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LondonStockExGroup (LSEG)

  Print          Annual reports

Friday 23 October, 2020

LondonStockExGroup

Trading Statement

RNS Number : 9958C
London Stock Exchange Group PLC
23 October 2020
 

23 October 2020

 

LONDON STOCK EXCHANGE GROUP PLC

 

TRADING STATEMENT

INCLUDING REVENUES AND KPIs FOR THE THREE MONTHS ENDED
30 SEPTEMBER 2020 (Q3)

 

 

· Resilient Q3 performance across the Group despite challenging market conditions

· Q3 total income up 2% to £600 million

· On a nine-month year-to-date basis total income up 6% to £1,835 million

· Continue to demonstrate strong operational resilience, focusing on continuity of service for customers and the welfare of employees, majority of whom continue to work remotely due to COVID-19 pandemic

· Well positioned for Brexit with diversified revenue mix.  LCH Limited recognised as a Tier 2 CCP under the EMIR 2.2 supervisory framework as part of the wider ESMA recognition of the UK framework as equivalent until at least 30 June 2022

· Proposed acquisition of Refinitiv continues to make good progress; additional merger clearances achieved and conditional divestment of Borsa Italiana to Euronext agreed; expect to complete Refinitiv transaction in Q1 2021

 

Q3 summary

 

· Information Services:  revenues up 1% to £223 million and up 4% on an organic and constant currency basis (up 4% on a nine-month year-to-date basis).  Subscription revenue at FTSE Russell up 4% (up 7% on a constant currency basis) while asset-based revenues decreased 7% (down 3% on a constant currency basis) reflecting lower levels of passive fund AUM in the prior quarter, however, assets benchmarked against ETF products continued to rise

· Post Trade:  income up 5% to £259 million (up 14% on a nine-month year-to-date basis).  Good growth in non-OTC and Net Treasury Income; decline in OTC revenues reflecting lower SwapClear volumes compared to elevated prior year period.  Cost of Sales down 17% due to one-off positive revenue sharing impact as a result of strong income generation in the nine months year-to-date; a further small benefit is expected in Q4 2020

· Capital Markets:  revenues flat on prior year at £102 million (up 8% on a nine-month year-to-date basis and excluding the one-off benefit of an IFRS 15 adjustment in prior year).  Primary markets revenue up, with good further issuance activity; equities trading revenues lower as a result of reduced market activity

 

Commenting on performance in Q3, David Schwimmer, CEO, said:

 

"The Group delivered a resilient performance in the quarter against a challenging market backdrop while we continue to execute our strategic plans across our business.  We remain focused on our strong operational resilience, continuity of services to our customers and market participants, and the wellbeing of our employees, the majority of whom continue to work remotely.

 

"We are making good progress on the highly attractive Refinitiv transaction, having secured further regulatory approvals around the world.  We continue to engage constructively with the European Commission and believe the potential divestment of the Borsa Italiana group will contribute significantly to addressing the EU's competition concerns."

 

Developments in the period

Information Services

· FTSE Russell index selected by BlackRock for the first climate risk-adjusted Government Bond ETF utilising the FTSE Advanced Climate EGBI

· FTSE Russell's China Government Bond Index selected as the basis for China's first onshore Bond ETF listed in Singapore

· FTSE Russell entered into a long-term strategic partnership with Singapore Exchange (SGX) focused on developing a broad range of Asian and Emerging markets index derivatives

· FTSE Russell launched its enhanced Green Revenues 2.0 Data Model, measuring the green revenue exposure of more than 16,000 listed companies across developed and emerging markets

 

Post Trade

· LCH Limited recognised as a Tier 2 CCP under the EMIR 2.2 supervisory framework as part of the wider ESMA recognition of the UK framework as equivalent until at least 30 June 2022

· European Investment Bank joined LCH SA as the first supranational clearing member of LCH SA's RepoClear service

· LCH became the first clearing house to offer clearing of Israeli Shekel-denominated interest rate swaps bringing the total number of cleared currencies to 27

· CC&G entered into an agreement to provide CCP.RO BUCHAREST S.A. with CC&G's Clearing and Risk Management Solution enabling centralised clearing services for Romania's capital and energy markets

 

Capital Markets

· China Yangtze Power Co. raised $1.83 billion through Shanghai-London Stock Connect, the first Chinese issuer to receive London Stock Exchange's Green Economy Mark and highlighting London's position as an international centre for sustainable finance

· The Hut Group listed on London Stock Exchange by way of a £1.88 billion IPO, London's largest technology IPO by market capitalisation at listing and Europe's largest e-commerce listing

 

Financial Position

The Group's financial position remains strong with a good level of funding flexibility in place.  As at 30 September 2020, the Group had available committed facility headroom of £757 million having paid the interim dividend to shareholders.  LSEG's credit ratings with Moody's and S&P remained unchanged (long term A3 and A), both with negative outlooks as a result of the debt component of the Refinitiv acquisition.  Both agencies remained constructive on the strategic rationale for the deal and noted the planned disposal of the Borsa Italiana group as credit positive in their most recent publications, with S&P limiting the potential downgrade to a single notch (from two previously).

Sterling was flat against the Euro and strengthened 7% against the US dollar on a three-month closing rate average basis, and was flat against both currencies on a nine-month year-to-date average basis in comparison to the same period last year.  To illustrate our exposure to movements in exchange rates, a €0.05 change in the average Euro:Sterling rate would have resulted in a change to continuing operations total income of £8 million for Q3, while a US$0.05 move would have resulted in a £7 million change.

Update on the proposed acquisition of Refinitiv

The proposed acquisition of Refinitiv continues to progress well with further merger clearances secured around the world.  We continue to engage constructively with the European Commission on achieving antitrust approval for the transaction and we believe the proposed divestment of the Borsa Italiana group will significantly contribute to addressing EC concerns.  Detailed integration planning is well developed in preparation for completion. 

The Group has received further merger control clearances from the relevant authorities in the United States, Australia, Canada and the UAE, bringing the total number of approvals to date to 15 while good progress has been made in relation to outstanding jurisdictions.  Furthermore, the Group also received foreign investment clearance from the Italian Government ('Golden Power Law') for the Refinitiv transaction, in addition to the approvals already received from the US (CFIUS) and Germany.  All remaining merger control, foreign investment and regulatory approvals are expected by Q1 2021. 

On 9 October 2020, the Group entered into an agreement to sell its entire shareholdings in London Stock Exchange Group Holdings Italia S.p.A., the parent company of the Borsa Italiana group, to Euronext N.V. for an all cash consideration of €4.325 billion.  The transaction is conditional upon, amongst other things, the disposal of the Borsa Italiana group or any material part thereof (including MTS) being a condition of any European Commission clearance decision for the Refinitiv Transaction.  While the principal benefit of the transaction is to facilitate the completion of the Refinitiv transaction, the divestment, which represents an enterprise valuation of 16.7x 2019 adjusted EBITDA, allows LSEG to achieve an attractive valuation for Borsa Italiana.  LSEG's intention is to use the net proceeds from the divestment to repay indebtedness related to the Refinitiv transaction and for general corporate purposes.  This will allow LSEG to reduce leverage following completion of the transaction and move more quickly to its target net debt to adjusted EBITDA ratio of 1.0-2.0x.  The divestment is subject to approval by both LSEG and Euronext shareholders. 

Refinitiv continues to realise its own cost efficiencies having achieved annualised run-rate cost savings of $613 million as at 30 September 2020 and is on-track to achieve the full $650 million run-rate target by the end of 2020.   

Further information is available from:

London Stock Exchange Group plc

Gavin Sullivan / Lucie Holloway / Sarah Bailey - Media

Paul Froud - Investor Relations

+44 (0) 20 7797 1222

+44 (0) 20 7797 3322

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, Friday 23 October at 09:00am (UK time) .  On the call will be David Schwimmer (CEO), David Warren (CFO) and Paul Froud (Group Head of Investor Relations).   

To access the telephone conference call or audio-only webcast please pre-register in advance using the following link and instructions below:

http://www.lsegissuerservices.com/spark/LondonStockExchangeGroup/events/949ac0bc-42fb-4c8a-ab5f-b403286d24a0  

· Upon registering with your full name, company name and email address, you will be provided with participant telephone numbers and access codes as well as the link to the audio-only webcast.  Please note that if you wish to participate in Q&A this can only be done via the telephone conference.

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

Q3 Revenue Summary

 

Revenues for three months and nine months ended 30 September 2020 refer to continuing operations, with comparatives against performance for the same period last year, provided below.    Growth rates for both Q3 and year-to-date performance are also expressed on an organic and constant currency basis.  All figures are unaudited.

 


Three months ended


Organic and constant


Nine months

ended


Organic and constant


30 September


currency


30 September


currency


2020

2019

Variance

variance¹


2020

2019

Variance

variance¹

Continuing operations:

£m

£m

%

%


£m

£m

%

%

Revenue










Information Services

223  

220 

1% 

4% 


660  

636 

4% 

4% 

Post Trade

183  

181 

2% 

2% 


555  

523 

6% 

6% 

Capital Markets

102  

102 

- 

- 


319  

328 

(3%)

(3%)

Technology Services

15  

16 

(6%)

(5%)


45  

46 

(1%)

(1%)

Other

1  

2 

- 

- 


3  

6 

- 

- 

Total revenue

524  

521 

1% 

2% 


1,582  

1,539 

3% 

3% 











Net treasury income through CCP businesses

76  

65 

16% 

17% 


252  

185 

36% 

36% 

Other income

-  

1 

- 

- 


1  

3 

- 

- 

Total income

600  

587 

2% 

3% 


1,835  

1,727 

6% 

6% 

Cost of sales

(49)

(58)

(16%)

(15%)


(170)

 (167)

2% 

1% 

Gross profit

551  

529 

4% 

5% 


1,665  

1,560 

7% 

7% 

1 Organic growth is calculated in respect of businesses owned for at least 9 months in either period so excludes Beyond Ratings (acquired June 2019)

 

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

 

More detailed revenues by segment are provided in tables below:

 

Information Services

 

 

Three months ended


Organic

and

constant


Nine months

ended


Organic

and

constant

 

30 September


currency


30 September


currency

 

2020

2019

Variance

Variance1


2020

2019

Variance

Variance1

 

£m

£m

%

%


£m

£m

%

%

Revenue










Index - Subscription

112  

108  

4% 

7% 


330  

311  

6% 

6% 

Index - Asset based

57  

61  

(7%)

(3%)


169  

173  

(3%)

(3%)

FTSE Russell Indexes

169  

169  

- 

3% 


499  

484  

3% 

3% 

Real time data

27  

24  

12% 

11% 


79  

72  

9% 

9% 

Other information services

27  

27  

- 

1% 


82  

80  

2% 

2% 

Total revenue

223  

220  

1% 

4% 


660  

636  

4% 

4% 

Cost of sales

(16)

(19)

(14%)

(11%)


(52)

(55)

(5%)

(5%)

Gross profit

207  

20 1 

2% 

5% 


608  

581  

5% 

4% 

 

1 Organic growth is calculated in respect of businesses owned for at least 9 months in either period so excludes Beyond Ratings (acquired June 2019)

 

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

 

Post Trade

 


Three months ended


Constant


Nine months ended


Constant


30 September


currency


30 September


currency


2020

2019

Variance

variance


2020

2019

Variance

variance


£m

£m

%

%


£m

£m

%

%

Revenue










OTC - SwapClear, ForexClear & CDSClear

74  

80 

(8%)

(6%)


231  

228 

1% 

1% 

Non OTC - Fixed income, Cash equities & Listed derivatives

40  

36 

11% 

11% 


120  

104 

14% 

14% 

Other

29  

28 

2% 

2% 


85  

78 

10% 

10% 

Total LCH revenue

143  

144 

(1%)

(1%)


436  

410 

6% 

6% 

Clearing

10  

11 

(12%)

(12%)


32  

33 

(2%)

(2%)

Settlement, Custody & other

15  

16 

1% 

1% 


46  

45 

2% 

2% 

Total Post Trade Italy revenue

25  

27 

(4%)

(4%)


78  

78 

- 

- 

UnaVista

15  

10 

59% 

59% 


41  

35 

19% 

19% 

Total revenue

183  

181 

2% 

2% 


555  

523 

6% 

6% 

LCH - Net treasury income

53 

19% 

20% 


43% 

42% 

CC&G - Net treasury income

13  

12 

3% 

3% 


40  

36 

9% 

9% 

Total income

259  

246 

5% 

6% 


807  

708 

14% 

14% 

Cost of sales

(29)

(35)

(17%)

(17%)


(109)

(100)

9% 

9% 

Gross profit

230  

211 

9% 

10% 


698  

608 

15% 

15% 

 

Capital Markets

 


Three months ended


Constant


Nine months

ended


Constant


30 September


currency


30 September


currency


2020

2019

Variance

variance


2020

2019

Variance

variance


£m

£m

%

%


£m

£m

%

%

Revenue










Primary Markets1

33  

30  

8% 

8% 


98  

120  

(19%)

(19%)

Secondary Markets - Equities

37  

39  

(4%)

(4%)


128  

113  

14% 

14% 

Secondary Markets - Fixed income, derivatives and other

32  

33  

(4%)

(4%)


93  

95  

(2%)

(3%)

Total revenue

102  

102  

- 

- 


319  

328  

(3%)

(3%)

Cost of sales

(1)

(1)

- 

- 


(3)

(4)

(43%)

(43%)

Gross profit

101  

101  

- 

- 


316  

324  

(2%)

(2%)

 

1 Primary Markets 2019 Q3 YTD includes a one-off change in estimate for IFRS 15 accounting, with an impact of £32 million, recognised in H1 2019. Adjusting for the one-off change in estimate, primary markets revenue on a 9 month year-to-date basis would have grown 11%

 

Technology Services

 


 Three months ended


Constant


Nine months

ended


 Constant


30 September


currency


30 September


currency


2020

2019

Variance

variance


2020

2019

Variance

variance


£m

£m

%

%


£m

£m

%

%

Total revenue

15  

16 

(6%)

(5%)


45  

46 

(1%)

(1%)

Cost of sales

(2)

(2)

-

- 


(5)

(6)

(4%)

(4%)

Gross profit

13  

14 

(8%)

(8%)


40  

40 

- 

- 

 

Basis of Preparation

 

Results for the period ended 30 September 2020 have been translated into Sterling using the average exchange rates for the period.  Constant currency growth rates have been calculated by translating prior period results at the average exchange rate for the current period.

 


Average rate

Average rate



3 months ended

9 months ended

Closing rate at


30 September 2020

30 September 2020

30 September 2020

GBP : EUR

1.11

1.13

1.10

GBP : USD

1.31

1.27

1.29

 


Average rate

Average rate



3 months ended

9 months ended

Closing rate at


30 September 2019

30 September 2019

30 September 2019

GBP : EUR

1.11

1.13

1.12

GBP : USD

1.22

1.27

1.23

 

 

Appendix - Key performance indicators

 

Information Services






As at



30 September

Variance


2020


2019

%

ETF assets under management benchmarked ($bn)





FTSE

436


407

7% 

Russell Indexes

282


273

3% 

Total

718


680

6%  






Terminals





UK

63,000


65,000

(3%)

Borsa Italiana Professional Terminals

96,000


100,000

(4%)

 

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 $16 billion

 

Post Trade - LCH

 

 











Three months ended



Nine months ended



30 September

Variance


30 September

Variance


2020


2019

%


2020


2019

%











OTC derivatives










SwapClear










IRS notional cleared ($tn)

209


337

(38%)


852


997

(15%)

SwapClear members

122


121

1% 


122


121

1%  

Client trades ('000)

367


472

(22%)


1,364


1,280

7%  

CDSClear










Notional cleared (€bn)

495


438

13% 


1,893


1,134

67%  

CDSClear members

26


26

- 


26


26

-  

ForexClear










Notional value cleared ($bn)

4,556


4,795

(5%)


14,400


13,561

6%  

ForexClear members

35


34

3% 


35


34

3%  

Non-OTC










Fixed income - Nominal value (€tn)

52.1


56.0

(7%)


154.8


161.6

(4%)

Listed derivatives (contracts m)

70.8


72.6

(2%)


262.3


218.6

20% 

Cash equities trades (m)

424


358

18% 


1,471


1,057

39% 











LCH Average cash collateral (€bn)

103.9


103.8

- 


112.2


96.3

16%  

 

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

 

Post Trade - Italy




















Three months ended



Nine months ended



30 September

Variance


30 September

Variance


2020

2019



2020

2019


CC&G Clearing








Contracts (m)

25.2

24.7

2% 


92.7

74.7

24% 

Initial margin held (average €bn)

13.4

15.1

(11%)


14.2

14.3

(1%)









Monte Titoli








Settlement instructions (trades m)

11.7

11.4

3% 


38.0

32.9

16% 

Custody assets under management (average €tn)

3.42

3.33

3% 


3.35

3.31

1% 









 

Note: Monte Titoli Settlement instructions for prior year on both a 3 and 9 month basis have been updated to reflect additional trades that took place in Q3 2019.  The equivalent figure for the 12 months ended 31 December 2019 was already updated at the time reflecting these additional trades

 

Capital Markets - Primary Markets





















Three months ended



Nine months ended



30 September

Variance


30 September

Variance


2020


2019

%


2020


2019

%

New Issues










UK Main Market & PSM

6


13

(54%)


26


41

(37%)

UK AIM

6


5

20% 


16


20

(20%)

Borsa Italiana

4


11

(64%)


8


26

(69%)

Total

16


29

(45%)


50


87

(43%)











Money Raised (£bn)










UK New

2.7


1.0

170% 


4.8


3.7

30% 

UK Further

5.6


1.9

195% 


22.6


12.7

78% 

Borsa Italiana new and further

-


0.1

- 


0.7


2.0

(65%)

Total (£bn)

8.3


3.0

177% 


28.1


18.4

53% 

 

Capital Markets - Secondary Markets




















Three months ended



Nine months ended


 


30 September

Variance


30 September

Variance

 

Equity

2020


2019

%


2020


2019

%

Totals for period










UK value traded (£bn)

244


309

(21%)


948


892

6% 

Borsa Italiana (no of trades m)

18.5


16.3

13% 


67.2


47.4

42% 

Turquoise value traded (€bn)

107


111

(4%)


402


423

(5%)











SETS Yield (basis points)

0.76


0.68

12% 


0.71


0.69

3% 











Average daily










UK value traded (£bn)

3.8


4.8

(21%)


5.0


4.7

6% 

Borsa Italiana (no of trades '000)

280


254

10% 


350


249

41% 

Turquoise value traded (€bn)

1.6


1.7

(6%)


2.1


2.2

(5%)











Derivatives










Contracts (m)

5.0


7.8

(36%)


19.1


26.2

(27%)

 

Fixed Income










MTS cash and BondVision (€bn)

  1,024


  803

28% 


2,726


2,453

11% 

MTS money markets (€bn term adjusted)

  22,033


  31,759

(31%)


77,875


89,508

(13%)

 

Note: The Q3 2019 number of derivative contracts includes 0.6 million from LSE Derivatives. The 9 month year-to date 2019 number includes 2.2 million. This service no longer accepted new trades from November 2019

 

Total Income - Quarterly

 

2019






2020



£ millions

Q1

Q2

Q3

Q4

2019


Q1

Q2

Q3











Index - Subscription

99

104

108

107

418


105 

113 

112 

Index - Asset based

52

60

61

58

231


58 

54 

57 

FTSE Russell

151

164

169

165

649


163 

167 

169 

Real time data

24

24

24

25

97


25 

27 

27 

Other information

26

27

27

29

109


27 

28 

27 

Information Services

201

215

220

219

855


215 

222 

223 








 



OTC - SwapClear, ForexClear & CDSClear

76

72

80

79

307


82 

75 

74 

Non OTC - Fixed income, Cash equities & Listed derivatives

34

35

36

35

140


41 

39 

40 

Other

24

25

28

26

103


26 

30 

29 

Post Trade Services - LCH

134

132

144

140

550


149 

144 

143 

Clearing

11

11

11

10

43


12 

10 

10 

Settlement, Custody & other

14

15

16

15

60


15 

16 

15 

Post Trade Services - CC&G and Monte Titoli

25

26

27

25

103


27 

26 

25 

UnaVista

13

12

10

12

47


16 

10 

15 

Post Trade

172

170

181

177

700


192 

180 

183 











Primary Markets

28

62

30

31

151


32 

33 

33 

Secondary Markets - Equities

37

37

39

38

151


49 

42 

37 

Secondary Markets - Fixed income, derivatives & other

32

30

33

29

124


31 

30 

32 

Capital Markets

97

129

102

98

426


112 

105 

102 











Technology

14

16

16

20

66


14 

16 

15 











Other

2

2

2

3

9












Total Revenue

486

532

521

517

2,056


535 

523 

524 

Net treasury income through CCP:










LCH

48

48

53

57

206


67 

82 

63 

CC&G

11

13

12

13

49


12 

15 

13 

Other income

1

1

1

-

3


1 

- 

- 











Total income

546

594

587

587

2,314


615 

620 

600 

 

Cost of sales

(56)

(53)

(58)

(43)

(210)


(60)

(61)

(49)

Gross profit

490

541

529

544

2,104


555 

559 

551 

 

Note: Minor rounding differences may mean quarterly and other segmental figures may differ slightly

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