Earnings Call: H2 2018

Mar 1, 2019

CFO, as well as Wakas Samad, our Director of Information Services. Dan McGuire may be popping in a little bit later as well. It's been a busy 8 months since I joined LSCG in August of last year. And my early positive impressions of the group strengths have only been reinforced. We have a set of world class businesses across the capital markets lifecycle and a strong team of committed colleagues. The group's open access and customer partnership approach really distinguishes us in the market infrastructure space. And since I joined, we've made 2 strategic and accretive investments, both in the post trade space, took a minority stake in Euroclear, and we increased our majority stake in LCH, reinforcing our part partnership approach and driving innovation for our customers. We've also continued to focus on group wide efficiency and operational excellence, including driving further integration after a period of M and A growth, We've been exiting some low margin businesses, consolidating property, and investing in low cost centers. I should note that we have delivered today's strong results against the backdrop of macroeconomic uncertainty, including Brexit, our businesses, including those perceived to be most exposed to Brexit such as clearing, continue to perform very well with no change in our market position. And I will in more detail about our strategic priorities shortly, but first let me hand it over to David to talk through the 2018 results. Thank you, David. As you've seen from this morning's announcement, we have released a strong set of results. And slide 5 gives the, the main highlights. Revenue increased 8% with growth across all core business areas. And together with another strong contribution from NTI, total income rose 9% to £2,100,000,000. After deducting cost of sales, gross profit increased 10% to 1.9 £1,000,000,000. Underlying operating costs were well controlled. Stripping out depreciation, operating expenses rose 2% on an organic and constant currency basis. Adjusted EBITDA increased 17% to £1.07. This is the first time that EBITDA has crossed the 1,000,000,000 sterling level. And adjusted earnings per share rose by 17 percent to 173.8p per share. Finally, the proposed dividend of 43.2p per share brings the full year dividend per share to 60.4p an increase of 17% and within our target cover range. So we need to take a more detailed look at some of the numbers that's starting on slide 6. Information Services delivered strong growth up 14%. And within this division, Footsie Russell grew 15% with good organic growth and further contribution from the yield book. On an underlying basis, adjusted for FX and acquisitions, the fee Russell grew by 8% year on year. LCH also delivered a strong performance with revenues up 13% and with the inclusion of NTI, total income rose 18%. The principal driver of growth continues to be in the OTC clearing services, with record notional cleared volumes at Swapclear And Forexclear. Italian post trade services showed a headline revenue reduction mainly reflecting changes in the way revenue and cost of sales are recorded, but including NTI, the businesses showed a 4% increase in gross profit. Capital markets performed well with revenue up from the impact of IFRS 15. On an equivalent basis, the capital markets would have grown 7% on the year. So overall, a strong performance across the group with 9% income growth on a reported and organic constant currency basis. Now to Slide 7, which provides the main year on year changes to the income line. The graph shows the FX changes were comparatively small, with a $13,000,000 impact. So having adjusted for FX growth in income comes from 3 main areas. 1st, higher NTI, adding $56,000,000 as we benefited from the wider use of counterparties for placing investments and also from changes in the U. S. Interest rate environment. And second, organic growth, which is the largest component of this increase, adding 1,000,000, and third, inorganic contribution of 28,000,000 which is the result of acquisitions and disposals. And as you can see, our 165 millimeter are more than 80% of the total $193,000,000 increase in income came from growth from existing businesses. Next, moving to expenses on slide 8, underlying costs on an organic and constant currency basis Excluding depreciation and amortization increased by 2%. Including depreciation, operating expenses rose 6%. On this slide, we highlight the principal movements in the cost line. First, as usual, we adjust for currency effects which reduces last year's starting point by £23,000,000. Next, we have underlying cost increases of just £19,000,000 for the period, depreciation and amortization adding further of 31,000,000. Finally, we had inorganic costs of 23,000,000 which aggregates acquisitions and disposals, taking total expenses to £969,000,000. So good control on organic costs, reflecting cost saving measures implemented over the last couple of years. Moving now to Slide 9. This slide looks at some of the actions we are taking to keep the keep the focus on cost efficiencies. And it also provides some expectations for the current 2019 year. We are taking action on costs in a number of ways First, there is the ongoing focus on efficiency opportunities that arise from being a larger and more diversified group. Including rationalization of properties, for example, ongoing current efforts in New York City, extracting more procurement efficiencies and sourcing strategies, which includes the setting up of business service center in Bucharest. And second, we have reviewed certain low margin businesses. And where we believe there's not been scope to make significant improvements, We've made exits. Over the last year, this has included the closing of LSEBM equity derivatives and the disposals of Exact Pro and Millennium IT ESP. And third, we have continued to look at headcount. We are making changes to drive integration, remove duplication, and reduce the number of contractors, all of which improve operational leverage. This is likely to mean a net reduction of approximately 5% of the global headcount this year. There will be associated, you know, it was annualized savings of £30,000,000 and there will be associated one off costs of that of this initiative of $30,000,000 sterling for the year. This is being done from a position of strength as the group expands and while still making investments across the group. We expect depreciation to increase again in 2019. The graph on this slide shows an expected increase similar to 2018 resulting from our ongoing investment program. In addition, there will be another $26,000,000 of depreciation arising from IFRS 16 which changes the way that we account for leases. IFRS 16 also adds a circa 4000000 pounds to net interest expense. And then finally on this slide, the underlying effective tax rate for 2018 was 21.9%. This is slightly better than the 23.4% for last year, driven partly by a reduction in UK and Italian tax rates as well as the mix change of earnings. For 2019, we expect the effective tax rate to be provide more detail on our investment initiatives. We have invested $238,000,000 in various projects in the year as we invest for growth, including £194,000,000 of CapEx. For 2019, we expect a similar ongoing level of investment. Approximately 40% is for new or enhanced products and also for projects to drive efficiencies. Examples of these include the items you'll see on the slides. LCH services, such as Forex Clear, developing the index data and analytics and new technology, particularly cloud. With regard to the 60 percent of operational investment spend, this includes a mix of regulatory based changes, including Brexit plus platform upgrades, hardware, and new systems, including new collateral management upgrades. Moving to slide 11, this slide and the next provides an update on progress towards the targets we set in 2017. Fitzy Russell remains on track with a reported 15% revenue increase. On an underlying basis, the increase for the year was 8% so not as strong, but a good underlying level of growth. LCH OTC revenues are similarly robust, with 16% reported growth in 2018. LCH operating margin has increased to 45.9% and that's from a baseline of 35.6. And we are making no changes to these targets, and we'll continue to report progress as normal during the year. Turning to Slide 12, there are 2 other targets to cover. While there has been and will continue to be a strong focus on cost discipline, the group no longer expects to achieve the target 4% CAGR increase in operating expenses, including depreciation for the 2017 to 2019 period. Due to the prioritization of ongoing investment in the group, that I have outlined on the earlier slides. When we set the target, depreciation was included in OpEx, And so as we've noted earlier, depreciation is set to grow strongly. But it's worth pointing out that the immediately controllable cost base has remained closely managed. And excluding depreciation, this target would have been hit. As a result, and despite good momentum towards achievement, the group does not expect to quite meet the group EBITDA margin of circa 55% in 2019. Now this was a stretch target, and we had made good progress. Up three percentage points in 2018 to almost 50%. The focus on costs and margins will continue balanced by the need to invest as an expanding group with further opportunities We now turn to slide 13, talk a bit about cash flow. Cash generation was good with 559,000,000 sterling free cash after tax, interest payments and investment activities, and this equates to 161p per share. This strong cash generation enables further investments in growth initiatives and infrastructure that I've just described. And separately, we've invested in associates, Acadia sauce and further investment in Curved Global. And in addition to this, we have also invested in taking our majority stake in LCH to 82.6%. Finally, before handing back to David, let's look at our financial position, which is on Slide 14. Our operating net debt at the end of December at setting aside $1,100,000,000 of cash for regulatory and operational purposes was $1,900,000,000. An increase from the position at the half year where we were at 1.6. Now this reflects the use of cash, and liquidity facilities to fund the increased LCH stake, plus the other investments that I mentioned earlier. In terms of leverage, Year end net debt to adjusted EBITDA is 1.8 times. On a pro form a basis, with the inclusion of the 4.9 stake in Euroclear, we remain within our target range. We have over 1,100,000,000 sterling of undrawn bank facilities, And in December, we issued a 500,000,000 9 year bond euro bond with a coupon of 1.75%. There were no changes in terms of ratings in the period, although S and T did improve the outlook on its R and R rating to positive while maintaining the long term rating of the group at A. Myers. And so another strong set of results and the company in a strong financial position. So with that, let me pass you to David. Thank you, David. As our financial performance demonstrates, we have continued to execute on our strategic vision. To be the leading financial markets infrastructure provider, partnering with our customers around the world. Capitalizing on global investment trends and an evolving regulatory landscape, we continue to see multiple opportunities for growth in each of our businesses, as well as group wide opportunities as we enhance the collaboration across our businesses. Over the next few slides, I'll outline our strategic approach and areas of focus for the future, as well as highlight some of the key achievements and growth opportunities in each of our core businesses. I'll wrap up with some comments on the current operating environment with approach to with our approach to capital allocation, and commitment to shareholder returns. Turning to Slide 17. The group has grown rapidly through organic growth and acquisition in recent years. We have built businesses around 3 core strategic areas: Capital Markets, Information Services, post trade, supported by technology and a commitment to operational excellence. Our high growth businesses, particularly Fussy Russell, and LCH have effectively leveraged macroeconomic and regulatory trends for the benefit of our customers. We will continue to We'll also continue to build on the group's sustainable competitive advantages outlined on slide 18. LSCG's open access and part customer partnership approach is truly differentiating. This was something I understood as an outsider, but the strength of this approach is even more apparent to me now as CEO of the group. Last year, we increased our stake in LCH to almost 83%, while reaffirming our commitment to the customer partnership model, which has been important to driving innovation across that business. Turning to slide 19, we have further opportunities for growth by delivering the benefits of the whole group. Closer collaboration across the group is a strategic and commercial imperative, and I believe it will enable us to take the group to the next level of operational, financial, and strategic success. We see group wide opportunities on both the growth and efficiency side. We will continue to deepen our partnership approach, enhancing our global offering and developing innovative products with our customers. In addition to our strong relationships with the sell side, we can develop further our partnership with the buy side, building on the success of our Turquoise Play Doh Partnership as well as the deep reach of our FOCE Russell business, which counts over 95% of the world's largest asset managers among its customers. Data and analytics is another clear opportunity for collaboration, and innovation. For example, we are exploring how our information services and LCH teams can work together to identify cross group data and analytics opportunities that will benefit our customers. As the technological and regulatory landscape evolves, The group is committed to investing in emerging technologies to modernize the processes behind our businesses, while also delivering operational excellence. This includes introducing a cloud approach for our data and processes and a pilot initiative to utilize artificial intelligence Earlier this week, we acquired a minority stake in Navara, a UK based fintech specializing in distributed ledger technology, for issuance and administration processes for financial instruments. We plan to partner with them to explore ways in which we can help companies raise capital in a more efficient and streamlined way. Wide opportunities later, but now I'll turn to each of our core businesses and discuss 2018 highlights and some opportunities going forward. Firstly, turning to information services on slide 20. Foothie Russell continues to be a leader in the global index industry. With more than $16,000,000,000 in assets benchmarked to its indices. It has further developed its global franchise over the year, leveraging industry drivers such as the continued move to passive investment, growing use of smart beta, and increasing customer demand for access Foothie Russell has a leading position in China and announced it will begin the migration of China A shares into its global equity benchmarks a move which should equate to $10,000,000,000 in net passive inflows following completion of the 1st phase. FTSE Russell has also extended its coverage of the China market with the introduction of a new Chinese green bond index series. And the new 50 Total China Connect Index, which was selected by Vanguard for a new ETF. Fifty Russell's growing track record in ESG offers further opportunities to work closely with its customers as they increasingly incorporate these elements into their investment strategies. For example, FTSE also has partnered with asset owners and pension funds to develop smart sustainability indices that allow them to integrate smart beta approaches alongside ESG considerations. As you'll see on slide 21, Footy Russell's position is further strengthened by its multi asset capabilities. Fucci Russell has over $3,500,000,000,000 in assets benchmark to its fixed income indices, making it the most diverse of the global index companies. As a result, it is able to offer world class investment tools across indices, data, and analytics. Busy Russell has enhanced its multi asset capabilities through the acquisition of the yield book and the Citi fixed income indices. As well as acquiring 100 percent ownership of FTSE TMX Global Debt Markets. Earlier this year, we announced that Wakas Ahmad would take over from Mark Meg Peace as the head of our information services business. Mark has been a true pioneer in the development of the Global Index Industry and he has built a strong bench of talent, including Lacasse, who has spent his career in fixed income and multi asset benchmarks and analytics. I would like to thank Mark for his leadership and significant contribution to the group. Turning to slide 22, Postrade continues to be an area of strategic focus for LSEG. The group owns and operates not only LCH the leading OTC CLEAR in the world, but CCNG and Monte Titilly in Italy. Unavista, which appears in our results as part of information services, is also a leading provider of post trade particularly with LCH, which had another record year of volume growth in its OTC services. LCH continues to partner with customers to drive innovation and increase efficiencies. Just last week, Repo Clear completed the successful consolidation of $700,000,000,000 of euro denominated repo debt into LCHSA in France. This is the culmination of a multiyear effort and will allow members to benefit from the efficiencies of T2S. LCH is also helping to facilitate a smooth transition to new global reference rates, offering the clearing of sofer, Sonia, and sauron swaps. There are also opportunities to expand LCH services to address the challenges in the non cleared OTC derivative space. This market represents around 25 percent of the global OTC interest rate derivatives market. LCH swap agent processed its 1st swaptions trades and began offering compression services for its cross currency swap offering. Following our acquisition of a minority stake in AcadiaSoft, LCHSwap Agent is working with them to explore ways to improve processes for non cleared derivatives. Earlier this year, LSCG was delighted to become a minority shareholder in Euroclear. With whom we have a longstanding operational and commercial relationship. Customer partnership is central to both businesses, both LCH and Euroclear, and we look forward to working with Euroclear, I'm sorry, LCH, LSCG, and Euroclear. And we look forward to working with Euroclear to drive continued innovation and efficiencies for the benefit of our customers Turning to slide 24. Swapclear remains the largest OTC rates liquidity pool in the world. Processing over $1,000,000,000 in notional volume in 2018. More significantly, for its members and customer over $770,000,000,000,000 was compressed, up 27% on the previous year, enabling customers to save approximately 39.5 $1,000,000,000 in capital, as well as achieving a 21% increase in the number of client trades cleared, Swapclear also expanded its global product offering to include non deliverable interest rate swaps. I should note that swap cleared maintains a 90% market share of interest rate swap clearing, despite its customers and members being aggressively courted by competitors. While we are never complacent about the competitive landscape, our customers recognize the benefits and efficiencies, offered by Swap Clear's global margin pool. On slide 25, you can see that Forex Clear continues to provide a compelling platform Florex Clear saw a 54% growth in Notional cleared as existing and new members become increasingly incentivized to clear. The first compression runs in 2018 are also evidence of the services increasing relevance to members as they look to achieve greater capital efficiencies. Turning to Capital Markets on Slide 26. Despite global macroeconomic uncertainty, our Capital Markets business continues to perform well. Our markets in London and Italy helped firms raise over £28,000,000,000 in new and further issues. London's market continues to attract global issuers. 3 of the 5 largest IPOs that listed on the lending stock exchange were international companies. And we expect international growth opportunities to help offset any market headwinds in 2019. Aim, continues to be the leading international growth market, helping companies raise £5,500,000 in new and further issues during the course of 2018. In secondary markets, MTS, our fixed income trading platform, saw its repo volumes rise by 13%. And MTS was also selected to power South Africa's first electronic government debt market. Turquoise Plato Block Discovery is the largest European dark pool, and following consultations with Biasat customers, Turquoise became the 1st MTF to remove the rebate fee structure in its continuous lit markets. The implementation of MiFID II at the start of 2018 is driving product innovation as well as opening markets to more competition. On slide 27, you can see that curve Global has achieved 148% rise in open interest over the past 12 months. It has also recently achieved the milestone of having over 500,000 lots of open interest. Curved Global is continuing to attract new clients, helping them to achieve best execution, lower fees, and significant margin efficiencies. Critical mass and liquidity takes time to build, but we are very pleased with the progress at Kirk Global as it brings choice to the futures market. Turning to slide 28. The group provides a diversified set of world class businesses across the 3 core pillars of capital formation, information services, and risk and balance sheet management, all underpinned by world class technology and operational excellence. Working across our businesses, we are able to address many of the regulatory, technological, and structural challenges facing our clients and the industry overall. As I said at the start, enhancing group wide collaboration, enable us to innovate and deliver solutions to our global customers across a range of areas. Turning to Slide 29. Before I conclude, it would be remiss of me not to mention Brexit. As we have said in the past, The group is well positioned to adapt to any eventual outcome, including a no deal Brexit. In February, LCH Limited received equivalents, as a 3rd country CCP in the event of a no deal Brexit. And we confirmed to our customers and our members that we would continue to offer clearing across all products and services after March 29th. Unavista and Trade Echo have received regulatory approvals from the Dutch authorities to continue to serve their EU 27 customers from the Netherlands. Turquoise's application is at an advanced stage and we anticipate receiving regulatory authorization imminently. As our results today demonstrate our businesses, including those perceived to be most exposed to Brexit, such as clearing continued to perform well with no discernible change in our market position. Turning to slide 30. The continued successful execution of our strategy is driving strong financial and operational performance. We remain focused on enhancing returns for shareholders. We will continue to invest for future growth both through organic initiatives, and selective strategic M and A opportunities. The group has a strong track record of prudent balance sheet management and our capital framework provides flexibility to maximize the benefits within our businesses. We have delivered strong dividend increases and will continue to pursue a progressive dividend policy. We will also continue to keep other shareholder capital returns under review as a normal way of driving shareholder value. As outlined this morning, we see many great opportunities across our businesses to deliver further growth and shareholder returns. So in summary, turning to slide 31, LSEG is a great business with a successful strategy and a differentiated open access and customer partnership approach. We build further We will build further on its strengths and its successful track record, while investing for growth and driving efficiency. I hope you also sense the real opportunity we see for further growth as we deliver the benefits of a unified group both on the revenue and efficiency side. Our world class collection of businesses gives us great opportunities for group wide collaboration To deepen product innovation, develop data and analytics, explore new technologies, and to drive efficiency across the group. The market environment in 2019 may be challenging. However, executing on these opportunities will take the group to the next level of operational, financial, and strategic success. With that, I want to thank you for your time, and David and I are happy to take your questions. Okay, ladies and gentlemen, we will now begin the question and answer session. Part and one on your telephone and wait for your name to be announced. Good morning. It's Ana Ghebago from Exane. I've got three questions, please. Firstly, if I can start with, LCH, if I look at your revenue progression, Q1, Q2, Q2, Q3 was stable. And in Q4, you had significant step up in revenues. Could you talk us through maybe the drivers of that step up and and how the the outlook of the those drivers look for for next year? Secondly, on costs, so you've given us a clear vision as to where costs are heading in 2019. I'm wondering what happens beyond in 2020 2021. You talked about operational efficiencies. How should we be thinking about that going into 2020 and what further investments would we be expecting then? And finally at FTSE Russell, you highlight ESG and factor investing as a big growth opportunities. Could you perhaps talk us through what level of contribution these these, subdivisions, make it for for FTSE Russell. And, how how the growth is shaping up there? Thank you. Take the LCH revenues? Look, I think, I think LCH revenues, they are going to move, as we move through a range of market cycles. And that's one of the strengths of it. It's well diversified against across asset classes. We did see in the fourth quarter, obviously, some increases in volatility. We saw more clearing activity. And that's really what's driving a lot of it. So strong continued strong growth in dealer, continued strong growth in client clearing and continued strong performance last year from NTI, which was coming from a combination of factors. 1 is just the amount of margin that we actually are able to invest as a function of activity, but there are also some actions taken by LCH over the last year to really expand the range of counterparties. So we now have ability to generate within obviously proper liquidity restrictions, additional NCI just because we are managing the collateral better. In terms of your question around the costs, we're going to keep driving for, incremental efficiencies. We think some of the work that we are doing this year around costs we'll really see the benefits of in subsequent years. And, I think there are a number of areas around, for example, our locations, that will be, just very helpful going forward on a regular basis. We've touched on this, I didn't get any touch on this. We have, 5 offices in New York, New York City. We're taking that down to 1. We have 4 offices in Tokyo. We're taking that down to 1. And so our goal is whether through, cost initiatives along those lines, whether through reduction contractors, whether through removing duplication across the different parts of the group, we think there's an opportunity to drive towards greater efficiency. And shouldn't be surprising. This is a group that has done 25% I'm sorry, 25 plus transactions over the last 10 years or so. I mean, there there has been a lot of, of activity. And as we continue to drive forward and focus on integration and operational efficiency. We're we're finding some things, where we can be operating more efficiently. Your last question was around ESG and factor. So we don't we don't disclose it down to that level in terms of how that's being driven. I would say that we have a lot of interest from our clients, from our customers in those areas, and it's a big part of how we are thinking about some of the different markets around the world. We've got a partnership with sustainalytics on ESG, which is another very interesting area. On the ESG front, we are combining that with, for example, we've got a a green index product in China. So it's a combination of our strong position in China as well as the growth and the interest in and ESG. So, interesting, very interesting area from our our customers' perspective. And it's an area we'll continue to work and innovate. Morning. It's Anil Sharma from Morgan Stanley. Just three questions, please. I noticed obviously MSCI had their Investor Day yesterday, and they upgraded quite a few divisions in terms of outlook except the index business. And obviously, your own organic growth was a little bit below what you're expecting. Could you just help us understand why that organic growth was a little bit weaker? Is it cyclical factors, there something more structural going on, or how much is due to the fact that fifty Ross is just getting bigger. So it's harder to grow. The second question was on LCH. The OTC revenues. Can you please give us some, details around how much of that is related to Forex Clear? And how do we translate slide 25 where you're showing the sort of huge growth in foreign exchange with some sort of either revenue number or revenue growth percentage should be helpful. And then there's just a final one, on costs. If I think about the EBITDA margin, if I've understood correctly what you're saying, it sounds like you think you're gonna hit that target for 55% maybe 1 year later. In which case, if I look at consensus, they're at 51.6 percent margin for 1953.5 for 2020. Do you think there's just been too bearish? What are the what are we missing? I'll take the last question first. On, costs we are basically creating a balance between investing for growth, and driving for greater efficiency on the comp side. And we're going to continue to, drive that balance forward. We feel very good about the continuing trajectory and the improvement in our margin. So our margin was up, 3% from end of 17 to the end of 18, and we feel good about that continuing trajectory. We're not going to give you a a timeline today as to when we're going to hit that, but we still feel very good about achieving that. And it'll be a function of how we continue to maintain this balance between investing for growth, as well as driving for efficiency. I think just on a technical matter, and I'm sure people are focusing on it, but we did give some guidance today as it relates to the, the increases in depreciation. Alright. So, I mean, I think I would I would say that the consensus estimate right now probably doesn't have all that in. So I think there'll be a number of things that will go into, whatever, whatever rethinking is done on consensus for EBITDA. On your question around the FTSE Russell and the growth prospects there, we still feel great about the FTSE Russell growth prospects. It was up, 15% year over year. I think, 8% on a constant currency basis. Those are very attractive growth rates, and we feel very good about that. And the the tailwinds that have been driving that business in years past are continuing. So we feel very good about the continuing move from act to passive. We feel very good. We already touched a bit on, some of the opportunities around, Factor and ESG other opportunities along those lines. I would say, the opportunities in emerging markets, another area where we feel very good I think the opportunity in China in terms of what we're doing with the A share inclusion. So, foot to Russell, we continue to have big expectations and it has continued to deliver. Your other question was around making out, yeah, on RTC between, between Twire and Forex grid. It's not a breakout that we do. I think it's something we continue to look at. I could go to Mr. McGuire sitting in the front row who could give me, some reasonable estimate, but I think at this point in time, I think the point is that, that it's most, I mean, to be clear, it's mostly swap clear. 4X Clear is building and it will build strongly as we continue. That's always been the plan for 4X Clear. And what's an important part about works for me. If you saw the slide, you know, of what's clear, the NDF will redo 97% of it. So now I think as we now can bring a settlement functionality into the Forex Clear Space, that's an important driver of continued growth in Forex cleared in addition to the continued roll out of the unclear margins. Those two factors, the ability now actually physically settle contracts, and Forex Clear continuing to provide increasing services to meet people's, to meet, to meet people's clearing obligations if they choose to comply with central clearing as part of the unclear margin, which many of them are doing. So we don't break it out. Just to be clear, I think it's mostly on the interest on the IRS side, but what for us clearly to be clear is an area that is really will be continuing to grow for all the reasons we talk about. Thank you. It's Haley Sam from Citi. Can I just ask one question please about the new Global Benchmark could you help us think about the potential of it, or what you think the impact of that will be for sort of clear? I mean, is this just a simple presentation as you move from one set of rates to another, was it a a big increase potentially including volumes, either one off or or structurally as there's more basis to trade in the future. Could you help us think about that? Sure. So I think I'll start with the point that from LCH's perspective, we are working very closely with our members as well as regulatory authorities around the world to facilitate the shift from, on the reference rates. And that has been, I think, very cooperative so far. We offer clearing on, Sonia Silfer, and Sarah swaps. And I think we'll see how big the opportunity turns out to be. It is, I think a sign of the strength of LTH's position that we are taking a leadership role in that. We have seen, I think, healthy volumes recently. And it's still early days. So we'll see how that plays out. I should also mention, in our Capital Markets business, you have to the clearing side. I mean, in our Capital Markets business, we have Curved Global, which is doing very well in terms of, Sonia future. And has a pretty attractive and interesting market share as that area continues to grow. So it's a space we're spending a lot of time on. We're focused on it, but early days and we'll see how it develops. I think if I might, at this point in time, we'll definitely come back to questions here in London. Might we have a few questions Okay, sir. Alright. Now we have two questions from the phone from the phone. And right now, our first question comes from the line of Kyle Let us now open. Hi. Good morning, Kyle. Good morning, Kyle. Good morning. Thank you. Yes. Just on M and A and your first question. So you've already made 2 sizable investments. First, can you just go into some more details where you saw it strategically attractive in the nuclear state? And would you be willing to take that stake up higher? And then second question, could you speak a bit more broadly to the high level of use around M And A, David? What segments of the group do you think would still benefit from scale type acquisitions or whether we should be thinking more about ancillary type deals to get LLC into new businesses or ancillary businesses. Sure. So first, I think we're we're very happy with the size of our stake in in Euroclear. Just to touch on the, what we saw as the opportunity there, we and Euroclear are very close commercial and operating partners. And we do a lot together, across a number of different parts of our business. So we viewed, this as an opportunity to really cement the strength of that relationship and also to provide us with a seat on the board at Euroclear. So we do a lot with them, from our our trading businesses where, they handle the settlement. We do a lot with them in terms of collateral management where they are, an extremely important and close operating partner for our clearing businesses. And we felt it was strategically important for us to one have a seat on their board and really, I guess, I said, some mental strength of the relationship. And then we think there are areas where we can continue to operate and partner in ways that are even closer than we have been in the past. So just a couple examples along those lines. We are in the very early days of thinking about whether there are ways we can cooperate more with them, from a collateral management perspective. Or another area that we're thinking about is are are there ways we can cooperate more, from a data perspective. So that's on the your question. More broadly to your question, I think we feel very good about the businesses that we and the businesses that we're in, we have really strong, really interesting growth opportunities in each of our core pillars. You you said in your question that we had done, 2 transactions. We've actually done 3 transactions, just this past week. We announced they've a small minority investment in a company called Navara, which is, an distributed ledger technology company focused on, improving the workflow for capital rating. And that's another interesting area that we are looking at. So we'll we'll you'll see us continue to, look at M and A opportunities that are good strategic fits for us. And that makes sense from a shareholder perspective in terms of the return opportunities. And this is a group that has had a very strong track record of executing on that in the past. And we will continue to think about bolt on opportunities, going forward, but we'll do it in a very disciplined way. Thank you. Other questions from the phone? Yes, sir. Our next question comes from the line of Benjamin Goy. Your line is now open. Yes. Hi. Good morning. Two questions, please. From my side. The first one is on, Fortclear. I think that the regulatory tailwinds from the un cleared margin rules are, are getting a bit smaller. So just wondering how you feel about, business growth here, you know, in in, you know, from a regulatory angle then the other one is on, for the Russell and the fixed income business in in particular. We spoke a lot about the opportunities in some areas, but, not so much about fixed income. So just wondering here about the shift to passage in that area and how the yield book is developing. Thank you. Thank you. So on just to clarify a bit on swap clear, so swap clear has benefited from the mandate on clearing of interest rate swaps. And that business continues to grow well It's been up over 20% this past year. And so we'll we'll see how that plays out going forward. In terms of the uncleared margin rules, that is a regulatory tailwind that we see helping our Forex Clearing business. And the uncleared margin rules continue to capture a broader and broader part of the market, I believe, this September and next September. So we, we will see how that plays out, but we think that is part of the regulatory dynamic that is supporting the growth of Forex cleared going forward. On FTSE Russell fixed income, we think that, the positioning there is terrific, in terms of FTSE Russell's multi asset class capabilities, we are the most diversified of the global index providers. And our capabilities on the fixed income side and with the the WIGBee position us very, very well. We think there are a number of opportunities in the fixed income space. I mentioned we have Lacasse Samad, our new Head of Information Services here with us today. His background is on the fixed income side and on the fixed income analytics side. So we, will be continuing to do more in that space, and we think there's a lot of great opportunity there. Understood. Thank you. Next. Thank you. I think we might have had one more one more. Thanks. One more on the phone, please. I mean, come back. Okay. I know you a last question comes from the line of Johan's phone line. Your line is now open. Good morning, everybody. Johannes Thomas, please. 3 questions, please. First of all, could you, give us a breakdown of your 50 level, rather revenues like you did before, like, into the business, which is coming from subscription fees, which is from ETF and from other fees. The second thing is, in terms of your cost on page 9, the 30,000,000 OpEx reduction, will they mainly hit personal costs or also the other costs line? And last but not least, on share buyback, what conditions would be needed in your view to allow for a new share buyback? Thank you. Thank you. Hi, guys. Good morning. I think with respect to further breakout of FTSE Russell revenues. I would say to you, it's not included today, but what I would say to you is there really hasn't been much change in terms of the balance between data subscription revenues. And and more licensed AUM based fees. So it has been, historically 64 to 6535 It has tilted a little bit more, with the acquisition of yield book and further data opportunities it has on the data side moved a little bit up. But when we look at where we are right now and where we look in the growth opportunities, we think that that mix remains a pretty good mix, as you think about moving forward. So I think that's the answer I can get to that question. And you're very familiar with what we've disclosed on that in the past. I think your next question was on costs. So, this is, this is a really a headcount reduction. There are some elimination of some contractors, but that would all be within our staff cost line. There are other opportunities going on as we've talked about in terms of property consolidations, procurement efficiencies that obviously will hit other parts of our, of our total OpEx. But I think an answer to your specific question, that's where it will be. And cost to achieve, are another 30 but those will be more of a one time nature. I'm happy to take your last question around the share buyback. You know, we we're very comfortable with our capital management framework. So they the 1 to 2 times net debt to EBITDA, something that the group has had, and been very consistent and reliable about sometimes a compelling strategic opportunity has gone up over the two times, but gotten back down into the range, relatively quickly. So we're comfortable with that and then as this is a very strongly cash generative business, which is great. But we will think about the types of things that, our shareholders would want us to think about. We'll think about organic growth. We'll think about inorganic growth. We are, committed to our progressive dividend policy, and that has been working very well. And then we will contemplate other potential shareholder returns. But, at this point, the capital management framework has been working very well, and and we're very comfortable with that. Okay. Thank you. Okay. Thank you. We can now can we come back? I I don't know who is next. Okay, sir. Right now, we have additional questions on the post. Good morning. It's from gadget Campbell, JPMorgan. I have three questions. Firstly, in terms of sort of self indexing, I know that in the past, you said that's not really a threat for you, but could it be an opportunity in where you can collaborate with, asset managers, perhaps in helping them with the sort of calculation engine of the self indexing. That's the first question. Secondly, in terms of dark pool, sort of transition. We haven't really seen the dark falls, sort of share significantly declining, Is that good or bad for the LSC? Cause you have your own dark pool, so could that actually be positive if it takes longer? And then finally, in terms of the ECB, I think they're talking about more over light in the, the appearing business. How do you feel the business is positioned for increased service file? Are you already comfortable that you can meet the requirements. Sure. So maybe I'll I'll start with the, the ECB question, then we'll we'll go back to your other questions as well. I think the discussion or the conversation on the clearing front has clearly moved towards one of of a code supervisory collaboration. And we frankly think that's a healthy move. We are systemically important institution and business, and we take that very seriously. And in that context, we're very comfortable being, regulated, in a number of the jurisdictions, in all the jurisdictions, certainly where we are systemic. And so from our perspective, for the regulators to cooperate and collaborate in terms of their oversight is a good thing from our perspective. And so we'll see how the debate plays out and how things play out with EMR 2.2. But in general, we think that it's a good thing for the regulators, central banks to be working together, so that We, as an operator, have a systemic business, can continue to work, for the benefits of our members and our customers. On your dark pool question, You're right. We are, a big important presence in the lit market, and we are the leading presence in the dark blue market. So, I think it just speaks to the breadth of our business. Obviously, there's there's been debate going back through the the regulatory change up to the the pros and cons of dark pools, you know, the the market appears to have an interest in having both models, and we have a very strong position in both models. On the self indexing, This is a, it's it's a very competitive industry. And it is, I think there's great opportunities for us in a number of different areas. We've talked about a bunch of them in the past. We have very close relationships with our partners, our customers. Your question is an interesting one. And one that, could merit further thought in terms of whether there's incremental opportunity for us to work with our customers in doing some of the services that are provided or necessary for self indexing. But overall, in terms of the business opportunity, we feel very, very good about it. Thank you. Mike Werner from UBS. I've got 3 questions, please. First, on to Slide 17, you talked about the global footprint with a further focus on North America and Asia. Are you speaking really to opportunities there in your current business model? With regards to potential new customers coming from those areas, or are you also looking to potentially expand operations into those regions? 2nd, on Brexit, you talked about how a lot of the investment this year went into Brexit, exit planning on there was a lot of overhead related to that. And I was just wondering, should things finally sort themselves out at some point Does that give you an opportunity to invest into other areas of growth or potentially retain a little bit more from a cash perspective? And then finally, on NTI. You just talked about the drivers of growth last year. Can you just remind me if there's any change in pricing that we saw in terms of the all management fees last year and if there's any opportunity for more pricing this year. Thanks. The NCI. On the global footprint, this is, really about the opportunities that we see in our current So if you look back over the last year, year and a half, so we made the investment, the acquisition of Merchant, the city and yield book, you know, there have been significant investment before that. There was Russell. So substantial growth in our presence in the US. Similarly on, the Asia side, I talked earlier about a bunch of the opportunities that we're seeing, in China, and in some other markets there. So in the context of our current model, there are substantial incremental opportunities to grow the business further in those growing regions. On Brexit, we have certainly talked about the amount of, time and energy that we have spent on. We have not gone through the exercise of calculating the amount, that we have spent on it. So I would say, if and as Brexit is resolved, will we have, I'll call it a time dividend. Yes. And I think that will be that'll be a good and productive thing for us, and I imagine for other businesses. But we haven't gone through the exercise of of quantifying. Okay. I think on NGI, we have the ability without getting into a lot of detail on it, but we have the ability to make adjustments and minor adjustments in pricing that can help you direct, if you will, and send certain behaviors about whether or not we get cash or non cash collateral, whether or not and whether what currency we get it in. But fundamentally, the NCI what we basically are in that line is a function of the absolute levels of interest rates, particularly the short end of the curve and really the steepness of the curve. Because what we're gonna capture is the difference between what we earn on the investment and and the secured overnight rate. So I think that's why the effort in terms of expanding counter parties has helped. Obviously, this past year, a rising U. S. Interest rate environment and anticipation of the Fed moves, we did see U. S. Short term yields go up. Now markets are going to move all the time. So I think making a firm prediction about where those are going to go is a tough business. But I think generally, we are focused a lot on sort of diversity, but continued quality of counterparts and trying to look at the currency of the collateral we call in terms of what we can earn as an investment opportunity. But it isn't really it's not really about massively changing the structure of the of the collateral rates, network to rate management program. That's not how we make money. Thanks. It's it's Philip Middleton from Merrill. Just very briefly turning back to M And A. Corporate Finance 101 says you deploy cash in your high return, high margin, high multiple areas, which appears to be FTSE Russell. That's not something you've talked about yet. Is that another area where you see the potential to deploy capital over the next few years. So as, you know, we've been active in that area in terms of some of the M and A in, in years past and quite recently. We will continue to evaluate opportunities as they come up. I think that the, the fact that our investments or transactions over the past few months have happened to be in the post trade area. As you know, in M and A, there's an element of of, opportunity, and We continue to be, very excited about the opportunities we see in our Information Services business, and I should say also in our Capital Markets business as well as post trade. So, we will continue to evaluate opportunities. And if we see opportunities that make sense, along with the or according to, the the metrics I touched on before, in terms of being attractive from a return perspective, and attractive from a strategic perspective and making sense, then we'll continue. Thank you. Nick Watts from Redburn. I have two questions. The first was, one of your large U. S. Competitors or peers, I should say, talks quite a lot about trying to draw on sales penetration of their products globally. Given given the breadth of your, Capital Markets infrastructure footprint now, to what extent do you see an opportunity in that regard, and and perhaps if you could touch on Asia and the US in particular in that regard. And the second question was around LCH. You have now a, a majority of 80% plus stakes, the economics there in terms of your relationship with the banks, is perhaps a little bit different from what it was. How are you thinking about that in terms of maintaining the governance relationship with those banks? To ensure they continue to support the platform. Thank you. Sure. So in terms of the the sales penetration, globally. That's, perhaps not something that we talk about enough, but we have, a lot of, global customers, who have access to our businesses. So I'll start with just which is that we obviously have the the Borsa in Italy. We have the London Stock Exchange here. We have a number of other platforms and other products, but just as an example, on the LSC, we have you can access that market, through Hong Kong. And we, it's hard to determine an exact number of customers who are accessing that market, but it is it is a substantially growing number. So, this is it's the benefit of being the international the market that we are here in London. It's the benefit of having the Varsa as well. And we have, I think, a a very healthy penetration in terms of international markets. On the LCH 80% stake, And how does, how does that change our approach to the governance? So short answer is it doesn't. The fact that we have minority shareholders in LCH does not affect how we govern the business, how we have the, the independent directors, how we have the member directors. It doesn't change how we manage the risk. And we were very clear with our, our member banks and our partners, including in the OTC drivenet arrangement. That the ownership stake does not change how we think about the governance of of the business. So we increase that investment because we thought it was an attractive investment. We think it's a great business. We have a enormous confidence in it. I think as we continue to make other investments, in the post trade space, for example, last year, when we made the investment in Acadia South, we did that through the LSCG level, because, with LCHM, it's minority shareholders that's, adds additional complexity to how we would execute, on those transactions. So it's simplifying, as the minority stake goes down. Good morning. It's Chris Turner from Berenberg. Two questions, if I may, both on your, guidance. Firstly, I was going to say it's for David, but for David Warren. If I take the IFRS 16, 31,000,000 of savings, the 30,000,000 of additional cost savings on top of that. It looks like on a pro form a basis, your EBITDA margin goes from 50% to 53%. So on my maths and, it could be wrong here, but it looks like you only need about 50,000,000 more in EBITDA to get to that 55% target EBITDA. So you got you by dropping the the guidance today, you're saying that you won't be there on a run rate basis by the end of of 2019. And then secondly, more generally, you provided revenue guidance today for 2019. So for the next 10 months, I think when those targets were originally set, they were 2 or 3 year targets. Were you attempted to come in Davie then to push those out further, just to acknowledge that you conferencing the growth and visibility on that. Okay. Thanks for the second one. It's really we'll pretty, very much plan to your So, Chris, thanks. All we're saying today, I think really 2 we're saying really 3 things. We are taking a decision to invest for more growth and more efficiency opportunities to increase operating leverage. And as a result of that, what we're saying today is that we are not going to hit the circa 55 in 2019, which was the guidance. We're not saying any more beyond that. But I think when we put the target out in 2017, it was to achieve sort of a 55% EBITDA margin for the group in 2019. So, as a consequence of the decisions we're taking today to continue and sort of invest for growth and certainly continuing to invest for further operating leverage. And what we're doing on on headcount reductions and property consolidations. It's just our example is that we're committing to grow, to expand our margin. We're not changing the target, on the LCH margin. So you can just, you know, conserve them further directionally. There's some upward progression to our margins because we're just not seeing anything more. As it relates to, how much EBITDA margin grows by IFRS 16 and a few of the other things we're giving guidance on. I think you're in the right area. I think we gave them. I think we actually put a note in the financials on that I think it's note 1 or no, there's a note in there that spells out the full impacts of EBITDA and actually some impacts on profit as well. You've got an OpEx adjustment in terms of moving the leases under the balance sheet. So we continue to have a lot of, optimism about where the business is going. I talked about that earlier and feel very good about the growth in the businesses. And to David's point, we feel very good about the trajectory in terms of the margin improvement. But at this point, we're not giving any further guidance on that. Okay. I think you have another question on the phone. Hello? Yes, sir. Yes. Our next question comes from the line of Kristock Deepford. Good morning, Christopher Peter, Thomas Bank. One follow-up question on LCH, please. What has been the number of Horace PM members paying for your ethics option clearing service in the 4th quarter. I appreciate the question. It's that's not how we actually disclose, that, there's a member fee at, at FX clearing, and the clearing that they do is within that member fee. So it's just not a detail that we're gonna that we're gonna be disclosing, and we haven't disclosed it. So I appreciate the question, but, outside of what we've already disclosed, I can't add any more detail. Okay. Okay. Okay. Well, I think that brings us to our conclusion here. Thank you all for joining us, this morning. And, we certainly appreciate it.