London Stock Exchange Group plc (LON: LSE) has provided a trading statement for the three months ended 30th September 2019.
· Strong Q3 performance across all parts of the Group – LCH continues to grow strongly in OTC products; FTSE Russell performing well with growth in subscription revenues
· Q3 total income up 12% to £587 million
· On a nine-month year-to-date basis total income up 9% to £1,727 million
· Proposed acquisition of Refinitiv continues to progress:
o Appointment of David Shalders as Chief Integration Officer and member of the LSEG Executive Committee, reporting to LSEG CEO
o Regulatory approvals process and integration planning underway
o Integration Management Office established
o Shareholder circular posting soon with General Meeting scheduled for November 2019
o Transaction remains on track for completion in H2 2020
Q3 summary
· Information Services: revenues up 9% to £230 million. FTSE Russell up 10%, with strong performance in subscription revenues
· Post Trade – LCH: income up 19% to £197 million. Strong results driven by 22% revenue growth in OTC clearing with strong volumes at SwapClear and continued growth in net treasury income, up 16%
· Post Trade – Italy: income up 8% to £39 million. Good performance supported by growth in clearing; settlement, custody and net treasury income, reflecting good volumes in fixed income
· Capital Markets: revenues up 14% to £102 million. On a like-for-like basis (adjusting for last year’s IFRS 15 change), revenue increased 5%, with growth in Primary Markets and in fixed income trading partly offset by subdued equity markets trading
· Technology: revenues up 2% to £16 million
Commenting on performance in Q3, David Schwimmer, London Stock Exchange Group CEO, said:
“The Group continues to perform well and has delivered a strong Q3 performance. LCH’s OTC clearing services saw continued strong volumes during the period in both member and client clearing. In Information Services, FTSE Russell reported 10% growth as subscription revenues remained strong. Capital Markets also produced a good overall performance against a backdrop of continued challenging market conditions.
“During the quarter, we announced the proposed acquisition of Refinitiv, a leading global provider of data, analytics and financial markets solutions. This is a transformational transaction that accelerates our Group’s strategy, positioning us in key areas of future growth as a global financial markets infrastructure leader. Together, we will create a multi-asset class capital markets business and bring world class data content, management and distribution capabilities to our customers on an open access basis. The transaction offers substantial strategic and financial benefits to our shareholders, customers, employees and other stakeholders.”
Developments in the period
· FTSE Russell launched the first climate risk government bond index, the FTSE Climate Risk-Adjusted World Government Bond Index
· FTSE Russell successfully implemented inclusion of the second tranche of China A Shares in the FTSE GEIS (September 2019)
· Expanded ForexClear offering by launching FX Forwards clearing and also linked up with FX Connect TradeNeXus, enabling simpler buy-side access to clearing
· Published plans to launch clearing of products referencing €STR, the new reference rate and announced plans to transition to €STR discounting
Financial Position
The Group’s financial position remains strong with a good level of funding flexibility in place. As at 30 September 2019, the Group had available committed facility headroom of c.£750 million having paid the interim dividend to shareholders and met other normal course payment obligations. The Group is therefore able to fund the repayment of the 2009 £250 million Bond, due 19 October 2019, from existing resources. While LSEG’s credit ratings are unchanged (long term A3 and A), both Moody’s and S&P moved their rating outlooks, respectively, to “review for possible downgrade” and “credit-watch negative” in early August as a result of the debt component of the Refinitiv acquisition. Both agencies were otherwise constructive on the strategic rationale for the deal and positive towards the Group’s arrangement of a c.$13.5 billion bridge facility to de-risk refinancing of Refinitiv’s debt at or around closing of the transaction.
The euro was flat and the US dollar strengthened by 6% against sterling compared with 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.
Board, Management and organisation changes
David Shalders is joining the Group in November 2019 as Chief Integration Officer and a member of the LSEG Executive Committee, reporting to LSEG’s CEO. David brings to the Group over thirty years’ experience in Integration, Technology and Operations in the financial services sector. He has successfully led a number of global integration programmes. Most recently, David was Group Operations and Technology Director at Willis Towers Watson, having led the integration of Willis and Towers Watson. Prior to his six years at Willis Towers Watson, David spent nineteen years at The Royal Bank of Scotland in a number of senior operations and technology roles, including as Group Head of Integration for the ABN Amro acquisition. We also announced today that we have formed the Integration Management Office (IMO). Led by David Shalders, the IMO will be comprised of senior leaders from LSEG and Refinitiv.
As of 1 January 2020, the Group’s Post Trade businesses, which are currently reported separately as LCH and Post Trade Italy, will be aligned, in a manner consistent with the necessary regulatory oversight, into one Post Trade Division. Daniel Maguire, CEO, LCH Group will lead the division as Group Director, Post Trade, LSEG in addition to his current responsibilities. The Post Trade Division will include LCH Group, our Italian post trade businesses Monte Titoli and CC&G, and UnaVista, our trade reporting business that currently reports as part of the Information Services Division. The new Division will ensure greater Group-wide collaboration and aim to facilitate coordination amongst the different businesses with a view to developing commercial activities for the benefit of customers. We will continue to operate all our businesses on an open access basis in partnership with customers and stakeholders. The current local legal entity governance, including decision-making processes and reporting lines, will be unchanged.
Separately, today LSEG announced that David Warren, Group CFO has informed the Group of his intention to retire from the company and step down from the Board by the end of 2020. David will continue in his current roles through the close of the Refinitiv transaction to ensure a smooth transition to his successor. LSEG will undertake a global search, which will be led by the Board’s Nomination Committee.
