LondonStockExGroup - 3rd Quarter Trading Statement
· Good Q3 results - growth across the Group including strong performances from LCH OTC clearing and FTSE Russell
· Q3 reported revenue up 5% and total income up 8% to £522 million; on a like-for-like basis, excluding a £9 million year-to-date accounting change impact on adoption of IFRS15 in Capital Markets, revenue would have been up 7% and total income up 9%
· Reported revenue up 9% and total income up 10% on a nine-month year-to-date basis (including effects of IFRS 15)
· LSEG acquiring up to a further 15.1% stake in LCH Group, expected to take majority ownership to over 80%; completion targeted by end of Q4
· Information Services: revenues up 17% (up 9% on an organic and constant currency basis) - with reported double-digit growth at FTSE Russell
· Post Trade: LCH income up 15% (up 15% at constant currency), driven by 12% revenue growth in OTC clearing, with strong volumes at SwapClear and ForexClear also contributing to 49% growth in net treasury income
· Capital Markets: like-for-like revenues up 2% (up 2% at constant currency); adjusting for IFRS 15, Capital Markets reported revenues are 8% lower than the comparative Q3 unadjusted period in the prior year
Commenting on performance in Q3, David Schwimmer, Chief Executive, said:
"The Q3 results show continued momentum across the Group, reflecting another period of operational execution and investment in the business. Information Services and LCH both delivered good year on year growth. We also announced today that we are in the process of acquiring up to a further 15.1% stake in LCH, which is expected to take our majority ownership of this valuable strategic business to over 80%, reflecting our continued confidence in LCH's opportunities for further growth as it develops its business in partnership with its customers.
"Since I joined LSEG in August my initial impressions of the Group's strengths have been reinforced as I have spent time with our businesses and met with key stakeholders. The Group has world class assets, a strong financial position and a proven strategic approach. As today's results show, we have a great platform from which to grow and develop further opportunities as we navigate the evolving economic and regulatory landscape ahead."
Organic growth is calculated in respect of businesses owned for at least 9 months in either period and so excludes ISPS, The Yield Book and Citi Fixed Income Indices, MillenniumIT ESP and Exactpro. The Group's principal foreign exchange exposure arises from translating our European based Euro and US based USD reporting businesses into Sterling.
Investment in growth opportunities and new developments continued across the business during the past quarter:
- LSEG expected to increase its stake in LCH Group to over 80%, acquiring up to an additional 15.1% stake following reductions in holdings by a number of minority shareholders. Targeting completion before end Q4 2018
- LCH ForexClear launched FX options clearing, with connected settlement through CLS settlement
- LCH SwapClear cleared its first Secured Overnight Financing Rate (SOFR) swaps
- SEDOL Masterfile expanded its Fixed Income coverage to include 1.5 million US Municipal and US Corporate Bonds with data from Mergent, part of FTSE Russell
- MTS and Johannesburg Stock Exchange opened South Africa's first electronic government bonds trading platform powered by MTS
- LSEG and National Stock Exchange of India signed a MoU to create a dual listing route for Masala bonds and an agreement to look at launching ELITE in India
The Group's financial position continues to be strong with a good level of funding flexibility in place. As at 30 September 2018, the Group had available committed facility headroom of c.£500 million having paid the interim dividend to shareholders and other normal course payment obligations. On a pro forma basis, assuming the acquisition of up to a further 15.1% stake in LCH Group for up to c.€438 million, the Group's net debt:EBITDA would be towards the top end of our target leverage range, though should reduce quickly as the Group continues to generate strong cash flows.
Credit ratings are unchanged since 30 June 2018, with S&P maintaining a positive outlook around its A- long term rating of LSEG plc and its A+ long term rating of LCH Ltd and LCH SA. Moody's rates LSEG long term A3 with a stable outlook.
The euro strengthened by 1% and the US dollar weakened 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 £2 million for Q3, while a US$0.05 move would have resulted in a £2 million change.
IFRS 15 accounting change
Since issuing its Interim Report on 2 August 2018, the Group has received clarification guidance from the IFRS Interpretations Committee (IFRIC) regarding the impact of adopting IFRS 15 on admission and listing services provided by the Group's Primary Markets businesses within the Capital Markets segment.
On conversion to the new standard, with effect back dated to 1 Jan 2018, the Group now treats the initial admission and the continual and ongoing listing service as one performance obligation and recognises revenue from initial admissions and further issues over the period the Group has provided the listing service. In the majority of cases this is estimated to be between 4 and 11 years, dependent on the nature of the listing and the service provided. The net £9 million revenue reduction taken in Q3 reflects the impact for the 9 months year-to-date.
All new and further listing fees will continue to be billed and cash collected at the point when the service is first provided. Revenues deferred as at 1 January 2018 will result in a recovery of tax paid at the prevailing rate on adoption of IFRS 15 by means of a reduction in the corporation tax payable due to the relevant tax authorities. The Group will subsequently incur corporation tax charge as the deferred revenues from initial admission and further issue fees are recognised in the income statement.