Annual Report and Consolidated Accounts

31 December 2017

CLS Group Holdings AG

...we continue to hold capital well in excess of minimum regulatory requirements.

From a financial perspective, our results for 2017 represent another year of robust underlying profitability complemented by investment in our infrastructure and in new growth initiatives. 

The 2017 reported profit after tax of GBP16 million, which compares unfavorably to GBP42 million in 2016, due to a large year-on-year movement arising from a restatement of our 2016 results. Further details are disclosed in note 30 of the financial statements, and reflect a revaluation of our US deferred tax balances, which under International Financial Reporting Standards (IFRS) requires a different GBP:USD exchange rate and method to be used than adopted in previous years. This has materially increased profits in 2016, which were largely reversed in 2017, due to the movement in exchange rates. Our results are better assessed on an ‘underlying’ basis, as a more comparable measure of relative performance. Underlying profit excludes the cost of the exploratory phases of new initiatives and the net P&L impact arising from the recent US tax reforms which offset the impact of the restatement. It also adjusts for mark to market (‘MTM’) gains on forward FX contracts reported in 2016, but relating to the hedging of 2017 USD expenditure.

The positive impact of US tax reforms noted arises from the revaluation of our USD denominated deferred tax liabilities. Though this is one-off in nature, we anticipate a small recurring P&L benefit each year due to a reduction in US federal tax rates. 

On this underlying basis, 2017 profit of GBP23 million is robust, slightly down year-on-year compared to 2016 (GBP26 million). Underlying expenses are similar year-on-year, while Return on Equity (ROE) at 6.0% vs. 7.4% in 2016, is in line with our expectations, and reflects our investment decisions. 

Operating performance

Business activity for CLSSettlement in 2017 saw a significant increase in average daily billable values of 8% year-on-year. In volume terms, represented by average daily billable instructions received, we experienced a 5% decrease year-on-year. Likewise the Aggregation business saw average daily instructions decrease by 9%, compared to 2016. We consistently monitor our business activity relative to other market sources, which indicates that trends experienced by CLS are similar to the rest of the market. Due to this lower volume, revenues in 2017 were marginally down compared to the prior year.

In 2018, we will continue to develop and strengthen our infrastructure and product propostition, leveraging our robust financial foundation as we invest a proportion of our capital to protect and develop shareholder value.

As communicated to our members in the latter part of last year, I am pleased to state that our tariff charges will once again remain unchanged in 2018. This will be the third year running in which we will maintain flat pricing for settlement members, while delivering on all of our financial goals. In addition, we continued to progress our strategic growth program through the development of new products and services, and maintain ongoing investment in the CLSSettlement infrastructure.

Balance sheet and capital expenditure

Our balance sheet remains strong with net assets of GBP389 million, an increase of GBP9 million compared to 31 December 2016, and we continue to hold capital well in excess of minimum regulatory requirements. In contrast to prior years cash and deposits decreased by GBP6 million, which reflects the significant capital expenditure required to support mandatory infrastructure changes and planned investment to support our growth objectives.

Outlook

In 2018, we will continue to develop and strengthen our infrastructure and product proposition, leveraging our robust financial foundation as we invest a proportion of our capital to protect and develop shareholder value. As a result of this investment we will use absolute profit as our lead financial measure of financial strength, and will continue to monitor ROE. Given one-off distorting impacts, we will also continue to evaluate our financial results on both a reported statutory basis and an underlying basis as more comparable measures. 

Overall, in 2017 we maintained a strong financial position with a focus on operational excellence and ongoing investment. We will continue this strategy for the benefit of both new and existing clients and shareholders.

 


Trevor Suarez
Chief Financial Officer

 

Annual financial report 2017