London Stock Exchange Group plc (LON:LSE) has announced its Q1 2021 Trading Statement.
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 Q1 performance driven by new business growth and strong customer retention
· Q1 total income (excluding recoveries) up 3.9%, with good growth in Data & Analytics and Capital Markets; down 1.2% on a reported pro-forma basis (reflecting currency headwinds as USD declined 8% year on year versus GBP and the impact of the deferred revenue adjustment)
· Acquisition of Refinitiv successfully completed on 29 January 2021 and execution of integration plan well underway to deliver on strategic and financial benefits
· Approximately £40 million of cost synergies already realised on a run-rate basis and new products arising from the combination now launched
· Successfully conducted c.£5 billion bond issuance with longer-term financing structure now in place at a blended cost of 1.6%2 across all LSEG debt
· Borsa Italiana Group divestment progressing well and expected to complete shortly in Q2
· Investor education events scheduled to give deeper insight into the new LSEG business; first event to be held on 2 July 2021 with an overview of Data and Analytics and deeper dives into Trading and Banking, Enterprise Data, and Customer and Third-Party Risk businesses; subsequent events to be announced to cover the remaining businesses
1 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 £22m adjustment reducing revenue for Q1 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 Reflects blended interest cost post divestment of Borsa Italiana Group
David Schwimmer, CEO said:
“LSEG has delivered good results in the first quarter, with strong underlying performance across all divisions.
“Following the completion of the acquisition of Refinitiv, we are executing on our integration plans to deliver the long-term strategic and financial benefits of the transaction; we are making good progress on our synergies and have already realised £40 million of run-rate cost savings. We have also begun to implement a number of programmes to deliver product enhancements and offer additional data and services for our customers as we execute on our growth ambitions.
“The successful re-financing of our bridge facilities with longer-term debt at the end of Q1, together with the reduction in leverage with the proceeds from the expected completion of the divestment of Borsa Italiana, puts LSEG in a strong financial position. We look forward to further progress during the rest of 2021.”
Q1 2021 Summary – Pro-forma1
Variances are provided against reported and constant currency results. 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.
| Continuing operations | ReportedQ1 2021£m | ReportedQ1 20202£m | Reported Variance3% | Constant Currency Variance4 % | Constant Currency Variance (excl. deferred revenue adjustment)4, 5 % | |
| Trading & Banking Solutions | 372 | 396 | (6.1%) | (2.2%) | (0.2%) | |
| Enterprise Data Solutions | 277 | 285 | (2.8%) | 1.0% | 3.1% | |
| Investment Solutions | 272 | 272 | – | 5.5% | 6.6% | |
| Wealth Solutions | 122 | 126 | (3.2%) | 3.2% | 4.0% | |
| Customer & Third-Party Risk Solutions | 85 | 67 | 26.9% | 30.9% | 33.8% | |
| Data & Analytics | 1,128 | 1,146 | (1.6%) | 2.9% | 4.7% | |
| Equities | 61 | 62 | (1.6%) | (1.6%) | (1.6%) | |
| FX | 57 | 64 | (10.9%) | (6.3%) | (6.3%) | |
| Fixed Income, Derivatives & Other | 201 | 186 | 8.1% | 12.8% | 12.8% | |
| Capital Markets | 319 | 312 | 2.2% | 6.4% | 6.4% | |
| OTC Derivatives | 87 | 87 | – | 1.1% | 1.1% | |
| Securities & Reporting | 65 | 59 | 10.2% | 8.3% | 8.3% | |
| Non-Cash Collateral | 22 | 19 | 15.8% | 15.8% | 15.8% | |
| Net Treasury Income | 55 | 67 | (17.9%) | (16.2%) | (16.2%) | |
| Post Trade | 229 | 232 | (1.3%) | (0.9%) | (0.9%) | |
| Other | 5 | 11 | (54.5%) | (54.5%) | (54.5%) | |
| Total Income (excl. recoveries) | 1,681 | 1,701 | (1.2%) | 2.6% | 3.9% | |
| Recoveries | 88 | 87 | 1.1% | (1.1%) | 1.1% | |
| Total Income (incl. recoveries) | 1,769 | 1,788 | (1.1%) | 2.4% | 3.7% | |
| Cost of sales | (231) | (242) | (4.5%) | 1.7% | 1.7% | |
| Gross Profit | 1,538 | 1,546 | (0.5%) | 2.6% | 4.0% |
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 Q1 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 using 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
Pro-forma1 Q1 2021 Highlights
· Data & Analytics: revenues up 4.7%
· Trading and Banking Solutions down 0.2% – resilient overall performance with growth in Banking products offset by a continued reduction in Trading products; Trading rate of decline improved
· Enterprise Data Solutions up 3.1% – continued good customer demand for pricing and reference data (non real-time data) supported by our ongoing investment in the broad range and depth of data delivered via feeds
· Investment Solutions up 6.6% – reflects good growth in FTSE Russell with subscriptions up 8.0% and AUM-based revenues up 7.4%, with stronger equity markets driving record ETF levels. Positive early signs of cross-selling activity between FTSE Russell and Refinitiv data products as well as cost internalisation via a number of FTSE products using Refinitiv data
· Wealth Solutions up 4.0% – increase driven in part by revenue contribution from the Scivantage acquisition in H1 2020, with partial offset by lower Beta performance against strong comparator in Q1 2020 (associated with pandemic-related volatility)
· Customer and Third-Party Risk Solutions up 33.8% – double-digit organic growth in the core entity screening business reflecting growth in the corporate customer base and increased revenues from EMEA and Asia; and additional contribution from the Red Flag Group and GIACT acquisitions
· Capital Markets: revenues up 6.4%
· Equities revenues down 1.6% – record levels of equity capital raising led to stronger primary markets revenue, offset by secondary markets revenue where volumes were lower than the strong prior year (associated with pandemic-related volatility)
· FX revenues down 6.3% – resulting from lower transaction volumes against strong prior year comparator (associated with pandemic-related volatility)
· Strong growth within Fixed Income, Derivatives and Other, up 12.8% – driven by strong performance at Tradeweb2 which saw a record $1.1 trillion of total Average Daily Volume traded in the quarter, an increase of 18% driven by volume growth in US government bonds, Swaps / Swaptions and Repo transactions
· Post Trade3: total income down 0.9%; revenues up 5.4% before Net Treasury Income
· OTC Derivatives revenue up 1.1% and client clearing volumes up 2% reflecting the continuing strength of the SwapClear service when compared to the elevated performance in Q1 2020 driven by Covid-19 related volatility. SwapClear was well positioned to benefit from increased market activity driven by the ongoing debate regarding potential reflation and central bank policy
· Securities & Reporting up 8.3% with strong growth in Euro denominated Repo volumes as customers were able to benefit from the Balance Sheet and Settlement netting efficiencies provided by the service. Equity volumes continued to perform strongly, up 3% on Q4 2020, although they were down on the high volumes from Q1 2020
· Non-Cash collateral revenues up 15.8% mainly driven by an increase in average non-cash collateral balances
· Net Treasury Income revenues down 16.2%, as expected, reflecting a strong prior year comparator; collateral balances and returns have now reverted to more normalised levels
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 Q1 2021 results will be released on 29 April 2021 and will provide more detailed commentary on performance
3 In Q1 2021, the Post Trade division changed the presentation of its revenues to reflect the way the business is managed and is now split across OTC Derivatives, Securities & Reporting, Non-Cash Collateral and Net Treasury Income. Further detail on the businesses contained in these splits is detailed in the Post Trade section below
Statutory financials1
| Continuing operations | Q1 2021£m | Q1 20202£m |
| Trading & Banking Solutions | 247 | 4 |
| Enterprise Data Solutions | 192 | 31 |
| Investment Solutions | 237 | 166 |
| Wealth Solutions | 82 | – |
| Customer & Third-Party Risk Solutions | 57 | – |
| Data & Analytics | 815 | 201 |
| Equities | 61 | 62 |
| FX | 39 | – |
| Fixed Income, Derivatives & Other | 142 | 15 |
| Capital Markets | 242 | 77 |
| OTC Derivatives | 87 | 87 |
| Securities & Reporting | 65 | 59 |
| Non-Cash Collateral | 22 | 19 |
| Net Treasury Income | 55 | 67 |
| Post Trade | 229 | 232 |
| Other | 4 | 2 |
| Total Income (excl. recoveries) | 1,290 | 512 |
| Recoveries | 58 | – |
| Total Income (incl. recoveries) | 1,348 | 512 |
| Cost of sales | (172) | (56) |
| Gross Profit | 1,176 | 456 |
1 Statutory figures for Q1 2021 incorporate revenues from Refinitiv for February and March 2021. Revenues associated with the Borsa Italiana Group divestment are excluded from both periods
2 Q1 2020 comparator figure refers to LSEG Q1 2020 results as reported, adjusted for the removal of the financial contribution of Borsa Italiana and provided on current presentation of the P&L
Business update:
Refinancing
LSEG, having affirmed its credit ratings with Moody’s and S&P at A3 and A respectively, refinanced a significant proportion of the c.£8 billion bridge facility drawn down at completion of the Refinitiv acquisition using its £10 billion Global Medium Term Note Programme to issue bonds of approximately £5 billion. The remainder of the bridge facility is expected to be repaid from the proceeds from the divestment of the Borsa Italiana business which is anticipated to take place shortly. LSEG is on a firm financial footing with its total debt financing structure which, post the divestment of Borsa Italiana, is expected to have a weighted average maturity of 6.2 years and a blended interest cost of 1.6%. The business is on target to achieve a net debt / pro-forma EBITDA leverage ratio of 1-2x within 24 months of the completion of the Refinitiv transaction.
Synergy realisation
LSEG has made a good early start to its synergy realisation programme having achieved approximately £40 million of run-rate cost synergies, arising from senior role deduplication, reorganisation of sales teams and initial-stage office consolidations. The Group remains confident of achieving 25% of the announced >£350m run-rate cost synergy target by the end of 2021, in line with previous guidance.
In the quarter, the Group launched 17 new or enhanced products as a result of the combination with Refinitiv which forms an early step towards the achievement of revenue synergies, though none are yet material in revenue terms. These include the FTSE Russell Climate Carry and Roll-down WGBI index and new Yield Book analytic tools with enhanced datasets. A number of FTSE Russell indices are now sourcing data directly from Refinitiv’s PRS platform while a number of FTSE Russell clients have now signed up to use Refinitiv’s PRS platform for their wider data needs
The Group will provide further update on its progress on both synergy realisation and integration execution at its interim results on 6 August 2021.
New product development
In addition to synergy related products, the Group launched a number of new products in the quarter and continues to progress on a number of product initiatives. Within Investment Solutions, FTSE Russell launched 13 new ETFs of which 5 were related to ESG indices continuing the strong trend seen in 2020. Refinitiv also launched its Term SONIA Benchmark as part of the wider action across both FTSE Russell and Refinitiv to lead the way on alternative reference rates. In the Wealth segment, LSEG launched Refinitiv Wealth Connect, a solution designed to increase collaboration between wealth management firms and their advisors to aid digital transformation within the sector. LSEG also launched a new ESG analytics tool designed to provide greater access to LSEG’s ESG data and to further drive transparency
The roll-out of Workspace continues to progress with customers in the Wealth and Banking communities and was launched for asset and portfolio managers in April 2021.
Market activity
In Capital Markets, LSEG saw the strongest level of IPO activity since 2006 through 24 IPOs across its equity platforms. Key listings included Dr Martens (£1.5 billion), Fix Price (£1.2 billion) and Moonpig (£0.5 billion).
Within Post Trade, SwapClear saw strong client volumes in March, as clients sought to hedge against rate rises driven by reflation and the rise in US bond yields. LSEG’s EquityClear also processed strong volumes in the quarter utilising the new technology platform implemented last year, while RepoClear saw strong volumes in Europe as a result of the high level of debt issuance.
New appointments
In April, LSEG announced the appointment of Lea Carty and Sabrina Bailey to lead LSEG’s Investment Solutions and Wealth Solutions Businesses respectively, both within the Data & Analytics division. Lea and Sabrina will report to Andrea Stone, LSEG’s Chief Product Officer of the Data & Analytics division and bring with them significant industry experience. Additionally, Arne Staal was appointed to lead the FTSE Russell business as Group Head, Indices & Benchmarks and will report to Lea Carty.
LSEG Board appointments
Tsega Gebreyes and Ashok Vaswani will join the Board as Independent Non-Executive Directors, effective 1 June 2021. Tsega will join the Risk and Remuneration Committees and Ashok will join the Audit and Risk Committees. They will both also join the Nomination Committee.
Separately, Jacques Aigrain and Stephen O’Connor, Chair of the Remuneration Commitee and Senior Independent Director (SID) respectively, will have served nine years on LSEG’s Board in 2022. It is proposed that Jacques and Stephen will step down before the AGM in 2022 and that Cressida Hogg will become Chair of the Remuneration Committee with effect from 22 October 2021 and SID when Stephen steps down from the Board.
Borsa Italiana Group
The Borsa Italiana business continues to perform well having generated £106 million of revenue, up 2.0% on a reported basis and £102 million of gross profit in Q1, up 2.4%. The completion of the sale of Borsa Italiana to Euronext is progressing well and is expected to complete shortly in Q2.
Accounting and modelling notes:
Deferred revenue accounting adjustment
As a result of the acquisition of Refinitiv and the associated purchase price accounting rules, Refinitiv’s deferred revenue balances are subject to a one-time haircut at the time of acquisition. This is a non-cash adjustment. The negative revenue impact is mostly in Q1 2021 at approximately £22 million; the remaining impact will be immaterial over subsequent quarters in 2021. The impact will be mostly in the Group’s Data & Analytics division, with a much smaller impact on the Group’s FX venues business sitting within Capital Markets.
An adjusted variance, excluding the deferred revenue adjustment, has been presented to show true underlying business growth on the prior year.
Sub-lease income and intercompany revenues
Income for sub-leases were treated as a positive cost within Refinitiv’s accounts prior to completion. Under LSEG’s policies these are now treated as “Other” income. The effect on this for the FY2020 pro-forma is to add a further £26 million of revenue to this line. This is offset by an equal increase to underlying operating expenses.
Intercompany revenues and costs between heritage LSEG and Refinitiv businesses, are eliminated in the results post acquisition. The pro-forma results reflect this elimination in all periods. The effect on the FY2020 pro-forma is to reduce total income by £24 million, mainly impacting Data & Analytics and Recoveries revenues but improves Cost of Sales by the same amount.
The data agreement between Tradeweb and Refinitiv is eliminated in all periods, in line with previous disclosures.
The combination of the change in treatment for the sub-lease income and elimination of intercompany revenues have a £nil effect on pro-forma Adjusted Operating Profit for 2020.
FX conversion
As a result of the acquisition of Refinitiv, the majority of LSEG revenues and expenses are in USD followed by EUR, GBP and other currencies. All guidance given by LSEG, including the longer-term targets associated with the acquisition of Refinitiv as well as specific guidance for the 2021 financial year, has been given on a constant currency basis.
Pro-forma quarterly revenues for FY2020 (assuming that Refinitiv was acquired on 1 January 2020), which were previously published as part of London Stock Exchange Group’s 2020 results, converted Refinitiv’s USD results to GBP at a constant rate for every quarter. These have now been amended to reflect YTD average FX rates for each quarter and will serve as the prior year comparator for future results releases, together with changes from additional adjustments associated with sub-lease income and intercompany revenues, mentioned above. The FY2020 total income figure for the Group on a pro-forma basis is similar to that previously disclosed.
Reported results for the period ended 31 March 2021 have been translated into Sterling using the average exchange rates for the period.
| Average rate 3 months ended 31 March 2021 | Closing rate at 31 March 2021 | Average rate 3 months ended 31 March 2020 | Closing rate at 31 March 2020 | |
| GBP : USD | 1.3790 | 1.3744 | 1.2816 | 1.2419 |
| GBP : EUR | 1.1433 | 1.1725 | 1.1613 | 1.1234 |
