Unless stated otherwise, all figures in the highlights below relate to performance for 12 months to 31 December 2014 and comparisons with the prior 12 month period
- Strong financial performance in 2014 – total income up 26 per cent to £1.38 billion
- Revenue up 32 per cent to £1.28 billion – and up 12 per cent on organic constant currency basis with growth across all main business areas
- Core operating expenses1 tightly managed - up 5 per cent on organic constant currency basis, partly reflecting costs arising from amendments to OTC clearing arrangements
- Upgraded €60 million (£49 million) cost synergy target with LCH.Clearnet successfully achieved
- Adjusted operating profit1 up 8 per cent on organic constant currency basis to £558.0 million; adjusted profit before tax1 of £491.7 million, up 19 per cent (2013: £412.7 million)
- Adjusted basic EPS1 up 7 per cent at 103.3 pence (2013: 96.5 pence); basic EPS of 56.5 pence (2013: 64.2 pence)
- Group strongly positioned to develop further as a leading market infrastructure provider:
- Successful acquisition of Frank Russell Company creates, with FTSE, a global leader in indices – further extends the Group’s geographic and product range
- LCH.Clearnet to launch new, open access, portfolio margining service for all users to maximise margin efficiencies across listed and cleared OTC interest rate derivatives (IRD) portfolios, utilising the world’s largest IRD liquidity pool from SwapClear
- New licensing agreement signed with CBOE, to develop index options based on FTSE and Russell indices – to start trading in the US in April 2015
- Proposed final dividend of 12.8 pence per share, up 6.5 per cent on an equivalent basis; total dividend of 22.5 pence per share for the 9 month period, equivalent to 75 per cent of the payment that the Board would have made for a full year to March 2015
Statutory results for 9 month period to 31 December 2014
- Reported total income for 9 months to end December 2014 of £1,044.0 million; adjusted profit before tax1 of £368.2 million; and, adjusted basic EPS1 of 75.6 pence
1 before amortisation and impairment of purchased intangibles and goodwill, non-recurring items and excluding unrealised net investment gains/losses at LCH.Clearnet
Commenting on the period, Xavier Rolet, Chief Executive, London Stock Exchange Group said:
“The Group has delivered another strong financial performance, with organic growth in all business areas and contribution from acquisitions. We have extended our international footprint and further strengthened our Information Services offering with the acquisition of Russell Indexes. We are already making good progress with the integration of Russell and FTSE, creating a global leader in indices. At LCH.Clearnet, we have successfully achieved the increased cost synergy targets on time, with work underway on further efficiencies.
“Our focus in the year ahead is to further develop opportunities across the Group, from our increased product range and extended geographic reach. Two such initiatives have just been announced, with LCH.Clearnet launching new portfolio margining across listed and cleared OTC interest rate products; and an agreement on new index options based on Russell and FTSE indices with CBOE. Working with our customers, the Group is well positioned to build on its success as the only major, open access market infrastructure business.”
Summary financial Results
|
Twelve months ended
|
|
|||
|
2014 |
2013 |
Variance |
Organic and constant |
|
|
Restated |
||||
|
|
£m |
£m |
% |
% |
|
Revenue |
|
|
|
|
|
Capital Markets |
333.2 |
296.8 |
12% |
12% |
|
Post Trade Services - CC&G and Monte Titoli |
96.5 |
98.7 |
(2%) |
3% |
|
Post Trade Services - LCH.Clearnet 2 |
329.4 |
172.3 |
91% |
34% |
|
Information Services3 |
373.0 |
339.5 |
10% |
8% |
|
Technology Services |
66.0 |
62.2 |
6% |
11% |
|
Investment Management3 |
79.7 |
- |
- |
- |
|
Other revenue |
5.4 |
4.5 |
20% |
19% |
|
Total revenue |
1,283.2 |
974.0 |
32% |
12% |
|
Net treasury income through CCP business: |
|
|
||
|
CC&G |
32.6 |
59.2 |
(45%) |
(42%) |
|
LCH.Clearnet 2 |
60.0 |
48.1 |
25% |
(13%) |
|
Other income |
5.3 |
15.1 |
(65%) |
(65%) |
|
LCH.Clearnet unrealised loss |
(0.5) |
(2.9) |
||
|
Total income |
1,380.6 |
1,093.5 |
26% |
7% |
|
Adjusted total income excluding unrealised gain / (loss) |
1,381.1 |
1,096.4 |
26% |
7% |
|
Operating expenses 4 |
(823.2) |
(616.5) |
34% |
5% |
|
Share of profit of JVs and associates |
0.1 |
- |
- |
- |
|
Adjusted operating profit4 |
558.0 |
479.9 |
16% |
8% |
|
Amortisation of purchased intangibles and non-recurring items |
(211.5) |
(147.6) |
43% |
43% |
|
Operating profit |
346.0 |
329.4 |
5% |
13% |
|
Basic earnings per share (p) |
56.5 |
64.2 |
(12%) |
|
|
Adjusted basic earnings per share (p)4 |
103.3 |
96.5 |
7% |
|
|
|
||||
|
Dividend per share (p)5 |
22.5 |
28.4 |
6% |
|
1Organic growth is calculated in respect of businesses owned for at least 12 months in either period and so excludes EuroTLX, FTSE TMX, Bonds.com and Frank Russell Company with the exception of LCH.Clearnet. LCH.Clearnet organic and constant currency comparative includes the published revenues for the period from January to April 2014 prior to acquisition. The Group’s principal foreign exchange exposure arises from translating our European based euro reporting businesses into sterling.
2LCH.Clearnet 2013 represents eight months ended 31 December 2013
3Russell Index (included in Information Services) and Russell Investment Management, revenue from 3 December 2014
4before amortisation and impairment of purchased intangibles and goodwill, non-recurring items and excluding unrealised net investment gains/losses at LCH.Clearnet
5dividend paid for 9 months period, change on an equivalent basis
Unless otherwise stated, all figures refer to the 12 months ended 31 December 2014 and comparisons are against the same corresponding period in the previous year
Post period end
As announced on 5 February 2015, the Group has concluded the comprehensive review of the investment management business of Russell Investments (“Russell Investment Management”).
The comprehensive review focused principally on assessing the strategic fit of Russell Investment Management with the Group’s long term strategy. After careful consideration the conclusion of the comprehensive review is to explore a sale of this business in its entirety. LSEG has already received a number of expressions of interest in a potential acquisition of Russell Investment Management reflecting the high quality of its business and market leading positions.
Further information
The Group will host a presentation of its Preliminary Results for analysts and shareholders today at 10:00am (GMT) at 10 Paternoster Square, London EC4M 7LS. The presentation will be accessible via live webcast, which can be viewed at http://www.lseg.com/investor-relations or listened to on the numbers below:
Participant UK Dial-In Numbers: 0800 376 7922
Participant Std International Dial-In: +44 (0) 2071 928 000
Conference ID # 888 926 16
For further information, please call the Group’s Investor Relations team on +44 (0) 20 7797 3322.
CEO REVIEW
Overview
London Stock Exchange Group has enjoyed another successful year. The completion of the acquisition of Frank Russell Company significantly enhances our international presence, particularly in North America, the world’s largest financial services market. The combination of FTSE with Russell Indexes creates a truly global index provider, and presents exciting new opportunities for our organisation. We have also made good progress on the integration of LCH.Clearnet into the Group while continuing to grow organically through our existing businesses around the world.
One of the Group’s principal objectives is to provide access to capital for UK and international companies, giving them access to one of the world’s largest and deepest pools of liquidity. In 2014, we were delighted to welcome 219 new firms, both large and small, to our markets in London and Italy making it our busiest year for IPOs since 2007. The Group has also expanded its pioneering ELITE programme, designed to support SME. Already home to over 200 Italian and UK companies, it is helping to fast-track the development and capital raising process for some of the best and brightest of Europe’s high growth private companies and the programme is now being rolled out across Europe. All the right ingredients in Europe’s economy exist to generate notable and sustainable economic growth, including a strong entrepreneurial culture, and our innovative programme offers these companies access to advisors, investment and education, ingredients vital for their continued development.
Our unwavering commitment to operating an open-access model remains a key differentiator on the global stage and leaves LSEG well positioned to capitalise on future opportunities, promoting safer and more efficient markets.
Building best in class capabilities
Innovation and partnership are core values for the Group and we have continued to develop our offering across equities, fixed income and derivatives. IDEM, our Italian derivatives market, saw a 20 per cent increase in volumes and extended the range of products to include weekly single stock options. The derivatives market in London received regulatory approval to offer stock, depositary receipt and index options to US investors, while in equities London Stock Exchange confirmed plans to introduce a new intra-day midday auction. The move, which is in direct response to demand from customers, will encourage larger, institutional and smaller retail size trading to take place in a lit, price-forming venue.
Turquoise, the Group’s pan-European trading platform saw its average daily value traded rise by 42 per cent. Its new Turquoise Block Discovery tool was designed to enhance opportunities for block trading and went live with the support of several major brokers for block trading in October.
In fixed income, MTS saw the value traded on its cash markets increase by 32 per cent while the exchange traded product team welcomed the 150th fixed income ETF to London’s markets and it continued to consolidate its market leading position in European ETF daily trading volumes.
In our post trade businesses, both LCH.Clearnet and CC&G received approval for reauthorisation under EMIR. Risk management is a key contributor to stable financial markets and the Group’s central counterparties (CCPs) helped their members and customers efficiently manage their risk positions across a range of assets, many of which are now required to be centrally cleared. Regulation and policy debate has put a renewed focus on CCPs and under Suneel Bakhshi’s leadership LCH.Clearnet has remained at the forefront of the debate on risk management recovery and resolution. LCH.Clearnet and CC&G continue to contribute to the work underway at a national, EU and international level to improve the transparency of CCPs’ risk management policies and procedures in order to further strengthen their resilience.
Creating a global business
Diversification remains a cornerstone of our Group strategy and we have again made good progress this year in this respect. LCH.Clearnet’s position as a leading global multi-asset clearing provider was reinforced during the year. Record volumes were processed through SwapClear, with $642 trillion of notional cleared in 2014. More significantly, the expansion of its innovative compression services contributed to a reduced level of notional outstanding at SwapClear, from $426 trillion at the start of 2014 to $362 trillion at the end of the year, a milestone in the efficient management of risk. In FX, ForexClear expanded the number of currencies cleared and signed new members to the service.
globeSettle, the Group’s CSD, based in Luxembourg, signed agreements with three CCPs to offer collateral location services in addition to the provision of settlement, custody and asset servicing for J.P. Morgan’s international collateral management business.
The trend towards increased passive investing has been a key contributor to FTSE’s global growth over the past few years. FTSE continued to respond to investor demand for innovative, tailored solutions, launching a range of new products throughout the year including factor-based indices, a new frontier index and taking further steps to allow investors to prepare for China’s eventual inclusion in global indices. FTSE also expanded its fixed income offering winning contracts in Australia and Latin America.
MillenniumIT remained at the forefront of LSEG’s commitment to building global partnerships and saw with a number of notable contract wins including an agreement with Casablanca Stock Exchange and Aequitas, a new Canadian exchange platform. London Stock Exchange signed capital markets agreements with The Nigerian Stock Exchange to facilitate companies’ dual listings in London and Lagos and, in October, the Moroccan Central Securities Depository signed a number of cooperation agreements with LSEG. GATElab, our multi-asset electronic trading systems provider, was named as accredited software vendor by Moscow Exchange.
Developing opportunities
Our customers remain at the centre of all that we do. We continue to seek ways in which to work together and develop strategic partnerships to help them respond efficiently to the implementation of regulatory change and the evolving industry landscape. A good example of this is through UnaVista, which signed an innovative partnership with Wipro. The agreement combines Wipro’s expertise in consultancy and operations with UnaVista’s flexible and scalable software providing solutions that will help financial firms access a hosted environment for end-to-end reconciliation services.
Monte Titoli also remains on track to become the largest CSD operator in the first wave of T2S, which will be introduced across Europe in 2015, enabling us to deliver pan-European settlement services for an increasingly global customer base.
To ensure that we continue to capitalise on the number of opportunities across the Group, we have strengthened the senior management team with key appointments to the Executive Committee. Nikhil Rathi has joined as Head of International Development and Chief of Staff, and Serge Harry was appointed LSEG Country Head for France, Benelux and Germany, as well as Chairman of globeSettle. Finally, we were also pleased to welcome Len Brennan, CEO of Russell Investments, to the Executive Committee in December 2014, following the completion of the acquisition of Frank Russell Company.
Outlook
The Group’s transformation has continued throughout 2014. We are an international business with a broad suite of markets, products and services focused on meeting the needs and aspirations of our global customers. Our revenues and our profitability reflect this ongoing diversification. Following the acquisition of Frank Russell Company, approximately a third of the Group’s revenues, for example, will now come from the US, a key growth market for us in the coming years. Colleagues across the Group continue to impress with their enthusiasm and commitment to deliver on our stated strategic objectives around capital formation, risk management and intellectual property. Our focus in the year ahead is to further develop the opportunities across the Group. I am confident that we will build on the strong foundations achieved throughout the past year.
Financial review
The Group has changed its financial year end to 31 December. As a consequence, this report shows audited results for the 9 months to 31 December 2014. To provide further insight, we also show information on a calendar 12 month basis (unaudited), with commentary and analysis in comparison with the equivalent 12 months ended 31 December 2013.
Key:
FY2014 is the financial year from 1st April 2013 to 31st March 2014 (audited);
CY2013 is the calendar year from 1st January to 31st December 2013 (unaudited);
CY2014 is the calendar year from 1st January to 31st December 2014 (unaudited);
All percentage variances used for income analysis quoted are on an organic and constant currency basis
|
|
|
9 months ended |
12 months ended |
|
Revenue |
|
£m |
£m |
|
Capital Markets |
|
249.1 |
309.5 |
|
Post Trade Services - CC&G and Monte Titoli |
71.5 |
98.4 |
|
|
Post Trade Services - LCH.Clearnet¹ |
238.7 |
263.0 |
|
|
Information Services including Frank Russell Indexes |
281.0 |
348.7 |
|
|
Technology Services |
47.3 |
64.0 |
|
|
Investment management |
79.7 |
- |
|
|
Other |
|
4.1 |
4.7 |
|
Total revenue |
|
971.4 |
1,088.3 |
|
Net Treasury Income |
|
|
|
|
- CC&G |
|
23.2 |
47.6 |
|
- LCH.Clearnet1 |
|
45.9 |
62.2 |
|
Other income |
|
3.5 |
11.5 |
|
Total income |
|
1,044.0 |
1,209.6 |
|
Adjusted total income excluding unrealised gains/(losses)² |
1,043.9 |
1,213.1 |
|
|
Operating expenses² |
(626.5) |
(698.4) |
|
|
Share of profit after tax of associates |
0.1 |
- |
|
|
Adjusted operating profit² |
417.5 |
514.7 |
|
|
Operating profit |
242.1 |
353.1 |
|
|
Adjusted basic earnings per share² |
75.6p |
98.6p |
|
|
Basic earnings per share |
37.9p |
63.0p |
|
1 LCH.Clearnet results consolidated from acquisition in May 2013.
2 Before amortisation and impairment of purchased intangibles and goodwill, non-recurring items and unrealised net investment gains/losses at LCH.Clearnet, which is taken through other income (£0.1m gain in the 9 months to Dec 2014; £3.5m loss in FY2014; £0.5m loss in CY2014; £2.9m loss in CY2013).
Capital Markets
|
|
|
9 months ended Dec 2014 |
12 months ended Mar 2014 |
|
Revenue |
|
£m |
£m |
|
Primary Markets |
|
|
|
|
Annual Fees |
33.6 |
41.2 |
|
|
Admission Fees |
34.6 |
39.9 |
|
|
Total Primary Markets |
68.2 |
81.1 |
|
|
Secondary Markets |
|
|
|
|
Cash equities: UK & Turquoise |
74.9 |
94.5 |
|
|
Cash equities: Italy |
28.0 |
36.1 |
|
|
Derivatives |
14.9 |
19.6 |
|
|
Fixed income |
56.3 |
68.1 |
|
|
Total Secondary Markets |
174.1 |
218.3 |
|
|
Other |
6.8 |
10.1 |
|
|
Total revenue |
249.1 |
309.5 |
|
|
Operating expenses |
(123.9) |
(164.8) |
|
|
Operating profit |
125.2 |
144.7 |
|
|
|
12 months ended Dec 2014 (unaudited) |
12 months ended Dec 2013 (unaudited) |
Variance |
Variance at organic and constant currency |
|
Revenue |
£m |
£m |
% |
% |
|
Primary Markets |
|
|
|
|
|
Annual Fees |
44.2 |
40.2 |
10 |
11 |
|
Admission Fees |
44.6 |
37.2 |
20 |
17 |
|
Total Primary Markets |
88.8 |
77.4 |
15 |
14 |
|
Secondary Markets |
|
|
||
|
Cash equities: UK & Turquoise |
101.2 |
91.4 |
11 |
11 |
|
Cash equities: Italy |
38.0 |
35.6 |
7 |
12 |
|
Derivatives |
20.0 |
19.5 |
3 |
8 |
|
Fixed income |
75.9 |
63.2 |
20 |
12 |
|
Total Secondary Markets |
235.1 |
209.7 |
12 |
11 |
|
Other |
9.3 |
9.7 |
(4) |
- |
|
Total revenue |
333.2 |
296.8 |
12 |
12 |
|
Operating expenses |
(170.4) |
(163.8) |
4 |
(1) |
|
Operating profit |
162.8 |
133.0 |
22 |
27 |
Capital Markets 9 month revenue, which comprises primary and secondary market activities, was £249.1 million (FY2014: £309.5 million).
On a twelve month calendar year comparative basis:
Capital Markets revenues increased by 12 per cent from £296.8 million to £333.2 million. Following the highest IPO activity seen in the last seven years, Primary Markets revenue was up 14 per cent. Higher equity and fixed income trading volumes resulted in an increase of 11 per cent in Secondary Markets.
In primary markets, the total amount of capital raised across our equity markets, both through new and further issues, increased to £42.6 billion (CY2013:£30.4 billion), an increase of 41 per cent. This reflected a strong year in equity issuance for both domestic and international companies across our markets. In total there were 75 new issuances to our UK main market (CY2013:51), 26 in Italy (CY2013:18) and 118 to AIM (CY2013:100). Looking ahead, the pipeline of companies looking to join our markets in the early part of the year remains encouraging.
In secondary markets, Italian equity trading activity increased on last year with average daily order book volume in Italy up 16 per cent to 264,000 trades per day (CY2013:227,000). In the UK, average order book daily value traded was up 15 per cent to £4.6 billion (CY2013:£4.0 billion). Trading on Turquoise, our pan-European equities platform, delivered a 42 per cent rise in average daily equity value traded to €3.7 billion (CY2013:€2.6 billion). Derivatives revenues were broadly flat as a drop in Russian contracts, as a result of political and economic uncertainty, was offset by an increase in Italian derivative trading.
Fixed income revenue rose by 12 per cent. MOT volumes were down 18 per cent, while MTS grew strongly with MTS Repo volumes up 3 per cent and MTS Cash and BondVision value traded up 32 per cent. Other capital markets revenues of £9.3 million (CY2013:£9.7 million) primarily comprise fees, for membership of and connectivity to, our markets.
Operating expenses were up 4 per cent to £170.4 million (CY2013:£163.8 million) in line with increasing revenue and operating profit was up 22 per cent to £162.8 million (CY2013:£133.0 million).
Post Trade Services – CC&G and Monte Titoli
|
|
9 months ended Dec 2014 |
12 months ended Mar 2014 |
|
Revenue |
£m |
£m |
|
Clearing (CC&G) |
27.8 |
40.0 |
|
Settlement (Monte Titoli) |
13.0 |
16.4 |
|
Custody & other |
30.7 |
42.0 |
|
Total revenue |
71.5 |
98.4 |
|
Net treasury income |
23.2 |
47.6 |
|
Inter-segmental income |
0.9 |
0.9 |
|
Total income |
95.6 |
146.9 |
|
Operating expenses |
(48.5) |
(63.4) |
|
Operating profit |
47.1 |
83.5 |
|
|
12 months ended Dec 2014 (unaudited) |
12 months ended Dec 2013 (unaudited) |
Variance |
Variance at organic and constant currency |
|
Revenue |
£m |
£m |
% |
% |
|
|
|
|
|
|
|
Clearing (CC&G) |
38.2 |
39.9 |
(4) |
1 |
|
Settlement (Monte Titoli) |
17.4 |
16.7 |
4 |
9 |
|
Custody & other |
40.9 |
42.1 |
(3) |
2 |
|
Total revenue |
96.5 |
98.7 |
(2) |
3 |
|
Net treasury income |
32.6 |
59.2 |
(45) |
(42) |
|
Inter-segmental income |
1.1 |
0.5 |
114 |
86 |
|
Total income |
130.2 |
158.4 |
(18) |
(14) |
|
Operating expenses |
(67.3) |
(58.9) |
14 |
16 |
|
Operating profit |
62.9 |
99.5 |
(37) |
(32) |
Post Trade Services 9 month income, which comprises of clearing (CC&G), settlement and custody (both Monte Titoli) activities, was £95.6 million (FY2014: £146.9 million).
On a twelve month calendar year comparative basis:
Clearing revenues were flat. Settlement revenues increased by 9 per cent with Monte Titoli processing 64.8 million settlement instructions, up 14 per cent on the previous year.
In the Monte Titoli CSD business, revenues increased by 2%, in line with the increase in the average value of assets under custody.
CC&G generates net treasury income by investing the cash margin it holds, retaining any surplus after members are paid a return on their cash collateral contributions. The average daily initial margin fell 15 per cent to €9.9 billion for the period (CY2013:€11.6 billion). CC&G completed the move to a minimum 95 per cent secured investment level for cash margin, required to meet EMIR regulatory standards in September 2013, with a subsequent reduction in yields. Net treasury income, as a result of these changes and lower yields in Europe, decreased by £26.6 million to £32.6 million (CY2013:£59.2 million).
Operating expenses were up 14 per cent to £67.3 million mainly due to increased spend on globeSettle and Target2Securities projects, and combined with the decline in net treasury income, resulted in a 37 per cent decrease in operating profit to £62.9 million (CY2013:£99.5 million).
Post Trade Services – LCH.Clearnet
|
|
9 months ended Dec 2014 |
11 months ended Mar 2014 |
|
Revenue |
£m |
£m |
|
OTC |
105.1 |
109.6 |
|
Non-OTC |
115.2 |
146.3 |
|
Other |
18.4 |
7.1 |
|
Total revenue |
238.7 |
263.0 |
|
Net treasury income |
45.9 |
62.2 |
|
Other income |
0.1 |
(3.5) |
|
Total income |
284.7 |
321.7 |
|
Operating expenses |
(203.3) |
(240.6) |
|
Operating profit |
81.4 |
81.1 |
|
|
12 months ended Dec 2014 (unaudited) |
8 months ended Dec 2013 (unaudited) |
Variance |
Variance at organic and constant currency1 |
|
Revenue |
£m |
£m |
% |
% |
|
OTC |
138.2 |
76.4 |
81 |
34 |
|
Non-OTC |
159.8 |
101.8 |
57 |
8 |
|
Other |
31.4 |
(5.9) |
- |
- |
|
Total revenue |
329.4 |
172.3 |
91 |
34 |
|
Net treasury income |
60.0 |
48.1 |
25 |
(13) |
|
Other income |
(0.5) |
(2.9) |
- |
- |
|
Total income |
388.9 |
217.5 |
79 |
24 |
|
Operating expenses |
(275.0) |
(168.3) |
63 |
50 |
|
Operating profit |
113.9 |
49.2 |
132 |
156 |
1 LCH organic and constant currency comparison include the published revenues for the period from January to April 2013 prior to acquisition
Post Trade Services – LCH.Clearnet segment comprises the Group’s majority owned global clearing business. Total 9 month income was £284.7 million (FY2014:£321.7 million).
On a twelve month calendar year comparative basis:
In April 2014, the SwapClear, ForexClear and CDSClear services’ arrangements were amended (with effect from 1 January 2014) to ensure they met EMIR and other regulatory requirements for clearing houses, as well as recognising the changing economics and increased regulatory capital for running OTC derivatives clearing services. The surplus share arrangements in the SwapClear and ForexClear services have been replaced with revenue share arrangements resulting in an increase in other revenues but offset by higher expenses.
OTC revenues of £138.2 million grew by 34 per cent with strong growth in both SwapClear and CDSClear. SwapClear revenues were primarily driven by the removal of the surplus share arrangement and an increase in total member numbers to 114 (CY2013:103) and higher client clearing. CDSClear revenue increases were primarily driven by fee changes.
Non-OTC revenue was up to £159.8 million. Fixed income and commodities revenues grew by 42 and 45 per cent respectively offsetting a fall in Derivatives of 24 per cent as a result of the termination of LIFFE’s contract. Metals revenues (within commodities) were for the 9 months to the end of September 2014 when the LME contract ceased. Fixed Income revenues were primarily driven by a change in fee structure resulting in increasing clearing fees but offset by lower spreads impacting net treasury income.
Net treasury income is earned by investing the cash margin held, retaining any surplus after members are paid a return on their cash collateral contributions. This income of £60.0 million was 13% down primarily as a result of the change in fee structure in fixed income. LCH.Clearnet investments remained at over 95 per cent secured throughout the period
In May 2014, the cost synergies from the acquisition were increased from €23 million to €60 million, and were to be delivered a year early. By the end of 2014, the run-rate target of €60 million has been achieved with most of the savings occurring within LCH.
Information Services
|
|
9 months ended Dec 2014 |
12 months ended Mar 2014 |
|
Revenue |
£m |
£m |
|
FTSE revenues |
140.7 |
174.0 |
|
Russell Indexes |
10.0 |
0.0 |
|
Real Time Data |
61.0 |
90.8 |
|
Other information services |
69.3 |
83.9 |
|
Total revenue |
281.0 |
348.7 |
|
Operating expenses |
(135.9) |
(179.0) |
|
Operating profit |
145.1 |
169.7 |
|
|
12 months ended Dec 2014 (unaudited) |
12 months ended Dec 2013 (unaudited) |
Variance |
Variance at organic and constant currency |
|
Revenue |
£m |
£m |
% |
% |
|
FTSE revenues |
186.8 |
164.5 |
14 |
14 |
|
Russell Indexes |
10.0 |
0.0 |
- |
- |
|
Real time data |
84.3 |
94.4 |
(11) |
(9) |
|
Other information services |
91.9 |
80.6 |
14 |
16 |
|
Total revenue |
373.0 |
339.5 |
10 |
8 |
|
Operating expenses |
(182.9) |
(178.1) |
3 |
(1) |
|
Operating profit |
190.1 |
161.4 |
18 |
16 |
Information Services provides fast, reliable market information including global indices products, trade processing operations, desktop and workflow products. Information Services 9 month revenue was £281.0 million (FY14: £348.7 million).
On a twelve month calendar year comparative basis:
FTSE’s revenue increased 14 per cent to £186.8 million (CY2013:£164.5 million). The three year aggregate target of £28 million set for FTSE global revenue and cost synergies has been achieved.
Real time data revenue declined 9 per cent year on year in line with continued headcount reductions and general cost cutting in the sector.
Russell Indexes contributed £10 million in revenues since acquisition date.
Other Information Services revenues rose 16 per cent to £91.9m, driven by the continued strong growth of both UnaVista and SEDOL.
Operating expenses of £182.9 million (CY2013:£178.1 million) are up 3 per cent reflecting increased cost of sales, up 16 per cent due to strong revenue growth. Operating profit rose 18 per cent to £190.1 million (CY2013:£161.4 million).
Technology Services
|
|
9 months ended Dec 2014 |
12 months ended Mar 2014 |
|
Revenue |
£m |
£m |
|
Millennium IT |
19.6 |
31.5 |
|
Technology |
27.7 |
32.5 |
|
Total revenue |
47.3 |
64.0 |
|
Inter-segmental revenue |
7.1 |
10.9 |
|
Total income |
54.4 |
74.9 |
|
Operating expenses |
(49.8) |
(63.1) |
|
Operating profit |
4.6 |
11.8 |
|
|
12 months ended Dec 2014 (unaudited) |
12 months ended Dec 2013 (unaudited) |
Variance |
Variance at organic and constant currency |
|
Revenue |
£m |
£m |
% |
% |
|
Millennium IT |
29.7 |
29.3 |
1 |
8 |
|
Technology |
36.3 |
32.9 |
10 |
13 |
|
Total revenue |
66.0 |
62.2 |
6 |
11 |
|
Inter-segmental revenue |
10.1 |
16.5 |
(39) |
(35) |
|
Total income |
76.1 |
78.7 |
(3) |
1 |
|
Operating expenses |
(64.1) |
(57.3) |
12 |
53 |
|
Operating profit |
12.0 |
21.4 |
(44) |
(66) |
Technology Services comprises technology connections and data centre services, along with the MillenniumIT business, based in Sri Lanka, which provides technology and enterprise services for the Group and third parties. Revenues for Technology Services for the 9 months were £47.3 million (FY2014: £64.0 million).
On a twelve month calendar year comparative basis:
MillenniumIT third party revenue increased to £29.7 million (CY2013:£29.3 million) mostly relating to growth in software operations. The business continued to perform well building new relationships with Casablanca Exchange, Argentina and Aeqitas Innovations Inc. amongst others.
Revenue from other technology services grew by 13 per cent to £36.3 million (CY2013:£32.9 million) with good growth in the co-location hosting area.
Operating expenses were up 12 per cent to £64.1 million (CY2013:£57.3 million) and operating profit was down 44 per cent to £12.0 million (CY2013:£21.4 million).
Operating Expenses
Group 9 month operating expenses before amortisation and impairment of purchased intangibles and goodwill and non-recurring items were £626.5 million (FY2013:£698.4 million).
On a twelve month calendar year comparative basis:
Operating expenses before non-recurring and amortisation and impairment of purchased intangibles and goodwill were £823.2 million (CY2013:£616.5 million), the increase mainly reflecting the inclusion of £91.3 million of costs relating to an extra 4 months of LCH.Clearnet, £74.5 million from one month of Frank Russell company costs and £11.4 million from other acquired businesses (FTSE TMX, EuroTLX and Bonds.com).
Operating expenses were 5 per cent higher on an organic basis after removing currency variances of £4.1 million. Organic growth, including inflation, of £33.6 million included the impact of several one-off items and the amendment of OTC services’ arrangements in LCH.Clearnet resulting in higher expenses (offset by higher revenues).
Non-Recurring Items
Non-recurring items include an impairment of £21.8 million relating to licenses recognised on the acquisition of the LCH.Clearnet Group, £54.6 million in transaction costs primarily relating to the acquisition of Frank Russell Company and £11.6 million of integration costs.
Impact of Frank Russell Company
Following the acquisition of Frank Russell Company on 2 December 2014, £15.3 million adjusted operating profit has been consolidated into the Group. The Index business generated gross income of £10.0 million with a further £79.7 million from the Investment Management and other business. Total ETF assets under management benchmarked to Russell Indexes as at the end of December 2014 was $153 billion, with assets under management of $273 billion for the Investment Management business. On 5 February 2015, LSEG announced it was exploring the sale of the Russell Investment Management business.
Finance income and expense and taxation
On a twelve month basis net finance costs were £68.1 million, up £0.9 million on the prior year including £1.8 million of arrangement fees paid for £600 million of new, committed credit facilities arranged to underpin the financing of Frank Russell Company.
The Group’s effective tax rate on profit before amortisation of purchased intangibles and non-recurring items was 25.6 per cent, lower than the last period (March 2014: 28.2 per cent). This reflects the on-going reduction in the UK statutory corporation tax rate to 21 per cent (March 2014: 23 per cent) and the reversal of the temporary increase in Italian corporate tax of 8.5 per cent. This is offset by the consolidation of Frank Russell Company effective 2 December 2014 which is taxed predominantly in the US where profits are subject to minimum combined federal tax and state tax rates of 35 per cent.
Cash flow and balance sheet
The Group’s business continued to be strongly cash generative during the period, with cash generated from operations of £413.4 million. Total investment in the period, net of dividends received, was £1,456.3 million principally due to the Group investing in the acquisitions of Frank Russell Company and Bonds.com and £59.2 million of capital expenditure offset by acquired cash from acquisitions of £290.8 million.
At 31 December 2014, the Group had net assets of £2,955.3 million (FY2014: £2,003.0 million), the increase in the period reflecting an equity base bolstered by the Rights Issue successfully undertaken in September 2014. Intangible assets increased by £1,822.3 million, mainly reflecting goodwill and purchased intangibles recognised from the purchase of Frank Russell Company. The central counterparty clearing business assets and liabilities within LCH.Clearnet 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, Facilities and Credit Ratings
At 31 December 2014, the Group had operating net debt of £1,587.4 million after adjusting for £1,011.3 million of cash and cash equivalents held to support regulatory and operational requirements, including cash and cash equivalents set aside by Frank Russell Company mainly to support its investment management activities and all cash and cash equivalents at LCH.Clearnet Group together with a further £200 million covering requirements at other LSEG companies.
The Group’s gross borrowings increased by £502.7 million during the 9 months to 31 December 2014 reflecting the financing of the acquisitions of Frank Russell Company and Bonds.com which extend the Group’s North American footprint.
In June 2014, the Group signed a new £600 million unsecured, revolving bank facility package, on improved terms, to provide additional debt headroom ahead of the Frank Russell Company acquisition and financial flexibility for the medium term. The new facility is committed for up to 3 years providing the Group with a degree of optionality over the shorter end of its debt maturity profile. At 31 December 2014, the Group had debt and drawn committed credit lines totalling £1,726.4 million, with maturities extending from July 2016 out to 2021. With over £500 million of undrawn bank lines currently available, together with continuing strong cash generation, the Group also remains well positioned to fund future growth.
The Group’s interest cover (the coverage of net finance expense by earnings before interest, taxation, depreciation and amortisation, both before non-recurring items) increased to 9.4 times (March 2014: 8.6 times) due to a favourable change in the mix of net finance costs during the 9 months to 31 December 2014 covered by improving EBITDA. Whilst the Group’s organic cash generation remained strong, leverage had increased by the second half of the year following the partially debt funded acquisition of Frank Russell Company. Net adjusted leverage peaked below 2.4 times in early December 2014 with debt levels controlled through a successful Rights Issue which had raised over £960 million, before associated costs, two months earlier. As at 31 December 2014, operating net debt to adjusted EBITDA was 2.1 times (March 2014: 1.9 times) with the position expected to remain above Group’s target range for leverage of one to two times for a temporary period.
The Group’s long term credit ratings remained a point of focus during the 9 months to 31 December 2014. Standard & Poor’s resolved its credit watch linked to the Group’s de-leveraging progress following the LCH.Clearnet majority acquisition in 2013 by affirming its A- long term rating of LSEG and re-affirmed the rating again following the acquisition of Frank Russell Company later in 2014. However, as part of its work on LSEG, Standard & Poor’s also concluded its “rating above the sovereign” assessment of the Group, which focused on a stress to our Italian operations , (deemed a material contributor to the Group’s consolidated revenues), and concluded that, for the first time, a direct link to the rating of Italy should be established. Standard & Poor’s downgraded Italy to BBB- in December 2014 and, therefore, LSEG’s rating followed with a one notch downgrade to BBB+. Standard & Poor’s simultaneously affirmed LCH.Clearnet’s rating at A+ with a stable outlook. Moody’s continues to rate LSEG at Baa2 and both Moody’s and Standard & Poor’s had assigned a negative outlook against their respective ratings as at 31 December 2014 pending progress on deleveraging following the implementation of the comprehensive review of the Frank Russell Company investment management business.
Foreign Exchange
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 the 31 December 2014, the principal exposure for the Group remained its European based euro reporting businesses. A €10c movement in the average £/€ rate for the year would have changed the Group’s operating profit for the year before amortisation of purchased intangibles and non-recurring items by approximately £26 million.
Our two recent US based acquisitions will re-balance the Group’s operational currency mix, increasing the US dollar contribution to earnings and diversifying our FX exposure. The Group manages its translation risk exposure by matching the currency of its debt (including debt effectively swapped from sterling into currency) to the currency of its earnings, where possible, to ensure its key financial metrics are protected from material foreign exchange rate volatility. The debt funded element of the acquisition of the Frank Russell Company was US dollar denominated, appropriately sized to broadly balance against the Group’s projected US dollar earnings component.
Earnings per Share
The Group recorded adjusted basic earnings per share, which excludes amortisation and impairment of purchased intangible assets and goodwill, non-recurring items and unrealisable gains/losses on investments, of 75.6 pence. On a twelve month comparative basis adjusted basic earning per share was 103.3 pence, a rise of 7 per cent. Basic earning per share were 37.9 pence. On a twelve month calendar year comparative basis basic earnings per share decreased by 12 per cent to 56.5 pence (CY2013:64.2 pence) as a result of increased amortisation, transaction costs, interest payments following the acquisition of Frank Russell Company and impairments to licenses relating to the LCH.Clearnet acquisition.
Dividend
The Board is proposing a final dividend of 12.5 pence per share, an increase of 6.5 per cent on an equivalent basis. This results in a total dividend of 22.5 pence per share for the 9 month period, equivalent to 75 per cent of the dividend that would have been paid for a full 12 month period. The final dividend will be paid on 2 June 2015, to shareholders on the register as at 8 May 2015.
The Group remains committed to a progressive dividend policy, paying sustainable interim and final dividends split approximately on a one-third/two-thirds basis respectively.
