LSE.L Regulatory News (LSE)

2 August 2018

LONDON STOCK EXCHANGE GROUP PLC

INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2018

Unless otherwise stated, all figures below refer to continuing operations for the six months ended 30 June 2018. Comparative figures are for continuing operations for the six months ended 30 June 2017 (H1 2017).

· Strong financial performance - with double-digit revenue growth in Information Services, LCH and Capital Markets

· Revenue up 12% to £953 million (H1 2017: £853 million); total income up 12% to £1,060 million (H1 2017: £946 million)

· Adjusted operating profit1 up 21% to £480 million (H1 2017: £398 million), with underlying operating expenses on an organic and constant currency basis up 5% as the Group continues to invest in growth and efficiencies

· On a reported basis, operating profit up 29% to £393 million (H1 2017: £305 million); profit before tax up 30% to £360 million (H1 2017: £277 million); profit after tax of £283 million (H1 2017: £208 million)

· Adjusted EPS1 up 25% to 88.7 pence (H1 2017: 71.2 pence); basic EPS up 41% to 71.1 pence (H1 2017: 50.4 pence)

· Interim dividend increased 19% to 17.2 pence per share (H1 2017: 14.4 pence per share), in line with stated dividend policy

· Strong balance sheet position with leverage reduced to 1.6 times adjusted net debt: pro forma EBITDA

· During the period, capital deployed for acquisitions, including increasing stake in LCH Group to 68%; 100% ownership of FTSE TMX; and c.16% minority stake in AcadiaSoft alongside organic investment to capitalise on multiple growth opportunities

· FTSE Russell integration of The Yield Book is on track, delivering further expanded multi-asset index capabilities, data and analytics

· LCH continues global leadership with record clearing volume at SwapClear, and successfully launched non-deliverable and SOFR IRS. ForexClear launched options clearing

· Group is well positioned to drive further growth as a diversified, global financial markets infrastructure business - operating on an open access basis in partnership with customers

David Schwimmer, Group CEO, said:

"I am delighted to join the Group, which continues to deliver strong growth. The Group's strategy, based on an open access and customer partnership approach, provides a great foundation for further success. My immediate focus is to meet with colleagues, customers, shareholders and other stakeholders, and to ensure we continue our focus on driving operational excellence across LSEG as I work with the executive team to develop the Group's many opportunities ahead."

David Warren, Group CFO, said:

"The Group has delivered another strong performance, with growth across all business areas. LCH has launched new products and set new records for clearing levels in the SwapClear and ForexClear services, while FTSE Russell has produced another good result. Capital Markets performed well with increases in primary and secondary markets activity. We are in a strong position as we work to execute on our strategy and to meet our financial targets while continuing to invest for further growth."

1 before amortisation of purchased intangible assets and non-underlying items

Organic growth is calculated in respect of businesses owned for at least 6 months in either period and so excludes ISPS, The Yield Book and Citi Fixed Income Indices, MillenniumIT ESP and Exactpro. The Group's principal foreign exchange exposure arises from translating our European based Euro and US based USD reporting businesses into Sterling.

Figures are for the Group on a continuing basis so exclude businesses classified as discontinued during 2017.

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 operating profit, adjusted profit before tax and adjusted earnings per share all exclude amortisation and impairment of purchased intangibles assets and goodwill and non-underlying items.

Further information is available from:

Additional information on London Stock Exchange Group can be found at www.lseg.com

The Group will host a conference call for analysts and institutional shareholders today at 08:30am (UK time). On the call to discuss the H1 results will be David Warren (CFO) and Paul Froud (Head of Investor Relations).

To access the telephone conference call dial 0800 376 7922 or +44 (0) 2071 928 000

Conference ID: 518 9224

For further information, please call the Group's Investor Relations team on +44 (0) 20 7797 3322.

Group CEO statement

I am delighted to have started my position at London Stock Exchange Group as of 1 August. I join a Group that has a strong financial position as well as a proven strategy, underpinned by its customer partnership approach, which is being executed by a highly capable and experienced management team. I am excited by the many opportunities for further growth, both organically and inorganically, as we continue to execute and develop the business.

My immediate priority in the coming weeks is to meet with colleagues, customers, shareholders and other key stakeholders. I intend to continue the focus on driving operational excellence across the Group, and I will work with the executive team to implement plans for further growth and value creation. I look forward to sharing more thoughts in the future.

In the meantime, I would like to thank everyone at LSEG for the hard work that has produced this strong set of half-year results, and in particular, I would like to acknowledge David Warren's leadership as Interim CEO over the period.

Group CFO statement

Overview of H1 results

The Group has delivered another strong set of results, with growth across all business areas. The Group is well positioned as a global financial infrastructure business, providing critical services to clients around the world, based on a strategy with open access and customer partnership at its centre.

During the period, we have continued to invest for growth as we launch new products and drive further efficiencies across our businesses. On a reported basis, total income increased 12%, while operating expenses (before depreciation and amortisation) rose by 2%, with adjusted operating profit rising 21% to £480 million, and adjusted EPS increasing 25% to 88.7 pence per share.

Underpinning the income growth were strong performances at FTSE Russell and at LCH, with both businesses achieving the targeted double-digit revenue growth rates. LCH delivered record notional cleared volume at the SwapClear service, up 23% to $576 trillion, and compression activity increased 24% at $388 trillion. The ForexClear service also saw record clearing levels with $8.7 trillion cleared and 1.26 million trades, up by 79% and 87% respectively. Capital Markets performed well, with good growth in the period in Primary Markets, where issuance was strong, and in Secondary Markets, with increased equities, derivatives and repo trading.

Other selected developments:

- FTSE Russell acquired minority interests to assume 100% ownership of FTSE TMX Global Debt Capital Markets Limited, further strengthening its global fixed income capabilities, following the acquisition of The Yield Book, where integration is on track

- LSEG increased its stake in LCH Group to 68%, acquiring an additional 2% following a sale by a minority shareholder

- LSEG acquired c.16% minority stake in AcadiaSoft; LCH SwapAgent and AcadiaSoft signed heads of terms agreement

- LCH SwapClear continues to expand its spread of currencies from 18 to 21, clearing its first non-deliverable interest rate swaps denominated in Chinese Yuan, Korean Won and Indian Rupee; and, in June, gained approval to clear for counterparties domiciled in Mexico

- LCH SwapClear launched Secured Overnight Financing Rate (SOFR) clearing

- LCH ForexClear launched clearing of FX options in early July 2018

- Capital Markets - Increase in the number of new issues, with 87 companies joining the Group's markets

- LSEG announced plans to expand the global footprint of Group's shared services company, BSL, with the establishment a new Business Services Centre in Romania

We remain in a strong financial position, with leverage reduced to 1.6 times net debt to pro forma EBITDA, during a period in which we have also continued to invest in projects to deliver additional sales growth and to drive further operational efficiencies. In line with the Group's stated progressive dividend policy, we have increased the interim dividend by 19%, to 17.2 pence per share.

Further commentary on the Group's performance from continuing operations in the six month period is provided below.

Operational Performance

Information Services, the Group's largest business segment by revenue, delivered a 16% increase in revenue, to £412 million (up 9% on an organic and constant currency basis). FTSE Russell revenue increased by 19% to £309 million, including contributions from the Citi Fixed Income Indices and The Yield Book acquisition, and was 9% higher on an organic and constant currency basis. ETF AUM benchmarked to FTSE Russell indexes increased 22% to US$646 billion and subscription revenues for access to indexes and data increased, comprising c.65% of FTSE Russell revenues in H1. Revenue from other information services grew 21%, with UnaVista benefitting from increased demand for services following the introduction of MiFID II, while revenue from real time data was 1% lower as the number of terminals taking UK and Italian market data reduced. Cost of sales on an organic and constant currency basis rose 8%, with 10% growth in gross profit on an equivalent basis at £378 million.

Post Trade Services - LCH, the Group's majority-owned global clearing business, produced an 18% increase in total income, to £320 million (up 19% at constant currency). OTC clearing revenue increased 16%, reflecting a strong performance at SwapClear, with record clearing activity in terms of notional value cleared and compressed, plus a 29% increase in the number of client trades which account for c.50% of SwapClear's clearing revenue. Clearing volumes at CDSClear and ForexClear also rose well, with notional cleared value up 9% and 78% respectively. Membership numbers for all three OTC services increased during the period.

Non-OTC products clearing revenue rose 2% (flat at constant currency), reflecting an uplift in fixed income clearing, offset by lower cash equities and derivatives clearing revenues. LCH net treasury income (NTI) increased 47%. With average cash collateral broadly unchanged at €86 billion, the increase in NTI is mainly driven by higher USD returns through investment positions that have benefitted from the USD rate environment, as well as a step change from further extension of counterparties for placing investments. While NTI is expected to remain strong in H2, absent from any further rate rises, NTI may not reach the H1 levels. Cost of sales for LCH rose 32%, reflecting the revenue share arrangements across a number of the OTC clearing services, with a resulting 16% increase in gross profit, at £267 million.

Total income for Post Trade Services in Italy, comprising CC&G and Monte Titoli, decreased 2% to £73 million (down 5% at constant currency). The headline decline reflects a change in the reporting of settlement activity, with the revenues and cost of sales for settlement through the T2S system now being netted, amounting to £5 million in H1. As a result there is a reduction in cost of sales, which reduced by 61%, with the result that gross profit rose 5% to £70 million (up 3% at constant currency). Clearing revenue rose 4% (up 2% at constant currency), reflecting higher clearing volumes in Italian equities, derivatives and repo markets. Settlement and custody revenue was down 12% on a reported basis, but flat after adjusting for the reporting changes, mentioned above. Assets under custody increased 2% to €3.30 trillion. Treasury income increased 9% to £21 million, with a reduction in average initial margin held offset by higher spreads over the period.

Capital Markets increased revenue by 13% (up 12% at constant currency) while cost of sales rose by just 1%, resulting in a 14% increase in gross profit to £206 million (up 13% on constant currency). In Primary Markets, revenue rose 31%, with an increase in number of new issues to 87 in the first half of the year (H1 2017: 81). In Secondary Markets, equities trading revenue increased 5%, with lower trading levels at Turquoise offset by increased trading volume at Borsa Italiana and higher UK value traded, up 5% and 13% respectively. Fixed income and derivatives trading revenue increased 10%, reflecting higher trading volumes.

Technology Services revenue decreased 22% on a reported basis, and up 18% on an organic and constant currency basis, principally adjusting for the disposals of the MillenniumIT ESP business and Exactpro.

Financial Summary

Unless otherwise stated, all figures below refer to continuing operations for the six months ended 30 June 2018. Comparative figures are for continuing operations for the six months ended 30 June 2017 (H1 2017). Variances are also provided on an organic and constant currency basis.

1 Organic growth is calculated in respect of businesses owned for at least 6 months in either period and so excludes ISPS, The Yield Book and Citi Fixed Income Indices, MillenniumIT ESP and Exactpro. The Group's principal foreign exchange exposure arises from translating our European based Euro and US based USD reporting businesses into Sterling

2 before amortisation of purchased intangible assets and non-underlying items

Note: Variances in all tables are calculated from underlying numbers

The Group has performed well. Revenue increased 12% to £953 million (H1 2017: £853 million), and up 11% on an organic and constant currency basis. As described in the operational performance section above, many parts of the Group have delivered good results, with strong contributions in particular from LCH and Information Services. Total income rose 12% to £1,060 million (H1 2017: £946 million), and up 11% on an organic and constant currency basis. Cost of sales increased 13% in underlying terms to £106 million, (up 4% as reported) primarily as a result of the growth in LCH and FTSE Russell, with gross profit increasing 13% to £954 million (H1 2017: £844 million).

Operating expenses excluding depreciation and amortisation rose by 2% on a reported basis and were 5% higher on an organic and constant currency basis. Underlying depreciation and amortisation at £64 million is 39% higher than last year, reflecting investments in previous periods. The Group is continuing to invest in new products and efficiency projects, to increase sales and to develop our infrastructure. Due to the phasing of spend during the year, operating expenses (including depreciation and amortisation) in the second half of the year are likely to be c.£25-30 million higher than H1.

Adjusted operating profit for the period, before amortisation of purchased intangible assets and non-underlying items, increased 21% to £480 million (H1 2017: £398 million). Operating profit also increased by 29%, to £393 million (H1 2017: £305 million).

Net finance costs were £33 million (H1 2017: £28 million) reflecting higher year on year average borrowings in the period following the acquisition of the Citi Fixed Income Indices and The Yield Book business in August 2017. Profit before tax was £360 million (H1 2017: £277 million). The underlying effective Group tax rate for the period (excluding prior year and one-off adjustments) was 23.0% (year ended 31 December 2017: 23.4%).

Adjusted basic EPS, before amortisation of purchased intangible assets and non-recurring items, increased 25% to 88.7 pence (H1 2017: 71.2 pence) while basic EPS was 71.1 pence (H1 2017: 50.4 pence).

Net cash inflow from operating activities was £287 million (H1 2017: £261 million), the increase reflecting stronger cash generation from operating activities. Capital expenditure in the period amounted to £90 million, (H1 2017: £88 million). Looking ahead, we expect capex to run at a slightly higher level in H2 as we continue to invest in further product development and projects to help scale-up our business. Net cash generated after capex, other investing activities and dividends, was £28 million (H1 2017: £79 million). Free cash flow per share on the same basis was 56.6 pence (30 June 2017: 59.4 pence).

During the period the Group commenced issuance under its £1 billion commercial paper programme in order to further diversify its funding sources and reduce its cost of borrowing. At 30 June 2018 €200 million was in issuance. The commercial paper is backed up by a £600 million multi-currency, committed swingline facility - available also for general corporate purposes. Committed undrawn credit lines available to the Group, after considering the euro commercial paper programme issuances, at 30 June 2018 totalled over £720 million, extending out to 2022.

At 30 June 2018, operating net debt had decreased to £1,627 million (after setting aside £1,005 million of cash for regulatory and operational support purposes), with cash generated by the business effectively funding the investment activities highlighted above as well as the regular debt servicing and dividend payments. Operating net debt: pro forma EBITDA reduced to 1.6 times (from 1.7 times at 31 December 2017), reflecting the continued strong organic cash generation during the period, partially offset by further organic and inorganic investment by the Group.

During the period, Standard & Poor's maintained its long term ratings of LSEG at A- and of LCH Limited and LCH SA at A+, but improved the outlooks to positive from stable for all three rated entities. Moody's maintained its A3 rating of LSEG with a stable outlook. The Group had net assets of £3,908 million at 30 June 2018 (31 December 2017: £3,752 million), including £1,299 million in cash and cash equivalents (31 December 2017: £1,381 million).

The Group's principal foreign exchange exposure arises as a result of translating and revaluing its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling. For the 6 months to 30 June 2018, the main translation exposures for the Group were its Euro reporting businesses (accounting for 31% of Group income and 29% of Group expenses) and its US dollar reporting businesses (accounting for 27% of income and 16% of expenses). A 10 cent movement in the average £/€ rate for the six months and a 10 cent movement in the average £/US$ rate for the six months would have changed the Group's operating profit for the period before amortisation of purchased intangible assets and non-recurring items by approximately £14 million in each event. The Group continues to manage its translation risk exposure by matching the currency of its debt (including debt effectively issued in one currency and swapped into a different currency) to the currency of its earnings, where possible, to ensure its key financial ratios are protected from material foreign exchange rate volatility.

Interim Dividend

In line with the Group's dividend policy, the interim dividend is calculated as one-third of the prior full year dividend. Accordingly, the Directors have declared an interim dividend of 17.2 pence per share, an increase of 19% (H1 2017: 14.4 pence per share). The interim dividend will be paid on 18 September 2018 to shareholders on the register on 24 August 2018.

Board of Directors

David Schwimmer was appointed as Group Chief Executive Officer, joining the LSEG Board as an executive director on 1 August 2018.

Outlook

The Group has delivered a strong financial performance in H1, with revenue growth across our businesses as we invest further to drive further sales growth and operating efficiencies. We remain well positioned in an evolving regulatory and macroeconomic environment and remain focused on achieving the 2019 financial targets.

David Warren (Group CFO and Interim CEO during period)

2 August 2018

Operating Performance - Key statistics

To assist investors in understanding the underlying performance of the Group, percentage changes are also presented on an organic and constant currency basis.

Information Services

The Information Services division consists of global indices products, real time data products and a number of other discrete businesses including trade processing operations, desktop and work flow products.

1 Excludes The Yield Book and Citi Fixed Income Indices (acquired Q3 2017) from FTSE Russell Indexes and ISPS from Other information services (disposed Q1 2017)

Post Trade Services - LCH

This LCH division comprises the Group's majority owned global clearing business.  

1 Pass through of LIBOR data fees Cost of sales have now been netted off against Other income, 2018 H1 impact £5m

Post Trade Services - CC&G and Monte Titoli

This division comprises the Group's Italian-based clearing, settlement and custody businesses.  

1 Pass through of T2S costs, Cost of sales have now been netted off against Settlement, Custody & other, 2018 H1 impact £5m

Capital Markets

Capital Markets comprises the Group's Primary Markets activities, providing access to capital for corporates and others, and the Secondary Market trading of cash equities, derivatives and fixed income.

Technology Services

Technology Services comprises technology connections and data centre services for clients of London Stock Exchange and Borsa Italiana, plus the MillenniumIT software business, based in Sri Lanka, which provides technology for the Group as well as third party sales.

1 Excludes MillenniumIT ESP and Exactpro (disposed Q4 2017 and Q1 2018)

Basis of Preparation

Results for the European and US businesses have been translated into Sterling using the exchange rates set out below. Constant currency growth rates have been calculated by translating prior period results at the average exchange rate for the current period.

Condensed CONSOLIDATED Income Statement

Condensed CONSOLIDATED STATEMENT of comprehensive income

Condensed CONSOLIDATED balance sheet

Condensed CONSOLIDATED cash flow statement

Condensed CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The other reserves are set out on page 113 of the Group's Annual Report for the year ended 31 December 2017. The movement in the current period includes a gain of £40m to the foreign exchange reserves (30 June 2017: loss of £23m) and a gain of £4m to the hedging reserve (30 June 2017: loss of £8m).

Purchase of non-controlling interests in the period relates to the acquisition of shareholdings from non-controlling equity holders in LCH Group Holdings Limited and FTSE Global Debt Capital Markets Limited.

NOTES TO THE interim condensed consolidated financial statements

The Interim Report for the London Stock Exchange Group plc (the 'Group' or the 'Company') for the six months ended 30 June 2018 was approved by the Directors on 2 August 2018.

1. Basis of preparation and accounting policies

The interim condensed consolidated financial statements of London Stock Exchange Group plc and its subsidiaries (collectively, the 'Group') for the six months ended 30 June 2018 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard 34 (IAS 34), 'Interim Financial Reporting' as adopted by the European Union (EU).

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2017.

The principal accounting policies adopted in the preparation of these interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2017, except for the adoption of new and amended standards and interpretations set out below.

Comparative amounts presented for the condensed consolidated balance sheet relate to the Group's position as at 31 December 2017. All other comparative amounts presented relate to the six months ended 30 June 2017.

All notes to the financial statements include amounts for continuing operations, unless otherwise stated.

The Company is a public company, incorporated and domiciled in England and Wales. The address of its registered office is 10 Paternoster Square, London, EC4M 7LS.

The following standards and interpretations have been issued by the International Accounting Standards Board (IASB) and IFRS Interpretations Committee (IFRIC) and have been adopted by the Group in these interim condensed consolidated financial statements:

· IFRS 15 'Revenue from Contracts with Customers', amendments and clarifications; and

· IFRS 9 'Financial Instruments' and amendments.

The impact of adoption of these standards is explained further in Note 2.

The following standards and amendments to standards and interpretations have also been issued by the IASB and IFRIC, endorsed by the EU and adopted by the Group; however the adoption did not have a material impact on these interim condensed consolidated financial statements:

· Amendments to IAS 40, 'Transfers of Investment Property';

· IFRIC 22, 'Foreign Currency Transactions and Advance Consideration';

· Amendment to IFRS 2, 'Share-based Payment' on classification and measurement of share-based payment transactions;

· Amendment to IFRS 4, 'Insurance Contracts' regarding the implementation of IFRS 9, 'Financial Instruments'; and

· Annual improvements 2014-2016.

The following standards and interpretations were issued by the IASB and IFRIC, but have not been adopted either because they were not endorsed by the EU at 30 June 2018 or they are not yet mandatory and the Group has not chosen to early adopt. The impact on the Group's financial statements of the below future standards, amendments and interpretations is still under review, and where appropriate, a description of the impact of certain standards and amendments is provided below:

IFRS 16 'Leases' will be effective for the year ended 31 December 2019 and requires that all contracts that convey the right to control the use of an identified asset for a period of time in return for consideration are required to be recognised on the balance sheet, to the extent that the assets are individually material. Currently, IAS 17 'Leases' only requires leases categorised as finance leases to be recognised on the balance sheet, with leases categorised as operating leases not recognised. In broad terms, the impact will be to recognise a lease liability and corresponding asset for the current operating lease commitments.

The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim condensed consolidated financial statements. Although these estimates and assumptions are based on management's best judgement at the date of the interim condensed consolidated financial statements, actual results may differ from these estimates.

The statutory financial statements of London Stock Exchange Group plc for the year ended 31 December 2017, which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain a statement under section 498 of the Companies Act 2006.

The interim condensed consolidated financial statements are unaudited but have been reviewed by the auditors and their review opinion is in included in this report.

The interim condensed consolidated financial statements do not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

2. Adoption of new accounting standards and interpretations

On 1 January 2018, the Group adopted two new accounting standards being IFRS 15 'Revenue from Contracts with Customers' and IFRS 9 'Financial Instruments'. The impact of adopting the new standards has been reflected through transition adjustments to the Group's opening retained earnings at the start of the current period, as presented in the condensed consolidated statement of changes in equity. The table below provides a summary of the impact at the date of transition:

Further details on the impact of each of the new accounting standards is provided below.

IFRS 15 Revenue from Contracts with Customers - impact of adoption

On 1 January 2018, the Group adopted IFRS 15 'Revenue from Contracts with Customers' (IFRS 15). This new accounting standard requires the Group to recognise revenue when the Group transfers promised goods or services to customers in an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The new guidance requires more detailed revenue disclosures and policies to identify the Group's performance obligations to customers.

The key area of judgement for the Group in adopting IFRS 15 is in relation to the identification of performance obligations and determining the timing of when performance obligations are satisfied in respect of admission and listing services, provided by the Primary Markets business within the Capital Markets segment.

Under IAS 18 'Revenue', initial admission fees were recognised at the time of admission to trading. The conversion to IFRS 15 requires management to make an assessment as to whether the initial admission service is a distinct service that is separate from the continual and ongoing listing service provided by the Group. In light of diverging views on this matter, the IFRIC will be considering whether sufficient guidance currently exists in the new standard to identify the performance obligation in the admissions and ongoing listing process (refer to AP8: IFRS Interpretation Committee work in progress of the June 2018 Agenda). As a result, and given the uncertainty that currently exists on this judgement, the Group has continued to recognise revenue from initial admission fees at the time of admission to trading in its interim condensed consolidated financial statements for the period ended 30 June 2018. The Group expects to have clarity on the accounting treatment for revenues from the admissions and listings services under IFRS 15 by the time it prepares its consolidated financial statements for the year ending 31 December 2018.

For all remaining revenue streams in the Group, the new rules set out in IFRS 15 have been adopted prospectively from 1 January 2018 under the modified retrospective approach, and consequently the comparative amounts in these interim condensed consolidated financial statements remain unchanged and are reported under IAS 18.

In addition to any potential IFRS 15 impact on the Primary Markets business as explained above, the adoption of the new standard required the Group's incremental sales commission costs that were previously expensed when incurred, to be capitalised when they are expected to be recovered. The capitalised contract costs are amortised over a period consistent with the transfer of goods and services to the customer, which the Group has determined to be between 3 to 5 years. As a result the Group recorded a £10m adjustment to opening retained earnings as at 1 January 2018, as presented in the condensed consolidated statement of changes in equity comprising a £12m increase in the intangible assets from capitalising sales commissions previously expensed prior to transition, and a consequential £2m increase in deferred tax liabilities.

The impact of capitalising contract costs under IFRS 15 on the Group's income statement for the period ended 30 June 2018 was a decrease in the Group's underlying operating expenses before depreciation and amortisation of £5m and an increase underlying depreciation and amortisation of £4m, along with an increase in the net book value of intangible assets of £13m and an associated £2m increase in deferred tax liabilities as at 30 June 2018.

For all remaining business lines, the adoption of IFRS 15 resulted in no material changes to the measurement or timing of revenue recognition in the income statement for the Group.

Comparative amounts presented in the notes to the Group's condensed consolidated balance sheet as at 31 December 2017 have been updated to adopt the new terminology used to describe certain balance sheet items under IFRS 15. Accrued income and deferred income are now referred to as 'contract assets' and 'contract liabilities' respectively. The previously reported amounts of accrued income of £156m and deferred income of £104m as at 31 December 2017, are now referred to as contract assets in Note 13 and contract liabilities in Note 14 respectively. There were no changes to the measurement or timing of recognition of these contract assets and contract liabilities on conversion to IFRS 15 and as such the Group's total equity as at 30 June 2017 and 31 December 2017 are unchanged as a result of adopting the new standard.

Revenue

The main source of the Group's revenue is through fees for services provided. Revenue is measured based on the consideration specified in a contract with a customer. Amounts deducted from revenue relate to discounts, value added tax and other sales related taxes, and revenue share arrangements whereby, as part of an operating agreement, amounts are due back to the customer.

The Group recognises revenue as services are performed and as it satisfies its obligations to provide a product or service to a customer. Further details of the Group's revenue accounting policy are set out below:

1 The accounting policy for revenues from the Primary Markets business within the Capital Markets segment will be finalised on conclusion of the Group's assessment as to whether the initial admission service is distinct from the continual and ongoing listing service provided to customers under IFRS 15.

Customer contracts across the Group that contain a single performance obligation at a fixed price do not require variable consideration to be constrained or allocated to multiple performance obligations. However certain businesses in the Group provide services to customers under a tiered and tariff pricing structure that generates a degree of variability in the revenue streams from the contract. Where the future revenue from a contract varies due to factors that are outside of the Group's control, the Group limits the total transaction price at contract inception and recognises the minimum expected revenue guaranteed by the terms of the contract. Any variable element is subsequently recognised in the period in which the variable factor occurs.

As permitted by the practical expedient in IFRS 15, the Group does not adjust the promised amount of consideration for the effects of significant financing components in contracts where the Group expects, at contract inception, the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service to be one year or less.

Other income

Other income typically relates to property rental income and property service charges.

Cost of sales

Cost of sales comprises data and licence fees, data feed costs, expenses incurred in respect of revenue share arrangements and costs incurred in the MillenniumIT business that are directly attributable to the construction and delivery of customers' goods or services, and any other costs linked and directly incurred to generate revenues and provide services to customers.

Revenue share expenses presented within cost of sales relate to arrangements with customers where the revenue share payment is not limited to the amount of revenues receivable from the specific customer.

Contract assets

Contract assets are recognised when the Group has the conditional right to consideration from a customer in exchange for goods or services transferred.

Contract assets are transferred to and presented as trade receivables when the entitlement to payment becomes unconditional and only the passage of time is required before payment is due.

Contract liabilities

Revenue relating to future periods is classified as a contract liability on the balance sheet to reflect the Group's obligation to transfer goods or services to a customer for which it has received consideration, or an amount of consideration is due, from the customer.

Contract liabilities are amortised and recognised as revenue in the income statement over period the services are rendered.

Contract costs

Incremental costs of obtaining a customer contract, such as sales commissions paid to employees, are recognised as an asset if the benefit of such costs is expected to be longer than one year. The associated asset is amortised over a period consistent with the transfer to the customer of the products and services under the contract and is presented as an intangible assets in the Group's consolidated balance sheet. The Group amortises the contract costs over the period which a customer benefits from existing software technology supporting the underlying product or service.

The Group also applies the practical expedient in IFRS 15 to recognise the incremental cost of obtaining a contract as an expense when incurred, if the amortisation period is one year or less.

IFRS 9 Financial instruments - impact of adoption

On 1 January 2018 the Group adopted IFRS 9 'Financial Instruments' and applied the standard retrospectively. The Group has elected to continue to apply hedge accounting under IAS 39.

The Group has not restated comparative amounts in the financial statements, as this would require the use of hindsight in factors influencing measurement such as fair values and expected credit loss calculations and therefore is proscribed by the standard. Instead the Group has recognised any differences between the carrying amounts measured in accordance with IFRS 9 at the date of transition with previously reported carrying amounts, in the opening retained earnings of the current period. This has resulted in an £8m adjustment to opening retained earnings as at 1 January 2018, as presented in the condensed consolidated statement of changes in equity. This comprises a £10m reduction in the provision for impairment of trade receivables as the Group modified its previous impairment model to an expected credit loss approach which takes into account historic collection rates as well as forward-looking information, and a consequential £2m increase in deferred tax liability.

Amounts presented in the Group's interim condensed consolidated financial statements as at 31 December 2017 have been updated to adopt the new terminology under IFRS 9. The previously reported 'loans and receivables' and 'available for sale at fair value through other comprehensive income' categories are now referred to as 'financial assets at amortised cost' and 'financial assets at fair value through other comprehensive income' ('FVOCI') respectively in Note 12.

The new standard requires financial instruments to be classified as fair value through profit or loss (FVPL), fair value through other comprehensive income (FVOCI) or amortised cost, each of which are explained further below. The classification depends on the Group's business model for managing its financial instruments and whether the cash flows generated are "solely payments of principal and interest" (SPPI).