London Stock Exchange Group plc (LON:LSE) has announced its H1 2021 Interim Results.
Highlights
Note: Unless otherwise stated, variances refer to growth rates on a pro-forma constant currency basis, excluding the impact of a deferred revenue accounting adjustment1, to provide the best view of underlying performance
· Good performance across all divisions driving 4.6% growth in total income1
· Adjusted operating expense growth of 1.1% due to lower phasing of costs in H1; on track for mid-single digit cost growth for FY 2021 at constant currency (expected to be c.5%), reducing to low-single digit cost growth in 2022 and 2023
· Adjusted EBITDA margin of 49.4%2; margin will be lower for the full year as a result of cost phasing in H2, improving thereafter to achieve the 50% target and increasing beyond 2023
· Good financial performance driving 18.6% increase in AEPS to 146.1p3
· Good progress on the integration of Refinitiv with £77 million of run-rate cost synergies realised at H1; full year guidance for run-rate cost synergy delivery increased from £88 million to £125 million; and 27 new products launched as part of revenue synergy programme
· Group in a strong financial position; leverage reduced to 2.2x net debt/EBITDA following successful divestment of Borsa Italiana
· Favourable outlook supports increase in interim dividend (up 7%) to 25.0 pence per share
1 Excluding recoveries and the deferred revenue accounting impact. The deferred revenue impact is a one-time, non-cash, negative revenue impact resulting from the accounting treatment of deferred revenue within Refinitiv’s accounts which have been re-evaluated upon acquisition by LSEG under purchase price accounting rules. The result of this accounting treatment is a £23m adjustment reducing revenue for H1 2021. The vast majority impacts the Data & Analytics business with a smaller impact applied to the FX venues business within Capital Markets. There will be further immaterial impacts in subsequent periods within 2021. Further information is available in the “Accounting and modelling notes” section. Constant currency variance shows underlying financial performance, excluding currency impacts, by comparing the current and prior year period at consistent exchange rates.
2 Adjusted EBITDA margin is Adjusted EBITDA divided by Total Income (excl. Recoveries)
3 Adjusted basic earnings per share (AEPS) variance is on a reported pro-forma basis, not constant currency
Financial Summary
Unless otherwise stated, all figures refer to continuing operations for the six months ended 30 June 2021 (H1 2021). Comparative figures are for continuing operations for the six months ended 30 June 2020 (H1 2020). Numbers are presented on both a statutory and pro-forma basis where indicated.
Statutory underlying 1
| Continuing operations | H1 2021 £m | H1 2020 £m | |
| Data & Analytics | 1,959 | 409 | |
| Capital Markets | 542 | 147 | |
| Post Trade | 450 | 468 | |
| Other | 14 | 4 | |
| Total Income (excl. recoveries) | 2,965 | 1,028 | |
| Recoveries | 148 | – | |
| Total Income (incl. recoveries) | 3,113 | 1,028 | |
| Cost of sales | (394) | (114) | |
| Gross profit | 2,719 | 914 | |
| Adjusted operating expenses before depreciation, amortisation and impairment | (1,247) | (369) | |
| Income from equity investments | 11 | – | |
| Share of loss after tax of associates | (2) | (2) | |
| Adjusted earnings before interest, tax, depreciation, amortisation and impairment | 1,481 | 543 | |
| Depreciation, amortisation and impairment | (311) | (86) | |
| Adjusted operating profit | 1,170 | 457 | |
| Net finance expense | (87) | (22) | |
| Adjusted profit before tax | 1,083 | 435 | |
| Taxation | (228) | (89) | |
| Adjusted profit after tax | 855 | 346 | |
| Non-controlling interest | (97) | (34) | |
| Profit for the period | 758 | 312 | |
| Adjusted basic earnings per share (p) 2 | 146.0 | 89.2 | |
| Basic earnings per share (p) 2 | 34.3 | 45.1 | |
| Interim dividend per share (p) | 25.0 | 23.3 | |
1 Statutory underlying figures for H1 2021 incorporate figures from Refinitiv for February to June 2021. Figures associated with the Borsa Italiana Group divestment are excluded from both periods
2 Weighted average number of shares used to calculate Adjusted basic earnings per share and Basic earnings per share on a statutory underlying basis is 519 million
For the pro-forma table, variances are provided on a reported and constant currency basis. Commentary is provided on the constant currency variance (excluding deferred revenue adjustment) to provide the best insight into underlying performance. Please refer to the Accounting and Modelling notes section for more information on relevant accounting adjustments.
Pro-forma underlying1
| Continuing operations | H1 2021 £m | H1 2020 2 £m | Reported Variance 3 % | Constant Currency Variance 4 % | Constant Currency Variance (excl. deferred revenue adjustment) 4,5 % | |
| Data & Analytics | 2,272 | 2,335 | (2.7%) | 3.9% | 4.8% | |
| Capital Markets | 619 | 600 | 3.2% | 9.6% | 9.6% | |
| Post Trade | 450 | 468 | (3.8%) | (2.1%) | (2.1%) | |
| Other | 15 | 17 | (11.8%) | (5.9%) | (5.9%) | |
| Total Income (excl. recoveries) | 3,356 | 3,420 | (1.9%) | 4.0% | 4.6% | |
| Recoveries | 178 | 164 | 8.5% | (1.1%) | (0.6%) | |
| Total Income (incl. recoveries) | 3,534 | 3,584 | (1.4%) | 3.7% | 4.4% | |
| Cost of sales | (454) | (486) | (6.6%) | 0.2% | 0.2% | |
| Gross profit | 3,080 | 3,098 | (0.6%) | 4.3% | 5.1% | |
| Adjusted operating expenses before depreciation, amortisation and impairment | (1,432) | (1,507) | (5.0%) | 1.1% | 1.1% | |
| Income from equity investments | 11 | – | – | – | – | |
| Share of loss after tax of associates | (2) | (1) | – | – | – | |
| Adjusted earnings before interest, tax, depreciation, amortisation and impairment | 1,657 | 1,590 | 4.2% | 7.9% | 9.4% | |
| Adjusted EBITDA Margin 6 | 49.4% | 46.5% | ||||
| Depreciation, amortisation and impairment | (363) | (346) | 4.9% | 7.7% | 7.7% | |
| Adjusted operating profit | 1,294 | 1,244 | 4.0% | 8.0% | 9.9% | |
| Net finance expense | (125) | (193) | (35.2%) | |||
| Adjusted profit before tax | 1,169 | 1,051 | 11.2% | |||
| Taxation | (250) | (279) | (10.4%) | |||
| Adjusted profit after tax | 919 | 772 | 19.0% | |||
| Non-controlling interest | (107) | (88) | 21.6% | |||
| Profit for the period | 812 | 684 | 18.7% | |||
| Adjusted basic earnings per share (p) 7 | 146.1 | 123.2 | 18.6% |
1 Pro-forma underlying assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. Both figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment
2 H1 2020 comparator figure differs to the previous disclosure due to the treatment of FX and other adjustments. For more information please refer to the “Accounting and modelling notes” section
3 Reported variance is the difference between current and prior year periods on a pro-forma underlying basis, using year-to-date FX rates prevalent at each time, therefore any changes in the FX rates are also reflected in the variance percentage alongside business performance
4 Constant currency variance shows underlying financial performance, excluding currency impacts, by comparing the current and prior period at consistent exchange rates
5 The deferred revenue adjustment is explained in the “Accounting and modelling notes” section
6 Adjusted EBITDA margin is Adjusted EBITDA divided by Total Income (excl. Recoveries)
7 Weighted average number of shares used to calculate Adjusted basic earnings per share on a pro-forma underlying basis is 556 million.
Pro-forma1 H1 2021 Highlights
· Data & Analytics: revenues up 4.8%
o Trading and Banking Solutions revenues down 0.1% – Fixed income trading, commodities trading, FX and Banking business growing, offset by decline in Eikon Premium desktops, albeit the rate of decline has slowed
o Enterprise Data Solutions revenues up 2.4% – continued strong growth in Pricing and Reference Services (PRS) ahead of market, with Real Time business also growing
o Investment Solutions revenues up 8.4% – double-digit growth in asset-based revenue, up 18.2%, as ETF AUM surpassed $1 trillion. Strong growth in index subscription revenue up 7.9%. Continued momentum in new product launches and FTSE Russell cross-selling with PRS
o Wealth Solutions revenues up 0.8% – Data businesses grew well, partly offset by a decline in Beta volumes compared with strongly elevated volumes in H1 2020
o Customer and Third-Party Risk Solutions revenues up 37.5% – strong growth across services and ahead of market; benefit from acquisitions in 2020
· Capital Markets: revenues up 9.6%
o Equities revenues up 2.5% – largest number of new issues in the period since 2014 although benefit from admission fees is spread across multiple years. Secondary revenues down as volumes normalised compared to extreme volatility in H1 2020
o FX revenues down 0.8% – Good growth in FXall (dealer-to-client service), offset by decline in the Matching (dealer-to-dealer) service, partly reflecting a strong comparator period
o Fixed Income, Derivatives and Other revenues up 15.4% – reflecting continued strong growth at Tradeweb2 due to the shift of trading to electronic markets, new services and market share gains
· Post Trade: revenues up 8.4%; total income down 2.1% (impacted by Net Treasury Income)
o OTC Derivatives revenues up 2.4% – good performance against strong prior year comparator with the platform continuing to attract new client business
o Securities & Reporting revenues up 15.3% – driven primarily by strong RepoClear activity attracting clearing volumes onto the service from European debt issuance
o Non-Cash Collateral revenues up 17.5% – partly reflecting increased RepoClear activity
o Net Treasury Income down 25.3% – Cash collateral balances and rate of return remain at more normalised levels, compared with exceptional prior-year period
1 Pro-forma assumes that the acquisition of Refinitiv took place on 1 January 2021 for the current financial year and 1 January 2020 for the prior financial year comparator figure. Both figures exclude the financial contribution from the businesses contained within the Borsa Italiana divestment
2 Tradeweb Q2 2021 results were released on 29 July 2021
David Schwimmer, CEO said:
London Stock Exchange Group has delivered a good financial performance in the first half of the year, reflecting revenue growth across all divisions.
“We are executing well on our integration plans to deliver the strategic and financial benefits of the Refinitiv transaction. Our cost synergy programme is ahead of plan with £77 million of run-rate savings achieved at H1 and our revenue synergy programme is on track.
“We continue to invest in projects that enhance our customer offering and deliver a more scalable and efficient business, particularly in Data & Analytics. This will support our revenue growth ambitions and lead to further operating margin improvement. The reduction of leverage during the period reinforces our strong financial position and, with our mix of world-class assets and unique positioning in growing markets, we look forward to further progress during the rest of the year.”
