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LondonStockExGroup (LSE)

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Friday 31 July, 2020

LondonStockExGroup

Half-year Report

RNS Number : 6898U
London Stock Exchange Group PLC
31 July 2020
 

31 July 2020

LONDON STOCK EXCHANGE GROUP PLC

INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2020

 

Unless otherwise stated, all figures below refer to continuing operations for the six months ended 30 June 2020 (H1 or H1 2020).  Comparative figures are for continuing operations for the six months ended 30 June 2019 (H1 2019). 

· Good financial and operational performance in H1 drives 11% increase in AEPS

· Further good income growth in Information Services and Post Trade; resilient underlying result in Capital Markets

· Strong operational resilience across the Group's trading, clearing and data platforms during unprecedented period; majority of employees continue to work remotely

· Group in strong financial position; confidence in future prospects supports increase in the interim dividend (up 16%) to 23.3 pence per share

· Good progress with foreign investment, antitrust and other regulatory approvals for the Refinitiv transaction, a nd integration planning is well developed; the Group expects to close the transaction by the end of the year or in early 2021

 

H1 Summary

· Total Revenue up 4% to £1,058 million (H1 2019: £1,018 million); total income up 8% to £1,235 million (H1 2019: £1,140 million)

· FTSE Russell revenue up 5% to £330 million (H1 2019: £315 million) with growth in subscription revenues and flat asset-based revenues reflecting lower ETF AUM levels

· Post Trade revenue up 9% to £372 million (H1 2019: £342 million), driven by strong growth in LCH; record activity in CDS, FX and cash equities clearing; total income up 19% to £548 million (H1 2019: £462 million), mainly reflecting higher cash margin held

· Capital Markets revenue down 4% on a reported basis to £217 million, and up 12% on a like-for-like basis excluding the one-off benefit of an IFRS 15 adjustment in prior year

· Adjusted operating expenses, before depreciation and amortisation1, were up 8% (up 5% on a constant currency basis) and up 1% compared with H2 2019 

· Adjusted operating profit1 up 8% to £575 million (H1 2019: £533 million); operating profit was down 2% at £391 million (H1 2019: £399 million); profit before tax of £362 million (H1 2019: £363 million); profit after tax of £261 million (H1 2019: £265 million)

· Adjusted EBITDA1  margin broadly unchanged at 54.6% (2019 H1: 54.5%)

· Adjusted EPS1 up 11% to 112.0 pence (H1 2019: 100.6 pence); basic EPS down 9% at 64.6 pence (H1 2019: 70.7 pence)

· Strong balance sheet position with leverage at 1.4 times net debt: pro forma EBITDA

 

Commenting on performance for the period, David Schwimmer, CEO said:

"The Group has delivered a good financial performance and demonstrated strong operational resilience.  During this unprecedented period, we have focused on ensuring the welfare of our employees and on continuity of services to our customers, maintaining access to our markets and clearing venues, with record volumes executed across our services. 

"We are making good progress on the proposed transaction with Refinitiv, securing a number of regulatory approvals and engaging constructively with authorities on remaining approvals.  We also continue to make good progress on integration planning to ensure we are ready to deliver the benefits of the transaction to our shareholders, customers and other stakeholders.  We expect to close the transaction by the end of the year or in early 2021." 

 

Organic growth combined with new product development and investment continued throughout the period.  Highlights include:

 

Information Services

· FTSE Russell announced a 10-year extension to a global index derivatives agreement with Cboe Global Markets to develop and list options based on FTSE Russell indices

· FTSE Russell launched a series of co-branded fixed income indices in partnership with Johannesburg Stock Exchange and new index derivatives launched by Singapore Stock Exchange using FTSE Russell indices

Post Trade

· LCH SwapClear became the first clearing house to clear Singapore Dollar swaps benchmarked to alternative reference rate Singapore Overnight Rate Average (SORA)

· LCH EquityClear went live with a new LSEG Technology post trade platform, processing record equity clearing volumes in March 2020

· UnaVista approved by ESMA to be a trade repository under Securities Financing Transactions Regulation (SFTR)

Capital Markets

· £19.8 billion equity capital raised across new and further issues up 29%, with 17% increase in value traded across venues

· China Pacific Insurance Group (CPIC) listed GDRs in London on Shanghai-London Stock Connect, the largest capital raise via an admission to London Stock Exchange in 2020 to date, raising US$2 billion

· London Stock Exchange celebrated the 25th anniversary of AIM, the London Stock Exchange's growth market, with over 3,800 companies admitted since launch, raising £118 billion in equity capital

 

1 Before amortisation and impairment of purchased intangible assets and goodwill and non-underlying items

The Group's principal foreign exchange exposure arises from translating and revaluing its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling.

London Stock Exchange Group uses non-GAAP performance measures as key financial indicators as the Board believes these better reflect the underlying performance of the business.  As in previous years, adjusted operating expenses, adjusted operating profit, adjusted profit before tax, adjusted earnings before interest, tax, depreciation and amortisation, adjusted EBITDA margin and adjusted earnings per share all exclude amortisation and impairment of purchased intangible assets and goodwill and non-underlying items.

 

Further information is available from:

London Stock Exchange Group plc

Gavin Sullivan / Lucie Holloway - Media

Paul Froud - Investor Relations

+44 (0) 20 7797 1222


+44 (0) 20 7797 3322

 

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

 

The Group will host a conference call for analysts and investors today at 08:30am (UK time) .  On the call to discuss the H1 results will be David Schwimmer (CEO), David Warren (CFO) and Paul Froud (Group Head of Investor Relations). 

To access the telephone conference call please pre-register using the following link and instructions below: https://cossprereg.btci.com/prereg/key.process?key=P7C9K8NDA  

 

· Please register in advance of the conference using the link above .  Upon registering with your full name, company name and email address, you will be provided with the information required to join the conference, including dial-in numbers and passcodes

· In the 10 minutes prior to the call start time, please use the conference access information provided in the email received at the point of registering

 

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 operational performance against the backdrop of unprecedented conditions and with the majority of our employees around the world working on a remote basis. Throughout the period, we demonstrated strong operational resilience, maintaining orderly markets and managing market risk through our post trade services, with record volumes executed on our trading venues and at our clearing houses.

We have continued to develop and invest in the business during this period, successfully launching a new equity clearing platform at LCH in March during the peak of the equity market volatility, listing a second GDR through Shanghai-London Stock Connect and developing a number of new indices and winning new contracts in the Information Services division.  Our commitment to open access and customer partnership is at the heart of our business model, offering systemically important services on an open, non-discriminatory basis and developing new products with our customers to support global markets.

Total income for the half-year increased 8%, reflecting good growth across many parts of the Group.  This is particularly notable given the strong prior year comparative period inclusion of a one-off £32 million benefit from an IFRS 15 change in estimate, without which income would have risen 11%.  Adjusted operating expenses before depreciation and amortisation were 8% higher, but increased 1% compared with H2 2019, demonstrating good underlying cost control.  Adjusted operating profit increased 8% to £575 million, and adjusted EPS rose 11% to 112.0 pence per share.  The Group's adjusted EBITDA margin has remained broadly unchanged at 54.6% (2019 H1: 54.5%). 

We remain in a strong financial position, with good cash generation supporting investment and product development while leverage remained stable at 1.4 times net debt to pro forma EBITDA.  In line with our progressive dividend policy, and reflecting both the good H1 performance and confidence in future prospects, the interim dividend is increased by 16%, to 23.3 pence per share.

In August last year, we announced the proposed acquisition of Refinitiv, a leading global provider of data, analytics and financial markets solutions.  We are making good progress on integration planning to ensure we are ready to deliver the benefits of the transaction immediately following completion The Group continues to make good progress with foreign investment, merger control and other regulatory filings.  Foreign investment approvals have been received in the US and Germany.  Unconditional merger control clearances have been received in Botswana, Germany, Japan, Jersey, Kenya, Morocco, Pakistan, Russia, Saudi Arabia, Taiwan and Ukraine, and merger reviews are underway in several other jurisdictions, including in Singapore, Australia, US and Canada.  The European Commission commenced a Phase II merger review in June and the Group continues to engage constructively with the case team.   Today the Group confirms that it has commenced exploratory discussions which may result in a sale of LSEG's interest in MTS or potentially the Borsa Italiana group as a whole.  The Group expects to complete the transaction by the end of the year or in early 2021.

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

 

Operational Performance

Information Services delivered a 5% increase in revenue, to £437 million (up 3% on an organic and constant currency basis).  FTSE Russell revenue increased by 5% to £330 million, and 3% on a constant currency basis.  Subscription revenue grew 8% to £218 million, while asset-based revenue was flat at £112 million despite a considerable drop in AUM values due to market volatility during the period.  ETF AUM benchmarked to FTSE Russell indices at the end of the period fell by 3% to US$669 billion compared to the end of H1 2019, but up 15% from the end of Q1 2020 as the market recovered.  Revenue from real time data grew 8% with strong new business to £52 million while other information services grew 4% to £55 million.  Cost of sales was flat at £36 million, with 6% growth in gross profit at £401 million.

The Post Trade division, which incorporates LCH, CC&G, Monte Titoli and UnaVista since the start of the year, grew revenue by 9% to £372 million (up 8% on a constant currency basis).  LCH grew 10% to £293 million, with a strong contribution from Non-OTC, which increased 16% to £80 million, with record levels of clearing activity in cash equity and listed derivatives arising from COVID-19 related volatility.  OTC clearing revenue increased 6% to £157 million, largely due to growth in client clearing in SwapClear as the number of trades increased by 24%.  The period also saw record volumes at ForexClear and CDSClear, and strong growth from client clearing in both services as they develop further.  Other revenue at LCH grew 14% to £56 million due to higher levels of non-cash collateral.  Post Trade Italy grew 3% to £53 million with strong activity at CC&G as contracts cleared increased 35% in the period to 67.5 million and at Monte Titoli with settlement instructions up 22% to 26.3 million.

LCH net treasury income (NTI) rose 56% to £149 million as average cash collateral increased 26% to €116.3 billion, and CC&G NTI increased 12% to £27 million as initial margin held increased 5% to €14.7 billion.  NTI is mainly comprised of income from collateral handling fees, calculated on an agreed basis point spread for the collateral collected.  This component is generally predictable and recurring income, typically making up two-thirds of NTI.  The remaining one-third component of NTI is the return on investment of the cash collateral over the level returned to members.  This element of NTI benefitted from the increased quantum of cash to invest in the period and also received a short-term benefit from the rapid reduction in central bank interest rates.  Assuming no change in market environment, total NTI is expected to be lower in H2 and closer to the income reported in H2 2019, as cash collateral levels normalised by the end of H1 and short-term investments will reflect the now lower interest rates.

Total income for Post Trade rose 19% to £548 million (up 18% on a constant currency basis).  Cost of sales grew 23% to £80 million, reflecting the strong growth at LCH and in NTI, leading to an 18% increase in gross profit, to £468 million.

Capital Markets revenue fell by 4% on a reported and constant currency basis due to the comparison with H1 2019 revenue for Primary Markets which included a one-off IFRS 15 benefit of £32 million.  Excluding this impact, Primary Markets' revenue grew 12% to £65 million.  In Secondary Markets, equities trading revenue increased 23% to £91 million, as volumes grew with the strong volatility in March as the market reacted to COVID-19.  Equity value traded on London Stock Exchange increased by 21% and the number of trades at Borsa Italiana rose by 57%.  Fixed income, derivatives and other trading revenue fell by 2% to £61 million, as activity in these asset classes was more subdued.  Cost of sales was £2 million in the period, with reported gross profit falling 3% to £215 million. 

Technology Services revenue was unchanged at £30 million.  Lower cost of sales of £3 million meant overall gross profit increased 3% to £27 million.

 

Financial Summary

Unless otherwise stated, all figures below refer to continuing operations f or the six months ended 30 June 2020 (H1 2020).  Comparative figures are for continuing operations for   the six months ended 30 June 2019 (H1 2019).  Variances are also provided on an organic and constant currency basis, accounting for the acquisition of Beyond Ratings in 2019 H1.

 

 

 

 

 

Organic and

 

 

Six months ended

constant

 

 

30 June

currency

 

 

2020

2019

Variance

variance 1

Continuing operations

 

£m

£m

%

%

 

 

 

 

 

 

Revenue

 

 

 

 

 

Information Services

 

437  

416  

5%  

3%  

Post Trade

 

372  

342  

9%  

8%  

Capital Markets

 

217  

226  

(4%)

(4%)

Technology

 

30  

30  

-  

-  

Other revenue

 

2  

4  

-  

-  

Total revenue

 

1,058  

1,018  

4%  

3%  

 

 

 

 

 

 

Net treasury income through CCP businesses

 

176  

120  

47%  

46%  

Other income

 

1  

2  

-  

-  

Total income

 

1,235  

1,140  

8%  

8%  

Cost of sales

 

 (121)

 (109)

11%  

10%  

Gross profit

 

1,114  

1,031  

8%  

7%  

 

 

 

 

 

 

Adjusted operating expenses before depreciation, amortisation and impairment

 

 (438)

 (406)

8%  

5%  

Underlying depreciation, amortisation and impairment

 (99)

 (88)

13%  

13%  

Adjusted operating expenses 2

 

 (537)

 (494)

9%  

6%  

Share of loss after tax of associate

 

 (2)

 (4)

-  

-  

Adjusted operating profit 2

 

575  

533  

8%  

9%  

 

 

 

 

 

 

Add back underlying depreciation, amortisation and impairment

 

99  

88  

13%  

13%  

Adjusted earnings before interest, tax, depreciation, amortisation and impairment 2

 

674  

621  

9%  

9%  

 

 

 

 

 

 

Amortisation and impairment of purchased intangible assets and goodwill and non-underlying items 3

 

 (184)

 (134)

38%  

37%  

Operating profit

 

391  

399  

(2%)

(1%)

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic earnings per share (p)

 

64.6  

70.7  

(9%)

 

Adjusted basic earnings per share (p) 2

 

112.0  

100.6  

11%  

 

 

 

 

 

 

 

Dividend per share (p)

 

23.3  

20.1  

16%  

 

 

1 Organic growth is calculated in respect of businesses owned for at least 6 months in either period and so excludes Beyond Ratings

 

2 Before amortisation and impairment of purchased intangible assets and goodwill and non-underlying items

 

3 Includes transaction costs and restructuring costs

 

Note: Variances in all tables are calculated from unrounded numbers. 

 

The Group's principal foreign exchange exposure arises from translating and revaluing its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling.

 

Revenue increased 4% to £1,058 million (H1 2019: £1,018 million), and up 3% on an organic and constant currency basis.  As described in the operational performance section above, many parts of the Group have delivered good results, particularly in Post Trade and Information Services.  Total income rose 8% to £1,235 million (H1 2019: £1,140 million) on a reported and organic and constant currency basis.  Cost of sales increased 11% to £121 million, (10% on an organic and constant currency basis) primarily as a result of the growth in LCH and FTSE Russell, with gross profit increasing 8% to £1,114 million (H1 2019: £1,031 million). 

Adjusted operating expenses before depreciation, amortisation and impairment grew 8% on a reported basis and up 5% on a constant currency basis.  Underlying depreciation and amortisation at £99 million was 13% higher than last year, reflecting investments in previous periods.  The Group continues to invest in new products and efficiency projects, to increase sales and to develop the Group's infrastructure.  Adjusted operating expenses before depreciation and amortisation in H2 are expected to remain similar to H1 2020.

Adjusted operating profit for the period, before amortisation and impairment of purchased intangible assets and goodwill and non-underlying items, increased 8% to £575 million (H1 2019: £533 million).  Operating profit was down 2% at £391 million (H1 2019: £399 million) dampened by an increase in amortisation and impairment of intangible assets and goodwill and non-underlying items primarily relating to the Refinitiv transaction.

Adjusted net finance costs were £22 million (H1 2019: £36 million) reflecting a lower blended rate of interest on our debt following the refinancing of Bonds that were due in October 2019.  Profit before tax was £362 million (H1 2019: £363 million).  The effective underlying tax rate was 23.6%, and 22.5% for H1 with the inclusion of one-off and previous year adjustments (year ended 31 December 2019: 23.7%).  The reported tax rate expected for H2 is 23.0%.

Adjusted basic EPS, before amortisation and impairment of purchased intangible assets and goodwill and non-recurring items, increased 11% to 112.0 pence (H1 2019: 100.6 pence) while basic EPS was 64.6 pence (H1 2019: 70.7 pence).

Net cash inflow from operating activities was £448 million (H1 2019: £400 million), the increase reflecting strong underlying performance, partly offset by a timing-related increase in tax outflows.  Capital expenditure in the period amounted to £89 million (H1 2019: £89 million).  Looking ahead, we expect capex to run at a higher level in H2 as we continue to invest in further product development and other projects to enhance efficiency.  Net cash generated after capex, other investing activities and dividends, was £165 million (H1 2019: £122 million).  Discretionary free cash flow per share on the same basis was 98.0 pence (30 June 2019: 89.7 pence).

At 30 June 2020, operating net debt (after setting aside £1,337 million of cash for regulatory and operational support purposes) increased to £1,905 million, from £1,755 million at year end.  During the period, the Group increased the amount of cash set aside by £80 million following regulatory guidance on COVID-19 requirements.  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 remained stable at 1.4 times (from 1.4 times at 31 December 2019), reflecting strong earnings growth balanced against the increase in operating net debt. 

Standard & Poor's maintained its long-term ratings of LSEG at A and LCH Limited and LCH SA at AA-.  Moody's maintained its A3 rating of LSEG.  Both agencies maintained their negative outlooks in anticipation of the impact of the Refinitiv acquisition on net leverage.  Both agencies are positive about the strategic rationale for the transaction and reference the Group's clearly positioned de-leveraging plans.  The Group had net assets of £4,133 million at 30 June 2020 (31 December 2019: £3,801 million), including £1,641 million in cash and cash equivalents (31 December 2019: £1,493 million).

The Group's principal foreign exchange exposure arises as a result of translating and revaluing its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling.  For the 6 months to 30 June 2020, the main translation exposures for the Group were its Euro reporting businesses (accounting for 29% of Group income and 30% of Group expenses) and its US dollar reporting businesses (accounting for 29% of income and 19% of expenses).  A 10 cent movement in the average £/€ rate for the six months would have changed the Group's operating profit for the period before amortisation of purchased intangible assets and non-recurring items by approximately £21 million.  A 10 cent movement in the average £/US$ rate for the six months would have changed the Group's operating profit by approximately £8 million.  The Group continues to manage its translation risk exposure by matching the currency of its debt (including debt effectively issued in one currency and swapped into a different currency) to the currency of its earnings, where possible, to ensure its key financial ratios are protected from material foreign exchange rate volatility.

Response to COVID-19

The first half of the year has brought unprecedented challenges to our employees, customers, suppliers and the communities we operate in.  We have been focused on the welfare of our employees and the orderly conduct of business for our customers worldwide.  Our systemic role and responsibility to provide continuity of service to our customers and support financial stability has never been clearer. 

During the period, we have demonstrated our operational resilience against a backdrop of strong volumes at our trading venues and clearing houses, alongside the additional challenge of running operations with the majority of employees around the world operating on a remote basis.  We continue to monitor the development of the pandemic globally.  We expect the majority of our employees to work remotely for the remainder of 2020 with up to 30% gradually returning to the office in some locations where public health, government guidelines and the local status of the pandemic supports this approach.  We continue to engage directly with employees to support their physical and mental well-being with a variety of bespoke programmes introduced to support their adaptation to new working environments.

Recognising the impact COVID-19 has on the communities in which we operate in around the world, we have made a number of financial donations and partnered with global and local organisations to further support those directly affected by the pandemic.  LSEG Foundation used its Emergency Fund to support coronavirus relief efforts in the UK, Italy, Sri Lanka, France, Romania and the United States.  These initial efforts were focused on emergency medical supplies and supporting hospitals and front line workers.  Since then, the Group has focused on longer term recovery efforts in the UK and Italy, including supporting SME businesses to recover from economic impacts of the pandemic.  Together, LSEG and the LSEG Foundation have donated £3.3 million to date.

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 23.3 pence per share, an increase of 16% (H1 2019: 20.1 pence per share).  The interim dividend will be paid on 22 September 2020 to shareholders on the register on 21 August 2020.

 

Outlook

The Group has delivered a good financial performance in the first half of 2020 against the backdrop of unprecedented circumstances.  The full impact of COVID-19 on working patterns, customer behaviour and product development is difficult to anticipate but have demonstrated we can adapt quickly and successfully across the Group.  Despite the challenges, we are well positioned to continue to develop and to make further progress on our strategic plans, including closing the Refinitiv transaction. 

 

David Schwimmer - Group CEO

31 July 2020

 

 

Operating Performance - Key statistics

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

 

Information Services

 

The Information Services division consists of global indices products, real time data products and a number of other discrete businesses including desktop and workflow products.

 

 

 

 

 

Organic
and

 

Six months ended

 

constant

 

30 June

 

currency

 

2020

2019

Variance

Variance1

 

£m

£m

%

%

Revenue

 

 

 

 

Index - Subscription

218  

203  

8%

6%  

Index - Asset based

112  

112  

-

(2%)

FTSE Russell

330  

315  

5%

3%  

Real time data

52  

48  

8%

7%  

Other information services

55  

53  

4%

3%  

Total revenue

437  

416  

5%

3%  

Cost of sales

(36)

(36)

-

(2%)

Gross profit

401  

380  

6%

4%  

 

1 Organic growth is calculated in respect of businesses owned for at least 6 months in either period so excludes Beyond Ratings (acquired June 2019)

 

Note: UnaVista and some other minor items (previously reported in Other information services), are now included in Post Trade

 

Information Services

 

 

 

 

 

As at

 

 

30 June

Variance

 

2020

 

2019

%

ETF assets under management benchmarked ($bn)

 

 

 

 

FTSE

404

 

406

-  

Russell Indexes

265

 

284

(7%)

Total

669

 

690

(3%)

 

 

 

 

 

Terminals

 

 

 

 

UK

64,000

 

66,000

(3%)

Borsa Italiana Professional Terminals

97,000

 

100,000

(3%)

 

Note: FTSE ETF assets under management benchmarked KPI has been rebased to remove previously reported active ETFs. The previous year comparator has also been adjusted, with a change of $15 billion

 

Post Trade

 

The Post Trade division comprises the Group's clearing houses LCH and CC&G, settlement and custody businesses and UnaVista.   

 

 

Six months ended

 

Constant

 

30 June

 

currency

 

2020

2019

Variance

variance

 

£m

£m

%

%

Revenue

 

 

 

 

OTC - SwapClear, ForexClear & CDSClear

157  

148  

6%

6%

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

80  

69  

16%

16%

Other

56  

49  

14%

14%

Total LCH revenue

293  

266  

10%

10%

Clearing

22  

22  

3%

3%

Settlement, Custody & other

31  

29  

3%

2%

Total Post Trade Italy revenue

53  

51  

3%

3%

UnaVista

26  

25  

4%

4%

Total revenue

372  

342  

9%

8%

LCH - Net treasury income

149  

96  

56%

54%

CC&G - Net treasury income

27  

24  

12%

12%

Total income

548  

462  

19%

18%

Cost of sales

(80)

(65)

23%

22%

Gross profit

468  

397  

18%

18%

 

Post Trade - LCH

 

 

 

 

 

Six months ended

 

 

30 June

Variance

 

2020

 

2019

%

LCH OTC derivatives

 

 

 

 

SwapClear

 

 

 

 

IRS notional cleared ($tn)

643

 

660

(3%)

SwapClear members

122

 

120

2%  

Client trades ('000)

997

 

807

24%  

CDSClear

 

 

 

 

Notional cleared (€bn)

1,398

 

696

101%  

CDSClear members

26

 

26

-  

ForexClear

 

 

 

 

Notional value cleared ($bn)

9,844

 

8,767

12%  

ForexClear members

35

 

34

3%  

 

 

 

 

 

LCH Non-OTC

 

 

 

 

Fixed income - Nominal value (€tn)

102.7

 

105.6

(3%)

Listed derivatives contracts (m)

191.5

 

146.0

31%  

Cash equities trades (m)

1,047

 

699

50%  

 

 

 

 

 

LCH average cash collateral (€bn)

116.3

 

92.7

26%  

 

Note: CDSClear notional cleared and LCH Non-OTC volumes have been rebased to count both sides of each cleared trade. This aligns with how activity is reported on LCH's website. The previous year comparator has also been adjusted

 

Post Trade - Italy

 

 

 

 

 

Six months ended

 

 

30 June

Variance

 

2020

 

2019

%

CC&G Clearing

 

 

 

 

Contracts (m)

67.5

 

50.1

35%

Initial margin held (average €bn)

14.7

 

14.0

5%

 

 

 

 

 

Monte Titoli

 

 

 

 

Settlement instructions (trades m)

26.3

 

21.5

22%

Custody assets under management (average €tn)

3.31

 

3.30

-

 

Capital Markets

 

Capital Markets comprises the Group's Primary Markets activities, providing access to capital for corporates and others, and the Secondary Market trading of cash equities, derivatives and fixed income.

 

 

Six months ended

 

Constant

 

30 June

 

currency

 

2020

2019

Variance

variance

 

£m

£m

%

%

Revenue

 

 

 

 

Primary Markets 1

65  

90  

(28%)

(28%)

Secondary Markets - Equities

91  

74  

23%  

23%  

Secondary Markets - Fixed income, derivatives and other

61  

62  

(2%)

(2%)

Total revenue

217  

226  

(4%)

(4%)

Cost of sales

(2)

(3)

(38%)

(38%)

Gross profit

215  

223  

(3%)

(4%)

 

1 Primary Markets revenue increased by £32 million in H1 2019 due to a change in estimate relating to IFRS 15.  This is due to a reduction in the length of time initial admissions and further issue revenues are required to be recognised. 

 

Capital Markets - Primary Markets

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

30 June

Variance

 

2020

 

2019

%

New Issues

 

 

 

 

UK Main Market & PSM

20

 

28

(29%)

UK AIM

10

 

15

(33%)

Borsa Italiana

4

 

15

(73%)

Total

34

 

58

(41%)

 

 

 

 

 

Money Raised (£bn)

 

 

 

 

UK new

2.1

 

2.7

(22%)

UK further

17.0

 

10.8

57%  

Borsa Italiana new and further

0.7

 

1.9

(63%)

Total (£bn)

19.8

 

15.4

29%  

 

Capital Markets - Secondary Markets

 

 

 

 

Six months ended

 

 

30 June

Variance

Equity

2020

 

2019

%

Totals for period

 

 

 

 

UK value traded (£bn)

704

 

583

21%  

Borsa Italiana (no of trades m)

48.7

 

31.1

57%  

Turquoise value traded (€bn)

295

 

311

(5%)

 

 

 

 

 

SETS Yield (basis points)

0.69

 

0.69

-  

 

 

 

 

 

Average daily

 

 

 

 

UK value traded (£bn)

5.6

 

4.7

21%  

Borsa Italiana (no of trades '000)

387

 

249

55%  

Turquoise value traded (€bn)

2.3

 

2.5

(6%)

 

 

 

 

 

Derivatives

 

 

 

 

Contracts (m)

14.1

 

18.4

(23%)

 

 

 

 

 

Fixed Income

 

 

 

 

MTS cash and BondVision (€bn)

1,702

 

1,650

3%  

MTS money markets (€bn term adjusted)

55,842

 

57,749

(3%)

 

Note: The H1 2019 number of derivative contracts includes 1.6 million from LSE Derivatives. This service no longer accepted new trades from November 2019

 

Technology Services

 

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

 

 

Six months ended

 

Constant

 

30 June

 

currency

 

2020

2019

Variance

variance

 

£m

£m

%

%

Total revenue

30  

30  

-  

-  

Cost of sales

(3)

(4)

(13%)

(13%)

Gross profit

27  

26  

3%  

3%  

 

Basis of Preparation

 

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

 

 

Average rate

 

Average rate

 

 

6 months ended

Closing rate at

6 months ended

Closing rate at

 

30 June 2020

30 June 2020

30 June 2019

30 June 2019

GBP : EUR

1.14

1.09

1.15

1.12

GBP : USD

1.26

1.23

1.29

1.27

 


Condensed CONSOLIDATED Income Statement

 

 

 

Six months ended 30 June 2020 Unaudited

 

Six months ended 30 June 2019

Unaudited

 

 

Underlying items

Non-underlying items

Total

 

Underlying items

Non-underlying items

Total

Continuing operations

 

£m

£m

£m

 

£m

£m

£m

 

Notes

 

4

 

 

 

 

 

Revenue

2

1,058

-

1,058

 

1,018

-

1,018

Net treasury income from CCP clearing business

2

176

-

176

 

120

-

120

Other income

2

1

-

1

 

2

-

2

Total income

 

1,235

-

1,235

 

1,140

-

1,140

Cost of sales

2

(121)

-

(121)

 

(109)

-

(109)

Gross profit

 

1,114

-

1,114

 

1,031

-

1,031

Expenses

 

 

 

 

 

 

 

 

Operating expenses before depreciation, amortisation and impairment

3

(438)

(88)

(526)

 

(406)

(48)

(454)

Share of loss after tax of associates

 

(2)

-

(2)

 

(4)

-

(4)

Earnings before interest, tax, depreciation, amortisation and impairment

 

674

(88)

586

 

621

(48)

573

Depreciation, amortisation and impairment

 

(99)

(96)

(195)

 

(88)

(86)

(174)

 

 

 

 

 

 

 

 

 

Operating profit/(loss)

2

575

(184)

391

 

533

(134)

399

 

 

 

 

 

 

 

 

 

Finance income

 

10

-

10

 

7

-

7

Finance expense

 

(32)

(7)

(39)

 

(43)

-

(43)

Net finance expense

5

(22)

(7)

(29)

 

(36)

-

(36)

Profit/(loss) before tax

 

553

(191)

362

 

497

(134)

363

 

 

 

 

 

 

 

 

 

Taxation

6

(124)

23

(101)

 

(120)

22

(98)

Profit/(loss) for the period

 

429

(168)

261

 

377

(112)

265

Profit/(loss) attributable to:

 

 

 

 

 

 

 

 

Equity holders

 

392

(166)

226

 

350

(104)

246

Non-controlling interests

 

37

(2)

35

 

27

(8)

19

Profit/(loss) for the period

 

429

(168)

261

 

377

(112)

265

Earnings per share attributable to equity holders

 

 

 

 

 

 

 

 

Basic earnings per share

7

 

 

64.6p

 

 

 

70.7p

Diluted earnings per share

7

 

 

63.8p

 

 

 

69.5p

Adjusted basic earnings per share

7

 

 

112.0p

 

 

 

100.6p

Adjusted diluted earnings per share

7

 

 

110.7p

 

 

 

98.9p

 

 

 

 

 

 

 

 

 

Dividend per share in respect of the financial period

 

 

 

 

 

 

 

 

Dividend per share paid during the period

8

 

 

49.9p

 

 

 

43.2p

Dividend per share declared for the period

8

 

 

23.3p

 

 

 

20.1p

 


Condensed CONSOLIDATED STATEMENT of comprehensive income

 

 

 

Six months ended 30 June

 

 

2020

2019

 

 

Unaudited

Unaudited

 

 

£m

£m

Profit for the period

 

261

265

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

Items that will not be subsequently reclassified to profit or loss

 

 

 

Defined benefit pension scheme remeasurement gains

 

24

7

Gain on equity instruments at fair value through other comprehensive income

 

1

-

Income tax relating to above items

 

(9)

(2)

 

 

 

 

 

 

16

5

 

 

 

 

Items that may be subsequently reclassified to profit or loss

 

 

 

Net losses on net investment hedges

 

(152)

(1)

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

 

 

 

  - Net gains from changes in fair value

 

20

11

  - Gains reclassified to the consolidated income statement on disposal

 

(3)

(4)

Exchange gains/(losses) on translation of foreign operations

 

356

(1)

Income tax relating to above items

 

(3)

(3)

 

 

 

 

 

 

218

2

 

 

 

 

Other comprehensive income, net of tax

 

234

7

 

 

 

 

Total comprehensive income for the period

 

495

272

 

 

 

 

Total comprehensive income attributable to:

 

 

 

Equity holders

 

437

256

Non-controlling interests

 

58

16

Total comprehensive income for the period

 

495

272

 


Condensed CONSOLIDATED balance sheet

 

 

 

30 June 2020

 

31 December 2019

 

 

Unaudited

 

 

 

Notes

£m

 

£m

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

273

 

288

Intangible assets

9

4,604

 

4,421

Investment in associates

 

28

 

28

Deferred tax assets

 

43

 

49

Investments in financial assets

10

326

 

266

Retirement benefit assets

 

91

 

66

Trade and other receivables

 10

18

 

19

 

 

5,383

 

5,137

Current assets

 

 

 

 

Trade and other receivables

 10

593

 

566

Derivative financial instruments

10

8

 

2

Clearing member financial assets

 

819,877

 

729,094

Clearing member cash and cash equivalents

 

85,234

 

67,118

Clearing member assets

10

905,111

 

796,212

Current tax

 

84

 

160

Investments in financial assets

10

64

 

81

Cash and cash equivalents

10

1,641

 

1,493

 

 

907,501

 

798,514

Total assets

 

912,884

 

803,651

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

10

487

 

620

Contract liabilities

 

265

 

157

Derivative financial instruments

10

-

 

1

Clearing member liabilities

10

905,034

 

796,102

Current tax

 

20

 

127

Borrowings

10, 11

474

 

512

Provisions

 

12

 

19

 

 

906,292

 

797,538

Non-current liabilities

 

 

 

 

Borrowings

10, 11

1,663

 

1,573

Derivative financial instruments

10

80

 

39

Contract liabilities

 

89

 

88

Deferred tax liabilities

 

454

 

432

Retirement benefit obligations

 

17

 

17

Other non-current payables

10

143

 

150

Provisions

 

13

 

13

 

 

2,459

 

2,312

Total liabilities

 

908,751

 

799,850

Net assets

 

4,133

 

3,801

Equity

 

 

 

 

Capital and reserves attributable to the Company's equity holders

 

 

 

Ordinary share capital

 

24

 

24

Share premium

 

967

 

967

Retained earnings

 

773

 

668

Other reserves

 

1,981

 

1,796

Total shareholders' funds

 

3,745

 

3,455

Non-controlling interests

 

388

 

346

Total equity

 

4,133

 

3,801

 


Condensed CONSOLIDATED cash flow statement

 

 

 

 

Six months ended 30 June

 

 

 

2020

2019

 

 

 

Unaudited

Unaudited

 

 

Notes

£m

£m

Cash flow from operating activities

 

 

 

 

Cash generated from operations

 

13

600

485

Interest received

 

 

3

3

Interest paid

 

 

(25)

(32)

Corporation tax paid

 

 

(130)

(54)

Royalties paid

 

 

-

(2)

Net cash inflow from operating activities

 

 

448

400

Cash flow from investing activities

 

 

 

 

Purchase of property, plant and equipment

 

 

(5)

(15)

Purchase of intangible assets

 

 

(84)

(74)

Proceeds from sale of business 1

 

 

-

1

Acquisition of business 2

 

14

-

(12)

Investment in financial assets classed as FVOCI 3

 

10

-

(246)

Investment in government bonds

 

 

(16)

-

Net cash outflow from investing activities

 

 

(105)

(346)

Cash flow from financing activities

 

 

 

 

Dividends paid to shareholders

 

8

(175)

(151)

Dividends paid to non-controlling interests

 

 

(3)

(39)

Purchase of non-controlling interests 4

 

10

-

(9)

Proceeds from exercise of employee share options

 

 

-

3

Purchase of own shares by the employee benefit trust

 

 

(4)

(5)

Principal element of lease payments

 

(21)

(20)

Investment in convertible debt 3

 

 

-

(4)

Proceeds from the issue of commercial paper

 

11, 12

173

-

Repayment of commercial paper

 

12

(274)

-

Additional drawdowns from bank facilities

 

12

170

150

Repayments made towards bank credit facilities

 

12

(129)

(24)

Net cash outflow from financing activities

 

 

(263)

(99)

Decrease in cash and cash equivalents

 

 

80

(45)

Cash and cash equivalents at beginning of period

 

1,493

1,510

Exchange gains/(losses) on cash and cash equivalents

 

 

68

(15)

Cash and cash equivalents at end of period

 

 

1,641

1,450

 

The Group's net cash inflow from operating activities of £448 million is after deduction of £41 million of expenses related to non-underlying items.

1 There were no disposals of businesses during the period. Proceeds from the disposal of business in the prior period related to deferred consideration received on the disposal of Exactpro Systems Limited and its subsidiaries in 2018.

2 There were no acquisitions during the period. Acquisition of business in the prior period related to Beyond Ratings in May 2019.

3 There were no investments in financial assets classed as FVOCI during the period. Investment in financial assets classed as FVOCI in the prior period included investments of £244 million in Euroclear Holding SA/NV and £2 million in Nivaura Limited. The Group additionally invested £4 million in convertible debt from the latter.

4 There was no purchase of non-controlling interest during the period. Purchase of non-controlling interest in the prior period related to the remaining interest in EuroTLX SIM S.p.A. for £9 million (€10 million) in 2019.

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.

 


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

31 December 2018 (as previously presented)

24

965

424

1,930

3,343

355

3,698

Impact of the adoption of IFRS 16 1

-

-

(23)

-

(23)

-

(23)

1 January 2019 (restated)

24

965

401

1,930

3,320

355

3,675

 

 

 

 

 

 

 

 

Profit for the period

-

-

246

-

246

19

265

Other comprehensive income for the period

-

-

11

(1)

10

(3)

7

Issue of shares

-

2

-

-

2

-

2

Final dividend relating to the year ended 31 December 2018 (Note 8)

-

-

(151)

-

(151)

-

(151)

Dividend payments to non-controlling interests

-

-

-

-

-

(43)

(43)

Employee share scheme expenses

-

-

19

-

19

-

19

Tax in relation to employee share scheme expenses

-

-

6

-

6

-

6

Purchase of non-controlling interests

-

-

2

-

2

(1)

1

 

 

 

 

 

 

 

 

30 June 2019 (Unaudited)

24

967

534

1,929

3,454

327

3,781

 

 

 

 

 

 

 

 

31 December 2019

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 for 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 After issuing the Group's Interim Report on 1 August 2019, the Group reassessed the impact of adopting IFRS 16 'Leases' and recognised an additional £7 million adjustment to equity.

 

 

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 2020 was approved by the Directors on 31 July 2020.

 

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 2020 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard 34 (IAS 34), 'Interim Financial Reporting' as adopted by the European Union (EU).

 

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 2019.

 

Comparative amounts presented for the condensed consolidated balance sheet relate to the Group's position as at 31 December 2019 . All other comparative amounts presented relate to the six months ended 30 June 2019.

 

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

 

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.

 

The principal accounting policies adopted in the preparation of these interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019, except for the adoption of amended standards effective as of 1 January 2020.   None of the amendments adopted on 1 January 2020 have had a material impact on the interim condensed consolidated financial statements of the Group.

 

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

 

The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim condensed consolidated financial statements. Although these estimates and assumptions are based on management's best judgement at the date of the interim condensed consolidated financial statements, actual results may differ from these estimates. A further assessment has been included in relation to the impact of COVID-19 below.

 

The statutory financial statements of London Stock Exchange Group plc for the year ended 31 December 2019 , which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain a statement under section 498 of the Companies Act 2006.

 

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

 

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

 

The Group has realigned its segmental reporting to reflect management structure changes so that all Post Trade Services are now combined in one operating segment. The new operating segment includes the previous segments of LCH Group and the Post Trade businesses in Italy, Monte Titoli and CC&G, as well as the results of UnaVista, which were previously included in the Information Services Division. There has been no impact on the allocation of goodwill and the cash generating units of LCH Group and Post Trade Services in Italy remain separate. The segmental results for the comparative period have been re-presented to align with the new structure. There is no change to the overall result.

 

COVID-19

 

The ongoing impact of COVID-19 on the Group has been considered in the preparation of these interim condensed financial statements. The Directors have reviewed liquidity and covenant forecasts, regulatory capital, and critical accounting estimates and judgements for the Group. The Directors have also considered sensitivities including any potential impairments as a result of changes in cash flow forecasts. At the reporting date, no material short-term impacts have crystallised and the Group remains confident about its long-term future performance but remains vigilant in monitoring day to day changes as the global situation evolves. Staff and customer safety remain the paramount concerns of the Group and the Group has adapted successfully to the new ways of working.

 

Judgements and estimates are regularly evaluated based on historical experience, current circumstances and expectations of future events. A number of areas have been impacted by COVID-19 when exercising judgements and estimates and these have been identified below:

 

Impairment of intangible assets and goodwill - these assets form a significant part of the balance sheet and are key assets for the cash generating business in the Group. The recoverable amounts of relevant cash generating units are based on value in use calculations using management's best estimate of future performance and estimates of the return required by investors to determine an appropriate discount rate. The Group has reviewed the impact of COVID-19 on future cash flows along with the impact on the weighted average cost of capital applied to each cash generating unit and long-term growth rates.  The analysis has focused on geographical impacts to each of the flows and rates.  Following this review there was no direct impact to any cash generating units for COVID-19. 

 

Defined benefit pension asset or liability - determined based on the present value of future pension obligations using assumptions determined by the Group with advice from an independent qualified actuary. The value of the liabilities within the scheme have increased as the discount rates have fallen due to the global impact of COVID-19 on bond rates, but this has been offset by the growth in the assets leading to an overall growth in the Group's pension surplus.

 

Expected credit losses - the Group has factored into impairment reviews of financial assets the expectations of future events including COVID-19. The measured lifetime expected credit losses associated with these assets have not been materially impacted. The Group continues to monitor events and review whether additional provisions will be required in future periods.

 

Contingent liabilities and provisions - The Group has reviewed its businesses for any contingent liabilities and provisions that may have arisen due to COVID-19.  While no items have been identified, the Group continues to actively monitor the business for any potential exposure.

 

Going concern

 

After making enquiries and assessing the risks associated with the COVID-19 pandemic and its impact so far, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the interim condensed consolidated financial statements. The financial risk management objectives and policies of the Group and the exposure of the Group to capital, credit and concentration, country, liquidity and market risk are discussed on pages 158 to 163 of the Annual report for the Group for the year ended 31 December 2019.

 

2. Segmental information

Segmental disclosures for the six months ended 30 June 2020 are as follows:

 

 

 

 

 

 

 

 

 

Information

Services

 

Post Trade Services

Capital

Markets

Technology

Services

Other

Eliminations

Group

Unaudited

£m

£m

£m

£m

£m

£m

£m

Revenue from external customers

437

372

217

30

2

-

1,058

Inter-segmental revenue

-

-

-

11

-

(11)

-

Revenue

437

372

217

41

2

(11)

1,058

Net treasury income from CCP clearing business

-

176

-

-

-

-

176

Other income

-

-

-

-

1

-

1

Total income

437

548

217

41

3

(11)

1,235

Cost of sales

(36)

(80)

(2)

(3)

-

-

(121)

Gross profit

401

468

215

38

3

(11)

1,114

Share of loss after tax of associates

-

-

-

-

(2)

-

(2)

 

 

 

 

 

 

 

 

Earnings before interest, tax, depreciation, amortisation and impairment

253

308

120

(2)

(4)

(1)

674

 

 

 

 

 

 

 

 

Underlying depreciation, amortisation and impairment

(28)

(46)

(16)

(6)

(6)

3

(99)

Operating profit/(loss) before non-underlying items

225

262

104

(8)

(10)

2

575

Amortisation and impairment of goodwill and purchased intangible assets

 

 

 

 

 

 

(96)

Other non-underlying items

 

 

 

 

 

 

(88)

Operating profit

 

 

 

 

 

 

391

Net finance expense

 

 

 

 

 

 

(29)

Profit before tax

 

 

 

 

 

 

362

 

Net treasury income from the CCP businesses of £176 million comprises gross interest income of £478 million less gross interest expense of £302 million.

 

The Group's revenue from contracts with customers disaggregated by segment, major product and service line, and timing of revenue recognition for the six months ended 30 June 2020 is shown below:

 

Information

Services

 

 

Post Trade Services

Capital

Markets

Technology

Services

Other

Group

Unaudited

£m

£m

£m

£m

£m

£m

Revenue from external customers

 

 

 

 

 

 

Major product & service lines

 

 

 

 

 

 

FTSE Russell Indexes - subscription

218

-

-

-

-

218

FTSE Russell Indexes - asset based

112

-

-

-

-

112

Real time data

52

-

-

-

-

52

Other information services

55

-

-

-

-

55

Clearing

-

315

-

-

-

315

Settlement, custody and other

-

31

-

-

-

31

UnaVista

-

26

-

-

-

26

Primary capital markets

-

-

65

-

-

65

Secondary capital markets - equities

-

-

91

-

-

91

Secondary capital markets - fixed income, derivatives and other

-

-

61

-

-

61

Capital markets software licences

-

-

-

30

-

30

Other

-

-

-

-

2

2

Total revenue from contracts with customers

437

372

217

30

2

1,058

 

 

 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

 

Services satisfied at a point in time

3

357

144

1

-

505

Services satisfied over time

434

15

73

29

2

553

Total revenue from contracts with customers

437

372

217

30

2

1,058

Re-presented segmental disclosures for the six months ended 30 June 2019 are as follows:

 

 

 

 

 

 

 

 

 

 

 

Information

Services

Post Trade Services

Capital

Markets

Technology

Services

Other

Eliminations

Group

 

Unaudited

£m

£m

£m

£m

£m

£m

£m

 

Revenue from external customers

416

342

226

30

4

-

1,018

 

Inter-segmental revenue

-

-

-

10

-

(10)

-

 

Revenue

416

342

226

40

4

(10)

1,018

 

Net treasury income from CCP clearing business

-

120

-

-

-

-

120

 

Other income

-

-

-

-

2

-

2

 

Total income

416

462

226

40

6

(10)

1,140

 

 

 

 

 

 

 

 

 

 

Cost of sales

(36)

(65)

(3)

(4)

(1)

-

(109)

 

 

 

 

 

 

 

 

 

 

Gross profit

380

397

223

36

5

(10)

1,031

 

Share of loss after tax of associates

-

-

-

-

(4)

-

(4)

 

Earnings before interest, tax, depreciation, amortisation and impairment

240

241

134

9

-

(3)

621

 

Underlying depreciation, amortisation and impairment

(21)

(37)

(15)

(13)

(4)

2

(88)

 

Operating profit/(loss) before non-underlying items

219

204

119

(4)

(4)

(1)

533

 

Amortisation and impairment of goodwill and purchased intangible assets

 

 

 

 

 

 

(86)

 

Other non-underlying items

 

 

 

 

 

 

(48)

 

Operating profit

 

 

 

 

 

 

399

 

Net finance expense

 

 

 

 

 

 

(36)

 

Profit before tax

 

 

 

 

 

 

363

 

 

 

 

 

 

 

 

 

 

Segmental results for the prior period have been re-presented showing the new segments (note 1). The total result is unaffected.

 

                             

 

Net treasury income from the CCP businesses of £120 million comprises gross interest income of £655 million less gross interest expense of £535 million.

 

The Group's revenue from contracts with customers disaggregated by segment, major product and service line, and timing of revenue recognition for the six months ended 30 June 2019 is shown below:

 

Information

Services

 

 

Post Trade Services

Capital

Markets

Technology

Services

Other

Group

Unaudited

£m

£m

£m

£m

£m

£m

Revenue from external customers

 

 

 

 

 

 

Major product & service lines

 

 

 

 

 

 

FTSE Russell Indexes - subscription

203

-

-

-

-

203

FTSE Russell Indexes - asset based

112

-

-

-

-

112

Real time data

48

-

-

-

-

48

Other information services

53

-

-

-

-

53

Clearing

-

288

-

-

-

288

Settlement, custody and other

-

29

-

-

-

29

UnaVista

-

25

-

-

-

25

Primary capital markets

-

-

90

-

-

90

Secondary capital markets - equities

-

-

74

-

-

74

Secondary capital markets - fixed income, derivatives and other

-

-

62

-

-

62

Capital markets software licences

-

-

-

30

-

30

Other

-

-

-

-

4

4

Total revenue from contracts with customers

416

342

226

30

4

1,018

 

 

 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

 

Services satisfied at a point in time

4

327

156

1

4

492

Services satisfied over time

412

15

70

29

-

526

Total revenue from contracts with customers

416

342

226

30

4

1,018

 

 

 

 

 

 

 

The revenue information has been re-presented to reflect the changes in segment reporting in 2020 (note 1). There is no change to the overall Group result.

 

The Group's revenue from contracts with customers disaggregated by geographical location is shown below:

 

 

 

 

Six months ended 30 June

 

 

 

 

 

 

2020

2019

 

 

 

 

 

 

Unaudited

Unaudited

 

 

 

 

 

 

£m

£m

 

UK

 

 

 

 

583

584

 

Italy

 

 

 

 

173

160

 

France

 

 

 

 

80

68

 

USA

 

 

 

 

202

185

 

Other

 

 

 

 

20

21

 

Total

 

 

 

 

1,058

1,018

 

3. Expenses by nature

 

 

 

 

Expenses comprise the following:

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2020

2019

 

 

 

Unaudited

Unaudited

 

 

 

£m

£m

Employee costs

 

 

279

270

Short-term lease costs

 

 

-

1

IT costs

 

 

73

68

Lease costs for low value items

 

 

1

1

Foreign exchange losses/(gains)

 

 

5

(2)

Other costs

 

 

80

68

Underlying operating expenses before depreciation, amortisation and impairment

 

 

438

406

 

 

 

 

 

Non-underlying operating expenses before amortisation and impairment

 

 

88

48

 

 

 

 

 

Total operating expenses before depreciation, amortisation and impairment

 

 

526

454

 

 

 

 

 

                       

 

4. Non-underlying items

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2020

2019

 

 

 

Unaudited

Unaudited

 

 

 

£m

£m

 

 

 

 

 

Amortisation and impairment of goodwill and purchased intangible assets

 

 

96

86

Transaction costs

 

 

86

22

Restructuring costs

 

 

2

24

Integration costs

 

 

-

2

Total affecting operating profit

 

 

184

134

Finance expense

 

 

7

-

Total affecting profit before tax

 

 

191

134

 

 

 

 

 

Tax effect on items affecting profit before tax

 

 

 

 

Deferred tax on amortisation of purchased intangible assets

 

 

(11)

(13)

Current tax on amortisation of purchased intangible assets

 

 

(3)

(6)

Tax effect on other items affecting profit before tax

 

 

(9)

(3)

Total tax effect on items affecting profit before tax

 

 

(23)

(22)

 

 

 

 

 

Total non-underlying charge to income statement

 

 

168

112

 

Transaction costs comprise charges incurred for services relating to anticipated merger and acquisition transactions.

 

Restructuring costs comprise amounts arising from the cost savings programme in 2019.

 

During the period the Group incurred a £86 million amortisation charge in relation to purchased intangible assets, which includes £10 million accelerated amortisation in relation to Mergent, and the Group impaired goodwill of £10 million in relation to Mergent (note 9).

 

5. Net finance expense

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

2020

2019

 

 

 

Unaudited

Unaudited

 

 

 

£m

£m

Finance income

 

 

 

 

Bank deposit and other interest income

 

 

2

5

Expected return on defined benefit pension scheme assets

 

 

1

1

Other finance income

 

 

7

1

Underlying finance income

 

 

10

7

 

 

 

 

 

Finance expense

 

 

 

 

Interest payable on bank and other borrowings

 

 

(28)

(38)

Lease interest expense

 

 

(2)

(2)

Other finance expenses

 

 

(2)

(3)

Underlying finance expense

 

 

(32)

(43)

 

 

 

 

 

Non-underlying finance expense (note 4)

 

 

(7)

-

 

 

 

 

 

Net finance expense

 

 

(29)

(36)

 

 

 

 

 

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

 

 

 

2020

2019

 

 

 

Unaudited

Unaudited

Taxation charged to the income statement

 

 

£m

£m

 

 

 

 

 

Current tax:

 

 

 

 

UK corporation tax for the period

 

 

39

53

Overseas tax for the period

 

 

73

57

Adjustments in respect of previous years

 

 

-

(2)

 

 

 

112

108

 

 

 

 

 

Deferred tax:

 

 

 

 

Deferred tax for the period

 

 

1

3

Adjustments in respect of previous years

 

 

(1)

-

Deferred tax liability on amortisation of purchased intangible assets

 

 

(11)

(13)

 

 

 

(11)

(10)

 

 

 

 

 

Taxation charge

 

 

101

98

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

 

2020

2019

 

 

 

 

Unaudited

Unaudited

 

Taxation on items not recognised in the income statement

 

 

£m

£m

 

Current tax credit:

 

 

 

 

 

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

 

 

(12)

(5)

 

 

 

 

(12)

(5)

 

Deferred tax expense/(credit):

 

 

 

 

 

Tax allowance on defined benefit pension scheme remeasurements

 

 

9

2

 

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

 

 

5

(1)

 

Tax on movement in value of investments in financial assets

 

 

3

3

 

 

 

 

17

4

 

 

 

 

5

(1)

 

 

 

 

 

 

 

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 2019: 19%) as explained below:

 

 

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

 

 

2020

2019

 

 

 

 

Unaudited

Unaudited

 

 

 

 

£m

£m

 

 

 

 

 

 

 

Profit before taxation

 

 

362

363

 

 

 

 

 

 

 

Profit multiplied by standard rate of corporation tax in the UK

 

69

69

 

 

 

 

 

 

 

Expenses not deductible

 

 

7

12

 

Overseas earnings taxed at higher rate

 

 

29

16

 

Adjustments in respect of previous years

 

 

(1)

(2)

 

Deferred tax assets (recognised) / no longer recognised

 

 

(3)

3

 

 

 

 

 

 

 

Taxation charge

 

 

101

98

 

The tax rate applied as at 30 June 2020 is the expected rate for the full financial year.

 

                   

 

On 22 July 2020, Finance Act 2020 received Royal Assent enacting the UK corporation tax rate would remain at 19% from 1 April 2020 onward instead of reducing to 17%, the previously enacted rate. This has impacted the valuation of UK deferred tax balances giving rise to an increase in deferred tax assets of £2 million.

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 PLC's, and the UK Government have submitted appeals to the EU General Court to annul the EU Commission's findings.

The UK Government is required to continue the process of recovering the State Aid whilst the decision is under appeal. HMRC issued its first round of determinations in December 2019, focusing on the financial year 2015 due to the expiry of statutory time limits.  One of these determinations was issued to the Group and required one of its two affected subsidiaries to pay over £1.2 million to HMRC. At the same time the Group appealed to HMRC against the determination. As at 30 June 2020, no further determinations have been received.

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.

In light of appeals made by UK PLC's (including the Group), the UK Government's own appeal, and in consideration of management's own internal view, the Group does not believe that any provision is required in relation to the investigation. Additionally, and in accordance with the provisions of IFRIC 23, the Group has continued to recognise a receivable against the HMRC determination paid in January 2020. 

As previously disclosed, the Group has made claims under the CFC regime and 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.

7. Earnings per share

 

 

 

 

 

 

 

 

 

Earnings per share attributable to equity holders of the parent company of the Group, London Stock Exchange Group plc (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 amortisation and impairment of purchased intangible assets, goodwill and non-underlying items and to enable a better comparison of the underlying earnings of the business with prior periods.

 

 

 

 

 

 

 

Six months ended 30 June

 

 

2020

 

2019

 

 

Unaudited

 

Unaudited

 

Basic earnings per share

64.6p

 

70.7p

 

Diluted earnings per share

63.8p

 

69.5p

 

Adjusted basic earnings per share

112.0p

 

100.6p

 

Adjusted diluted earnings per share

110.7p

 

98.9p

 

 

 

 

 

 

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

 

 

Six months ended 30 June

 

 

2020

 

2019

 

 

Unaudited

 

Unaudited

 

 

£m

 

£m

 

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

226

 

246

 

 

 

 

 

 

Adjustments:

 

 

 

 

Non-underlying items (Note 4)

168

 

112

 

 

 

 

 

 

Non-underlying items and taxation attributable to non-controlling interests

(2)

 

(8)

 

 

 

 

 

 

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

392

 

350

 

 

 

 

 

 

Weighted average number of shares - million

350

 

348

 

Effect of dilutive share options and awards - million

4

 

6

 

Diluted weighted average number of shares - million

354

 

354

 

 

 

 

 

 

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

 

In the prior period, the weighted average number of shares excluded those held in the employee benefit trust and treasury shares held by the Group.

 

 

 

8. Dividends

 

 

 

 

 

 

 

 

Six months ended 30 June

 

 

2020

2019

 

 

Unaudited

Unaudited

 

 

£m

£m

Final dividend for 31 December 2018 paid 29 May 2019: 43.2p per Ordinary share

 

-

151

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

 

175

-

 

 

175

151

 

 

 

 

               

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 2020 of 23.3p per share, amounting to an estimated £82 million, to be paid in September 2020.  This is not reflected in these interim condensed consolidated financial statements.

9.  Intangible assets

 

 

 

 

 

 

 

 

Purchased intangible assets

 

 

 

Goodwill

Customer and supplier relationships

Brands

Software, licenses and intellectual property

Software, contract costs and other

Total

 

£m

£m

£m

£m

£m

£m

Cost:

 

 

 

 

 

 

1 January 2020

2,357

1,826

980

568

1,023

6,754

Additions

 -

 -

 -

-

95

95

Disposals

 -

 -

 -

 -

(10)

(10)

Foreign exchange

146

100

49

19

56

370

30 June 2020 (Unaudited)

2,503

1,926

1,029

587

1,164

7,209

 

 

 

 

 

 

 

Accumulated amortisation and impairment:

 

 

 

 

 

 

1 January 2020

515

752

232

318

516

2,333

Impairment

10

-

-

-

-

10

Amortisation charge for the period

-

55

20

11

65

151

Disposals

-

 -

-

 -

(10)

(10)

Foreign exchange

28

40

10

9

34

121

30 June 2020 (Unaudited)

553

847

262

338

605

2,605

Net book values:

 

 

 

 

 

 

30 June 2020 (Unaudited)

1,950

1,079

767

249

559

4,604

31 December 2019

1,842

1,074

748

250

507

4,421

 

Goodwill and purchased intangible assets

 

During the period, the fair value of the goodwill and purchased intangibles relating to the acquisition of Beyond Ratings were finalised, and considered no adjustment required to the goodwill recognised (note 14).

 

During the period an impairment of £10 million of goodwill has been recognised in relation to Mergent due to lower forecast cash flows driven by continued pressures on revenue.

 

The value in use of the Mergent CGU is equal to its carrying value.  The impact of reasonable changes in the assumptions on Mergent's value in use is set out below:

 

 

 

Impact on value in use of:

 

 

5% reduction in revenues

5% increase in costs

0.5% reduction in long-term growth rate

0.5% increase in pre-tax discount rate

Cash generating unit

 

£m

£m

£m

£m

Mergent

 

(21)

(20)

(7)

(7)

 

 

Following a reassessment of useful economic lives £10 million accelerated amortisation has been recognised in Customer and Supplier relationships in relation to Mergent, resulting in a carrying value of £6 million as at 30 June 2020.

 

Software, contract costs and other

 

During the period, additions included £83 million in relation to internally generated software (30 June 2019: £92 million).

 

During the period, the Group capitalised £2 million (30 June 2019: £3 million) of incremental contract costs in respect of revenue generating contracts with customers and recognised a £3 million (30 June 2019: £3 million) amortisation charge relating to contract cost assets.  No impairment was recognised in period in relation to contract cost assets.

 

10. Financial assets and financial liabilities

 

 

 

 

 

Financial instruments by category

 

 

 

 

The financial instruments of the Group at 30 June 2020 are categorised as follows:

 

 

 

 

 

Financial assets

 

 

 

 

30 June 2020

Amortised cost

Fair value through other comprehensive income

Fair value through profit or loss

Total

Unaudited

£m

£m

£m

£m

 

 

 

 

 

Clearing member business assets

 

 

 

 

- Clearing member trading assets

130,612

-

654,731

785,343

- Other receivables from clearing members

2,677

-

-

2,677

- Other financial assets

-

31,857

-

31,857

- Clearing member cash and cash equivalents

85,234

-

-

85,234

Clearing member business assets

218,523

31,857

654,731

905,111

 

 

 

 

 

Trade and other receivables

530

-

5

535

Cash and cash equivalents

1,641

-

-

1,641

Investments in financial assets - debt instruments

-

131

-

131

Investments in financial assets - equity instruments

-

259

-

259

Derivative financial instruments

-

-

8

8

 

 

 

 

 

Total financial assets

220,694

32,247

654,744

907,685

 

There were no transfers between categories during the period.

 

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

 

Financial assets measured at fair value

 

30 June 2020

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 member business assets

 

 

 

 

- Derivative instruments

5,620

195,090

-

200,710

- Non-derivative instruments

18

454,003

-

454,021

- Other financial assets

31,857

-

-

31,857

 

 

 

 

 

Fair value of clearing member business assets

37,495

649,093

-

686,588

 

 

 

 

 

Investments in financial assets - debt instruments

131

-

-

131

Investments in financial assets - equity instruments

-

-

259

259

Trade and other receivables - convertible loan notes

-

-

5

5

 

 

 

 

 

Derivatives not designated as hedges

 

 

 

 

 - Foreign exchange forward contracts

-

8

-

8

 

 

 

 

 

Total financial assets at fair value

37,626

649,101

264

686,991

 

 

 

 

 

Movements in Level 3 investments

 

 

 

 

 

 

 

 

 

1 January 2020

 

 

246

 

Revaluation of investment recognised in other comprehensive income

 

 

1

 

Effect of foreign exchange

 

 

17

 

30 June 2020

 

 

264

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

30 June 2020

 

Amortised cost

Fair value through profit or loss

Total

Unaudited

 

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

Clearing member business liabilities:

 

 

 

 

- Clearing member trading liabilities

 

130,612

654,731

785,343

- Other payables to clearing members

 

119,691

-

119,691

 

250,303

654,731

905,034

 

 

 

 

 

Trade and other payables

 

607

-

607

Borrowings

 

2,137

-

2,137

Derivative financial instruments

 

-

80

80

 

 

 

 

 

Total financial liabilities

 

253,047

654,811

907,858

 

 

 

 

 

There were no transfers between categories during the period.

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


 

Financial liabilities measured at fair value

 

 

 

 

30 June 2020

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 member trading business liabilities

 

 

 

 

- Derivative instruments

5,620

195,090

-

200,710

- Non-derivative instruments

18

454,003

-

454,021

 

 

 

 

 

Fair value of clearing member business liabilities

5,638

649,093

-

654,731

 

 

 

 

 

Derivatives designated as hedges

 

 

 

 

Cross-currency interest rate swaps

-

80

-

80

 

 

 

 

 

Total financial liabilities at fair value

5,638

649,173

-

654,811

 

 

 

 

 

 

 

 

 

The financial instruments of the Group at 31 December 2019 were categorised as follows:

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

31 December 2019

Amortised cost

Fair value through other comprehensive income

Fair value through profit or loss

Total

 

 

£m

£m

£m

£m

 

 

 

 

 

 

 

Clearing member business assets:

 

 

 

 

 

- Clearing member trading assets

122,299

-

574,889

697,188

 

- Other receivables from clearing members

8,330

-

-

8,330

 

- Other financial assets

-

23,576

-

23,576

 

- Clearing member cash and cash equivalents

67,118

-

-

67,118

 

Clearing member business assets

197,747

23,576

574,889

796,212

 

 

 

 

 

 

 

Trade and other receivables

521

-

5

526

 

Cash and cash equivalents

1,493

-

-

1,493

 

Investments in financial assets - debt instruments

-

106

-

106

 

Investments in financial assets - equity instruments

-

241

-

241

 

Derivative financial instruments

-

-

2

2

 

 

 

 

 

 

 

Total financial assets

199,761

23,923

574,896

798,580

 

 

 

There were no transfers between categories during the period.

 

 

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

 

                   

 

Financial assets measured at fair value

 

 

 

 

31 December 2019

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 member business assets

 

 

 

 

- Derivative instruments

11,492

3,061

-

14,553

- Non-derivative instruments

3

560,333

-

560,336

- Other financial assets

23,576

-

-

23,576

 

 

 

 

 

Fair value of clearing member business assets

35,071

563,394

-

598,465

 

 

 

 

 

Investments in financial assets - debt instruments

106

-

-

106

Investments in financial assets - equity instruments

-

-

241

241

Trade and other receivables - convertible loan notes

-

-

5

5

 

 

 

 

 

Derivatives not designated as hedges

 

 

 

 

 - Foreign exchange forward contracts

-

2

-

2

 

 

 

 

 

Total financial assets at fair value

35,177

563,396

246

598,819

Financial liabilities

 

 

 

 

 

 

31 December 2019

 

 

Amortised cost

Fair value through profit or loss

Total

 

 

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

Clearing member financial liabilities:

 

 

 

 

 

 

- Clearing member trading liabilities

 

 

122,299

574,889

697,188

 

- Other payables to clearing members

 

 

98,914

-

98,914

 

Clearing member financial liabilities

 

 

221,213

574,889

796,102

 

 

 

 

 

 

 

 

Trade and other payables

 

 

747

-

747

 

Borrowings

 

 

2,085

-

2,085

 

Derivative financial instruments

 

 

-

40

40

 

 

 

 

 

 

 

 

Total financial liabilities

 

 

224,045

574,929

798,974

 

 

 

 

 

 

 

 

There were no transfers between categories during the prior period.

 

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

 

                   


 

Financial liabilities measured at fair value

 

 

 

 

31 December 2019

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 member business liabilities

 

 

 

 

- Derivative instruments

11,492

3,061

-

14,553

- Non-derivative instruments

3

560,333

-

560,336

 

 

 

 

 

Fair value of clearing member business liabilities

11,495

563,394

-

574,889

 

 

 

 

 

Derivatives designated as hedges