Worldreginfo - C8d146d4-854E-4D28-Af59-7A6264bf63df a Global Markets Infrastructure Business
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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 102. 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. WorldReginfo - c8d146d4-854e-4d28-af59-7a6264bf63df A global markets infrastructure business Annual Report 31 December 2016 WorldReginfo - c8d146d4-854e-4d28-af59-7a6264bf63df London Stock Exchange Group plc Annual Report December 2016 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 WorldReginfo - c8d146d4-854e-4d28-af59-7a6264bf63df Contents STRATEGIC REPORT Highlights 2 An overview of our business, statements from Chairman’s statement 4 our Chairman and our Chief Executive, the Chief Executive’s statement 6 markets and regulatory environment in which What we do – Our business model 8 we operate, and strategy. More detail on each Overview of Group activities 10 Market trends and our response 12 of our divisions, our performance, how we Strategy in action 16 consider our wider responsibilities and the Executive management team 18 principal risks that could affect our business. Introduction to segmental review 20 Capital Markets 22 Strategic Report sign-off is provided in the Post Trade Services – CC&G and Monte Titoli 26 Directors’ Report on page 96. Post Trade Services – LCH 28 Information Services 31 Technology Services 34 Our wider responsibility 36 Financial review 38 Risk management oversight 44 Principal risks and uncertainties 47 GOVERNANCE Board of Directors 54 An introduction to our Board of Directors, Corporate governance 56 our approach to corporate governance, the Report of the Nomination Committee 61 reports of committees to the Board and how Complying with the provisions of the Code 62 we reward performance, along with other Report of the Audit Committee 64 statutory and regulatory information. Report of the Risk Committee 68 Directors’ Remuneration Report 70 Directors’ Report 96 Statement of Directors’ responsibilities 100 Independent Auditor’s Report to the members of London Stock Exchange Group plc 102 GROUP FINANCIAL STATEMENTS Consolidated income statement 112 Detailed financial information setting out Consolidated statement of our performance for the reported 12 month comprehensive income 113 period and financial position at year end. Balance sheets 114 Cash flow statements 115 Statements of changes in equity 116 Notes to the financial statements 118 SHAREHOLDER INFORMATION Glossary 169 A glossary of terms used in this report Overview of regulatory landscape 172 and other information for shareholders. Financial calendar 174 Investor relations 175 1 WorldReginfo - c8d146d4-854e-4d28-af59-7a6264bf63df London Stock Exchange Group plc Annual Report December 2016 Highlights The figures in the graphs below are for the Group on a continuing basis, so exclude businesses classified as held for sale during the periods shown. Total income Adjusted operating profit* £ m £ m 685.8 1,657.1 1,418.6 584.7 514.7 544.9 1,213.1 1,291.6 430.2 852.9 Mar Mar Dec Dec Dec Mar Mar Dec Dec Dec 2013 2014 2014** 2015 2016 2013 2014 2014** 2015 2016 Operating profit Adjusted earnings per share (pence)* £ m 426.8 124.7 404.4 103.4 348.4 353.1 336.6 97.0 98.6 100.5 Mar Mar Dec Dec Dec Mar Mar Dec Dec Dec 2013 2014 2014** 2015 2016 2013 2014 2014** 2015 2016 Basic earnings per share (pence) Dividends per share (pence) 43.2 80.4 74.8 36.0 63.0 63.8 54.4 27.2 28.4 22.5 Mar Mar Dec Dec Dec Mar Mar 9m Dec 12m Dec Dec 2013 2014 2014** 2015 2016 2013 2014 2014 2015 2016 The Group changed its financial reporting reference date in 2014, hence the graphs show full 12 month figures on either a March or December year-end basis. 12 months to 31 December 2016 12 months to 31 December 2015 Total Year ended 31 December Continuing Discontinued Total Continuing Discontinued Total Variance Total income £1,657.1m £390.8m £2,047.9m £1,418.6m £962.9m £2,381.5m (14%) Adjusted operating profit* £685.8m £27.8m £713.6m £584.7m £124.9m £709.6m 1% Operating profit £426.8m £103.2m £530.0m £404.4m £95.5m £499.9m 6% Adjusted profit before tax* £623.1m £28.8m £651.9m £516.4m £127.0m £643.4m 1% Profit before tax £364.1m £104.2m £468.3m £336.1m £97.6m £433.7m 8% Adjusted basic earnings per share* 124.7p 5.0p 129.7p 103.4p 26.0p 129.4p 0% Basic earnings per share 63.8p (20.3)p 43.5p 74.8p 19.8p 94.6p (54%) * 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 profit, adjusted profit before tax and adjusted earnings per share all exclude amortisation and impairment of purchased intangibles assets and goodwill and non-recurring items. The non-recurring items for this year are larger than in previous years and the increase is primarily driven by transaction costs of £85.4 million and a loss after tax of £88.2 million relating to the disposal of the Russell Investment Management business. ** December 2014 numbers are unaudited. 2 WorldReginfo - c8d146d4-854e-4d28-af59-7a6264bf63df London Stock Exchange Group plc Annual Report December 2016 Strategic Report Highlights The Group continues to execute on its strategy, delivering Group Total Continuing Income by segment best-in-class capabilities, driving global growth and developing £ m our partnership approach. Key headlines are provided below: 12 months to Capital Markets 6 5 31 Dec 2016 – Revenues increased by 12% to £368.3 million (2015: £330.3 million) and up 1 6% on an organic constant currency basis 1. Capital Markets 368.3 2. Post Trade Services – Primary Markets saw total money raised across our equity markets down CC&G and Monte Titoli 146.3 39% at £25.6 billion, with 134 new companies admitted to our markets 4 3. Post Trade Services LCH 447.1 2 (2015: 176) of which 64 admitted to AIM (2015: 61) 4. Information Services 594.7 – In Secondary Markets, UK cash equity average daily value traded increased 5. Technology Services 88.3 by 4%, average daily number of equity trades in Italy increased by 5% and 6. Other 12.4 3 average daily value traded on Turquoise increased 26% 1,657.1 – IDEM, the Group’s Italian derivatives market, saw an increase in volumes of 10% – In Fixed Income, MTS cash and BondVision value traded declined by 3%, while MTS Repo reduced by 5% Information Services – Revenues for the year increased by 15% to £594.7 million (2015: £517.4 million), – CurveGlobal, a new joint venture with leading dealer banks and CBOE went live and up 7% on an organic constant currency basis driven by strong growth in in September 2016, offering short-term and long-term interest rate futures FTSE Russell. Post Trade Services – CC&G and Monte Titoli – FTSE Russell revenue for the year increased by 17% to £409.3 million – Income for the year increased by 23% to £146.3 million in sterling terms (2015: £348.9 million) and up 7% on an organic constant currency and by 9% on a constant currency basis basis reflecting increased subscriptions and data sales, and growth in index-based products – Net Treasury Income increased by 45% to £42.6 million in sterling terms and by 29% in constant currency terms – Real time data revenues increased by 11% to £90.9 million (2015: £82.2 million), and up 7% on an organic constant currency basis – Contracts cleared by CC&G up 8% to 129.6 million – UnaVista’s MiFID Approved Reporting Mechanism (ARM) went live with – Monte Titoli prepared the filing to be authorised as Central Depository System a testing environment product ahead of MiFID II implementation under the new implemented EU CSD Regulation (CSDR), which is planned over the course of 2017 – Other Information Services revenue increased by 10% to £94.5 million (2015: £86.3 million) and up 6% on an organic constant currency basis Post Trade Services – LCH – LSEG announced the acquisition of Mergent Inc., a provider of business – LCH’s income for 2016 was £447.1 million, up 24% and increased by 15% and financial data on companies which was completed in January 2017 on a constant currency basis – SwapClear, an interest rate swap clearing service, cleared US$666 trillion Technology Services notional, up 25%. Client trades cleared increased by 40% to 952,000 and – Technology Services revenues increased by 10% to £88.3 million compression up 17% to US$384 trillion (2015: £80.6 million) and on an organic constant currency basis, increased by 4% on increased sales – ForexClear non-deliverable forwards clearing increased by 204%, to US$3,191 billion – LSEG Business Services