London Stock Exchange Group plc: Q1 2023 Trading Update

Strong start to the year across subscription and transactional businesses

David Schwimmer, CEO said:

"Our strategy continues to deliver, with all divisions contributing to growth. Our performance in the first quarter demonstrated the strength of our business model, the improving quality of our revenue and our critical role in the resilience of financial markets. In Data & Analytics, we saw a further acceleration in Annual Subscription Value growth, reflecting the investments we have made in our services and stronger customer engagement. In Post Trade, our leading franchise attracted a surge in volumes as clients looked to manage risk effectively during a period of heightened volatility.

"As we continue our shift from integration to transformation, we are confident of making further progress through the rest of the year."

This release contains revenues, cost of sales and key performance indicators (KPIs) for the three months ended 31 March 2023 (Q1). Certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Throughout this document, revenues and cost of sales associated with the BETA divestment, completed on 1 July 2022 have been classed as discontinued and are excluded from all periods. To reflect underlying performance, all constant currency variances compare the current and prior period at consistent exchange rates. Organic variance is calculated on a constant currency basis, adjusting the results to remove disposals from the entirety of the current and prior year periods, and including acquisitions from the date of acquisition with a comparable adjustment to the prior year.    

¹ Growth rates excluding the impact of the Ukraine / Russia war exclude income in the region and from sanctioned customers and related business from both periods. In Q1 2022, this amounted to £18 million, and nil beyond that.

Q1 2023 summary

Total income (excluding recoveries) was up 7.5% year-on-year in Q1, or up 8.0% excluding the impact of the Russia/Ukraine war. On an organic basis, growth was 6.4%.

·    Data & Analytics was up 7.1%, or 7.8% ex Russia/Ukraine, with growth accelerating from 2022 as a result of improving sales and retention, and a higher annual price increase than in recent years. Organic ASV growth was +7.6% at March 2023, with the further improvement on the December rate mainly the result of this year's price review, for the most part effective from January 2023.

o  Trading & Banking was up 4.7%, or 6.1% ex Russia/Ukraine. Both Trading and Banking accelerated, reflecting consistent improvements in retention as well as price benefits. Growth was broad-based across all user groups. Organic growth was 2.7%, with the acquisition of TORA in 2022 adding 2 percentage points to constant currency growth.

o  Enterprise Data was up 7.9%, or 8.5% ex Russia/Ukraine. We continue to see strong demand for our data in Real-Time, with growing usage and good renewal rates as well as a number of new contracts. In PRS, we are making further rapid progress towards our revenue synergy targets through continued cross-selling activity.

o  Investment Solutions was up 5.7%, with very strong growth in Benchmark Rates, Indices & Analytics (+14.1%) mainly driven by flagship equity products. The decline in asset-based revenue (-12.4%) reflected lower market values year-on-year.

o  Wealth was up 7.2%, as growth accelerated from 2022 supported by strong sales of data feeds and price increases.

o  Customer & Third Party Risk was up 18.8%, or 13.3% on an organic basis. World-Check, our screening business, continued to show excellent business momentum driven by customer demand and the benefits of cloud migration.

·    Capital Markets was up 2.5%, with growth driven primarily by Tradeweb.

o  Equities was down 11.6%, reflecting subdued market volumes in both primary and secondary markets and a strong prior period for trading volumes in 2022.

o  FX was down 0.9%, as a result of record volumes in the prior period. Activity levels in FXall improved compared to the second half of 2022, and last year's commercial actions in FX Matching continued to drive good volume growth.

o  Fixed Income, Derivatives & Other was up 7.3%. Average daily volumes were up 16.2% at Tradeweb, with strong performance across rates, credit, and money markets, although this was partly offset by lower fee capture across rates as investors increased trading in shorter-duration securities. 

·    Post Trade was up 16.8%, with OTC Derivatives up 30.7% on very strong activity in SwapClear arising from heightened market volatility. We also benefited from reference rate reform as clients switch US Dollar LIBOR contracts to SOFR. Net Treasury Income was up 20.5% on higher collateral balances and a slight increase in the yield achieved.

·    Group cost of sales was up 11.7%, with the very good performance in SwapClear and related Net Treasury Income resulting in a higher level of profit share, which is reflected in cost of sales.

Capital allocation

LSEG is highly cash-generative and we continue to take an active approach to capital allocation, investing for growth and returning excess capital to shareholders. At the end of March, we completed the acquisition of Acadia, significantly enhancing our multi-asset class capabilities in Post Trade. Acadia provides risk management, margining and collateral services to global financial institutions for the uncleared derivatives markets. Its risk and margining products span all OTC derivative asset classes and provide direct connectivity to over 2,000 market participants.

We made further progress with our on-market £750 million buyback programme, completing the second £250 million tranche in March and launching the final tranche, which we expect to complete by July. In addition, at today's AGM, we are seeking shareholder approval for a directed buyback from the Blackstone/Thomson Reuters consortium, expected to be up to £750 million by April 2024.

Appointment of Group Head, Data & Analytics

Last week, we announced that Satvinder Singh will join LSEG in July 2023 as Group Head, Data & Analytics and as a member of the Executive Committee. Satvinder brings strong leadership experience in financial services, in many parts of the trade lifecycle, and a proven track record of building high performing global teams. 

Capital Markets Event

We plan to host a Capital Markets Event in London on 16 (afternoon/evening) and 17 November 2023. The event will combine plenary presentations, which will be webcast, and a day of break-out sessions enabling investors and analysts to engage in-depth with management across a wide range of LSEG's businesses. We strongly encourage in-person attendance. Please register your interest with the IR team at [email protected]. Further details will follow in due course.

Contacts: London Stock Exchange Group plc

Additional information can be found at www.lseg.com.

Q1 investor and analyst conference call:

LSEG will host a conference call for its Q1 Trading Update for analysts and investors today at 08:30am (UK time). On the call will be David Schwimmer (Chief Executive Officer) and Anna Manz (Chief Financial Officer).

To access the webcast or telephone conference call please register in advance using the following link:

https://www.lsegissuerservices.com/spark/LondonStockExchangeGroup/events/d60261a5-aa15-4b01-8810-1e6dcef5bc83

To ask a question live you will need to register for the telephone conference call here:

https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=7394174&linkSecurityString=126dfbd7de 

Data & Analytics business line revenues

Divisional non-financial KPIs

1.   Data & Analytics

¹ Organic, constant currency variance.

² Growth rates excluding the Ukraine / Russia war impact exclude income in the region and from sanctioned customers and related business from both periods.

³ 12-month rolling constant currency variance.

⁴ ESG Passive AUM is at 30 June 2022 and prior comparator is at 30 June 2021. The metric is updated bi-annually.

2. Capital Markets

3.   Post Trade

Financial details on Acadia

The figures below represent the 2022 unaudited financial performance of Acadia but have not been adjusted to reflect any difference in accounting policies that may arise on consolidation with LSEG.

FX conversion

The majority of LSEG revenues and expenses are in USD, followed by GBP, EUR and other currencies. The rates for the largest two currency pairs are shown in the table below.

For definitions of technical terms - refer to the Glossary contained in the 2022 Annual Report, page 246.

Total income and gross profit by quarter

¹ To better align with our internal reporting, some small revenue items have been reallocated between business lines across 2022 from Real Time Data and Data & Workflow into Benchmark Rates, Indices & Analytics.

² From 2023 onwards, FX-related items, related to embedded derivatives, previously included in recoveries will be recognised within the appropriate Data & Analytics revenue lines, primarily Trading & Banking and Enterprise Data Solutions. In 2022 this FX impact reduced recoveries by £43m and was heavily weighted towards H2.