LondonStockExGroup - Trading Statement

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:

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.

¹Organic 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

¹Organic 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

Capital Markets

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

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.

Appendix - Key performance indicators

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

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

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

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

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