LSE.L Regulatory News (LSE)

19 October 2018

LONDON STOCK EXCHANGE GROUP plc

TRADING STATEMENT

INCLUDING REVENUES AND KPIs FOR THE THREE MONTHS ENDED

30 SEPTEMBER 2018 (Q3)

· 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

Q3 summary

· 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

Financial Position

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.

Further information is available from:

A conference call for analysts and investors will be held at 8:30 (UK time) on Friday 19 October. On the call will be David Warren (CFO) and Paul Froud (Head of Investor Relations).

To access the telephone conference call dial 0800 376 7922 or +44 (0) 2071 928 000

Conference ID: 6477 558 

Q3 Revenue Summary

Revenues for three months and nine months ended 30 September 2018 refer to continuing operations, with comparatives against performance for the same period last year, are 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.

1 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.

Note: Variances in all tables are calculated from underlying numbers

More detailed revenues by segment are provided in tables below:

Information Services

1 Removal of The Yield Book and Citi Fixed Income Indices (acquired Q3 2017) from FTSE Russell and ISPS from Other information services (disposed Q1 2017)

Post Trade Services - LCH

1 Pass through of LIBOR data fees Cost of sales have now been netted off against Other income, 2018 Q3 impact £2m 9 months impact £7m

Post Trade Services - CC&G and Monte Titoli

1 Pass through of T2S costs, Cost of sales have now been netted off against Settlement, Custody & other, 2018 Q3 impact £2m, 9 months impact £7m

Capital Markets

IFRS 15 changes

Adoption of IFRS 15 has reduced Q3 2018 Primary Markets revenues by £9m, compared to the previous treatment of revenues. On like-for-like basis, adding back the £9m, Capital Markets revenues in Q3 would have been 2% higher than Q3 2017.

If the adjustment had been made on 1 January 2018, the Q1, Q2, & Q3 adjustment to the quarterly revenue would have been a £3m decrease (2017: £1m increase), £5m decrease (2017: £3m decrease) and £1m decrease (2017: £5m decrease) respectively.

The Group has chosen to adopt the modified retrospective approach and is therefore not required to restate financial statement issued prior to 1 January 2018 for the impact of IFRS 15. However for information purposes the P&L impact of IFRS 15 for the year ended 31 December 2017 would have been: 

Technology Services

1 Excludes MillenniumIT ESP and Exactpro (disposed Q4 2017 and Q1 2018 respectively)

Basis of Preparation

Results for the period ended 30 September 2018 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

Total Income - Quarterly

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