CLS Group Holdings AG
Interim Financial Report 30 June 2013
CLS Group Holdings AG Interim Financial Report June 2013
1
CLS Group Holdings AG Interim Financial Report Contents Results Summary
2
Highlights 3 Chairman’s Statement
4
Chief Executive Officer’s Report
6
Chief Financial Officer’s Report
8
Directors’ Responsibilities Statement
10
Independent Auditors’ Review to the Directors of CLS Group Holdings AG – (“The Group”)
11
Condensed Consolidated Income Statement
12
Condensed Consolidated Statement of Comprehensive Income
13
Condensed Consolidated Balance Sheet at 30 June 2013
14
Condensed Consolidated Statement of Changes in Equity
15
Condensed Consolidated Cash Flow Statement
16
Notes to the Condensed Consolidated Financial Statements
17
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CLS Group Holdings AG Interim Financial Report June 2013
Results Summary
The CLS Group – at a glance
Six months ended 30 June 2013
Six months ended 30 June 2012
Revenue for the period
GB£m
86.8 79.1
Profit from operations
GB£m
17.6 5.7
Profit for the period after tax
GB£m
16.0 4.6
Total assets at period end
GB£m
186.0 150.2
Total equity at period end
GB£m
114.8 85.7
Daily average capped billable value in the period
US$ trillion
2.9 2.5
Daily average billable volume in the period
Number of sides
866,000 721,000
CLS Aggregation highest daily volume
Number of sides
755,000 544,000
Peak value day
US$ trillion
Peak volume day
Number of sides
Average monthly number of employees in period
No.
335 297
Number of Shareholders at period end
No.
74 73
Number of Members at period end
No.
63 61
9.1 8.4 1,992,000 1,001,000
CLS Group Holdings AG Interim Financial Report June 2013
Highlights
Customers »» Natixis joined as a new Settlement Member, bringing the total to 63 »» Mizuho joined CLS Aggregation Services, the tenth Member to use the service
Services »» R ecord daily volume on 28 May 2013. More than 2.9 million instructions were submitted for settlement (combining FX Settlement and Aggregation). The previous combined peak record volume was 2.6 million on 22 January 2013 »» T he half-year average daily value of settled instructions was USD 5.15 trillion – an increase of 9% compared to the same period in 2012
Organisation »» The new CLS office in Hong Kong was announced on 8 August 2013
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CLS Group Holdings AG Interim Financial Report June 2013
Chairman’s Statement
Dear Shareholder, During the first half of 2013 CLS continued to provide a robust and secure risk mitigation service to Settlement Members and their third party clients, settling all the payment instructions it received.
Gerard Hartsink
During the first half of 2013 CLS continued to provide a robust and secure risk mitigation service to Settlement Members and their third party clients, settling all the payment instructions it received.
Financial Market Infrastructures continue to be affected by the changing regulatory landscape, which provides CLS with both opportunities and challenges. We remain committed to working with the industry to develop solutions in response to these regulatory and industry challenges, in particular the settlement of cleared FX to avoid the reintroduction of settlement risk for those FX products mandated for clearing. In April 2013 CLS made changes to the Board of Directors. Five new Directors were appointed: Gérard Gil is Senior Advisor to BNP Paribas’ General Management. Gérard supervised the accounting department of BNP Paribas until 2009 and was the firm’s Deputy CFO from 2009 to 2012. A member of the Supervisory Board of the European Financial Reporting Advisory Group, he has been the Chairman of the Accounting Committee of the French Banking Association since 1998 and of the Accounting Committee
of the European Banking Federation from 2006 to 2011. Gérard’s experience has enhanced the effective oversight and guidance of the Board. David Hudson is Managing Director and Global Chief Operating Officer for Rates, Foreign Exchange and Public Finance at JPMorgan Chase. David is responsible for business strategy, the oversight of finance, technology and business operations, as well as regulatory and industry relationships for the Rates and FX businesses. He has also worked in a variety of Chief Operating Officer roles at JPMorgan Chase. David’s track record as a senior manager in the global FX business has already proved useful as CLS strives to maintain its vital role in the evolving FX market. Karen Keenan is Executive Vice President, Head of Global Markets for Europe, the Middle East and Africa (EMEA) at State Street Corp. She is responsible for leading foreign exchange, securities finance, transition management and equity trading, and electronic platforms businesses in the EMEA region. In addition to this role, Karen oversees the client relationships team and supports strategic initiatives for Global Markets. Karen’s financial and operational experience has strengthened the Board’s planning and forecasting efforts.
CLS Group Holdings AG Interim Financial Report June 2013
Maggie Parent is Managing Director and Chief Operating Officer for Operations, Technology and Data for Morgan Stanley. Maggie oversees the day-to-day operations, financial and personnel management for two divisions, while also managing strategic projects including acquisitions, divestitures, new office openings and infrastructure renovation. Maggie’s technical and operational experience has further enhanced the Board’s expertise as CLS seeks to enhance its infrastructure to comply with regulatory requirements. Kam Keung (KK) Tse is the former head of State Street Corp.’s investment servicing business in Asia Pacific. KK has worked in Asia for more than 30 years in banking, investment and public services. He is a member of the Financial Infrastructure Sub Committee of the Exchange Fund Advisory Board as appointed by the Financial Secretary of the Hong Kong SAR government. CLS’ goal to expand its Asian operations is supported by KK, an independent Director, who brings three decades of financial industry experience in that region. In addition, David Weisbrod resigned from the Board in April. We thank him for his contribution and wish him well for the future.
Finally, the Board and Management are aligned on business strategy, which enables CLS to meet regulatory and market expectations, and supports future business growth.
Gerard Hartsink Chairman CLS Group Holdings AG 12 September 2013
We remain committed to working with the industry to develop solutions in response to these regulatory and industry challenges”
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CLS Group Holdings AG Interim Financial Report June 2013
Chief Executive Officer’s Report
Dear Stakeholders, In my first year at CLS, I have been gratified by consistently supportive Member feedback on the performance of CLS’ service. I am also very proud of the talent and leadership of the executive management team who are collectively focused on the success of CLS through the success of our Members. With the addition of a new Chief Financial Officer, Chief Legal Officer and Head of Global Regulatory Affairs, we have strengthened our leadership and company in a dynamic manner.
David Puth
The first half of 2013 was a period of strong growth and accomplishment for CLS. We continued to deliver our service through record volume days while planning for future market growth.
CLS’ Mission is “to enhance financial stability by providing risk mitigation services to the global FX market”. Our robust and resilient settlement service contributed to our designation as a Systemically Important Financial Market Utility (SIFMU). The first half of 2013 was a period of strong growth and accomplishment for CLS. We continued to deliver our service through record volume days while planning for future market growth. We expanded our membership base in both CLS Settlement and CLS Aggregation Services. We also focused on progressing key strategic initiatives and planning for enhanced services.
Delivery of the Service Volatility in the FX market led to an increase in both the volume and value of instructions sent to CLS in the first six months of 2013. CLS recorded an average daily volume peak on 28 May 2013. The increase in settlement volume further supports the investment CLS is making in building a new strategic technology platform. Initiated in 2011, core technologies continue to be upgraded to meet the standards required of a SIFMU. The multi-year technology upgrades will allow CLS to deliver faster processing speeds and
increased capacity, and bring more technological capabilities in-house.
Expanding the Member Base In May 2013, we welcomed Natixis as the 63rd CLS Settlement Member. After being a third party user of the CLS Settlement service for several years, Natixis is now able to realize the full benefits of CLS’ liquidity, operational and IT efficiencies, and the opportunity for business growth through the more efficient use of credit lines. In addition, in May, Mizuho became the tenth participant to join CLS Aggregation Services.
Strategic Initiatives In the first half of 2013, CLS continued to work on a series of strategic initiatives. Later this year CLS plans to launch US dollar / Canadian dollar Same-Day Settlement (SDS), CLS’ first alternative settlement session. This will be a significant achievement for CLS as we seek to expand our risk mitigation services. We remain committed to a growth strategy through adding new currencies to CLS. Under the leadership of Dino Kos, the Currency Program team has continued engagement with central banks and local banks in multiple jurisdictions, including Brazil, Russia, China, Poland and Hungary, amongst others. As part of our Asia strategy, we announced the opening of our Hong Kong office, led by Rachael Hoey, Head of CLS Asia. This move is part of CLS’ commitment to the region where we are focused on expanding CLS participation and increasing the number of Asian currencies, including adding the Chinese renminbi. CLS will continue to explore ways it can provide new service offerings to the market. Such initiatives are still in
CLS Group Holdings AG Interim Financial Report June 2013
the analytical phase, but include settlement of new products and pre-settlement services. We have made significant progress on many fronts in the first half of 2013 and I look forward to building upon this trend.
In Conclusion As we enter the second half of 2013, I am excited about future opportunities for CLS. We will continue to deliver our robust and resilient service while enhancing our internal capabilities as expected of a SIFMU. CLS will continue to execute on key strategic initiatives and work with our Members to provide the risk mitigation services that will help the market to grow. Finally, I want to highlight the dedication and hard work of all of our employees, without which we cannot succeed. On behalf of the executive management team, I thank them for their efforts that have led to the continuing success of CLS. This is an exciting time in CLS’ development, and I am thankful to have your support in achieving our collective goals. .
We will continue to deliver our robust and resilient service while enhancing our internal capabilities as expected of a SIFMU. CLS will continue to execute on key strategic initiatives and work with our Members to provide the risk mitigation services that will help the market to grow. Average Daily Value Submitted
$5.15
trillion
First half of 2013 First half of 2012
5.15 trillion 4.73 trillion
CLS Daily Settled Instructions All-Time High
2.9
million
28 May 2013 David Puth Chief Executive Officer CLS Group Holdings AG 12 September 2013
22 January 2013
2.9 million 2.6 million
19 September 2012 2.2 million
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CLS Group Holdings AG Interim Financial Report June 2013
Chief Financial Officer’s Report
The Group delivered a strong financial performance in the first half of 2013, largely generated by increased volumes and settled values. Daily average billable volumes for the six months to 30 June 2013 increased by 20% to an average of 866,000 instructions per day, from 721,000 in the equivalent period in 2012. Aggregation volumes increased by 37% to 445,000 average instructions per day, up from 326,000 in the first half of 2012.
Operating profit
Alexander Filshie
The Group delivered a strong financial performance in the first half of 2013 largely generated by increased volumes and settled values.
The Group achieved a profit after interest and tax of £16.0 million in the six months ending 30 June compared to £4.6 million for the same period last year. Revenues at £86.8 million were 10% higher than the previous half year. Overall operating costs were 6% lower than the previous half year, however staff and IT costs have increased by 13% as a result of increased headcount, and IT services and facilities costs. These rises were driven by capacity enhancements and increases in governance and risk management staff, but a reduced spend on one-off projects and professional fees largely offset these increases. Our operating expense/income ratio improved by 13% to 80% reflecting increasing emphasis on cost management and the lower level of one-off project related expenses incurred in the first half of 2013. Whilst revenues are expected to continue to accrue at broadly the same level throughout the year, we expect operating costs to increase later in the year reflecting increased staff numbers and depreciation on certain newly developed assets.
Capital expenditure Cash generated from operations in the period was £13.2 million, funding a major component of our capital investment expenditure of £21.0 million. This investment funded the ongoing upgrades to our capability, resilience and operating capacity. This is line with the previous first half year of £20.2 million. This includes investment in technology to generate enhanced capacity and operational efficiencies, as well as pursuing strategic initiatives, in order to deliver continued growth for the benefit of its Members and Shareholders.
Financial position The Group strengthened its Balance Sheet at the end of June, reporting net assets of £114.8 million, an increase of £16.0 million from the level recorded at 31 December 2012. Current internal capital and liquidity ratios were met throughout the period. Deposits and cash and cash equivalents were £50.1 million by the end of June (a reduction of £6.1 million from December 2012). Additional net loan funding of £3.5 million offset the repayment to Settlement Members of Member Ramp up Credits (£3.6 million) used to provide early funding to the CLS Group. The Group intends to repay these over time.
Contingent Liability In April 2013, the three remaining vendors of a sale and purchase agreement concluded in September 1997 to restructure CLS Group, waived their respective rights and claims to deferred consideration in exchange for Genussscheine certificates issued by CLS Group Holdings AG.
CLS Group Holdings AG Interim Financial Report June 2013
The Articles of Association enable the holders of these Certificates to participate in profit distributions in prescribed circumstances.
Group Profit at 30 June 2013
Capital and Liquidity
2013
At the end of June 2013 the Group’s gearing was 35%, compared to 29% at the same period last year. The Board and Management continue to assess the strategy of the Group with respect to its capital and liquidity requirements. With the adoption of the new Principles for Financial Market Infrastructures (“The Principles”) issued by the CPSS/ IOSCO1, together with the requirement to invest in a long-term sustainable business model, the Directors are taking appropriate steps to ensure CLS Group is appropriately capitalised.
Outlook In conclusion, the Group delivered a strong financial performance in the first half of the year whilst continuing to invest in a multi-year programme renewing and extending its core capabilities.
Alexander Filshie Chief Financial Officer CLS Group Holdings AG 12 September 2013
1
ommittee on Payment C and Settlement Systems/Board of the International Organization of Securities Commissions
£16.0
million
2012
16,000,000
4,600,000
Total Revenue at 30 June 2013
£86.8
million
2013
2012
86,800,000 79,100,000
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10 CLS Group Holdings AG Interim Financial Report June 2013
Directors’ Responsibilities Statement The Directors are responsible for preparing the interim financial statements in accordance with applicable law and regulations.
In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. However, Directors are also required to:
The Directors have elected to prepare the financial statements in accordance with the requirements of Swiss law, International Financial Reporting Standards (IFRS) and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in circumstances.
»» P roperly select and apply accounting policies;
International Accounting Standard 1 requires that financial statements present fairly for each financial year the company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s “Framework for the preparation and presentation of financial statements”.
»» M ake an assessment of the company’s ability to continue as a going concern.
»» P resent information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; »» P rovide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
CLS Group Holdings AG Interim Financial Report June 2013 11
Independent Auditor’s Review To the directors of CLS Group Holdings AG – (“the Group”) for the period ended 30 June 2013
We have been engaged by the Group to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the income statement, the statement of comprehensive income, the balance sheet, the statement of changes in equity, the cash flow statement, and related notes 1 to 21. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Group in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Group those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group, for our review work, for this report, or for the conclusions we have formed.
Directors’ responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with International Accounting Standard 34, “Interim Financial Reporting”. As disclosed in note 1, the annual financial statements of the company are prepared in accordance with IFRS. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting”.
Our responsibility Our responsibility is to express to the Group a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34.
Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries,
Deloitte LLP Chartered Accountants and Statutory Auditor London, England 12 September 2013
12 CLS Group Holdings AG Interim Financial Report June 2013
Condensed Consolidated Income Statement (Unaudited)
For the year ended 30 June 2013
Revenue
notes
6 Months ended 30 June 2013, £000
6 Months ended 30 June 2012, £000
Year ended 31 December 2012, £000
3
86,764
79,081
159,343
(69,142)
(73,250)
(142,404)
Operating expenses
Profit from operations
4
17,622
5,831
16,939
Investment income
5
43
71
245
Finance costs
6
(21)
(197)
(310)
Profit before tax
17,644
5,705
16,874
Tax charge for the period
(1,643)
(1,071)
(2,870)
Profit for the period
16,001
4,634
14,004
14,867
4,243
14,028
1,134
391
(24)
16,001
4,634
14,004
Attributable to: Equity holders of the parent Non-controlling interests
Profit for the period All of the above relates to continuing operations.
11
CLS Group Holdings AG Interim Financial Report June 2013 13
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the year ended 30 June 2013
6 Months ended 30 June 2013, ÂŁ000
6 Months ended 30 June 2012, ÂŁ000
Year ended 31 December 2012, ÂŁ000
Profit for the period
16,001
4,634
14,004
Total comprehensive income
16,001
4,634
14,004
Equity holders of parent
14,867
4,243
14,028
Non-controlling interests
1,134
391
(24)
16,001
4,634
14,004
Attributable to:
Total comprehensive income
There is no recognised income or expense for the period ended 30 June 2013, 31 December 2012, and 30 June 2012 other than those stated above.
14 CLS Group Holdings AG Interim Financial Report June 2013
Condensed Consolidated Balance Sheet (Unaudited)
At 30 June 2013
notes
At 30 June 2013 £000
At 30 June 2012 £000
At 31 December 2012 £000
Intangible assets
7
102,001
63,672
85,961
Property, plant and equipment
8
7,021
8,088
7,855
Non-current assets
Other non-current assets Available for sale investments
9
438
–
–
10
114
125
114
Deferred tax asset
7,386
10,804
8,926
116,960
82,689
102,856
12
18,915
18,616
15,620
Current assets Trade and other receivables Tax assets
13
94
178
58
Deposits
14
–
14,500
3,076
Cash and cash equivalents
14
Total assets Current liabilities
50,053
34,203
53,118
69,062 186,022
67,497 150,186
71,872 174,728 (31,446)
(41,178)
(32,016) (119) (3,972) (14,035) (50,142)
(45,583)
–
(3,726)
(3,726)
Trade and other payables
15
(26,795)
Tax liabilities
13
(162)
Member credits payable within 1 year
16
(4,127)
Bank loan payable within 1 year
17
(10,094)
(131) (3,972) (10,034)
Non-current liabilities Member credits
16
Bank loan
17
Total liabilities Net assets Equity Share capital
18
Share premium account
(30,091)
(10,666)
(26,667)
(30,091) (71,269) 114,753
(14,392) (64,534) 85,652
(30,393) (75,976) 98,752
126,541
124,274
126,541
19,926
18,463
19,926
116,631
116,631
116,631
Retained earnings
(148,728)
(173,380)
(163,595)
Equity attributable to equity holders of the parent
114, 370
85,988
99,503
Combined merger and consolidated reserves
Non-controlling interest
11
Total equity
383
(336)
(751)
114,753
85,652
98,752
The financial statements were approved by the Board of Directors on 12 September 2013 and signed on its behalf by:
David Puth
Alexander Filshie
Chief Executive Officer
Chief Financial Officer
CLS Group Holdings AG Interim Financial Report June 2013 15
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the year ended 30 June 2013
Share Capital £000
Share Premium £000
Combined Merger and Consolidated Reserves £000
124,274
18,463
116,631
Issue of Shares
–
–
Profit for the period
–
Total £000
Noncontrolling Interest £000
Total £000
(177,623)
81,745
(727)
81,018
–
–
–
–
–
–
–
4,243
4,243
391
4,634
124,274
18,463
116,631
(173,380)
85,988
(336)
85,652
2,267
1,463
–
–
3,730
–
3,730
–
–
–
9,785
9,785
(415)
9,370
126,541
19,926
116,631
(163,595)
99,503
(751)
98,752
Issue of Shares
–
–
–
–
–
–
–
Profit for the period
–
–
–
14,867
14,867
1,134
16,001
126,541
19,926
116,631
(148,728)
114,370
383
114,753
Balance at 1 January 2012
Balance at 30 June 2012 Issue of Shares Profit/(loss) for the period
Balance at 31 December 2012
Balance at 30 June 2013
Retained Earnings
Equity comprises share capital, share premium, retained earnings and a combined merger and consolidated reserve.
16 CLS Group Holdings AG Interim Financial Report June 2013
Condensed Consolidated Cash Flow Statement
(Unaudited)
For the six months ended 30 June 2013
6 months ended 30 June 2013
6 months ended 30 June 2012
Year ended 31 December 2012
notes
£000
£000
£000
19
13,228
6,217
27,163
47
71
263
3,076
4,750
16,174
10
–
(27)
(13)
Purchases of intangible assets
7
(20,768)
(17,665)
(45,925)
Purchase of property, plant and equipment
8
(250)
(2,527)
(3,316)
(17,895)
(15,398)
(32,817)
–
–
3,730
Net cash inflow from operating activities Interest received Decrease in deposits Purchases of investments
Net cash outflow from investing activities Issue of share capital Receipt of long-term loan
17
3,484
14,754
26,754
Payment of Member credits
16
(3,572)
–
–
(88)
14,754
30,484
Net (decrease)/increase in cash and cash equivalents
(4,755)
5,573
24,830
Cash and cash equivalents at beginning of period
53,118
28,638
28,638
1,690
(8)
(350)
50,053
34,203
53,118
Net cash (outflow)/inflow from financing activities
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
CLS Group Holdings AG Interim Financial Report June 2013 17
Notes to the Condensed Consolidated Financial Statements For the period ended 30 June 2013
1. Accounting Policies These interim condensed consolidated financial statements are consistent with the accounting policies, presentation and principles for recognising assets, liabilities, income and expenses as those applied in the preceding annual financial statements in the 2012 Annual Report prepared in accordance with IFRS. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor’s report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements in Swiss law. The information for the period ended 30 June 2013 does not constitute statutory accounts as defined in Swiss law. The interim report has been prepared in accordance with IAS34 Interim Financial Reporting.
2. Critical Accounting Judgements and Key Sources of Estimation Uncertainty In the preparation of the company’s interim consolidated financial statements, management has made a number of estimates and judgements which affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of income and expenses during the reporting period that are consistent with those as described in the company’s annual consolidated financial statements for the year ended 31 December 2012. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
3. Revenue 6 months ended 30 June 2013
6 months ended 30 June 2012
Year ended 31 December 2012
£000
£000
£000
74,870
69,613
139,428
Annual Account Maintenance Fees
2,118
2,090
4,232
Liquidity Usage Fees
1,273
1,268
2,536
Aggregation Fees
6,399
4,286
9,327
Other Income
2,104
1,824
3,820
86,764
79,081
159,343
Instruction Processing Charges
Total Revenue
A revenue breakdown by business and geographical segments is not shown, as the equity of the Group is not publicly traded; the Group operates in a single global market and only has one class of business.
18 CLS Group Holdings AG Interim Financial Report June 2013
Notes to the Condensed Consolidated Financial Statements (Continued)
4. Profit from Operations The profit from operations has been arrived at after charging/(crediting): June 2013 £000
June 2012 £000
December 2012 £000
Staff costs
30,677
27,991
54,291
CLS system facilities maintenance costs
18,188
15,194
31,085
Amortisation of intangible assets
4,725
5,017
10,988
Depreciation of property, plant and equipment
1,084
879
1,901
Traiana service charges
1,922
1,840
4,537
(1,690)
14
351
101
118
207
June 2013 £000
June 2012 £000
December 2012 £000
101
118
207
Tax services
76
55
124
Other services
83
1,628
4,167
Capitalised fees
754
682
2,015
Total non-audit fees
913
2,365
6,306
1,014
2,483
6,513
Net foreign exchange losses (gains)/loss Auditors’ remuneration for audit services (see below)
The analysis of auditors’ remuneration is as follows:
Total audit fees Fees payable to the company’s auditors and their associates for other services to the Group:
Total fees Capitalised costs reflect milestone payments for project management resources. Other services were mainly in relation to remediation programme and advisory services. June 2012 comparative figures have been re-presented to reflect a surplus provision of ‘Other’ and ‘Tax’ services that reversed in later months.
CLS Group Holdings AG Interim Financial Report June 2013 19
5. Investment Income 30 June 2013 £000
30 June 2012 £000
31 December 2012 £000
Interest income on bank deposits
43
71
245
Investment income
43
71
245
30 June 2013 £000
30 June 2012 £000
31 December 2012 £000
475
489
967
(454)
(292)
(657)
21
197
310
6. Finance Costs
Total interest on loan (see note 17) Less capitalised interest on new loan
Net finance costs charged to income statement
20 CLS Group Holdings AG Interim Financial Report June 2013
Notes to the Condensed Consolidated Financial Statements (Continued)
7. Intangible Assets 30 June 2013 £000
30 June 2012 £000
31 December 2012 £000
Opening balance
41,113
12,573
12,573
Additions
20,768
17,665
45,925
Transfers
(15,456)
(8,525)
(17,385)
46,425
21,713
41,113
157,681
140,296
140,296
Additions
–
–
–
Transfers
15,456
8,525
17,385
Closing balance
173,137
148,821
157,681
Closing balance Total Cost
219,562
170,534
198,794
112,833
101,845
101,845
4,728
5,017
10,988
117,561
106,862
112,833
Work in Progress
46,425
21,713
41,113
CLS System
55,576
41,959
44,848
102,001
63,672
85,961
Work in Progress – Cost
Closing balance CLS System – Cost Opening balance
CLS System – Accumulated Amortisation Opening balance Charge for the period
Closing balance Net book value
Intangibles Total Work in progress at the end of June 2013 mainly comprises partly completed CLS System application development costs.
CLS Group Holdings AG Interim Financial Report June 2013 21
8. Property, Plant and Equipment (PPE) Computer equipment, fixtures and fittings
30 June 2013 £000
30 June 2012 £000
31 December 2012 £000
20,520
17,204
17,204
250
2,527
3,316
20,770
19,731
20,520
12,665
10,764
10,764
1,084
879
1,901
13,749
11,643
12,665
7,021
8,088
7,855
Cost Opening balance Additions
Closing balance Accumulated Depreciation Opening balance Charge for the period
Closing balance Net book value: PPE Total
9. Other Non-Current Assets The balance is made up of amounts prepaid over more than one year.
10. Available for Sale Investments Investment in SWIFT CLS Bank owns 66 shares in SWIFT included in the balance sheet at EUR133,402 (£114,332) (Dec 2012: £113,682). This investment is an equity investment that does not have a quoted market price in an active market and whose fair value cannot be reliably measured. As a result, this investment is held at cost. The Group does not intend to dispose of this investment. The Group held no trading investments, no held-to-maturity investments or loans receivable carried at amortised cost in either the current or prior year.
11. Profit Attributable to Non-Controlling Interest CLS Bank International owns 51% of CLS Aggregation Services (CLSAS) with the remaining 49% owned by Traiana Inc. The amount of £1.1m reported in the Income Statement represents 49% of the total profit of £2.2m recorded by CLSAS in the year, attributable to Traiana. Under the terms of the joint venture contract, each partner can recharge the company an annual fixed fee.
22 CLS Group Holdings AG Interim Financial Report June 2013
Notes to the Condensed Consolidated Financial Statements (Continued)
12. Trade and Other Receivables At 30 June 2013 £000
At 30 June 2012 £000
At 31 December 2012 £000
17,169
14,116
12,732
Other receivables
947
3,156
2,174
VAT recoverable
371
663
565
Trade receivables
428
681
149
18,915
18,616
15,620
30 June 2013 £000
30 June 2012 £000
31 December 2012 £000
UK Corporation tax
(73)
(69)
(42)
Japanese Corporation tax
(89)
(50)
(89)
–
–
–
(162)
(119)
(131)
–
–
–
US City tax
94
178
58
Total tax assets
94
178
58
(68)
59
(73)
Prepayments and accrued income
The Directors consider that the carrying amount of receivables approximates to their fair value because they are short-term in nature. The average period for receipt of trade receivables was two days (2012: zero days).
13. Tax Assets/Liabilities
US Federal tax
Total tax liabilities US Federal tax
Net tax (liabilities)/assets
14. Deposits and Cash and Cash Equivalents Deposits comprise short-term bank deposits held by the Group with an original maturity of between three and twelve months. The carrying amount of these assets approximates to their fair value because they are short-term in nature. Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash and short-term bank deposits held by the Group with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value because they are short-term in nature.
CLS Group Holdings AG Interim Financial Report June 2013 23
15. Trade and Other Payables At 30 June 2013 £000
At 30 June 2012 £000
At 31 December 2012 £000
(23,188)
(26,400)
(25,268)
Trade payables
(702)
(2,844)
(2,214)
Taxation and social security costs
(744)
(339)
(779)
(2,161)
(2,433)
(3,185)
(26,795)
(32,016)
(31,446)
At 30 June 2013 £000
At 30 June 2012 £000
At 31 December 2012 £000
–
(3,726)
(3,726)
Less: Amount due for settlement within 1 year
(4,127)
(3,972)
(3,972)
Total
(4,127)
(7,698)
(7,698)
Accruals and deferred income
Other payables
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases was 7 days (2012: 10 days). The Directors consider that the carrying amount of payables approximates to their fair value because they are short-term in nature.
16. Member Credits
Member credits (payable > 1 year)
These credits represent prepayments of instruction volume processing fees that Members provided during the Group’s first live year operations. The carrying value approximates to their fair value, as the Group intends to repay the credits in the future. On 1 March of this year, £3,572,437 representing 25% of the original amount was paid out to Members.
24 CLS Group Holdings AG Interim Financial Report June 2013
Notes to the Condensed Consolidated Financial Statements (Continued)
17. Bank Loan At 30 June 2013 £000
At 30 June 2012 £000
At 31 December 2012 £000
(36,701)
(9,947)
(9,947)
(21)
(197)
(310)
(454)
(292)
(657)
6,516
5,246
13,246
(10,000)
(20,000)
(40,000)
475
489
967
(40,185)
(24,701)
(36,701)
At 30 June 2013 £000
At 30 June 2012 £000
At 31 December 2012 £000
On demand or within one year
(10,094)
(14,035)
(10,034)
In the second year
(10,367)
(8,000)
(8,000)
In the third to fifth years, inclusive
(19,724)
(2,666)
(18,667)
(40,185)
(24,701)
(36,701)
10,094
14,035
10,034
(30,091)
(10,666)
(26,667)
Number of ordinary shares of CHF 1,740 each
Total Nominal value CHF
30 June 2013
233,898
406,982,250
31 December 2012
233,898
406,982,520
30 June 2012
233,898
406,982,520
Opening Balance Finance costs Finance costs (capitalised) Capital repaid Borrowing Interest paid
Closing Balance Borrowings are repayable as follows:
Less: Amount due for settlement within 1 year
Amount due for settlement after 1 year
In 2012 the Group entered into a new agreement to borrow up to £50,000,000 at an interest rate of 1.5% over 3 month GBP LIBOR which was fixed in March 2013 at 1.08%. This loan was drawn down in tranches – £20,000,000 in April 2012, £20,000,000 in September 2012 and a further £10,000,000 in March 2013. The loan is repayable in quarterly instalments and will be fully repaid by April 2017. The £30,000,000 loan borrowed in 2009 was fully paid in March 2013.
18. Share Capital
Authorised
CLS Group Holdings AG Interim Financial Report June 2013 25
Allotted and fully paid Year
Class
Total Nominal value CHF
Total Nominal value GBP
Allotted and fully paid 30 June 2013
Ordinary
165,392 ordinary shares of 1,740 CHF each
287,782,080
126,541,547
31 December 2012
Ordinary
165,392 ordinary shares of 1,740 CHF each
287,782,080
126,541,547
30 June 2012
Ordinary
163,420 ordinary shares of 1,740 CHF each
284,350,800
124,273,982
Period ended 30 June 2013 £000
Period ended 30 June 2012 £000
Year ended 31 December 2012 £000
17,622
5,831
16,939
Amortisation of intangible assets
4,728
5,017
10,988
Depreciation of property, plant and equipment
1,084
879
1,901
(Profit)/loss on cash and cash equivalents as a result of foreign exchange rate changes
(1,690)
14
351
Operating cash flows before movements in working capital
21,744
11,741
30,179
Increase in receivables
(3,736)
(6,091)
(3,226)
(Decrease)/increase in payables
(4,653)
1,372
960
Cash generated from operations
13,355
7,022
27,913
(106)
(608)
(440)
(21)
(197)
(310)
13,228
6,217
27,163
No new shares were issued in the first six months of 2013.
19. Notes to the Cash Flow Statement
Profit from operations
Adjustments for:
Income taxes paid Interest paid
Net cash inflow from operating activities
Cash and cash equivalents, which are presented as a single class of asset on the face of the balance sheet, comprise cash and short-term bank deposits held by the Group with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value because they are short-term in nature.
26 CLS Group Holdings AG Interim Financial Report June 2013
Notes to the Condensed Consolidated Financial Statements (Continued)
20. Contingent Liabilities (a) Deferred Consideration On 11 December 1997, CLS UK Intermediate Holdings Ltd. (formerly CLS Services Ltd., a subsidiary of CLS Group Holdings AG) acquired Exchange Clearing House Limited (ECHO), incorporated in England, and Multinet International Bank (MIB), incorporated in the US, from their respective shareholders (vendors) under the terms of a sale and purchase agreement. The sale and purchase agreement provides for deferred consideration payable to vendors. The Company’s liability to pay deferred consideration spans a ten-year period which commenced on 1 January 2003. 20 of the original 23 vendors accepted an offer of Swiss Genussscheine in exchange for an assignment and transfer of their existing deferred consideration rights. Following a re-issuing in April 2013 of the Genussscheine offer, the remaining three vendors, by way of legal agreement with CLS UK Intermediate Holdings Ltd and CLS Group Holdings AG, waived their respective rights and claims to deferred consideration in exchange for Genussscheine in CLS Group Holdings AG.
(b) Alice litigation On 24 May 2007, CLS Bank International initiated an action against Alice Corporation Pty Ltd. (“Alice”) in the United States District Court for the District of Columbia seeking a declaratory judgment of non-infringement, patent invalidity, and patent unenforceability against patents held by Alice. Alice is an Australian corporation whose only known business is holding patents. Alice had previously asserted in correspondence, and then alleged in counterclaims in the District of Columbia lawsuit, that CLS’ continuous linked settlement service and settlement system infringe certain US patents held by Alice. The complaint filed by CLS alleged that CLS does not infringe the Alice patents, alleged that the Alice patents are invalid and unenforceable, and sought a judicial declaration to that effect. Alice’s counterclaims seek unspecified damages for alleged infringement. On 9 March 2011, the U.S. District Court for the District of Columbia granted CLS summary judgment dismissing the case, and found that all of Alice’s asserted patent claims were invalid and cover non-patentable subject matter. The district court’s decision was appealed to the U.S. Court of Appeals for the Federal Circuit, and the appeal was argued on 13 January 2012. On 9 July 2012, a three-judge panel of the Federal Circuit reversed the district court and held that it was not manifestly evident that Alice’s claims were invalid and covered non-patentable subject matter. On 22 August 2012, CLS requested en banc review of the Federal Circuit’s 9 July 2012 decision by all of the active judges of the Federal Circuit. Such review was granted on 9 October 2012 in an order by the Federal Circuit, vacating the 9 July 2012 panel decision and setting a briefing schedule for the en banc hearing. In a decision dated 10 May 2013, the en banc court affirmed the district court’s finding that Alice’s claims are ineligible for patenting.
CLS Group Holdings AG Interim Financial Report June 2013 27
Following the en banc decision, Alice’s only means for pursuing its infringement claims is a petition for certiorari to the U.S. Supreme Court asking for further review of the case. Alice filed its certiorari petition on 4 September 2013. CLS has one month to oppose Alice’s petition but may seek an extension on this deadline. The potential financial impact on the CLS Group cannot currently be assessed.
21. Financial Commitments Financial commitments are defined as those items which are considered material and outside normal purchase commitments that are contracted for, but not provided for, at the balance sheet date. Financial commitments are as follows: At 30 June 2013 £000
At 30 June 2012 £000
At 31 December 2012 £000
306,800
350,659
329,533
–
–
39,000
17,224
23,788
18,937
324,024
374,447
387,470
Contracted for but not provided for: – IT Services Agreement – IT Facilities Management – other
Total
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