Earnings Call: H1 2018

Aug 2, 2018

Good morning. Thank you for standing by, and welcome to the London Stock Exchange Group interim results investor call. At this time, all participants are in a listen only mode. There'll be a presentation followed by question and answer session. I must advise you that the call is being recorded today, on Thursday, 2nd August 2018. And I will now turn the call over to speaker today, Paul Felt. Please go ahead, sir. Thank you. Good morning, everyone. Thank you for joining us. On the call this morning, we have David Swimmer, CEO David Warren, CFO, Tom and myself. We're going to refer to slides that are available on our website. In terms of format, David Strimmer will make some opening remarks and then David Warren and I will summarize the performance and the progress for the half year, and after that, we'll take questions. So let me hand you over to David Schimmer. Thank you, Paul. I'm delighted to be here. I would like to say a few words this morning, although I assume my role as CEO only yesterday. So you'll forgive me if I keep my comments brief. Needless to say, I'm excited to join the group. Let me touch on a few of the reasons why. First, it's a terrific business. We are well positioned with world class assets and a strong financial performance. I was attracted to the group's strategy of open access and partnership with its customers. This strategy and its consistent execution has differentiated LSEG from its peers and I fully support it. Secondly, I'm very excited about the growth opportunities in our business. Again, I should mention our customer to play a key role in helping to shape our approach in the past, and their views are going to continue to be central to our strategy as we adapt to the challenges and opportunities ahead. The final reason is the people. Although it's still early days in my getting to know my colleagues, I am really impressed by the caliber of the team and their commitment and drive towards achieving outstanding results for our customers and our shareholders. My immediate priority in the coming weeks is to meet with colleagues, customers, shareholders, and other key stakeholders. I look forward to working with the executive team on our plans for further growth and value creation across our businesses as we continue to adapt to an evolving macroeconomic, regulatory, and technology landscape. Continuing the focus on driving operational excellence and efficiency across the group is also a priority. On that note, the group has delivered strong first half results and is performing well. I look forward to talking to you and answering your questions at future events, but today is about the last 6 months performance. So I'll hand back to David and Paul to take the lead. Thank you. Thanks David. As you've seen from this morning's announcement, we've released a strong set of results. Slide 3 and the debt that we put out gives you the main headlines. Revenue increased 12% to GBP 953,000,000, and that had growth across all core business areas. Total income also rose 12% with another strong increase in net treasury income at LCA Underlying operating costs were well controlled, rising 5%, we continue to invest across the business and projects to grow and become more operationally efficient. Adjusted EBITDA increased 23% and adjusted earnings per share rose by 25%. Go to £88..7. Finally, the interim dividend, which is calculated as 1 third of the prior year full dividend, increased by 19% to 17.2p per share. So let's take a more detailed look some of the numbers starting on Slide 4. Information Services delivered strong growth, up 16% And within this division, but see Russell grew 19% with good organic growth and contribution from the yield book. On an underlying business, so adjusting for FX and for acquisitions, but see Russell grew 9% year on year. LTH also delivered a strong performance with revenues up 14% and with the inclusion of NTI, total income rose 18%. The engine of growth continues to be the OTC clearing services, and we saw record notional clear volume at slotclear and also Forex Clear. Capital markets was strong with revenues up 13% from good primary and secondary market performances. There were some small changes that impact the headline reporting in our settlement business in Italy, and those are described in detail in the RNS. So overall, a very good H1 performance across the group. Next to Slide 5, and this provides the main year on year changes to the income line. The graph shows that the FX changes this period were comparatively small, with GBP 14,000,000 impact. Increases to income, therefore, come from 3 main areas. First, higher MTI, which added GBP 29,000,000 in H1. 2nd, organic growth, and that's the largest components of the increase in H1. Adding GBP 72,000,000. And as you see, that reflected in the strong performances we just noted in information services, association in Capital Markets. And then third, we have an inorganic contribution of GBP 27,000,000 in H1, which is the result of the acquisitions and the disposals mainly including the yield curve. With regard to MTI LCH, the H1 we benefited from both effect change in the wider used to counterpart for placing investments, and we've also had changes from the U. S. Rate environment. So looking ahead for the second half, absent any other rate changes, I think it will be best to use the strong Q1 run rate for full year modeling purposes. Let's move now to the operating expenses on Slide 6. Reported operated OpEx increased by 2% underlying costs. So on an organic and constant currency basis and excluding depreciation and am amortization, these increased by 5%. On the slide, we highlight the principal movements in the cost line, So first, as usual, we adjusted the currency effects, and that reduced it last year's start point by GBP 22,000,000. Next, we have the organic cost increases of GBP 34,000,000 for the period, including depreciation, which rose by 18%. Last, we have the inorganic cost increase due to 14 percent or sorry £14,000,000, which aggregates the acquisitions and the disposals. And together, that takes the 81 operating expenses to GBP 471,000,000. So looking ahead to we've said in our statements this morning that due to the phasing of investments over the year, operating expenses in the second half are likely to be some GBP 25,000,000 to GBP 30,000,000 higher than they were in each one. However, given the lower spend in each one, What this means is that the operating expenses for the full year will still be in line with our expectations. Finally, on this slide, The underlying effective tax rate for the half 1, excluding the prior year adjustments and one offs, is 23%. And this is slightly better than the 23.4 percent for last year, and that's mainly driven by a mix change. So overall, a good cost performance. Let's turn now to cash flow on Slide 7. Cash generation was good with 1,000,000 of free cash after tax, interest payments and investment activities. This strong cash generation enabled further investments in growth initiatives and in infrastructure investment activities include GBP 90,000,000 of CapEx with ongoing investments in new products, such as for FX options clearing and some technology upgrades as well as further regulatory changes. Also part of this spend is 1,000,000 of investments, including 1,000,000 in Arcadia soft. CapEx is likely to increase to around a further GBP 100,000,000 in H2, with continuation of various investment projects across the group. So let's turn now to Slide 8. Our operating net debt at the end of June after normally setting aside just over GBP 1,000,000,000 of cash for regulatory purposes, that was GBP 101.63000000000. And that's an improvement from the position at the end of December 2017. Gross debt stood at GBP 1,900,000,000 with another SEK 900,000,000 in undrawn credit lines. In terms of leverage, on a pro form a basis, Net debt to EBITDA is 1.6 times, and that's an improvement from the 1.7 times at year end. So what we've done is reduced leverage at the same time is continuing to both invest in the business and also to increase shareholder distributions. There were no major changes in terms of ratings in the period, so S and P improved its ratings outlook to positive. While maintaining its long term rating on the group at A. And with that, let me hand you over to David Warren. Thank you, Paul, and good morning, everyone. I'll start on Slide 10. As Paul has outlined, the continued execution of our strategy has delivered another strong set of financial results with growth across all business areas. We have continued to invest in organic growth and strategic investments. These include increasing our shareholding in LCH to 68%, acquiring 100% ownership of FTSE TMX and taking a minority stake in Acadia soft. The integration of the yield book acquired last year also remains on track. The group is well positioned as a global financial infrastructure business, providing critical services to clients around the world. Our successful partnership approach enables us to deliver innovative and relevant solutions to our global customer base. We continue to see clearing and post trade risk management and an evolving regulatory landscape. Over the next few slides, I will provide a summary of some of the key highlights during the period. Moving to Slide 11. Our information Services division continues to perform strongly. Footsie Russell now has approximately $16,000,000,000,000 in assets benchmark to its indexes. The value of ETF assets tracking its benchmarks increased by 22% during the half, to $646,000,000,000. Its global reach and multi asset capabilities means that it is well positioned to benefit from the growth of passive investment as well as the increasing customer demand for access to data and analytical tools. This is particularly important in areas such as environmental, social, and governance, ESG. Is now being incorporated into a broad range of investment strategies by asset owners. From a country perspective, We announced that Saudi Arabia now meets the criteria for inclusion as an emerging market within FTSE Russell's global benchmarks. It will be the largest Middle East market in the index when it begins to transition from March next year. FTSE Russell continues to assess the progress of the China A shares market, evaluating inclusion into its global equity benchmarks. And it is also a surprising weather to include Chinese government bonds in its world government bond index, Zigbee. These decisions also reflect the growing demand from international investors for benchmarks that will facilitate their investments into emerging markets. On Slide 12, we highlight the continued global leadership position of Swap Clear. First half of the year saw SwapClear break new records, driven by new business, as well as additional flow from existing customers. It remains the leading OTC rates liquidity pool processing $576,000,000,000,000 in Notional during the first half of the year. It has seen significant onboarding of new clients globally, and this includes a 34% increase in the number of clients clearing Euro swaps during the period. Right hand side of the slide, which shows the ongoing rise in the average number of daily client trades with a compound annual growth of 48% since 2014. It has also expanded the number of currencies and clears to 21, following the launch of clearing in non deliverable interest rate swaps. And LCH is committed to working with customers and regulators to help facilitate a smooth transition to the new reference rates In July, LCH started clearing sulfur swaps, the new alternative U. S. Dollar reference rate, and it also offers clearing of Sonya Futures and Sarah swaps. I turn now to Slide 13. As I stated back in March, LCH is well placed to address the capital and margin challenges prevailing in the vast FX market. Which trades around $5,000,000,000,000 a day. The introduction of uncleared margin rules has seen a step change in volumes at Forex Clear, with members increasingly incentivized to clear. The momentum in the service continues to build as these rules are phased in. We saw record clearing volumes in the first half, with a 79% increase in the notional cleared compared to the same period last year. We have seen an increase in the number of participants in volume cleared in G10 NTF currency pairs with $26,000,000,000 cleared in Q2, and that's up from $6,000,000,000 in Q1. And last month, we launched deliverable FX options clearing, which has been developed in collaboration with CLS. The launch of FX Options Clearing is a significant step forward, and banks have already started testing and using this service. And we expect to see volume growth in its repo clear and CDS clear services during the half. Turning to Slide 14, Our Capital Markets division has performed well with good growth in both primary and secondary markets. $15,000,000,000 sterling was raised across our equity markets in the first half with 87 companies joining the group's markets in London and Milan. The implementation amidst the 2 in January of this year was very smooth for the group. And we are beginning to see a number of our businesses, including MTS, Curc Global, Turquoise, Trade Echo, and Univista, benefit as customers adapt to the new regulation. For example, large and scale trades executed through turquoise Playso Block Discovery has increased significantly. And London Stock Exchange recorded an average daily volume traded of £6,200,000,000, in addition to financial markets, promoting transparency and innovation, better risk management, and reduce costs. Her Global has begun to benefit from new best execution rules under MiFID II, with open interests continuing to rise. It is also seeing good growth in Estonia 3 month Futures contract, which was launched at the end of April, with around 80% share of volume trading. On Slide 15, we have detailed some of our investments in further growth. The $108,000,000 sterling invested during the period includes product enhancements at BTSE Russell and LCH, such as the launch of FX Options Clearing, which I previously highlighted. In addition, we continue to spend on efficiency projects including the development of BSL, the group's shared services company, which delivers technology, data, and corporate support functions across our global entities. And this includes plans to establish a new center in Romania, which will initially employ two hundred people across a range of roles. Challenges of an evolving macro regulatory environment, and this includes Brexit. As outlined on Slide 16, our global balanced portfolio of assets across listing trading index clearing and settlement will enable us to offer continuity of service to our customers regardless of the outcome of the negotiations. And we have seen no discernible change in customer behavior across our businesses although we remain committed to supporting customers as they prepare their contingency plans. And as part of our own contingency planning, we have made applications for additional licenses in the Netherlands for a select number of businesses, namely Turquoise, trade echo and Minavista should an EU location be needed to continue to serve EU based customers. In clearing, LCH Limited intends to apply for recognition as a 3rd country and near recognized CCP while LCHSA and CCNG will apply for equivalent licenses from the Bank of England. Turning to Slide 17. You have seen this slide before, but to remind you, Swapclear remains the global leader in the clearing of OTC interest rate swaps, clearing 21 currencies across 59 jurisdictions. A global liquidity pool enables the multilateral netting of transactions, simplifying outstanding exposures and delivering significant cost and margin efficiencies for members and customers. It also reduces risk by maximizing the number of counterparties that have access to an international liquidity pool. If we break out clearing by currency, you can see that more than half of our interest rate swaps volume continues to be denominated in U. S. Dollars. 24 percent of swaps are denominated in euros, and of this percentage, only 6% our euro swaps originating from EU based entities. LCH operates globally and is directly licensed to clear in many jurisdictions and successfully operates under cooperative regulatory relationships around the world. And therefore, we continue to support proposals for enhanced supervision and the strengthening of global regulatory cooperation designed to make the financial markets 2019 that we set out last year. As you can see, with the strong results today, we are making good progress against the various measures and we remain focused on achieving these results. And finally, turning to Slide 19. In summary, This is another strong financial performance from the group with growth across all business areas. Our strategic ambition remains the same to deliver best in class capabilities, drive global growth, and deliver our customer partnership approach. We are well positioned as a global financial infrastructure business, providing clinical services to clients around the world. And we continue to see multiple opportunities for growth, capitalizing on global investment trends, clearing and post trade risk management and an evolving regulatory landscape. Going forward, we are in a strong position as we continue to execute on our strategy invest for further growth and deliver value for our shareholders. And with that, I want to thank you for your time this morning, and Paul High will be pleased to take any 1 on your telephone and wait for your name to be announced. So once again, that's star 1 on your telephone. Your first question today comes from the line of Anil Sharma from Morgan Stanley. Please go ahead. Good morning guys. Just a few questions, please. So, I'm just a little bit confused as to why net interest income at LCH would step down. So you're basically saying interest rates were a bit better in U. S. And counterparty has gone have either of those 2 things changed in Q3? Secondly, on for Z Russell, I just wonder if you could explain or give us a bit more color as to why the growth is a little bit below target on an organic constant currency basis. And then how should we think about the news from and self indexing yesterday. And then the final one on ADC queuing, I guess, 2 parts to it. Firstly, what reaction should we expect from Swap Clear in the face of increased competition? And secondly, when will Forex Clear launch a client clearing service? Thank you. Okay. You might as well remind me the last 2 as I go forward as I go through them. Look, I think with respect to NTI, if Paul wants to add any, technical points to this, he can. But I think we have seen, an increase in NCI and if you look at it sequentially, you can kind of see how it builds against the prior, against the prior quarters. What we had in the U S, and I think you're alluding to it in your question, was we did have, a rise in in U. S. Yields in anticipation of, the moves that the fed has made. Those are already sort of in the market. So as we move forward, we wouldn't expect to see a continuation of that a continuing increase in that in those U. S. Dollar yields. Anything to add to that, Paul? No, I think that's right, David. I mean, we saw $7,000,000 a half lift from Q1 Q2 in the NTI line, and it is due to the anticipation of the US changes in May, if we said. So we still expect NTIC strong, so there's no mistake about that, $38,000,000 in the 1st quarter was quite an uplift on where we were over the last couple of quarters before that. So we expect strong NTI performance going ahead. We're just cautioning that what we saw in Q2 was an outperformance. And therefore, if we don't see any similar factors in the market during the rest of the year, we can't expect to see quite the same level of growth. That's what we're saying on that. Okay. But sort of some obviously in Q1 and the Q2 run rate is the right way to think about it, not a Q1 run rate? On the, on the comments I was making, just on the call earlier, I said you Q1, I think, is the run rate. And that's pretty strong. Okay. Thanks. I think the second question was on Pritzy Russell. And, look, I think the important point, and as in terms of asset relates to the guidance we've given is there was 19% reported growth in that business. I think when you look at that business and you look at the long term growth of that business that is delivered, and the long term growth prospects of that business, we still feel very confident in the double digit growth in that business. The moves from period to period are always going to have some variability, but it was a good performance by FTSE strong increases in ETF and 50 is a global business. So we will have FX movements, in the underlying, in the underlying growth. I think your third question was around swap Clear? Yes. So we noticed in self index. Oh, self index. Yeah. Okay. Sorry. Self indexing. Yeah. So self indexing, and, we have definitely had this question before. So it's it's nothing that's really new. Self indexing has been around for a while, I think as I've said before, But it's never really gotten more than sort of 5% traction in the market. I think there's a reason for that. I think we will see continued use of self indexing by some funds. And I think it does work for a limited range of products. Some of these indices are easier to create and replicate yourself. But I think if we look at the business overall, the asset management business overall, and where they need to go in terms of their own growth and their own performance, they need the index businesses because a lot of what they're looking for now particularly as they get more into smart beta factor analysis. They're looking for more of a spoken disease And they look for the index business who have the scale, who have the the IP, who have the brand, who have the research, and importantly have the governance. I think it will always be there. But again, I think we're focused on the core business. The value we add, to the asset management world in general and continuing to drive that growth. And the next question was on the last question was on the OTC clearing. I think I have 2 parts to that. Firstly, what we've seen from Deutsche Borse. Yeah. I think on the Deutsche Brosa. I am, you know, obviously, there was some there was some, there was some press this week with respect to the actions taken by Deutsche Bank. I think the important point that I would make today, on on Euro Clearing, is that LTC LCH has really gone from strength to strength. You can see the growth in our business this year. We have seen good growth in clearing, both in client clearing, but also, I think, continued increases for members. LCH is the leading OTC CLEAR. LCH has 21 different currencies over 59 jurisdictions. We operate across the entire curve, and we operate in cooperative regulatory arrangement. And the important point here, as you know, is the customers really need access to this global liquidity pool. And so it's never they don't want fragmentation, and it's never going to be just about one currency and one product and one part of the curve. So I think our focus is may is continuing to maintain the leadership that we have in OTC clearing by providing our global customers the maximum opportunities that they can have for capital efficiencies in compression and netting and also continuing to innovate and deliver new services. And I think, and then finally your question, if we've called all of them, was on client sharing on the FX side. And we talked when we talked about forest there. We said this is obviously a business that's growing quickly. We've got new developments coming through. We've listed some of those deepened in MDS were launched at the end of last year, so they're beginning to grow. The FX options clearing only just on live. And then we've also mentioned, client clearing will come online, and then we've also got compression services to some extent. Coming through. So current cone is just one in the mix of different, products coming through that we expect to fuel the price unclear margin rules is clearly a a driver of that. Okay. So one one more client hearing start? I don't think we put a a date on on that. Okay. Alright. Thank you. It's helpful. Okay. So go to our next question. Thank you. Our next question comes from the line of Philip Middleton from Merrill Lynch. Please go ahead. Almost everybody's questions has been asked, but just a couple of other ones. Could you tell us please how much of revenues in, Footsie Russell came from licenses in the, first half because I think I know that number has been going up post the Citi acquisition. And, and secondly, on, on the FX client clearing, If you look at the IRS market, it looks to me like client clearance about half of the volumes. Do you think that's achievable in FX as well? Philip. Look, I think on the first one, I don't think we, I think in the past, I don't think we've we've broken down, the differences in terms of of revenue between, between subscriptions and, and licenses. But what has happened is that we are still maintaining good growth. Obviously, license fees license licensing type of revenue has gone up in terms of given the increase in ETF activity that we've seen But we're still basically in the same split of about 60%, 65% on subscription based and about and the rest on on the licensing fees. So that's not changing. And again, the ETF part of that remains a smaller part of the licensing part. But probably maybe that's tipped up a little bit. But again, we don't really break it down, because I think the strength of our business is that that revenue model is quite diverse. Around strong data subscription revenue recurring and more of the volume and market based revenue On the FX client clearing, obviously, we do expect it to come, obviously, I think we've we've also said in the past that we, we do see some parallels in terms of how FX will grow and evolve as it compares to Swapclear, clearly, clearly, a completely different product. But we do expect client clearance to come. But at this point in time, what is not in a place where we can really, judge how it will actually come in when and on what pace. So all we can really say right now is it's part of what we see as a strong potential for continued growth, in the FX business. If I could just add something to your question, I mean, what is significant about FX options, what is significant about FX clearing and we're reporting in this half is the introduction of the of the options clearing, because that is going to allow us to get into a much broader part, a much bigger part of the market, that we've always known as out there, but it's we know it requires a settlement solution, and we now have that. So again, I think it's just part of a broader growth story that we see in terms of confidence in the growth of the FX business. Okay. Thank you. Thank you. Our next question comes from the line of Owen Jones from Citigroup. Please go ahead. Hi. Good morning. Thank you, and, and welcome to David to your first analyst call. A couple of questions, please. In terms of LCH, if we look across the activity metrics for the first half, you reported pretty strong growth, but the, the average cash flow balance and let's reduce very slightly. So just be keen to understand that dynamic a little bit because, obviously, that will have an effect on your NTI for the 2nd half. In terms of your Brexit planning, is there any update that you can give us in terms of how you're thinking and feeling about Brexit? I noted your comments about the approval planning and the licensing planning. You didn't mention anything about LCH SA potentially changing its regulatory approvals, perhaps from a product perspective. Is that how we should now be thinking about your your planning perhaps from an IRS perspective. And finally, I bought it to Taliana. If you look at the terminal numbers, they have quite a sharp step down during the period. Just keen to understand what's happening there. Thank you. Okay. Why don't I tell you what, I'll answer the I'll take the one on Brexit No, I think there was some detail on collateral balances and, terminals at Foresa. And I might look to Paul for or for some detail on that. I think as it relates to as it relates to, as it relates to Brexit, I think as in general as a business, and as we've said before, we are well positioned globally, and we're well positioned for any outcome But I think, also importantly, we're taking steps, to support, you know, in, in, in close discussion with, a range of stakeholders, politicians, regulators, industry, and this includes our customers. And the steps that we've taken now in terms of contingency planning, I spoke to, on the call already, We have taken steps, in terms of LCH limited and that it will apply for, 3rd country in their recognition, as a CCP ended SA and CCMG. Will apply to the Bank of England, for recognition. What this is doing, is basically making the necessary, taking the necessary steps and in terms of contingency planning so that we can support the current model, which is what customers want. Customers want, a continuation of the clearing services that we offer globally, and we're taking steps to be prepared for, for those actions. Okay. So I'll comment on the, the collateral balances that LCH are in. You're right. Here at the period, there wasn't a big change we have actually seen within the quarters a bit more movement. There certainly has been a step up in the average cash bilateral increase in second quarter, for instance, by some, by 1,000,000,000 or so. So it is one of the drivers of the treasury line, but in in addition to that, you know, and the positive comments that we made around the NCI performance, that's one of the drivers, but also, you know, some of the return is generated by replacing the investments with the different counterparties and the change in the the rates environment as well. So, yeah, it's strong. We thought we can't tell you from period to period how much is going to change in advance. And then your other question was around the Italian terminal numbers. They have come down, as you say, is the typical revenue take on a professional use of Italian market data typically has been about just one third of the take from professional terminal in UK data. So the effects on revenue aren't as marked. You've got a smaller concentration of users in Italy overall. So if, you know, particular bank, for instance, decides it's good to stop. Distribution of certain terminals or access that has an effect, but there's nothing, more underlying to the numbers than that. Okay. Thank you. Just a very quick follow-up on on David's comments, if that's okay. My interpretation of what you said in terms of the client demands for things staying as they are? Does that mean that you're not going to look to use LCHSA, to a greater extent under a Brexit scenario from a product perspective? I think what I'm what I'm saying is what the customers want is for, for the existing services to remain the same. They want they want to they want to avoid fragmentation. I think the one thing I would highlight, as it relates to, to LCHSA, is we definitely have seen, an increase in the amount of repos that are clearing at, at SA. Between London, we offer repo clearing, at limited NSA, We cleared about €100,000,000,000,000 in the half. But, what we are doing is this is now we are able now to clear, not just French, Spanish and Italian, bonds in, in SA, but we're now able to clear German and Belgian bonds. And so customers have the choice, and many customers now are moving, their their clearing activity and repos to LCHSA They have the choice to do that. And what they're being what they're able to do is to be able to get the benefits of, netting on their T2S by doing that. So we expect that, those shifts will continue, as customers continue to move to SA for the fur, for the further netting benefits that they can get under T2S. So obviously repos are quite different than swaps But this is an area where, where we are really working with customer preferences to, build out the offering that we have within LCHSA as it relates to repo clearing. Next question please. The next question comes from the line of Kyle Voigt of KBW. Please ask your question. Hi. Good morning. Maybe just another follow-up on Forte Russell. I I think you disclosed organic constant currency growth of 11% for the first quarter. And now 9% for the first half, if that would buy something closer to 7% for 2Q. Just wondering what caused this slight deceleration in growth sequentially? Was it primarily lower exchange trade derivative activity or was there something else going on there? It was a number of factors. I mean, currency effects are still part of that as well. But I think there were a couple of specific points with that I'll let Park comment on. Yeah. Good morning, Carl. I think if you look sequentially at the, pretty muscle index revenues. We had GBP 150,000,000 of revenues in the first quarter, GBP 159,000,000 in the second quarter. So actually sequentially, we've seen a pickup from Q1 to Q2, something like the 6% increase. I think, currency contributed our 2%. So about 4% of underlying growth there from quarter to quarter. So it's quite strong. Q2 on Q2 last year, it's against a stronger comparator. So it just looked quite as strong. Okay. Barry, I was just talking about the year on year comparison, I guess, the first quarter was strong growth. And then, that kind of tapered off a little bit in the second quarter, but Understood. And then I guess just another follow-up on the the Fidelity, South Bay Nixin, and and the 0 fee offering. Is there any way to help us frame the percentage of the ETF based fees that you generate that are driven kind of wider market cap rate indices versus some of the others like fundamental or smart beta? We don't break it out in that level of detail. I think if we think about the revenue mix, and we have, say, 35%, 40% of, of, our overall revenues in, but you also would have come from, or a 81 driven license fees. About 20% of that, are ETFs. So it's a smaller part. It's a it's a part of the the overall license revenues, but we haven't broken out in any further granularity as it relates to the different types of, of indexes that are, that are part of those ETFs. Okay. All right. Fair enough. And then last one for me, I guess, is just in the turquoise business. You highlighted the success in the plato block discovery in the quarter. Clearly, we're seeing that coming through the volume data. But we are calculating some deterioration with Trecroy's revenue year on year. Can you just talk about some of the headwinds you're facing? The rest of that business right now, outside of Block Discovery? And whether you expect that to persist near term? Well, I think I think you have to understand the H1 performance, in the context of the implementation of MiFID II, and the fact that the regulations are still evolving And the fact that there was, you know, a 3 month delay, in terms of the, the the full disclosures on, on volume caps. So I think that's a big part of the H1 performance. I think what I would say generally about MidFID is it's, you know, customers, we had it, we managed a good transition, but customers are still very much adapting to the regulation. So I would I think there are a number of factors that contribute to the performance for H1. But again, I think a lot of those are relating to customers continuing to adjust, but I don't think we really are seeing what the true patterns will be going forward. Thank you. Your next question comes from the line of Arnaud Giblat from Exane. Please go ahead. Yes. Good morning. First question is on for 2 vessels, sorry to continue on this, but organic revenues up 9 percent AUM up 22% year on year. And you mentioned that 50%, 65% of revenues were coming from, with subscription based and and that that has shown progress. Therefore, I can I can infer from that that you've seen such a material pricing pressure on the asset based revenues? Is that something that you can confirm? And how how does the outlook, what's the outlook there? Because, I I I would have thought that with, with the high football of a of a of a hearing coming from Smart Beta. Presumably, the pricing is is more stable there. Do you think that pricing can stabilize over time? And, My second question was, in in relation to to the 3rd party application, on on the IMEI license for for LCH, how confident can you be, on that given, given all that, all the political pressure on third party recognition, from coming from Europe and the real political willingness of trying to repatriate your interest rates or clearing back into for Euro based declines back into Europe? Thank you. Yes. Thanks, Arna. Let me take your second question first. I think I would ask you to probably some technical points on the first one. And I think when we come to the answer for the first question, there's just I think there are a number of points that we some of the question implies a level of detail that we just don't disclose, but I'll let Paul follow-up on that. I think with respect to, our overall planning, as it relates to, as it relates to Brexit. First of all, I think the point I would make, as I made before, is we're not in a position to predict the outcome of the negotiations and, we haven't been given sort of regular commentary on the process. But I think importantly, we continue to remain very actively engaged across the range of stakeholders, political, regulatory and industry. I think what we have done, as you, I think, as customers would expect us to do, is taking the necessary steps to make sure that we're preparing, for the range of outcomes And so, you know, that is, that is what we had done. We were in the process, as I said, of making the application, for recognition of LCH Limited as a 3rd country near recognized CCP. And similarly with the Bank of England, the same type of application for recognition with the Bank of England. Those are the steps we've taken. We're working on, you know, pushing, pulling those steps through. But as to the outcome, I'm just, it's I'm not going to be a it's not, I'm not in a position to speculate on it. We just continue to remain very, remain very actively engaged, to make sure that our contingency plans, that will again support kind of continued operation of the markets today, can continue. So Paul, on the first question, Yes. So going back to the Putsi Russell. So where we were at the end of last year, David has already said, is around 60% or so of the revenues came from subscriptions. That has increased a bit because we've had a full 6 months of the the yield curve from 55 income, I think most of which revenue is more subscription in nature. So that kind of pushes us more towards the 55% end. But that doesn't mean to say that the revenue therefore we get from the asset base has shrunk. It hasn't because the overall pie is growing. We've talked about the headline growth in pursuit of is doing up 19%. So the asset based revenues, that remaining 35% or so. We've made up of 3 areas. ETFs, about half of it, as we've said before, the non ETF passive or tracker type instruments is in there. And then the revenue that we get from the index derivatives trading is the other component part. When I look at the numbers and the only point is that we don't discreetly split these out each quarter publicly, But when I looked at those numbers, the ETF component part of that has grown year on year. So we saw a 22 percent increase in the ETF AUM. It hasn't grown by 22%, but it's a person going in double digit terms. And the reason why it hasn't grown exactly in bank percentage amounts is for the reason we've talked before, whereas the basis point take is the driver of the revenue there. But it isn't a direct linear link because there's some, yeah, minimum fees, there's some maximum fees, if there is, according to which kind of ETF products it is. But I'm absolutely sure that the quality of the growth line in the ETF is increasing. And you're right, I don't know, you make more money in some of the areas, some of the ETF products where you've got more higher added value, if you like the compresses, the data, the calculations, against some of the other products. And that's just normal pricing policy, whether you're providing more value, it's harder to produce the product. To tell us more for that. So there's nothing really changing in that mix term. So everything is pretty much as we talked about in terms of the revenue mix and the quality of that mix. And the ETF components of that is and has grown over that that time period. Great. Thank you. Very helpful. Thank you. Your next question comes from the line of Chris Turner from Berenberg. Please go ahead. Yes. Good morning. It's Chris Turner from Berenberg. Just two questions from me, if I may. Firstly, on your costs, I think you mentioned the creation of 200 roles in Romania. As you transition costs over to that location, presumably, it becomes possible to remove some of the dual running costs costs, there. How should we think about the potential benefit from that in maybe H2 or maybe 2019? And then secondly, regarding the launch of clearing of non deliverable swaps and also FX options, I guess, obviously, both of those products are deliverable. So you've had to work with CLS. Explain a little bit about how the economics of these products will work? Will there be a revenue share or some kind of rebate to CLS? And then finally, I guess, related to that, given the pace at which you are, sorry, the pace at which the unpaid margin rules are going to roll out, do you have any plans to launch any other deliverable products, at Exforward, have swaps and so on. Thank you. Okay. Thanks, Chris. On the first question, I think I think we are continuing, as we said, we are continuing to invest in the build out of the business service center in Romania. But we're and it's across a range of further investments we're making for, for further operational efficiencies So there is some dual running, in this year. And that's one of part of one of the it's one of the reasons that we're talking about increased in terms of the phasing of our spending, why we talked about some increased costs in the second half of the year as against the first. But, we do expect, and the whole plan is obviously to move a number of our core operations in and corporate operations and in IT, to lower cost centers. So there will be a benefit that will come but that benefit comes more in 2019, following the build out of that center this year. So And I think with respect to the question you asked on the clearing and FX options, We do have a good partnership with CLS, but we are not we don't disclose the details of that arrangement. But obviously we're quite happy with the engagement and very pleased with the product that we've developed with CLS over a period of over a period of years. And in terms of further innovation within slot Clear, and the further, the further application of the uncleared margin rules. It's definitely something that is in our planning. It is part of if I go back to an answer I gave to an earlier question, it is part of the range of reasons why we believe that there there are really good strong growth prospects for FX Clear overall. I'm not going to talk about any specific plans right now for new products. But as you would expect, there are a number of different activities and different services that we're working on. Move the next question please. Thank you. Our next question comes from the line of Khosita Campbell from JP Morgan. Please go ahead. Hi. Good morning. Yeah. It's Gertrude here. Just in terms of, your sort of relationship with the the next group see now part of CMC CME in the US. What's the sort of relationship there? Now are you looking at building out your own proposition within in areas such as the, compression services, etcetera, or is it sort of business as usual? That's the first question. And then just second one on the OTC derivatives clearing. In CVS Clear And Forex Clear, what's the, sort of pricing strategy there? Is it sort of similar to what you have in Swap Clear or we know do clients get some sort of benefit if they use a combination of, more than one service? Right. Thank you. So in terms of next, it is it is really continues to be business as usual. We continue to operate a range of optimization services, with LCH. Obviously, a big part of that are the compression services that LCH operates. But there are other third party optimization services, obviously, including nex. And right now, it just continues to operate as it's as it's operated. And I would expect that customer preferences, exist today for the types of services that we're providing, and you would expect customer preferences would be a a big part of, of how the provision of those services will work going forward. But that's really all I can say right now, is that we just it's functioning as it is always function providing, value from a range of optimization services. With respect to the pricing and pricing structures and some of the other OTC asset classes, they operate, as it relates to the members, they operate, quite similar to, not identical, but quite similar to to the, to the IRS business in that there's a member fee, and there is some revenue sharing arrangements. I think in terms of the further detail, Paul, we're not we haven't given that in the past, and I don't think we are saying more today? No, look, the prices are all on the website. So the prices are very transparent, but you're quite scared about whether there's any discounts. So if you've got members using more than one service, they're not they're all separately priced and etcetera. Great. Thanks very much. Thank you. Your next question comes from the line of Johannes Forman from HSBC. Please go ahead. Good morning, everybody, on the Sovereign HPC. Three questions and follow ups, probably. First of all, on net treasury income. Can you break down the, cash collateral by currency and and also say how much, duration do you have on your, fixed on your portfolio for that business? Secondly, previously, some years ago, we still had a breakdown in the OTC fees between swap clear and a fixed clear if the share is still 8020 or has this moved? And what has been driving this the biggest growth driver in in LCH revenues have been actually other fees. What has been driving this fee income growth over the past years? And last but not least, what had how much is the decline in other costs, driven by organic means or what has been driving this? Yeah. I think in terms of if I kind of go from in reverse order, if I take the cost story at LCH, That is really around, control of core operating expenses, and a lot of the investment in terms of project spending, that, that we had, we had been making in the past years as we were bringing out a lot of new products and services some of that increased investment, although we'll continue to invest for growth, some of that increased investment has started to, to tail off as a number of these new products, as an example, options clearing, is now coming into service. So that's an important part of what's really happening there is just continuing to find efficiencies, in LCH, as part of the whole broader program, the finding of cost efficiencies within the London Stock Exchange Group broadly. On the other, I'll just I mean, I'll pass it to you Paul, but I think in other What we record in other income within LCH is our fees around compression services, and that's a, that's a service that's been growing strong. Yeah. So, yeah, Hans, when you look at the breakdown of both the revenues and then also the income, you've got 2 other categories in the other income category where we didn't have any income this year against 7,000,000 last year. That's really come about just by the changing way, which we've accounted for what will cost the sales there for the LIBOR data fees, and then we tested it off. So that's the reason for the change there. So you'll see a reduction in the income. When we look at the other revenue line, that's gone up from 29,000,000 to 40,000,000, and there's several component parts of that, but the 2 largest parts of that other revenue line are the non cash collateral and the compression fees, and both of those have increased over the period. We don't give any further split out. And there are also some other services and some other lines that are caught in there as well that have also going up, that just don't neatly fall into the clearing revenue lines. So that's the reason that, that underlies the increase in that area. We don't split out and I'm done for a couple of years now. The revenue between software service, the FX service, and the CDS 1. But broadly your split of, you know, eightytwenty in favor of the swap their service still holds. The biggest driver of the of the swap cleared service has been in this period as it has been in the last year or so. It's been the big increase in the amount of client clearing. That's what's really continuing to drive in that clearing line as well as obviously compression and other things out here elsewhere. No. I think your other question, your first question was on the cash collateral on the breakdown by currency. We haven't given, an exact split on that, but broadly, if you think about the split between the the currency of the swaps with over half of that being dollar denominated, 25% to 30% of it being euro and the rest Sterling and other. That's broadly the split in terms of the cash margin as well. So the majority of the NCI is driven by the returns on the US cash component. And that's where we've obviously seen the change in interest rate environment. And whether there's been more scope to make, stronger returns. The average duration that you talk about, you know, a high proportion of it has to be on very short term duration, the nature of, you know, having the cash on effectively available on very short turnaround is still clear. But where we are able to go out on the longer term. And typically, I think the average period is about just over 30 days, but some of the money can obviously go out on for a longer time period. But That's a relatively smaller amount. Okay. Thank you. We have another question from Martin Price from Credit Suisse. Please go ahead. Good morning. Just a quick question on, LCH. I think the revenue share agreements with banks that apply to parts of the AGC clearing business for renegotiation this year. I was just wondering if you could provide some thoughts on where you are in that process and perhaps when we should expect to hear something on the the outcome. Thank you. So, so we have, we have in the past, really not given any detail. These are obviously, the operating agreements have there and they've been there. But we have not given detail in terms of those agreements, they are confidential agreements between the banks and LCH. So it's not something we can provide any any further clarity on today. And I think just have to leave it at that. Would it be fair to assume that there there has to be new contracts in place for the next year they do? I think what we've said is they come up for renewal periods at various points in time. And so I think what we have, if you see what we've done in the past, When when we have reached a new agreement, we've been able to, give some further closures as to what that is. And within the balance of the confidentiality, give some clarity about what the changes are. So I think what I would say at this point is we continue to proceed on that basis. And these contracts do come up for various renewal periods. But there's really not much more I can say at this point in time because they do remain a confidential agreement. Understood. Thanks, David. Thank you. Well, I think then that we've run out of questions finally. We've gone through the hour mark as well. So it sounds like a pretty good place to stop. So thank you for joining the call. Thank you for your questions. And I'm sure we'll catch up with a large number of you. Over the next 2 days weeks. So thank you very much for signing off. Bye. That does conclude the conference for today. Thank you all for participating. You may now disconnect.