Source: London Stock Exchange
Interim Management Statement for the period to 19 October 2016, including revenues and KPIs for the three months ended 30 September 2016 (Q3).
• Continued good growth: Q3 total income from continuing operations (excluding assets sold / held for sale) up 19% to £414.6 million and rose 14% year-to-date to £1,200.4 million
• Q3 revenues from continuing operations up 15% to £376.2 million; up 11% for 9 months year-to-date at £1,098.1 million
• Reflecting strong resilience and diversified range of business, all core divisions delivering good growth despite a backdrop of testing markets and economic uncertainty
• Focus remains on completion of the merger with Deutsche Börse, creating a leading global markets infrastructure group - shareholder approvals achieved and work continues to secure regulatory consents
• Capital Markets revenues up 16% (up 8% at constant currency), with growth in both primary and secondary markets despite volatile markets; Turquoise continues to trade well, with strong growth in the Block Discovery service (including a record month in September)
• LCH income increased 29% (up 18% at constant currency), with 21% revenue growth in OTC from higher SwapClear client trades; good volume growth also in CDSClear and ForexClear
• Post Trade Services (Italy) income up 23% (up 5% at constant currency) -increased settlement and custody revenues, together with increased net treasury income, offsetting lower clearing revenue
• Information Services revenues up 13% (up 3% on organic and constant currency basis) - underlying growth at FTSE Russell impacted in part by market-related weakness (ETF AUM/passive fund revenues lag recovery in market and derivatives contracts down versus high levels in volatile markets last year), and by one-off accounting adjustments. Improvement is expected in Q4 as values have increased and confidence remains in the many continuing positive market trends and opportunities to drive further good growth
• Technology Services revenues up 5% (up 4% at constant currency)
Investment continues in a wide range of growth opportunities, with notable developments in the period:
• CurveGlobal, an open access interest rate derivatives venture, launched in partnership with major dealer banks and CBOE - providing customers with the opportunity to gain efficiencies through the LCH Spider portfolio margining service
• Turquoise Plato platform launched with buy side and sell side partners - using the successful “large in scale” Block Discovery platform
• LCH received recognition as a designated central counterparty in Hong Kong for SwapClear and ForexClear to clear certain OTC interest rate derivatives in HKD or one of the G4 currencies (USD, EUR, GBP and JPY)
• MillenniumIT equities and fixed income trading and surveillance technology went live at Casablanca Stock Exchange; MillenniumIT also showcased its new real time post trade technology capabilities
• Integration of the FTSE Russell index businesses is running ahead of plan
Organic growth is calculated in respect of businesses owned for at least the full 3 months in either period and so excludes Exactpro, Proquote, Russell Investment Management, SwapMatch and XTF Inc. The Group’s principal foreign exchange exposure arises from translating our European based euro and US based USD reporting businesses into sterling.
Commenting on performance in Q3, Xavier Rolet, Chief Executive, said:
“This is another good performance, delivering growth across our core businesses while continuing to invest in a wide range of opportunities to drive future returns.
“In line with our open access approach, we continue to partner with customers to drive innovation with both CurveGlobal and Turquoise Plato going live in September. In Post Trade, we continue to see good growth in OTC clearing across the SwapClear, CDSClear and ForexClear services. The integration of FTSE Russell is running ahead of schedule and the Information Services business is delivering good results. The Group is financially well positioned as we reduce operating leverage and further strengthen our balance sheet.
“We remain focused on achieving the necessary regulatory approvals to complete the merger with Deutsche Börse, creating a global markets infrastructure group, which we believe will generate significant value and benefits for customers and shareholders.”
Following normal course interim dividend and bond coupon payments, as well as ongoing investment in organic growth initiatives and integration, the Group’s financial position is broadly unchanged from that reported at 30 June 2016. As at 30 September, 2016, the Group had committed facility headroom of circa £780 million available for general corporate purposes, having drawn facilities to repay the £250 million Bond due on 7 July 2016.
The euro and US dollar both strengthened by 15% against sterling compared with the same period last year. To illustrate our exposure to movements in exchange rates, a €0.05 change in the average euro:sterling rate would have resulted in a change to continuing operations total income of c£6.5 million for Q3, while a US$0.05 move would have resulted in a c£3.5 million change.
Merger with Deutsche Börse
Following receipt of shareholder approvals, the Group has maintained its focus on achieving regulatory consents for the merger with Deutsche Börse. The European Commission concluded its initial competition review of the merger and announced that it opened a further (Phase II) process on 28 September 2016. At the same time, the Group announced that, in order to proactively address anti-trust concerns in relation to certain businesses, it intends to explore a potential sale of LCH SA, LCH Group Limited’s French-regulated operating subsidiary. The sale of this business would be conditional on the successful closing of the merger.
The Group is well positioned and continues executing on its successful growth strategy. All core parts of our business continue to perform well, despite testing market conditions. Investment remains ongoing on a wide range of initiatives, and the Group has successfully launched services to meet customer demands for innovative and efficient new products to drive future performance.