Interim Financial Report

30 June 2017
CLS Group Holdings AG

As already noted, since the start of this year CLS has begun a strategy of investment in a series of new growth initiatives, in which we will deploy a proportion of our available capital to enhance our strategic position, in order to better serve our clients and create shareholder value.

In part due to this investment and as indicated in our full year 2016 results, reported profit of GBP9.9 million for the first half of this year was down compared to the GBP19.0 million in the equivalent period in 2016. We also expect this trend to be similar on a full-year basis for 2017.

Our results are, however, better viewed on an ‘underlying’ basis, which excludes the early phases of investment in these new initiatives, and adds back GBP4.0 million of profits reported in last year’s statutory results relating to mark-to-market gains on 2017 forward FX contracts placed for hedging purposes.

When viewed on this underlying basis, profit is broadly comparable year-on-year, with an underlying return on equity (ROE) of 6.9% (vs. 8.9% in the first half of 2016).

Operating performance

From a business activity perspective, our average daily billable values for the six months to 30 June 2017 increased by 4.2% to USD5.0 trillion compared to the USD4.8 trillion in the equivalent period in 2016. In contrast, volume, represented by average daily billable instructions received, fell by approximately 9.2%. In both cases our activity mirrored the trends seen across the market. In the Aggregation business, average instructions per day decreased by 4%, compared to the first half of 2016.

Tariff charges to members remained consistent year-on-year. Revenues at GBP99.9 million, were marginally lower than the previous half year due to the reduction in overall volume activity 

Overall headline operating costs on a reported basis were 15.8% higher than the previous half year, with increases as a result of investment in IT Security, new initiatives and our main settlement service.

During the first half of the year we also maintained an active FX hedging program extending well into 2018, which continues to protect us well against short-term exchange rate movements..

Balance sheet and capital expenditure
As at the end of June, net assets on our balance sheet stood at GPB377.4 million, an increase of GBP7.8 million from the level recorded at 31 December 2016. The level of capital expenditure increased to GBP17.5 million to support our strategic objectives and a number of mandatory change projects. As a consequence of this increased investment, deposits, and cash and cash equivalents at GBP264.0 million at the end of June fell by GBP3.3 million compared to the 2016 year end.

Capital and liquidity
We continue to hold liquid net assets funded by equity (current assets less current liabilities) well in excess of minimum regulatory requirements as determined within our Recovery and Orderly Wind-Down Plan. Even though
we have started to deploy a proportion of this available capital, we expect to maintain a strong financial position at all times in the future.

Looking to the remainder of the year, we expect full year 2017 reported profits to be lower than last year. However, when viewed on an underlying basis, financial performance is expected to be comparable to the previous year reflecting the strength of the Group.

Over the past several years, we have significantly increased our level of equity and financial strength, such that we now hold capital resources well above the regulatory minimum levels required. Delivery of an appropriate level of ROE has been a key measure of our financial performance, but to eliminate any distorting impact on ROE from our increased equity base we feel it more appropriate in the future to measure financial strength in terms of absolute profit. However we will continue to report ROE.

CLS continues to maintain a strong financial position with a focus on operational excellence and ongoing investment in our main settlement service. Complementing this, we are now embarking on a strategy that will develop a suite of new initiatives to support new and existing clients as well as our shareholders.

Trevor Suarez
Chief Financial Officer


Interim Financial Report 2017