RNS Number : 7922H
London Stock Exchange Group PLC
06 August 2021
 

 

London Stock Exchange Group plc: H1 2021 Interim Results

This release contains revenues, costs, earnings and key performance indicators (KPIs) for the six months ended 30 June 2021 (H1). All figures quoted in this release are on an underlying basis.  Figures are stated on both a statutory and pro-forma basis for H1 2021 and H1 2020. Pro-forma figures assume that the acquisition of Refinitiv took place on 1 January 2021 and the prior year comparator assumes that the acquisition of Refinitiv occurred on 1 January 2020. All pro-forma and statutory figures exclude the financial contribution from Borsa Italiana which was divested within the period and classed as a discontinued business in both periods. Constant currency variance is calculated on the basis of consistent FX rates applied across the current and prior year period, the conversions have been made from the transactional values, which will eliminate any transactional and translational movements along with any related accounting adjustments. For more information please refer to "Accounting and modelling notes" section below. Organic variances have been removed from our disclosure due to the large variances associated with the acquisition of Refinitiv.

Highlights

Note: Unless otherwise stated, variances refer to growth rates on a pro-forma constant currency basis, excluding the impact of a deferred revenue accounting adjustment1, to provide the best view of underlying performance

·    Good performance across all divisions driving 4.6% growth in total income1

·    Adjusted operating expense growth of 1.1% due to lower phasing of costs in H1; on track for mid-single digit cost growth for FY 2021 at constant currency (expected to be c.5%), reducing to low-single digit cost growth in 2022 and 2023

·    Adjusted EBITDA margin of 49.4%2; margin will be lower for the full year as a result of cost phasing in H2, improving thereafter to achieve the 50% target and increasing beyond 2023

·    Good financial performance driving 18.6% increase in AEPS to 146.1p3

·    Good progress on the integration of Refinitiv with £77 million of run-rate cost synergies realised at H1; full year guidance for run-rate cost synergy delivery increased from £88 million to £125 million; and 27 new products launched as part of revenue synergy programme

·    Group in a strong financial position; leverage reduced to 2.2x net debt/EBITDA following successful divestment of Borsa Italiana

·    Favourable outlook supports increase in interim dividend (up 7%) to 25.0 pence per share

1 Excluding recoveries and the deferred revenue accounting impact. The deferred revenue impact is a one-time, non-cash, negative revenue impact resulting from the accounting treatment of deferred revenue within Refinitiv's accounts which have been re-evaluated upon acquisition by LSEG under purchase price accounting rules. The result of this accounting treatment is a £23m adjustment reducing revenue for H1 2021. The vast majority impacts the Data & Analytics business with a smaller impact applied to the FX venues business within Capital Markets. There will be further immaterial impacts in subsequent periods within 2021. Further information is available in the "Accounting and modelling notes" section. Constant currency variance shows underlying financial performance, excluding currency impacts, by comparing the current and prior year period at consistent exchange rates.

2 Adjusted EBITDA margin is Adjusted EBITDA divided by Total Income (excl. Recoveries)

3 Adjusted basic earnings per share (AEPS) variance is on a reported pro-forma basis, not constant currency

David Schwimmer, CEO said:

"LSEG has delivered a good financial performance in the first half of the year, reflecting revenue growth across all divisions.

"We are executing well on our integration plans to deliver the strategic and financial benefits of the Refinitiv transaction.  Our cost synergy programme is ahead of plan with £77 million of run-rate savings achieved at H1 and our revenue synergy programme is on track.

"We continue to invest in projects that enhance our customer offering and deliver a more scalable and efficient business, particularly in Data & Analytics.  This will support our revenue growth ambitions and lead to further operating margin improvement.  The reduction of leverage during the period reinforces our strong financial position and, with our mix of world-class assets and unique positioning in growing markets, we look forward to further progress during the rest of the year."

Financial Summary

Unless otherwise stated, all figures refer to continuing operations for the six months ended 30 June 2021 (H1 2021). Comparative figures are for continuing operations for the six months ended 30 June 2020 (H1 2020). Numbers are presented on both a statutory and pro-forma basis where indicated.

 

 

Statutory underlying 1

Continuing operations


H1 2021
£m


H1 2020
£m

 

 

 

Data & Analytics

1,959 

409 

Capital Markets

542 

147 

Post Trade

450 

468 

Other

14 

Total Income (excl. recoveries)

2,965 

1,028 

Recoveries

148 

- 

Total Income (incl. recoveries)

3,113 

1,028 

 

 

 

Cost of sales

(394)

(114)

Gross profit

2,719 

914 

 

 

 

Adjusted operating expenses before depreciation, amortisation and impairment

(1,247)

(369)

Income from equity investments

11 

Share of loss after tax of associates

(2)

(2)

Adjusted earnings before interest, tax, depreciation, amortisation and impairment

1,481 

543 

 

 

 

Depreciation, amortisation and impairment

(311)

(86)

Adjusted operating profit

 1,170 

457 

 

 

 

Net finance expense

(87)

(22)

Adjusted profit before tax

1,083 

435 

 

 

 

Taxation

(228)

(89)

Adjusted profit after tax

855 

346 

 

 

 

Non-controlling interest

(97)

(34)

Profit for the period

758 

312 

 

 

 

Adjusted basic earnings per share (p) 2

146.0 

89.2 

Basic earnings per share (p) 2

34.3 

45.1 

 

 

 

Interim dividend per share (p)

25.0 

23.3 

       

1 Statutory underlying figures for H1 2021 incorporate figures from Refinitiv for February to June 2021. Figures associated with the Borsa Italiana Group divestment are excluded from both periods

2 Weighted average number of shares used to calculate Adjusted basic earnings per share and Basic earnings per share on a statutory underlying basis is 519 million

For the pro-forma table, variances are provided on a reported and constant currency basis. Commentary is provided on the constant currency variance (excluding deferred revenue adjustment) to provide the best insight into underlying performance. Please refer to the Accounting and Modelling notes section for more information on relevant accounting adjustments.

 

 

Pro-forma underlying1

Continuing operations


H1 2021
£m


H1 2020 2
£m


Reported Variance 3
%

 

Constant Currency Variance 4
%

Constant Currency Variance (excl. deferred revenue adjustment) 4,5
%

 

 

 

 

 

 

 

Data & Analytics

2,272 

2,335 

(2.7%)

 

3.9% 

4.8% 

Capital Markets

619 

600 

3.2% 

 

9.6% 

9.6% 

Post Trade

450 

468 

(3.8%)

 

(2.1%)

(2.1%)

Other

 15 

 17 

 (11.8%)

 

 (5.9%)

(5.9%)

Total Income (excl. recoveries)

 3,356 

 3,420 

 (1.9%)

 

 4.0% 

4.6% 

Recoveries

178 

164 

8.5% 

 

(1.1%)

(0.6%)

Total Income (incl. recoveries)

3,534 

3,584 

(1.4%)

 

3.7% 

4.4% 

 

 

 

 

 

 

 

Cost of sales

 (454)

 (486)

 (6.6%)

 

 0.2% 

0.2% 

Gross profit

 3,080 

 3,098 

 (0.6%)

 

 4.3% 

5.1% 

 

 

 

 

 

 

 

Adjusted operating expenses before depreciation, amortisation and impairment

(1,432)

(1,507)

(5.0%)

 

1.1% 

1.1% 

Income from equity investments

11 

 

Share of loss after tax of associates

 (2)

 (1)

 - 

 

 - 

Adjusted earnings before interest, tax, depreciation, amortisation and impairment

1,657 

1,590 

4.2% 

 

7.9% 

 9.4% 

Adjusted EBITDA Margin 6

49.4% 

46.5%

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortisation and impairment

(363)

(346)

4.9% 

 

7.7% 

7.7% 

Adjusted operating profit

 1,294 

1,244 

 4.0% 

 

 8.0% 

9.9% 

 

 

 

 

 

 

 

Net finance expense

(125)

 (193)

(35.2%)

 

 

 

Adjusted profit before tax

1,169 

1,051 

11.2% 

 

 

 

 

 

 

 

 

 

 

Taxation

 (250)

 (279)

 (10.4%)

 

 

 

Adjusted profit after tax

919 

772 

19.0% 

 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 (107)

(88)

21.6% 

 

 

 

Profit for the period

 812 

684 

18.7% 

 

 

 

 

 

 

 

 

 

 

Adjusted basic earnings per share (p) 7

146.1 

123.2 

18.6% 

 

 

 

1 Pro-forma underlying assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. Both figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment

2 H1 2020 comparator figure differs to the previous disclosure due to the treatment of FX and other adjustments. For more information please refer to the "Accounting and modelling notes" section

3  Reported variance is the difference between current and prior year periods on a pro-forma underlying basis, using year-to-date FX rates prevalent at each time, therefore any changes in the FX rates are also reflected in the variance percentage alongside business performance

4 Constant currency variance shows underlying financial performance, excluding currency impacts, by comparing the current and prior period at consistent exchange rates

5 The deferred revenue adjustment is explained in the "Accounting and modelling notes" section

6 Adjusted EBITDA margin is Adjusted EBITDA divided by Total Income (excl. Recoveries)

7 Weighted average number of shares used to calculate Adjusted basic earnings per share on a pro-forma underlying basis is 556 million.

 

Pro-forma1 H1 2021 Highlights

·    Data & Analytics: revenues up 4.8%

o Trading and Banking Solutions revenues down 0.1% - Fixed income trading, commodities trading, FX and Banking business growing, offset by decline in Eikon Premium desktops, albeit the rate of decline has slowed

o Enterprise Data Solutions revenues up 2.4% - continued strong growth in Pricing and Reference Services (PRS) ahead of market, with Real Time business also growing

o Investment Solutions revenues up 8.4% - double-digit growth in asset-based revenue, up 18.2%, as ETF AUM surpassed $1 trillion. Strong growth in index subscription revenue up 7.9%. Continued momentum in new product launches and FTSE Russell cross-selling with PRS

o Wealth Solutions revenues up 0.8% - Data businesses grew well, partly offset by a decline in Beta volumes compared with strongly elevated volumes in H1 2020

o Customer and Third-Party Risk Solutions revenues up 37.5% - strong growth across services and ahead of market; benefit from acquisitions in 2020

·    Capital Markets: revenues up 9.6%

o Equities revenues up 2.5% - largest number of new issues in the period since 2014 although benefit from admission fees is spread across multiple years.  Secondary revenues down as volumes normalised compared to extreme volatility in H1 2020

o FX revenues down 0.8% - Good growth in FXall (dealer-to-client service), offset by decline in the Matching (dealer-to-dealer) service, partly reflecting a strong comparator period

o Fixed Income, Derivatives and Other revenues up 15.4% - reflecting continued strong growth at Tradeweb2 due to the shift of trading to electronic markets, new services and market share gains

·    Post Trade: revenues up 8.4%; total income down 2.1% (impacted by Net Treasury Income)

o OTC Derivatives revenues up 2.4% - good performance against strong prior year comparator with the platform continuing to attract new client business

o Securities & Reporting revenues up 15.3% - driven primarily by strong RepoClear activity attracting clearing volumes onto the service from European debt issuance

o Non-Cash Collateral revenues up 17.5% - partly reflecting increased RepoClear activity

o Net Treasury Income down 25.3% - Cash collateral balances and rate of return remain at more normalised levels, compared with exceptional prior-year period

1 Pro-forma assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. Both figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment

2 Tradeweb Q2 2021 results were released on 29 July 2021

 

Contacts: London Stock Exchange Group plc

 

Investors

 

Paul Froud - Group Head of Investor Relations

+44 (0) 20 7797 3322

ir@lseg.com

Media

 

Lucie Holloway / Rhiannon Davies - Financial Communications

+44 (0) 20 7797 1222

newsroom@lseg.com

 

Additional information can be found at www.lseg.com 

 

H1 investor and analyst conference call:

The Group will host a presentation and conference call on its Interim Results for analysts and institutional shareholders today at 09:30am (UK time). On the call will be David Schwimmer (Chief Executive Officer), Anna Manz (Chief Financial Officer) and Paul Froud (Group Head of Investor Relations).

 

To access the telephone conference call or webcast please register in advance using the following link and instructions below:

 

https://www.lsegissuerservices.com/spark/LondonStockExchangeGroup/events/7233ea7f-bde2-4dec-8d53-bfc71d10f013

 

·    Please register with your full name, company name and email address

·    If you wish to participate in Q&A , questions can be provided in written form via the Q&A tool on the webcast page or by emailing the LSEG Investor Relations team at ir@lseg.com. Questions can be submitted in advance and during the event itself. Written questions will be prioritised as at our 2 July Investor Education Event

 

Presentation slides can be viewed at http://www.lseg.com/investor-relations

 

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

 

Chief Executive's Statement

Overview of H1

The Group has produced a good half-year financial and operating performance, with strong momentum on our multi-year journey to deliver the full potential of the acquisition of Refinitiv. We are making good progress, delivering on the benefits of the transaction, particularly in our cost synergy programme where we are increasing our outlook for synergy realisation this year.

Strong position

We have a diverse set of world-class assets, giving us global scale, multi-asset class capabilities across the trade lifecycle, highly recurring revenues with our products and services providing value across our customers' core operations. We play a leading role in the sustainable transition through our ESG data, analytics and indices, capital issuance venues and industry leadership.

We are building on our track record of partnering with our customers to drive innovation and create value, and on our position as a trusted operator of large-scale critical market infrastructure. In utilising these strengths, we are creating an integrated business that is much more than the sum of the parts. 

Priorities for the Group

Our ongoing priorities are threefold: to integrate our world-class business; to drive growth; and to build an efficient and scalable platform, particularly in Data & Analytics. We are implementing a range of actions across our systems, property and workforce to progress our integration plans. In driving the top line, we are using the strengths across the Group to enable innovation and product benefits for our customers. In delivering our scalable platforms, we are investing in technology and infrastructure to drive greater efficiencies and facilitate sustainable margin enhancement over time.  We have made strong progress across all three key priorities in H1, and this momentum continues into the second half of the year.

Executing on our integration plan

The Group's divisions are working successfully together to create new opportunities. These include developing data and analytics services within Post Trade, the cross-selling of indices and Pricing and Reference Service (PRS) data and content provision through the Issuer Services platform. In the near-term, priorities also include offering transaction execution and cost optimisation data from our post trade businesses through Workspace and providing connectivity between the Group's FX venues and ForexClear to provide additional clearing optionality for customers.

We have made good progress with our revenue synergies, for instance with cross-selling PRS data to FTSE Russell customers, while using this data to create and launch new FTSE Russell products and are on track with our planned delivery, with £4 million run-rate achieved in the half.

We are also executing well to deliver our announced £350 million of run-rate cost synergies through property consolidation, technology efficiencies and removal of duplicate roles.

We completed the sale of Borsa Italiana at the end of April, for a total cash consideration of €4.4 billion. As previously indicated, these proceeds were used to repay the remaining part of the financing bridge, taken out at the completion of the Refinitiv acquisition. We have secured long-term financing at historically attractive rates which puts the Group in a strong financial position, with leverage reduced to 2.2x within six months post completing the transaction.

Driving growth

In the first half, Data & Analytics launched a range of new products, including Refinitiv Active Investor for wealth managers and FTSE Russell launched the first climate index for the inflation-linked government bond market. Targeted investment in projects to enhance services across Data & Analytics have continued in the period, notably on the further development and roll out of Workspace in the Wealth and Banking businesses. There has been positive customer reaction to the new platform, with plans in place to extend the offering into other businesses within Data & Analytics.

Capital Markets is attracting record levels of activity through its strong global offering. In H1, over half of IPOs in London have been from the technology and internet consumer sectors, with several high-profile growth companies joining the main market. London Stock Exchange is a leading global listing and equity trading venue with increasing focus on capital-raising driving the transition to sustainable finance. Tradeweb is a leading electronic trading venue for credit and rates products, with increasing electronification and share gains driving good growth in the period. The Group's FX venues are also driving integrated workflow within a large liquidity pool as electronic trading of FX increases.

In Post Trade, LCH remains the leading clearer of OTC products worldwide across asset classes (Rates, FX, CDS) and is developing its offering to the uncleared space with SwapAgent. In H1, SwapClear continued to increase the number of clients to the service, with 47 firms signing up across a diverse range of geographies. LCH is also a leading clearing service for Repo and Fixed Income products, and for European equities. During the period, the RepoClear service grew strongly as it provided netting efficiencies to customers for higher repo volumes arising from European debt issuance programmes.

Delivering a scalable platform

We are continuing a targeted investment programme in our technology and infrastructure to serve our customers better and facilitate margin enhancement and product profitability. A key part of this is continuing our ongoing migration of services to the cloud, which enhances the customer experience and also improves our scalability, simplifying our data platform by reducing and consolidating a fragmented offering towards a single point of access.

Work is underway on the re-platforming of our FX trading venues to our own proven technology.  RepoClear is also moving its clearing platform onto the same platform as the EquityClear service, developed by LSEG Technology, to drive further customer efficiencies. As we deliver on these initiatives, our EBITDA margin enhancement will continue above the current target 50% level beyond 2023.       

Financial pro-forma performance

The Group has delivered good total income (excluding recoveries) growth in H1, with an acceleration in year-on-year growth from 3.9% in Q1 to 5.5% in Q2, and on track for c.4-5% growth for 2021. The growth in H1 has been driven by an increase in recurring revenues in Data & Analytics and Capital Markets (annual listing fees and recurring user fees), and stronger volumes in Tradeweb with high transactional revenues. Net Treasury Income has been at a more normalised level in the period compared to 2020 H1 which saw exceptional pandemic-related income from higher returns and cash margin levels.

Total income by revenue type

 

Pro-forma underlying 1

 


H1 2021
£m


H1 2020
£m


Reported Variance2
%

 

Constant Currency Variance3
%

Constant Currency Variance (excl. deferred revenue adjustment) 3,4
%

 

 

 

 

 

 

 

Recurring

2,304

2,374

(2.9%)

 

3.4% 

4.3% 

Transactional

930

880

5.7% 

 

10.9% 

10.9% 

Net Treasury Income

108

149

(27.5%)

 

(25.3%)

 (25.3%)

Other income

14

17

(17.6%)

 

(18.8%)

(18.8%)

Total income (excl. recoveries)

3,356

3,420

(1.9%)

 

4.0% 

4.6% 

Recoveries

 178

164

 8.5% 

 

 (1.1%)

(0.6%)

Total income (incl. recoveries)

 3,534

3,584

 (1.4%)

 

3.7% 

4.4% 

1 Pro-forma underlying assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. Both figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment

2 Reported variance is the difference between current and prior year periods on a pro-forma underlying basis, using year-to-date FX rates prevalent at each time, therefore any changes in the FX rates are also reflected in the variance percentage alongside business performance

3 Constant currency variance shows underlying financial performance, excluding currency impacts, by comparing the current and prior period at consistent exchange rates

4 The deferred revenue adjustment is explained in the "Accounting and modelling notes" section

Adjusted operating expenses before depreciation, amortisation and impairment grew 1.1%.  Costs increased from ongoing factors including inflation, costs at Tradeweb to support higher revenue generation, and the annualisation of costs from acquisitions (SciVantage, GIACT and The Red Flag Group). The Group has continued to invest in data platform enhancements, including cloud, other technology enhancements and networks which are increasing the efficiency and scalability of our businesses. While this investment continues, we are incurring higher costs as we dual-run new technology with existing systems and as we support legacy systems in the near term. Offsetting these increases, the Group has benefitted from a Covid-19 related underspend on marketing and travel in H1 and the annualisation of Refinitiv's cost-saving programme that completed in 2020, with an in-period benefit of £41 million.

We also have strong momentum in the realisation of cost synergies. In H1, £77 million of run-rate cost synergies have been realised, resulting in an in-period benefit of £25 million on an actual rate basis. The original phasing of the cost synergies anticipated c.£88 million run-rate realised in 2021; we now expect this run-rate to increase to c.£125 million. Revenue synergies have had a good start, at £4 million run-rate achieved, though will take time to build while requiring upfront investment already included within our stated investment expectations.

While costs have been well managed and cost growth in the first half was lower than originally expected, we expect further cost increases in H2 2021 from the continuation of inflation and other costs, plus the return of Covid-impacted costs (including travel, marketing and property services) and ongoing expenses from legacy IT and incremental cloud costs, as we invest to replace inefficient systems. We therefore still expect to meet the full year 2021 guidance of mid single digit growth, with c.5% on a constant currency basis. Because of the mix in FX and FX related adjustments, on a reported basis we expect the cost growth for 2021 will be around a c.1-2% step down from the new 2020 pro-forma level of £3,023 million.

Looking further out, the Group expects a step-down in levels of cost increase, to low-single digit overall cost growth in 2022 and 2023 on a constant currency basis. Costs are expected to grow modestly as technology projects near completion, offset in part by the benefit from the current faster than planned cost synergy delivery. We expect technology improvements will deliver scalability for the Group over the medium-term and enable further revenue growth.

Depreciation, amortisation and impairment was £363 million in the period. Due to accounting adjustments applied to the 2020 pro-forma and therefore feeding into 2021, please refer to the section 'Changes to the 2020 pro-forma' for details, the Group now expects c.£790 million for the full year on a constant currency basis. 

Capex in H1 was £318 million. This included £273 million of normal course investment and £45 million of integration and separation capex. The Group expects total capex to increase in the second half towards the c.£850 million capex for the full year, as previously indicated. Ongoing investment in the business over the next two years is expected to continue at £650 million to £700 million (unchanged from the level of investment in both LSEG and Refinitiv prior to combination). In addition, integration and separation-related capex, mainly for synergy realisation, will be completed within this timeframe and within the announced integration costs at acquisition.

Net finance expense was £125 million in the first half.  The full year 2021 financing expense is expected to be £205 million on a constant currency basis, which reflects the longer-term financing put in place during the period. The tax rate on a pro-forma basis was 21.4%, reflecting some modestly better tax benefits from the transaction in the period. The effective tax rate for the full year is expected to be 21.5%. For 2022 and 2023, the tax rate is expected to be within a range of 22-24%. Non-controlling interest was £107 million, reflecting the strong performance at Tradeweb.

Pro-forma cash generated from operating activities was £1,490 million, reflecting the addition of the Refinitiv group and a strong underlying performance. Net cash generated after transaction-related fees, cost to achieve synergies, capex, net interest and royalties paid, tax paid, other investing activities and dividends, was £606 million. Discretionary free cash flow per share on the same basis was 173.4 pence (before the external dividend payment of £357 million).

At 30 June 2021, operating net debt increased to £7,095 million, from £1,425 million at year end, predominantly due to the debt taken on as part of the Refinitiv acquisition and after setting aside £1,258 million (31 December 2020: £1,242 million) for regulatory and operational support purposes. The amount set aside for regulatory and operational purposes by the Borsa Italiana group was largely replaced by that of the Refinitiv group of companies, resulting in a £16 million increase. Cash generated by the business funded the Group's investment outflows, dividend payments, tax payments and regular debt servicing. Operating net debt: pro-forma EBITDA increased to 2.2 times (from 1.4 times at 31 December 2020), reflecting strong earnings growth balanced against the increase in operating net debt. The 2.2 times leverage is a reduction from the originally anticipated level of more than 3 times when the acquisition of Refinitiv was originally announced. The reduction reflects the cash generated by the business during the time period to acquisition completion, and the application of the €4.4 billion proceeds from the divestment of Borsa Italiana towards the reduction in Group debt.

Both Standard & Poor's and Moody's maintained their respective LSEG credit ratings at A and A3 through the period and, based on support for the strategic rationale for the Refinitiv transaction and reference to the Group's deleveraging plans (including the impact of the sale of the Borsa Italiana group), Standard & Poor's maintained its outlook at negative, and Moody's improved its outlook from negative to stable. Two additional ratings were introduced as part of the Refinitiv refinancing process where the debt issued by the newly established subsidiary financing companies, LSEGA Financing plc and LSEG Netherlands B.V., was awarded the same ratings as their parent company, LSEG. Standard & Poor's also maintained its long-term rating of LCH Limited and LCH SA at AA- with a stable outlook through the period.

The Group had net assets of £24,884 million at 30 June 2021 (31 December 2020: £4,125 million), including £2,748 million in cash and cash equivalents (31 December 2020: £1,785 million).

Board and Management changes

As announced on 28 April 2021, Tsega Gebreyes and Ashok Vaswani joined the LSEG Board as Independent Non-Executive Directors, effective 1 June 2021. Tsega joined the Risk and Remuneration Committees and Ashok the Audit and Risk Committees. As announced at the same time, Stephen O'Connor, Senior Independent Director (SID), is stepping down from the Board.  Cressida Hogg will assume the role of SID, effective immediately.

 

Effective from 1 July 2021, Andrea Remyn Stone became Group Head, Data & Analytics, following the announcement that David Craig will leave the Group at the end of 2021. Andrea was previously Chief Product Officer, Data & Analytics and is working closely with David to ensure a smooth transition of operational and integration priorities over the coming months. 

Interim Dividend

In line with the Group's dividend policy, the interim dividend is calculated as one-third of the prior full year dividend. Accordingly, the Directors have declared an interim dividend of 25.0 pence per share, an increase of 7% (H1 2020: 23.3 pence per share). The interim dividend will be paid on 21 September 2021 to shareholders on the register on 20 August 2021.

 

Outlook

 

We are pleased with the H1 performance and are highly focused on continued execution to maintain the good momentum into H2 2021 and future years. We are executing on a detailed integration and transformation plan to create a simplified and scalable business, and we are ahead of plan.  We are confident in meeting our financial targets.

 

Accounting and modelling notes

New Key Performance Indicators (KPIs)

 

KPIs that will be reported for Data & Analytics going forward are:

·    Annual Subscription Value growth for Data & Analytics - Measures the growth of recurring revenue base and how the book of business is changing over time. This metric covers c.87% revenues across the Data & Analytics division and excludes asset-based revenues in Investment Solutions and Beta revenues in Wealth Solutions.

·    FTSE Russell ETF AUM - End of period AUM for ETFs created from FTSE Russell indices

            ·    ESG Passive AUM - End of period global passive AUM in FTSE Russell Sustainable Indices

·    Beta volumes - Volume of trades executed through the platform

 

Two new KPIs have been included for Post Trade:

·    SwapClear client average 10-year notional equivalent - This is a recognised risk-based metric used by fixed income market participants, simplifying and standardising the view across the book of Swaps in the business. For Post Trade, this is the notional quantity of 10-year USD Interest Rate Swaps required to hedge the SwapClear client portfolio risk. There is a good correlation between this risk metric and SwapClear's revenues (c.85% of the OTC Derivatives revenue line)

·    Non-cash collateral balances - Average EUR value of non-cash balances across LCH in the period, and directly linked to the Non-cash collateral revenue line

 

Back history for the 6 new metrics is included in a table within the appendix.

 

In Capital Markets, we have consolidated the number of metrics reported within our set of KPIs. Each of the metrics no longer presented in our results will continue to be available via Group websites.

 

Those to be removed/changed are:

·    Secondary Markets: UK Value Traded Total; Turquoise Value Traded Total; Turquoise Value Traded - Average Daily Value

·    The FX average daily volume KPIs are combining Spot and Other, into a Total

·    Fixed Income, Derivatives and Other: Money Markets - Cash; Equities - Cash; Equities - Derivatives

 

Deferred revenue accounting adjustment

 

As a result of the acquisition of Refinitiv and the associated purchase price accounting rules, Refinitiv's deferred revenue balances are subject to a one-time haircut at the time of acquisition. This is a non-cash adjustment. The negative revenue impact is mostly in Q1 2021 at approximately £22 million, with an additional £1 million in Q2; the remaining impact will be immaterial over subsequent quarters in 2021. The impact will be mostly in the Group's Data & Analytics division, with a much smaller impact on the Group's FX venues business sitting within Capital Markets.

 

An adjusted variance, excluding the deferred revenue adjustment, has been presented to show true underlying business growth on the prior year.

 

Changes to the 2020 pro-forma

 

As stated in the Financial Review within our FY 2020 Preliminary results, the presented pro-forma financial information was unaudited and did not include adjustments for inter-company transactions, reallocations of costs, any fair value adjustments arising out of the purchase price allocation exercise, any future changes to accounting estimates or judgements, and were therefore subject to change, albeit not expected to be material.

 

At LSEG's Q1 results, an updated pro-forma 2020 was provided for revenue and cost of sales on a quarterly basis. The revenue was rebased to use a constant FX approach and included the recognition of sub-lease revenues and elimination of inter-company revenues. For H1, further changes have been made to our 2020 pro-forma through the application of LSEG's accounting treatments.

 

These changes are:

·    The application of IFRS 16 leasing treatment which adjusts the costs between depreciation, rental expenses and financing expense. This increases adjusted operating expenses by £49 million in 2020 and reduces underlying depreciation, amortisation and impairment by £34 million

·    For transaction related indemnified costs and incentive plans which are considered as non-underlying under the Group's policies. This increases adjusted operating expenses by £11 million

 

The combined impact of these changes is a £26 million reduction to Adjusted Operating Profit in 2020.

These changes do not impact on our 5-7% revenue target from 2020 pro-forma to 2023, or our mid-single digit cost growth in 2021 (both on a constant currency basis). The £34 million reduction of underlying depreciation, amortisation and impairment in 2020, does however impact on our stated guidance of ~£830m in 2021 as the base is £34m lower in 2020. Updated guidance can be found in the section of this release covering financial performance.

 

FX conversion

 

As a result of the acquisition of Refinitiv, the majority of LSEG revenues and expenses are in USD followed by GBP, EUR and other currencies. All guidance given by LSEG, including the longer-term targets associated with the acquisition of Refinitiv as well as specific guidance for the 2021 financial year, has been given on a constant currency basis.

 

 

USD

GBP

EUR

Other

2021 H1 Total Income 1

59%

18%

15%

8%

2021 H1 Underlying Expenses 2

52%

23%

11%

14%

 

1 Total income includes recoveries

2 Underlying expenses includes cost of sales, underlying operating expenses and underlying depreciation and amortisation

 

The results for the period ended 30 June 2021 have been translated into Sterling using the average exchange rates for the period. The rates for the largest two currency pairs are shown in the table below.

 

 

Average rate

6 months ended

30 June 2021

Closing rate at
30 June 2021

Average rate

6 months ended
30 June 2020

Closing rate at
30 June 2020

GBP : USD

1.388

1.384

1.261

1.230

GBP : EUR

1.152

1.163

1.144

1.094

 

FX sensitivities

 

The Group's principal foreign exchange exposure arises as a result of translating its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling. A 5 cent movement in the average £/US$ rate for the year and a 5 euro cent movement in the average £/€ rate for the year would have changed the Group's operating profit for the year before amortisation of purchased intangible assets and non-underlying items by approximately £24 million and £13 million, respectively.

 

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

 

Divisional revenue, adjusted operating and non-financial KPIs

1.   Data & Analytics

Pro-forma1

Continuing operations


H1 2021
£m


H1 2020
£m


Reported Variance2
%

 

Constant Currency Variance3
%

Constant Currency Variance (excl. deferred revenue adjustment)3,4
%

 

 

 

 

 

 

 

 

 

Trading & Banking Solutions

744 

806 

 (7.7%)

 

 (1.3%)

 (0.1%)

 

Trading

599 

653 

(8.3%)

 

(1.7%)

(0.6%)

 

Banking

145 

153 

(5.2%)

 

0.6% 

1.9% 

 

Enterprise Data Solutions

557 

582 

 (4.3%)

 

 1.2% 

 2.4% 

 

Real Time Data

359 

384 

(6.5%)

 

(0.5%)

0.8% 

 

PRS

198 

198 

- 

 

5.1% 

6.1% 

 

Investment Solutions

558 

554 

 0.7% 

 

 7.7% 

 8.4% 

 

Index - Subscription

247 

244 

1.2% 

 

7.4% 

7.9% 

 

Index - AUM

122 

112 

8.9% 

 

18.2% 

18.2% 

 

Investment Solutions Data & Analytics

189 

198 

(4.5%)

 

1.5% 

3.6% 

 

Wealth Solutions

238 

257 

 (7.4%)

 

 0.4% 

 0.8% 

 

Wealth Data & Analytics

139 

138 

0.7% 

 

5.0% 

5.7% 

 

Beta

99 

119 

(16.8%)

 

(5.3%)

(5.3%)

 

Customer & Third-Party Risk Solutions

175 

136 

 28.7% 

 

 36.0% 

 37.5% 

 

Total Revenue (excl. recoveries)

2,272 

2,335 

 (2.7%)

 

 3.9% 

 4.8% 

 

Recoveries

178 

164 

 8.5% 

 

 (1.1%)

 (0.6%)

 

Total Revenue (incl. recoveries)

2,450 

2,499 

 (2.0%)

 

 3.5% 

 4.5% 

 

Cost of sales

(382)

(400)

(4.5%)

 

 3.6% 

 3.6%   

 

Gross Profit

2,068 

2,099 

 (1.5%)

 

 3.6% 

 4.7% 

 

Adjusted operating expenses before depreciation, amortisation and impairment

(988)

(1,060)

(6.8%)

 

(0.8%)

(0.8%)

 

Adjusted earnings before interest, tax, depreciation, amortisation and impairment

1,080 

1,039 

3.9% 

 

7.9% 

10.1% 

 

Depreciation, amortisation and impairment

(280)

(264)

6.1% 

 

8.2% 

8.2% 

 

Adjusted operating profit

800 

775 

3.2% 

 

7.8% 

10.7% 

 

 

 

 

 

 

 

 

Adjusted EBITDA Margin

47.5%

44.5%

 

 

 

 

Pro-forma Non-financial KPIs1

 

H1 2021

H1 2020

Reported

Variance

%

 

 

 

 

Annual Subscription Value growth (%) 5

3.9%

-

- 

Subscription revenue growth (%) 5

3.1%

-

Index - ETF AUM ($bn)

1,040

669

55% 

Index - ESG Passive AUM ($bn) 6

132

46

187% 

Beta transaction volumes (m)

285

 293

(3%) 

1 Pro-forma assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. Both figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment

2 Reported variance is the difference between current and prior year periods on a pro-forma underlying basis, using year-to-date FX rates prevalent at each time, therefore any changes in the FX rates are also reflected in the variance percentage alongside business performance

3 Constant currency variance shows underlying financial performance, excluding currency impacts, by comparing the current and prior period at consistent exchange rates

4 The deferred revenue adjustment is explained in the "Accounting and modelling notes" section

5 The variance shown is based on constant currency figures, therefore the variance is a constant currency variance excluding the impact of the deferred revenue accounting adjustment

6 ESG Passive AUM is as at 31 December 2020 and prior period comparator is at 31 December 2019. The metric is updated bi-annually with June 2021 available early Q4

2.   Capital Markets

Pro-forma1

Continuing operations


H1 2021
£m


H1 2020
£m


Reported Variance2
%

 

Constant Currency Variance3
%

Constant Currency Variance (excl. deferred revenue adjustment)3, 4
%

 

 

 

 

 

 

 

Equities

120 

118 

1.7% 

 

2.5% 

2.5% 

FX

110 

121 

(9.1%)

 

(0.8%)

(0.8%)

Fixed Income, Derivatives & Other

389 

361 

7.8% 

 

15.4% 

15.4% 

Total Revenue

619 

600 

3.2% 

 

9.6% 

9.6% 

Cost of sales

(13)

(13)

 

16.7% 

16.7% 

Gross Profit

606 

587 

3.2% 

 

9.4% 

9.4% 

Adjusted operating expenses before depreciation, amortisation and impairment

(290)

(292)

(0.7%)

 

3.8% 

3.8% 

Adjusted earnings before interest, tax, depreciation, amortisation and impairment

316 

295 

7.1% 

 

15.5% 

15.5% 

Depreciation, amortisation and impairment

(37)

(37)

 

11.4% 

11.4% 

Adjusted operating profit

279

258 

8.1% 

 

16.0% 

16.0% 

 

 

 

 

 

 

 

Adjusted EBITDA Margin

51.1%

49.2%

 

 

 

 

Pro-forma Non-financial KPIs1

 

H1 2021

H1 2020

Reported

Variance

%

 

 

 

 

Equities

 

 

 

Primary Markets

 

 

 

New issues

75

30

150% 

Total money raised (£bn)

15.6

19.2

(19%)

 

 

 

 

Secondary Markets - Equities

 

 

 

UK Value Traded (£bn) - Average Daily Value

4.7

5.6

(16%) 

 

 

 

 

SETS Yield (bps)

0.72

0.69

4% 

 

 

 

 

FX

 

 

 

Average daily total volume ($bn)

455

436

4% 

 

 

 

 

Fixed income, Derivatives and Other

 

 

 

Tradeweb Average Daily ($m)

 

 

 

Rates - Cash

348,673

319,578

9% 

Rates - Derivatives

272,063

229,185

19% 

 

 

 

 

Credit - Cash

9,951

7,534

32% 

Credit - Derivatives

12,628

17,937

(30%)

1 Pro-forma assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. Both figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment

2 Reported variance is the difference between current and prior year periods on a pro-forma underlying basis, using year-to-date FX rates prevalent at each time, therefore any changes in the FX rates are also reflected in the variance percentage alongside business performance

3 Constant currency variance shows underlying financial performance, excluding currency impacts, by comparing the current and prior period at consistent exchange rates

4 The deferred revenue adjustment is explained in the "Accounting and modelling notes" section

 

3.   Post Trade

Pro-forma1

Continuing operations

H1 2021
£m

H1 2020
£m

Reported Variance3
%

 

Constant currency Variance4
%

 

 

 

 

 

 

OTC Derivatives

169 

169 

 

2.4% 

Securities & Reporting

127 

110 

15.5% 

 

15.3% 

Non-Cash Collateral

46 

40 

15.0% 

 

17.5% 

Net Treasury Income

108 

149 

(27.5%)

 

(25.3%)

Total Income

450 

468 

(3.8%)

 

(2.1%)

Cost of sales 2

(58)

(73) 

(20.5%)

 

 (20.0%)

Gross Profit

392 

395 

(0.8%)

 

 1.5% 

Adjusted operating expenses before depreciation, amortisation and impairment 2

(146)

(139) 

5.0% 

 

 4.2% 

Adjusted earnings before interest, tax, depreciation, amortisation and impairment

246 

256 

(3.9%)

 

 - 

Depreciation, amortisation and impairment

(47)

(44) 

6.8% 

 

 6.7% 

Adjusted operating profit

199 

212 

(6.1%)

 

(1.4%)

 

 

 

 

 

 

Adjusted EBITDA Margin

54.7%

54.7%

 

 

 

 

Pro-forma Non-financial KPIs1

 

H1 2021

H1 2020

Reported Variance

 

 

%

 

 

 

 

OTC

 

 

 

SwapClear

 

 

 

IRS notional cleared ($trn)

468

643

(27%)

SwapClear members

122

122

Client trades ('000)

1,066

997

7% 

Client average 10-year notional equivalent ($trn)

4.4

4.0

10% 

 

 

 

 

ForexClear

 

 

 

Notional value cleared ($bn)

10,776

9,844

9% 

ForexClear members

35

35

 

 

 

 

CDSClear

 

 

 

Notional cleared (€bn)

1,038

1,398

(26%)

CDSClear members

25

26

(4%)

 

 

 

 

Securities & Reporting

 

 

 

EquityClear trades (m) 5

976

1,047

(7%)

Listed derivatives contracts (m)

150.3

191.5

(22%)

RepoClear - nominal value (€trn)

113.4

102.7

10% 

 

 

 

 

Non-Cash Collateral

 

 

 

Average non-cash collateral (€bn)

161.5

156.5

3% 

 

 

 

 

NTI

 

 

 

Average cash collateral (€bn)

 106.4

116.3

(9%)

1 Pro-forma assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. Both figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment

2 Cost of sales incorporates the elimination of intercompany transactions in the Post Trade division as part of the pro forma financial disclosure and adjusted operating expenses include centralised group charges allocated to the Post Trade division as part of the pro forma cost allocation

3 Reported variance is the difference between current and prior year periods on a pro-forma underlying basis, using year-to-date FX rates prevalent at each time, therefore any changes in the FX rates are also reflected in the variance percentage alongside business performance

4 Constant currency variance shows underlying financial performance, excluding currency impacts, by comparing the current and prior period at consistent exchange rates

5 EquityClear trades exclude interoperability trades, these will differ to the volumes published on the LCH website which includes these trades

 

Synergies and cost to achieve

 


H1 2021
£m

 

 

Revenue synergies

 

 

 

Run-rate realised

4

 

 

Cost to achieve

17

of which:

 

Capital expenditure

7

Non-underlying operating expenses

10

 

 

 

 

Cost synergies

 

 

 

Run-rate realised

77

In-period benefit

25

 

 

Cost to achieve

114

of which:

 

Capital expenditure

28

Non-underlying operating expenses

86

 

 

 

As previously stated when announcing the Refinitiv acquisition, the Group expects to incur a cost to achieve synergies of £730 million. This is split by £550 million to achieve the cost synergies and £180 million to achieve the revenue synergies. The Group expects the majority of the total cost to achieve synergies of £730 million will be incurred over the course of 2021 and 2022. This cost to achieve is expected to be split c.30% through capex and c.70% in non-underlying operating expenses. In H1 2021, the £131 million incurred is split 27% capex and 73% non-underlying operating expenses.

 

Appendix - Pro-forma1 revenues by quarter

The tables below have used FX rates on a YTD average basis which is the basis upon which the Group presents its financials.

 

FY20201

 

FY20211

£ millions

Q1

Q2

Q3

Q4

2020

 

Q1

Q2

 

 

 

 

 

 

 

 

 

Trading & Banking Solutions

396 

410 

399 

391 

1,596 

 

372 

372 

   Trading

321 

332 

322 

316 

1,291 

 

300 

299 

   Banking

75 

78 

77 

75 

305 

 

72 

73 

Enterprise Data Solutions

285 

297 

290 

291 

1,163 

 

277 

280 

   Real Time Data

187 

197 

191 

191 

766 

 

177 

182 

   PRS

98 

100 

99 

100 

397 

 

100 

98 

Investment Solutions

272 

282 

278 

279 

1,111 

 

272 

286 

   Index - Subscription

118 

127 

125 

125 

495 

 

121 

126 

   Index - AUM

58 

54 

56 

57 

225 

 

58 

64 

   Investment Solutions Data & Analytics

96 

101 

97 

97 

391 

 

93 

96 

Wealth Solutions

126 

131 

123 

120 

500 

 

122 

116 

   Wealth Data & Analytics

66 

72 

71 

69 

278 

 

69 

70 

   Beta

60 

59 

52 

51 

222 

 

53 

46 

Customer & Third-Party Risk Solutions

67 

69 

69 

78 

283 

 

85 

90 

Data & Analytics

1,146 

1,189 

1,159 

1,159 

4,653 

 

1,128 

1,144 

 

 

 

 

 

 

 

 

 

Equities

62 

56 

52 

57 

227 

 

61 

59 

FX

64 

57 

56 

57 

234 

 

57 

53 

Fixed Income, Derivatives & Other

186 

175 

170 

178 

709 

 

201 

188 

Capital Markets

312 

288 

278 

292 

1,170 

 

319 

300 

 

 

 

 

 

 

 

 

 

OTC

87 

82 

80 

85 

334 

 

87 

82 

Securities & Reporting

59 

51 

58 

62 

230 

 

65 

62 

Non-Cash Collateral

19 

21 

21 

21 

82 

 

22 

24 

NTI

67 

82 

63 

57 

269 

 

55 

53 

Post Trade

232 

236 

222 

225 

915 

 

229 

221 

 

 

 

 

 

 

 

 

 

Other

11 

6 

6 

6 

29 

 

5 

10 

Total Income (excluding recoveries)

1,701 

1,719 

1,665 

1,682 

6,767 

 

1,681 

1,675 

Recoveries

87 

77 

82 

92 

338 

 

88 

90 

Total Income (including recoveries)

1,788 

1,796 

1,747 

1,774 

7,105 

 

1,769 

1,765 

Cost of sales

 (242)

(244)

(228)

(232)

(946)

 

 (231)

(223)

Gross Profit

1,546 

1,552 

1,519 

1,542 

6,159 

 

1,538 

1,542 

1Pro-forma assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. All figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment

Appendix - Pro-forma1 P&L by half

 

£ millions

FY20201

 

FY20211

 

H1

H2

2020

 

H1

Total Income (incl. recoveries)

3,584 

3,521 

7,105 

 

3,534 

 

 

 

 

 

 

Cost of sales

 (486)

(460)

(946)

 

 (454)

Gross profit

 3,098 

3,061 

6,159 

 

3,080 

 

 

 

 

 

 

Adjusted operating expenses before depreciation, amortisation and impairment

(1,507)

(1,516)  

(3,023)

 

(1,432)

Income from equity investments

-

- 

 

11 

Share of loss after tax of associates

 (1)

 (3)

 (4)

 

 (2)

Adjusted earnings before interest, tax, depreciation, amortisation and impairment

1,590 

1,542 

3,132 

 

1,657 

Adjusted EBITDA Margin 2

46.5% 

46.1%

46.3%

 

49.4%

 

 

 

 

 

 

Depreciation, amortisation and impairment

(346)

(401)

(747)

 

(363)

Adjusted operating profit

 1,244 

1,141 

2,385 

 

 1,294 

 

 

 

 

 

 

Net finance expense

(193)

(376)

(569)

 

(125)

Adjusted profit before tax

1,051 

765 

1,816 

 

1,169 

 

 

 

 

 

 

Taxation

(279)

(276)

(555)

 

(250)

Adjusted profit after tax

772 

489 

1,261 

 

919 

 

 

 

 

 

 

Non-controlling interest

 (88)

(86)

(174)

 

(107)

Profit for the period

 684 

 403 

1,087 

 

 812 

 

 

 

 

 

 

Adjusted basic earnings per share (p)

123.2 

72.5 

195.7 

 

146.1 

1Pro-forma assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. All figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment

2 Adjusted EBITDA margin is Adjusted EBITDA divided by Total Income (excl. Recoveries)

 

Appendix - Pro-forma1 new KPIs by quarter

 

 

FY2020

 

FY2021

 

Q1

Q2

Q3

Q4

2020

 

Q1

Q2

 

 

 

 

 

 

 

 

 

Data & Analytics

 

 

 

 

 

 

 

 

Annual Subscription Value growth (%)2

-

-

-

-

-

 

3.0%

3.9%

Subscription revenues growth (%)2

-

-

-

-

-

 

3.5%

2.6%

Index - ETF AUM ($bn)

583

669

718

869

869

 

956

1,040

Index - ESG Passive AUM ($bn)3

-

63

-

132

132

 

-

-

Beta transaction volumes (m)

159

134

121

125

539

 

161

124

 

 

 

 

 

 

 

 

 

Post Trade

 

 

 

 

 

 

 

 

Client average 10-year notional equivalent ($trn)

4.6

3.4

3.2

3.8

3.7

 

4.8

3.9

Average non-cash collateral (€bn)

148.9

164.1

165.5

165.7

161.1

 

160.6

162.5

1Pro-forma assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure.

2 The variance shown is based on constant currency figures, therefore the variance is a constant currency variance excluding the impact of the deferred revenue accounting adjustment. The underlying constant currency figures on a consistent basis to calculate this are available from Q1 2020, meaning the first variance is from Q1 2021

3 ESG Passive AUM is updated bi-annually with June 2021 available early Q4

 

Appendix - Summary of guidance

The following is a summary of the guidance provided within this release.

·    Total Income (excluding recoveries) - Good performance in H1, on track for c.4-5% constant currency growth for 2021

·    Adjusted operating expenses - On track to meet c.5% rise in operating expenses on constant currency basis. Incorporating FX, cost expected to step down c.1-2% from the new 2020 pro-forma1 level of £3,023 million.

·    Cost synergies - Expect to achieve c.£125m run rate cost synergies by the end of 2021

·    Depreciation, amortisation and impairment - c.£790m for 2021 on constant currency basis, reflecting accounting allocation changes1

·    Net Finance Expense - c.£205m for 2021 on a constant currency basis

·    Tax - Effective Tax rate of 21.5% for 2021. Expect a tax rate of 22-24% for 2022 and 2023

·    Capex - Total capex of c.£850m in 2021 including £650m-£700m of ongoing capex and c.£150m integration and separation capex

1 Please refer to the section 'Changes to the 2020 pro-forma' for more details on the accounting allocation changes.

 

Condensed CONSOLIDATED Income Statement

 

 

 

Six months ended 30 June 2021 Unaudited

 

Six months ended 30 June 2020

Unaudited (Re-presented)

 

 

Underlying items

Non-underlying items

Total

 

Underlying items

Non-underlying items

Total

Continuing operations

 

£m

£m

£m

 

£m

£m

£m

 

Notes

 

 

 

 

 

 

 

Revenue

2

2,992

-

2,992

 

877

-

877

Net treasury income from CCP clearing business

2

108

-

108

 

149

-

149

Other income

2

13

-

13

 

2

-

2

Total income

 

3,113

-

3,113

 

1,028

-

1,028

 

 

 

 

 

 

 

 

 

Cost of sales

2

(394)

-

(394)

 

(114)

-

(114)

 

 

 

 

 

 

 

 

 

Gross profit

 

2,719

-

2,719

 

914

-

914

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Operating expenses before depreciation, amortisation and impairment

3,4

(1,247)

(183)

(1,430)

 

(369)

(88)

(457)

Investment income

 

11

-

11

 

-

-

-

Share of loss after tax of associates

 

(2)

-

(2)

 

(2)

-

(2)

Earnings before interest, tax, depreciation, amortisation and impairment

 

1,481

(183)

1,298

 

543

(88)

455

Depreciation, amortisation and impairment

4

(311)

(389)

(700)

 

(86)

(78)

(164)

 

 

 

 

 

 

 

 

 

Operating profit/(loss)

2

1,170

(572)

598

 

457

(166)

291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance income

 

19

-

19

 

9

-

9

Finance expense

 

(106)

(1)

(107)

 

(31)

(7)

(38)

Net finance expense

5

(87)

(1)

(88)

 

(22)

(7)

(29)

Profit/(loss) before tax

 

1,083

(573)

510

 

435

(173)

262

 

 

 

 

 

 

 

 

 

Taxation

6

(228)

(38)

(266)

 

(89)

18

(71)

Profit/(loss) for the period from continuing operations

 

855

(611)

244

 

346

(155)

191

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

Profit/(loss) after tax for the period from discontinued operations

15

84

2,519

2,603

 

83

(13)

70

Profit/(loss) for the period

 

939

1,908

2,847

 

429

(168)

261

Profit/(loss) attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity holders

 

758

(580)

178

 

312

(154)

158

Non-controlling interests

 

97

(31)

66

 

34

(1)

33

Profit from continuing operations

 

855

(611)

244

 

346

(155)

191

 

 

 

 

 

 

 

 

 

Equity holders

15

80

2,520

2,600

 

80

(12)

68

Non-controlling interests

15

4

(1)

3

 

3

(1)

2

Profit from discontinued operations

 

84

2,519

2,603

 

83

(13)

70

 

 

 

 

 

 

 

 

 

Profit/(loss) for the period

 

939

1,908

2,847

 

429

(168)

261

 

 

 

 

 

 

 

 

 

Earnings per share attributable to equity holders: continuing operations

 

 

Basic earnings per share

7

 

 

34.3p

 

 

 

45.1p

Diluted earnings per share

7

 

 

34.1p

 

 

 

44.6p

Adjusted basic earnings per share

7

 

 

146.0p

 

 

 

89.2p

Adjusted diluted earnings per share

7

 

 

145.2p

 

 

 

88.2p

 

 

 

 

 

 

 

 

 

Earnings per share for total operations attributable to equity holders

 

 

Basic earnings per share

7

 

 

535.3p

 

 

 

64.6p

Diluted earnings per share

7

 

 

532.2p

 

 

 

63.8p

Adjusted basic earnings per share

7

 

 

161.5p

 

 

 

112.0p

Adjusted diluted earnings per share

7

 

 

160.5p

 

 

 

110.7p

 

 

 

 

 

 

 

 

 

Dividend per share in respect of the financial period

 

 

 

Dividend per share paid during the period

8

 

 

51.7p

 

 

 

49.9p

Dividend per share declared for the period

8

 

 

25.0p

 

 

 

23.3p

Notes 1 to 17 form an integral part of these interim condensed consolidated financial statements.

 

Condensed CONSOLIDATED STATEMENT of comprehensive income

 

 

 

Six months ended 30 June

 

 

2021

2020

 

 

Unaudited

Unaudited

 

 

 

(Re-presented)

 

 

£m

£m

Profit for the period from continuing operations

 

244

191

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

Items that will not be subsequently reclassified to profit or loss:

 

 

 

Defined benefit pension scheme remeasurement gains

 

77

24

Gain on equity instruments at fair value through other comprehensive income

 

-

1

Income tax relating to above items

 

(19)

(9)

 

 

 

 

 

 

58

16

 

 

 

 

Items that may be subsequently reclassified to profit or loss:

 

 

 

Net gains on cash flow hedges

 

22

-

Net gains/(losses) on net investment hedges

 

72

(152)

Debt instruments at fair value through other comprehensive income (FVOCI):

 

 

 

  - Net (losses)/gains from changes in fair value

 

(4)

21

  - Gains reclassified to the consolidated income statement on disposal

 

(3)

(3)

Exchange (losses)/gains on translation of foreign operations

 

(264)

273

Income tax relating to above items

 

1

(3)

 

 

 

 

 

 

(176)

136

 

 

 

 

Other comprehensive (losses)/gains, net of tax, for continuing operations

 

(118)

152

 

 

 

 

Total comprehensive income for the period from continuing operations

 

126

343

 

 

 

 

Total comprehensive income for the period from discontinued operations

 

2,595

152

 

 

 

 

Total comprehensive income for the period

 

2,721

495

 

 

 

 

Total comprehensive income from continuing operations attributable to:

 

 

 

Equity holders

 

74

289

Non-controlling interests

 

52

54

Total comprehensive income for the period

 

126

343

 

 

 

 

Total comprehensive income from discontinued operations attributable to:

 

 

 

Equity holders

 

2,592

148

Non-controlling interests

 

3

4

Total comprehensive income for the period

 

2,595

152

 

 

 

 

Notes 1 to 17 form an integral part of these interim condensed consolidated financial statements.

 

 

 

 

Condensed CONSOLIDATED balance sheet

 

 

 

30 June 2021

 

31 December 2020

 

 

Unaudited

 

 

 

Notes

£m

 

£m

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

931

 

297

Intangible assets

9

31,764

 

4,324

Investment in associates

 

28

 

25

Deferred tax assets

 

535

 

51

Derivative financial instruments

10

3

 

-

Investments in financial assets

10

287

 

280

Retirement benefit assets

 

544

 

81

Trade and other receivables

 10

266

 

14

 

 

34,358

 

5,072

Current assets

 

 

 

 

Trade and other receivables

 10

1,225

 

594

Derivative financial instruments

10

6

 

-

Clearing member financial assets

 

692,845

 

758,510

Clearing member cash and cash equivalents

 

74,725

 

83,011

Clearing member assets

10

767,570

 

841,521

Current tax

 

152

 

77

Investments in financial assets

10

-

 

92

Cash and cash equivalents

10

2,748

 

1,785

 

 

771,701

 

844,069

Total assets

 

806,059

 

849,141

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

10

1,336

 

613

Contract liabilities

 

383

 

168

Derivative financial instruments

10

30

 

6

Clearing member liabilities

10

767,589

 

841,553

Current tax

 

120

 

24

Borrowings

10, 11

379

 

605

Provisions

 

13

 

1

 

 

769,850

 

842,970

Non-current liabilities

 

 

 

 

Borrowings

10, 11

8,156

 

1,346

Derivative financial instruments

10

29

 

11

Contract liabilities

 

94

 

94

Deferred tax liabilities

 

1,978

 

411

Retirement benefit obligations

 

107

 

18

Other non-current payables

10

921

 

152

Provisions

 

40

 

14

 

 

11,325

 

2,046

Total liabilities

 

781,175

 

845,016

Net assets

 

24,884

 

4,125

Equity

 

 

 

 

Capital and reserves attributable to the Company's equity holders

 

 

 

Ordinary share capital

 

39

 

24

Share premium

 

972

 

971

Retained earnings

 

3,489

 

911

Other reserves

 

18,558

 

1,805

Total shareholders' funds

 

23,058

 

3,711

Non-controlling interests

 

1,826

 

414

Total equity

 

24,884

 

4,125

 

Notes 1 to 17 form an integral part of these interim condensed consolidated financial statements.

 

Condensed CONSOLIDATED cash flow statement

 

 

 

 

Six months ended 30 June

 

 

 

2021

2020

 

 

 

Unaudited

Unaudited

 

 

 

 

Re-presented

 

 

Notes

£m

£m

Cash flow from operating activities

 

 

 

 

Cash generated from operations

 

13

1,326

512

Interest received

 

 

7

3

Interest paid

 

 

(67)

(24)

Corporation tax paid

 

 

(85)

(106)

Net cash inflow from operating activities 1

 

 

1,181

385

Cash flow from investing activities

 

 

 

 

Purchase of property, plant and equipment

 

 

(28)

(3)

Purchase of intangible assets

 

 

(217)

(82)

Acquisition of subsidiaries (NFI), net of cash acquired

 

14

(151)

-

Cash acquired on acquisition of subsidiaries (Refinitiv)

 

14

931

-

Investment in financial assets classed as FVOCI

 

10

(15)

-

Proceeds from disposal of business, net of cash disposed

 

15

3,592

-

Dividends received from investments in equity

 

 

11

-

Net cash inflow from investing activities

 

 

4,123

(85)

Cash flow from financing activities

 

 

 

 

Dividends paid to shareholders

 

8

(287)

(175)

Dividends paid to non-controlling interests

 

 

(70)

(3)

Proceeds from exercise of employee share options

 

 

2

-

Purchase of own shares by the employee benefit trust

 

 

-

(4)

Share repurchases pursuant to Tradeweb's share repurchase program 2

 

 

(37)

-

Proceeds from exercise of Tradeweb's employee share option

 

 

47

-

Principal element of lease payments

 

 

(45)

(11)

Proceeds from the issue of bonds

 

11, 12

5,043

-

Repayment of borrowings assumed on acquisition

 

12

(10,486)

-

Net repayment of commercial paper

 

11, 12

(77)

(101)

Arrangement fees on borrowing facilities

 

11, 12

(42)

-

Additional drawdowns from bank facilities

 

11, 12

495

170

New loans for acquisition activities

 

11, 12

9,807

-

Repayments made towards bank credit facilities and borrowings

 

11, 12

(8,549)

(129)

Net cash outflow from financing activities

 

 

(4,199)

(253)

Increase in cash and cash equivalents

 

 

1,105

47

Cash and cash equivalents at beginning of period

 

1,785

1,493

Net cash flow from discontinued operations

15

(84)

33

Exchange (losses)/gains on cash and cash equivalents

 

 

(58)

68

Cash and cash equivalents at end of period

 

 

2,748

1,641

 

 

1 The Group's net cash inflow from operating activities of £1,181 million is after deduction of £204 million of expenses related to non-underlying items. The Group's net cash inflow from investing activities of £4,059 million is after deduction of £10 million non-underlying capital expenditure.

2 On 4 February 2021, TradeWeb Markets Inc. (Tradeweb) a subsidiary of the Group, announced a new share repurchase program, primarily to offset annual dilution from stock-based compensation plans (the Share Repurchase Program). The Share Repurchase Program authorises the purchase of up to US$150.0 million of Tradeweb's common stock through the end of 2023.

Group cash flow does not include cash and cash equivalents held by the Group's Post Trade operations on behalf of its clearing members for use in its operations as manager of the clearing and guarantee systems.

Notes 1 to 17 form an integral part of these interim condensed consolidated financial statements.

 

Condensed CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

Attributable to equity holders

 

 

 

Ordinary share capital

Share premium

Retained earnings

Other reserves

Total attributable to equity holders

Non- controlling interests

Total equity

 

£m

£m

£m

£m

£m

£m

£m

1 January 2020

24

967

668

1,796

3,455

346

3,801

 

 

 

 

 

 

 

 

Profit for the period

-

-

226

-

226

35

261

Other comprehensive income for the period

-

-

26

185

211

23

234

Final dividend relating to the year ended 31 December 2019 (note 8)

-

-

(175)

-

(175)

-

(175)

Dividend payments to non-controlling interests

-

-

-

-

-

(16)

(16)

Employee share scheme expenses

-

-

21

-

21

-

21

Tax in relation to employee share scheme expenses

-

-

7

-

7

-

7

 

 

 

 

 

 

 

 

30 June 2020 (Unaudited)

24

967

773

1,981

3,745

388

4,133

 

 

 

 

 

 

 

 

1 January 2021

24

971

911

1,805

3,711

414

4,125

 

 

 

 

 

 

 

 

Profit for the period

-

-

2,778

-

2,778

69

2,847

 

 

 

 

 

 

 

 

Other comprehensive income for the period

-

-

45

(157)

(112)

(14)

(126)

Issue of shares1

-

1

-

-

1

-

1

Issue of shares in exchange for acquisition of subsidiaries (with non-controlling interest)2

15

-

2

16,954

16,971

1,505

18,476

Final dividend relating for the year ended 31 December 2020 (note 8)

-

-

(287)

-

(287)

-

(287)

Dividend payments to non-controlling interests

-

-

-

-

-

(76)

(76)

Employee share scheme expenses

-

-

36

-

36

4

40

Tax in relation to employee share scheme expenses

-

-

4

-

4

-

4

Disposal of business (note 15) 3

-

-

-

(44)

(44)

(65)

(109)

Adjustments to non-controlling interest

-

-

-

-

-

(11)

(11)

30 June 2021 (Unaudited)

39

972

3,489

18,558

23,058

1,826

24,884

 

 

 

 

 

 

 

 

1 During the period, the Company issued 1,387,186 new ordinary shares to the Employee Benefit Trust. Where these shares were used for the settlement of employee share plans, share premium has been recognised on the difference between the subscription price and the par value of the own share.

2 Under the terms of the Stock Purchase Agreement, LSEG (directly and through certain wholly owned subsidiaries) acquired the entire issued share capital of Refinitiv Parent Limited and, in exchange, LSEG issued 204,225,968 shares (comprising 136,870,442 listed LSEG ordinary shares and 67,355,526 unlisted LSEG limited-voting ordinary shares) (further details of the acquisition and shares issued are provided in note 14). LSEG applied merger relief as required by section 612 of the Companies Act 2006, as LSEG obtained 100% equity holding in Refinitiv Parent Limited, and recognised the excess of the fair value above the nominal share capital as merger reserve. The purchase consideration for the acquisition of Refinitiv of £16,971 million includes the fair value of equity-settled awards (attributable to pre-acquisition services rendered) of £2 million, which is recognised in the employee share scheme reserve.

3 Disposal of business relates to £44 million transfer of reserves and the derecognition of non-controlling interest of £65 million on disposal of the Borsa Italiana group.

 

Notes 1 to 17 form an integral part of these interim condensed consolidated financial statements.

 

NOTES TO THE interim condensed consolidated financial statements

 

The Interim Report for the London Stock Exchange Group plc (the 'Group' or the 'Company') for the six months ended 30 June 2021 was approved by the Directors on 6 August 2021.

 

The Company is a public company, incorporated and domiciled in England and Wales. The address of its registered office is 10 Paternoster Square, London, EC4M 7LS.

 

1.   Basis of preparation and accounting policies

 

The interim condensed consolidated financial statements of London Stock Exchange Group plc and its subsidiaries (collectively, the 'Group') for the six months ended 30 June 2021 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and UK-adopted International Accounting Standard 34 Interim Financial Reporting.

 

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

 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2020, which were prepared in accordance with Regulation (EC) No 1606/2002 as it applies in the European Union. The annual consolidated financial statements for the year ending 31 December 2021 will apply UK-adopted International Financial Reporting Standards under the Companies Act 2006.

 

The principal accounting policies adopted in the preparation of these interim condensed consolidated financial statements are consistent with those applied in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2020, except for accounting policies expanded due to the acquisition of Refinitiv and the adoption of amended standards effective as of 1 January 2021. None of the amendments adopted on 1 January 2021 have had a material impact on the interim condensed consolidated financial statements of the Group.

 

The following accounting policies have been expanded due to the acquisition of Refinitiv:

 

·      Recoveries revenue consists of fees for third-party content, such as exchange data that is distributed directly to customers, and communications fees. Recoveries revenue is generally recognised over the contract term.

 

·      Derivative financial instruments: The Group has embedded foreign currency derivatives primarily in revenue contracts where the currency of the contract is different from the functional or local currencies of the parties involved. The Group records these derivative instruments at fair value in the balance sheet as either assets or liabilities. Changes in the fair value of derivative instruments are recognised in the profit or loss, net with revenue.

 

The Group has not early adopted any other standards, amendments or interpretations that have been issued but are not yet effective.

 

Comparative amounts presented for the condensed consolidated balance sheet relate to the Group's position as at 31 December 2020. All other comparative amounts presented relate to the six months ended 30 June 2020.

 

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

 

The statutory financial statements of London Stock Exchange Group plc for the year ended 31 December 2020, which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain a statement under section 498 of the Companies Act 2006.

 

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

 

ACQUISITIONS

 

On 29 January 2021, the Group acquired Refinitiv Parent Limited and its subsidiaries (Refinitiv) (note 14). The results of Refinitiv have been consolidated within the Group since the date of acquisition. As a result of the acquisition, the Group is reporting its results in three main segments: Data & Analytics, Post Trade and Capital Markets. The segmental reporting for the comparative period has been re-presented to align with this new structure (note 2).

 

On 25 June 2021, the Tradeweb group acquired Nasdaq's U.S. fixed income electronic trading platform, formerly known as eSpeed, the fully executable central limit order book (CLOB) for on-the-run U.S. government bonds (note 14).

 

DISPOSAL

 

On 29 April 2021, the Group disposed of London Stock Exchange Group Holdings (Italia) SpA and its subsidiaries (Borsa Italiana group) (note 15). The Borsa Italiana group was classified as a discontinued operation and disposal group once the sale became highly probable on 13 January 2021 (the date the EU Commission approved the acquisition of Refinitiv) and therefore its profits and losses and cash flows have been separated from the Group's continuing operations for the period and are shown as discontinued operations. The comparative period has been re-presented accordingly. The Borsa Italiana group operations were not classified as a disposal group as at 31 December 2020 and the balance sheet has not been re-presented from that published in the Annual Report of the Group. 

 

CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

 

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

 

Judgements and estimates are regularly evaluated based on historical experience, current circumstances and expectations of future events. The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are the same as those described in the last annual financial statements, except for the judgements and sources of estimation uncertainty related or due to the acquisition of Refinitiv, as described below:

 

·      Intangible assets acquired as part of a business combination:

The fair value of the intangible assets (and therefore the resulting goodwill recognised on acquisition) is significantly affected by a number of factors including management's best estimates of future performance and estimates of the return required to determine an appropriate discount rate. Further detail of the valuation methodologies is provided in note 14.

The intangible assets are amortised over their estimated useful economic lives, which is also based on management's best estimates of the periods over which value from the intangible assets is realised. Further detail of the estimated useful economic lives of the intangible assets is provided in note 14.

 

·      Revenue recognition: Management exercises significant judgement when assessing whether multiple products and services in customer contracts are distinct performance obligations that should be accounted for separately, or whether these should be accounted for together. In making the determination, management considers, for example, whether the Group regularly sells a good or service separately, or whether the goods or services are highly interrelated. Furthermore, the Group has more than one standalone selling price for individual products and services due to the stratification of its offerings by customer. As a result, management determines the standalone selling price taking into consideration market conditions and other factors, including the value of its contracts, the product or service sold, customer's market, geographic location, and the number and types of users in each contract.

 

·      Share-based payments: Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model. The Group measured the fair value of outstanding equity-settled share-based payment awards granted by Tradeweb as if the acquisition date were the grant date and used the Black-Scholes model.

 

·      Provisions for uncertain tax positions: The Group is subject to tax in numerous jurisdictions and is routinely under audit by various taxing authorities. There are transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain, as taxing authorities may challenge some of the Group's positions and propose adjustments or changes to its tax filings. Due to the uncertainty involved, there is a possibility that outcomes may differ from amounts recognised. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. These liabilities have been recognised as current tax or deferred tax on the balance sheet based on the expected method of settlement with the tax authorities.

 

GOING CONCERN

 

In assessing whether the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

 

The Group's business activities, together with the factors likely to affect its future development, performance and position and its objectives and policies in managing the financial risks to which it is exposed and its capital are set on pages 2-71 of the Group's Annual Report for the year ended 31 December 2020. The Group does not consider the landscape of principal risks and uncertainties set out on pages 24-39 of Group's Annual Report for the year ended 31 December 2020 to have changed materially. The Group's acquisition of Refinitiv, however has changed the nature of some risks due to, for example, an increased geographical footprint. The changes are referenced and the principal risks and uncertainties which may affect the Group in the second half of the financial year, as applicable, are summarised in the "Principal Risks" section below.

 

The Directors consider there to be no material uncertainties that may cast significant doubt on the Group's ability to continue to operate as a going concern. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of signing of these financial statements. Accordingly, they continue to adopt the going concern basis in the preparation of these financial statements.

 

2. Segmental reporting

 

The Group now uses three main reporting segments: Data & Analytics, Capital Markets and Post Trade. Data and Analytics includes the results formerly reported as Information Services as well as the core Refinitiv business. Capital Markets includes the former Capital Markets results plus results of the former Technology Services segment and the results of TradeWeb and FXall. Other contains non-core business.

 

The results are on a continuing basis and exclude the results of the Borsa Italiana Group for six months ended 30 June 2021 and 2020 (note 15). The results of Refinitiv are included from the date of acquisition (note 14).

 

The segmental results for the six months ended 30 June 2020 have been re-presented using the new reporting segments.

 

Segment reporting for the six months ended 30 June 2021 are as follows:

 

 

Data and Analytics

Capital Markets

Post Trade

Other

Group

Unaudited

£m

£m

£m

£m

£m

Continuing

 

 

 

 

 

Revenue

2,107

542

342

1

2,992

Net treasury income from CCP clearing business

-

-

108

-

108

Other income

-

-

-

13

13

Total income

2,107

542

450

14

3,113

 

 

 

 

 

 

Cost of sales

(324)

(11)

(59)

-

(394)

 

 

 

 

 

 

Gross profit

1,783

531

391

14

2,719

Income from investments

 

 

 

11

11

Share of loss after tax of associates

-

-

-

(2)

(2)

 

 

 

 

 

 

Earnings before interest, tax, depreciation, amortisation and impairment

944

276

245

16

1,481

Underlying depreciation, amortisation and impairment

(234)

(31)

(47)

1

(311)

Operating profit before non-underlying items

710

245

198

17

1,170

Non-underlying depreciation, amortisation and impairment

 

 

 

 

(389)

Other non-underlying items

 

 

 

 

(183)

Operating profit

 

 

 

 

598

Net finance expense

 

 

 

 

(88)

Profit before tax from continuing operations

 

 

 

 

510

Profit before tax from discontinued operations

 

 

 

 

2,609

Profit before tax

 

 

 

 

3,119

 

Net treasury income from the continuing CCP businesses of £108 million comprises gross interest income of £217 million less gross interest expense of £109 million.

 

The Group's total income disaggregated by segment, major product and service line, and timing of total income recognition for the six months ended 30 June 2021 is as follows:

 

Data & Analytics

Capital markets

 

 

Post Trade Services

Other

Group

Unaudited (Re-presented)

£m

£m

£m

£m

£m

Revenue from external customers

 

 

 

 

 

Major product & service lines

 

 

 

 

 

Trading & banking

619

-

-

-

619

Enterprise data solutions

472

-

-

-

472

Investment solutions

524

-

-

-

524

Wealth solutions

197

-

-

-

197

Customer & third-party risk solutions

147

-

-

-

147

Recoveries

148

-

-

-

148

OTC derivatives

-

-

169

-

169

Securities & reporting

-

-

127

-

127

Non cash collateral

-

-

46

-

46

Net treasury income

-

-

108

-

108

Equities

-

120

-

-

120

FX

-

91

-

-

91

Fixed income, derivatives and other

-

331

-

-

331

Other

-

-

-

14

14

Total income from continuing operations

2,107

542

450

14

3,113

 

 

 

 

 

 

Timing of total income recognition

 

 

 

 

 

Services satisfied at a point in time

147

367

330

3

847

Services satisfied over time

1,960

175

120

11

2,266

Total income from continuing operations

2,107

542

450

14

3,113

 

 

 

Re-presented segment reporting for the six months ended 30 June 2020 are as follows:

 

 

 

 

 

 

 

Data & Analytics

Capital

Markets

Post Trade Services

Other

Group

Unaudited (Re-presented)

£m

£m

£m

£m

£m

Continuing

 

 

 

 

 

Revenue

409

147

319

2

877

Net treasury income from CCP clearing business

-

-

149

-

149

Other income

-

-

-

2

2

Total income

409

147

468

4

1,028

Cost of sales

(35)

(3)

(76)

-

(114)

 

 

 

 

 

 

Gross profit

374

144

392

4

914

Share of loss after tax of associates

-

-

-

(2)

(2)

Earnings before interest, tax, depreciation, amortisation and impairment

236

68

254

(15)

543

 

 

 

 

 

 

Underlying depreciation, amortisation and impairment

(30)

(8)

(44)

(4)

(86)

Operating profit before non-underlying items

206

60

210

(19)

457

Non-underlying depreciation, amortisation and impairment

 

 

 

 

(78)

Other non-underlying items

 

 

 

 

(88)

Operating profit

 

 

 

 

291

Net finance expense

 

 

 

 

(29)

Profit before tax from continuing operations

 

 

 

 

262

Profit before tax from discontinued operations

 

 

 

 

100

Profit before tax

 

 

 

 

362

 

Net treasury income from the continuing CCP businesses of £149 million comprises gross interest income of £381 million less gross interest expense of £232 million.

 

The Group's total income disaggregated by segment, major product and service line, and timing of revenue recognition for the six months ended 30 June 2020 is as follows:

 

Data & Analytics

Capital markets

 

 

Post Trade Services

Other

Group

Unaudited (Re-presented)

£m

£m

£m

£m

£m

Revenue from external customers

 

 

 

 

 

Major product & service lines

 

 

 

 

 

Trading & banking

9

-

-

-

9

Enterprise data solutions

64

-

-

-

64

Investment solutions

336

-

-

-

336

OTC derivatives

-

-

169

-

169

Securities & reporting

-

-

110

-

110

Non cash collateral

-

-

40

-

40

Net treasury income

-

-

149

-

149

Equities

-

118

-

-

118

Fixed income, derivatives and other

-

29

-

-

29

Other

-

-

-

4

4

Total income from continuing operations

409

147

468

4

1,028

 

 

 

 

 

 

Timing of total income recognition

 

 

 

 

 

Services satisfied at a point in time

3

86

309

1

399

Services satisfied over time

406

61

159

3

629

Total income from continuing operations

409

147

468

4

1,028

 

 

 

 

 

 

The Group's total income from continuing operations disaggregated by geographical location is as follows:

 

 

 

 

Six months ended 30 June

 

 

 

 

 

2021

2020

 

 

 

 

 

Unaudited

Unaudited

 

 

 

 

 

 

(Re-presented)

 

 

 

 

 

£m

£m

UK

 

 

 

 

953

583

Italy

 

 

 

 

155

143

France

 

 

 

 

140

80

USA

 

 

 

 

1,060

202

Other Europe

 

 

 

 

287

-

Asia

 

 

 

 

317

-

Other

 

 

 

 

201

20

Total

 

 

 

 

3,113

1,028

 

 

 

 

 

 

 

 

3. Operating expenses

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2021

2020

 

 

 

Unaudited

Unaudited

 

 

 

 

(Re-presented)

Continuing

 

Note

£m

£m

Employee costs

 

 

817

240

IT costs

 

 

200

59

Professional fees

 

 

136

25

Short-term lease costs

 

 

24

-

Foreign exchange (gains)/losses

 

 

(5)

5

Other costs

 

 

75

40

Underlying operating expenses before depreciation, amortisation and impairment

 

 

1,247

369

 

 

 

 

 

Non-underlying operating expenses before depreciation, amortisation and impairment

 

4

183

88

 

 

 

 

 

Total operating expenses before depreciation, amortisation and impairment

 

 

1,430

457

 

4. Non-underlying items

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2021

2020

 

 

 

Unaudited

Unaudited

(Re-presented)

Continuing

 

Notes

£m

£m

Transaction costs

 

 

70

86

Restructuring costs

 

 

1

2

Integration costs

 

 

112

-

Non-underlying expenses before interest, tax, depreciation, amortisation and impairment

 

 

183

88

 

 

 

 

 

Depreciation of property, plant and equipment1

 

 

7

-

Amortisation of intangible assets2

 

 

382

68

Impairment of goodwill and purchased intangible assets

 

 

-

10

Non-underlying depreciation, amortisation and impairment

 

 

389

78

 

 

 

 

 

Non-underlying items before interest and tax

 

 

572

166

 

 

 

 

 

Non-underlying net finance expense

 

5

1

7

 

 

 

 

 

Non-underlying items before tax

 

 

573

173

 

 

 

 

 

Deferred tax on amortisation of purchased intangible assets

 

 

(15)

(6)

Current tax on amortisation of purchased intangible assets

 

 

(72)

(3)

Tax on other items affecting profit before tax

 

 

125

(9)

Non-underlying tax

 

 

38

(18)

 

 

 

 

 

Non-underlying items for the period from continuing operations

 

 

611

155

 

 

 

 

 

Non-underlying profit for the period from discontinued operations

 

15

(2,519)

13

 

 

 

 

 

Total non-underlying items affecting profit for the period

 

 

(1,908)

168

 

1 Depreciation and amortisation of property, plant and equipment and intangible assets, other than purchased intangible assets: This relates to incremental depreciation and amortisation resulting from fair value adjustments on tangible assets and intangible assets, other than purchased intangible assets, which were acquired on acquisition of Refinitiv. Depreciation and amortisation associated with these fair value adjustments is presented as non-underlying to provide more meaningful information on the Group's sustainable performance.

 

2 Amortisation and impairment of goodwill and purchased intangible assets: Purchased intangible assets include customer relationships, trade names, and databases and content, all of which are recorded as a result of acquisitions. Amortisation and impairment associated with goodwill and purchased intangible assets is presented as a non-underlying item in order to provide more meaningful information regarding the Group's sustainable performance.

 

Transaction costs are mainly related to the following acquisitions:

·      Refinitiv acquisition (note 14):

Advisor and professional fees and management retention costs of £44 million; and

Post-acquisition Management Incentive Plan (MIP) share-based payment expense of £4 million, and fair value adjustment to the outstanding Tradeweb equity-settled awards (as if the acquisition date were the grant date) of £17 million.

·      Acquisition by Tradeweb of Nasdaq's fixed income electronic trading platform (note 14): Acquisition related costs of £3 million

 

Integration costs relate to activities to:

·      Integrate the Refinitiv businesses with the Group of £93 million; and

·      Separate and restructure the Thomson Reuters Financial & Risk Business from Thomson Reuters. The separation costs of £19 million primarily consist of professional fees, consulting fees and IT charges.

 

The finance expense relates to fees to establish the Bridge Facility to refinance the Refinitiv notes and term loans in full following completion of the Refinitiv acquisition (further details of the facility are provided in note 11).

 

The tax impact of the Group's non-underlying items and its adjustment to profit or loss of the individual entities of the Group to which the non-underlying items relate, is computed based on the tax rates applicable to the respective territories in which the entity operates. There is no tax impact arising on non-underlying items which are neither taxable nor tax-deductible.

 

5. Net finance expense

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2021

2020

 

 

 

Unaudited

Unaudited

 

 

 

 

(Re-presented)

Continuing

 

Note

£m

£m

Finance income

 

 

 

 

Bank deposit and other interest income

 

 

2

2

Expected return on defined benefit pension scheme assets

 

 

16

1

Other finance income

 

 

1

6

Underlying finance income

 

 

19

9

 

 

 

 

 

Finance expense

 

 

 

 

Interest payable on bank and other borrowings

 

 

(83)

(28)

Defined benefit pension scheme interest cost

 

 

(14)

-

Lease interest expense

 

 

(6)

(2)

Other finance expenses

 

 

(3)

(1)

Underlying finance expense

 

 

(106)

(31)

 

 

 

 

 

Non-underlying net finance expense

 

4

(1)

(7)

 

 

 

 

 

Net finance expense

 

 

(88)

(29)

 

 

 

 

 

Bank deposit and other interest income includes negative interest earned on the Group's borrowings. Interest payable includes amounts where the Group earns negative interest on its cash deposits.

 

 

6. Taxation

 

 

 

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2021

2020

 

 

Note

Unaudited

Unaudited

Taxation recognised in profit or loss

 

 

 

(Re-presented)

Continuing

 

 

£m

£m

 

 

 

 

 

Current tax expense

 

 

 

 

UK corporation tax for the period

 

 

11

39

Overseas tax for the period

 

 

51

38

Adjustments in respect of previous years

 

 

2

-

 

 

 

64

77

 

 

 

 

 

Deferred tax expense/(credit)

 

 

 

 

Deferred tax for the period

 

 

216

1

Adjustments in respect of previous years

 

 

1

(1)

Deferred tax liability on amortisation of purchased intangible assets

 

 

(15)

(6)

 

 

 

202

(6)

Taxation from continuing operations

 

 

266

71

 

 

 

 

 

Taxation from discontinuing operations

 

15

6

30

 

 

 

 

 

Taxation

 

 

272

101

 

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2021

2020

Taxation on items not recognised in profit or loss

 

 

 

(Re-presented)

Continuing

 

 

£m

£m

Current tax credit

 

 

 

 

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

 

 

(6)

(12)

 

 

 

(6)

(12)

Deferred tax expense/(credit)

 

 

 

 

Tax allowance on defined benefit pension scheme remeasurements

 

 

19

9

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

 

 

2

5

Tax on movement in value of investments in financial assets

 

 

(1)

3

 

 

 

20

17

 

 

 

 

 

 

 

 

14

5

 

 

 

 

 

Factors affecting the tax charge for the period

 

 

 

 

The income statement tax charge for the period differs from the standard rate of corporation tax in the UK of 19% (30 June 2020: 19%) as explained below:

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2021

2020

 

 

 

Unaudited

Unaudited

 

 

 

 

(Re-presented)

Continuing

 

 

£m

£m

 

 

 

 

 

Profit before taxation

 

 

510

262

 

 

 

 

 

Profit multiplied by standard rate of corporation tax in the UK

 

97

50

 

 

 

 

 

Expenses not deductible

 

 

-

7

Overseas earnings taxed at higher rate

 

 

7

18

Adjustments in respect of previous years

 

 

3

(1)

Deferred tax assets recognised

 

 

-

(3)

Remeasurement impact of tax rate changes

 

159

-

 

 

 

 

 

Taxation charge from continuing operations

 

 

266

71

Income tax attributable to discontinued operations

 

 

6

30

 

 

 

272

101

The tax rate applied as at 30 June 2021 is the expected rate for the full financial year.

 

On 24 May 2021, an increase in the UK corporation tax rate from 19% to 25% from 1 April 2023 onward was substantively enacted and on 10 June 2021, Finance Act 2021 received Royal Assent.  In accordance, the deferred tax assets and liabilities have been remeasured based on these rates during the reporting period.

During the period the Group completed the sale of its entire shareholding in London Stock Exchange Group Holdings (Italia) S.p.A and its subsidiaries (Borsa Italiana group).

The gain on disposal of the shares qualifies for UK corporation tax exemption under the substantial shareholding exemption rules.

EU State Aid

The Group continues to monitor developments in relation to EU State Aid investigations. On 25 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company (CFC) regime was published. It concludes that the UK legislation up to December 2018 does partially represent illegal State Aid.

Both the Group, among a number of other UK PLCs, and the UK Government have submitted appeals to the EU General Court to annul the EU Commission's findings.

The UK Government is required to continue the process of recovering the State Aid whilst the decision is under appeal. HMRC issued determinations to the Group to date of £10.5 million, excluding interest and penalties.

The appeal against the determination to HMRC is likely to be stayed until the final outcome of all appeals to the EU Courts in respect of the EU Commission's original decision are known.

The issuance and settlement of any such determinations, however, does not change the Group's view that in light of the appeals made by UK PLCs (including the Group), the UK Government's own appeal, and in consideration of management's own internal view, no provision is required in relation to the investigation. Additionally, and in accordance with the provisions of IFRIC 23, the Group has recognised a receivable against the HMRC determinations paid to date.

As previously disclosed, the Group has made claims under the CFC regime and still considers that the maximum potential amount of additional tax payable excluding compound interest remains between nil and £65 million depending on the basis of calculation.

IRS Audit

The Group is currently under audit in the US by the IRS in relation to the interest rate applied on certain cross border intercompany loans from the UK to the US. During the year the IRS issued a Notice of Proposed Adjustment (NOPA) which seeks to apply the safe haven rate under the US regulations to the interest charged on cross border loans.

The maximum exposure under the NOPA is US$130 million, however this the upper bound of a range of nil to US$130 million plus interest and penalties over the lifetime of the loans. The Group disagrees with the NOPA assessment and has sought legal advice to support its position that the safe haven rate is arbitrary and should not be sustained. The NOPA has been appealed by the Group and the audit is ongoing.

7. Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to equity holders of the parent company of the Group, London Stock Exchange Group plc (LSEG or the 'Company') is presented on four bases: basic earnings per share; diluted earnings per share; adjusted basic earnings per share; and adjusted diluted earnings per share. Basic earnings per share is in respect of all activities and diluted earnings per share takes into account the dilution effects which would arise on conversion or vesting of share options and share awards under the Group share option and award schemes. Adjusted basic earnings per share and adjusted diluted earnings per share exclude non-underlying items and to enable a better comparison of the underlying earnings of the business with prior periods.

 

Six months ended 30 June

 

2021

2020

 

Unaudited

Unaudited (Re-presented)

 

Continuing

Discontinued

Total

Continuing

Discontinued

Total

Basic earnings per share

34.3p

501.0p

535.3p

45.1p

19.4p

64.6p

Diluted earnings per share

34.1p

498.1p

532.2p

44.6p

19.2p

63.8p

Adjusted basic earnings per share

146.0p

15.4p

161.5p

89.2p

23.0p

112.0p

Adjusted diluted earnings per share

145.2p

15.3p

160.5p

88.2p

22.7p

110.7p

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Six months ended 30 June

 

2021

2020

 

Unaudited

Unaudited (Re-presented)

 

Continuing

Discontinued

Total

Continuing

Discontinued

Total

 

£m

£m

£m

£m

£m

£m

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

178

2,600

2,778

158

68

226

Adjustments:

 

 

 

 

 

 

Non-underlying items net of tax (note 4)

611

(2,519)

(1,908)

155

13

168

Non-underlying items attributable to non-controlling interests

(31)

(1)

(32)

(1)

(1)

(2)

 

 

 

 

 

 

 

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

758

80

838

312

80

392

 

 

 

 

 

 

 

Weighted average number of shares - million

519

519

519

350

350

350

Effect of dilutive share options and awards - million

3

3

3

4

4

4

Diluted weighted average number of shares - million

522

522

522

354

354

354

 

 

 

 

 

 

 

The weighted average number of shares excludes those held in the employee benefit trust. The Group holds no treasury shares. 

 

8. Dividends

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

2021

2020

 

 

Unaudited

Unaudited

 

 

£m

£m

Final dividend for 31 December 2019 paid 27 May 2020: 49.9p per Ordinary share

 

-

175

Final dividend for 31 December 2020 paid 26 May 2021: 51.7p per Ordinary share

 

287

-

 

 

287

175

 

Dividends are only paid out of available distributable reserves

 

The Board has proposed an interim dividend in respect of the six-month period ended 30 June 2021 of 25.0p per share, amounting to an estimated £139 million, to be paid in September 2021.  This is not reflected in these interim condensed consolidated financial statements.

 

9.  Intangible assets

 

 

 

 

 

 

 

 

 

Purchased intangible assets

 

 

 

Goodwill

Customer and supplier relationships

Brands

Database

Software licences and intellectual property

Software, contract costs and other

Total

 

£m

£m

£m

£m

£m

£m

£m

Cost

 

 

 

 

 

 

 

1 January 2021

2,402

1,847

953

 -

569

1,260

7,031

Acquisition of subsidiaries (note 14)

16,544

7,528

983

2,398

199

1,608

29,260

Additions

 -

 -

 -

-

-

254

254

Disposal of business (note 15)

(927)

(692)

(1)

-

(66)

(179)

(1,865)

Disposals

 -

 -

 -

 -

 -

(7)

(7)

Foreign exchange translation

(131)

(90)

(21)

(23)

(8)

(53)

(326)

30 June 2021 (Unaudited)

17,888

8,593

1,914

2,375

694

2,883

34,347

 

 

 

 

 

 

 

 

Accumulated amortisation and impairment:

 

 

 

 

 

 

 

1 January 2021

546

868

265

-

345

683

2,707

Amortisation charge for the period

-

226

60

99

8

189

582

Disposal of business

(55)

(409)

-

-

(58)

(138)

(660)

Foreign exchange translation

(16)

(5)

(3)

-

(3)

(20)

(46)

30 June 2021 (Unaudited)

475

681

322

99

292

714

2,583

 

 

 

 

 

 

 

 

Net book values:

 

 

 

 

 

 

 

30 June 2021 (Unaudited)

17,413

7,912

1,592

2,276

402

2,169

31,764

31 December 2020

1,856

979

688

-

224

577

4,324

 

Goodwill and purchased intangible assets

 

During the period,

·      the Group acquired Refinitiv Parent Limited. On acquisition, the Group recognised goodwill of US$23 billion (£16 billion) and purchased intangible assets, software and other intangible assets of US$17 billion (£13 billion) (details of the acquisition are provided in note 14).

·      Tradeweb acquired Nasdaq's fixed income electronic trading platform. On acquisition, the Group recognised goodwill of $88 million (£64 million) and purchased intangible assets and software of US$100 million (£73 million) (details of the acquisition are provided in note 14).

 

During the period the Group disposed of the Borsa Italiana group (see note 15) and derecognised goodwill of £872 million and intangible assets of £333 million.

 

There were no acquisitions or disposals in the prior period.

 

 

10. Financial assets and financial liabilities

 

 

 

 

 

Financial instruments by category

 

 

 

 

The financial instruments of the Group at 30 June 2021 are categorised as follows:

 

 

 

 

 

Financial assets

 

 

 

 

30 June 2021

Amortised cost

Fair value through other comprehensive income

Fair value through profit or loss

Total

Unaudited

£m

£m

£m

£m

 

 

 

 

 

Clearing business financial assets

 

 

 

 

- Clearing member trading assets

8,342

-

662,648

670,990

- Other receivables from clearing members

6,313

-

-

6,313

- Other financial assets

-

15,542

-

15,542

- Clearing member cash and cash equivalents

74,725

-

-

74,725

 

89,380

15,542

662,648

767,570

 

 

 

 

 

Trade and other receivables

1,246

-

6

1,252

Cash and cash equivalents

2,748

-

-

2,748

Investments in financial assets - equity instruments

-

287

-

287

Derivative financial instruments

-

-

9

9

 

 

 

 

 

Total financial assets

93,374

15,829

662,663

771,866

 

There were no transfers between categories during the period.

 

Prepayments and contract assets within trade and other receivables are not classified financial instruments.

 

Financial assets measured at fair value

 

30 June 2021

Quoted prices in active markets

(Level 1)

Significant observable inputs

(Level 2)

Significant unobservable inputs

(Level 3)

Total

fair value

Unaudited

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

Clearing business financial assets

 

 

 

 

- Derivative instruments

81

194,893

-

194,974

- Non-derivative instruments

-

467,674

-

467,674

- Other financial assets

15,542

-

-

15,542

 

 

 

 

 

 

15,623

662,567

-

678,190

 

 

 

 

 

Investments in financial assets - equity instruments

1

-

286

287

Trade and other receivables - convertible loan notes

-

-

6

6

 

 

 

 

 

Derivatives not designated as hedges

 

 

 

 

 - Foreign exchange forward contracts

-

9

-

9

 

 

 

 

 

Total financial assets at fair value

15,624

662,576

292

678,492

 

 

 

 

 

 

Financial liabilities

 

 

 

 

30 June 2021

 

Amortised cost

Fair value through profit or loss

Total

Unaudited

 

£m

£m

£m

 

 

 

 

 

Clearing business financial liabilities

 

 

 

 

- Clearing member trading liabilities

 

8,342

662,648

670,990

- Other payables to clearing members

 

96,599

-

96,599

 

 

104,941

662,648

767,589

 

 

 

 

 

Trade and other payables

 

1,868

-

1,868

Borrowings

 

8,535

-

8,535

Derivative financial instruments

 

-

59

59

 

 

 

 

 

Total financial liabilities

 

115,344

662,707

778,051

 

 

 

 

 

There were no transfers between categories during the period.

Social security and other taxes within trade and other payables are not classified as financial instruments.


 

Financial liabilities measured at fair value

 

 

 

 

30 June 2021

Quoted prices in active markets

(Level 1)

Significant observable inputs

(Level 2)

Significant unobservable inputs

(Level 3)

Total

fair value

Unaudited

£m

£m

£m

£m

 

 

 

 

 

Clearing business financial liabilities

 

 

 

 

- Derivative instruments

81

194,893

-

194,974

- Non-derivative instruments

-

467,674

-

467,674

 

 

 

 

 

 

81

662,567

-

662,648

 

 

 

 

 

Derivatives not designated as hedges

 

 

 

 

- Foreign exchange forward contracts

-

34

-

34

Derivatives designated as hedges

 

 

 

 

- Cross-currency interest rate swaps

-

25

-

25

 

 

 

 

 

Total financial liabilities at fair value

81

662,626

-

662,707

 

 

 

 

 

 

 

 

 

The financial instruments of the Group at 31 December 2020 were categorised as follows:

 

 

 

 

 

Financial assets

 

 

 

 

 

£m

£m

£m

£m

 

 

 

 

 

Clearing business financial assets

 

 

 

 

- Clearing member trading assets

98,736

-

632,699

731,435

- Other receivables from clearing members

2,484

-

-

2,484

- Other financial assets

-

24,591

-

24,591

- Clearing member cash and cash equivalents

83,011

-

-

83,011

 

184,231

24,591

632,699

841,521

 

 

 

 

 

Trade and other receivables

544

-

5

549

Cash and cash equivalents

1,785

-

-

1,785

Investments in financial assets - debt instruments

-

111

-

111

Investments in financial assets - equity instruments

-

261

-

261

 

 

 

 

 

Total financial assets

186,560

24,963

632,704

844,227

 

There were no transfers between categories during the period.

 

Prepayments and contract assets within trade and other receivables are not classified as financial instruments.

 

Financial assets measured at fair value

 

 

 

 

31 December 2020

Quoted prices in active markets

(Level 1)

Significant observable inputs

(Level 2)

Significant unobservable inputs

(Level 3)

Total

fair value

 

£m

£m

£m

£m

 

 

 

 

 

Clearing business financial assets

 

 

 

 

- Derivative instruments

5,867

2,726

-

8,593

- Non-derivative instruments

6

624,100

-

624,106

- Other financial assets

24,591

-

-

24,591

 

 

 

 

 

 

30,464

626,826

-

657,290

 

 

 

 

 

Investments in financial assets - debt instruments

111

-

-

111

Investments in financial assets - equity instruments

-

-

261

261

 

 

 

 

 

Derivatives not designated as hedges

 

 

 

 

 - Trade and other receivables - convertible loan notes

-

-

5

5

 

 

 

 

 

Total financial assets at fair value

30,575

626,826

266

657,667

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

31 December 2020

 

 

Amortised cost

Fair value through profit or loss

Total

 

 

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

Clearing business financial liabilities

 

 

 

 

 

 

- Clearing member trading liabilities

 

 

98,736

632,699

731,435

 

- Other payables to clearing members

 

 

110,118

-

110,118

 

 

 

 

208,854

632,699

841,553

 

 

 

 

 

 

 

 

Trade and other payables

 

 

747

-

747

 

Borrowings

 

 

1,951

-

1,951

 

Derivative financial instruments

 

 

-

17

17

 

 

 

 

 

 

 

 

Total financial liabilities

 

 

211,552

632,716

844,268

 

 

 

 

 

 

 

 

There were no transfers between categories during the prior period.

 

Social security and other taxes within trade and other payables are not classified financial instruments.

 

                     

 

 

Financial liabilities measured at fair value

 

 

 

 

31 December 2020

Quoted prices in active markets

(Level 1)

Significant observable inputs

(Level 2)

Significant unobservable inputs

(Level 3)

Total

fair value

 

£m

£m

£m

£m

 

 

 

 

 

Clearing business financial liabilities

 

 

 

 

- Derivative instruments

5,867

2,726

-

8,593

- Non-derivative instruments

6

624,100

-

624,106

 

 

 

 

 

 

5,873

626,826

-

632,699

 

 

 

 

 

Derivatives designated as hedges

 

 

 

 

- Cross-currency interest rate swaps

-

11

-

11

 

 

 

 

 

Derivatives not designated as hedges

 

 

 

 

- Foreign exchange forward contracts

-

6

-

6

 

 

 

 

 

Total financial liabilities at fair value

5,873

626,843

-

632,716

 

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

·      Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

·      Level 2: other techniques for which all inputs, which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

·      Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
 

For assets and liabilities classified as Level 1, the fair value is based on market price quotations at the reporting date.

 

For assets and liabilities classified as Level 2, the fair value is calculated using one or more valuation techniques (e.g. the market approach or the income approach) with market observable inputs. The selection of the appropriate valuation techniques may be affected by the availability of the relevant inputs as well as the reliability of the inputs. The inputs may include currency rates, interest rate and forward rate curves and net asset values.

 

When observable market data is not available, the Group uses one or more valuation techniques (e.g. the market approach or the income approach) for which sufficient and reliable data is available. Inputs used in estimating the fair value of Level 3 financial instruments include expected timing and level of future cash flows, timing of settlement, discount rates and net asset values of certain investments.

 

There have been no transfers between levels during the current period.

 

The Group determines whether a transfer between levels has occurred by reviewing the categorisation of assets and liabilities at the end of each reporting period, based on the lowest level input that is significant to the valuation.

 

With the exception of Group borrowings, management has assessed that the fair value of financial assets and financial liabilities recognised at amortised cost approximates to their carrying values. The fair value of the Group's borrowings is disclosed in Note 11.

 

The nature and composition of the CCP clearing business assets and liabilities are explained in the accounting policies note in the Group's annual consolidated financial statements for the year ended 31 December 2020.

 

As at 30 June 2021, there were no provisions for impairment in relation to any of the CCP financial assets (31 December 2020: nil) and none of those assets are past due (31 December 2020: nil).

 

Investment in equity instruments

 

Investments in equity instruments are recognised at fair value through other comprehensive income, given the intended long-term nature of these investments. Convertible loan notes are treated as fair value through profit or loss as they contain a derivative option. Investments in equity instruments and convertible instruments are all classified as Level 3, with the exception of a listed investment, which is Level 1.

 

In the absence of any relevant third-party data on the fair values of its Level 3 investments, the Group undertakes its own internal valuations. The Group regularly reviews the financial information of its investments which is available publicly or received as a shareholder.

 

The value of the investments is calculated primarily using discounted cash flow forecasts with a terminal growth rate of 2% and a risk adjusted discount rate. These valuations may then be benchmarked against other available models, such as the dividend discount model, regression analysis, and trading multiples.

 

As at 30 June 2021, the Group estimates the fair value of its investments to be £287 million (31 December 2020: £261 million).

 

As part of the acquisition of Refinitiv in January 2021, the Group acquired investments with a fair value of £22 million as at 30 June 2021.

 

During the period the Group made additional investments of £15 million and there were foreign exchange movements of £11 million.

 

The Group's largest investment is in Euroclear, which has a fair value of €285 million (£245 million). The majority of the remaining investments are not material.

  

Hedging activities and derivatives

 

As at 30 June 2021, the Group had derivative financial assets of £9 million (31 December 2020: nil) and derivative financial liabilities of £59 million (31 December 2020: £17 million).

 

None of the assets are designated as hedges and represent forward foreign exchange derivatives, including embedded derivatives within revenue contracts where the currency of the contract is different from the functional or local currencies of the contracted parties.

 

Of the derivative liabilities, £25 million represents the fair value of the €700 million cross-currency interest rate swap designated as a hedging instrument. The remaining £34 million derivative liabilities are not designated as hedging instruments and represent forward foreign exchange derivatives, including embedded derivatives within revenue contracts.

 

For the period ended 30 June 2021, a £13 million loss on the €700 million cross-currency interest rate swaps (30 June 2020: £41 million loss) was recognised in other comprehensive income and transferred to the hedging reserve.

 

The remaining value of £17 million relating to the £242 million cross-currency interest rate swap held in the hedging reserve at 31 December 2020 has been recycled to the income statement during the period as a result of the disposal of the Borsa Italiana group, which was the underlying asset being hedged. The net loss of £17 million has been included in the profit on disposal of the Borsa Italiana group (note 15) (30 June 2020: £nil).

 

Non-derivative hedges

 

€800 million of the Group's bonds and the Group's US dollar and euro borrowings qualify as hedging instruments and during the period a net £85 million gain (30 June 2020: £111 million loss) was recognised other comprehensive income and transferred to the hedging reserve.

 

 11.  Borrowings

 

 

 

 

 

 

 

30 June

31 December

 

 

 

2021

2020

 

 

 

Unaudited

 

 

 

 

£m

£m

Current

 

 

 

 

Bank borrowings

 

 

(7)

135

Commercial paper

 

 

86

170

Bonds

 

 

300

300

 

 

 

379

605

 

 

 

 

 

Non-current

 

 

 

 

Bonds

 

 

6,284

1,347

Bank borrowings

 

 

1,871

(2)

Trade finance loans

 

 

1

1

 

 

 

8,156

1,346

 

 

 

 

 

Total

 

 

8,535

1,951

 

The Group has the following committed bank facilities and unsecured notes:

 

 

 

 

 

Notes/Facility

Carrying value at

Interest rate

Unaudited

 

 

30 June 2021

30 June 2021

Type

Expiry Date

£m

£m

%

 

 

 

 

 

Multi-currency revolving credit facility

Dec 2024

1,425

(3)

LIBOR + 0.325

Multi-currency revolving credit facility

Dec 2025

1,075

(4)

LIBOR + 0.475

Committed bank facilities

 

2,500

(7)

 

 

 

 

 

 

Commercial paper

Jul 2021

86

86

(0.004)1

 

 

 

 

 

€500 million term loan

Dec 2023

430

429

LIBOR + 0.725

$2,000 million term loan

Dec 2023

1,445

1,442

LIBOR + 0.725

Committed term loans

 

1,875

1,871

 

 

 

 

 

 

Unsecured notes

 

 

 

 

£300 million bond, issued November 2012

Nov 2021

300

300

4.75

€500 million bond, issued September 2017

Sep 2024

430

429

0.875

€500 million bond, issued December 2018

Dec 2027

430

427

1.75

€500 million bond, issued September 2017

Sep 2029

430

427

1.75

£500 million bond, issued April 2021

Apr 2030

500

493

1.63

€500 million bond, issued April 2021

Apr 2025

430

429

0.0

€500 million bond, issued April 2021

Apr 2028

430

427

0.25

€500 million bond, issued April 2021

Apr 2033

430

423

0.75

$500 million bond, issued April 2021

Apr 2024

361

360

0.65

$1,000 million bond, issued April 2021

Apr 2026

723

719

1.38

$1,000 million bond, issued April 2021

Apr 2028

723

719

2.00

$1,250 million bond, issued April 2021

Apr 2031

903

897

2.50

$750 million bond, issued April 2021

Apr 2041

542

534

3.20

Total unsecured notes

 

6,632

6,584

 

 

 

 

 

 

Total committed bank facilities and unsecured notes

 

 

8,534

 

 

1 The Commercial paper interest rate reflected is the average interest rate achieved on outstanding issuances.

The negative balances on the revolving credit facilities represent the value of unamortised arrangement fees.

 

The fair value of the Group's borrowings at 30 June 2021 was £8,750 million (31 December 2020: £2,082 million). 

 

On 29 January 2021, as part of the Refinitiv acquisition, the Group completely refinanced the Refinitiv debt portfolio by drawing down £8.0 billion on its dual-currency bridging facility, €500 million (£430 million) on its euro term loan, US$2 billion (£1.4 billion) on its US dollar term loan and £500m million on its two new multi-currency revolving credit facilities. The term loans are repayable in December 2023.

 

On 6 April, the Group issued a series of 9 new senior unsecured bonds using its newly established Global Medium Term Note Programme and applied the proceeds to repay the bridging facility. The £5.0 billion raised was issued in US dollars, euros and sterling with maturities between April 2024 and April 2041 and consisting of US$4.5 billion (£3.2 billion),  €1.5 billion (£1.3 billion) and £500 million respectively.

 

On 29 April, the Group sold its investment in the Borsa Italiana group, receiving €4.4 billion (£3.9 billion) and applying the funds to repay the remaining outstanding balances on the bridging facility and revolving credit facilities. The bridging facility was cancelled upon repayment.

 

12. Analysis of net debt

 

 

 

 

 

 

 

 

 

 

 

30 June

31 December

 

 

 

2021

2020

 

 

 

Unaudited

 

 

 

Note

£m

£m

Due within one year

 

 

 

 

Cash and cash equivalents

 

 

2,748

1,785

Revolving credit facilities net of deferred arrangement fees

 

 

7

(135)

Commercial paper

 

 

(86)

(170)

Bonds

 

 

(300)

(300)

Derivative financial assets

 

 

6

-

Derivative financial liabilities

 

 

(30)

(6)

 

 

 

2,345

1,174

Due after one year

 

 

 

 

Term loans net of deferred arrangement fees

 

 

(1,872)

1

Bonds

 

 

(6,284)

(1,347)

Derivative financial assets

 

 

3

-

Derivative financial liabilities

 

 

(29)

(11)

Total net debt

 

 

(5,837)

(183)

 

 

 

 

 

Reconciliation of net cash flow to movement in net debt

 

 

 

30 June

31 December

 

 

 

2021

2020

 

 

 

Unaudited

 

 

 

 

£m

£m

Increase in cash in the period/year

 

 

1,020

237

Proceeds from the issue of bonds

 

 

(5,043)

-

Net repayment of commercial paper

 

 

77

101

Arrangement fees on borrowing facilities

 

 

42

-

Additional drawdowns from bank facilities

 

 

(495)

(4)

New loans for acquisition activities

 

 

(9,807)

-

Repayments made towards bank credit facilities and borrowings

 

 

8,549

127

Trade finance loans received

 

                 -

-

(1)

Repayment of borrowings assumed on acquisition

 

 

10,486

-

Change in net debt resulting from cash flows

 

 

4,829

460

 

 

 

 

 

Foreign exchange

 

 

15

(36)

Movement on derivative financial assets and liabilities

 

 

(33)

21

Borrowings assumed on acquisition of Refinitiv

 

14

(10,462)

-

Bond valuation adjustment

 

 

1

-

Amortisation of arrangement fees

 

 

(4)

2

 

 

 

 

 

Net debt at the start of the period/year

 

 

(183)

(630)

Net debt at the end of the period/year

 

 

(5,837)

(183)