Earnings Call: H1 2020

Jul 31, 2020

Good day, and welcome everyone to the LSEG interim results, H1 investor and analyst call hosted by David Schimmer. My name is Kathy, and I'm your event manager today. Telephone and a coordinator will be happy to assist you. I would like to advise all parties that this conference is being recorded for replay purposes. And I would like to hand over to David. Please go ahead, sir. Thank you. Good morning, everyone, and welcome to our half year results presentation. I'm joined on the call by David Warren, our CFO, and Paul Froud, our group head of investor relations. During this unprecedented period, the group has delivered a good financial performance and demonstrated strong operational resilience Before David Warren walks us through the financials for the first half, let me update you on how we have navigated the COVID 19 pandemic and some of the actions we have taken. Our focus has been on ensuring the welfare of our employees and continuity of services to our customers. Our systemic role has perhaps never been clearer. Maintaining access to our capital markets, managing risk through our clearing operations, and providing important information services to market participants during this period. With record volumes executed on our trading venues and at our clearinghouses. Our business continuity plans continue to work well, with operational resilience unaffected by remote working arrangements. The vast majority of our employees are working remotely across our global locations. A gradual status return to offices of up to 30% of employees is planned in the remainder of the year in locations where public health government guidelines and the local status of the pandemic supports this approach. We are also committed to supporting the communities in which we operate around the world partnering with Global and local charitable organizations to further support those impacted by COVID 19. Together, El Seg and the El Seg Foundation, have donated £3,300,000 to date, both for emergency relief support and longer term recovery efforts. I'll talk in more detail about some of our operational and strategic priorities shortly, and I'll give an update on the Refinitiv transaction. But first, Let me hand over to David to talk through the first half financial results announced this morning. Thank you, David, and good morning, everyone. As you've seen from this morning's announcement, we delivered a good H1 financial performance. On Slide 2 gives the main highlights. Total income increased 8 percent to 1,000,000,000, driven by organic growth across our core businesses and another strong contribution from MTI. After deducting cost of sales, gross profit increased by 8% to £1,100,000,000 and adjusted EBITDA increased 9% to 1,000,000. Underlying operating costs, excluding depreciation, rose 8 percent to 1,000,000, which I'll discuss in a moment. Adjusted earnings per share increased by 11% to 112p per share Finally, the interim dividend is increased by 16 equivalent to 1 third of the 2019 full year dividend and consistent with our dividend policy. Let's take a more detailed look at the results starting on Slide 3. Information Services grew 5% with good growth in subscription and early 2020. Asset based revenues were subdued following reduction in AUM values. At the end of quarter 1. Continuity of service across all CCPs and contending with huge spikes and clearing volumes. We saw record number of trades within client clearing in swap clear and record volumes also in our ForEx CDS and cash equity services, delivering an overall 9% increase in revenues. Capital markets also performed well with a large uplift of further issuance activity and elevated trading volumes on our equities platforms as a result of high volatility during the period. Headline revenue decreased 4% However, on an underlying basis, stripping out the one time IFRS 15 accounting adjustment that took place in H1 last year, capital markets revenues would have grown 12%. NTI grew strongly, up 47% as a result of higher cash collateral balances and good investment returns and more on this in a minute. Overall, a good performance across the group with 8% income growth on an organic and constant currency basis. Finally, on this slide, cost of sales increased 11% in large part, reflecting increased revenue and NTI at LCH with consequent higher revenue share with members. I'll turn next to Slide 4, which highlights the main year on year changes to the income line. On the graph, we have adjusted for FX changes, which were comparatively small at $8,000,000. We also, as just mentioned, had a positive one time million IFRS 15 benefit in the previous year. From this comparative baseline, we can see that underlying organic growth delivered a £63,000,000 uplift in income in H1. NTI contributed a 1,000,000 increase with LCH NTI up 54% and CC and G in Italy, up 12%. Growth in NCI mainly arose from higher average cash collateral balances and a consequent increase in generally predictable and recurring income from handling fees, which are calculated on an agreed basis point spread from the applicable overnight rate and typically account for 2 thirds of NTI. Investment returns on collateral balances typically account for a third of NTI, This component is boosted by the higher quantum of cash margin and on a short term basis by the rapid cuts in interest rates in March. LCH cash collateral balances have reduced since the peak of 1,000,000,000 in mid March, with the latest July figure showing LCH average cash collateral balances down to EUR 107,000,000,000. In terms of guidance for H2, these more normalized levels suggest NTI is likely to be at similar levels to that at H2 last year, assuming no major change in clearing levels or further volatility. Next moving to operating expenses on Slide 5. Costs, excluding depreciation and amortization, were up 8%. As you may remember, operating costs in H1 last year were somewhat lower due to the phasing of investment spend in the year. In comparison with H1 and H2 last year, however, OpEx was only 1% higher sequentially. Reflecting our continued control of costs. And walking through the principal movements in the cost line, the graph on Slide 5 adjust for currency effects, which increases last year's starting position by 1,000,000. We incurred an additional million in net underlying operating expenses, partly reflecting additional cost for operational and technological resilience as the large majority as well as infrastructure and technology upgrades. And spend was also made to support further product development. Looking forward, we do expect costs excluding D and A to remain broadly unchanged in the second half of this year. D and A increased 1,000,000, primarily as a result of increasing investment spend from prior periods. With the level of CapEx continuing at a higher rate in H2, we still believe that underlying DNA for the full year will be around 1,000,000. And finally, for our tax rates, we expect the rate for age 2 to be around 23%. So now turning to cash flow on Slide 6, Cash generation was good with £343,000,000 of discretionary free cash flow after tax interest payments and investment activities. This equates to $0.98 per share, which is up from 89.7 percent pence per share, in the equivalent period last year. The strong underlying discretionary free cash flow performance was partly offset by a timing or related increase in tax outflows. Some payments were brought forward from the normal H2 timing due to a change in the UK quarterly payment regime. The group spends £105,000,000 on investment activities in the first half, which includes $89,000,000 on CapEx. We expect CapEx to pick up in H2 as some of the spend, that was delayed due to the pandemic. Is restarted. And we expect total CapEx for the year to amount to approximately 1,000,000. Inline with previous expectations. Let's now look at our financial position on Slide 7. Operating net debt at the end of June after setting aside £1,300,000,000 of restricted cash, was 1,900,000,000, up from 1,800,000,000 at the end of 2019. This was impacted by an £80,000,000 increase in cash set aside in line with regulatory guidance on COVID-nineteen, as well as other timing related cash flow impacts that I just explained. We have $891,000,000 of pounds of committed undrawn bank facilities extending out to 2024. And separate to this, we have a $13,300,000,000 U. S. Dollar bridge facility available to refinance Refinitiv debt which gives us flexibility when we consider our financing needs after the closing of S and P maintain a long term A rating and Moody's have an A3 rating for the group. And in terms of leverage, net debt to pro form a adjusted EBITDA is 1.4 times. And so it remains well within our targeted 1 to 2 times range. So in conclusion, the group has delivered a good performance and remains in a strong financial position. And I'll now pass back to David. Thanks, David. So turning to slide 9, As David has highlighted, we have continued to invest in our business as we grow in scale, while remaining focused on group wide efficiency, and operational excellence. As our financial performance demonstrates, our focus on product and service development is delivering results across our businesses of information services, capital markets, and post trade. For example, we launched a number of new indices through Footsie Russell, Welcome our second GDR on Shanghai London Stock Connect and successfully launched a new equity clearing platform at LCH in March during the peak of the equity market volatility. Our open access and customer partnership approach remain key to our strategy as we work with customers to develop innovative services in a range of areas. From reference rate reform to sustainable investment. As I have said previously, we are committed to continued investment in our technology and operations, to maintain and enhance our resiliency, deliver system scalability and support our growing global footprint. Let me now turn to each of our core businesses and discuss first half highlights and some opportunities going forward. I will then give an update on Refinitiv. 1st, turning to Information Services on Slide 10. FTSE Russell continues to be a leader in the global index industry and is well positioned in growth segments such as passive investing. As you see in the chart on the left, passive assets under management are estimated to continue growing to $36,600,000,000,000 in the next 5 years. Fussy Russell's multi asset class capabilities are a key differentiator, enabling product innovation across global equities and fixed income. To help customers implement passive investment processes and smart beta and factor solutions where we continue to see strong demand. In February, we launched the FTSE target Exposure indices. These indices, which are designed to meet investor demand for greater control transparency of portfolio exposures over time are available on some of our flagship products like the Footsie All World. They've already been employed by a UK based Defined Pension Fund, with legal and general investment management serving as the asset manager. World Class data and analytical tools underpin our benchmarks and help inform portfolio composition. This is particularly important in sustainable investment another significant growth opportunity for Footsie Russell. The growing demand from asset owners and managers to incorporate sustainable investment approaches into their strategies has persisted through the pandemic, and FTSE Russell is working closely with customers to calibrate indices to their requirements to integrate climate and other environmental, social, and governance teams. The launch of the FTSE TPI Climate Transition Index earlier this year was the result of close collaboration with the Church of England Pension's Board and the Transition Pathway Initiative is one of a number of innovations in Footsie Russell's range of climate indices, and the 1st global index to enable investors to align a broad equity portfolio with climate transition and the goals of the Paris agreement. Fifty Russell's focus on building long term partnerships with its clients offers the opportunity to develop value add products and services across the investment lifecycle. As you'll see from Slide 11, we broadly define our customer base in 3 areas: key decision makers, implementors, and market infrastructure. Our close partnerships with exchange groups have resulted in a number of contract including a 10 year extension to our index derivatives agreement with Cboe Global Markets. This month, SGX launched the FTSE Taiwan Index Futures contract, expanding the range of FTSE based derivatives products available for trading on its exchange. The C Russell has also strengthened its longstanding partnership with Johanisburg Stock Exchange to provide investors with a comprehensive range of fixed income indices. FTSE Russell has partnered with market participants to support industry wide efforts to transition from LIBOR with the development of a new sterling interest rate mark based on overnight index swaps. It has begun publication of daily indicative term Sonya reference rates, to allow prospective users to evaluate the partnership approach and methodology. The publication of a library is targeted by the end of 2020. Turning to Slide 12 and post trade. Reference rate reform is also an important focus for LCH. It is closely engaged with the relevant government authorities and industry participants to support a smooth transition to alternative reference rates. In May, LCH became the 1st clearing house to offer clearing of Singapore dollar swaps, benchmarked to Sora. This is in addition to clearing in Euro FTR swaps, sulfur swaps, Sonya Derivatives, and Seron swaps. At Swap Clear, the number of client trades cleared in the first half rose by 24% and it has continued to onboard new clients, particularly in the Asia Pacific region, as well as in the US and Latin America. LCH swap agent has seen further good momentum with the addition of 7 new members in the first half, and a rise in the total notional registered since launch to $1,900,000,000,000. We believe that in the medium term, LTH swap agent, has the opportunity to further expand its offering in the uncleared OTC interest rate swaps space, which represents around 25% of the global OTC interest rate derivative market. On Slide 13, we highlight the opportunity available to Forex Clear. To address the capital and margin challenges within the vast You can see from the chart that around 40 percent of the OTCFX market is suitable for clearing. To address this opportunity, Forex Clear is increasing the number products that it can clear through its service, although only a small proportion is currently centrally cleared through the CCP. While the next phase available for clearing. There are now 35 members connected to the service, and we are targeting the launch of non deliverable options in October of this year. The average daily value traded in NDOs is $50,000,000,000 and will increase the FX addressable opportunity at Forexclear to approximately 18% of the FX addressable market. Turning to Slide 14. As highlighted by David, net treasury income increased by 47% in the first half to £176,000,000. This was largely driven by the extreme market volatility in March. However, NTI remains a significant contributor to financial performance in our post trade businesses. As well as the handling charge received based on the levels of initial margin posted to the CCP, LCH has diversified its investment options in recent years to include central bank accounts, direct buy side investment counterparties and floating rate notes. Finally, on this slide, I would like to highlight the impact of the anti pro cyclical nature of LCH's risk models for its members and clients. Especially in stressed markets. Despite the heightened percent at LCH compared with an average of 60% at some other global CCPs. Turning to Capital Markets on Slide 15. This period clearly demonstrated the importance of markets remaining open, to enable price discovery and access to liquidity. As previously mentioned, despite extreme market conditions, all of our markets continued to operate as normal, with record volumes executed on our trading venues in Q1. In primary markets, 2,800,000,000 was raised through new issues, including the listing of China Pacific Insurance Group on Shanghai London Stock Connect, the largest capital raised via an admission to London Stock Exchange in 2020 today. The ability for listed firms to issue further equity capital efficiently is an equally important feature of public markets. In the first half of twenty twenty, there were 553 further issues, an increase of 29% on the first half of twenty nineteen, raising £17,000,000,000. Many of these firms are listed on AIM, London Stock Exchange's growth market, which celebrated its 25th anniversary last month. Turning to Slide 16. The proposed acquisition of Refinitiv is a transformational transaction, strategically and financially. Significantly accelerating 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 its global business. As a result, we will significantly expand our data and analytics offerings and create a global multi asset class capital markets business. We also have both shared commitment to Open Access, and to partnering with our customers to deliver innovative solutions across the financial markets value chain. Integration planning between the two groups is progressing well ensure we are ready to deliver the benefits of the transaction to our shareholders, customers, and other stakeholders. Today, we confirmed that the United States Department of Justice has closed its antitrust investigation of the transaction without remedies. We have also secured a number of regulatory approvals around the world. The European Commission's decision to commence a phase 2 review for a global large scale transaction, such as this, is not unusual, and we have factored this into our timeline. In the context of the phase 2 review, we have confirmed this morning that we have commenced exploratory discussions, which may result in a sale of El Seg's interest in MTS or potentially the Borsa Italiana group as a whole. However, at this stage, there can be no certainty that El Seg will decide to proceed with the transaction. Relating to either of these businesses, and we will not comment or speculate on possible outcomes. Alcent continues to engage constructively with the European Commission and other authorities on remaining approvals, and we expect to close the transaction by the end of the year or in early 2021. I should also mention Refinitiv continues to make good progress on its cost program with $567,000,000 in run rate savings achieved in H1 2020 and remains on track to achieve the 6.50 So in summary, turning to slide 17, During this challenging period, the group has delivered a good financial performance and demonstrated strong operational resilience. Our successful strategy working in close partnership with our customers positions us well We have continued to invest across our businesses, delivering innovative products and services, while also controlling underlying costs. The group also remains highly cash generative. With that, I'll now hand you back to Paul Froud for the Q And A. Thank you, David. So we're going to go over to questions now as normal. So if you haven't already, please do register to ask the question. I'll hand it to the operator to the first person on the line. Thank you. Thank you. We do have A question, it comes from Arnold Gilblatt. Please go ahead. Hi, good morning. It's Ana Giblach here at Exane. I had a question or a few questions on for Kyroso. Some of your competitors have noted some pressure in terms of client retention in Q2, it's a small drop off. And the explanation there is clients are facing some pressures due you covered over in that revisiting their prospects. Is that something you're seeing at all? Or is it something you expect to see, in the coming months? And secondly, I was wondering, you talked quite well about the upside from from ESG, at Fort C Russell. Could you give us a bit of an idea in terms of what the revenue contribution is today and how much and or how much you expect that to grow? Thank you. We, with respect to, drop off in client retention, we have seen a a very, moderate uptick in, some cancellations in the first half. I would not say it is, dramatic, and we are below the, numbers for 2019 at this point. So, we're certainly keeping an eye on it. And given the overall environment, it is an area that we are being cautious about, but at this point, it has been very, very modest. Now there we also have a number of, multi year contracts. We also have, contracts coming, up for renewal later in the year. So we'll keep an eye on all of those as well. But at this point, very, very modest uptick. And then in terms of the, ESG, 5G routes of business, we are seeing a lot of continued interest. We have seen good interest in the, beyond ratings capabilities, the sustainable analytics on the fixed income side. Some of the new products, around, the climate would be, the climate agbi. I mentioned the, the new fund around the church wing and pensions board and the TPI product there. We have put out a number of other, new ETFs. We've had a a partnership over the last year working with HSBC and put out some new sustainable products there. At this point, we are not disclosing, revenue associated with those new products. But it is an area of continued investment and an area of continued growth. So we are, we feel good about the progress we're making there. I don't know if David won, if there's anything you'd add to that? No, I wouldn't. I think that's it is good progress on a number of different areas. And, So I think you've summarized it. If I could follow-up with that question, 6% growth in subscriptions. I was wondering if you could give us a bit more flavor and how that breaks up in terms of new clients, 1, new services, pricing, which of those buckets are driving the growth? Yes, we don't, I mean, as you know, from it's a mix of both. Obviously, we're not breaking it out. In that kind of detail right now. I think what we're seeing certainly in this year, is is good flow through from the businesses from the business that we generated in 2019. And we did have good growth in subscription in subscription revenues in the first quarter over, over the first quarter of last year. So there's been a good business pipeline that was developed and delivered in 2019 throughout 2019. So we're getting a full year benefited coming in from that. So that's pricing, certainly, and some of it also is products and sales that are occurring in 2020, we did say on the Q1 call that we felt that the market would be challenging But nonetheless, we're still able to make progress, and it isn't that the new sales activity has fallen to 0. And we're seeing as we get more into the end of the year, that, a number of our customers obviously continuing to having adjusted to COVID and now really looking critically at the performances they need to deliver and how they want to what they and the tools they need to differentiate that performance. We certainly are seeing some pickup in sales activity for 2020. The next question comes from Kyle Voy. Hi, good morning. My first question, is just on the commentary on MTF and Forsythagliana seems like a bit of a change in tone on Varsatalliana specifically. My question is, was your willingness to explore the sale of the entirety of Porsche Taliano, a direct result of conversations with the European Commission, or does this represent a change in strategy or how you view that business in context of your bundled portfolio. Thanks, Kyle. So as was clear from the European Commission's phase 2 announcement on June 22nd, they, have a focus on European Government bond trading, and that relates to the overlapping MTS. And, trade web. So, our exploratory discussions around MTS are really around that. And we did think it made sense to explore, as part of the exploratory discussions. Whether there are potential benefits to keeping the businesses together. It's really as simple as that. So not much more I can convey out on the topic of point. Understood. And then a separate question on LCH Obviously, the first half growth in OTC clearing was still strong, but if you back into 2Q specifically, I think the organic growth rate accelerated to around 4%. So first, can you just go through what really grew that revenue year over year in 2Q specifically? Because I think we saw a pretty significant decline in notional cleared for IRS in 2Q. So was that just the number of trades And then just a broader question on the operating environment for that IRS Clearton Business. Tradeweb mentioned yesterday that There were some headwinds in IRS execution volumes into July. So the question is, do you think LCH OTC clearing revenue can grow through a period of low or no industry growth tailwinds as they work for the past several years? And is this 4% type growth rate similar to what you'd expect with no industry volume tailwinds? Thank you. Yes. So with the caveat that it's always always tough to predict the future. We, a couple things on that. First of all, I think we are clearly in more of a, a risk off mode in some of, the products And we have seen a reduction in some of the shorter term, speculative trades, in particular, by a lot of the the hedge fund activity. And I would say there's also been a lot of focus on, some of the volumes in futures for some of the other and how that compares to swaps, for us. I would say I would just point out that futures are more, focused, more concentrated on the short end where the prospect of interest rate changes right now is pretty low. In terms of our business and swaps, interest rate swaps tend to be longer dated risk. And, as this group note, there's much more uncertainty about rates over the medium term and the long term. And then the second point I would just make is that swaps are more of a hedge instrument than a speculative instrument. Of course, they're used for both, but more on the hedging. And, people, corporates, real money will will continue to adjust their portfolios and hedges over time, especially with ongoing financing and business activity. So while we have seen a reduction in some of the hedge fund activity on the short end, rates and the OIS products, and those are mostly focused around central bank rates. And and that does play through in our notional volumes. We continue to, feel good about the medium term and the longer term prospects because there continues to be significant, uncertainty about medium term and longer term rates. And, our customers will continue to and our members will continue to be active in those areas. The next question comes from Mike Werner. Thank you. Two questions for me. I guess first, when it comes to thinking about the timing of the closure of the Refinitiv deal. I was just curious as to what the order of operations would be, after after the completion of the European Commission's competition review, I. E, how long would it take from then to the potential closure, what type of regulatory approvals you would need in between those two periods is my first question. Then I guess second, and this is more for David Bourne. I think, just looking at the first half expenses, I was just wondering if you could provide a little bit color You talked about how there is some increased spend in the first half related to kind of technology and, kind of addressing the work from home environment. I imagine there was also some benefits due to lower TME and marketing. And I was just wondering what the kind of the net impact of the lockdowns have been on that cost base? Thank you. Thanks, Mike. So I'll take your first question and David can touch on the expenses question. In terms of timing, as we have discussed this morning, we are still aiming to close the transaction. Towards the end of this year or perhaps early in 2021. And in terms of the order of operations, we have a number of regulatory approvals that we have received. I think it's somewhere around 10 or 11 different jurisdictions, including as of this morning, our announcement about the United States, and that includes SIFI's approval, which we, received a few months ago. As well as the Department of Justice antitrust, sign off, as of, this morning. So, we are still working with European Commission, constructive engagement there. And we still have, a number of ongoing and I would say constructive discussions going on with, other authorities around the world. So we expect those to be completed around, I would say late this year, and hard to give exact timing on either, the completion of any of them or, the order of completion. But we expect that timing to wrap up around, late in the year. And then there will be, a relatively short period of time after we get our regulatory approvals, and then we expect to be able to close. So hopefully that gives you some of the color you're looking for. And then, David, over to you for the, the question on expenses. I think on the expenses, we tried to bring some of this out in there, in our R and S as well as in my comments I just spoke earlier. I think the first thing to understand is what happened in the comparator period last year that was So it's not part of our usual pattern of OpEx. There was last year, as compared to some other years, there there was far more spending, technology project type spending. Obviously, it's and some then not all of it, obviously, going through D and fair amount of our project spending does hit our P and L of the year, as operating expense. That was phased more to the back end of last year. As examples, we were in the final stages of developing out MCCP, our equities clearing platform, which launched very successfully in the first part of this year. But That's something we were working on. And there were some increased investment as we came to the end of that development and testing period. And there are some other examples where we we had, I think, more than usual, we have more spending. So the comparative period for this year's expenses is is lower. And I think we signaled last year that there'd be about another $20,000,000 of expenses that we would see in the second half of last year, which did come in as a result of that phased investment spend. I think the important part is through that phasing, I think we've now sort of hit some kind of back on the right track here. And our core costs continue to be very well controlled. And as I said, our sequential increase from last year's second half last year and the first half this year, there's only about a 1% increase. So we definitely are controlling expenses, of the $30,000,000 increase. Some of that was due certainly to the phasing that I just talked about. And some of it was also due to the investments that we needed to make in in ramping up our technology, our resilience, our cyber as we move more toward working from home environment. But at that 30,000,000 variance, I would say, giving an exact number, I would say probably around over half of that, maybe twothree was around the phasing impact of our spending last year. As part of your question, you also spoke to other companies, which are finding, opportunities to control OpEx and not spend in this year. And that's very much the same for us. Certainly, in discretionary spending, whether it's in T and E and marketing and some other areas, we are definitely seeing that spending, and that's going into our expectation for spending for the second half of the year. So we certainly are benefiting from those areas where we can control our spending but a lot of our spending any year, is going to be in projects investments, technology improvements, These are all important things to continue to do for our growth and stability. We haven't really had a slowdown in how we've been able to get that done. Those investments as we continue. So we'll save in the discretion areas, but an important part of our cost base really is, relatively planned every year to make sure we're making the right investments in our systems The next question comes from Andrew Coombs. Good morning. Thank you for taking my questions. I appreciate you're probably limited in what you can say on the exploratory discussions, but it's in a mess not to ask a few questions. So my first question would be politics aside, what is the ability to disentangle the MTS business? From the board of Bosco Italiana Group given the corporate structure and governance. And then my second question would be that the European Commission review on which your decision has been predicated, as you said, was focused on government bond trading and there's 2 sides to that equation as MTS, but there's also Tradeweb. So would an alternative need to consider selling the trade website and restructuring the deal accordingly. Why is a sale of NPS or bought to Italian addressable to that out come. Thank you. Thanks, Andrew. And you are correct. And there's a limited amount that we can say on, either of those topics. I would just say with respect to your second question, not going to speculate on, any other possible approaches or other possible remedies. And we continue to engage in, with this very constructive discussion with the European Commission. So we will continue to do that going forward. I should just emphasize that the discussions around, both MTS and the Boris Italia are, as we have said this morning, exploratory. And without getting into the specifics around, as you put it, ability to disentangle, I would just point out that you know, if you go back not so many years, MTS, had different ownership, you know, was was certainly separate from, Naborsa. So, not really in a position to, say much more than that, but, I think, we will continue these discussions, these exploratory discussions going forward. Thanks. Thank you. That's completely fair. Perhaps I'll follow-up with a standard, data question in that case, which is on your real time revenues up 8% year on year. You've actually seen a different step up there. So perhaps you could just talk a bit more about that. Thanks. Sure. David, you want to take that one? Yes. No, I'm happy to. Yeah, it has been a good it has been a good increase. I think it comes from number. And it is an increase. And obviously, it's a when the terminal accounts certainly is going down has been continuing to go down. I think I would highlight a couple of points there that's driving that growth. One is, I think, We're continuing to, develop new products and we've had good sales activity in real time data. We're also doing, increasingly doing the amount of increasingly selling our product through enterprise arrangements. So we can have more ability to put products into a specific customer relationship customers are also taking, and as a result of that customer is also taking different types of data. So taking real time data, but also taking non display data. So the enterprise license framework of how we're now structuring and pricing and delivering these agreements provides us with more flexibility, to deliver and customize a range of different services that we're able to, to deliver into different customers and to, appropriately charge for that value. So those would be some of the things that we're doing. It's been a multi year transition to take the real time data business away from a terminal based type of pricing to a enterprise license through a non terminals distribution structure. Next question. The next question comes from the line of Chris Turner from Berenberg. Just one question for me, if I may, on your net treasury income. In your opening remarks, you mentioned some of the things that your treasury team has done over the last 4 years. To find some structurally improved in net interest margins. Could you just provide a little bit little bit more color on that and how your investment process has changed? And then whether you think there's room for further optimization over the next few years as well? So our team within, basically, the the the treasury team within, LCH has been very focused on this over the past several years. And it is it really relates to what I was talking about earlier, which is increasing the number of counterparties, increasing the ability, the the range to invest in various other products, such as the floating rate notes. And in doing so, having a little bit more control over the investment opportunities, a significant challenge for, LCH over, the years of its growth has been to make sure that it is, adhering to regulations, which are pretty strict in terms of what of investments can be done, and finding the appropriate counterparties, and managing risk. So that has been, those those kinds of efforts, have been the real focus for that team. And they have been successful in doing that. In terms of the prospects for continuing to improve it going forward, it's something that that we continue to look at and they continue to look at. And as the business grows, we'll have to continue, making sure that we have, safe places to invest the capital, on an overnight basis and on a on a, longer term basis where appropriate. So, ongoing efforts there. The next question comes from Benjamin Goy. Yes, hi, good morning. Two questions, please. First, thank you on the slide on Forex Clear. So I sense a bit of new optimism there. Just wondering in terms of revenues, in the past, you mentioned the 25 a 40,000,000 opportunity. Is that still something you see short to midterm as possible? And then secondly, just to double check, in case the Refinitiv closing slipped into 2021, European Commission approval is all you need? Or is there a risk that in the UK, CMA might take a per preview as well. Thank you. Thanks, Benjamin. So I'll take your second question first. Under the withdrawal agreement, the European Commission has a jurisdiction for transactions where the review starts this year, I. E. Before the end of, of the withdrawal agreement time period. So even if the transaction, flips into 20 21. There is no, no, likely scenario of the CMA, stepping in and saying that this is now in their jurisdiction. So that appears to be a a pretty clear agreement as part of the withdrawal agreement arrangements. On Forest cleared, I would say I'm not sure. I would say there's any new optimism. I would say we continue to have long term optimism. And we continue to view this as a, I'll say a slow, steady build. Very similar to the slow steady build that has been, swap curve, particularly in its early years. And, our our strategy here, is really to continue to work with, members and, in some cases, clients in terms of getting, more and more onboarded, getting them accustomed to the products that are available. We continue to roll out new products. And as I mentioned, in October, we expect to roll out the non deliverable options, which expands our clear addressable, clearable market, right, roughly $50,000,000,000 a day, I believe. And so we'll continue to do that. And we thought this page would be helpful in terms of, of showing both where we are able to provide, clearing solutions for the market, what is clearable going forward, but that we don't currently, address. And what we view as the longer term opportunity. I don't think, at this point, we've given any guidance on, the revenue opportunity, but it is, as you can see, it's growing well in terms of volumes. And we expect the, as the uncleared margin will kicks in the last 2 phases next year and the year beyond, that will also be helpful. Understood. Thank you. Thank you. The next question comes from the line of Ian White Hi, good morning. Thanks so much for the presentation. I actually have three questions, please, 2 on LCH. And then one MTS, which you may not want to answer. But, in terms of LCH, what would LTHOTC revenues have been, in the second quarter, if clients had switched payment terms, to notional based rather than transaction based payment, why is that not a risk going forward if conditions we saw in 2Q continue? Business 2 charging models for client clearing. And secondly, on LCH, could you maybe say a bit about the, revenue model at swap agent, what you think the medium term revenue opportunity could be there, please. Basically, is that if the revenue geared to notional or is it more of a sort of flat fee per dealer type model? And then lastly, my question on, MTS, how important is it that open access is maintained, between MTS and LCH in order for you to continue to grow the repo clearing business. Okay. I mean, look, on the first part of your question, yes, there are there are client claim. There are there are different pricing models, as you point out in your question, but, it's it's certainly we do the analysis, but it's not something that we disclose or just not would not want to go into detail on that right now. I appreciate the question, but it's not something that we would, we would be disclosing. So I'm really not going to be able to answer other than just to acknowledge that there are different pricing models. And maybe on swap agent, that is primarily member based, at this point. And so, as it picks up, in terms of volumes, we expect to see more client volumes on that over time, but at this point, primarily member based. And as you know, members tend to be on a a fixed fee all you can eat model. Paul said feel free to to jump in if there's anything you'd wanna add on that. And then on, MTS and Open Access, repo cleared guests, some volumes, from MTS. So if your question is, where MTS to go somewhere else, and be plugged into a vertical model, could that be potentially, a risk from a volumes perspective to repo clear. You know, we have always said that we are in favor of, open access, and we think open access is the right approach for the market and the, the most customer friendly approach. Obviously, some of our competitors have different approaches and different operating philosophies, with vertical stylists that we feel is, not customer friendly. But, that's certainly something, there are there are differences of, approach and operating philosophy in the marketplace. On Open Access. So, we will we'll see where the, European Union comes out on, their view the delay of open access, which has now been pushed off again into next year, but we'll see where they come out on that. Got it. Thank you. The next question comes from Johannes Thormann Good morning, everybody. Johannes Thalmann. Thanks for taking my questions. First of all, could you help me with your stronger treasury I'm really surely driven by the duration mismatch. Any tools to mitigate this risk, please? And secondly, in terms of FTSE Russell, could you help me understanding the strong show of the asset base fees, especially if you look on half year level versus half year with the current impact on the asset basis. And last but not least, maybe an update on the timeline about when will you think about replacing the bank's bridge with the bond issuance or what other tools are in mind? David, you wanna wanna take those? David, you there? I lost lost David. On the so I'll I'll go through, each of the 3. On the timeline in terms of the bank financing, we will continue to I'm back on. My line got disconnected. Okay. Did you hear the questions? I think I heard you on a safe. Could you help me with, net treasury income? And then I started to answer it. Then I started to answer it and and it went dead. So Okay. So three questions. One strong net treasury income, a little more color on that. That, and he suggested, a question on duration mismatch. The second was a question around FTSE Russell and the asset based revenues. And third was the timeline on the bank, financing. And when we would think about doing the financing and replace the bridge. So okay. So I was just going to to, be CFO for a minute, but you're back. Thanks, Johannes. Look, in terms of helping you on the net treasury income, I think that's as you know, and as we've always said, it's the main driver of that is around the quantum of margin that we collect and that we invest. And obviously, in the first half of this year, given the heightened periods of volatility and market incurring activity, those margin levels increased. To some of their highest levels. That is principally what drives, that and we earned, as I said in the, in my remarks, we earn a higher, if you will, handling charge, which is about 2 thirds of our NTI. And that's going to be, what we what we paid back to the members for the deposit collateral So it's the applicable overnight rate minus an agreed take, which which varies depending on the currency that we receive. And then we're also able to add on top of that, some amount of investment spread mean, I think you know all that. And I'm not quite sure if you want to ask me a little more specifics about your question. Yes. But it really was around but the dramatic increase in the amount of margin that we collected because of the increased activity, as David's point, not because of any change to our risk models. So that was really what was driving it. And as we have talked about in Q1 and as we're talking about now, as those, collateral levels continue to come down as we return to more normal activity. We would expect to see that NTI come down as well based on the drop in the amount of collateral. That may not be exactly what you're asking me. So if you have a more specific question, please ask it. Yes. Just, any tools to, as normally a lot of, clearing houses all have a don't have a big duration mismatch. In part of the investments. How confident are you, and do you have enough tools to mitigate this risk if by one This is only a fair tailwind, surely, but if if, you have you have 90 days investments and then if how big is this chair and how can you mitigate those first from this? So, I mean, the short answer to your question is is we absolutely do. Obviously, it's 1,000,000,000 of euros and pounds of collateral that we manage. It is all done under, under very carefully, regulated and controlled and managed risk management. So there are certainly opportunities for us to look at different counterparties, different investments But it's a limited environment to earn yield, just given the fact that we have to be preserving liquidity, We have to make to sufficient collateral at any period of time to handle the simultaneous default of our 2 largest clearing members. And so that's a requirement. And we always got to be testing that and backtesting the market, against that. You know, on a daily basis. We typically do better than cover 2. So we have opportunities But again, it's it's constrained in terms of the amount that we can actually earn, it's it's definitely constrained by by the fact that we've got to perform the basic function of a clearinghouse, which is a risk management operation. That's why it comes back to the handling fee, which is this take that we have, the structure of that And that's the predictable, the more recurring part of that, that obviously isn't it isn't around that's not around spread. That's really around the reference rate and the tape that we agree with each customer based on the type of currency and collateral that we're collecting. So I think it's how you think about it, which is, of course, we have opportunities, to manage different counterparties, manage different maturities, take certain amounts of yield. But we also, we always have to be managing to some very tight covenants and requirements and regulatory requirements as it relates to, availability of liquidity at any point in time. Okay. Thank you. Now your other question was around. The strong asset base of FTSE Ruffle, if you look at the asset levels in the market and the strong performance of the asset based fees. What has driven the difference between those 2? The amount of our FTSE revenue that we earned from, basis points on AUM Yes. Well, I mean, there are a couple parts to that. One is certainly, certainly, Certainly, they were at a very depressed level at the end of Q1. And they have, they are starting to come back. And so right now, our AUMs at the end of Q2 of the half year, about 15% up from where they were at Q1. So the market is starting to come back. And we we bill and receive that revenue as the funds report. So it tends to lag on a 1 to 3 months basis depending on the nature of a product, if it's a fund or or an ETF. So as the market is recovered and as we project AUMs to come back, We still expect them to be lower than what they were last year, just given the fact that they're building back from where they were after the sharp drop in March. We do still project that they'll go up and we also will continue to collect increased revenues for those higher AUMs, but on a lagged basis as we always have. Okay. Thank you. And then the other question was around you had a third question, sorry to keep the Yes. There's a timeline on replacing the bank's bridge is is normally, okay. I'm a I'm a bank analyst. So a lot of banks normally, give a timeline on the future plan bond issuance and, to to have a to the market. The bridge is in the bridge is in place. It's fully syndicated amongst 18 different banks. The, the termination, date of that as is this release when some of the documentation on this bridge was reported last year, goes out to July of next year. And there are it's a fully underwritten bridge. As we've said before, there, is it is a firm commitment on the part of the bridge banks, to lend if and when that bridge is drawn upon. There are a couple of leverage covenants that would that would enable a bank to get out of that, but there is very ample headroom, under the documents I think as we reported it's been reported in the documents as we talked about on some of the prior calls. The leverage ratios, the covenant on the leverage, on the bridge is 4.5 times. And we continue to analyze performance in our projections, and we still have very ample headroom, under that bridge covenant. Okay. Thank you. And Johanna, to the extent your question is specifically around potential takeout of that bridge financing, you know, that that's not something we're going to be in a position to address and, until much closer to, to closing as to how we might think about something like that. Right. As we've always said, the breach just gives us flexibility. Yeah. Okay. Thank you. Yes. Next question. The next question Thank you, guys. I think pretty much all of my questions have been answered already, but if I can do a couple of follow ups, just on costs, thank you for the guidance for the second half. Can I just check I understood David's answer correctly earlier? Basically, any uplifting costs to next year, which we might expect to see come through from a return of some of the discretionary spending on marketing and and travel and entertainment is going to be dwarfed by any sort of ongoing plans for investment is not material. Secondly, in terms of, excuse me, information services, you mentioned a couple of times there were some benefits in this half to revenues from flow through from the business you generated last year. I just wondered, has there been any impacts of the lockdown on your ability to generate business now for the future. That's not too big a question. And then the last question, which I don't hold up much hope of an answer for, but given the exploratory discussions that you've started on MTS And Bozzo, is there any sort of detail you can give us on the contribution of those entities P and L last year or perhaps even in the first half. Thank you. I'll answer your last 2 and then, David can, can run through the answer on the cost. In terms of the exploratory discussions, and we don't break it out, Italian business from rest of business. And so, I think, some may have some pretty good estimates on how that I believe there are actually, Italian legal entity accounts, that are filed each year. In Italy. But in terms of our results, we don't break that out. In terms of the your question around whether there's, any impact this year that might have an impact going forward, we have seen, a very modest number of delays of new launches and in, in a couple of cases or in a few cases, cancellations of of some new product launches. So could that have, again, a modest impact going forward? Sure. Think I would just put that into the broader context of it. It's a little bit hard to predict, how the overall environment is going to play out and how that is going to have an impact on our business. You know, we are our business has performed very well in what as we look around, it's it's obviously a very difficult macroeconomic environment. So we have seen, as I said, a couple of areas of impact from that. And we'll see how that goes, going forward. But, David, over to you on the, the confirmation of my cost. Yes, on the cost, I mean, just to maybe try to just summarize again the brief points. The main points I was saying is that it's that, that, and your question actually, I think I heard you say spending into next year. I wasn't talking to that. I was actually just saying that spending in H2 of this year would be similar to what we spent in H1. And the reason for the increase, over the prior year really was down to phasing the sort of atypical phasing of our spend in 2019 versus prior years. There's just a lot of a lot of spend, was just because of how it was programmed, how it needed to be done, what it was for. Attended to hit the back half of the year, but I think we are back now down to a more sort of normalized pattern of of FX of OpEx spend. And sequentially, our expenses were well Once we got the phasing sort of adjusted last year, our sequential increase was only 1% so good control expenses and we'll maintain that level of spending going into the second half of this year, which will be a mix of continued investments in technology and resilience and growth, and offset to some degree by, COVID related opportunities for us, working from home impacts where our cost base, on, at least on discretionary spending, will be lower. So taking that all together we will we expect spending for the 2nd half to be, about where we were in the 1st half. But again, I mean, the point is that We had some opportunity on discretionary spending, but importantly, we're continuing to invest in that investment in future growth stability is important, and that's not being impacted, to any detrimental degree by working from home and some of the challenges under the COVID, environment. Okay. Thank you. So maybe if I could just follow-up on that briefly then. I suppose what I'm really asking is, is there any reason why we should next year's cost growth to be higher, given you might have had some savings this year due to lower discretionary spending I mean, if you really do look at our if you look at our spending base, there will be they'll certainly will be, you know, assuming we return to more normalized patterns of travel, marketing and other programs. Yes. At the same time, there are a number of expenses we had this year, that were one off in nature such as some of our contributions and some of our other spending that were increases in OpEx that we would not see going forward next year. At least don't protect those to go forward in the same way. So it will be a mix. So yes, while there will be some spend on the discretionary side that flows in, It will, there'll also be some areas where some of the things we've had to spend money on this year, we won't spend money on next year. Perfect. Thank you very much. Okay. Well, thank you all very much. We appreciate your questions. We appreciate your time this morning, and with that, unless Paul proud, anything further you'd like to say, I think we are probably good. I'll sign off. I think that's it. So thanks everyone for joining. You know, with find us if you've got your follow-up. That's it for the end of the call. Thank you very much. Thank you. That concludes your conference call for today. You may now disconnect. Thank you for joining. Have a great day.