Overview
During 2017, London Stock Exchange Group continued to make good progress executing its growth strategy, delivering another year of strong performance. The Group has also addressed several strategic corporate, macroeconomic and political events.
In the early part of the year, the Group navigated the termination of its attempted merger with Deutsche Börse following the European Commission's prohibition decision. We worked hard to find the appropriate solutions to the competition review. LSEG has always been committed to maintaining excellent relationships with all of its stakeholders, including the regulators in its significant markets, and taking into account all of the relevant factors, the Board concluded that it could not meet the late stage request from the EU Commission for divestment of a key Italian business.
Throughout the merger discussions, the executive management remained focused on the performance of our business divisions, through organic and inorganic growth, as was evident from the acquisition of The Yield Book and Citi Fixed Income Indices business. The transaction, which completed at the end of August, enhances and complements the Group's Information Services data and analytics offering and will allow FTSE Russell to capitalise further on key industry trends.
Following the UK's decision to leave the EU, the Group continues to ensure that our businesses are well prepared for any eventual outcome. As a systemically important financial markets infrastructure business, the Group has a responsibility to ensure the orderly functioning of markets and to ensure continuity of service for the benefit of our customers, shareholders and other stakeholders. With a strong global footprint and significant infrastructure in a number of geographies across the UK, Eurozone, US and Asia, the Group is extraordinarily well placed to adapt to the consequences of the eventual exit terms. On behalf of all our stakeholders and partners, the Group continues to argue strongly for a defined implementation period and the minimisation of the fragmentation of systems and processes designed to make the financial markets more efficient, stable and safe. We also firmly believe that enhanced regulatory supervision and regulation on a global scale will far outweigh any short term political benefits of location based policies for financial markets infrastructure.
Throughout the year, a key focus for the Group was planning to ensure that our systems and processes were ready for the major changes resulting from the implementation of MiFID II, which took effect immediately after the year end. All venues went live in January 2018 in one of the most extensive technology roll-outs the Group has ever undertaken. David Warren discusses the opportunities that MiFID II presents for the Group as the only financial markets infrastructure business operating on an Open Access basis elsewhere in this Report.
Governance
The final quarter of the year saw the announcement of a process for succession of the Chief Executive. In early October, the Board and the Chief Executive, Xavier Rolet, confirmed an agreement that he would leave the Group by the end of 2018 to ensure a smooth transition. Shareholders will recall that Xavier Rolet had offered to step down in order to smooth the path for the planned merger. As a result, following the end of the merger process with Deutsche Börse in March 2017, it was clear to the Board that the Group needed clarity over succession. Unfortunately, one shareholder requisitioned a General Meeting to seek to undo the agreed plan. The Chief Executive's departure was, as a consequence, accelerated, and a motion to remove your Chairman proposed by the shareholder was firmly defeated. Regrettably, this process disrupted the organised succession process and caused considerable diversion of time and energy. The process of appointing the new Chief Executive is now advanced with a strong field of high quality candidates. When the new Chief Executive is announced and appropriately integrated into the Group, I will step down at the AGM in 2019, to allow a new team to take the business forward.
The Board firmly believes that it followed appropriate governance principles, considering shareholders' and other stakeholders' interests at all times, but it is important that our actions are reviewed and consideration is given to any lessons to be learned. An external review is being conducted by Simon Collins, a former UK Chairman and Senior Partner of KPMG, who has the deep experience and technical expertise to undertake this work. The Board will share the summary of key conclusions with shareholders in due course.
As I said at the General Meeting in December, Boards must take into account all relevant information in making their decisions. It will never be possible for all of that information to be in the public domain, much as some may wish it to be. That is one reason why shareholders delegate decisions to a Board. The returns that result from these decisions are not achieved risk free. Boards are not committees, but are real risk taking bodies providing oversight of executive management and guiding the strategic direction of the company. I share my further thoughts on corporate governance later in this report on page 56.
The events of the last quarter of 2017 challenged the Board to think deeply about its role, the culture of the Company and the actions it takes in the best interests of all stakeholders collectively. I am enormously grateful for all the time and effort expended by the Board members during this period. The UK Corporate Governance Code demands that attendance at the Board and its committees are logged. In addition to Board and Committee meetings, the Non-Executive Directors of LSEG attended many more meetings during both the possible merger with Deutsche Börse and the process of preparation of the notice of the December General Meeting than are recorded in our Governance report.
At the end of the year, the Board was joined by Val Rahmani whose strong technology and business background will provide valuable expertise as we continue to grow our global business. As noted, in November, Xavier Rolet stepped down from his role as a Director and CEO. My colleagues and I acknowledge the immense contribution he made to the development of your Company. There have been no other changes to the Board's composition in 2017.
As detailed in the Governance Report on page 56, the Board remains committed to further restoring the gender diversity of the Board, a process that was interrupted by restructuring ahead of the possible merger with Deutsche Börse. The Group is also a signatory to the UK's HM Treasury Women in Finance Charter to improve gender diversity within senior leadership teams and we have set ourselves a stretching target of 40% female representation in senior roles by the end of 2020. We are currently at 33%.
Corporate Social Responsibility
The Group is in a privileged position at the heart of the financial markets and we are pleased to support corporates, issuers and investors integrate sustainability and diversity as a core part of their capital raising and investment decisions. We continue to work closely with global and regional charities in the communities in which we operate. The selected charities focus on helping young people to develop vital life skills and we encourage employees to become actively involved in their work through paid volunteering days. In 2017, the Group's Foundation donated £1.4 million to various charities.
Financial Performance
The Group has continued to deliver a strong financial performance across its business divisions. Total income grew to £1,955 million, up 18%. Adjusted operating profit was £812 million, while adjusted EPS was 148.7 pence, an increase of 19%.
Consistent with the Group's capital allocation framework, we conducted an on-market share buyback of £200 million, an amount broadly equivalent to the return we would have made had the merger with Deutsche Börse proceeded as planned.
Reflecting the Group's strong performance and our commitment to sustainable, progressive dividends, the Board is proposing a final dividend of 37.2 pence per share, resulting in a 19% year-on-year increase in the total dividend to 51.6 pence per share. The final dividend will be paid on 30 May 2018 to shareholders on the register as at 4 May 2018.
Conclusion
I would like to thank Board members and all of our excellent employees for another successful year in the development of this great company. The Group remains well positioned for the opportunities ahead and remains confident of delivering further success and value for shareholders.
Donald Brydon
Chairman
2 March 2018″