# London Stock Exchange Group deliver a good financial performance

- Link: https://www.directorstalkinterviews.com/london-stock-exchange-group-deliver-a-good-financial-performance/412806859
- Published: 2020-02-28T07:29:34+00:00
- Author: Amilia Stone

**[London Stock Exchange Group plc](https://www.directorstalkinterviews.com/ftse-company/london-stock-exchange-group/lseg.l)**(
LON:LSE) has today announced its preliminary results for the year ended 31 December
2019.

_Unless stated otherwise, all figures in the highlights below refer to 12 months
to 31 December 2019 and comparisons with the prior 12 month period on the same basis._

·    Strong financial performance – revenue growth continues across our businesses
as the Group continues to invest successfully for growth

·    Acquisition of Refinitiv will accelerate the Group’s growth strategy and position
as a global financial markets infrastructure leader – increasing its global footprint
and adding leading data and analytics and multi-asset class capital markets capabilities

·    Detailed integration planning underway to ensure delivery of Refinitiv transaction****
benefits; regulatory approvals processes ongoing and on track for completion in 
H2 2020 

**2019 Financial Highlights**

·    Total revenue and total income both up 8% to £2,056 million (2018: £1,911 million)
and £2,314 million (2018: £2,135 million) respectively 

·    FTSE Russell delivered 10% revenue growth (up 6% on a constant currency basis)

·    LCH OTC revenues up 15% (up 13% on a constant currency basis) driven by record
SwapClear volumes with over $1.2 quadrillion of notional cleared

·    Cost of sales decreased 8%, in part driven by an updated SwapClear agreement
with partner banks delivering a more than £30 million reduction in the year

·    Continued cost discipline, operating expenses (excluding depreciation and amortisation)
^(1) up only 1%, helped by achievement of cost savings; total costs up 7% reflecting
higher depreciation and amortisation mainly arising from increased capital investment

·    Adjusted operating profit^(2) up 14% to £1,065 million (2018: £931 million);
operating profit down 2% to £738 million (2018: £751 million); adjusted EBITDA^(
2) up 19% to £1,265 million (2018: £1,066 million) and EBITDA margin of 54.7%

·    Adjusted EPS^(2) up 15% to 200.3 pence (2018: 173.8 pence); basic EPS down 
14% to 119.5 pence (2018: 138.3 pence)

·    Proposed final dividend of 49.9 pence per share, resulting in a 16% increase
in the full year dividend to 70.0 pence per share, reflecting good performance and
confident outlook for the Group

**Continued organic and inorganic development, including:**

·    Acquisition of Beyond Ratings, a provider of Environmental, Social and Governance(
ESG) data for fixed income investors

·    FTSE Russell launched Climate WGBI, an innovative government bond index incorporating
climate risk factors

·    Record volumes reported by all LCH OTC clearing services – SwapClear, CDSClear,
ForexClear and RepoClear

·    LCH continues to facilitate migration to alternative reference rates and was
the first CCP to launch clearing for €STR swaps

·    ForexClear launched the clearing of deliverable FX Forwards

·    Acquisition of a 4.92% minority stake in Euroclear with a seat on the Board,
strengthening the commercial relationship between the businesses

·    Capital Markets launched Shanghai-London Stock Connect with Huatai Securities
as its first issuer

·    Capital Markets launched the Green Economy Mark, enabling investors to identify
issuers that generate 50% or more of their revenues from green initiatives; and 
the Sustainable Bond Market, a new dedicated segment for social and [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
bonds

_^(1)__^( )__Before depreciation, amortisation and non-underlying items._

_^(2)__^( )__Before amortisation of purchased intangible assets and non-underlying
items._

Organic growth is calculated in respect of businesses owned for at least 12 months
in either period and so excludes Beyond Ratings. 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.

**Board of Directors – change of Senior Independent Director**

Stephen O’Connor will assume the role of Senior Independent Director from Paul Heiden
after the conclusion of the AGM in April 2020, when, as previously announced, Paul
will step down from the Board.  Stephen was appointed to the LSEG Board in June 
2013 and is Chairman of the Risk Committee.

> **Commenting on performance for the year, David Schwimmer, CEO, LSEG said:**
> “It was another strong year for London Stock Exchange Group – delivering a good
> financial performance, making meaningful progress executing on our strategic objectives,
> and taking significant steps on a number of Group-wide initiatives. The Group 
> continued to perform well, navigating an evolving macroeconomic and geopolitical
> landscape and remains well positioned for the future.  We continue to partner 
> with our customers to develop innovative services in a range of areas, from reference
> rate reform to sustainable investment.
> “Our proposed acquisition of Refinitiv, a leading provider of data, analytics 
> and financial markets services, will significantly accelerate our strategy to 
> be a leading global financial markets infrastructure provider. Refinitiv brings
> highly complementary capabilities in data, analytics and capital markets as well
> as deep customer relationships across a global business.  Detailed integration
> planning is underway to ensure we are ready to deliver the benefits of the transaction
> to our shareholders, customers and other stakeholders.  We remain on track to 
> close the transaction in the second half of this year.”

**CEO’s statement**

**Overview**

2019 was another eventful year of macroeconomic and geo-political events directly
influencing global financial markets. Despite this complex backdrop, it was also
another strong year for London Stock Exchange Group – delivering a strong financial
performance; making meaningful progress executing on our strategic objectives; and
taking significant steps on a number of Group-wide initiatives. We announced the
proposed acquisition of Refinitiv, which will accelerate our strategy, while continuing
to progress financially, strategically and operationally across our core businesses
of Information Services, Post Trade and Capital Markets. Our successful strategy
is underpinned by the continuation of our Open Access and customer partnership approach
to deliver innovative solutions across the financial markets value chain.

At the end of 2018, the Board and the executive team evaluated the Group’s strategy
in order to ensure that LSEG is well positioned for the decade ahead. We carried
out this evaluation from a position of strength, building on the successful execution
of the strategy and financial performance of recent years. Over the last 20 years,
the financial market landscape has changed significantly – driven by technology,
regulatory and macroeconomic factors – and change is happening at an even greater
pace today. We are consistently hearing from our clients that they want to trade
across different regions and asset classes, with fewer providers that are better
positioned to do more for them across the financial markets value chain, while maintaining
an open access model built on customer choice.

LSEG is looking to drive that evolution and position the Group for long-term sustainable
growth. In August 2019 we announced the transformational acquisition of Refinitiv
in an all-share transaction for an enterprise value of approximately US$27 billion,
as at 1 August 2019. The proposed acquisition, which has been well received by the
market and approved by shareholders, significantly accelerates our existing strategy
to be a leading global financial markets infrastructure provider. Refinitiv brings
highly complementary capabilities in data, analytics and capital markets as well
as deep customer relationships across a truly global business. As a result, we will
significantly expand our data and analytics offering to create a global multi-asset
class capital markets business. Shortly after the announcement of the proposed Refinitiv
transaction, we received an unsolicited approach from Hong Kong Exchanges and Clearing
Limited (HKEX). The Board reflected fully on the conditional proposal and highlighted
fundamental concerns about the deliverability, value and strategic benefit of the
approach. HKEX later announced that it would not proceed with an offer. The Board
remains convinced that the Refinitiv transaction provides superior benefits, and
we continue to make good progress towards achieving regulatory approvals. We remain
on target to close the transaction in the second half of 2020.

**Information Services**

In our Information Services division, FTSE Russell is a key contributor to Group
revenues, delivering 10% revenue growth over the course of the year. This included
strong growth in subscription revenues, up 12% in 2019, reflecting new sales across
a number of indices.

The growth in passive investing continues and is now increasing at approximately
20% per year, with assets expected to reach $30 trillion by 2023. FTSE Russell is
well placed to capitalise on these industry trends, with increased demand for its
data and analytical tools. At the end of 2019, the value of ETF assets tracking 
its indices was US$765 billion, up 26% on the previous year. 

LSEG’s Information Services business is also responding to the rapidly growing demand
among asset owners to integrate sustainability and Environmental, Social and Governance(
ESG) considerations. In June, we announced the acquisition of Beyond Ratings, a 
highly regarded provider of ESG data for fixed income. Beyond Ratings is very complementary
to FTSE Russell’s existing ESG index and data offering as well as the analytics 
tools provided through The Yield Book.

In July, FTSE Russell launched the first climate risk-adjusted government bond index,
which allows the market to access a quantitative climate risk assessment for sovereign
debt. FTSE Russell has worked with institutions across the globe to develop indices
that meet their sustainability criteria as well as the underlying benchmarks for
exchange traded funds. FTSE Russell will continue to help develop and promote more
global standards for measuring progress against ESG and sustainable development 
goals.

FTSE Russell successfully began inclusion of China A Shares and Saudi Arabia securities
into its global equity benchmarks, marking significant developments for these emerging
markets. We have received positive feedback from index users with many passive asset
managers moving quickly to adjust portfolios. We estimate that the inclusion of 
these countries within the FTSE Emerging Index will equate to around US$15 billion
in net passive inflows of assets under management.

**Post Trade**

The Group’s post trade divisions continued to perform well. LCH delivered a strong
performance with income up 14% to £756 million. Post Trade – Italy saw income increase
by 5% to £152 million. In January 2019, LSEG also announced the purchase of a 4.92%
minority stake in Euroclear, a leading provider of settlement, custody and collateral
management services across Europe, which further strengthened LSEG’s and Euroclear’s
existing operational and commercial relationship to the benefit of our respective
customers.

LCH’s OTC clearing services continued to set new records in 2019 and have seen good
growth in member and client clearing. SwapClear remains the largest OTC rates liquidity
pool in the world, processing over US$1.2 quadrillion in notional volume in 2019.
Alongside this, the increased use of its compression services has enabled members
and customers to save approximately US$35.1 billion in capital over the course of
the year. In October, LCH became the first clearing house to offer clearing of Euro-
denominated swaps benchmarked to the new reference rate €STR, as the industry adopts
new interest rate benchmarks. The move follows its launch of clearing for SOFR swaps
and SONIA Futures in 2018, and SARON swaps in 2017. Through SwapAgent, LCH has the
opportunity to expand its offering in the non-cleared OTC derivatives space, which
represents around 25% of the global OTC interest rate derivatives market. ForexClear
has also expanded its product offering to include the clearing of deliverable FX
forwards. In Italy, the Group’s central securities depository (CSD), Monte Titoli,
is implementing a digital transformation programme to deliver increased efficiency,
risk reduction and simplification for clients.

In October, we announced that we would align our Post Trade businesses in one division
from January 2020, under the leadership of Daniel Maguire. The new Post Trade division
includes LCH Group, CC&G, Monte Titoli and UnaVista, our trade reporting business
that previously sat within Information Services. The new division will ensure greater
Group-wide collaboration and benefits for customers, while continuing to operate
on an open-access basis with no changes to local legal entity governance and regulatory
oversight.

The withdrawal agreement in relation to the UK’s departure from the European Union
provides for a transition period until 31 December 2020 during which the UK will
continue to apply European Union Law. As such, LCH Ltd remains an EMIR ‘Authorised’
UK CCP and continues to offer clearing for all products and services to all members
and clients. LCH Ltd also continues to engage in the application process under the
revised supervisory framework for EU and third country CCPs (‘EMIR 2.2’) to ensure
a smooth transition to being a recognised, third country CCP.

**Capital Markets**

Capital Markets continued to perform well despite macroeconomic headwinds with revenue
up 5% to £426 million.

While IPO activity globally has been slower this year due to macroeconomic and political
uncertainty, London Stock Exchange and Borsa Italiana attracted significant listings
with a total of £23.4 billion raised by firms in new and further issues across the
Group’s markets. London Stock Exchange retained its status as the leading European
exchange in terms of money raised and Borsa Italiana recorded the highest number
of new listings in Europe.

AIM, which will celebrate its 25th anniversary in 2020, remains the world’s largest
growth market, helping firms to raise over £3.8 billion in new and further issues
during 2019. As part of our ongoing commitment to broadening our services to help
make markets more accessible, London Stock Exchange also signed an agreement with
PrimaryBid to enable retail investors real time access to listings. AIM Italia welcomed
31 companies to its markets, the highest number since it launched in 2009.  In fixed
income, a number of companies and sovereign issuers chose London to raise capital,
including Aramco’s inaugural international $12 billion bond in April.

After four years of development, including close work with the UK and Chinese Governments
and regulators, we launched Shanghai-London Stock Connect, welcoming Huatai Securities
as the first issuer of GDRs on the new segment in June. While we expect it will 
take a while to build, it is a significant achievement in our relationship with 
China.

LSEG continued to support issuers and investors in the transition to a sustainable,
low-carbon economy throughout 2019. Over a third of the £6.9 billion total capital
raised by investment funds through IPOs and further issues this year has been raised
by green funds. Borsa Italiana’s third Italian Sustainability Day welcomed a record
number of participants amidst the growing focus on sustainable investment.  In October,
London Stock Exchange launched two green initiatives to recognise the increased 
interest from issuers and investors. The new Green Economy Mark recognises listed
companies with 50% or more of their revenues derived from products and services 
that contribute to the global green economy. The Sustainable Bond Market builds 
on the success of the Green Bond Segment, launched in 2015, and includes new sustainability,
social and issuer-level segments, based on independently verified frameworks and
use of proceeds.

CurveGlobal, the interest rate derivatives business, continued to innovate and build
momentum. CurveGlobal trading volumes rose by 78% in 2019, compared to 2018, as 
it continues to drive competition in the futures markets. CurveGlobal is supporting
the transition away from LIBOR-based derivatives, enhancing price discovery and 
helping the market manage risk. It has also introduced a unique uncapped pre-paid
trading scheme to encourage further use of CurveGlobal services.

**Leadership**

During the course of the year, we announced some changes to strengthen further our
executive management team. David Shalders joined the Group as Chief Integration 
Officer and Chief Operating Officer and Anthony McCarthy was appointed Chief Information
Officer, following Chris Corrado’s decision to leave the Group. As noted in last
year’s report, Waqas Samad was appointed Group Director, Information Services in
January 2019, while Daniel Maguire, CEO LCH Group was appointed Group Director, 
Post Trade following the creation of a single Post Trade division. Tim Jones, Group
Head of Human Resources, and Gavin Sullivan, Group Communications Director, both
joined the executive management team from 1 January 2020, reflecting the importance
of these roles as the Group continues to develop. From 1 April 2020, Murray Roos
will join LSEG as Group Director, Capital Markets as Raffaele Jerusalmi steps down
from that role, while continuing as CEO, Borsa Italiana.

Finally, in October we announced that David Warren, Group Chief Financial Officer
had informed the Group of his intention to retire from the company. David will continue
in his current role as Group CFO and a member of the Board through to the close 
of the Refinitiv transaction to ensure a smooth transition to his successor. However,
I would like to express my thanks now for David’s significant contribution to the
Group’s success.

**Our purpose**

LSEG supports global financial stability and sustainable economic growth by enabling
businesses and economies to fund innovation, manage risk and create jobs. As a global
financial markets infrastructure business, LSEG provides critical services to clients
around the world. We understand the vital role we play in supporting and enabling
a financial ecosystem that fosters long-term sustainable economic growth, for the
benefit of all participants in capital markets – issuers, investors and intermediaries.
We run businesses that are of systemic importance and recognise that in doing so
we hold an important position in the financial ecosystem with a broad set of responsibilities
to our stakeholders.

We are also cognisant of our responsibilities to our people and to the wider communities
in which we operate. We are committed to supporting a culture of collaboration and
embracing the diversity of the Group. In 2019, we launched our Inclusion Network(
IN) which will support networks embracing all forms of diversity. Colleagues in 
all locations have actively supported cultural initiatives from mentoring to organising
activities that promote our values. It is also encouraging to see a rise in the 
number of colleagues participating in our paid volunteering days initiative to support
various local charities around the world. You can read more in our separate Corporate
Sustainability report available on our website.

**Looking forward**

We keep a close eye on the broader macroeconomic, technology and regulatory factors
which continue to drive change in our industry. We have continued to invest across
our businesses, working in partnership with customers to deliver innovative products
and services, while also controlling costs. The Group remains well positioned for
future growth in this evolving environment as a global financial markets infrastructure
leader. 

Finally, I would like to take the opportunity to thank all colleagues across the
Group for their hard work in delivering another successful performance.

**Financial review**

The financial review covers the financial year ended 31 December 2019.

Commentary on performance uses variances on a continuing organic and constant currency
basis, unless otherwise stated. Constant currency is calculated by rebasing 2018
at 2019 foreign exchange rates. Sub-segmentation of revenues are unaudited and are
shown to assist the understanding of performance.

**Highlights**

·    Total income of £2,314 million (2018: £2,135 million) increased by 7% and total
revenue of £2,056 million (2018: £1,911 million) increased by 6%

·    Adjusted EBITDA^(1) of £1,265 million (2018: £1,066 million) increased by 17%

·    Adjusted operating profit^(1) of £1,065 million (2018: £931 million) increased
by 13%

·    Operating profit of £738 million (2018: £751 million) decreased by 3%

·    Adjusted basic earnings per share^(1) of 200.3 pence (2018: 173.8 pence) increased
by 15%

·    Basic earnings per share of 119.5 pence (2018: 138.3 pence) decreased by 14%

·    Total dividend per share of 70.0 pence (2018: 60.4 pence) increased by 16%

There were no discontinued operations in 2019. 

David Warren

London Stock Exchange Group Chief Financial Officer

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