has been waived in respect of the shares held in the employee share trust.

 

6. Borrowings

Borrowings are recognised initially at fair value, being their issue proceeds net of issuance costs incurred. At subsequent reporting dates borrowings are held at amortised cost using the effective interest rate method, with changes in value recognised through the consolidated income statement. Issuance costs are recognised in the consolidated income statement over the period of the borrowings using the effective interest rate method.

(a)   Long-term borrowings

 


Fair value


Group


Company


As at

 

31 March

 

 2018

 

£m

As at

 

31 March

 

2017

 

£m


As at

 

31 March

 

 2018

 

£m

As at

 

31 March

 

2017

 

£m

 

 


As at

 

31 March

 

2018

 

£m

As at

 

31 March

 

2017

 

£m

Five-year senior notes repayable FY2018/19

 

-


 

-

298


 

-

-

Retail bond repayable FY2018/19

-


-

125


-

-

Ten-year senior notes repayable FY2023/24

 

15


 

13

12


 

13

-


15


13

435


13

-

 

The five-year senior notes and retail bond were presented under long-term borrowings as at 31 March 2017 but have been presented under short-term borrowings as at 31 March 2018 as their maturity dates are March 2019 and July 2018, respectively.

The retail bond and ten-year senior notes were transferred to the Company from ICAP plc on 7 July 2017.

The Group's £350 million RCF was undrawn as at 31 March 2018 (2016/17: undrawn) resulting in committed headroom of £350 million (2016/17: £300 million). During the year, the size of the RCF increased to £350 million and the maturity date was extended by two years to 23 February 2021. The RCF incorporates a $200 million swingline facility of which $75 million is available as a late day fronted facility. The weighted average effective interest rate for the year was 2.3% (2016/17: 2.1%).

The Group's bank facilities contain several customary financial and operational covenants. Included in these, the Company is required to remain as the ultimate holding company in the Group. The Group and Company remained in compliance with the terms of all its financial covenants throughout the year ended 31 March 2018.

The fair value measurements of the ten-year senior notes repayable 2023 use level 1 fair value measurement inputs.

 

(b)   Committed facilities








As at 31 March 2018

£m


As at 31 March 2017

£m

Group

Drawn

Undrawn*


Drawn

Undrawn*

Less than one year

498

-


72

-

Between one and two years

-

-


423

-

Between two and five years

-

350


-

300

More than five years

13

-


12

-


511

350


507

300

 


As at 31 March 2018

£m


As at 31 March 2017

£m

Company

Drawn

Undrawn*


Drawn

Undrawn*

Less than one year

125

-


-

-

More than five years

13

-


-

-


138

-


-

-

*   The undrawn balance has been classified based on the maturity date of the facility.

As at 31 March 2018, the Group's long-term issuer ratings were Baa3 by Moody's and BBB by Fitch. Following the announcement of the Offer both agencies have placed the Group on review for a potential upgrade.

 

(c)    Short-term borrowings











Fair value


Group


Company


As at
31 March
2018
£m

As at

31 March
2017
£m


As at
 31 March 2018
£m

As at

31 March
2017
£m


As at
31 March
2018
£m

As at
 31 March
2017
 £m

Japanese yen loan

67

72


67

72


-

 -

Five-year senior notes repayable FY2018/19

 

316

-


 

306

-


 

-

-

Retail bond repayable FY2018/19

127

-


125

-


125

-


510

72


498

72


125

-

 

For several years, the Group has entered into a series of yen term loans with Tokyo Tanshi Co Limited, borrowing each for a term of up to six months. These loans have been refinanced either immediately on maturity or a few days thereafter with similar terms.

The five-year senior notes are presented on the balance sheet at amortised cost, net of fees. To enable the Group to manage the translational exposure, which arises because the notes are denominated in euros, and to meet its risk management objective of minimising both interest cost and the impact of interest volatility on its consolidated income statement, the Group entered into cross currency swaps to convert its obligations over the life of €250 million of the notes from euros to pound sterling at an FX rate of 1.21. These swap from a fixed effective euro interest rate of 3.20% to a fixed pound sterling interest rate of 4.39%. The swaps have been accounted for as a cash flow hedge and as at 31 March 2018 have a fair market value of £14 million asset (2016/17: £7 million asset) and they offset the effect of FX on the notes. The remaining €100 million of the notes remain in euros and have been designated as a net investment hedge of the Group's euro-denominated net assets.

Fair values of the five-year senior notes repayable 2019 and the retail bond repayable 2018 have been measured using level 1 fair value measurement inputs.

7. Cash

Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments which are subject to insignificant risk of change in fair value and are readily convertible into a known amount of cash with less than three months' maturity. Overdrafts are classified as short-term borrowings (note 6), not as cash and cash equivalents.

The Group holds money, and occasionally financial instruments, on behalf of clients (client monies) in accordance with local regulatory rules. Since the Group is not beneficially entitled to these amounts, they are excluded from the consolidated balance sheet along with the corresponding liabilities to clients.

Restricted funds comprise cash held with a CCP clearing house, or a financial institution providing NEX with access to a CCP, and funds set aside for regulatory purposes driven by margin requirements, but excluding client money. The funds represent cash for which the Group does not have immediate and direct access or for which regulatory requirements restrict the use of the cash. Such funds may be returned the next day as the trades at the CCP are settled.

 

(a) Reconciliation of Group profit before tax to net cash flow from operating activities




Group

Year ended
31 March

2018

£m

Year ended
31 March

2017

£m

(restated)

Profit before tax from continuing operations

125

122

Profit before tax from discontinued operations

1

 1,222

Operating one-off items

-

23

Share of profit of associates after tax

(5)

(2)

Share of loss/(profit) of joint ventures after tax

1

(2)

Amortisation of intangible assets arising on consolidation (note 2)

3

20

Amortisation and impairment of intangible assets arising from development expenditure

38

39

Depreciation and impairment of property and equipment

14

16

Impairment of property and equipment

-

2

Impairment of investment in joint ventures

5

-

Impairment of available-for-sale investments

3

-

Other acquisitions, disposals and similar items

(12)

-

Gain on equity interest (note 2)

-

(20)

Gain on disposal of discontinued operations (note 3)

-

(1,162)

Share-based payments (trading)

8

7

Net finance expense

22

26

Increase in trading provision

2

3

Operating cash flows before movements in working capital

205

 294

Increase in trade and other receivables

(27)

(18)

(Decrease)/increase in trade and other payables

(8)

65

Timing differences on unsettled matched principal trades

-

80

Cash generated by operations before one-off items

170

421

Operating one-off items paid

(15)

(48)

Cash generated by operations

155

 373

Interest received

1

2

Interest paid

(25)

(22)

Tax paid

(41)

(44)

Cash flow from operating activities

90

 309

 

The reconciliation of Group profit before tax to net cash flow from operating activities has been restated due to NEX Exchange Limited becoming a discontinued operation in the year. See note 3 for more information.

The cash flow movement in trade and other receivables includes the net movement on matched principal transactions and deposits for securities borrowed/loaned.

The reconciliation of Group profit before tax to cash flow from operating activities includes discontinued operations.

(b)  Reconciliation of liabilities arising from financing activities

 


Year ended 31 March 2018


Year ended 31 March 2017

Group

Long-term borrowings

£m

Short-term borrowings

£m

 

Total

£m


Long-term borrowings

£m

Short-term borrowings

£m

 

Total

£m

As at 1 April 2017

435

72

507


519

64

583









Cash movements:








Repayment of borrowings

-

(144)

(144)


(108)

(43)

(151)

Funds received from borrowings, net of fees

 

-

 

139

 

139


 

-

 

51

 

51









Non-cash movements:








Reclassification of borrowings

(431)

431

-


-

-

-

Exchange adjustments

9

-

9


24

-

24









As at 31 March 2018

13

498

511


435

72

507

 


Year ended 31 March 2018


Year ended 31 March 2017

Company

Long-term borrowings

£m

Short-term borrowings

£m

 

Total

£m


Long-term borrowings

£m

Short-term borrowings

£m

 

Total

£m

As at 1 April 2017

-

-

-


-

-

-









Cash movements

-

-

-


-

-

-









Non-cash movements:








Borrowings transferred via intercompany

13

125

138


-

-

-









As at 31 March 2018

13

125

138


-

-

-

 

 

(c) Net debt

Net debt comprises cash and cash equivalents less gross debt. Restricted funds and cash held in the employee share trust are not included within net debt due to their availability constraints (note 7(f) and note 7(g)).








Group


Company


Year ended
31 March

2018

£m

Year ended
31 March

2017

£m


Year ended
31 March

2018

£m

Year ended
31 March

2017

£m

Gross debt (note 6)

(511)

(507)


(138)

-

Cash and cash equivalents

270

321


-

-

Net debt

(241)

(186)


(138)

-

 

(d) Total cash








Group


Company


Year ended

 
31 March

 

2018

 

£m

Year

 ended


31 March

 

2017

 

£m

 

(restated)


Year ended

 
31 March

 

2018

 

£m

Year ended


31 March

 

2017

 

£m

Cash and cash equivalents

270

321


-

-

Restricted funds

18

103


-

-

Cash held in the employee share trust

20

32


-

-

Total cash

308

456


-

-

 

Total cash for the year ended 31 March 2017 has been restated due to recognition of cash held in the employee share trust.

(e) Client money                                                                                                                                                                                                     

As at 31 March 2018, the Group held client money of £nil (2016/17: £26 million). This amount, together with the corresponding liabilities to clients, is not included in the Group's consolidated balance sheet.

(f) Restricted funds

Restricted funds comprise cash held at a CCP clearing house or a financial institution providing NEX with access to a CCP. The balance fluctuates based on business events around the year end and decreased during the year by £85 million to £18 million as at 31 March 2018 (2016/17: increased by £77 million to £103 million).

 

(g) Cash held in the employee share trust

As at 31 March 2018, the Group's employee share trust held money of £20 million (2016/17: £32 million). As at 31 March 2018, the cash held in the employee share trust was held on a one-year fixed term deposit, maturing in April 2018. This cash is held by the employee share trust to acquire shares in the Company in order to meet the obligations to beneficiaries of NEX share schemes.

8. Contingent liabilities, contingent assets and contractual commitments

The Group's contingent liabilities include possible obligations that arise from past events whose existence will be confirmed only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the control of NEX. Additionally, contingent liabilities also include present obligations that have arisen from past events but are not recognised because it is not probable that settlement will require the outflow of economic benefits, or because the amount of the obligations cannot be reliably measured. Contingent liabilities are not recognised in the financial statements but are disclosed unless the probability of the outflow of the Group's economic resources is remote.

The Group's contingent assets include possible assets that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of NEX. Unless the realisation of income is virtually certain, contingent assets are not recognised in the financial statements but are disclosed.

Judgments applied in concluding the appropriateness of contingent liabilities and assets disclosure are confirmed after discussion with the Audit Committee and, where appropriate, consultation with external counsel.

Operating lease rentals are charged to the consolidated income statement on a straight-line basis over the lease term. No assets are held under finance leases.

(a)    Contingent liabilities

The Company and its subsidiaries continue to co-operate with the government agencies in Europe and the US relating to their investigations into the setting of yen Libor. ICAP plc was dismissed from initial US civil litigation against various yen Libor and euroyen Tibor setting banks. However, the plaintiff in that litigation was given permission by the court to add ICAP Europe Limited (IEL) (which was sold to TP ICAP) as a defendant, and an amended complaint doing so was filed on 29 February 2016. IEL filed a motion to dismiss the amended complaint on 16 May 2016. On 10 March 2017, the court granted IEL's motion, and IEL has been dismissed from the lawsuit. It is unclear whether plaintiffs will appeal the court's decision. Discovery is proceeding in the case against the remaining defendants.

On 24 July 2015, a new litigation was filed on behalf of two additional plaintiffs in the same court based on similar allegations. The new litigation includes claims against ICAP plc and IEL, both of which filed motions to dismiss for lack of personal jurisdiction and joined in co-defendants' motion to dismiss for failure to state a claim. On 10 March 2017, the court granted ICAP plc's and IEL's motions, thus dismissing both parties from the lawsuit. On 3 April 2017, plaintiffs filed a notice to commence the appeal process, and the appeal was placed on an expedited appeal calendar. However, plaintiffs then sought to remand the case back to the district court in order to move forward with settlements they had already reached with two of the bank defendants. On 13 June 2017, the appellate court remanded the case back to the trial court. The plaintiffs are in the process of pursuing next steps related to various settlements, including a fairness hearing to be scheduled. Once the settlement process is complete, plaintiffs may re-file their appeal against the remaining defendants. It is not practicable to predict the ultimate outcome of these litigations and it is not possible to provide an estimate of any potential financial impact on the Group, but there is a possible obligation.

Plaintiffs in the Euribor civil litigation named ICAP plc and IEL on 13 August 2015 as parties to that pre-existing litigation. ICAP plc and IEL joined the other defendants in filing motions to dismiss for lack of personal jurisdiction and for failure to state a claim. On 21 February 2017, the court granted ICAP plc's and IEL's motions to dismiss in the Euribor case. Plaintiffs subsequently filed a motion for leave to amend their complaint, which the court denied. Barring an appeal or other application by plaintiffs, both parties remain out of the case. It is not practicable to predict the ultimate outcome of these litigations and it is not possible to provide an estimate of any potential financial impact on the Group, but there is a possible obligation.

On 6 November 2017, plaintiffs in a pending US class action litigation concerning Swiss franc Libor filed a second amended complaint which added 12 new broker-related defendants, including NEX Group plc, Intercapital Capital Markets LLC (ICM, a NEX company), IEL and ICAP Securities USA LLC (both of which were sold to TP ICAP), TP ICAP, and additional Tullett Prebon entities. Motions to dismiss the second amended complaint, including our motion, were filed on 6 April 2018. Plaintiffs' opposition will be due on 4 June 2018, and defendants' reply brief will be due 3 July 2018. We intend to defend this litigation vigorously. It is not practicable to predict the ultimate outcome of the litigation and it is not possible to provide a reliable estimate of any potential financial impact on the Group, but there is a possible obligation.

On 15 December 2017, an entity called the Stichting Elco Foundation, which purports to protect the interests of various EU entities, including investment firms, credit institutions, and insurance companies, filed a writ initiating litigation in Amsterdam against ICAP plc (a NEX company), IEL (which was sold to TP ICAP), and three banks for alleged manipulation of various interbank offering rates. Defendants' first appearance with the court was entered on 25 April 2018. The date for a statement of defences for all parties, which in our case we anticipate will a motion to dismiss, is 6 June 2018. We intend to vigorously defend the litigation. It is not possible at this time to predict the outcome of this litigation or to provide an estimate of any potential liability or financial impact on the Group, but there is a possible obligation.

The Group continues to co-operate with inquiries by the US government agencies into the setting of USD ISDAFIX rates. In 2014, civil lawsuits were filed in the US against USD ISDAFIX setting banks, where a subsidiary of the Company was originally named, but was subsequently replaced by ICM, as a defendant. Those suits have now been consolidated into a single action, which is in the class certification stage. ICM intends to defend these litigation claims vigorously. It is not practicable to predict the ultimate outcome of these inquiries or the litigation and it is not possible to provide a reliable estimate of any potential financial impact on the Group, but there is a possible obligation.

Beginning 25 November 2015, ICM was named as a defendant, along with a number of banks and Tradeweb Markets LLC, in ten civil lawsuits relating to the interest rates swaps market. Eight of the lawsuits are class actions by alleged investors in the market, and the other two are single plaintiff cases brought by failed competitors. All of the suits make allegations that defendants together colluded to prevent buy side clients from accessing the interest rates swaps market on electronic, exchange-like platforms, including the boycott of any platform offering all-to-all trading. The actions generally assert claims of violation of antitrust laws and unjust enrichment. The cases have been consolidated and are being managed by the United States District Court for the Southern District of New York. All defendants filed motions to dismiss the complaints for failure to state a claim on 4 November 2016. Plaintiffs then filed an amended complaint which, among other things, added ICAP SEF (US) LLC and ICAP Global Derivatives Limited (both of which were sold to TP ICAP) as defendants. All defendants filed new motions to dismiss on 29 January 2017. On 28 July 2017, the court issued a decision dismissing all claims as to ICM, as well as the two TP ICAP entities. The court also dismissed claims against Tradeweb and HSBC. While certain of the claims were dismissed against the other banks, the balance of the lawsuit is proceeding as to the banks. While there is no present indication that plaintiffs will seek to appeal the dismissal of the aforementioned entities from the suit, or otherwise seek to re-join them in the litigation, it is not possible to predict the outcome of these litigations or to provide an estimate of any potential liability or financial impact on the Group, but there is a possible obligation.

On 16 August 2016, ICAP plc and ICAP Australia Pty Limited (which was sold to TP ICAP), along with a number of banks and two Tullett Prebon entities, were named as defendants in a purported class action filed in the United States District Court for the Southern District of New York alleging antitrust, Commodity Exchange Act, and common law claims arising out of the alleged manipulation of the Australian Bank Bill Swap Reference Rate (BBSW), which plaintiffs contend harmed a class of individuals and entities that traded in the US in instruments priced, benchmarked and/or settled based on BBSW between 1 January 2003 and some indeterminate later time. ICAP plc and ICAP Australia Pty Limited accepted service while preserving the right to challenge the court's exercise of personal jurisdiction over the entities. Both defendants, along with other defendants in the case, filed motions to dismiss on 24 February 2017. The court heard oral argument on the motions on 23 January 2018 and permitted additional post-argument briefing. The parties are now awaiting decision from the court. It is not possible to predict the outcome of this litigation or to provide an estimate of any potential liability or financial impact on the Group, but there is a possible obligation.

From time to time the Group is engaged in litigation in relation to a variety of matters, and is also required to provide information to regulators and other government agencies as part of informal and formal inquiries or market reviews.

For the sake of clarity, some of the matters described herein may not be the direct responsibility of the Company but may be its responsibility under indemnification and/or breach of warranty provisions agreed to by the Company with TP ICAP. The sale by ICAP plc of IGBB to Tullett Prebon entailed customary warranties given by ICAP plc in the sale and purchase agreement and repeated at completion of the transaction. Warranty claims are subject to customary limitations, including a de minimis and aggregate claims threshold, a cap, and time limits for bringing a claim. In addition to such warranties, ICAP plc also provided Tullett Prebon with indemnities for, among other things, certain known regulatory, litigation and employment claims. It is not possible to predict whether any of the matters described herein will give rise to liabilities under the warranties and/or indemnities given in connection with the transaction, but there is a possible obligation.

9. Related party transactions

The nature of the various services provide to some of the Group's joint ventures, associates and other related parties are similar to those previously reported as at 31 March 2017 and there have been no material transactions during the year ended 31 March 2018.

10. Post balance sheet events

On 18 May 2018, the NEX shareholders voted to approve the Offer from CME.

Statement of directors' responsibilities for the Annual Report

The directors are responsible for preparing the Annual Report, the strategic report, the remuneration report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group's and Company's financial statements in accordance with IFRS as adopted by the EU. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing these financial statements, the directors are required to:

-

select suitable accounting policies and then apply them consistently;

-

make judgments and accounting estimates that are reasonable and prudent;

-

state whether applicable IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements; and

-

prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

 The directors are responsible for ensuring that the Group and the Company keep adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The directors are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Having taken all the matters considered by the board and brought to the attention of the board during the year into account, the directors are satisfied that the Annual Report, taken as a whole, is fair, balanced and understandable and it provides the information necessary for shareholders to assess the Group's and the Company's position and performance, business model and strategy.

The directors are responsible for the maintenance and integrity of the information on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' statement pursuant to the FCA's Disclosure and Transparency Rules

The directors are required by the Disclosure and Transparency Rules to include a management report containing a fair review of the business and a description of the principal risks and uncertainties facing the Group and the Company. The directors of the Company who were in office during the year, and up to the date of signing the Annual Report, were Charles Gregson, Michael Spencer, Samantha Wren, Ken Pigaga, Anna Ewing, Ivan Ritossa, John Sievwright and Robert Standing. Each of these directors, whose function is listed in the directors' biographies, confirms to the best of their knowledge that:

-

the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

 

-

the management report disclosures which are contained in the strategic report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic report. The financial position of the Group, its cash flow, liquidity position, facilities and borrowing position are described in the financial review. Note 6 to the financial statements provides further detail on the Group's borrowings and management of financial risks. The strategic report includes an analysis of the principal risks facing the Group and the Group's approach to risk management.

After reviewing the Group's annual budget, liquidity requirements, plans and financing arrangements, the directors are satisfied that the Group and the Company have adequate resources to continue to operate and confirm that the Group and the Company are going concerns. For this reason, they continue to adopt the going concern basis in preparing these financial statements.

Viability statement

In addition to the requirement to consider the appropriateness of preparing the Group's financial statements on a going concern basis, the directors have an obligation under the FRC's UK Corporate Governance Code to make a statement in the Annual Report with regard to the viability of the Group, including explaining how they have assessed the prospects of the Group, the period of time for which they have made the assessment and why they consider that period to be appropriate.

The Group's viability assessment has been made over a period of three financial years up to 31 March 2021. The directors are satisfied that a three-year period is sufficient to enable a reasonable assessment of the Group's viability to be made. In addition, this period is covered by the Group's medium-term plan. The board reviewed the plan in detail, challenged assumptions made in the forecasts and assessed the attainability of the forward projections.

In making this assessment, the directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources. They also assessed the potential financial and operational impacts, in severe but plausible scenarios, of the Group's principal risks and uncertainties.

Based on these assessments, the directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due up to 31 March 2021.


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