Good morning, and welcome to the London Stock Exchange Group Third Quarter Update, hosted by David Schwimmer, CEO, and Anna Manz, CFO. Anna will make some brief introductory remarks about our performance and will then open up to Q&A. There are two ways to ask the question. You can share one in writing by following the instructions on the webcast page. Alternatively, you can ask a question over the phone using the number provided in today's release. With that, let me hand over to Anna.
Thank you, and good morning. Let me start by welcoming Peregrine, our new Head of Investor Relations, on his first set of results. He brings a breadth of experience to our team, and I know he's really looking forward to meeting all of you if he hasn't already. It's been another quarter of strong performance and broad-based growth. We're making good progress to achieve our targets, and there's no change to any of our guidance. Our strategy is working, and the consistency of delivery in recent quarters demonstrates the strength of our business model. We're generating quality recurring revenues from a range of services that are valued by our customers. As Peregrine said, I'm going to pick out some of the highlights, and then we'll get straight into your questions. Firstly, on growth.
It's a strong and consistent story, with constant currency income up 7% once we've adjusted for the impact of the Russia-Ukraine conflict. Exactly in line with what we achieved in the first half. Although, the makeup of that growth was slightly different, and this talks to the strength of our business model across market conditions. Again, excluding the Russia-Ukraine impact, data and analytics grew 5.4%. In trading and banking, we delivered our third consecutive quarter of positive underlying growth, reflecting the progress that we've made in understanding our customers and servicing them better. Workspace rollout continues well, and in the quarter, Workspace for FX moved from beta test into full rollout. Our enterprise data business continues to deliver strong growth.
We recently became the first international vendor of real-time data for the Beijing Stock Exchange, and it's this breadth of data that underpins our leading position in real time. We continue to gain share in Pricing and Reference Services too, in part by leveraging the combination with FTSE Russell. We've maintained good growth in our Investment Solutions business. Adjusting for the one-time impact last year, index subscriptions grew at the same high single-digit growth rate seen in recent quarters. Our asset-based revenues were broadly flat despite a 14% market decline in asset values. Success here is built on innovation, and that continued in the third quarter with the launch of a fixed income version of the Russell 3000 index, the world's first bond index to mirror an equity benchmark.
We also continue to innovate in ESG, and we're on track to launch over 100 new ESG index products this year. As you know, revenue in Data & Analytics is not just about growth, it's about quality and visibility too. We're making great progress on ASV with underlying growth accelerating to 5.8%. A further improvement in the quarter and up nearly three percentage points from the time of acquisition. This acceleration has been driven by the investments we're making to improve our product offerings with stronger sales and better retention. We're executing better across the board, focusing on what data our customers need and how they want to consume it, then ensuring we do it in a streamlined, resilient and efficient way. There's still a lot of opportunity here. Moving to Capital Markets.
This grew 9% in Q3, a slight slowdown from the first half, reflecting lower market activity in the quarter. The largest driver was Tradeweb, which saw another quarter of double-digit growth, driven by market share gains and the electronification of the fixed income markets you've heard me talk about before. Elsewhere, we continue to drive change and innovate. In Q3, we moved our equity market surveillance tools to the cloud, and just last week, the LSE launched its voluntary carbon market, which will help projects that mitigate climate change to access capital. In post-trade, we saw growing demand in the quarter as we help customers manage their risk in an uncertain market environment. Our platform continues to attract new users, adding our first clearing member from Singapore in the quarter. Cash collateral at LCH reached an all-time high in September, driving net treasury income up 31%.
Let's turn briefly to the Refinitiv integration, where we remain firmly on track to meet our synergy targets. To give you a flavor, we've launched 16 synergy-related products in the quarter, including new fixed income analytics in Enterprise Data and rolling out new index tools via our desktop products. We've consolidated our offices in Singapore and Hong Kong, taking the number of properties exited since completion to 33. We're on target to migrate or decommission over 250 applications in 2022, more than 25% ahead of our original target. Turning to capital allocation. We continue to be active. We're investing organically, making good progress on initiatives such as our FX matching platform, with customers now able to build API connectivity. On M&A, the acquisition of Tora in the third quarter adds execution and order management capability to meet the demand from our trading users.
Competition authorities have provisionally cleared our acquisition of the Quantile capital optimization business, which we expect to close shortly. Finally, we've recently completed the first tranche of the GBP 750 million share buyback, with the next tranche due to start in December. To pull all of that together, our strong Q3 performance is the result of sustained execution of our longer-term strategy. We're making progress on all fronts, and at the same time, there's still more we can and will do. We continue to invest, and we remain well-positioned for further growth, with no change to our guidance or targets, a reflection of the strength of our business model across market conditions. Before we finish, I want to take a moment to recognize Paul Froud, who'll be leaving LSEG after 20 years as our head of investor relations.
In that time, the group has seen its market cap grow from GBP 1 billion to almost GBP 40, and Paul has weathered everything that that journey has entailed. He's a consummate professional, and all of you on this call will have benefited from him and his vast knowledge. On a personal note, Paul, I've really enjoyed and valued your friendship and your dry sense of humor, and we're all going to miss you. With that, David and I are happy to take your questions. Back to Peregrine.
We have a couple of written questions through already, so we'll take those first. The first one is around growth. How confident are you in your ability to continue to grow in the current environment, and should we expect to see a slowdown in some areas given some customer pressures?
Thanks, Peregrine. Before I jump in on the question, I also just wanna make a comment on Paul Froud. Great appreciation for his 20 years of service with LSEG. I've personally enjoyed working with him, and Paul, we wish you all the best. Thank you. Peregrine, to your question, we're really very well-positioned for an environment like this, and you can see that in the strong performance that we are talking about this morning. As we've talked about before, our business model is very well diversified across asset classes, across products, customers, geographies, currencies.
We do have about 70% recurring revenue across the business, and then the 30% or so of the business that is transactional tends to benefit from the volatility and the uncertainty in an environment like this, and whether we see that in LCH, Tradeweb, our FX business. Another point I should just touch on is that times like this, with the volatility, the uncertainty in the market, highlight the value of our products and our solutions to our customers. It's also worth mentioning that while this market is very, very difficult for some of our customers are also seeing actual benefits in this environment, such as the banks that are seeing the higher interest spreads.
I'll just finish by pointing you to our ASV growth, which has risen 40 basis points or so this quarter. It's now at 5.8%. Really shows the continuing growth momentum in our business.
Great. Thank you. Another written question on pricing. Given the moves that some of your competitors have made, can you give us some indication of your plans for price increases in D&A next year?
Anna, you wanna take that one?
Sure. We take price on the biggest chunk of our business, which is the subscription business in Data & Analytics, on January 1 every year. Our approach there is it's not a blanket increase 'cause we've got different customers on slightly different terms and different products we treat in different ways. When we take price, we take price in the context of our medium-term customer relationships. It's really important that we're consistently growing those relationships. Historically, our price increase has been about 2%. This year, in the context of both inflation, but also the significant investment that we've put in to improve our products over the last couple of years, we expect to take a little bit more than we've taken previously.
I would say, you know, just going back to that ASV point that David just made, I think we're really well-placed in that we've made significant investment in our products and in our customer relationships over the last 18 months since close. You really see that showing up in our strong ASV performance. We're going into this price increase cycle well-placed.
Thank you. We currently have no more written questions, so I'd like to hand over to the operator for questions over the phone, please.
If you would like to ask a question, please signal by pressing star one on your telephone keypad. As a reminder, participants can continue to submit questions in written format either via the webcast page by clicking the Ask a Question button or via email to the LSEG Investor Relations team at ir@lseg.com. We will pause for a moment to assemble the queue. We will take our first question from Michael Werner of UBS. Please go ahead.
Thank you for the opportunity to ask questions. In your Data & Analytics division, c an you explain the increase in the cost of sales? I think on a constant currency basis, it was around 9%, about twice what we saw in terms of revenue. I was just wondering if there's anything one-off in there, if there's anything related to acquisitions. Secondly, just to kind of get a little bit more color about the pricing. You know, can you just. You know, you provided some information about average pricing and Data & Analytics as a whole. Can you maybe focus that up within the Trading and Banking solutions business in terms of what you expect in terms of price increases next year? Ultimately, when should we expect or, you know, how do you expect that to flow through the P&L on the revenue side?
Is this something that on January 1, we should expect, you know, higher pricing to start coming through, or is this something that gets staggered throughout the year? Thank you very much.
Thanks, Michael. Anna, you wanna take this?
Yeah, sure. On the D&A cost of sales, one of the big impact that's coming through that you're observing is the impact of the M&A, which has about 150 BPS, little bit more impact. Beyond that, we've got various other moving pieces in there, but nothing specifically one-off in nature. Little bit lumpy as we see our cost of sales come through, but that's how I think about it. Nothing unusual or concerning. With respect to pricing, we take pricing across the whole subs business on January 1, and that includes Trading and Banking. You should see that start to flow through from the beginning of the year. In terms of the amount of price increase, the comments that I've made about our subs as a whole also applies to Trading and Banking.
Historically, we've taken on a realized basis about 2%. We'll be seeing, as I say, a little bit more in 2023. You'll see that flow through the ASV metric as at the end of the year, in that the ASV metric reflects the combination of pricing, growth sales, and retention.
Thank you.
The next question is from Philip Middleton of Bank of America. Please go ahead.
Good morning. First of all, as one of the few people here who's been around longer than Paul, I would also like to thank him for all he's done. Secondly, I know this is a revenue update, a revenue-focused update, but you have talked about your guidance, and obviously inflation is a valid topic at the moment. Could you say a little bit more about how you're thinking about cost inflation and how that may manifest over the next few years as you roll through your integration process?
Sure, Philip. Thank you. I'll turn it over to Anna in a second, but it is just worth pointing out that an inflationary environment like this, we actually see benefits across a number of different parts of the business. I touched on that a minute or two ago in terms of some of the uncertainty driven by the inflationary environment. We're certainly seeing the benefits of that in the trading businesses, particularly around interest rate swaps, particularly around some of the government bonds, and then, of course, also in FX. Some positive elements to an environment like this for us. Anna, over to you.
Sure. Absolutely, we have effectively reiterated everything we said at the half year today. You know, I remain very confident of our 5%-7% revenue growth target, and I remain very confident that we will exit 2023 with an EBITDA margin of greater than 50%. Specifically with respect to cost, our guidance for 2022 was low single digit organic cost growth, and we are in good shape on that and are reiterating that. You know, we're confident to do that because we are well-practiced at looking for efficiencies in our cost base and driving synergies. You know, while we are continuing to invest in all the areas we've already described to you in line with plan, we can manage the overarching situation to be confident of that low single digit growth.
I haven't been specific about 2023 just because it's a little bit too early, beyond saying that we're very confident of delivery of that margin target. Through a combination of price and cost, you know, we know where we'll end up. Exactly what the moving parts are at this point in time, I'm not gonna get into.
Thanks. That was very helpful.
Thanks, Philip.
The next line from Arnaud Giblat of BNP Exane. Please go ahead.
Yeah, good morning. I've got two questions, please. Firstly, could you talk about the NTI? I mean, that's benefited by a significant increase in collateral. I'm just wondering, with volatility continuing, perhaps the high levels of collateral are likely to stay for a few quarters, but where do you see that settling out in the longer term? My second question is related to capital allocation. I was wondering if you could share any further thoughts in terms of the possibility of a directed buyback next year and what the timings could be around that. Thank you.
Thanks, Arnaud. Anna, you wanna touch on NTI, and then I'll talk about directed buyback possibilities?
Sure. I'm smiling as I touch on NTI because I realize every time I say that NTI will probably decline in the subsequent quarter, I've been wrong so far, because market volatility has continued to be unexpectedly high. What I would say around NTI, with a really big caveat that I don't have a crystal ball, Q3 has been record level of volatility and therefore cash collateral, which has driven the very high NTI numbers that you see. Will that continue? It's likely to come down. Exactly how fast and when, I'm not sure. Certainly we have started Q4 continuing with high levels of cash collateral. That's a long way of me saying Q3 was more volatile than the first half. Will we see that level of volatility next quarter?
I'm not sure, but I should think, you know, you'd be fairly safe with the level of volatilities we saw in the first half. Just to, you know, remind you what drives NTI. Predominantly it's the quantum of cash collateral that's the driver because a big chunk of our NTI is fee-based, rather than margin-based, which is slightly different from some of our competitor set.
Arnaud, to your question on directed buyback. This is an available tool in the toolkit in the world of UK PLCs, but one point that we have touched on before, in order to make use of it, we would need shareholder authorization. We have not asked for that in the past, so you should not be surprised to see us asking for that as part of our AGM process in the spring. Hopefully that answers your question.
Great. If I may, I have a quick follow-up. Just on NTI. It's fee-based. With rates going up, and clients generally paying higher net interest margins than other markets or other companies, I'm just wondering if there's perhaps an opportunity here for some pricing increases.
We're certainly aware of the different business models at some of our competitors. I would say that we have a medium-term perspective with respect to our customer relationships, and we value those relationships. As Anna mentioned, there's a lot of thoughtful work going on in terms of what the right pricing is going forward, but nothing to comment on around that specifically right now.
Thank you.
The next question is from Haley Tam of Credit Suisse. Please go ahead.
Morning. Thank you very much for taking my questions. Can I ask a couple of, I suppose, follow-ups, really. Firstly, congratulations on the continued improvement in the ASV growth. Given the comments you've made about a little bit more price increase this year and the continued rollout of synergy-related products, should we expect this rate of improvement to accelerate in 2023? And do you actually have a specific target ASV growth rate in mind? And then the second question actually on Tradeweb. Are you able to give us a simple split of maybe the nine months of revenue growth which has come from market share and electronification, so we can get a handle on what that might be, excluding any volatility-related benefits? Thank you.
Thank you. Do you wanna touch on the first question, and then I'm happy not to answer the Tradeweb question, if I can put it that way.
Sure. So on ASV, I'm not going to give you a target, I'm afraid. What I would say is this. As we've said, looking forward to 2023, we expect our pricing to be a little bit higher than the levels we've taken previously. That will flow through to ASV and fairly immediately because, of course, that will be reflected in our books business as of the first of January. Now, otherwise, what you're going to see us do is more of the same. In a subscription revenue business, it's about consistently improving our customer relationships and our product offering to be consistently selling more and retaining our customers better. You know, you've seen that very steady trajectory quarter on quarter.
You'll see continued improvement, maybe not quite as fast as we've delivered in the early periods, because we've kind of tackled some of the low-hanging fruit. You should continue to see that quarter on quarter focus on continuing to drive those customer relationships.
Thanks, Anna. On the Tradeweb question, nothing that we're in a position to say about market share gains relative to continuing electronification of the sector. I'll refer you to the Tradeweb team's own disclosure, and feel free to raise any questions like that with them. What I would say is that we're very pleased with how the Tradeweb business continues to perform, the very strong underlying dynamics there, and also pleased to see how the executive team there is developing further, a very smooth transition from Lee to Billy, Tom Pluta coming in there, Sarah doing a great job. Very happy with Tradeweb on a go-forward basis.
Thank you.
Thank you.
The next one is from Ian White of Autonomous Research. Please go ahead.
Hi. Morning. Thanks for taking my questions. Just a few follow-ups from my side, please. First off, can I just ask for an update on the p rogress on the Workspace rollout and also the data platform migration. How's that progressing, please? How has it helped you so far to launch new products more rapidly, for example? I understand that was a limitation that the Refinitiv business had faced prior to the acquisition. How far through that process are we at this stage, please? Secondly, can I just ask for a bit more color on your thoughts on the outlook for the fixed income businesses, especially in light of more difficult market liquidity conditions?
How confident can we be that the sort of strong volumes that we're seeing in OTC rates and at Tradeweb will actually persist in light of sort of evidence of decreasing market depth and wider spreads, for example, over the next six months? Just lastly, on NTI, I hear what you're saying around collateral. The yields are a bit lower this quarter, it seems. Just wanted to check if you're doing anything different there or if that's just simply the output of market conditions and the rate rises that we've seen. Thank you.
Thank you. I'll touch on the first two, and then, Anna, if you wanna touch on the NTI yields. As Anna mentioned, the Workspace rollout continues to go well. Significant product difference in this quarter is that we moved from the beta version of Workspace for FX trading to the now regular commercial version. And that's going well. The rollout continues to go well. As we mentioned at the half year, we were a little bit ahead of schedule there and pleased with how that was going. We still do have a few more, I'll say a couple more years ahead of us in terms of the continued rollout.
By the end of this year, we expect to have at least beta versions of the remaining Workspace products coming out into the market. Looking forward to that. Data platform, we continue to make progress. Probably nothing specific to mention there, but in terms of products, we're adding content to Workspace. We've acquired Tora in this quarter, looking to integrate that into the broader business. We've made a number of other products available through Workspace, whether that relates to our fixed income analytics, whether it relates to some interesting things we're doing in a beta testing manner with our index product, et cetera. Good progress there, and we look forward to continuing to push forward on those fronts.
Your question on the outlook for the fixed income business, really hard for us to predict the future on this one. I would say, and we've said this in the past, uncertainty around interest rates, uncertainty around inflation, tends to be good for these businesses. We still see plenty of uncertainty in this environment. To be clear, as we've mentioned in the past, for us, it's not about the directionality of rates, but it's about the movement and the uncertainty that leads our customers to do a lot of repositioning. That's really about as specific as we can be on that. Anna, over to you on NTI yields.
Yeah, they are a little bit lower. No, we're not doing anything differently. That's just a reflection of the market environment.
Okay. Thank you.
Thank you.
The next one is from Kyle Voigt of KBW. Please go ahead.
Hi, good morning. Also just a follow-up for me on the cost of sales question earlier. Can you just remind us where the bulk of that line is coming from? I know OTC clearing and FTSE Russell are two large drivers, as well as some past on the recoveries. Is there anything else to note in terms of outsized drivers of that line? When we're thinking about the medium-term growth of that cost of sales line, is there any reason why the growth there should be higher than the growth that we see in LCH, OTC Clearing or FTSE Russell, for example? Thank you.
Sure. The big drivers of the cost of sales line are the ones that you've called out, so the revenue share in LCH, transaction volumes. The one that you didn't call out is the news agreement. The Reuters news agreement sits in that line in Data & Analytics. Those are the big drivers. In terms of the pace of growth of those drivers, you're absolutely right that we shouldn't see growth in the cost of sales line ahead of the revenue line in things like LCH. However, the nature of the revenue share agreement means that it's a little bit lumpy. In any given quarter, it can be a little bit distorted.
Over, you know, a 12-month basis, higher revenue is going to drive higher cost of sales, but we'll get outsized benefit on the value of the revenue and the nice leverage down the P&L.
Understood. Thank you.
Thanks, Kyle.
The next one is from Russell Quelch of Redburn. Please go ahead.
Yeah, good morning. Just a couple of questions. Firstly, one relating to the operating performance in Investment Solutions.
Can you provide some color on how you delivered flat year-over-year asset base revenue growth in a period where markets fell? Wondering if that is the result of flows into new products. Secondly, just stepping away from the operational performance of the business, just wanted to ask regarding the timing of a potential placing of the Blackstone stake. Am I right to suggest that even though the lock-up expires in January, that they're actually unable to place stock until after the full year results in March as they're insiders? Can I also clarify, are Blackstone able to sell when you're doing your buyback in the open market? Thanks.
Thank you. Anna, why don't you take the first question, and I'll answer the second.
Yeah. You're absolutely right. AUM growth has been flat in a market where we've seen declines. A couple of factors there. Firstly, we have some caps and collars around our AUM structures, so that we don't see the full benefit on the upside, but we're also protected on the downside. Separately, secondly, to your point, we've outperformed the market because we have seen some quite significant inflows in the period, and that has offset, in part, the market movement. You know, we're pleased with the progress we're making on actually rolling out new product and the inflows that we're getting with it.
Thanks, Anna. To your question on Blackstone and timing, we're not in a position to comment on anything specific around timing, other than the first tranche of the lock-up expires at the end of January. Beyond that, there's really an element of this that's up to Blackstone. On your second part of that question, with respect to the buyback, they are able to participate proportionately in the buyback. Just to put some numbers around that, the buyback that we have completed in the first tranche was about GBP 230 million or so. They have about a third of our stake. You should assume that they participated about a third of that.
Okay. Yeah. Sorry, can I just follow up on those two then? Anna, can you just give a bit more detail as to where particularly new product rollout has come and where the flows have come? David, can I just clarify, so Blackstone aren't able to sell until March because they're insiders, given their positions on the board. Is that right?
We're seeing some quite nice inflows across the board, actually, across our customer base, and across the new product that we're launching. I wouldn't sort of point it to any one specific area. I quite like that, in that broad-based performance is good. Yeah, nothing specifically to call out that's driving that beyond we're launching a lot more product than we have done historically. I think we've talked about that before. I think we've actually said that the pace at which we're rolling out new product this year is, you know, we've already rolled out at the half year kind of more than we had in the last prior years. We're seeing that what's coming with that is that slowly we're seeing the assets follow it effectively.
On your second question, it's true that Blackstone is an insider, given the position on the board. You can take the conclusions from that in terms of of timing with respect to our full year results in early March. We're not going to get into a practice of being drawn on specific timing around what Blackstone is gonna be doing.
Yeah. Good. Thanks. Yeah, appreciate that. Thank you.
Great.
The next one is from Enrico Bolzoni of JP Morgan. Please go ahead.
Hi. Good morning. Actually, my question has been asked, so thank you. I'm gonna pass.
Okay.
The next one is from Ben Hurst of RBCCM. Please go ahead.
Morning, all. I've got two questions, if I may. Firstly, on Post Trade, just to follow up on the collateral level, could you perhaps give an indication of what the level was as you exited the quarter? Because I think the EUR 151 billion was the average for Q3. Then secondly, on geographical split, thanks for the color on the Beijing deal. In H1 you showed, I think, 15% of income coming from Asia. I wondered if you could just share roughly what proportion of that comes from China as it stands. Thank you.
Do you wanna take this?
On the Post Trade collection level, I don't have the exact number off the top of my head, but I want to say it was in the region of GBP 120, so down from the GBP 150. We'll come back to you precisely on that.
On the second question, we don't break out revenue by particular countries, so nothing to add on the specifics around China.
Okay. Thank you.
The next one is from Johannes Thormann of HSBC. Please go ahead.
Hi. Thanks. Good morning. Johannes Thormann from HSBC. Just a follow-up question on your cost direction. We have previously seen in the half year results that cost of sales has been going up, like, in the low teens, now accelerating to the high twenties, but you were able to mitigate the other or the overall cost increase to basically being flat. Is this also happening in this quarter? We don't see the cost that the currency mix will also help or what else is behind it? How can you mitigate this big gap in the dollar move? Thank you.
Yeah. When we talk about cost of sales, we're talking about cost of sales on a constant currency basis. You're absolutely right, 48% of our cost overall is exposed to the dollar. We do see significant currency-driven volatility on the cost of sales side and also on the cost line. I guess the important piece is more of our revenue, so 57% of our revenue is exposed to the dollar. You know, in the current environment, although costs are going up, our revenue is going up even faster. Just to talk about cost of sales for a moment and maybe to help you with why it appears to have accelerated in Q3.
You know, firstly, in the first half, year-over-year, we were seeing better revenue growth, and that has driven our cost of sales. I'm talking now on a constant currency basis. If your question is why have we seen cost of sales then accelerate in the third quarter, versus that first half of the year, really it's two things. One is the fact that we've seen such a strong performance in SwapClear, because of the very, very volatile market conditions, and you've seen that flow through both the strong performance in SwapClear but also the NTI line. Of course we have a revenue share, and so that revenue share is reflected in the cost of sales. You've seen the upside in revenue.
The other reason you've seen cost of sales go up this quarter is because we're starting to see the impact of the new acquisitions. Their cost of sales effectively is starting to show up this quarter.
Okay. Understood. Thank you very much. Thank you to Paul for all his help. Much appreciated. Thank you.
Thanks, Johannes.
Thank you. There are no further questions on the conference line at the moment. I will now hand the presentation back to Peregrine Riviere, Group Head of Investor Relations.
Thank you very much. We actually have no more written questions submitted, so we can end the call here. Thank you very much for joining, and we look forward to seeing you soon.
Thank you all.
Thank you.