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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
London Stock Exchange Group Plc | LSE:LSEG | London | Ordinary Share | GB00B0SWJX34 | ORD SHS 6 79/86P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
106.00 | 1.17% | 9,162.00 | 9,178.00 | 9,180.00 | 9,182.00 | 9,040.00 | 9,050.00 | 738,429 | 16:35:27 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Admin-gen Economic Programs | 8.06B | 761M | 1.4061 | 65.29 | 49.68B |
TIDMLSEG
RNS Number : 2663R
London Stock Exchange Group PLC
05 March 2021
5 March 2021
LONDON STOCK EXCHANGE GROUP PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2020
Unless stated otherwise, all figures in the highlights below refer to 12 months to 31 December 2020 and comparisons with the prior 12 month period on the same basis.
-- Strong financial performance - revenue growth continues across our businesses despite challenging market conditions
-- Strong operational resilience across the Group's data, trading and clearing platforms
-- Successful completion of the acquisition of Refinitiv in January 2021 - transformational transaction brings together two highly complementary global businesses with a shared commitment to an Open Access philosophy, working in partnership with customers
-- Acquisition will accelerate the Group's growth strategy and position as a leading global financial markets infrastructure and data provider - increasing its global footprint and adding leading data, analytics and multi-asset class capital markets capabilities
-- The Group is focused on delivering the strategic benefits of the transaction for customers, shareholders and broader stakeholders - extensive integration programme roll-out underway across the three core operating divisions: Data & Analytics, Capital Markets, and Post Trade
2020 Financial Highlights
-- Total revenue up 3% to GBP2,124 million (2019: GBP2,056 million) and total income up 6% to GBP2,444 million (2019: GBP2,314 million) (up 5% on a constant currency basis)
-- FTSE Russell revenue up 3% to GBP668 million (2019: GBP649 million) with growth in subscription revenues offset by a decline in asset-based revenues following significantly lower ETF AUM levels in H1
-- Post Trade revenue up 7% to GBP751 million (2019: GBP700 million), driven by strong growth in LCH; record activity in CDS, FX and cash equities clearing; total income up 12% to GBP1,070 million (2019: GBP955 million), largely reflecting higher cash margin held
-- Capital Markets revenue broadly flat on a reported basis at GBP427 million, and up 8% on a like-for-like basis excluding the one-off benefit of an IFRS 15 adjustment in prior year with strong performance in secondary markets
-- Adjusted operating expenses, before depreciation and amortisation(1) , were up 6% (up 5% on a constant currency basis) to GBP887 million (2019: GBP839 million)
-- Adjusted operating profit(2) up 5% to GBP1,118 million (2019: GBP1,065 million); operating profit up 2% to GBP755 million (2019: GBP738 million); adjusted EBITDA(2) up 5% to GBP1,329 million (2019: GBP1,265 million) and EBITDA margin of 54.4%
-- Adjusted EPS(2) up 5% to 209.7 pence (2019: 200.3 pence); basic EPS up 1% to 120.3 pence (2019: 119.5 pence)
-- Proposed final dividend of 51.7 pence per share, resulting in a 7% increase in the full year dividend to 75.0 pence per share, reflecting good performance and confident outlook for the new Group
Continued organic and inorganic development, including:
-- FTSE Russell index selected by BlackRock for the first climate risk-adjusted Government Bond ETF utilising the FTSE Advanced Climate EGBI
-- FTSE Russell signed long-term expanded index derivative agreements with Cboe Global Markets and Singapore Stock Exchange
-- LCH continued leadership on global reference rate reform - the transition to SOFR discounting saw US$120 trillion in notional transitioning to the risk-free rate in October 2020. LCH also became the first clearing house to offer Singapore Dollar swaps benchmarked to SORA
-- ForexClear became the first service to launch clearing for non-deliverable FX options across nine currency pairs
-- Over GBP718 billion raised on our fixed income markets of which GBP75 billion raised through Covid-19 response bonds
-- China Yangtze Power Co. raised US$1.83 billion through Shanghai-London Stock Connect, the first Chinese issuer to receive London Stock Exchange's Green Economy Mark, highlighting London's position as an international centre for sustainable finance
(1) Before depreciation, amortisation and non-underlying items.
(2) Before amortisation of purchased intangible assets and non-underlying items.
Commenting on performance for the year, David Schwimmer, Chief Executive Officer, LSEG:
" The Covid-19 pandemic and broader geo-political events presented unprecedented challenges in 2020. Despite this environment, and with the vast majority of employees working remotely across our global locations, LSEG has delivered for its customers and provided a strong financial performance, demonstrating strong operational resilience. We continue to innovate and work in partnership with our customers to develop our services, in areas such as reference rate reform and sustainable investment.
"Completion of the acquisition of Refinitiv in early 2021 marked an important milestone in LSEG's history. This transformational transaction brings together two highly complementary global businesses with a shared commitment to Open Access. LSEG is now truly global with a significant presence in North America, Europe, Asia and emerging markets, bringing together exceptional skills and experience at scale. While early days, the work we have done so far confirms the quality of the business and the extent of the opportunities across the Group as we focus on integration and delivering the strategic and financial benefits of the transaction to our customers, shareholders and other stakeholders. LSEG is well positioned for long-term sustainable growth in a continually evolving landscape as a leading global financial markets infrastructure and data provider."
Financial Summary
Unless otherwise stated, all figures below refer to continuing operations for the year ended 31 December 2020. Comparative figures are for continuing operations for the year ended 31 December 2019. Variance is also provided on an organic and constant currency basis.
Organic and Twelve months ended constant 31 December currency ------------------------------- variance 2020 2019 Variance (1) Continuing operations GBPm GBPm % % --------------------------------------- --------- --------- --------- --------- Revenue Information Services(1) 882 855 3% 3% Post Trade 751 700 7% 7% Capital Markets 427 426 0% (0%) Technology 61 66 (7%) (7%) Other revenue 3 9 - - ---------------------------------------- --------- --------- Total revenue 2,124 2,056 3% 3% Net treasury income through CCP businesses 319 255 25% 24% Other income 1 3 - - ---------------------------------------- --------- --------- Total income 2,444 2,314 6% 5% Cost of sales (224) (210) 7% 6% ---------------------------------------- --------- --------- Gross profit 2,220 2,104 6% 5% ---------------------------------------- --------- --------- --------- --------- Adjusted operating expenses before depreciation, amortisation and impairment (887) (839) 6% 5% Underlying depreciation, amortisation and impairment (211) (200) 5% 5% ---------------------------------------- --------- --------- Adjusted operating expenses (1,098) (1,039) 6% 4% Income from equity investments - 7 - - Share of loss after tax of associates (4) (7) - - ---------------------------------------- --------- --------- Adjusted operating profit (2) 1,118 1,065 5% 6% ---------------------------------------- --------- --------- --------- --------- Add back underlying depreciation, amortisation and impairment 211 200 5% 5% Adjusted earnings before interest, tax, depreciation, amortisation and impairment (2) 1,329 1,265 5% 5% --------- --------- --------- Amortisation and impairment of purchased intangible assets and goodwill and non-underlying items (363) (327) 11% 11% --------- --------- Operating profit 755 738 2% 3% ---------------------------------------- --------- --------- --------- --------- Earnings per share Basic earnings per share (p) 120.3 119.5 1% Adjusted basic earnings per share (p) (2) 209.7 200.3 5% Dividend per share (p) 75.0 70.0 7%
The Group's principal foreign exchange exposure arises from translating and revaluing its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling.
(1) Organic growth is calculated in respect of businesses owned for at least 12 months in either period and so excludes Beyond Ratings.
(2) Before amortisation of purchased intangible assets and non-underlying items.
Contacts: London Stock Exchange Group plc Lucie Holloway/ Rhiannon Davies Media +44 (0) 20 7797 1222 Paul Froud Investor Relations +44 (0) 20 7797 3322
Further information
The Group will host a presentation and conference call on its Preliminary Results for analysts and institutional shareholders today at 09:00am (GMT). On the call will be David Schwimmer (Chief Executive Officer), Anna Manz (Chief Financial Officer) and Paul Froud (Group Head of Investor Relations).
To access the telephone conference call or audio-only webcast please pre-register in advance using the following link and instructions below:
https://www.lsegissuerservices.com/spark/LondonStockExchangeGroup/events/4b5831b0-bf11-4b71-9750-e9a396d225e9
-- Please register with your full name, company name and email address
-- If you wish to participate in Q&A then you will also need to register for the telephone conference call. The telephone conference registration link can be found in the link above.
Presentation slides can be viewed at http://www.lseg.com/investor-relations
For further information, please call the Group's Investor Relations team on +44 (0)20 7797 3322.
The information in the preliminary announcement of the results for the year ended 31 December 2020, which was approved by the Board of Directors on 5 March 2021, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The financial statements for the year ended 31 December 2019 were filed with the Registrar of Companies, and the audit report was unqualified and contained no statements in respect of Sections 498 (2) and 498 (3) of the UK Companies Act 2006. The financial statements for the year ended 31 December 2020 will be filed with the Registrar of Companies in due course.
In accordance with the Listing Rules of the UK Listing Authority, these preliminary results have been agreed with the Company's auditors, Ernst &Young LLP, and the Directors have not been made aware of any likely modification to the auditor's report to be included in the Group's Annual Report and Accounts for the year ended 31 December 2020.
The preliminary results have been prepared on a basis consistent with the accounting policies set out in the Group's Annual Report and Accounts for the year ended 31 December 2020.
CEO's statement
The Covid-19 pandemic and broader geopolitical events presented unprecedented challenges in 2020. Throughout, LSEG has been focused on ensuring the welfare of our employees and continuity of services to our customers. Our systemic role has perhaps never been clearer: maintaining access to our capital markets; managing risk through our clearing operations; and providing important information services to market participants.
Despite this unparalleled environment, and with the vast majority of employees working remotely across our global locations, LSEG has delivered a strong financial performance and demonstrated strong operational resilience. The Group also remains highly cash generative. As our financial performance demonstrates, our focus on product and service development is delivering results across our businesses. Our Open Access and Customer Partnership approach remains key to our strategy as we work with customers to innovate in a range of areas, from reference rate reform to sustainable investment. We have also continued to invest in our business as we grow, while remaining focused on efficiency and operational excellence to maintain and enhance our resiliency, deliver system scalability and support our growing global footprint. For example, LCH successfully implemented a new clearing platform for its EquityClear service in March. The platform offers next generation clearing, operations and risk functionality, increasing operational efficiencies and enabling enhanced risk management for the service.
We keep a close eye on the broader macro-economic, technological and regulatory factors which continue to drive change in our industry. The digital transformation of financial markets infrastructure is driving customer demand to work with global providers that are better positioned to do more for them across the financial markets value chain.
In January, we successfully completed the Refinitiv transaction. LSEG's acquisition of Refinitiv will enable us to shape the industry's evolution, accelerating our strategy to be a leading global financial markets infrastructure and data provider. This transformational combination will deliver value to customers, helping them to access data, trading tools, analytics, liquidity and risk management across the financial markets and around the globe. LSEG is now truly global with a significant presence in North America, Europe, Asia and emerging markets, operating in 70 countries, bringing together exceptional skills and experience at scale. The Group is firmly focused on delivering the strategic benefits of the transaction to our shareholders, customers and other stakeholders. Integration of the businesses is fully underway as we implement the various multi-year opportunities identified across the three core operating divisions: Data & Analytics; Capital Markets; and Post Trade. I look forward to working with David Craig, the wider Executive Committee and our global team to execute on our strategy. I would also like to thank colleagues within the Borsa Italiana Group for their significant contribution to the Group's success, under the leadership of Raffaele Jerusalmi.
Sustainable Investment
The growing demand from asset owners and managers to incorporate sustainable investment approaches into their strategies has persisted through the pandemic. LSEG has many touch points with stakeholders that put us in a strong position to play a key role in the investment chain on sustainable investment. For example, FTSE Russell is working closely with customers to calibrate indices to their requirements to integrate climate and other environmental, social and governance (ESG) themes. The FTSE TPI Climate Transition Index, which was launched in early 2020, was the first global index to enable investors to align a broad equity portfolio with climate transition and the goals of the Paris Agreement. And in October, BlackRock selected FTSE Russell's 'Advanced Climate EGBI' as the benchmark for the first climate risk-adjusted government bond ETF in the market. In Capital Markets, London Stock Exchange's Green Economy Mark recognises listed companies with 50% or more of their revenues derived from products and services that contribute to the global green economy. Its Sustainable Bond Market welcomed 43 new issues in 2020 raising GBP14 billion across its sustainability, social and issuer-level segments.
LSEG has been a public supporter of the Task Force for Climate-related Financial Disclosures, TCFD, since its launch in 2017. In July, Mark Carney, UN special envoy for climate and finance, and I launched an initiative with the United Nations Sustainable Stock Exchanges (UN SSE) to work with exchanges around the world to help their issuers transition towards net zero. LSEG is now chairing a UN SSE advisory group, alongside the Johannesburg Stock Exchange to develop reporting guidance based on TCFD. These guidelines can then be used by corporate issuers, wherever they are listed, to ensure globally consistent disclosures.
In February 2021, LSEG also confirmed that it had become a signatory to the Business Ambition for 1.5(o) C, and a member of the United Nations Climate Change 'Race to Zero'. The Group's ambitious, science-based targets to reduce emissions in alignment with the Paris Agreement have also been approved by the Science Based Targets initiative (SBTi).
Customer partnership
LSEG remains focused on building long-term partnerships with our customers to develop value-add products and services across the investment cycle. FTSE Russell continues to be a leader in the global index industry and is well positioned in growth segments such as passive investing. Passive assets under management are estimated to grow to US$36.6 trillion in the next five years and FTSE Russell's multi-asset capabilities are a key differentiator enabling product innovation across global equities and fixed income. Despite a challenging macro-economic environment, 44 ETFs linked to FTSE Russell benchmarks were launched in 2020 including China's first onshore Bond ETF listed in Singapore. At the end of 2020, the value of ETF assets tracking its indices was US$869 billion, up 16% on the previous year.
FTSE Russell's close partnerships with exchange groups resulted in a number of contract wins including a 10-year extension to our index derivatives agreement with Cboe Global Markets. FTSE Russell also strengthened its longstanding partnerships with SGX and Johannesburg Stock Exchange to provide a comprehensive range of derivatives and fixed income indices.
In Post Trade, LCH has engaged closely with the relevant government authorities and industry participants to support the global transition to alternative reference rates. In October, LCH successfully completed the transition to SOFR discounting. More than one million contracts transitioned with a total notional of US$120 trillion including cleared interest rate swaps in SwapClear, deliverable and non-deliverable forwards and options in ForexClear, and cross-currency swaps in SwapAgent. FTSE Russell has also partnered with market participants in the development of a new sterling interest rate benchmark based on overnight indexed swaps and has begun publication of daily indicative Term SONIA Reference Rates.
Market Access
2020 clearly demonstrated the importance of markets remaining open to enable price discovery and access to liquidity. Despite extreme market conditions, particularly in Q1, all of our markets continued to operate as normal with record volumes executed on our trading and clearing platforms. For example, 44.8 million trades were executed on London Stock Exchange's Order Book in March, 74% higher than the previous record. LCH's SwapClear processed US$1.1 quadrillion in notional in 2020, from a record 6.4 million trades. US$747.2 trillion in notional, and 5.2 million trades were compressed over the period, enabling members and their clients to save approximately US$33 billion in capital over the course of the year. LCH has embedded various anti-procyclical measures within its risk models, as a result of this prudent risk management approach, during the market stress and increased volatility of March and April 2020, LCH risk models behaved in a very predictable and incremental manner with very modest gradual increases in initial margin.
The pandemic and the resulting economic disruption highlighted the importance of access to liquidity and the ability for firms to raise equity capital efficiently. In 2020, 526 businesses raised GBP34.4 billion in follow-on capital, 113% more than in 2019 and the most in a decade. Many of these firms are listed on AIM, London Stock Exchange's growth market, which celebrated its 25th anniversary in June. GBP9.2 billion was raised through IPOs, up 27% from 2019. In fixed income, over GBP718 billion was raised, a 77% increase on 2019. Of this, over GBP75 billion was raised through Covid-19 response bonds, including social bonds from development banks across the world.
As part of LSEG's commitment to broadening retail investor access to public equity markets, the Group made a minority investment in PrimaryBid, a technology platform which connects retail investors with listed companies raising capital. LSEG's investment builds on collaboration with PrimaryBid to support innovation in capital markets allowing retail investors to access capital raisings on the same terms as institutional investors.
Following the UK's departure from the European Union and the end of the transition period on 31 December 2020, LSEG continues to advocate strongly for the prevention of the fragmentation of systems designed to make the financial markets efficient, stable and safe. In September, the European Securities and Markets Authority confirmed that LCH Ltd will remain an authorised Tier 2 CCP under the EMIR 2.2 supervisory framework until 30 June 2022. As such, LCH Ltd continues to offer clearing for all products and services to all members and clients. LCH will also engage and cooperate with the relevant regulatory authorities in respect of the long-term permanent recognition of LCH Ltd under EMIR 2.2. Turquoise Europe also successfully launched offering customers trading European stocks with a complete continuity of service.
Our Purpose
As a leading global financial markets infrastructure and data provider, LSEG provides high value services to customers around the world. We run businesses that are of systemic importance and recognise that in doing so we hold an important position in the financial ecosystem with a broad set of responsibilities to our stakeholders. We are also acutely aware of the role LSEG can play in the economic recovery driving financial stability and sustainable growth by enabling businesses and customers to fund innovation, manage risk and create jobs.
Events from across 2020, in particular the Black Lives Matter movement, have also led us to reflect on the importance and urgency of strengthening LSEG's commitment to diversity and inclusion, particularly racial inclusion. In June we launched six workstreams to improve our focus on ethnic diversity and make LSEG a more inclusive environment. Those six workstreams are: Culture, Wellbeing, Hiring, Training, Mentoring and Data. At the heart of this approach is the desire to create real, substantive and sustainable change across the Group. We have laid some of the foundations to improve diversity and strengthen inclusion at LSEG and we have grown our Inclusion Networks. We have also made public commitments on race and disability equality through the Race at Work Charter and The Valuable 500. There is clearly much more to do but LSEG is fully committed to that effort.
Looking forward
With our trusted expertise, global scale, and foundational financial and transaction services, our whole organisation is focused on partnering with our customers, helping them to access data, trading tools, analytics, liquidity and risk management across the financial markets and at scale around the globe.
The Group is well positioned for future growth despite an uncertain macro-economic and regulatory environment. The Group will also continue to invest in new products and services as well as operational excellence and resiliency. I look forward to working with the Executive Team to deliver for our customers, shareholders and other stakeholders.
Finally, I would like to take the opportunity to thank all of our people across the Group for their hard work in delivering another successful performance in uncertain and challenging times.
Financial review
The financial review covers the financial year ended 31 December 2020.
Commentary on performance uses variances on a continuing organic and constant currency basis, unless otherwise stated. Constant currency is calculated by rebasing 2019 at 2020 foreign exchange rates. Sub-segmentation of revenues are unaudited and are shown to assist the understanding of performance.
Highlights
-- Total revenue of GBP2,124 million (2019: GBP2,056 million) increased by 3% -- Total income of GBP2,444 million (2019: GBP2,314 million) increased by 5% -- Adjusted EBITDA (1) of GBP1,329 million (2019: GBP1,265 million) increased by 5% -- Adjusted operating profit (1) of GBP1,118 million (2019: GBP1,065 million) increased by 6% -- Operating profit of GBP755 million (2019: GBP738 million) increased by 3% -- Adjusted basic earnings per share (1) of 209.7 pence (2019: 200.3 pence) increased by 5% -- Basic earnings per share of 120.3 pence (2019: 119.5 pence) increased by 1% -- Total dividend per share of 75.0 pence (2019: 70.0 pence) increased by 7%
There were no discontinued operations in 2020. The assets included in the divestment of the Borsa Italiana Group have been classified as discontinued from 13 January 2021.
Anna Manz
Group Chief Financial Officer
(1) London Stock Exchange Group uses non-GAAP performance measures as key financial indicators as the Board believes these better reflect the underlying performance of the business. As in previous years, adjusted operating expenses, adjusted EBITDA, adjusted operating profit and adjusted earnings per share all exclude amortisation and impairment of purchased intangible assets and goodwill and non-underlying items
Continuing Operations 12 months ended 31 Dec 2020 12 months ended 31 Dec 2019 Organic and constant currency variance(2) % GBPm GBPm Variance Revenue % ====================== =========================== =========================== ========= ========================================= Information Services 882 855 3 3 Post Trade Services 751 700 7 7 Capital Markets 427 426 - - Technology Services 61 66 (7) (7) Other revenue 3 9 - - ====================== =========================== =========================== ========= ========================================= Total revenue 2,124 2,056 3 3 Net Treasury Income from CCP clearing business 319 255 25 24 Other income 1 3 - - ---------------------- --------------------------- --------------------------- --------- ----------------------------------------- Total income 2,444 2,314 6 5 ====================== =========================== =========================== ========= ========================================= Cost of sales (224) (210) 7 6 ====================== =========================== =========================== ========= ========================================= Gross profit 2,220 2,104 6 5 ---------------------- --------------------------- --------------------------- --------- ----------------------------------------- Adjusted operating expenses before depreciation, amortisation and impairment(1) (887) (839) 6 5
Income from equity Investments - 7 - - Share of loss after tax of associates (4) (7) - - ---------------------- --------------------------- --------------------------- --------- ----------------------------------------- Adjusted earnings before interest, tax, depreciation, amortisation and impairment(1) 1,329 1,265 5 5 ====================== =========================== =========================== ========= ========================================= Underlying depreciation, amortisation and impairment (1) (211) (200) 5 5 ====================== =========================== =========================== ========= ========================================= Adjusted operating profit (1) 1,118 1,065 5 6 ====================== =========================== =========================== ========= ========================================= Amortisation of purchased intangible assets and non-underlying items (363) (327) 11 11 ====================== =========================== =========================== ========= ========================================= Operating profit 755 738 2 3 ====================== =========================== =========================== ========= ========================================= Adjusted basic earnings per share (1) 209.7p 200.3p 5 ====================== =========================== =========================== ========= ========================================= Basic earnings per share 120.3p 119.5p 1 ====================== =========================== =========================== ========= =========================================
(1) Before amortisation of purchased intangible assets and non-underlying items
(2) Organic growth is calculated in respect of businesses owned for at least 12 months in either period and excludes Beyond Ratings
Information Services
12 months ended Dec 12 months ended Dec 2020 2019 Variance Organic and constant currency variance(1) Revenue GBPm GBPm % % ======================= =================== =================== ======== ========================================= Index - Subscription 443 418 6 6 Index - Asset based 225 231 (2) (2) ----------------------- ------------------- ------------------- -------- ----------------------------------------- FTSE Russell(2) 668 649 3 3 Real time data 105 97 9 8 Other information services(1,2) 109 109 - (1) ======================= =================== =================== ======== ========================================= Total revenue 882 855 3 3 ======================= =================== =================== ======== ========================================= Cost of sales (68) (72) (6) (7) ======================= =================== =================== ======== ========================================= Gross profit 814 783 4 4 ======================= =================== =================== ======== ========================================= Adjusted operating expenses before depreciation, amortisation and impairment(3) (304) (300) 1 - ======================= =================== =================== ======== ========================================= Adjusted earnings before interest, tax, depreciation, amortisation and impairment(3) 510 483 6 - ======================= =================== =================== ======== ========================================= Underlying depreciation, amortisation and impairment(3) (55) (49) 12 - ======================= =================== =================== ======== ========================================= Adjusted operating profit(3) 455 434 5 - ----------------------- ------------------- ------------------- -------- -----------------------------------------
(1) Organic growth is calculated in respect of businesses owned for at least 12 months in either period and so excludes Beyond Ratings
(2) UnaVista and some other minor items (previously reported in Other information services) are now included in Post Trade. Historical comparatives have been adjusted to reflect this
(3) Operating expenses before depreciation, amortisation and impairment; earnings before interest, tax, depreciation, amortisation and impairment; depreciation, amortisation and impairment; and operating profit variance percentage is shown on a reported basis only i.e. not on a constant currency basis. Variances will include underlying movements and foreign exchange effects
Information Services provides a wide range of information and data products including indices and benchmarks, analytics, real time pricing data and product identification reporting. Total revenue was GBP882 million (2019: GBP855 million).
FTSE Russell's revenue increased by 3% to GBP668 million (2019: GBP649 million). Good subscription renewal rates and sales activity contributed to 6% revenue growth in index subscription products, partly offset by a 2% decrease in asset-based revenues, reflecting a challenging year in asset valuations and asset based products as a result of market volatility associated with the global pandemic.
Real time data revenue increased by 8% to GBP105 million (2019: GBP97 million) driven by increased licence sales and demand for non-display data, particularly in Asia which saw strong growth in the number of retail customers accessing the service. This was partially offset by a 4% decline in terminal usage.
Cost of sales reduced by 7% to GBP68 million (2019: GBP72 million), primarily due to lower payments to FTSE Russell business partners related to the decline of asset based product revenue.
Adjusted operating expenses excluding depreciation, amortisation and impairment increased by 1% to GBP304 million (2019: GBP300 million). Underlying depreciation, amortisation and impairment rose 12% to GBP55 million (2019: GBP49 million) reflecting continued investment to support growth of the business and enhance the underlying infrastructure.
Adjusted operating profit increased by 5% to GBP455 million (2019: GBP434 million).
Operational highlights
2020 was a strong year for FTSE Russell ETFs with 44 ETFs launched based on our indices by partner clients and we also saw the highest number of fixed income ETFs (16) and the highest number of sustainability ETFs (11) launched in a single year (including use of the FTSE Advanced Climate Risk-Adjusted EMU Government Bond Index adopted by iShares).
Other highlights include the launch of the Green Revenues 2.0 Data Model, which measures the green revenue exposure of more than 16,000 listed companies across 48 developed and emerging markets. This represents 98.5% of the total global market value of listed companies and significantly enhances FTSE Russell's sustainability offering and future new products.
FTSE Russell also entered into a long term strategic partnership with the Singapore Exchange (SGX) to develop a comprehensive Asian and Emerging Markets focused, multi-asset index derivatives offering, and support growing demand across Asia for index-based listed derivatives, including in sustainable investment.
Going forward, FTSE Russell, the real time data business in the UK, and the majority of other information services will be incorporated into the newly formed Data & Analytics division. Real time data revenues in relation to Borsa Italiana terminals, are included in the Borsa Italiana Group divestment and will be classified as discontinued from 13 January 2021.
Post Trade
Organic and 12 months 12 months constant ended Dec ended Dec currency 2020 2019 Variance variance Revenue GBPm GBPm % % =================================== ========== ========== ======== =========== OTC - SwapClear, ForexClear & CDSClear 309 307 1 1 Non-OTC - Fixed income, Cash equities & Listed derivatives 164 140 17 16 LCH other revenue 118 103 14 14 =================================== ========== ========== ======== =========== Total LCH revenue 591 550 7 7 =================================== ========== ========== ======== =========== Clearing (CC&G) 43 43 1 - Settlement, Custody & other (Monte Titoli) 63 60 4 3 Total Post Trade Italy revenue 106 103 3 1 =================================== ========== ========== ======== =========== UnaVista 54 47 16 16 ----------------------------------- ---------- ---------- -------- ----------- Total revenue 751 700 7 7 ----------------------------------- ---------- ---------- -------- ----------- LCH - Net treasury income 269 206 31 30 CC&G - Net treasury income 50 49 2 1 ----------------------------------- ---------- ---------- -------- ----------- Total income 1,070 955 12 12 =================================== ========== ========== ======== =========== Cost of sales (144) (122) 18 17 =================================== ========== ========== ======== =========== Gross profit 926 833 11 11 =================================== ========== ========== ======== =========== Adjusted operating expenses before depreciation, amortisation and impairment (1) (355) (332) 7 - =================================== ========== ========== ======== =========== Adjusted earnings before interest, tax, depreciation, amortisation and impairment(1) 571 501 14 - =================================== ========== ========== ======== =========== Underlying depreciation, amortisation and impairment(1) (98) (90) 9 - =================================== ========== ========== ======== =========== Adjusted operating profit (1) 473 411 15 - ----------------------------------- ---------- ---------- -------- -----------
(1) Operating expenses before depreciation, amortisation and impairment; earnings before interest, tax, depreciation, amortisation and impairment; depreciation, amortisation and impairment; and operating profit variance percentage is shown on a reported basis only i.e. not on a constant currency basis. Variances will include underlying movements and foreign exchange effects
Post Trade provides clearing, settlement, custody and regulatory reporting activities. Revenue was GBP751 million (2019: GBP700 million). Total income was GBP1,070 million (2019: GBP955 million).
OTC clearing revenue increased by 1% to GBP309 million (2019: GBP307 million), driven by higher activity levels in SwapClear in H1 as the market reacted to Covid-19. Annual member and client revenues both increased marginally in the year. Member revenues are largely tiered fixed-fee arrangements based on annual volume levels but grew slightly as some members moved up to higher fee tariffs. Client revenues, which vary more directly with service activity levels, also increased with client trade volume up 6% to 1,784,000 (2019: 1,681,000) year on year, driven by the significant volumes in H1 (volumes were up 24% in H1). In Q3 2020, Rates market activity levels reduced from H1 highs, and as Q4 2020 volumes began to normalise to levels more in line with Q4 2019 (up 5%), revenues remained resilient. Reflecting the market activity levels, US$1.1 quadrillion of total member and client notional was cleared across 6.4 million trades in the year (2019: US$1.2 quadrillion, 6.1 million). ForexClear membership increased to 35 members (2019: 34) while notional value cleared grew by 5% to US$19.0 trillion (2019: US$18.0 trillion). Of this, US$167 billion was client cleared notional, up significantly from the previous year (2019: US$61 billion). CDSClear client cleared notional increased to EUR193 billion (2019: EUR42.9 billion).
Non-OTC clearing revenue increased by 16% to GBP164 million (2019: GBP140 million), reflecting high trading volumes across equities and fixed income markets. Cleared trades in EquityClear increased 41%, to 1,963 million trades (2019: 1,397 million) with the service demonstrating the resilience of its new clearing platform which was successfully launched during the height of market volatility.
LCH other revenue, which mainly includes fees from non-cash collateral management and compression services, increased by 14% to GBP118 million (2019: GBP103 million), reflecting high activity levels across the clearing services.
UnaVista, the regulatory reporting business, revenues increased by 16% to GBP54 million (2019: GBP47 million) driven by the launch of the Securities Financing Transaction Regulation (SFTR) in July, which enhances the transparency of securities financing markets by requiring participants to report relevant transactions to a Trade Repository, and volatility.
LCH Net Treasury Income (NTI) increased by 30% to GBP269 million (2019: GBP206 million). The growth reflects a 12% rise in average cash collateral held to EUR110 billion (2019: EUR98 billion), primarily driven by volumes cleared and market volatility during H1. In 2020, NTI comprised approximately 70% handling fee income and 30% investment return. The investment return component in H1 was elevated due to the higher quantum of cash posted by members and the rapid reduction in central bank interest rates. In H2 cash collateral levels normalised down to an average of EUR103 billion, broadly in line with H2 2019 and short-term investments reflected the new lower interest rates. The Group expects NTI to stabilise around the levels seen in Q4 2020 if cash collateral levels and interest rates remain stable, and therefore c.GBP48 million of NTI in 2020 is unlikely to be repeated in 2021.
Cost of sales increased 17% to GBP144 million (2019: GBP122 million), reflecting the higher income and sharing within the SwapClear agreement.
Adjusted operating expenses excluding depreciation, amortisation and impairment increased by 7% to GBP355 million (2019: GBP332 million) and depreciation, amortisation and impairment increased by 9% to GBP98 million (2019: GBP90 million) driven by increased IT costs and investment to ensure the resilience of the Group's infrastructure.
Adjusted operating profit increased by 15% to GBP473 million (2019: GBP411 million).
Operational highlights
LCH experienced record activity in CDSClear, ForexClear, EquityClear and SwapClear client clearing, with volumes driven by volatile market conditions. LCH remained operationally resilient whilst simultaneously investing in and significantly upgrading software and hardware across multiple platforms.
During the year, LCH continued to drive and support the global efforts to reform reference rates, successfully completing the switch to Euro short-term rate (EURSTR) discounting in July 2020, with EUR81.3 trillion in notional transitioned. The transition to the Secured Overnight Financing Rate (SOFR) discounting saw US$120 trillion in notional transitioning to the risk-free rate in October 2020.
SwapClear also became the first clearing service to offer Singapore Dollar swaps benchmarked to SORA and launched clearing for Israeli Shekel-denominated swaps in September 2020. SwapClear now offers clearing for interest rate derivatives across 27 currencies. In 2020, ForexClear launched clearing for non- deliverable FX options across nine currency pairs, complementing clearing of non-deliverable FX forwards, deliverable FX options and deliverable FX forwards. Clearing the new product creates further opportunities for clearing members and their clients to achieve operational and capital efficiencies through portfolio netting with products already cleared at ForexClear. CDSClear went live with US credit index options.
Capital Markets
Organic and constant 12 months ended Dec 2020 12 months ended Dec 2019 Variance currency variance Revenue GBPm GBPm % % =========================== ======================== ======================== ======== =========================== Primary Markets 131 151 (13) (13) Secondary Markets - Equities 171 151 13 13 Secondary Markets - Fixed income, derivatives and Other 125 124 - (1) =========================== ======================== ======================== ======== =========================== Total revenue 427 426 - - =========================== ======================== ======================== ======== =========================== Cost of sales (4) (5) (23) (23) =========================== ======================== ======================== ======== =========================== Gross profit 423 421 - - =========================== ======================== ======================== ======== =========================== Adjusted operating expenses before depreciation, amortisation and impairment(1) (203) (192) 6 - =========================== ======================== ======================== ======== =========================== Share of loss after tax of associates - (1) - - =========================== ======================== ======================== ======== =========================== Adjusted earnings before interest, tax, depreciation, amortisation and impairment(1) 220 228 (4) - --------------------------- ------------------------ ------------------------ -------- --------------------------- Underlying depreciation, amortisation and impairment(1) (35) (32) 9 - --------------------------- ------------------------ ------------------------ -------- --------------------------- Adjusted operating profit (1) 185 196 (6) - --------------------------- ------------------------ ------------------------ -------- ---------------------------
(1) Operating expenses before depreciation, amortisation and impairment; earnings before interest, tax, depreciation, amortisation and impairment; depreciation, amortisation and impairment; and operating profit variance percentage is shown on a reported basis only i.e. not on a constant currency basis. Variances will include underlying movements and foreign exchange effects
Capital Markets comprises Primary Market capital raising and Secondary Market trading activities. Revenue was GBP427 million (2019: GBP426 million). Excluding the one-off impact of the GBP32 million balance sheet adjustment under IFRS 15 in 2019, underlying revenue grew 8%.
Primary Markets revenue decreased by 13% to GBP131 million in 2020 (2019: GBP151 million), however removing the one-off impact of the balance sheet adjustment underlying Primary Markets revenue grew 10%. The underlying revenue growth was driven by the total amount of capital raised across the Group's markets, through new and further issues, which increased by 91% to GBP44.8 billion (2019: GBP23.4 billion). The number of new issues in 2020 across the Group's markets was 108, largely in-line with prior year (2019: 109). The increase in total capital raised was mainly due to the GBP35.3 billion (2019: GBP16.6 billion) of further issuance, demonstrating the ability of public markets to respond quickly to the new capital needs of issuers during the pandemic.
Secondary Markets revenue increased by 13% to GBP171 million (2019: GBP151 million). London Stock Exchange revenue is directly linked to average orderbook daily value traded, which increased by 4% to GBP4.9 billion (2019: GBP4.7 billion) as a result of the pandemic driving increased trading amidst heightened market volatility, particularly in March and November. Italian equity trading volumes, which directly relate to revenue, increased by 35% year on year, with an average of 345,000 trades per day (2019: 255,000).
Turquoise, the Group's pan-European equities platform, saw record volumes on Turquoise Plato and Turquoise Plato Lit Auctions orderbooks in 2020, up 14% and 28% respectively on 2019 performance. This was offset by a fall in Lit volumes of 11% where Lit market liquidity tended towards the primary listing venues rather than MTFs, overall Turquoise saw a 4% decrease in average daily equity value traded to EUR2.0 billion (2019: EUR2.1 billion).
Fixed income, derivatives and other revenue remained broadly flat year on year at GBP125 million (2019: GBP124 million). MTS fixed income saw strong performance with the Cash market value traded up 25% this was partially offset by a decline in money market volumes, down 13%. Our Italian derivatives market's performance was impacted by decreased market volumes as a result of a short-selling ban implemented during the year.
Cost of sales decreased by 23% to GBP4 million (2019: GBP5 million), primarily driven by the removal of the revenue share in January 2020 for TRADEcho, London Stock Exchange's MiFiD II reporting service.
Adjusted operating expenses excluding depreciation, amortisation and impairment increased by 6% to GBP203 million (2019: GBP192 million) while depreciation, amortisation and impairment increased 9% to GBP35 million (2019: GBP32 million), driven by increased IT costs and investment to ensure the resilience of the Group's infrastructure and market operations.
Share of loss after tax of associates in 2019 relates to the Group's share of the HUB Exchange funding platform.
Adjusted operating profit decreased by 6% to GBP185 million (2019: GBP196 million).
Operational highlights
In the year LSEG saw a number of notable IPOs, including international and technology listings, and three companies issued GDRs through the Shanghai-London Stock Connect service, raising US$4.1 billion. The Group continued to support innovative and dynamic SMEs through AIM and AIM Italia. Demonstrating LSEG as a global hub for sustainable investment, the number of ESG ETFs listed in London increased 110% to 61, while the Group continued to develop the Sustainable Bond Market.
London Stock Exchange and Borsa Italiana's equity trading venues remained resilient throughout the year, successfully managing periods of high volatility. Turquoise was authorised to operate an MTF in the Netherlands, launching in November to ensure continued access for traders to the European market, post the UK leaving the EU.
Borsa Italiana and MTS are included in the Borsa Italiana Group divestment and have been classified as discontinued from 13 January 2021.
Technology Services
12 months ended Dec 12 months ended Dec Organic and 2020 2019 Variance constant currency GBPm GBPm % variance% ============================================== =================== =================== ======== ================== Revenue 61 66 (7) (7) Inter-segmental revenue 22 17 29 29 ---------------------------------------------- ------------------- ------------------- -------- ------------------ Total revenue 83 83 - - ============================================== =================== =================== ======== ================== Cost of sales (7) (7) - - ============================================== =================== =================== ======== ================== Gross profit 76 76 - - ============================================== =================== =================== ======== ================== Adjusted operating expenses before depreciation, amortisation and impairment(1) (34) (21) (62) - ============================================== =================== =================== ======== ================== Adjusted earnings before interest, tax, depreciation, amortisation and impairment(1) 42 55 (24) - ---------------------------------------------- ------------------- ------------------- -------- ------------------ Underlying depreciation , amortisation and impairment(1) (21) (25) 16 -
---------------------------------------------- ------------------- ------------------- -------- ------------------ Adjusted operating profit / (loss) (1) 21 30 (30) - ---------------------------------------------- ------------------- ------------------- -------- ------------------
(1) Operating expenses before depreciation, amortisation and impairment; earnings before interest, tax, depreciation, amortisation and impairment; depreciation, amortisation and impairment; and operating profit / (loss) variance percentage is shown on a reported basis only i.e. not on a constant currency basis. Variances will include underlying movements and foreign exchange effects
Technology Services provides server location solutions, client connectivity and software products for the Group and third parties.
Third party revenue reduced by GBP5 million to GBP61 million (2019: GBP66 million), driven by Covid-19 challenges and focus on delivery of internal technology requirements.
Adjusted operating expenses excluding depreciation, amortisation and impairment increased by GBP13 million to GBP34 million (2019: GBP21 million), and depreciation, amortisation and impairment decreased GBP4 million to GBP21 million (2019: GBP25 million).
The Technology segment made a profit of GBP21 million (2019: GBP30 million).
With effect from 2021, Technology Services division will be incorporated into the Capital Markets division and its revenue recognised in the Secondary Markets - Fixed income, derivatives and other line, reflecting a move to focus on internal delivery.
Operating Expenses
Group operating expenses (including depreciation, amortisation and impairment) before amortisation of purchased intangible assets and non-underlying items, were GBP1,098 million (2019: GBP1,039 million).
Total operating expenses increased by 5%. Within this, expenses excluding depreciation, amortisation and impairment increased 5%.
The expense increase is partly driven by spend to support the Group's growth through new product development and route to market in income generating segments. IT spend also increased to support the resilience of the Group's infrastructure and adoption of transformative technology, including enhanced cyber security and increased transfer from physical assets to cloud-based services. The Group also increased spend in non-IT related resilience, including teams supporting market operations and corporate functions.
The Group made a net cost saving of GBP15 million during the pandemic with extra costs from donations to Covid-19 relief charities, additional holiday carryover for employees and impairments to sublease income, more than offset by savings on travel, marketing events and facilities costs.
The Group successfully achieved the GBP30 million run-rate cost saving announced as part of the global headcount programme announced in March 2019. The 2020 benefit of the savings was GBP10 million.
Depreciation and amortisation increased by 5% reflecting go-live of projects over the last year from ongoing investment in infrastructure and resilience. This is lower than previously guided due to the impact of Covid-19 restrictions on the volume and speed of investment in the year.
Looking ahead, investment in 2021 is expected to increase, reflecting not only the continuation of spend on resilience across all parts of the new enlarged Group, but also further expenditure on efficiency-related projects and development of new products and services to drive future growth. Capital expenditure is expected to be in the region of c.GBP850 million, with associated operating costs of GBP150 million. Reflecting this increased level of investment, plus recent small acquisitions by Refinitiv, and net of in-year cost savings, 2021 operating expenses, excluding depreciation, amortisation and impairment, are anticipated to increase by mid-single-digits. Depreciation and amortisation is also expected to rise, to c.GBP830 million in 2021.
Income from Equity Investments and Share of Loss After Tax of Associates
No income from equity investments was received in the current year (2019: GBP7 million) as the expected dividend from the Group's 4.92% share in Euroclear was postponed following guidance from Euroclear's regulators in view of the Covid-19 crisis.
The share of loss after tax of associates primarily reflects the Group's 44% minority share of the operating loss of CurveGlobal of GBP4 million (2019: GBP6 million share of loss).
Non-underlying Items
Non-underlying operating items increased by GBP36 million to GBP363 million (2019: GBP327 million). Non-underlying items in 2020 included amortisation and impairment of goodwill and purchased intangible assets of GBP195 million (2019: GBP195 million). Within this, GBP10 million relates to accelerated amortisation in relation to Mergent CGU and a further GBP10 million relates to impairment of goodwill and purchased intangibles of Mergent CGU, driven by lower expected future cash flows than forecast at the time of acquisition.
In relation to acquisitions, the Group has incurred GBP173 million (2019: GBP96 million) of transaction costs.
The Group incurred GBP13 million (2019: GBP16 million) of non-underlying financing commitment fees in relation to the Refinitiv acquisition for the two tranches of bridge financing facility of US$9.325 billion and EUR3.58 billion, which were resized to US$7.325 billion and EUR3.08 billion.
Non-underlying items
2020 2019 Year ended 31 December GBPm GBPm ================================================================================================== ===== ===== Transaction costs 173 96 Restructuring (credit)/costs (5) 32 Integration costs - 4 ================================================================================================== ===== ===== Non-underlying operating expenses before interest, tax, depreciation, amortisation and impairment 168 132 ================================================================================================== ===== ===== Amortisation of purchased intangible assets 164 180 Impairment of goodwill and purchased intangibles 10 15 Impairment of software 21 - ================================================================================================== ===== ===== Non-underlying operating expenses before interest and tax 363 327 ================================================================================================== ===== ===== Non-underlying finance expense 13 16 ================================================================================================== ===== ===== Total non-underlying expenses included in profit before tax 376 343 -------------------------------------------------------------------------------------------------- ----- -----
Finance Income and Expense and Taxation
Underlying net finance costs were GBP57 million, down GBP14 million on the prior year primarily due to refinancing the October 2019 GBP250 million 9.125% per annum coupon bond, using existing bank facilities at significantly lower rates of interest.
The effective tax rate for the period in respect of continuing underlying operations and excluding the effect of prior year adjustments was 24.4% (2019: 23.7%). This reflects the mix of profits across a largely stable tax base without any material changes in underlying rates but does include a one off increase in the rate resulting from disputes with overseas tax authorities. Adjusting for this item, the underlying tax rate was 23.4%.
The Group continues to monitor the evolving tax landscape and potential developments with US tax reform. While there are no material changes to the underlying tax base or rates for 2021, we note that the recent UK budget announcement indicates the UK corporate tax rate will increase to 25% from April 2023. Accordingly, we have considered the impact of the increased rate on the revaluation of the Group's deferred tax assets and liabilities, which will be required during 2021 .
Therefore, considering the mix of profits for the organisation combined with Refinitiv, the Group should expect to record a reported tax rate on an underlying basis of between 22% to 24% for 2021, which forms our best estimate of forward guidance.
Cash Flow, Balance Sheet and Financing
The Group's business continued to be strongly cash generative during the year, with cash generated from operations of GBP1,283 million (2019: GBP1,089 million). Cash generation, after organic and inorganic investments and other normal course payment obligations, was positive.
At 31 December 2020, the Group had net assets of GBP4,125 million (2019: GBP3,801 million). The central counterparty clearing business assets and liabilities within LCH and CC&G largely offset each other but are shown gross on the balance sheet as the amounts receivable and payable are with different counterparties.
Net debt
2020 2019 Year ended 31 December GBPm GBPm ===================================== ======= ======= Gross borrowings 1,951 2,085 Cash and cash equivalents (1,785) (1,493) Net derivative financial liabilities 17 38 ===================================== ======= ======= Net debt 183 630 ===================================== ======= ======= Regulatory and operational cash 1,242 1,125 ===================================== ======= ======= Operating net debt 1,425 1,755 ------------------------------------- ------- -------
At 31 December 2020, the Group had operating net debt of GBP1,425 million after setting aside GBP1,242 million of cash and cash equivalents held to support regulatory and operational requirements, including cash and cash equivalents at LCH Group and amounts covering regulatory requirements at other LSEG companies. Total regulatory cash increased during the year in response to Covid-19 market volatility. The Group's operating net debt decreased during the year.
Net leverage (operating net debt to EBITDA updated to account for the EBITDA of acquisitions or disposals undertaken in the period) decreased to 1.1 times at 31 December 2020 (31 December 2019: 1.4 times) and positions the Group near the bottom of its targeted range of 1-2 times.
The Group's interest cover, the coverage of net finance expense by EBITDA (consolidated earnings before net finance charges, taxation, impairment, depreciation and amortisation, foreign exchange gains or losses and non-underlying items), increased to 18.8 times in the 12 months to 31 December 2020 (31 December 2019: 14.4 times) as more expensive bond debt was replaced with cheaper bank facility borrowing and EBITDA improved.
During the financial year the Group retained its GBP1.2 billion of committed bank facilities for general corporate purposes, and made further arrangements to ensure availability of funding capacity to replace Refinitiv's debt upon completion of the acquisition.
On 16 December 2020, the dual tranche US$9.325 billion and EUR3.580 billion syndicated committed Bridge Facility, taken out during 2019 in preparation for refinancing Refinitiv's debt, was resized being partially replaced with two three -year term loan facilities of US$2 billion and EUR500 million. At the same time, the Group entered into an additional GBP1,075 million syndicated committed facility agreement to replace the GBP600 million facility maturing in November 2022, and signed an Amendment and Restatement agreement which increases the GBP600 million Revolving Credit Facility agreement maturing in December 2024 to GBP1,425 million.
These new facilities were undrawn at 31 December 2020 and remained available to draw contingent upon the completion of the Group's proposed acquisition of Refinitiv. The combined new facilities offer the Group sufficient acquisition headroom, while at the same time providing an additional flexible financing capacity of GBP1.3 billion for general corporate purposes. The terms of the new agreements are consistent with those of the Group's existing facilities and appropriate for an investment grade borrower including change of control provisions.
With GBP 886 million of undrawn committed bank lines (after taking into account committed, swingline backstop coverage for the EUR189 million commercial paper in issuance), the Group continues to be well positioned to fund planned growth. The new banking facilities, are also expected to provide an appropriate level of financial flexibility to the Group in its planning at the end of 2020.
At the end of 2020, the Group's long-term credit ratings were A3 and A with Moody's and S&P respectively, with both agencies having moved their ratings to a negative outlook in anticipation of the impact of the Refinitiv acquisition on net leverage. Subsequent to the completion of the Refinitiv acquisition, both agencies affirmed their ratings with Moody's revising its outlook to stable and S&P maintaining a negative outlook.
Foreign exchange
2020 2019 ================================== ==== ==== Spot GBP/EUR rate at 31 December 1.11 1.17 ================================== ==== ==== Spot GBP/US$ rate at 31 December 1.36 1.31 ================================== ==== ==== Average GBP/EUR rate for the year 1.13 1.14 ================================== ==== ==== Average GBP/US$ rate for the year 1.28 1.28 ---------------------------------- ---- ----
The Group's principal foreign exchange exposure arises as a result of translating its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling. For the 12 months to 31 December 2020, the main exposures for the Group were its European based Euro reporting businesses and its US based operations, principally Russell Indices, Mergent and The Yield Book. A 10 euro cent movement in the average GBP/EUR rate for the year and a 10 cent movement in the average GBP/US$ rate for the year would have changed the Group's operating profit for the year before amortisation of purchased intangible assets and non-underlying items by approximately GBP38.2 million and GBP12.5 million, respectively.
The Group continues to manage its translation risk exposure by, where possible, matching the currency of its debt to the currency of its earnings, to ensure its key financial ratios are protected from material foreign exchange rate volatility.
Earnings per share
The Group delivered a 5% increase in adjusted basic earnings per share, which excludes amortisation of purchased intangible assets and non-underlying items, to 209.7 pence (2019: 200.3 pence). Basic earnings per share were 120.3 pence (2019: 119.5 pence).
Dividend
The Board is proposing a final dividend of 51.7 pence per share, which together with the interim dividend of 23.3 pence per share paid to shareholders in September 2020, results in a 7% increase in the total dividend to 75.0 pence per share. The final dividend will be paid on 26 May 2021 to shareholders on the register as at 30 April 2021.
Historic Financial Information relevant to acquisition of Refinitiv
The below table presents pro-forma financial information as if the enlarged group (excluding Borsa Italiana Group) had existed for all of 2019 and 2020.
-- The tables show the pro-forma underlying results of the Group, combining the results of LSEG plc, Refinitiv and deducting the results of Borsa Italiana Group.
-- All historic financial information provided on the enlarged Group is presented on an IFRS basis and is consistent with LSEG accounting policies. The combined results are unaudited and do not include adjustments for intercompany transactions, reallocations of costs, any fair value adjustments arising out of the purchase price allocation exercise, any future changes to accounting estimates or judgements, and are therefore subject to change.
-- The LSEG plc financial information has been extracted from the audited consolidated financial statements of LSEG plc for the years ended 31 December 2020 and 31 December 2019.
-- The Refinitiv financial information has been extracted from US GAAP financial statements of the Refinitiv Parent for the years ended 31 December 2020 and 31 December 2019. These results have been adjusted to be on an IFRS basis and are unaudited.
-- An average rate of exchange of US$1.28 to GBP1 has been used to convert the financial information of Refinitiv Parent into pounds sterling for the year ended 31 December 2020 and year ended 31 December 2019. This reflects the average rate used in the respective year ends for the LSEG consolidated financial statements.
-- The Borsa Italiana Group financial information has been extracted from the audited consolidated financial statements of LSEG plc for the years ended 31 December 2020 and 31 December 2019.
-- Average rates of exchange of EUR1.13 to GBP1 and EUR1.14 to GBP1 have been used to convert the financial information of the Borsa Italiana Group into pounds sterling for the year ended 31 December 2020 and 31 December 2019 respectively.
-- The recurring/non-recurring income analysis has been presented based on management's current basis of recognition which differs to that disclosed in the Prospectus issued on 9 December 2020.
Pro-Forma 12 months ended 12 months ended 31 Dec 2020 31 Dec 2019 GBPm GBPm Variance % ==================================================================== =============== =============== ============== Data & Analytics 4,675 4,574 2 Capital Markets 1,170 1,099 6 Post Trade(1) 915 803 14 Other 3 9 - ==================================================================== =============== =============== ============== Total income (excluding recoveries) 6,763 6,485 4 Recoveries(2) 340 328 4 Total income (including recoveries) 7,103 6,813 4
==================================================================== =============== =============== ============== Cost of sales (970) (941) 3 ==================================================================== =============== =============== ============== Gross profit 6,133 5,872 4 -------------------------------------------------------------------- --------------- --------------- -------------- Adjusted operating expenses before depreciation, amortisation and impairment (2,937) (3,037) (3) Income from equity Investments - 7 - Share of loss after tax of associates (4) (5) - -------------------------------------------------------------------- --------------- --------------- -------------- Adjusted earnings before interest, tax, depreciation, amortisation and impairment 3,192 2,837 13 ==================================================================== =============== =============== ============== Underlying depreciation, amortisation and impairment (781) (687) 14 ==================================================================== =============== =============== ============== Adjusted operating profit 2,411 2,150 12 ==================================================================== =============== =============== ============== Income split by type ------------------------------------ ----- ----- Recurring 5,060 4,952 2 Non-recurring(1) 2,043 1,861 10 ==================================== ===== ===== Total income (including recoveries) 7,103 6,813 4 ==================================== ===== =====
(1) Includes NTI of GBP206m in 2019 and GBP269m in 2020
(2) Recoveries revenue is collected from customers and passed through to third-party providers who provide access to their content via Refinitiv's platform.
Financial Targets
At the time of the announcement of the Refinitiv acquisition on 1 August 2019, the Group set out financial targets for the combined company. These targets remain unchanged, except to reflect the divestment of Borsa Italiana and the consequent faster timescale to move back within the target leverage range.
The financial targets are provided below:
Target 5-7% Total Income (excluding recoveries) CAGR over the first three years(1) In excess of GBP225 million of annual run rate revenue synergies phased over five years(2) Target phasing (run-rate rather than in-year revenue achievement): Year three - 60% Year five - 100% In excess of GBP350 million of annual run rate cost synergies phased over five years(2,3) Target phasing (run-rate rather than in-year savings achievement): Year one - 25% Year three - 70% Year five -100% 50% Adjusted EBITDA margin (excluding recoveries) over the medium term Leverage to reduce to within 1-2x target range within 24 months of completion(4) Adjusted EPS accretion after the first year of completion in excess of 30% and increasing in years two and three(4)
(1) Total income growth target to be measured off the 2020 pro-forma Total Income (excluding recoveries) of GBP6,763 million and runs until 31 December 2023
(2) Revenue and cost synergy targets run to 31 December 2025
(3) Year one cost synergy phasing refers to the full 12 months to 31 December 2021
(4) Measured from the date of Completion of the Refinitiv transaction: 29 January 2021
Appendix to Historical Financial Information relevant to acquisition of Refinitiv
The following tables summarise the constituent elements of the Historical Financial Information between LSEG consolidated financial information, Refinitiv financial information presented on an IFRS basis, and the removal of Borsa Italiana financial information.
Pro-Forma for 12 months ended Refinitiv December 2020 (IFRS basis unaudited) LSEG consolidated 12 months ended Borsa Italiana Pro-Forma 12 months ended 31 Dec 2020 12 months ended 12 months ended 31 Dec 2020 GBPm 31 Dec 2020 31 Dec 2020 GBPm GBPm GBPm ================================== =================== ======================= ================= ================= Data & Analytics 864 3,852 (41) 4,675 Capital Markets 506 881 (217) 1,170 Post Trade 1,071 - (156) 915 Other 3 - - 3 ================================== =================== ======================= ================= ================= Total income (excluding recoveries) 2,444 4,733 (414) 6,763 Recoveries - 340 - 340 Total income (including recoveries) 2,444 5,073 (414) 7,103 ================================== =================== ======================= ================= ================= Cost of sales (224) (762) 16 (970) ================================== =================== ======================= ================= ================= Gross profit 2,220 4,311 (398) 6,133 ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Adjusted operating expenses before depreciation, amortisation and impairment (887) (2,188) 138 (2,937) Income from equity Investments - - - - Share of loss after tax of associates (4) - - (4) ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Adjusted earnings before interest, tax, depreciation, amortisation and impairment 1,329 2,123 (260) 3,192 ================================== =================== ======================= ================= ================= Underlying depreciation, amortisation and impairment (211) (600) 30 (781) ================================== =================== ======================= ================= ================= Adjusted operating profit 1,118 1,523 (230) 2,411 ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Income split by type ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Recurring 1,058 4,149 (147) 5,060 Non-recurring 1,386 924 (267) 2,043 ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Total income (including recoveries) 2,444 5,073 (414) 7,103 ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Pro-Forma for 12 months ended Refinitiv December 2019 (IFRS basis unaudited) LSEG consolidated 12 months ended Borsa Italiana Pro-Forma 12 months ended 31 Dec 2019 12 months ended 12 months ended 31 Dec 2019 GBPm 31 Dec 2019 31 Dec 2019 GBPm GBPm GBPm ================================== =================== ======================= ================= ================= Data & Analytics 839 3,771 (36) 4,574 Capital Markets 508 795 (204) 1,099 Post Trade 955 - (152) 803
Other 12 - (3) 9 ================================== =================== ======================= ================= ================= Total income (excluding recoveries) 2,314 4,566 (395) 6,485 Recoveries - 328 - 328 Total income (including recoveries) 2,314 4,894 (395) 6,813 ================================== =================== ======================= ================= ================= Cost of sales (210) (748) 17 (941) ================================== =================== ======================= ================= ================= Gross profit 2,104 4,146 (378) 5,872 ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Adjusted operating expenses before depreciation, amortisation and impairment (839) (2,331) 133 (3,037) Income from equity Investments 7 - - 7 Share of loss after tax of associates (7) 2 - (5) ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Adjusted earnings before interest, tax, depreciation, amortisation and impairment 1,265 1,817 (245) 2,837 ================================== =================== ======================= ================= ================= Underlying depreciation, amortisation and impairment (200) (516) 29 (687) ================================== =================== ======================= ================= ================= Adjusted operating profit 1,065 1,301 (216) 2,150 ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Income split by type ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Recurring 1,037 4,059 (144) 4,952 Non-recurring 1,277 835 (251) 1,861 ---------------------------------- ------------------- ----------------------- ----------------- ----------------- Total income (including recoveries) 2,314 4,894 (395) 6,813 ---------------------------------- ------------------- ----------------------- ----------------- -----------------
INCOME STATEMENT
Year ended 31 December 2020 2020 2019 ----------------------------------- ---------------------------------- Underlying Non-underlying Total Underlying Non-underlying Total Continuing operations Notes GBPm GBPm GBPm GBPm GBPm GBPm Revenue 3 2,124 - 2,124 2,056 - 2,056 Net treasury income from CCP clearing business 3 319 - 319 255 - 255 Other income 3 1 - 1 3 - 3 --------------------------- ----- ---------- -------------- ------- ---------- -------------- ------ Total income 2,444 - 2,444 2,314 - 2,314 Cost of sales 3 (224) - (224) (210) - (210) Gross profit 2,220 - 2,220 2,104 - 2,104 Expenses Operating expenses before depreciation, amortisation and impairment 4, 6 (887) (168) (1,055) (839) (132) (971) Income from equity investments 3 - - - 7 - 7 Share of loss after tax of associates 3 (4) - (4) (7) - (7) --------------------------- ----- ---------- -------------- ------- ---------- -------------- ------ Earnings before interest, tax, depreciation, amortisation and impairment 1,329 (168) 1,161 1,265 (132) 1,133 Depreciation, amortisation and impairment 6, 11 (211) (195) (406) (200) (195) (395) Operating profit/(loss) 1,118 (363) 755 1,065 (327) 738 Finance income 7 - 7 14 - 14 Finance expense (64) (13) (77) (85) (16) (101) ---------- -------------- ------- ---------- -------------- ------ Net finance expense 6, 7 (57) (13) (70) (71) (16) (87) Profit/(loss) before tax 1,061 (376) 685 994 (343) 651 Taxation 6, 8 (257) 59 (198) (236) 50 (186) Profit/(loss) for the year 804 (317) 487 758 (293) 465 --------------------------- ----- ---------- -------------- ------- ---------- -------------- ------ Profit/(loss) attributable to: Equity holders 734 (313) 421 699 (282) 417 Non-controlling interests 70 (4) 66 59 (11) 48 Profit/(loss) for the year 804 (317) 487 758 (293) 465 --------------------------- ----- ---------- -------------- ------- ---------- -------------- ------ Earnings per share attributable to equity holders Basic earnings per share 9 120.3p 119.5p Diluted earnings per share 9 118.9p 118.1p Adjusted basic earnings per share 9 209.7p 200.3p Adjusted diluted earnings per share 9 207.3p 198.0p Dividend per share in respect of the financial year Dividend per share paid during the year 10 23.3p 20.1p Dividend per share declared for the year 10 51.7p 49.9p --------------------------- ----- ---------- -------------- ------- ---------- -------------- ------
STATEMENT of comprehensive income
Year ended 31 December 2020 2020 2019 Notes GBPm GBPm Profit for the year 487 465 Other comprehensive income: Items that will not be subsequently reclassified to profit or loss: Defined benefit pension scheme remeasurement (loss)/ gain (1) 7 Gain on equity instruments designated at fair value through other comprehensive income 6 - Income tax relating to these items 8 1 - 6 7 --------------------------------------------------- ----- ---- ----- Items that may be subsequently reclassified to profit or loss: Net (losses)/gains on net investment hedges (64) 71 Debt instruments at fair value through other comprehensive income: - Net gains from changes in fair value 26 16 - Net gains reclassified to the consolidated income statement on disposal (4) (2) Exchange gains/(losses) on translation of foreign operations 86 (218) Income tax relating to these items 8 (5) (5) 39 (138) --------------------------------------------------- ----- ---- ----- Other comprehensive income/ (loss) net of tax 45 (131) --------------------------------------------------- ----- ---- ----- Total comprehensive income for the year 532 334 --------------------------------------------------- ----- ---- ----- Total comprehensive income attributable to: Equity holders 449 298 Non-controlling interests 83 36
Total comprehensive income for the year 532 334 --------------------------------------------------- ----- ---- -----
balance sheet
At 31 December 2020 2020 2019 Notes GBPm GBPm Assets Non-current assets Property, plant and equipment 297 288 Intangible assets 11 4,324 4,421 Investment in associates 25 28 Deferred tax assets 51 49 Investments in financial assets 12 280 266 Retirement benefit asset 81 66 Trade and other receivables 12 14 19 5,072 5,137 --------------------------------------------- ------- ------- ------- Current assets Trade and other receivables 12 594 566 Derivative financial instruments 12 - 2 Clearing member financial assets 758,510 729,094 Clearing member cash and cash equivalents 83,011 67,118 ------- ------- Clearing member assets 12 841,521 796,212 Current tax 77 160 Investments in financial assets 12 92 81 Cash and cash equivalents 1,785 1,493 844,069 798,514 Total assets 849,141 803,651 --------------------------------------------- ------- ------- ------- Liabilities Current liabilities Trade and other payables 12 613 620 Contract liabilities 168 157 Derivative financial instruments 12 6 1 Clearing member liabilities 12 841,553 796,102 Current tax 24 127 Borrowings 12, 13 605 512 Provisions 1 19 --------------------------------------------- ------- ------- ------- 842,970 797,538 Non-current liabilities Borrowings 12, 13 1,346 1,573 Derivative financial instruments 12 11 39 Contract liabilities 94 88 Deferred tax liabilities 411 432 Retirement benefit obligations 18 17 Other non-current payables 12 152 150 Provisions 14 13 2,046 2,312 --------------------------------------------- ------- ------- ------- Total liabilities 845,016 799,850 --------------------------------------------- ------- ------- ------- Net assets 4,125 3,801 --------------------------------------------- ------- ------- ------- Equity Capital and reserves attributable to the Company's equity holders Ordinary share capital 15 24 24 Share premium 15 971 967 Retained earnings 911 668 Other reserves 1,805 1,796 Total shareholders' funds 3,711 3,455 Non-controlling interests 414 346 --------------------------------------------- ------- ------- ------- Total equity 4,125 3,801 --------------------------------------------- ------- ------- -------
cash flow statement
Year ended 31 December 2020 2020 2019 Notes GBPm GBPm --------------------------------------------------------- ------ ----- ----- Cash flow from operating activities Cash generated from operations 16 1,283 1,089 Interest received 4 6 Interest paid (78) (103) Royalties paid (1) (2) Corporation tax paid (232) (153) Withholding tax paid (4) - --------------------------------------------------------- ------ ----- ----- Net cash inflow from operating activities 972 837 --------------------------------------------------------- ------ ----- ----- Cash flow from investing activities Purchase of property, plant and equipment (33) (41) Purchase of intangible assets 11 (189) (154) Proceeds from sale of businesses (1) 29 30 Acquisition of business, net of cash acquired (2) 18 - (14) Investment in associates - (11) Investments in financial assets classed as FVOCI (3) (2) (247) Investment in government bonds - (3) Proceeds from divestment of government bonds 2 - Net cash outflow from investing activities (193) (440) --------------------------------------------------------- ------ ----- ----- Cash flow from financing activities Dividends paid to shareholders 10 (257) (221) Dividends paid to non-controlling interests (21) (40) Purchase of non-controlling interests (4) - (9) Purchase of own shares by the employee benefit trust (4) (5) Proceeds from exercise of employee share options 10 5 Investment in convertible debt - (4) Loan to associate - (1) Arrangement fee paid (4) - Bond repayment - (250) Repayment towards commercial paper (101) - Repayments made towards bank credit facilities (127) (35) Additional drawdowns from bank credit facilities 4 261 Trade finance loans 1 - Principal element of lease payments (43) (41) Net cash outflow from financing activities (542) (340) --------------------------------------------------------- ------ ----- ----- Increase in cash and cash equivalents 237 57 Cash and cash equivalents at beginning of year 1,493 1,510 Exchange gain/(loss) on cash and cash equivalents 55 (74) Cash and cash equivalents at end of year 1,785 1,493 --------------------------------------------------------- ------ ----- ----- (1) Proceeds from sale of businesses represent deferred consideration of GBP29 million (2019: GBP30 million) received by the Group from its disposal of Russell Investment Management in 2016. (2) Acquisition of business, net of cash acquired, in the prior year relates to the Group's acquisition of Beyond Ratings for GBP14 million. (3) Investments in financial assets classed as FVOCI in the current year relate to the Group's minority investment of GBP2 million in PrimaryBid. In the prior year, the Group made equity investments in Nivaura Limited of GBP3 million and in Euroclear of GBP244 million. (4) Purchase of non-controlling interests in the prior year relates to the Group's purchase of the remaining 30% interest in EuroTLX SIM S.p.A. The Group's net cash inflow from operating activities of GBP972 million (2019: GBP837 million) includes GBP95 million (2019: GBP98 million) of expenses related to non-underlying items. The Group's net cash outflow from investing activities of GBP193 million (2019: GBP440 million) includes cash payments towards non-underlying purchases of fixed assets of GBP1 million (2019: nil).
Group cash flow does not include cash and cash equivalents held by the Group's Post Trade operations on behalf of their clearing members for use in their operations as managers of the clearing and guarantee systems. These balances represent margins and default funds held for counterparties for short periods in connection with these operations.
STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2020 Attributable to equity holders ------------------------------------------------------- Total Ordinary attributable share Share Retained Other to equity Non-controlling Total capital premium earnings reserves holders interests equity GBPm GBPm GBPm GBPm GBPm GBPm GBPm ---------------------------- -------- -------- --------- --------- ------------- --------------- ------- 31 December 2018 24 965 401 1,930 3,320 355 3,675 Profit for the year - - 417 - 417 48 465 Other comprehensive income for the year - - 15 (134) (119) (12) (131) Issue of shares (note 15) - 2 - - 2 - 2 Final dividend relating to the year ended 31 December 2018 (note 10) - - (151) - (151) - (151) Interim dividend relating to the year ended 31 December 2019 (note 10) - - (70) - (70) - (70) Dividend payments to non-controlling interests - - - - - (44) (44) Employee share scheme expenses - - 37 - 37 - 37 Tax in relation to employee share scheme expenses - - 17 - 17 - 17 Purchase of non-controlling interest - - 2 - 2 (1) 1 31 December 2019 24 967 668 1,796 3,455 346 3,801 Profit for the year - - 421 - 421 66 487 Other comprehensive income for the year - - 19 9 28 17 45 Issue of shares (note 15) - 4 - - 4 - 4 Final dividend for the year ended 31 December 2019 (note 10) - - (175) - (175) - (175) Interim dividend for the year ended 31 December 2020 (note 10) - - (82) - (82) - (82) Dividend payments to non-controlling interests - - - - - (16) (16) Employee share scheme expenses - - 51 - 51 - 51 Tax in relation to employee share scheme expenses - - 9 - 9 1 10 31 December 2020 24 971 911 1,805 3,711 414 4,125 ---------------------------- -------- -------- --------- --------- ------------- --------------- -------
Other reserves comprise the following:
- Merger reserve of GBP1,305 million ( 2019 : GBP1,305 million), a reserve that arose when the Company issued shares as part of the consideration to acquire subsidiary companies.
- Capital redemption reserve of GBP514 million ( 2019 : GBP514 million), a reserve set up as a result of a court approved capital reduction.
- Reverse acquisition reserve of GBP(512) million ( 2019 : GBP(512) million), a reserve arising on consolidation as a result of the capital reduction scheme.
- Foreign exchange translation reserve of GBP608 million ( 2019 : GBP535 million), a reserve reflecting the impact of exchange rate movement on the retranslation of non-UK Sterling subsidiary companies. A net gain of GBP73 million was recorded in the year (2019: loss of GBP218 million) in the statement of other comprehensive income. The balance remains in equity until the subsidiary company is sold or disposed of by the Group.
- Hedging reserve of GBP(110) million ( 2019 : GBP(46) million), a reserve representing the cumulative fair value adjustments recognised in respect of net investment and cash flow hedges undertaken in accordance with hedge accounting principles. The balance remains in equity until the hedging and underlying instrument are derecognised.
Purchase of non-controlling interests in the prior year relates to the Group's acquisition of the remaining 30% of EuroTLX SIM S.p.A.
The number of shares held by the Employee Benefit Trust to settle exercises of employee share awards was 487,866 ( 2019 : 517,563).
Employee share scheme expenses include costs related to the issue and purchase of own shares for employee share schemes of GBP(8) million ( 2019 : GBP(5) million), subscriptions, net of sundry costs, received on the vesting of employee share schemes of GBP10 million ( 2019 : GBP5 million) and equity-settled share scheme expenses for the year of GBP49 million ( 2019: GBP37 million).
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation and accounting policies
Basis of preparation
The Group's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union), and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.
From 1 January 2021, the Group will apply UK-adopted International Accounting Standards under the Companies Act 2006. No standards have been early adopted during the year.
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
The financial statements are prepared under the historical cost convention as modified by the revaluation of assets and liabilities held at fair value and on the basis of the Group's accounting policies.
The Group uses a columnar format for the presentation of its consolidated income statement. This provides the reader with supplemental data relating to the financial condition and results of operations. The Group presents profit for the year before any non-underlying items as this highlights more clearly trends in the Group's business and gives an indication of the Group's ongoing sustainable performance. Items of income and expense that are material by their size and/or nature are not considered to be incurred in the normal course of business and are classified as non-underlying items on the face of the income statement within their relevant category.
Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiary companies with all inter-company balances and transactions eliminated, together with the Group's attributable share of the results of associates. The results of subsidiary companies sold or acquired in the period are included in the income statement up to, or from, the date that control passes. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The acquisition of subsidiary companies is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Upon completion of the Group's fair value exercise, comparatives are revised up to 12 months after the acquisition date, for the final fair value adjustments. Further details are provided in Note 18 . Adjustments to fair values include those made to bring accounting policies into line with those of the Group.
The Group applies a policy of treating transactions with non-controlling interests through the economic entity model. Transactions with non-controlling interests are recognised in equity.
Critical accounting judgements and estimates
Judgements and estimates are regularly evaluated based on historical experience, current circumstances and expectations of future events. The Group has considered and exercised judgements in evaluating the ongoing impact of COVID-19 on preparation of these financial statements. In addition to sources of estimation uncertainty, a number of areas have been impacted by COVID-19 as explained in note 2.
Going concern
In assessing whether the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.
Management's base case forecasts reflect the completed all-share acquisition of Refinitiv and draw down of the bridge financing facility to refinance Refinitiv's debt. The base case forecasts also reflect the impact of the disposal of the Borsa Italiana Group and the acquisition of GIACT Systems by Refinitiv, and the related transaction, separation, integration and financing/funding costs.
The Group's combined businesses are profitable, generate strong free cash flow and operations are not significantly impacted by seasonal variations. The Group maintains sufficient liquid resources to meet its financial obligations as they fall due.
Management monitors forecasts of the Group's cash flow and overlays sensitivities to these forecasts to reflect assumptions about more difficult market conditions or stress events. The forecasts reflect the outcomes that the Directors consider most likely, based on the information available at the date of signing the financial statements.
To assess the Group's resilience to more adverse outcomes, its forecast performance was sensitised to reflect a reasonable worst-case downside scenario, causing a significant market dislocation and included the observed impact of the COVID pandemic on the business.
The Directors consider there to be no material uncertainties that may cast significant doubt on the Group's ability to continue to operate as a going concern. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of signing the financial statements. Accordingly, they continue to adopt the going concern basis in the preparation of these financial statements.
Recent accounting developments
The following amendments have been endorsed by the EU and adopted in these financial statements:
Amendments to References to the Conceptual Framework in IFRS Standards Amendments to IFRS 3, 'Business Combinations' Amendments to IAS 1 and IAS 8: Definition of Material Amendments to IFRS 9, IAS 39 & IFRS 7: Interest Rate Benchmark Reform Amendments to IFRS 16 'Leases' Covid-19-Related Rent Concessions
The impact of adopting these amendments on the Group's financial results did not have a material impact on the results of the Group.
The following standards and interpretations have been issued by the International Accounting Standards Board (IASB) and IFRIC, but have not been adopted because they are not yet mandatory and the Group has not chosen to early adopt. The Group plans to adopt these standards and interpretations when they become effective and as applicable. The impact on the Group's financial statements of the future standards, amendments and interpretations is still under review, but the following amendments and standards are not expected to have a material impact on the results of the Group.
International accounting standards and interpretations Effective date ------------------------------------------------------- --------------- Amendments to IAS 1 'Presentation of Financial 1 January 2023 Statements' classification of liabilities Amendments to IFRS 3, IAS 16 and IAS 37 and 1 January 2022 Annual Improvements 2018-2020 Amendments to IFRS 4 'Insurance Contracts' - 1 January 2021 deferral of IFRS 9 Amendments to IFRS 9, IAS 39 & IFRS 7: Interest 1 January 2021 Rate Benchmark Reform - Phase 2 IFRS 17, 'Insurance Contracts', including Amendments 1 January 2023 to IFRS 17 ------------------------------------------------------- ---------------
2. Significant judgements and estimates
Judgements and estimates are regularly evaluated based on historical experience, current circumstances and expectations of future events. A number of areas have been impacted by COVID-19 when exercising judgements and estimates and these are identified below.
Estimates:
For the year ended 31 December 2020, the following areas require the use of estimates:
Impairment of intangible assets, goodwill and investment in subsidiaries - these assets form a significant part of the balance sheet and are key assets for the Group's businesses. The recoverable amounts of relevant cash generating units are based on value in use calculations using management's best estimate of future performance and estimates of the return required by investors to determine an appropriate discount rate. The Group has reviewed the impact of COVID-19 on future cash flows along with the impact on the weighted average cost of capital applied to each cash generating unit and long-term growth rates. Following this review there was no direct impact to any cash generating units for COVID-19. Details are provided in note 11.
Defined benefit pension asset or liability - determined based on the present value of future pension obligations using assumptions determined by the Group with advice from an independent qualified actuary. The value of the liabilities within the scheme have increased as the discount rates have fallen due to the global impact of COVID-19 on bond rates, but this has been offset by the growth in the assets leading to an overall growth in the Group's pension surplus.
Estimated service period for admission and listing services within the Primary Markets business - the Group determines the estimated period for admission services using historical analysis of listing durations in respect of the companies on our markets. The estimated service period inherently incorporates an element of uncertainty in relation to the length of a customer listing which is subject to factors outside of the Group's control. The estimated service periods are reassessed at each reporting date to ensure the period reflects the Group's best estimates. The Group estimates that a one year decrease in the deferral period would cause an estimated GBP22 million increase in revenue and a one year increase in the deferral period would cause an estimated GBP20 million decrease in revenue recognised in the year.
Expected credit losses - the Group has factored into impairment reviews of financial assets the expectations of future events including COVID-19. The measured lifetime expected credit losses associated with these assets have not been materially impacted. The Group continues to monitor events and review whether additional provisions will be required in future periods.
Judgements:
In preparing the financial statements for the year ended 31 December 2020, the following judgement has been made:
Clearing member trading assets and trading liabilities - The Group uses its judgement to carry out the offsetting within clearing member balances. The carrying values of the balances are offset at what the Group considers an appropriate level to arrive at the net balances reported in the balance sheet. The Group has an aligned approach for its CCP subsidiaries to ensure the principles applied are consistent across similar assets and liabilities. The approach is reviewed on a timely basis to ensure the approach used is the most appropriate.
Taxation
EU State Aid - The Group has used its judgement to assess any obligations arising in relation to EU State Aid investigations, considering the appeals made by the UK PLCs (including the Group), UK Government, and management's internal view. Additional details are provided in note 8.
US Tax Position - The Group has used its judgement in assessing the financial reporting implications of its ongoing discussions with the IRS in relation to its funding structure of its US subsidiaries. The Group has used guidance under IFRIC 23 "Uncertainty over Income Tax Treatments" to determine the possible outcomes and to assign a probability to each of those outcomes. Additional details are provided in note 8.
Lease terms - The Group uses its judgement when assessing the lease term of property assets where options exist to either extend or curtail the lease term. The Group takes into account the location and likely use of the property when making its judgement.
Italian group disposal - the Group has judged that due to the uncertainty surrounding the potential disposal of Borsa Italiana and its associated businesses (Italian group) the sale was not highly probable at 31 December 2020, and has therefore not been treated as a disposal group. The sale was dependent on the completion of the Refinitiv transaction, which itself was uncertain at 31 December 2020 and thus the Group determined that the sale while likely, was not highly probable. The Italian group will be treated as a discontinued operation in 2021 from the date the sale becomes highly probable (further details provided in note 19).
Pension assets - under current accounting standards, the Group judges that it can expect any remaining pension surplus to be refunded in full to the Group on the winding up of the schemes. It therefore continues to recognise these assets on the balance sheet.
3 . Segmental information
The Group is organised into operating units based on its service lines and has five operating segments: Information Services, Post Trade Services, Capital Markets, Technology Services and Other. These segments generate revenue in the following areas:
-- Information Services - Subscription and licence fees for data and index services provided;
-- Post Trade Services - Fees based on CCP and clearing services provided, fees from settlement and custody service, non-cash collateral management and net interest earned on cash held for margin and default funds;
-- Capital Markets - Admission fees from initial listing and further capital raises, annual fees charged for securities traded on the Group's markets, and fees from our secondary market services;
-- Technology Services - Capital markets software licences and related IT infrastructure, network connection and server hosting services; and
-- Other - Includes events and media services.
The Group has realigned its segmental reporting to reflect management structure changes so that all Post Trade Services are now combined in one operating segment. The new operating segment includes the previous segments of LCH Group and the Post Trade businesses in Italy, Monte Titoli and CC&G, as well as the results of UnaVista, which were previously included in the Information Services Division. There has been no impact on the allocation of goodwill and the cash generating units of LCH Group and Post Trade Services in Italy remain separate. The segmental results for the comparative period have been re-presented to align with the new structure. There is no change to the overall result.
The Executive Committee monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. The Executive Committee primarily uses a measure of adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) to assess the performance of the operating segments.
Sales between segments are carried out at arm's length and are eliminated on consolidation.
Segmental disclosures for the year ended 31 December 2020 are as follows: Post Information Trade Capital Technology Services Services Markets Services Other Eliminations Group GBPm GBPm GBPm GBPm GBPm GBPm GBPm --------------------------------- ----------- --------- -------- ---------- ----- ------------ ----- Revenue from external customers 882 751 427 61 3 - 2,124 Inter-segmental revenue - - - 22 - (22) - --------------------------------- ----------- --------- -------- ---------- ----- ------------ ----- Revenue 882 751 427 83 3 (22) 2,124 Net treasury income from CCP clearing business - 319 - - - - 319 Other income - - - - 1 - 1 --------------------------------- ----------- --------- -------- ---------- ----- ------------ ----- Total income 882 1,070 427 83 4 (22) 2,444 --------------------------------- ----------- --------- -------- ---------- ----- ------------ ----- Cost of sales (68) (144) (4) (7) (1) - (224) Gross profit 814 926 423 76 3 (22) 2,220 --------------------------------- ----------- --------- -------- ---------- ----- ------------ ----- Share of loss after tax of associates - - - - (4) - (4) Adjusted earnings before interest, tax, depreciation, amortisation and impairment 510 571 220 42 3 (17) 1,329 Underlying depreciation, amortisation and impairment (55) (98) (35) (21) (8) 6 (211) Adjusted operating profit/(loss) (before non-underlying items) 455 473 185 21 (5) (11) 1,118 Amortisation and impairment of goodwill and purchased intangible assets (195) Other non-underlying items affecting operating profit (note 6) (168) Operating profit 755 Net finance expense (including non-underlying items) (70) Profit before tax 685 --------------------------------- ------------
Revenue from external customers principally comprises fees for services rendered of GBP2,060 million (2019: GBP1,981 million) and Technology Services of GBP61 million (2019: GBP66 million).
Presented within revenue are net settlement expenses from the CCP clearing businesses of net GBP8 million (2019: nil) which comprise gross settlement income of GBP39 million (2019: GBP30 million) less gross settlement expense of GBP31 million (2019: GBP30 million).
Net treasury income
Net treasury income of GBP319 million (2019: GBP255 million) from the CCP clearing businesses comprises gross interest income of GBP766 million (2019: GBP1,337 million) less gross interest expense of GBP447 million (2019: GBP1,082 million).
The Group's revenue from contracts with customers disaggregated by segment, major product and service line, and timing of revenue recognition for the year ended 31 December 2020 is shown below: Post Revenue from external Information Trade Capital Technology customers Services Services Markets Services Other Group GBPm GBPm GBPm GBPm GBPm GBPm Major product and service lines FTSE Russell Indexes - subscription 443 - - - - 443 FTSE Russell Indexes - asset based 225 - - - - 225 Real time data 105 - - - - 105 Other information services 109 - - - - 109 Clearing - 634 - - - 634 Settlement, custody and other - 63 - - - 63 UnaVista - 54 - - - 54 Primary capital markets - - 131 - - 131 Secondary capital markets - equities - - 171 - - 171 Secondary capital markets - fixed income, derivatives and other - - 125 - - 125 Capital markets software licences - - - 61 - 61 Other - - - - 3 3 Total revenue from contracts with customers 882 751 427 61 3 2,124 Timing of revenue recognition Services satisfied at a point in time 7 721 278 4 3 1,013 Services satisfied over time 875 30 149 57 - 1,111 Total revenue from contracts with customers 882 751 427 61 3 2,124 Segmental disclosures for the year ended 31 December 2019 are as follows: Post Information Trade Capital Technology Services Services Markets Services Other Eliminations Group GBPm GBPm GBPm GBPm GBPm GBPm GBPm Revenue from external customers 855 700 426 66 9 - 2,056 Inter-segmental revenue - - - 17 - (17) - Revenue 855 700 426 83 9 (17) 2,056 Net treasury income from CCP clearing business - 255 - - - - 255 Other income - - - - 3 - 3 Total income 855 955 426 83 12 (17) 2,314 Cost of sales (72) (122) (5) (7) (4) - (210) Gross profit 783 833 421 76 8 (17) 2,104 Income from equity investments - - - - 7 - 7 Share of loss after tax of associates - - (1) - (6) - (7) Earnings before interest, tax, depreciation, amortisation and impairment 483 501 228 55 4 (6) 1,265 Underlying depreciation, amortisation and impairment (49) (90) (32) (25) (8) 4 (200) Adjusted operating profit/(loss) (before non-underlying items) 434 411 196 30 (4) (2) 1,065 Amortisation and impairment of goodwill and purchased intangible assets (195)
Other non-underlying items affecting operating profit (note 6) (132) Operating profit 738 Net finance expense (including non-underlying items) (87) Profit before tax 651 The Group's revenue from contracts with customers disaggregated by segment, major product and service line, and timing of revenue recognition for the year ended 31 December 2019 is shown below: Revenue from external customers Post Information Trade Capital Technology Services Services Markets Services Other Group Revenue from external customers GBPm GBPm GBPm GBPm GBPm GBPm Major product and service lines FTSE Russell Indexes - subscription 418 - - - - 418 FTSE Russell Indexes - asset based 231 - - - - 231 Real time data 97 - - - - 97 Other information services 109 - - - - 109 Clearing - 593 - - - 593 Settlement, custody and other - 60 - - - 60 UnaVista - 47 - - - 47 Primary capital markets - - 151 - - 151 Secondary capital markets - equities - - 151 - - 151 Secondary capital markets - fixed income, derivatives and other - - 124 - - 124 Capital markets software licences - - - 66 - 66 Other - - - - 9 9 Total revenue from contracts with customers 855 700 426 66 9 2,056 Timing of revenue recognition Services satisfied at a point in time 42 686 283 11 - 1,022 Services satisfied over time 813 14 143 55 9 1,034 Total revenue from contracts with customers 855 700 426 66 9 2,056 4. Expenses by nature Expenses comprise the following: 2020 2019 Notes GBPm GBPm Employee costs 5 564 529 IT costs 156 146 Short-term lease costs - 2 Lease costs for low value items 1 2 Other costs(1) 159 163 Foreign exchange losses/(gains) 7 (3) Adjusted operating expenses before depreciation, amortisation and impairment 887 839 Non-underlying operating expenses before depreciation, amortisation and impairment 6 168 132 Operating expenses before depreciation, amortisation and impairment 1,055 971 (1) Other costs include GBP60 million in relation to professional fees (2019: GBP49 million). 5. Employee costs Employee costs comprise the following: 2020 2019 GBPm GBPm Salaries and other benefits 416 397 Social security costs 72 71 Pension costs 31 26 Share-based compensation 45 35 Total 564 529 Employee costs include the costs of contract staff who are not on the payroll, but fulfil a similar role to employees. The average number of employees in the Group from total operations was: 2020 2019 UK 1,829 1,631 USA 683 664 Italy 652 643 France 200 185 Sri Lanka 1,236 1,082 Other 619 493 Total 5,219 4,698 Average staff numbers are calculated from the date of acquisition for subsidiary companies acquired in the year and up to the date of disposal for businesses disposed in the year. 6. Non-underlying items 2020 2019 Note GBPm GBPm Transaction costs 173 96 Restructuring costs - 32 Restructuring credit (5) - Integration costs - 4 Non-underlying operating expenses before interest, tax, depreciation, amortisation and impairment 168 132 Amortisation of purchased intangible assets 11 164 180 Impairment of goodwill and purchased intangibles 11 10 15 Impairment of software 21 - Non-underlying operating expenses before interest and tax 363 327 Non-underlying finance expense 13 16 Total non-underlying expenses included in profit before tax 376 343 Tax on non-underlying expenses: Deferred tax on amortisation of purchased intangible assets (21) (31) Current tax on amortisation of purchased intangible assets (15) (11) Tax on other items (23) (8) (59) (50) Total non-underlying charge to income statement 317 293
Transaction costs comprise charges incurred for services relating to the Refinitiv transaction and proposed disposal of the Borsa Italiana group.
Restructuring credit relates to the release of accruals recognised in relation to the cost savings programme announced in March 2019.
Integration costs in 2019 related to the activities to integrate the Mergent and Yield Book businesses into the Group.
Non underlying a mortisation of purchased intangible assets includes accelerated amortisation of GBP10 million (2019: GBP25 million) in relation to the Mergent CGU (note 11).
The goodwill of the Mergent CGU was impaired by GBP10 million (2019: GBP6 million). In 2019 the goodwill of the Turquoise CGU was impaired by GBP8 million and purchased intangible assets by GBP1 million (note 11).
The software impairment of GBP21 million relates to asset write downs resulting from ongoing transactions.
Financing costs relate to fees for establishing a Bridge Financing facility to refinance the Refinitiv notes and term loans in full following completion of the Group's Refinitiv transaction. Further details of the facility are provided in note 14.
The tax impact of the Group's non-underlying items and its adjustment to income statements of the individual entities of the Group to which the non-underlying items relate, is computed based on the tax rates applicable to the respective territories in which the entity operates. There is no tax impact arising on non-underlying items which are neither taxable nor tax-deductible.
Non-underlying deferred tax includes deferred tax in relation to the amortisation of purchased intangible assets.
7. Net finance expense 2020 2019 GBPm GBPm Finance income Expected return on defined benefit pension scheme assets 1 1 Bank deposit and other interest income 4 9 Other finance income 2 4 Underlying finance income 7 14 Finance expense Interest payable on bank and other borrowings (56) (73) Lease interest payable (4) (4) Other finance expenses (4) (8) Underlying finance expense (64) (85) Underlying net finance expense (57) (71) Non-underlying finance expense (13) (16) Net finance expense (70) (87) Bank deposit and other interest income includes negative interest earned on the Group's borrowings. Interest payable includes amounts where the Group suffers negative interest on its cash deposits. Other finance income includes amounts relating to the unwind of discount on net investments in leases. These amounts are immaterial. During the year the Group recognised a total of GBP58 million (2019: GBP72 million) of underlying net interest expense on financial assets and financial liabilities held at amortised cost, comprising GBP6 million (2019: GBP13 million) gross finance income and GBP64 million (2019: GBP85 million) gross finance expense. Presented within finance income and finance expense are amounts in relation to defined benefit pension schemes which are measured at fair value. 8. Taxation The standard UK corporation tax rate for the year was 19% (2019: 19%). 2020 2019 Taxation recognised in profit or loss GBPm GBPm Current tax UK corporation tax for the year 74 84 Overseas tax for the year 145 134 Adjustments in respect of previous years 4 (3) 223 215 Deferred tax Deferred tax for the year 2 2 Adjustments in respect of previous years (6) - Deferred tax liability on amortisation and impairment of purchased intangible assets (21) (31) (25) (29) Taxation 198 186 The adjustments in respect of previous years' corporation tax are mainly in respect of tax returns agreed with relevant tax authorities. 2020 2019 Taxation on items not recognised in profit or loss GBPm GBPm Current tax Tax allowance on share awards in excess of expense recognised 12 7 12 7 Deferred tax Tax allowance on defined benefit pension scheme remeasurements 1 (2) Tax allowance on share options/awards in excess of expense recognised (3) 10 Tax on movement in fair value of financial assets (5) (5) Adjustments relating to change in defined benefit pension tax rate - 2 5 12 Factors affecting the tax charge for the year The income statement tax charge for the year differs from the standard rate of corporation tax in the UK of 19% (2019: 19%) as explained below: 2020 2019 GBPm GBPm Profit before tax 685 651 Profit multiplied by standard rate of corporation tax in the UK 130 124 Expenses not deductible (5) 9 Adjustment arising from change in tax rates (9) 7 Overseas earnings taxed at higher rate 70 38 Adjustments in respect of previous years (2) (3) Adjustment arising from changes in tax rates on amortisation of purchased intangible assets 5 4 Deferred tax provided for withholding tax on distributable reserves (1) 2 Deferred tax not recognised 10 5 Taxation 198 186
On 22 July 2020, the Finance Act 2020 received Royal Assent enacting the UK corporation tax rate would remain at 19% from 1 April 2020 onward instead of reducing to 17%, the previously enacted rate. This has impacted the valuation of UK deferred tax balances giving rise to an increase in deferred tax assets of GBP2 million.
Following the UK budget on the 3 March 2021 and the announcement that the UK rate of corporation tax will increase from 19% to 25% effective 1 April 2023 with legal enactment of the new rate expected in 2021, the Group has assessed the impact on its deferred tax assets and liabilities unwinding post 1 April 2023. The Group expects that the higher rate would lead to additional deferred tax liabilities of GBP10 million should the change have been reflected in the balance sheet at 31 December 2020.
EU State Aid
The Group continues to monitor developments in relation to EU State Aid investigations. On 25 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company (CFC) regime was published. It concludes that the UK legislation up to December 2018 does partially represent illegal State Aid.
Both the Group, among a number of other UK PLCs, and the UK Government have submitted appeals to the EU General Court to annul the EU Commission's findings.
The UK Government is required to continue the process of recovering the State Aid whilst the decision is under appeal. HMRC issued its first round of determinations in December 2019, focusing on the financial year 2015 due to the expiry of statutory time limits. One of these determinations was issued to the Group and required one of its two affected subsidiaries to pay over GBP1.2 million to HMRC. At the same time the Group appealed to HMRC against the determination. As at 31 December 2020, no further determinations had been received. Subsequent to the year-end however, the Group received additional determinations from HMRC of GBP8.1 million excluding compound interest.
Under new recovery powers granted to HMRC, the Group must settle the additional amounts by 28 March 2021. This is also the deadline for filing any appeal against HMRC's decisions for issuing the determination. The Group will meet both of these deadlines.
The appeal against the determination to HMRC is likely to be stayed until the final outcome of all appeals to the EU Courts in respect of the EU Commission's original decision are known.
The issuance and settlement of any such determinations does not however change the Group's view that in light of the appeals made by UK PLCs (including the Group), the UK Government's own appeal, and in consideration of management's own internal view, no provision is required in relation to the investigation. Additionally, and in accordance with the provisions of IFRIC 23, the Group has continued to recognise a receivable against the HMRC determination paid in January 2020 and also intends to recognise a receivable against the new HMRC determination described above.
As previously disclosed, the Group has made claims under the CFC regime and still considers that the maximum potential amount of additional tax payable excluding compound interest remains between nil and GBP65 million depending on the basis of calculation.
IRS Audit
The Group is currently under audit in the US by the IRS in relation to the interest rate applied on certain cross border intercompany loans from the UK to the US. During the year the IRS issued a Notice of Proposed Adjustment (NOPA) which seeks to apply the safe haven rate under the US regulations to the interest charged on cross border loans.
The maximum exposure under the NOPA is $130 million, however this the upper bound of a range of nil to $130 million plus interest and penalties over the lifetime of the loans. The Group disagrees with the NOPA assessment and has sought legal advice to support its position that the safe haven rate is arbitrary and should not be sustained. The NOPA has been appealed by the Group and the audit is ongoing.
Other
The Group does not have any other uncertain tax positions as at 31 December 2020 (2019: nil).
9. Earnings per share Earnings per share is presented on four bases: basic earnings per share, diluted earnings per share, adjusted basic earnings per share, and adjusted diluted earnings per share. Basic earnings per share is in respect of all activities. Diluted earnings per share takes into account the dilutive effects that would arise on conversion or vesting of all outstanding share options and share awards under the Group's share option and award schemes. Adjusted basic earnings per share and adjusted diluted earnings per share exclude non-underlying items to enable a better comparison of the underlying earnings of the business with prior periods. 2020 2019 Basic earnings per share 120.3p 119.5p Diluted earnings per share 118.9p 118.1p Adjusted basic earnings per share 209.7p 200.3p Adjusted diluted earnings per share 207.3p 198.0p ------ Profit and adjusted profit for the year attributable to the Company's equity holders: 2020 2019 GBPm GBPm Profit for the financial year attributable to the Company's equity holders 421 417 Adjustments Total non-underlying items net of tax (note 6) 317 293 Non-underlying items attributable to non-controlling interests (4) (11) ------ Adjusted profit for the year attributable to the Company's equity holders 734 699 Weighted average number of shares - millions 350 349 Effect of dilutive share options and awards - millions 4 4 ------ Diluted weighted average number of shares - millions 354 353 ------ The weighted average number of shares for the current year excludes those held in the Employee Benefit Trust. The weighted average number of shares for the prior year excludes those held in the Employee Benefit Trust and treasury shares held by the Group. 10. Dividends 2020 2019 GBPm GBPm Final dividend for 31 December 2018 paid 29 May 2019: 43.2p per Ordinary share - 151 Interim dividend for 31 December 2019 paid 17 September 2019: 20.1p per Ordinary share - 70 Final dividend for 31 December 2019 paid 27 May 2020: 49.9p per Ordinary share 175 - Interim dividend for 31 December 2020 paid 22 September 2020: 23.3p per Ordinary share 82 - 257 221
Dividends are only paid out of available distributable reserves.
The Board has proposed a final dividend in respect of the year ended 31 December 2020 of 51.7p per share, which is estimated to amount to an expected payment of GBP417 million in May 2021. This is not reflected in the financial statements.
11. Intangible assets Purchased intangible assets Software, Customer licences and supplier and intellectual Software Goodwill relationships Brands property and other Total Cost: GBPm GBPm GBPm GBPm GBPm GBPm 31 December 2018 2,447 1,892 1,005 582 872 6,798 Acquisition of subsidiaries 14 - - - - 14 Additions - - - - 206 206 Disposals and write-off - (2) (1) (2) (16) (21) Foreign exchange translation (104) (64) (24) (12) (39) (243) 31 December 2019 2,357 1,826 980 568 1,023 6,754 Additions - - - - 221 221 Disposals and write-off - - - - (18) (18) Foreign exchange translation 45 21 (27) 1 34 74 31 December 2020 2,402 1,847 953 569 1,260 7,031 Accumulated amortisation and impairment: 31 December 2018 528 662 197 304 420 2,111 Amortisation charge for the year - 117 41 22 123 303 Impairment 14 1 - - 9 24 Disposals and write-off - (2) (1) (2) (14) (19) Foreign exchange translation (27) (26) (5) (6) (22) (86) 31 December 2019 515 752 232 318 516 2,333 Amortisation charge for the year - 101 40 23 139 303 Impairment 10 - - - 23 33 Disposals and write-off - - - - (18) (18) Foreign exchange translation 21 15 (7) 4 23 56 31 December 2020 546 868 265 345 683 2,707 Net book values 31 December 2020 1,856 979 688 224 577 4,324 31 December 2019 1,842 1,074 748 250 507 4,421
Goodwill
There were no additions to goodwill in the current year.
In 2019, the Group acquired Beyond Ratings, which resulted in additions to goodwill of GBP14 million (note 18). Beyond Ratings was included in the FTSE Group CGU.
During the year, the fair value of the goodwill and purchased intangibles relating to the acquisition of Beyond Ratings were finalised, with no adjustment to the goodwill recognised required (note 18).
The goodwill arising on consolidation represents the growth potential and assembled workforces of the Italian Group, LCH Group, FTSE Group, MillenniumIT, the US Information Services Group and Turquoise.
Purchased intangible assets
The Group's purchased intangible assets include:
Customer and supplier relationships
These assets have been recognised on acquisition of major subsidiary companies by the Group. The amortisation periods remaining on these assets are between 6 to 22 years.
Following a reassessment of useful economic lives GBP10 million accelerated amortisation has been recognised in Customer and Supplier relationships in relation to Mergent Inc. In the prior year following a reassessment of useful economic lives the Group recognised GBP25 million acceleration of amortisation in relation to Mergent Inc.
Brands
Brand name assets have been recognised on a number of major acquisitions, including FTSE, LCH, Frank Russell, and Yield Book. Included within brands are trade names relating to Frank Russell Group of GBP491 million (2019: GBP538 million). Other assets are not individually material and the remaining amortisation periods on these assets are between 2 and 22 years.
Software, licences and intellectual property
These assets have been recognised on acquisition of subsidiary companies and have a remaining amortisation period of 1 to 17 years.
There are no other individual purchased intangible assets with a carrying value that is considered material to each asset class.
Internally developed software and other intangible assets
As a part of the business operating model the Group develops technology solutions where software products are developed internally, for use within the Group or to sell externally. These assets have a useful economic life of up to 12 years.
During the year, consideration for additions comprises GBP189 million ( 2019 : GBP154 million) in cash additions relating to internally generated software of GBP203 million ( 2019 : GBP176 million).
The cost of self-developed software products includes GBP188 million ( 2019 : GBP100 million) representing assets not yet brought into use. No amortisation has been charged on these assets and instead they are tested for impairment annually.
Other amounts represent capitalised contract costs and right-of-use assets. These assets have a useful economic life of up to 7 years.
During the year the Group recognised additions of GBP10 million (2019: GBP21 million) as right-of-use assets, with a corresponding amortisation charge of GBP7 million (2019: GBP7 million).
Impairment tests for internally developed software and other intangible assets
Following a review of software assets in the year the Group recognised GBP23 million (2019: GBP9 million) impairment in relation to assets with a recoverable amount less than its value in use.
During the year the Group recognised disposals and write-offs of assets no longer in use of GBP18 million with nil net book value (2019: GBP16 million).
12. Financial assets and financial liabilities Financial instruments by category The financial instruments of the Group are categorised as follows: Financial assets Fair value Fair value through Amortised through profit cost OCI or loss Total 31 December 2020 GBPm GBPm GBPm GBPm Clearing business financial assets: - Clearing member trading assets 98,736 - 632,699 731,435 - Other receivables from clearing members 2,484 - - 2,484 - Other financial assets - 24,591 - 24,591 - Clearing member cash and cash equivalents 83,011 - - 83,011 184,231 24,591 632,699 841,521 Trade and other receivables 544 - 5 549 Cash and cash equivalents 1,785 - - 1,785 Investments in financial assets - debt instruments - 111 - 111 Investments in financial assets - equity instruments - 261 - 261 Total 186,560 24,963 632,704 844,227 There were no transfers between categories during the year. Prepayments and contract assets within trade and other receivables are not classified as financial instruments. Financial liabilities Fair value through Amortised profit cost and loss Total 31 December 2020 GBPm GBPm GBPm ---------- Clearing business financial liabilities: - Clearing member trading liabilities 98,736 632,699 731,435 - Other payables to clearing members 110,118 - 110,118 208,854 632,699 841,553 Trade and other payables 747 - 747 Borrowings 1,951 - 1,951 Derivative financial instruments - 17 17 Total 211,552 632,716 844,268 There were no transfers between categories during the year. Social security and other tax liabilities within trade and other payables, and contract liabilities are not classified as financial instruments. Accruals reflect obligations for which the invoice has not been received and are included within financial liabilities. The financial instruments of the Group for the prior year were as follows: Financial assets Fair Fair value value through Amortised through profit cost OCI or loss Total 31 December 2019 GBPm GBPm GBPm GBPm Clearing business financial assets: - Clearing member trading assets 122,299 - 574,889 697,188 - Other receivables from clearing members 8,330 - - 8,330 - Other financial assets - 23,576 - 23,576 - Clearing member cash and cash equivalents 67,118 - - 67,118 197,747 23,576 574,889 796,212 Trade and other receivables 521 - 5 526 Cash and cash equivalents 1,493 - - 1,493 Investments in financial assets - debt instruments - 106 - 106 Investments in financial assets - equity instruments - 241 - 241 Derivative financial instruments - - 2 2 Total 199,761 23,923 574,896 798,580 Prepayments and contract assets within trade and other receivables are not classified as financial instruments. Financial liabilities Fair value through Amortised profit cost or loss Total 31 December 2019 GBPm GBPm GBPm Clearing business financial liabilities: - Clearing member trading liabilities 122,299 574,889 697,188 - Other payables to clearing members 98,914 - 98,914 221,213 574,889 796,102 Trade and other payables 747 - 747 Borrowings 2,085 - 2,085 Derivative financial instruments - 40 40 Total 224,045 574,929 798,974 Social security and other tax liabilities within trade and other payables are not classified as financial instruments. 13. Borrowings 2020 2019 GBPm GBPm Current Bank borrowings 135 256 Commercial paper 170 256 Bonds 300 - 605 512 Non-current Bonds 1,347 1,573 Trade finance loans 1 - Bank borrowings (2) - 1,346 1,573 Total 1,951 2,085 The Group's GBP300 million bond issued in 2012 is due for repayment in November 2021. The Group has the following committed bank facilities and unsecured notes: Interest rate Carrying value percentage at at Expiry 31 December 31 December date Notes/facility 2020 2020 Type GBPm GBPm % Dual-currency bridge facility Jan 2022(1) 8,156 (8) LIBOR + 0.3 Multi-currency revolving credit facility Nov 2022(2) 600 / 0 6 LIBOR + 0.45 Multi-currency revolving credit facility Dec 2024(3) 600 / 1,425 138 LIBOR + 0.30 Multi-currency revolving credit facility Dec 2025(4) 0 / 1075 (1) LIBOR + 0.475 Committed bank facilities 135 Commercial paper(5) Jan 2020 170 170 (0.380) EUR500 million term loan Dec 2023(6) 451 - LIBOR + 0.725 $2,000 million term loan Dec 2023(6) 1,468 (2) LIBOR + 0.725 Committed term loans (2) GBP300 million bond, issued November 2012 Nov 2021 300 300 4.750 EUR500 million bond, issued September 2017 Sep 2024 451 450 0.875 EUR500 million bond, issued December 2018 Dec 2027 451 448 1.750 EUR500 million bond, issued September 2017 Sep 2029 451 449 1.750 Bonds 1,647 Total committed facilities and unsecured notes 1,950 (1) Terminates January 2022, with an option to extend for a further 6 months. (2) This facility is to be cancelled at the time of the Refinitiv
acquisition and replaced with a new GBP1,075m 5 year facility. (3) This facility will be amended to increase the facility limit to GBP1,425m at the time of the Refinitiv deal close. (4) This facility will become effective when the Refinitiv acquisition closes and will replace the GBP600m facility maturing in November 2022. (5) The Commercial paper interest rate reflected is the average interest rate achieved on the outstanding issuances. (6) These term loan facilities will be effective at the time of the Refinitiv acquisition and partially replace and term out the bridge facilities.
Committed bank facilities
Revolving credit facilities
The Group retained its total committed revolving credit bank facilities of GBP1,200 million throughout the period. In December 2020, the Group arranged an additional GBP1,075 million syndicated committed facility agreement to replace the GBP600 million facility maturing in November 2022, and signed an Amendment and Restatement agreement which increases the GBP600 million Revolving Credit Facility agreement maturing in December 2024 to GBP1,425 million. These new facility arrangements will become effective at the time of the Refinitiv deal close. The revolving credit facilities were partially drawn at 31 December 2020 with a carrying value of GBP143 million (2019: GBP264 million).
Bridge facility
In December 2020 the Group resized its US$9.325 billion and EUR3.58 billion Bridge Facilities to US$7.325 billion and EUR3.08 billion (GBP8.156 billion), and partially replaced them with 3 year term loan facilities of US$2 billion and EUR500 million, which become effective at the time of the Refinitiv acquisition. The Bridge Facility remained undrawn, but has a carrying value of GBP(8) million (2019: GBP(8) million) which represents deferred arrangement fees.
Commercial paper
The Group maintained its GBP1 billion Euro Commercial Paper Programme. Outstanding issuances at 31 December 2020 of EUR188 million (GBP170 million) (2019: EUR300 million (GBP256 million)) may be reissued upon maturity in line with the Group's liquidity requirements.
Term loan facilities
In December 2020, the group arranged US$2 billion and EUR500 million 3 year term loan facilities which become effective at the time of the Refinitiv acquisition and mature in December 2023. The term loans are undrawn at the year end, but had a carrying value of GBP(2) million which represents deferred arrangement fees.
Bonds
In November 2012, the Group issued a GBP300 million bond under its Euro Medium-Term Notes Programme which is unsecured and is due for repayment in November 2021. Interest is paid semi-annually in arrears in May and November each year. The issue price of the bond was GBP100 per GBP100 nominal.
In September 2017, the Group issued EUR1 billion of bonds in two EUR500 million (GBP451 million) tranches under its updated Euro Medium-Term Notes Programme. The bonds are unsecured and the tranches are due for repayment in September 2024 and September 2029 respectively. Interest is paid annually in arrears in September each year. The issue prices of the bonds were EUR99.602 per EUR100 nominal for the 2024 tranche and EUR99.507 per EUR100 nominal for the 2029 tranche.
In December 2018, the Group issued a EUR500 million (GBP451 million) bond under its updated Euro Medium-Term Notes Programme. The bond is unsecured and due for repayment in December 2027. Interest is paid annually in arrears in December each year. The issue price was EUR99.547 per EUR100 nominal.
Other
Cassa di Compensazione e Garanzia S.p.A. (CC&G) has direct intra-day access to refinancing with the Bank of Italy to cover its operational liquidity requirements in the event of a market stress or participant failure. In addition, it has arranged commercial bank back-up credit lines with a number of commercial banks, which total EUR420 million at 31 December 2020 (2019: EUR420 million), for overnight and longer durations to broaden its liquidity resources consistent with requirements under the European Markets Infrastructure Regulation (EMIR).
LCH SA has a French banking licence and is able to access refinancing at the European Central Bank to support its liquidity position. LCH Limited is deemed to have sufficient fungible liquid assets to maintain an appropriate liquidity position, and has direct access to certain central bank facilities to support its liquidity risk management in accordance with the requirements under the EMIR. In accordance with the Committee on Payments and Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO) and Principles for Financial Market Infrastructures (PFMIs), many Central Banks now provide for CCPs to apply for access to certain Central Bank facilities.
During the year, the Group entered into a sale and leaseback arrangement which is classified as a trade finance loan. Under this arrangement, the Group borrowed GBP1 million, repayable over three years at an effective interest rate of 7.3%.
In addition, a number of Group entities have access to uncommitted operational, money market and overdraft facilities which support post trade activities and day-to-day liquidity requirements across its operations.
Fair values The fair values of the Group's borrowings are as follows: 2020 2019 Carrying Carrying value Fair value value Fair value GBPm GBPm GBPm GBPm Borrowings - within 1 year 605 616 512 512 - after more than 1 year 1,346 1,466 1,573 1,676 1,951 2,082 2,085 2,188
Bonds are classified as Level 1 in the Group's hierarchy for determining and disclosing the fair value of financial instruments. Bond fair values are as quoted in the relevant fixed income markets.
Bank borrowings and commercial paper are classified as Level 2 in the Group's hierarchy for determining and disclosing the fair value of financial instruments. The fair values of these instruments are based on discounted cash flows using a rate based on borrowing cost. Bank borrowings bear interest at an appropriate inter-bank reference rate plus and agreed margin, and commercial paper attracts interest at a negotiated rate at the time of issuance.
The carrying amounts of the Group's borrowings are denominated in the following currencies: 2020 2019 Drawn Swapped Effective Drawn Swapped Effective Currency GBPm GBPm GBPm GBPm GBPm GBPm Sterling 421 - 421 420 - 420 Euro 1,530 (613) 917 1,557 (637) 920 US dollar - 613 613 108 637 745 Total 1,951 - 1,951 2,085 - 2,085 14. Analysis of net debt Group net debt comprises cash and cash equivalents less interest bearing loans and borrowings and derivative financial instruments. 2020 2019 GBPm GBPm Due within 1 year: Cash and cash equivalents 1,785 1,493 Bank borrowings (135) (256) Commercial paper (170) (256) Bonds (300) - Derivative financial assets - 2 Derivative financial liabilities (6) (1) 1,174 982 Due after 1 year: Bank borrowings and trade finance loans 1 - Bonds (1,347) (1,573) Derivative financial liabilities (11) (39) Net debt (183) (630) Reconciliation of net cash flow to movement in net debt 2020 2019 GBPm GBPm Increase/(decrease) in cash and cash equivalents 237 57 Net repayments made towards commercial paper 101 - Additional drawdowns from bank credit facilities (4) (261) Repayments made towards bank credit facilities 127 35 Trade finance loans received (1) - Repayment of bonds - 250 Change in net debt resulting from cash flows 460 81 Foreign exchange (36) 14 Movement on derivative financial assets and liabilities 21 9 Bond valuation adjustment - (2) Movement in bank credit facility arrangement
fees 2 8 Net debt at 1 January (630) (740) Net debt at 31 December (183) (630) 15. Share capital and share premium Ordinary shares issued and fully paid Number of Ordinary Share shares shares (1) premium Total millions GBPm GBPm GBPm 1 January 2019 351 24 965 989 Issue of shares to the Employee Benefit Trust - - 2 2 31 December 2019 351 24 967 991 Issue of shares to the Employee Benefit Trust - - 4 4 31 December 2020 351 24 971 995
(1) Ordinary shares of 6 (79/86) pence
The Board approved the allotment and issue of 775,000 ordinary shares at par and a further 139,970 ordinary shares at a price of 3,111 pence to the Employee Benefit Trust ( 2019 : 68,020 ordinary shares of par value 6 (79/86) pence at 2,238 pence), to settle employee 'Save As You Earn' share plans. This generated a premium of GBP4 million ( 2019 : GBP2 million).
The Ordinary Share Capital of 351 million shares in the current and prior years do not include treasury shares.
16. Net cash flow generated from operations 2020 2019 Notes GBPm GBPm Profit before tax 685 651 Adjustments for depreciation, amortisation and impairments: Depreciation and amortisation 11 372 369 Impairment of software and intangible assets 11 33 24 Impairment of property, plant and equipment - 2 Adjustments for other non-cash items: Loss on disposal of property, plant and equipment 1 - Loss on disposal of intangible assets - 2 Share of loss of associates 4 7 Net finance expense (1) 7 71 87 Share scheme expenses 5 49 35 Royalties 1 1 Movements in pensions and provisions (32) (2) Net foreign exchange differences (6) (27) Research and development tax credit - (1) (Increase)/decrease in receivables and contract assets (42) 203 (Decrease)/increase in payables and contract liabilities (45) 37 Movement in other assets and liabilities relating to operations: (Increase)/decrease in clearing member financial assets (3,635) 6,525 Increase/(decrease) in clearing member financial liabilities 3,818 (6,796) Movements in derivative assets and liabilities 9 (28) Cash generated from operations 1,283 1,089 (1) excludes items related to pension and provisions
17. Commitments and contingencies
As at 31 December 2020, the Group had commitments of GBP18 million for professional fees relating to the merger with Refinitiv. The amounts were payable on the successful completion of the merger (31 December 2019: nil).
The Group has commitments of GBP19 million for professional fees relating to the proposed divestment of Borsa Italiana. The amounts are payable on the successful completion of the divestment (31 December 2019: nil).
As at 31 December 2020, the Group had a commitment of GBP8 million in relation to its investment in PrimaryBid (see note 19).
In the normal course of business, the Group receive legal claims in respect of commercial, employment and other matters. Where a claim is more likely than not to result in an economic outflow of benefits from the Group, a provision is made representing the expected cost of settling such claims.
18. Business combinations
Acquisitions in the year to 31 December 2020
There were no acquisitions in the year.
Acquisitions in the year to 31 December 2019
On 31 May 2019, the Group acquired 100% of Beyond Ratings, a provider of financial analysis that includes Environmental, Social and Governance criteria based in France. The consideration of GBP14 million (EUR15 million) cash was paid in two instalments during the year.
The Group has completed its fair value review of the business acquired and considers that the fair value of the assets acquired was immaterial and has therefore concluded that the total value of the consideration should be regarded as goodwill. The business is highly complementary to the Group's existing business and there is expected to be future cash flow growth from the combined business.
19. Events after the reporting period
Business combination after the reporting date
On the 29 January 2021, the Group completed the acquisition of Refinitiv Parent Limited (Refinitiv Parent), a company incorporated in the Cayman Islands and headquartered in London and New York. Refinitiv is a leading global provider of market and financial data and infrastructure, delivering data, insight and analytics tailored to strategic workflows.
Refinitiv Parent holds an approximate 52% economic interest in Tradeweb Markets Inc. and its subsidiaries. Tradeweb Markets Inc. (Tradeweb) is a Delaware company and the holding company of Tradeweb Markets LLC, which offers electronic marketplaces for trading fixed income, derivatives, money market and equity products. Tradeweb operates as a standalone, publicly listed entity.
Under the terms of the Stock Purchase Agreement, LSEG plc (directly and through certain wholly owned subsidiaries) acquired the entire issued share capital of Refinitiv Parent and, in exchange, LSEG plc issued 204,225,968 shares (comprising 136,870,442 listed LSEG ordinary shares; and 67,355,526 unlisted LSEG limited-voting ordinary shares). The limited-voting ordinary shares rank pari passu with the LSEG ordinary shares. Based on LSEG plc's issued share capital as at completion, the total shares amounted to an economic interest in LSEG plc of approximately 37%; and less than 30% of the total voting rights in LSEG plc.
Of the total number of shares issued, 179,610,123 shares were issued on 29 January 2021 and the remaining 24,615,845 shares were issued on 1 March 2021. Assuming an equivalent value for each listed LSEG ordinary share and each unlisted LSEG limited-voting ordinary share, upon issue, the total value of the shares was GBP17.5 billion(1) .
On Completion, the Group refinanced Refinitiv third-party debt by drawing down $9.936 billion and EUR3.629 billion under the Bridge Facility, term loan, and the new and amended multi-currency revolving credit facilities. Further details of the facilities are provided in note 13.
The acquisition of Refinitiv is a transformational transaction, strategically and financially, and positions the Group for long-term sustainable growth. Refinitiv brings highly complementary capabilities in data, analytics and capital markets.
The combination of LSEG and Refinitiv will deliver significant benefits for customers, and in particular to:
-- transform LSEG's position and create a global financial markets infrastructure leader of the future;
-- strengthen LSEG's global footprint and accelerate its successful growth strategy across multiple key financial centres and jurisdictions, including in North America (the world's largest financial market), Asia and fast-growing emerging markets;
-- significantly enhance LSEG's customer proposition in data and analytics, utilising the Combined Business' intellectual property to offer innovative new services;
-- complement LSEG's existing multi-asset class growth strategy to create a global multi-asset class capital markets business with the addition of high-growth foreign exchange and fixed income venues; and
-- deepen and expand LSEG's and Refinitiv's shared core principles of open access and customer partnership.
The Group is currently completing the steps in applying the acquisition method in terms of IFRS 3 Business Combinations, to determine what is part of the business combination transaction, to recognise and measure the identified net assets acquired and non-controlling interests; and to determine the consideration transferred.
However, given the size of the transaction and the short period of time between the completion and the date when the Annual Report is authorised for issue, the Group is unable to reasonably estimate and determine the:
-- fair value of the consideration transferred; -- fair value of the net assets acquired; -- non-controlling interests in Refinitiv; and -- resulting goodwill.
As part of the fair value exercise the Group will consider the recognition criteria in terms of IFRS 3 and may identify the following classes of purchased intangible assets:
-- Customer contracts and relationships; -- Technology - acquired software; -- Technology - internally developed; -- Databases and content; -- Licences; and -- Trade names.
The Group has 12 months from the date of acquisition to complete the valuation exercise.
(1) Calculated by reference to the opening share price of LSEG ordinary shares on 29 January 2021 (GBP83.94) and 1 March 2021 (GBP96.90).
Disposal after the reporting date
As a result of the completion of the Refinitiv acquisition, the disposal of the Italian Group for EUR4.325 billion (GBP3.9 billion) is expected to complete in the first half of 2021. The Italian Group will represent a disposal group and a discontinued operation within the Group's Interim results.
Other investments
The Group invested a further GBP5 million in PrimaryBid on 3 February 2021 as part of its commitment to invest a total of GBP10 million in the company.
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