Earnings Call: H2 2018

Mar 1, 2019

CFO, as well as Waqas Samad, our Director of Information Services. Dan Maguire may be popping in a little bit later as well. It has been a busy eight months since I joined LSEG in August of last year, and my early positive impressions of the group's 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. Since I joined, we have made two 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 partnership approach in driving innovation for our customers. We have also continued to focus on group-wide efficiency and operational excellence, including driving further integration after a period of M&A growth. We have 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. I will talk in more detail about our strategic priorities shortly, but first let me hand over to David to talk through the 2018 results. Thank you, David. As you have seen from this morning's announcement, we have released a strong set of results, slide 5 gives 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 GBP 2.1 billion. After deducting cost of sales, gross profit increased 10% to GBP 1.9 billion. 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 GBP 1.07. This is the first time that EBITDA has crossed the GBP 1 billion level. Adjusted earnings per share rose by 17% to GBP 1.738 per share. Finally, the proposed dividend of GBP 0.432 per share brings the full-year dividend per share to GBP 0.604, an increase of 17% and within our target cover range. When we take a more detailed look at some of the numbers starting on slide six. Information services delivered strong growth, up 14%, and within this division, FTSE Russell grew 15% with good organic growth and further contribution from The Yield Book. On an underlying basis, adjusted for FX and acquisitions, FTSE 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 4%, despite the GBP 13 million reduction in primary markets from the impact of IFRS 15. On an equivalent basis, the capital markets would have grown 7% on the year. Overall, a strong performance across the group with 9% income growth on a reported and organic constant currency basis. Now to slide seven, which provides the main year-on-year changes to the income line. The graph shows the FX changes were comparatively small, with a GBP 13 million impact. Having adjusted for FX, growth in income comes from three main areas. First, higher NTI, adding GBP 56 million as we benefited from the wider use of counterparties for placing investments and also from changes in the U.S. interest rate environment. Second, organic growth, which is the largest component of this increase, adding GBP 109 million. Third, inorganic contribution of GBP 28 million, which is the result of acquisitions and disposals. As you can see, GBP 165 million or more than 80% of the total GBP 193 million increase in income came from growth from existing businesses. Next, moving to expenses on slide eight. 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 GBP 23 million. Next, we have underlying cost increases of just GBP 19 million for the period, depreciation and amortization adding a further GBP 31 million. Finally, we have inorganic costs of GBP 23 million, which aggregates acquisitions and disposals, taking total expenses to GBP 969 million. Good control on organic costs, reflecting cost-saving measures implemented over the last couple of years. Moving now to slide nine. This slide looks at some of the actions we are taking to 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. 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 LSE DM equity derivatives and the disposals of Exactpro and MillenniumIT ESP. 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. It was annualized savings of GBP 30 million, and there will be associated one-off costs of this initiative of GBP 30 million 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 GBP 26 million of depreciation arising from IFRS 16, which changes the way that we account for leases. IFRS 16 also adds circa GBP 4 million to net interest expense. 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 U.K. and Italian tax rates, as well as the mix change of earnings. For 2019, we expect the effective tax rate to be similar at circa 22%. Turning now to slide 10, provide more detail on our investment initiatives. We have invested GBP 238 million in various projects in the year as we invest for growth, including GBP 194 million 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 ForexClear, developing the index data and analytics, and new technology, particularly cloud. With regard to the 60% 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. FTSE 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%. We are making no changes to these targets and will continue to report progress as normal during the year. Turning to slide 12, there are two 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 2017-2019 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, as we've noted earlier, depreciation is set to grow strongly. 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, despite good momentum towards achievement, the group does not expect to quite meet the group EBITDA margin of circa 55% in 2019. This was a stretch target, and we have 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 GBP 559 million free cash after tax, interest payments, and investment activities. This equates to GBP 1.61 per share. This strong cash generation enables further investments in growth initiatives and infrastructure, as I've just described. Separately, we've invested in associates, AcadiaSoft, and further investment in CurveGlobal. 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, after setting aside GBP 1.1 billion of cash for regulatory and operational purposes, was GBP 1.9 billion, an increase from the position at the half year where we were at GBP 1.6 billion. 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 forma basis, with the inclusion of the 4.9 stake in Euroclear, we remain within our target range. We have over GBP 1.1 billion of undrawn bank facilities, and in December, we issued a GBP 500 million nine-year euro bond with a coupon of 1.75%. There were no changes in terms of ratings in the period, although S&P did improve the outlook on our rating to positive while maintaining the long-term rating of the group at A-minus. Another strong set of results and the company in a strong financial position. 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 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 three core strategic areas, capital markets, information services, post-trade, supported by technology and a commitment to operational excellence. Our high-growth businesses, particularly FTSE Russell and LCH, have effectively leveraged macroeconomic and regulatory trends for the benefit of our customers. We will continue to execute on this successful strategy to deliver further growth and shareholder returns. We'll also continue to build on the group's sustainable competitive advantages outlined on slide 18. LSEG's open access and 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. 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 Plato partnership, as well as the deep reach of our FTSE 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 in our market supervision function. Earlier this week, we acquired a minority stake in Nivaura, a U.K.-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. We will return to discuss these group-wide opportunities later. 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. FTSE Russell continues to be a leader in the global index industry, with more than $16 trillion 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 to emerging markets and ESG factors. FTSE 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 billion in net passive inflows following completion of the first phase. FTSE Russell has also extended its coverage of the China market with the introduction of a new Chinese green bond index series and a new FTSE Total China Connect Index, which was selected by Vanguard for a new ETF. FTSE 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 Russell 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, FTSE Russell's position is further strengthened by its multi-asset capabilities. FTSE Russell has over three and a half trillion dollars in assets benchmarked 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. FTSE 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% ownership of FTSE TMX Global Debt Markets. Earlier this year, we announced that Waqas Samad would take over from Mark Makepeace 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 Waqas, 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. Post-trade 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 CC&G and Monte Titoli in Italy. UnaVista, which appears in our results as part of Information Services, is also a leading provider of post-trade reporting services. On slide 23, we outline some of the current opportunities across 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, RepoClear completed the successful consolidation of EUR 700 billion of euro-denominated repo debt into LCH SA in France. This is the culmination of a multi-year 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 SOFR, SONIA, and SARON 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% of the global OTC interest rate derivatives market. LCH SwapAgent processed its first swaptions trades and began offering compression services for its cross-currency swap offering. Following our acquisition of a minority stake in AcadiaSoft, LCH SwapAgent is working with them to explore ways to improve processes for non-cleared derivatives. Earlier this year, LSEG was delighted to become a minority shareholder in Euroclear, with whom we have a long-standing operational and commercial relationship. Customer partnership is central to both businesses, both LCH and Euroclear. We look forward to working with LCH, LSEG, and Euroclear to drive continued innovation and efficiencies for the benefit of our customers and the wider market. Turning to slide 24. SwapClear remains the largest OTC rates liquidity pool in the world, processing over GBP 1 quadrillion in notional volume in 2018. More significantly, for its members and customers, over GBP 770 trillion was compressed, up 27% on the previous year, enabling customers to save approximately GBP 39.5 billion 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 SwapClear maintains a 90% market share of interest rate swap clearing, despite its customers and members being aggressively courted by competitors. We are never complacent about the competitive landscape. Our customers recognize the benefits and efficiencies offered by SwapClear's global margin pool. On slide 25, you can see that ForexClear continues to provide a compelling platform for further growth and is well-positioned to address the capital and margin challenges facing customers in the global FX market. ForexClear 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 service's 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 GBP 28 billion in new and further issues. London's market continues to attract global issuers. Three of the five largest IPOs that listed on the London 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 GBP 5.5 billion 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 buy-side customers, Turquoise became the first 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 CurveGlobal 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. CurveGlobal is continuing to attract new clients, helping them to achieve best execution, lower fees, and significant margin efficiencies. Critical mass in liquidity takes time to build, but we are very pleased with the progress at CurveGlobal as it brings choice to the futures market. Turning to slide 28. The group provides a diversified set of world-class businesses across the three 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 will 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 equivalence as a third 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 TRADEcho 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, continue 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&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. 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 will build further on its strength 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. As a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Good morning. It's Arnaud Giblat from Exane. I've got three questions, please. Firstly, if I can start with LCH. If I look at your revenue progression, Q1, Q2, Q3 was stable, and in Q4, you had a significant step-up in revenue. Could you talk us through maybe the drivers of that step-up and how the outlook of those drivers look for next year? Secondly, on costs. You've given us a clear vision as to where costs are heading in 2019. I'm wondering what happens beyond in 2020 and 2021. You've talked about operational efficiencies. How should we be thinking about that going into 2020, and what further investments should we be expecting then? Finally, FTSE Russell, you highlight ESG and factor investing as big growth opportunities. Could you perhaps talk us through what level of contribution these subdivisions make for FTSE Russell and how the growth is shaping up there? Thank you. You want to take? Yeah LCH revenues? Look, I think LCH revenues, first of all, they are going to move as we move through a range of market cycles. That's one of the strengths of it, is it's well-diversified, I guess, across asset classes. We did see in the fourth quarter, obviously, some increases in volatility. We saw more clearing activity. That's really what's driving a lot of it. 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. One is just the amount of margin that we actually are able to invest as a function of activity. There are also some actions taken by LCH over the last year to really expand the range of counterparties. We now have ability to generate, within obviously proper liquidity restrictions, additional NTI just because we are managing the collateral better. In terms of your question around the cost, 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. 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 think David touched on this. We have five offices in New York City. We're taking that down to one. We have four offices in Tokyo. We're taking that down to one. Our goal is, whether through cost initiatives along those lines, whether through reduction of contractors, whether through removing duplication across the different parts of the group, we think there's an opportunity to drive towards greater efficiency. It shouldn't be surprising. This is a group that has done 25-plus transactions over the last 10 years or so. There has been a lot of activity, as we continue to drive forward and focus on integration and operational efficiency, we're finding some things where we can be operating more efficiently. Your last question was around ESG and factor. 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. 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 green index product in China. It's a combination of our strong position in China, as well as the growth and the interest in ESG. Very interesting area from our customer's perspective, and it's an area we'll continue to work in and innovate. Sure. Pass it along. 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. Obviously, your own organic growth was a little bit below what you were expecting. Could you just help us understand why that organic growth was a little bit weaker? Is it cyclical factors? Is there something more structural going on, or how much is due to the fact that FTSE Russell's 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 ForexClear, and how do we translate slide 25, where you're showing the huge growth in foreign exchange with some sort of either revenue number or revenue growth % would be helpful. There's just the 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 going to hit that target for 55%, maybe one year later. In which case, if I look at consensus, they're at 51.6% margin for 2019 and 53.5% for 2020. Do you think they're just being too bearish? 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 cost side. We're going to continue to drive that balance forward. We feel very good about the continuing trajectory and the improvement in our margin. Our margin was up 3% from end of 2017 to the end of 2018, and we feel good about that continuing trajectory. We're not going to give you 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, I'm sure people are focusing on it, but we did give some guidance today as it relates to the increases in depreciation. I would say that the consensus estimate right now probably doesn't have all of that in. I think there'll be a number of things that we'll go into, whatever rethinking is done on consensus for the- On your question around 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 tailwinds that have been driving that business in years past are continuing. We feel very good about the continuing move from active 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. FTSE Russell, we continue to have big expectations, and it has continued to deliver. Your other question was around- Breaking out, yeah. On OTC between SwapClear and ForexClear. It's not a breakout that we do. I think it's something we continue to look at. I could go to Mr. Maguire sitting in the front row who could give me some reasonable estimate. I think at this point in time, I think the point is that it's mostly SwapClear. ForexClear is building, and it will build strongly as we continue. That's always been the plan for ForexClear. The important part about Forex If you saw the slide of what's cleared in the NDF world, we do 97% of it. Now I think, as we now can bring a settlement functionality into the ForexClear space, that's an important driver of continued growth in ForexClear, in addition to the continued rollout of the Uncleared Margin Rules. Those two factors, the ability now to actually physically settle contracts, and ForexClear continuing to provide increasing services to meet people's clearing obligations if they choose to comply with central clearing as part of the Uncleared Margin Rules, which many of them are doing. We don't break it out. Just to be clear, I think it's mostly on the IRS side, but ForexClear, to be clear, is an area that will be continuing to grow for all the reasons we talked about. Thank you. It's Haley Tam from Citi. Can I just ask one question, please, about the new global benchmarks? Could you help us think about the potential of it or what you think the impact of that will be for SwapClear? Is this just a simple facilitation as you move from one set of rates to another? Was it a big increase, potentially in clearing volumes, either one or four, or structurally, if there's more basis to trade in the future? Could you help us think about that? Thank you. Sure. 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 on the reference rates. That has been, I think, very cooperative so far. We offer clearing on SONIA, SOFR, and SARON swaps. I think we'll see how big the opportunity turns out to be. It is, I think, a sign of the strength of LCH's position that we are taking a leadership role in that. We have seen, I think, healthy volumes recently. It's still early days, we'll see how that plays out. I should also mention, in our capital markets business, you asked about the clearing side, but in our capital markets business, we have CurveGlobal, which is doing very well in terms of SONIA futures and has a pretty attractive and interesting market share as that area continues to grow. It's a space we're spending a lot of time on. We're focused on it, but early days, 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, I do think we have a few questions on the phone. Right now we have two questions from the phone. Right now our first question comes from the line of Kyle Voigt. Your line is now open. Hi. Morning, Kyle. First question. Very early morning for you. Thank you. Morning. Yes. Just on M&A will be the first question. You've already made two sizable investments. First, can you just go into some more detail of what you saw as strategically attractive in the Euroclear stake, and would you be willing to take that stake up higher? Second question, could you speak a bit more broadly to the high-level views around M&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 LSE into new businesses or ancillary businesses? First, I'd say we're very happy with the size of our stake in Euroclear. Just to touch on what we saw as the opportunity there. We and Euroclear are very close commercial and operating partners. We do a lot together, across a number of different parts of our business. 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. We do a lot with them, from 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. We felt it was strategically important for us to, one, have a seat on their board and really, I guess, as I said, cement the strength of the relationship. 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. 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. Another area that we're thinking about is, are there ways we can cooperate more from a data perspective? That's on the Euroclear question. More broadly to your question, I think we feel very good about the businesses that we have and the businesses that we're in. We have really strong, really interesting growth opportunities in each of our core pillars. You said in your question that we had done two transactions. We've actually done three transactions. Just this past week, we announced a small minority investment in a company called Nivaura, which is a distributed ledger technology company focused on improving the workflow for capital raising. That's another interesting area that we are looking at. You'll see us continue to look at M&A opportunities that are good strategic fits for us, and that make sense from a shareholder perspective in terms of the return opportunities. This is a group that has had a very strong track record of executing on that in the past. 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 SwapClear. I think the regulatory tailwinds from the Uncleared Margin Rules are getting a bit smaller. Just wondering how you feel about business growth here in particular from a regulatory angle. The other one is on FTSE Russell and the fixed income businesses in particular. You spoke a lot about your opportunities in some areas, but not so much about fixed income. Just wondering here about the shift to passive in that area and how The Yield Book is developing. Thank you. Thank you. Just to clarify a bit on SwapClear. SwapClear has benefited from the mandate on clearing of interest rate swaps. That business continues to grow well. It's been up over 20% this past year. 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 ForexClear business. The Uncleared Margin Rules continue to capture a broader and broader part of the market, I believe, this September and next September. We will see how that plays out, but we think that is part of the regulatory dynamic that is supporting the growth of ForexClear 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. Our capabilities on the fixed income side and with the WGBI position us very well. We think there are a number of opportunities in the fixed income space. I mentioned we have Waqas 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. We will be continuing to do more in that space, and we think there's a lot of great opportunity there. Thank you. Next. Thank you. I think we might have had one more. One more? Thanks. One more on the phone, please, then we can come back. Yes. Okay. Justin, go ahead. Our last question comes from the line of Johannes Feldmann. Your line is now open. Good morning, everybody. Johannes Feldmann, HGBF. Three questions, please. First of all, could you give us a breakdown of your FTSE Russell 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 costs on page nine, the GBP 30 million OpEx reduction, will they mainly hit personal costs or also the other cost line? Last but not least, on share buyback, what conditions would be needed, in your view, to allow for a new share buyback? Thank you. Johannes, good morning. I think with respect to the further breakout of FTSE Russell revenues, 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 more licensed AUM-based fees. It has been historically 60-40, 65-35. It has tilted a little bit more with the acquisition of The Yield Book and further data opportunities it has on the data side moved a little bit up. 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. I think that's the answer I can give 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. This is really a headcount reduction. There are some elimination of some contractors, 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 total OpEx. I think in answer to your specific question, that's where it will be. Costs to achieve are another GBP 30 million, those will be more of a one-time nature. I'm happy to take your last question around the share buyback. We're very comfortable with our capital management framework. The one to two times net debt to EBITDA, something that the group has had and been very consistent and reliable about. Sometimes, if there's a compelling strategic opportunity, has gone up over the two times but gotten back down into the range relatively quickly. We're comfortable with that. As this is a very strongly cash-generative business, which is great. 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. We will contemplate other potential shareholder returns. At this point, the capital management framework has been working very well, and we're very comfortable with that. Okay. Thank you. Can we come back? I don't know who was next. Okay, sir. Right now we have additional questions on the phone. Good morning. It's Gurjit Kambo, J.P. Morgan. I had three questions. Firstly, in terms 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 where you can collaborate with asset managers, perhaps in helping them with the 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 pools share significantly declining. Is that good or bad for the LSE? Obviously you have your own dark pool, could that actually be positive if it takes longer? Finally, in terms of the ECB, I think they're talking about more oversight in the clearing business. How do you feel the business is positioned for increased oversight? Are you already comfortable that you can meet the requirements? Sure. Maybe I'll start with the ECB question, we'll go back to your other question as well. I think the discussion or the conversation on the clearing front has clearly moved towards one of, I'll call it supervisory collaboration. We frankly think that's a healthy move. We are a systemically important institution and business, we take that very seriously. In that context, we're very comfortable being regulated in a number of the jurisdictions, in all the jurisdictions, certainly where we are systemic. From our perspective, for the regulators to cooperate, and collaborate in terms of their oversight is a good thing from our perspective. We'll see how the debate plays out and how things play out with EMIR 2.2. In general, we think that it's a good thing for the regulators and central banks to be working together, so that we, as an operator of 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, we are the leading presence in the dark pool market. I think it just speaks to the breadth of our business. Obviously, there's been debate going back through the regulatory change as to the pros and cons of dark pools. The market appears to have an interest in having both models, we have a very strong position in both models. On the self-indexing, it's a very competitive industry, 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 and our customers. Your question is an interesting 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. Overall, in terms of the business opportunity, we feel very, very good about it. Yeah. Thank you. Mike Werner from UBS. I've got three questions, please. First, on slide 17, we talk 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? Second, on Brexit, you talked about how a lot of the investment this year went into Brexit planning. I'm sure there was a lot of overhead related to that. 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? Finally, on NTI, you 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 collateral management fees last year, and if there's any opportunity for more pricing this year? Thanks. Okay, thanks. I'll take the first two, and then if you want to hit the NTI. On the global footprint, this is really about the opportunities that we see in our current model. If you look back over the last year and a half, we made the investment, the acquisition of Mergent, the Citi and The Yield Book. There have been significant investment. Before that, there was Russell. Substantial growth in our presence in the U.S. 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. 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 it. We have not gone through the exercise of calculating the amount that we have spent on it. I would say, if and as Brexit is resolved, will we have, I'll call it a time dividend? Yes. I think that'll be a good and productive thing for us, and I imagine for other businesses. We haven't gone through the exercise of quantifying. I think on NTI, we have the ability, without getting into a lot of detail on it, we have the ability to make minor adjustments in pricing that can help to direct, if you will, and send certain behaviors about whether or not we get cash or non-cash collateral, whether or not and what currency we get it in. Fundamentally, in NTI, what we basically earn 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 going to capture is the difference between what we earn on the investment and the secured overnight rate. I think that's why the effort in terms of expanding counterparties 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. Markets are going to move all the time, I think making a firm prediction about where yields are going to go is a tough business. I think generally, we are focused a lot on the 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. It's not really about massively changing the structure of the collateral rate management program. That's not how we make money. Thanks. It's Philip Middleton from Merrill's. Just very briefly, turning back to M&A. Corporate finance 101 says you deploy capital 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? As you know, we've been active in that area in terms of some of the M&A in years past and quite recently. We will continue to evaluate opportunities as they come up. I think that 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&A, there's an element of opportunity. 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. We will continue to evaluate opportunities, and if we see opportunities that make sense according to 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 consider them. 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 drive sales penetration of their products globally. Given the breadth of your capital market infrastructure footprint now, to what extent do you see an opportunity in that regard? Perhaps if you could touch on Asia and the U.S. in particular in that regard. The second question was around LCH. You have now 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. In terms of 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. I'll start with just the basics, which is that we obviously have 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 LSE, you can access that market through Hong Kong. It's hard to determine an exact number of customers who are accessing that market, but it is a substantially growing number. It's the benefit of being the international capital market that we are here in London. It's the benefit of having the Borsa as well. We have, I think, a very healthy penetration in terms of international markets. On the LCH 80% stake, how does that change our approach to the governance? The 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 independent directors, how we have the member directors. It doesn't change how we manage the risk. We were very clear with our member banks and our partners, including in the OTC derivative net arrangement, that the ownership stake does not change how we think about the governance of the business. We increased that investment because we thought it was an attractive investment. We think it's a great business. We have 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 AcadiaSoft, we did that through the LSEG level, because with LCH, it's minority shareholders, and that adds additional complexity to how we would execute on those transactions. 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 this for David, but first for David Warren. If I take the IFRS 16, GBP 31 million of savings with GBP 30 million of additional cost savings on top of that, it looks like on a pro forma basis, your EBITDA margin goes from 50% to 53%. On my maths, and it could be wrong here, but it looks like you only need about GBP 50 million more in EBITDA to get to that 55% target for EBITDA. By dropping the guidance today, are you saying that you won't be there on a run-rate basis by the end of 2019? Secondly, more generally, you provided revenue guidance today for 2019, for the next 10 months. I think when those targets were originally set, they were two or three-year targets. Were you not tempted to come in, David, and to push those out further, just sticking on that you have confidence in the growth and visibility on that? I'll answer the second one. It's really very much tied into your answer. Chris, thanks. All we're saying today, we're saying really three things. We're taking a decision to invest for more growth and more efficiency opportunities to increase operating leverage. 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. I think when we put the target out in 2017, it was to achieve circa 55% EBITDA margin for the group in 2019. As a consequence of the decisions we're taking today on continuing to invest for growth and certainly continuing to invest for further operating leverage, and what we're doing on headcount reductions and property consolidations are examples of that. We're committing to grow, to expand our margin. We're not changing the target on the LCH margin. You can just sort of infer directionally that there's some upwards progression to our margins. Chris, we're just not saying anything more. As it relates to how much EBITDA margin grows by IFRS 16 and a few of the other things we've given guidance on, I think you're in the right area. I think we actually put a note in the financials on that as well. I think it's note one or there's a note in there that spells out the full impacts of EBITDA and actually some impacts on profit as well, because we've got an OpEx adjustment in terms of moving the leases onto the balance sheet. We continue to have a lot of optimism about where the businesses are going. I talked about that earlier, and feel very good about the growth in the businesses. To David's point, we feel very good about the trajectory in terms of the margin improvement. At this point, we're not giving any further guidance on that. Okay. I think we have another question on the phone. Hello? Operator? Yes, sir. Yes. Our next question comes from the line of Christoph Guttfreund. Your line's open. Good morning, Christoph Guttfreund, Commerzbank. One follow-up question on LCH, please. What has been the number of ForexClear members paying for your FX option clearing service in the fourth quarter? I appreciate the question. That's not how we actually disclose that. There's a member fee at FX Clearing, and the clearing that they do is within that member fee. It's just not a detail that we're going to be disclosing, and we haven't disclosed it. 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. We certainly appreciate it.