LSE.L Regulatory News (LSE)

31 July 2020

LONDON STOCK EXCHANGE GROUP PLC

INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2020

Unless otherwise stated, all figures below refer to continuing operations for the six months ended 30 June 2020 (H1 or H1 2020). Comparative figures are for continuing operations for the six months ended 30 June 2019 (H1 2019).

· Good financial and operational performance in H1 drives 11% increase in AEPS

· Further good income growth in Information Services and Post Trade; resilient underlying result in Capital Markets

· Strong operational resilience across the Group's trading, clearing and data platforms during unprecedented period; majority of employees continue to work remotely

· Group in strong financial position; confidence in future prospects supports increase in the interim dividend (up 16%) to 23.3 pence per share

· Good progress with foreign investment, antitrust and other regulatory approvals for the Refinitiv transaction, and integration planning is well developed; the Group expects to close the transaction by the end of the year or in early 2021

H1 Summary

· Total Revenue up 4% to £1,058 million (H1 2019: £1,018 million); total income up 8% to £1,235 million (H1 2019: £1,140 million)

· FTSE Russell revenue up 5% to £330 million (H1 2019: £315 million) with growth in subscription revenues and flat asset-based revenues reflecting lower ETF AUM levels

· Post Trade revenue up 9% to £372 million (H1 2019: £342 million), driven by strong growth in LCH; record activity in CDS, FX and cash equities clearing; total income up 19% to £548 million (H1 2019: £462 million), mainly reflecting higher cash margin held

· Capital Markets revenue down 4% on a reported basis to £217 million, and up 12% on a like-for-like basis excluding the one-off benefit of an IFRS 15 adjustment in prior year

· Adjusted operating expenses, before depreciation and amortisation1, were up 8% (up 5% on a constant currency basis) and up 1% compared with H2 2019

· Adjusted operating profit1 up 8% to £575 million (H1 2019: £533 million); operating profit was down 2% at £391 million (H1 2019: £399 million); profit before tax of £362 million (H1 2019: £363 million); profit after tax of £261 million (H1 2019: £265 million)

· Adjusted EBITDA1 margin broadly unchanged at 54.6% (2019 H1: 54.5%)

· Adjusted EPS1 up 11% to 112.0 pence (H1 2019: 100.6 pence); basic EPS down 9% at 64.6 pence (H1 2019: 70.7 pence)

· Strong balance sheet position with leverage at 1.4 times net debt: pro forma EBITDA

Commenting on performance for the period, David Schwimmer, CEO said:

"The Group has delivered a good financial performance and demonstrated strong operational resilience. During this unprecedented period, we have focused on ensuring the welfare of our employees and on continuity of services to our customers, maintaining access to our markets and clearing venues, with record volumes executed across our services.

"We are making good progress on the proposed transaction with Refinitiv, securing a number of regulatory approvals and engaging constructively with authorities on remaining approvals. We also continue to make good progress on integration planning to ensure we are ready to deliver the benefits of the transaction to our shareholders, customers and other stakeholders. We expect to close the transaction by the end of the year or in early 2021."

Organic growth combined with new product development and investment continued throughout the period. Highlights include:

Information Services

· FTSE Russell announced a 10-year extension to a global index derivatives agreement with Cboe Global Markets to develop and list options based on FTSE Russell indices

· FTSE Russell launched a series of co-branded fixed income indices in partnership with Johannesburg Stock Exchange and new index derivatives launched by Singapore Stock Exchange using FTSE Russell indices

Post Trade

· LCH SwapClear became the first clearing house to clear Singapore Dollar swaps benchmarked to alternative reference rate Singapore Overnight Rate Average (SORA)

· LCH EquityClear went live with a new LSEG Technology post trade platform, processing record equity clearing volumes in March 2020

· UnaVista approved by ESMA to be a trade repository under Securities Financing Transactions Regulation (SFTR)

Capital Markets

· £19.8 billion equity capital raised across new and further issues up 29%, with 17% increase in value traded across venues

· China Pacific Insurance Group (CPIC) listed GDRs in London on Shanghai-London Stock Connect, the largest capital raise via an admission to London Stock Exchange in 2020 to date, raising US$2 billion

· London Stock Exchange celebrated the 25th anniversary of AIM, the London Stock Exchange's growth market, with over 3,800 companies admitted since launch, raising £118 billion in equity capital

1 Before amortisation and impairment of purchased intangible assets and goodwill and non-underlying items

The Group's principal foreign exchange exposure arises from translating and revaluing its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling.

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, adjusted earnings before interest, tax, depreciation and amortisation, adjusted EBITDA margin and adjusted earnings per share all exclude amortisation and impairment of purchased intangible 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 investors today at 08:30am (UK time). On the call to discuss the H1 results will be David Schwimmer (CEO), David Warren (CFO) and Paul Froud (Group Head of Investor Relations).

To access the telephone conference call please pre-register using the following link and instructions below: https://cossprereg.btci.com/prereg/key.process?key=P7C9K8NDA 

· Please register in advance of the conference using the link above. Upon registering with your full name, company name and email address, you will be provided with the information required to join the conference, including dial-in numbers and passcodes

· In the 10 minutes prior to the call start time, please use the conference access information provided in the email received at the point of registering

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

Chief Executive's Statement

Overview of H1

The Group has produced a good half-year financial and operational performance against the backdrop of unprecedented conditions and with the majority of our employees around the world working on a remote basis. Throughout the period, we demonstrated strong operational resilience, maintaining orderly markets and managing market risk through our post trade services, with record volumes executed on our trading venues and at our clearing houses.

We have continued to develop and invest in the business during this period, successfully launching a new equity clearing platform at LCH in March during the peak of the equity market volatility, listing a second GDR through Shanghai-London Stock Connect and developing a number of new indices and winning new contracts in the Information Services division. Our commitment to open access and customer partnership is at the heart of our business model, offering systemically important services on an open, non-discriminatory basis and developing new products with our customers to support global markets.

Total income for the half-year increased 8%, reflecting good growth across many parts of the Group. This is particularly notable given the strong prior year comparative period inclusion of a one-off £32 million benefit from an IFRS 15 change in estimate, without which income would have risen 11%. Adjusted operating expenses before depreciation and amortisation were 8% higher, but increased 1% compared with H2 2019, demonstrating good underlying cost control. Adjusted operating profit increased 8% to £575 million, and adjusted EPS rose 11% to 112.0 pence per share. The Group's adjusted EBITDA margin has remained broadly unchanged at 54.6% (2019 H1: 54.5%).

We remain in a strong financial position, with good cash generation supporting investment and product development while leverage remained stable at 1.4 times net debt to pro forma EBITDA. In line with our progressive dividend policy, and reflecting both the good H1 performance and confidence in future prospects, the interim dividend is increased by 16%, to 23.3 pence per share.

In August last year, we announced the proposed acquisition of Refinitiv, a leading global provider of data, analytics and financial markets solutions. We are making good progress on integration planning to ensure we are ready to deliver the benefits of the transaction immediately following completion. The Group continues to make good progress with foreign investment, merger control and other regulatory filings. Foreign investment approvals have been received in the US and Germany. Unconditional merger control clearances have been received in Botswana, Germany, Japan, Jersey, Kenya, Morocco, Pakistan, Russia, Saudi Arabia, Taiwan and Ukraine, and merger reviews are underway in several other jurisdictions, including in Singapore, Australia, US and Canada. The European Commission commenced a Phase II merger review in June and the Group continues to engage constructively with the case team. Today the Group confirms that it has commenced exploratory discussions which may result in a sale of LSEG's interest in MTS or potentially the Borsa Italiana group as a whole. The Group expects to complete the transaction by the end of the year or in early 2021.

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

Operational Performance

Information Services delivered a 5% increase in revenue, to £437 million (up 3% on an organic and constant currency basis). FTSE Russell revenue increased by 5% to £330 million, and 3% on a constant currency basis. Subscription revenue grew 8% to £218 million, while asset-based revenue was flat at £112 million despite a considerable drop in AUM values due to market volatility during the period. ETF AUM benchmarked to FTSE Russell indices at the end of the period fell by 3% to US$669 billion compared to the end of H1 2019, but up 15% from the end of Q1 2020 as the market recovered. Revenue from real time data grew 8% with strong new business to £52 million while other information services grew 4% to £55 million. Cost of sales was flat at £36 million, with 6% growth in gross profit at £401 million.

The Post Trade division, which incorporates LCH, CC&G, Monte Titoli and UnaVista since the start of the year, grew revenue by 9% to £372 million (up 8% on a constant currency basis). LCH grew 10% to £293 million, with a strong contribution from Non-OTC, which increased 16% to £80 million, with record levels of clearing activity in cash equity and listed derivatives arising from COVID-19 related volatility. OTC clearing revenue increased 6% to £157 million, largely due to growth in client clearing in SwapClear as the number of trades increased by 24%. The period also saw record volumes at ForexClear and CDSClear, and strong growth from client clearing in both services as they develop further. Other revenue at LCH grew 14% to £56 million due to higher levels of non-cash collateral. Post Trade Italy grew 3% to £53 million with strong activity at CC&G as contracts cleared increased 35% in the period to 67.5 million and at Monte Titoli with settlement instructions up 22% to 26.3 million.

LCH net treasury income (NTI) rose 56% to £149 million as average cash collateral increased 26% to €116.3 billion, and CC&G NTI increased 12% to £27 million as initial margin held increased 5% to €14.7 billion. NTI is mainly comprised of income from collateral handling fees, calculated on an agreed basis point spread for the collateral collected. This component is generally predictable and recurring income, typically making up two-thirds of NTI. The remaining one-third component of NTI is the return on investment of the cash collateral over the level returned to members. This element of NTI benefitted from the increased quantum of cash to invest in the period and also received a short-term benefit from the rapid reduction in central bank interest rates. Assuming no change in market environment, total NTI is expected to be lower in H2 and closer to the income reported in H2 2019, as cash collateral levels normalised by the end of H1 and short-term investments will reflect the now lower interest rates.

Total income for Post Trade rose 19% to £548 million (up 18% on a constant currency basis). Cost of sales grew 23% to £80 million, reflecting the strong growth at LCH and in NTI, leading to an 18% increase in gross profit, to £468 million.

Capital Markets revenue fell by 4% on a reported and constant currency basis due to the comparison with H1 2019 revenue for Primary Markets which included a one-off IFRS 15 benefit of £32 million. Excluding this impact, Primary Markets' revenue grew 12% to £65 million. In Secondary Markets, equities trading revenue increased 23% to £91 million, as volumes grew with the strong volatility in March as the market reacted to COVID-19. Equity value traded on London Stock Exchange increased by 21% and the number of trades at Borsa Italiana rose by 57%. Fixed income, derivatives and other trading revenue fell by 2% to £61 million, as activity in these asset classes was more subdued. Cost of sales was £2 million in the period, with reported gross profit falling 3% to £215 million.

Technology Services revenue was unchanged at £30 million. Lower cost of sales of £3 million meant overall gross profit increased 3% to £27 million.

Financial Summary

Unless otherwise stated, all figures below refer to continuing operations for the six months ended 30 June 2020 (H1 2020). Comparative figures are for continuing operations for the six months ended 30 June 2019 (H1 2019). Variances are also provided on an organic and constant currency basis, accounting for the acquisition of Beyond Ratings in 2019 H1.

1 Organic growth is calculated in respect of businesses owned for at least 6 months in either period and so excludes Beyond Ratings

2 Before amortisation and impairment of purchased intangible assets and goodwill and non-underlying items

3 Includes transaction costs and restructuring costs

Note: Variances in all tables are calculated from unrounded numbers.

The Group's principal foreign exchange exposure arises from translating and revaluing its foreign currency earnings, assets and liabilities into LSEG's reporting currency of Sterling.

Revenue increased 4% to £1,058 million (H1 2019: £1,018 million), and up 3% on an organic and constant currency basis. As described in the operational performance section above, many parts of the Group have delivered good results, particularly in Post Trade and Information Services. Total income rose 8% to £1,235 million (H1 2019: £1,140 million) on a reported and organic and constant currency basis. Cost of sales increased 11% to £121 million, (10% on an organic and constant currency basis) primarily as a result of the growth in LCH and FTSE Russell, with gross profit increasing 8% to £1,114 million (H1 2019: £1,031 million).

Adjusted operating expenses before depreciation, amortisation and impairment grew 8% on a reported basis and up 5% on a constant currency basis. Underlying depreciation and amortisation at £99 million was 13% higher than last year, reflecting investments in previous periods. The Group continues to invest in new products and efficiency projects, to increase sales and to develop the Group's infrastructure. Adjusted operating expenses before depreciation and amortisation in H2 are expected to remain similar to H1 2020.

Adjusted operating profit for the period, before amortisation and impairment of purchased intangible assets and goodwill and non-underlying items, increased 8% to £575 million (H1 2019: £533 million). Operating profit was down 2% at £391 million (H1 2019: £399 million) dampened by an increase in amortisation and impairment of intangible assets and goodwill and non-underlying items primarily relating to the Refinitiv transaction.

Adjusted net finance costs were £22 million (H1 2019: £36 million) reflecting a lower blended rate of interest on our debt following the refinancing of Bonds that were due in October 2019. Profit before tax was £362 million (H1 2019: £363 million). The effective underlying tax rate was 23.6%, and 22.5% for H1 with the inclusion of one-off and previous year adjustments (year ended 31 December 2019: 23.7%). The reported tax rate expected for H2 is 23.0%.

Adjusted basic EPS, before amortisation and impairment of purchased intangible assets and goodwill and non-recurring items, increased 11% to 112.0 pence (H1 2019: 100.6 pence) while basic EPS was 64.6 pence (H1 2019: 70.7 pence).

Net cash inflow from operating activities was £448 million (H1 2019: £400 million), the increase reflecting strong underlying performance, partly offset by a timing-related increase in tax outflows. Capital expenditure in the period amounted to £89 million (H1 2019: £89 million). Looking ahead, we expect capex to run at a higher level in H2 as we continue to invest in further product development and other projects to enhance efficiency. Net cash generated after capex, other investing activities and dividends, was £165 million (H1 2019: £122 million). Discretionary free cash flow per share on the same basis was 98.0 pence (30 June 2019: 89.7 pence).

At 30 June 2020, operating net debt (after setting aside £1,337 million of cash for regulatory and operational support purposes) increased to £1,905 million, from £1,755 million at year end. During the period, the Group increased the amount of cash set aside by £80 million following regulatory guidance on COVID-19 requirements. Cash generated by the business funded the Group's investment outflows, dividend payments, tax payments and regular debt servicing. Operating net debt: pro forma EBITDA remained stable at 1.4 times (from 1.4 times at 31 December 2019), reflecting strong earnings growth balanced against the increase in operating net debt.

Standard & Poor's maintained its long-term ratings of LSEG at A and LCH Limited and LCH SA at AA-. Moody's maintained its A3 rating of LSEG. Both agencies maintained their negative outlooks in anticipation of the impact of the Refinitiv acquisition on net leverage. Both agencies are positive about the strategic rationale for the transaction and reference the Group's clearly positioned de-leveraging plans. The Group had net assets of £4,133 million at 30 June 2020 (31 December 2019: £3,801 million), including £1,641 million in cash and cash equivalents (31 December 2019: £1,493 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 2020, the main translation exposures for the Group were its Euro reporting businesses (accounting for 29% of Group income and 30% of Group expenses) and its US dollar reporting businesses (accounting for 29% of income and 19% of expenses). A 10 cent movement in the average £/€ 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 £21 million. A 10 cent movement in the average £/US$ rate for the six months would have changed the Group's operating profit by approximately £8 million. 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.

Response to COVID-19

The first half of the year has brought unprecedented challenges to our employees, customers, suppliers and the communities we operate in. We have been focused on the welfare of our employees and the orderly conduct of business for our customers worldwide. Our systemic role and responsibility to provide continuity of service to our customers and support financial stability has never been clearer.

During the period, we have demonstrated our operational resilience against a backdrop of strong volumes at our trading venues and clearing houses, alongside the additional challenge of running operations with the majority of employees around the world operating on a remote basis. We continue to monitor the development of the pandemic globally. We expect the majority of our employees to work remotely for the remainder of 2020 with up to 30% gradually returning to the office in some locations where public health, government guidelines and the local status of the pandemic supports this approach. We continue to engage directly with employees to support their physical and mental well-being with a variety of bespoke programmes introduced to support their adaptation to new working environments.

Recognising the impact COVID-19 has on the communities in which we operate in around the world, we have made a number of financial donations and partnered with global and local organisations to further support those directly affected by the pandemic. LSEG Foundation used its Emergency Fund to support coronavirus relief efforts in the UK, Italy, Sri Lanka, France, Romania and the United States. These initial efforts were focused on emergency medical supplies and supporting hospitals and front line workers. Since then, the Group has focused on longer term recovery efforts in the UK and Italy, including supporting SME businesses to recover from economic impacts of the pandemic. Together, LSEG and the LSEG Foundation have donated £3.3 million to date.

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 23.3 pence per share, an increase of 16% (H1 2019: 20.1 pence per share). The interim dividend will be paid on 22 September 2020 to shareholders on the register on 21 August 2020.

Outlook

The Group has delivered a good financial performance in the first half of 2020 against the backdrop of unprecedented circumstances. The full impact of COVID-19 on working patterns, customer behaviour and product development is difficult to anticipate but have demonstrated we can adapt quickly and successfully across the Group. Despite the challenges, we are well positioned to continue to develop and to make further progress on our strategic plans, including closing the Refinitiv transaction.

David Schwimmer - Group CEO

31 July 2020

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 desktop and workflow products.

1 Organic growth is calculated in respect of businesses owned for at least 6 months in either period so excludes Beyond Ratings (acquired June 2019)

Note: UnaVista and some other minor items (previously reported in Other information services), are now included in Post Trade

Note: FTSE ETF assets under management benchmarked KPI has been rebased to remove previously reported active ETFs. The previous year comparator has also been adjusted, with a change of $15 billion

Post Trade

The Post Trade division comprises the Group's clearing houses LCH and CC&G, settlement and custody businesses and UnaVista.  

Note: CDSClear notional cleared and LCH Non-OTC volumes have been rebased to count both sides of each cleared trade. This aligns with how activity is reported on LCH's website. The previous year comparator has also been adjusted

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.

1 Primary Markets revenue increased by £32 million in H1 2019 due to a change in estimate relating to IFRS 15. This is due to a reduction in the length of time initial admissions and further issue revenues are required to be recognised.

Note: The H1 2019 number of derivative contracts includes 1.6 million from LSE Derivatives. This service no longer accepted new trades from November 2019

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.

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

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 2020 was approved by the Directors on 31 July 2020.

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 2020 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 2019.

Comparative amounts presented for the condensed consolidated balance sheet relate to the Group's position as at 31 December 2019. All other comparative amounts presented relate to the six months ended 30 June 2019.

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 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 2019, except for the adoption of amended standards effective as of 1 January 2020. None of the amendments adopted on 1 January 2020 have had a material impact on the interim condensed consolidated financial statements of the Group.

The Group has not early adopted any other standards, amendments or interpretations that have been issued but are not yet effective.

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. A further assessment has been included in relation to the impact of COVID-19 below.

The statutory financial statements of London Stock Exchange Group plc for the year ended 31 December 2019, 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.

The Group has realigned its segmental reporting to reflect management structure changes so that all Post Trade Services are now combined in one operating segment. The new operating segment includes the previous segments of LCH Group and the Post Trade businesses in Italy, Monte Titoli and CC&G, as well as the results of UnaVista, which were previously included in the Information Services Division. There has been no impact on the allocation of goodwill and the cash generating units of LCH Group and Post Trade Services in Italy remain separate. The segmental results for the comparative period have been re-presented to align with the new structure. There is no change to the overall result.

COVID-19

The ongoing impact of COVID-19 on the Group has been considered in the preparation of these interim condensed financial statements. The Directors have reviewed liquidity and covenant forecasts, regulatory capital, and critical accounting estimates and judgements for the Group. The Directors have also considered sensitivities including any potential impairments as a result of changes in cash flow forecasts. At the reporting date, no material short-term impacts have crystallised and the Group remains confident about its long-term future performance but remains vigilant in monitoring day to day changes as the global situation evolves. Staff and customer safety remain the paramount concerns of the Group and the Group has adapted successfully to the new ways of working.

Judgements and estimates are regularly evaluated based on historical experience, current circumstances and expectations of future events. A number of areas have been impacted by COVID-19 when exercising judgements and estimates and these have been identified below:

Impairment of intangible assets and goodwill - these assets form a significant part of the balance sheet and are key assets for the cash generating business in the Group. The recoverable amounts of relevant cash generating units are based on value in use calculations using management's best estimate of future performance and estimates of the return required by investors to determine an appropriate discount rate. The Group has reviewed the impact of COVID-19 on future cash flows along with the impact on the weighted average cost of capital applied to each cash generating unit and long-term growth rates. The analysis has focused on geographical impacts to each of the flows and rates. Following this review there was no direct impact to any cash generating units for COVID-19.

Defined benefit pension asset or liability - determined based on the present value of future pension obligations using assumptions determined by the Group with advice from an independent qualified actuary. The value of the liabilities within the scheme have increased as the discount rates have fallen due to the global impact of COVID-19 on bond rates, but this has been offset by the growth in the assets leading to an overall growth in the Group's pension surplus.

Expected credit losses - the Group has factored into impairment reviews of financial assets the expectations of future events including COVID-19. The measured lifetime expected credit losses associated with these assets have not been materially impacted. The Group continues to monitor events and review whether additional provisions will be required in future periods.

Contingent liabilities and provisions - The Group has reviewed its businesses for any contingent liabilities and provisions that may have arisen due to COVID-19. While no items have been identified, the Group continues to actively monitor the business for any potential exposure.

Going concern

After making enquiries and assessing the risks associated with the COVID-19 pandemic and its impact so far, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the interim condensed consolidated financial statements. The financial risk management objectives and policies of the Group and the exposure of the Group to capital, credit and concentration, country, liquidity and market risk are discussed on pages 158 to 163 of the Annual report for the Group for the year ended 31 December 2019.

Net treasury income from the CCP businesses of £176 million comprises gross interest income of £478 million less gross interest expense of £302 million.