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LSEG Annual Report 31 December 2015

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DISCLAIMER This PDF is an exact copy of the Annual Report and Accounts of London Stock Exchange Group plc as provided to shareholders. The audit report is set out on page 92.

The maintenance and integrity of the London Stock Exchange Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

A global markets infrastructure business

Annual Report

31 December 2015

London Stock Exchange Group plc Annual Report December 2015

Who we are

London Stock Exchange Group is a global markets infrastructure business. We provide valuable services for a wide range of customers, focusing on Capital Formation, Risk and Balance Sheet Management and Intellectual Property.

The Group plays a vital economic and social role in enabling companies to access funds for growth and development.

Further information on London Stock Exchange Group

can be found at: www.lseg.com.

London Stock Exchange Group plc 10 Paternoster Square London EC4M 7LS Telephone: +44 (0)20 7797 1000

Registered in England and Wales No. 5369106

Contents

STRATEGIC REPORT

Highlights

24

Chairman’s statement Chief Executive’s statement Overview of Group activities What we do

An overview of our business, statements from our Chairman and our Chief Executive, the markets and regulatory environment in which we operate, and strategy. More detail on each of our divisions, our performance, how we consider our wider responsibilities and the principal risks that could affect our business.

68
10 11 12 16 18 20 22 26 28 31 34 36 38 44 46

Our business model Market trends and our response Strategy in action Executive management team Introduction to segmental review Capital Markets

Sign-off for the Strategic Report is provided in the Directors’ Report on page 88.

Post Trade Services – CC&G and Monte Titoli Post Trade Services – LCH.Clearnet Information Services Technology Services Our wider responsibility Financial review Risk management oversight Principal risks and uncertainties

GOVERNANCE

Board of Directors

54 57 61 62 64 68 70 88 91

Corporate governance

An introduction to our Board of Directors, our approach to corporate governance, the reports of committees to the Board and how we reward performance, along with other statutory and regulatory information.

Report of the Nomination Committee Complying with the provisions of the Code Report of the Audit Committee Report of the Risk Committee Directors’ Remuneration Report Directors’ Report Statement of Directors’ responsibilities Independent Auditor’s Report to the members of London Stock Exchange Group plc

92 98

GROUP FINANCIAL STATEMENTS

Detailed financial information setting out our performance for the reported 12 month period and financial position at year end.

Consolidated income statement Consolidated statement of comprehensive income Balance sheets Cash flow statements Statements of changes in equity Notes to the financial statements

99
100 101 102 103

SHAREHOLDER INFORMATION

A glossary of terms used in this report and other information for shareholders.

Glossary

150 152 154 155

Overview of regulatory landscape Financial calendar Investor Relations

1

London Stock Exchange Group plc Annual Report December 2015

Highlights

  • During 2014, the Group changed its financial year end to
  • All figures in the 6 graphs below are for 12 month periods to

31 December. As a consequence, this report shows audited results either end of March or end of December (unless otherwise stated) for 12 months to 31 December 2015, and the comparative for the 9 months to 31 December 2014. To provide further insight, we also show comparative information on a calendar 12 month basis to 31 December 2014 (unaudited). and include continuing and discontinuing operations.

Total income*

£ m

Adjusted operating profit*

£ m

709.6

2,381.5

558.0
514.7
441.9
430.2

1,381.1
1,213.1

852.9
814.8

Mar 2012
Mar 2013
Mar 2014
Dec

Dec

Mar 2012
Mar 2013
Mar 2014
Dec

Dec

2014 2015

2014 2015

Operating profit*

£ m

Adjusted earnings per share (pence)*

129.4

499.9

103.3
98.6
97.0
92.6

358.5
353.1

Mar

  • 348.4
  • 346.0

Mar 2012
Mar 2013 2014
Dec 2014

Dec

Mar 2012
Mar 2013
Mar 2014
Dec 2014

Dec

2015

2015

Basic earnings per share (pence)*

Dividends per share (pence)*

36.0

193.6

28.4
27.2
26.1

22.5

94.6 Dec

80.4
63.0
56.5

  • Dec
  • Mar

2012

  • Mar
  • Mar

2014

Mar 2012
Mar 2013

Mar 9m Dec 12m Dec

2013

2014 2015

  • 2014
  • 2014

2015

12 months Dec 2014
12 months Dec Total Variance

%

12 months Dec 2015
9 months Dec 2014

Year ended 31 December

Total income Adjusted operating profit* Operating profit Adjusted profit before tax* Profit before tax Adjusted basic earnings per share* Basic earnings per share

  • Continuing
  • Discontinued

£962.9m £124.9m
£95.5m
£127.0m
£97.6m
26.0p

Total

£2,381.5m
£709.6m £499.9m £643.4m £433.7m
129.4p

(unaudited)

£1,418.6m
£584.7m £404.4m £516.4m £336.1m
103.4p
£1,043.9m
£417.5m £242.1m £368.2m £191.0m
75.6p
£1,381.1m
£558.0m £346.0m £491.7m £277.9m
103.3p
72% 27% 44% 31% 56% 25%

  • 67%
  • 74.8p
  • 19.8p

94.6p

  • 37.9p
  • 56.5p

* 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. From 2014, the Group changed its financial year end to 31 December. As a consequence, the above table shows comparison to the statutory results for the 9 months to 31 December 2014 and, to provide further insight, comparative information for a full calendar year 2014 (unaudited). Adjusted operating profit, adjusted profit before tax and adjusted earnings per share all exclude amortisation and impairment of purchased intangibles and goodwill and non-recurring items.

2

Strategic Report Highlights

The Group is executing on its strategy, building best in class capabilities, driving global growth and developing opportunities with our customers. A few examples of the progress being made are highlighted below:

Group Total Continuing Income by segment*

£ m

12 months to 31 Dec 2015

Capital Markets

– Revenues for the year increased by 3% on an organic constant currency basis, down 1% in Sterling terms to £330.3 million (2014: £333.2 million)

1. Capital Markets 2. Post Trade Services

CC&G and Monte Titoli

3. Post Trade Services

LCH.Clearnet
4. Information Services

5. Technology Services 6. Other
330.3 119.1

– Primary Markets saw 176 new companies choosing to list on our markets, with total money raised across our equity markets down 2% to £41.7 billion

360.7 517.4
80.6 10.5
1,418.6

– In Secondary Markets, UK cash equity average daily value traded increased by 7%, average daily number of trades in Italy increased by 6% and average daily value traded on Turquoise increased by 16%

– Volumes on IDEM, the Group’s Italian derivatives market, increased by 14% – In Fixed Income, MTS cash and BondVision value traded declined by 2%, while MTS Repo increased by 19%

Information Services

– Revenues for the year increased by 42% to £517.4 million (2014:
– CurveGlobal, a joint venture with major dealer banks and CBOE, trading interest

rate futures to go live in 2016
£363.7 million), with first full year contribution from Russell Indexes and good growth from UnaVista and SEDOL. On an organic constant currency basis revenues increased by 5%

Post Trade Services – CC&G and Monte Titoli

– Income for the year increased by 3% on a constant currency basis, in Sterling terms income declined by 8% to £119.1 million
– FTSE Russell launched as a single global brand with integrated client facing teams

  • – CC&G cleared 120.1 million contracts, up 10%
  • – FTSE Russell signed licensing agreements with US derivatives exchanges

CME and CBOE
– Average initial margin held increased by 24% to €12.3 billion

– Real time data revenues declined by 2% on lower UK user numbers

– Continuing strong growth from UnaVista and SEDOL
– Monte Titoli was the largest CSD to participate in the initial wave of T2S

  • Post Trade Services – LCH.Clearnet
  • Technology Services

  • – Revenues for the year increased by 22% to £80.6 million (2014: £66.0 million)
  • – LCH.Clearnet’s income for 2015 was £360.7 million, down 7% in sterling

terms and down 4% on a constant currency basis. Excluding London Metal Exchange (LME) clearing revenue in 2014, income increased by 7% on a constant currency basis
– A range of key worldwide technology deliveries and agreements were completed with financial sector firms from Canada, India, Morocco, Peru and South Africa
– SwapClear, a leading interest rate swap clearing service globally, cleared US$533 trillion notional, down 17%. Client trades cleared increased by 67% to 678,000
– Exactpro Systems, acquired in 2015, specialises in functional and non-functional testing of systems that process wholesale financial products across multiple asset classes
– Compression services at SwapClear reduced the level of notional outstanding from US$362 trillion to US$251 trillion at the end of 2015
– Shared Service Company launched, providing a range of technology services Group-wide
– Cash equity clearing volumes increased by 21% to 549 million trades due to increases in the number of venues and customers served

Other

– Following a review of the investment management business of Frank Russell Company, the Group announced the agreed sale of this business in October 2015 with completion expected in H1 2016

FURTHER INFORMATION

More detailed information on the performance of our business segments can be found on pages 20–35.

Note: Organic growth is calculated in respect of businesses owned for at least 12 months in either period and so excludes Bonds.com, MTS Indices, Frank Russell Company, Proquote and Exactpro. Revenues and KPIs are all on a 12 month calendar year basis (2014: 12 months revenues unaudited). Constant currency basis – 2014 revenues or income rebased to 2015 average foreign exchange rates. * Total income for 12 months to end December, excludes Russell Investment Management which is expected to be sold in H1 2016 and Proquote which was sold in Q4 2015.

3

London Stock Exchange Group plc Annual Report December 2015

Chairman’s statement

“The Group is in a strong position globally and all of us – with good reason – can look forward to a strong and vibrant future.”

Donald Brydon CBE

Chairman

Overview

I have been impressed with the quality and depth of the executive team developed by Xavier Rolet and by the enthusiasm and dedication of all involved in the growth of the business. As a markets infrastructure provider, the Group has technology at the core of all its operations and is well equipped with the skills to ensure its technology remains both cost effective and fit for purpose in a rapidly changing environment.
I welcome this first opportunity to communicate with shareholders since I became Chairman of London Stock Exchange Group in July last year. 2015 was a year of further development for the Group as it continued to expand its global presence and business footprint while delivering growth, both through acquisition and organically. Progress on the execution of our strategy and our financial performance are detailed in this Annual Report.

Financial performance

The Group remains a key facilitator of capital raising, helping companies from around the world raise a total of £42 billion in 2015 through new and further equity issues. It also provides a series of leading market data and benchmarking tools and produces systemically important balance sheet and risk management services.
The Group delivered a good financial performance with all businesses delivering growth on an underlying, organic constant currency basis. Total income rose to £2,381.5 million, up 72% on a continuing and discontinued basis. Adjusted operating profit increased 27% to £709.6 million and operating profit increased 44% to £499.9 million.
As announced in October 2015, the Group has agreed the disposal of Frank Russell Company’s investment management business for gross proceeds of US$1,150 million. The sale followed the completion of a comprehensive review of the business and the transaction is expected to close in the first half of 2016. The Russell Index business has been successfully combined with FTSE to create FTSE Russell, a leading global index player. We remain on track to deliver the targeted revenue and cost synergies.
The Board has reviewed the Group’s capital management, encompassing its debt position, investment needs and development opportunities. As a consequence of the Group’s good ongoing financial performance, strong cash generation and financial position, the Board is proposing a step up in the final dividend, to 25.2 pence per share. This results in a total dividend for the year of 36.0 pence per share, an implied increase of 20%. The final dividend will be paid to shareholders on the register as at 6 May 2016. Please see the Financial Review section of this report for further commentary on our capital management considerations and dividend policy.
Shortly after my appointment, the Board reviewed and endorsed the Group’s strategy. As I have considered the Group, I see its strategy as having four distinct layers: excellent execution of our core business strategy in Capital Formation, Risk and Balance Sheet Management and Intellectual Property; the identification, development and delivery of innovative initiatives; continued expansion through

Corporate responsibility

As a global organisation, we understand that our responsibilities go beyond partnership and acquisition; and developing a global relevance through our unique finance. We seek to encourage growth and expand opportunities – and we

  • open access philosophy.
  • are committed to doing so through four channels:

– Our markets – promoting the dynamic companies and asset classes that will ensure long-term economic prosperity
Since year end, the Group has also confirmed detailed talks of a potential all-share merger of equals with Deutsche Börse. Should the potential merger proceed, the Combined Group would be a UK plc, domiciled in London. The Board considers that – Our services – enabling investors to make informed and sustainable the value creating opportunities of the combination are substantial and would create a leading European-based global markets infrastructure group with significant customer benefits. Discussions between the parties remain ongoing regarding the other terms and conditions and there can be no certainty a transaction will occur. We will keep shareholders updated and any transaction would be subject to LSEG shareholder approval, Deutsche Börse shareholder acceptance, as well as regulatory approvals and other customary conditions. investment decisions
– Our people – recruiting and supporting on the basis of talent – And in our surrounding communities – we are helping young people develop the skills to drive positive change for themselves and those around them

In the past year, the Group donated over £2.1 million to charities with employees also participating in a number of events with our partner charities around the world. Our partner charities focus on helping to support the next generation and a full summary of our activities can be found on page 36 as well as in our standalone Corporate Responsibility Report, which can be accessed

from our website: www.lseg.com/about-london-stock-exchange-group/ corporate-responsibilty.

4

Strategic Report Chairman’s statement

  • Governance
  • Conclusion

Elsewhere in this report, I share my thoughts on the role governance plays in ensuring shareholders’ assets are properly stewarded.
There are, of course, many risks in the global economy and uncertainty over Britain’s place in Europe. And indeed the shape of Europe’s risk profile is changing – the relative stability of the Cold War has given way to increased volatility and

  • unpredictability in geo political events.
  • The foundations of governance are strong and I am delighted that the Board

has been joined by Lex Hoogduin, Mary Schapiro and David Nish, whose 3 different geographic bases and nationalities reflect the changing footprint of the business. They bring, amongst many other skills, risk management, regulatory understanding and financial leadership to the Board.
Under the able leadership of our Chief Executive, Xavier Rolet, the Group is in a strong position globally and all of us – with good reason – can look forward to a strong and vibrant future. I thank all those who contributed to the success in 2015 through their dedication and hard work.
My predecessor left big shoes to fill and I would like to record my gratitude to Chris Gibson-Smith for all his years of service to the Group. He had some very turbulent years through which to navigate and he leaves behind a Group whose strength and global relevance are hugely enhanced.

Donald Brydon

Chairman 4 March 2016
During 2015, we also lost the services of Robert Webb after 14 years as well as Joanna Shields on her appointment to government. Massimo Tononi also left the Board following his appointment as Chairman of Banca Monte dei Paschi di Siena SpA. They will each be missed for their positive contribution and wise counsel. On behalf of the Board, I thank them all.

Recognising the recent rapid expansion of the Group, the Board has agreed to strengthen the governance in 2016 by forming both Regulatory and Technology Advisory Groups to ensure the Board has access to the best possible advice. This will enable Directors to draw on experience from outside the Board in the important areas of technology and regulation.

The Board recognises the benefit throughout the Group of having access to the diversity of input from a wide range of backgrounds, nationalities and genders. This is reflected at Board level by the diverse backgrounds of the Directors. In 2015, the Group established a Women’s Inspired Network (WIN) to support women globally across the Group, as well as to support women and girls in our local communities.

5

London Stock Exchange Group plc Annual Report December 2015

Chief Executive’s statement

“In an increasingly global, interconnected world, open access to any market lies at the heart of business.”

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    Press Release 23 November 2015 ELITE Connect investor relations platform goes live New digital platform for public companies, intermediaries and institutional investors ELITE Connect designed to simplify & lower cost of investor relations Beta testing with selected participants successfully completed Platform now open to accept new participants worldwide London Stock Exchange Group (LSEG) today announces the go-live of ELITE Connect, its new platform for a wide range of market participants including public companies, investor relations professionals, institutional investors and brokers. ELITE Connect is a unique open access technology platform allowing participants to efficiently engage in investor relations activity, manage local and worldwide IR relationships and discover global business opportunities. Its social network functionality allows users to connect easily and companies to find new investors worldwide, streamlining investor relations activity, saving time and costs. For investors and intermediaries, the platform is an innovative marketing tool, allowing increased visibility and access to companies, as well as providing a solution to the challenges posed by new corporate access and research regulation. A six month beta testing phase with major listed European companies, investors and brokers has been successfully completed. From today new participants can sign up to the platform at: www.elite-connect.com ELITE Connect features include: A digital ‘meeting room’, with easy to use video conference technology, document sharing and note taking facilities A tailored participant profile page and set of social networking functionalities A company and investor search function, with advanced filters allowing searches on company, size, location and industry A fully embedded calendar to coordinate availability and schedule meetings between users Xavier Rolet, CEO, LSEG, said: “For over 200 years, we have been grounded in an unshakeable commitment to building markets based on transparency and trust.
  • FINANCIALSERVICES CONFERENCE 7 FEBRUARY 2017 / Brussels

    FINANCIALSERVICES CONFERENCE 7 FEBRUARY 2017 / Brussels

    Hosted by The 15th Annual European FINANCIALSERVICES CONFERENCE 7 FEBRUARY 2017 / Brussels Contact - Charlene Selmer T . +44 (0)2920 783 071 / [email protected] www.forum-europe.com www.fsconference.eu The 15th Annual European FINANCIALSERVICES CONFERENCE 7 FEBRUARY 2017 / Brussels About the European Financial Services Conference Now in its 15th consecutive year, the European Financial Services Conference is held annually and is the major event in the Brussels calendar on financial services. Each year, the event brings together more than 400 senior international participants to debate issues affecting European and global financial markets, and over the years we have welcomed as speakers numerous Ministers, company CEOs, national bankers and regulators both from within the EU and around the world. Discussions at the 2017 edition will focus on strengthening the EU financial sector’s resilience; seamless capital markets and the current international outlook. Sponsorship of the European Financial Services Conference Annual events such as this are not simply stand alone, one-off marketing opportunities. Over time, they develop a brand of their own and a reputation for quality which adds value for all organisations that are associated with it. The European Financial Services Conference offers sponsoring organisations the opportunity to become involved on a regular basis in a pivotal and talked about industry event. There are a number of different ways in which you will benefit from taking out a sponsorship package at the 15th Annual European Financial Services Conference. Simply having your name and brand associated with a high-level event such as this can be extremely valuable and it provides a great opportunity to raise your profile within the industry and with high level policy and decision makers.
  • Corporate Responsibility Report 2013 London Stock Exchange Group Plc Corporate Responsibility Report 2013

    Corporate Responsibility Report 2013 London Stock Exchange Group Plc Corporate Responsibility Report 2013

    Managing the business in an effective and responsible manner Group Corporate Responsibility Report 2013 London Stock Exchange Group plc Corporate Responsibility Report 2013 Navigate this PDF What is in my Interactive PDF? Print icon: Opens the print What does the underlined text At the top of each page in this PDF dialogue box. on some pages mean? you will see a series of icons (as shown Throughout this report there are above). These icons allow you to Contents icon: Links to the links to pages, other sections and web navigate the PDF and access certain contents page within this PDF. addresses for additional information. Acrobat Reader functionality. You can click on any of the You can quick link from any piece headings to jump to the area of text that is underlined. What do the icons mean? you want to go to (remember Clicking on the buttons you will be you also have the bookmark Example: This is an example of able to: list to the left if you want to how the links appear within this use that as well). document. They are recognisable Info icon: Links you back to this by the underline, simply click to information page. Previous page arrow icon: go to the appropriate page or Click on this to take you to web URL www.lseg.com Email icon: Allows you to email the previous page in the PDF. this PDF to a friend (please note this option opens your default Next page arrow icon: Click on email software set up on your this to take you to the next page computer).