London Stock Exchange Group plc
Preliminary results for the year ended 31 December 2022
Broad-based growth and strong execution
David Schwimmer, CEO said:
“LSEG has had a strong year, successfully integrating Refinitiv and significantly improving its performance, while also delivering strong results in our Capital Markets and Post Trade businesses. The resilience of our business model and the quality of our earnings, diversified by customer, geography, product and asset class, and over 70% subscription-based, are becoming increasingly clear.
“Our strategy is working. We are an increasingly important strategic partner to customers across the financial markets value chain, and that is translating into growth. We continue to invest in new products and services, and have completed four highly complementary acquisitions to further strengthen our offer. In addition to our existing share buyback, we are today announcing plans to seek shareholder approval for a buyback directed towards the Blackstone/Thomson Reuters consortium’s stake, which will benefit all shareholders.
“We are shifting from integration to transformation. Our strategic partnership with Microsoft, as well as the investments we are making in our market-leading infrastructure and venues, will create an even stronger platform for long-term sustainable growth.”
| Reported | 2022 £m | 2021 £m | Variance % | Pro-Forma Constant Currency Variance (excluding deferred revenue adjustment) %¹ | |
| Total Income (excl. recoveries) | 7,428 | 6,211 | 19.6% | 5.7% | |
| Recoveries2 | 315 | 324 | (2.8%) | 2.3% | |
| Total Income (incl. recoveries) | 7,743 | 6,535 | 18.5% | 5.5% | |
| Reported | |||||
| Operating Profit | 1,417 | 1,065 | 33.1% | ||
| Profit Before Tax | 1,241 | 894 | 38.8% | ||
| Basic Earnings per Share | 141.8 | 85.8 | 65.3% | ||
| Dividends per Share | 107.0 | 95.0 | 12.6% | ||
| Adjusted | |||||
| EBITDA | 3,550 | 2,969 | 19.6% | 6.0% | |
| EBITDA Margin | 47.8% | 47.8% | |||
| Operating Profit | 2,728 | 2,282 | 19.5% | 4.6% | |
| Adjusted Earnings per Share | 317.8 | 272.4 | 16.7% |
Financial highlights
(all growth rates are expressed on a pro-forma constant currency basis, excluding the impact of the deferred revenue adjustment1, unless otherwise stated)
| â— | Full-year Total Income (excl. recoveries) up 5.7%, and up 6.6% excluding the impact of the Russia/Ukraine war3; up 19.6% on a reported basis |
| â— | Broad-based growth: Data & Analytics +4.2% (+5.3% ex Russia/Ukraine), Capital Markets +9.8%, Post Trade +7.5% |
| â— | Accelerating subscription revenue: Annual Subscription Value (ASV) up 6.2% (ex Russia/Ukraine) at December; 2022; further progress expected in 2023 |
| â— | Good cost control: opex +3.4% excluding the impact of acquisitions during the year |
| â— | Improving profitability: Adjusted EBITDA growth 6.0%, margin flat year-on-year, or up 110 basis points like-for-like4 |
| â— | Basic earnings per share growth +65.3% on a reported basis; AEPS +16.7% to 317.8 pence |
| â— | Continued strong cash generation: equity free cash flow (before dividends) £1.7 billion |
Strategic progress and outlook
| â— | Strong and consistent execution on Refinitiv integration: Trading & Banking returned to growth; target 2022 runrate synergies delivered for both revenue and costs; runrate revenue synergy target raised from £225 million to £350-400 million by 2025 |
| â— | From integration to transformation: strategic partnership with Microsoft for next generation of Workspace, innovative new solutions in modelling and analytics, and data platform in the cloud |
| â— | Active capital allocation towards growth: disposal of low-growth BETA business; four acquisitions completed in higher-growth areas, highly complementary to existing customer offering |
| â— | Significant shareholder returns: £300 million of £750 million buyback executed in 2022, balance to be completed by July 2023; full-year dividend +12.6% to 107.0 pence |
| â— | Seeking shareholder approval at the 2023 AGM for directed buyback from the Blackstone/Thomson Reuters consortium; expected to be up to £750 million by April 2024 |
| â— | New guidance for 2023: constant currency revenue growth +6-8%, Adjusted EBITDA margin c.48%, business-as-usual capex c. £750 million (including Microsoft) |
This release contains revenues, costs, earnings and key performance indicators (KPIs) for the twelve months ended 31 December 2022. FY 2022 is compared against FY 2021 on a statutory basis. Revenues and costs associated with the BETA divestment have been classed as discontinued and are excluded from all periods. Revenues and costs associated with the Borsa Italiana group divestment, which completed in 2021, are also excluded. Pro-forma constant currency variance assumes that the acquisition of Refinitiv took place on 1 January 2021 and is calculated on the basis of consistent FX rates applied across the current and prior year period. Organic growth is calculated on a constant currency basis, adjusting the results to remove disposals from the entirety of the current and prior year periods, and by including acquisitions from the date of acquisition with a comparable adjustment to the prior year. Within the financial information and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes.
1 The deferred revenue impact is a one-time, non-cash, negative revenue impact resulting from the accounting treatment of deferred revenue within Refinitiv’s accounts which has been re-evaluated upon acquisition by LSEG under purchase price accounting rules. This reduced 2021 revenue by £23 million, mainly in Data & Analytics, with a smaller impact in the FX business within Capital Markets. There is no material impact in 2022.
2 Recoveries mainly relate to fees for third-party content, such as exchange data, that is distributed directly to customers.
3 Growth rates excluding the Russia/Ukraine war impact have been calculated by excluding income in the region and from sanctioned customers and related business from both periods. This amounted to £80 million in 2021 and £18 million in Q1 2022, and nil beyond that.
4 The like-for-like margin calculation is on a constant currency pro-forma basis, and adjusts for the impact of the Russia/Ukraine war, acquisitions completed in 2022 and non-cash FX-related balance sheet adjustments. Adjusted EBITDA margin is adjusted EBITDA divided by Total Income (excl. recoveries).
Contacts: London Stock Exchange Group plc
Media:
Lucie Holloway / Rhiannon Davies
+44 (0)20 7797 1222
Investor relations:
Peregrine Riviere / Chris Turner
ir@lseg.com
Additional information can be found at www.lseg.com
Preliminary results investor and analyst presentation, webcast and conference call:
The Group will host a presentation and conference call on its Preliminary Results for analysts and institutional shareholders today at 10:00am (UK time) at its offices at 10 Paternoster Square, London EC4M 7LS. There will be a Q&A session at the end of the presentation for attendees and those dialling in to the conference call.
To access the conference call or webcast please register in advance using the following link and instructions below:
Conference call:
https://cossprereg.btci.com/prereg/key.process?key=P6U9PXVUM
Presentation slides can be viewed at http://www.lseg.com/investor-relations
The information in the preliminary announcement of the results for the year ended 31 December 2022, which was approved by the Board of Directors on 1 March 2023. This is unaudited and does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The financial statements for the year ended 31 December 2021 were filed with the Registrar of Companies, and the audit report was unqualified and contained no statements in respect of Sections 498 (2) and 498 (3) of the UK Companies Act 2006. The financial statements for the year ended 31 December 2022 will be approved and filed with the Registrar of Companies in due course.
In accordance with the Listing Rules of the UK Listing Authority, these preliminary results have been agreed with the Company’s auditors, Ernst &Young LLP, and the Directors have not been made aware of any likely modification to the auditor’s report to be included in the Group’s Annual Report and Accounts for the year ended 31 December 2022.
The preliminary results have been prepared on a basis consistent with the accounting policies set out in the Group’s Annual Report and Accounts for the year ended 31 December 2022.
Overview and strategic progress
2022 performance in summary
LSEG performed strongly in 2022, growing consistently throughout the year despite macroeconomic and geopolitical volatility. We achieved our growth guidance and made good progress towards our medium-term guidance for our EBITDA margin. We have continued to execute very well on the integration of Refinitiv, not only on the achievement of synergies but also on developing a distinct culture for the combined business. The strategic partnership with Microsoft, announced in December 2022, represents another significant step forward in transforming our business and the experience for customers.
Total income excluding recoveries rose 5.7% to £7,428 million, with good growth across all our divisions. Adjusting for the negative impact of the Russia/Ukraine war, growth was 6.6%, at the upper end of our 5-7% medium-term growth guidance. On a reported basis, total income excluding recoveries was up 19.6%, with the good underlying performance boosted by the consolidation of a full year of the Refinitiv acquisition (compared to 11 months in 2021) and beneficial foreign exchange movements. Annual Subscription Value (ASV) growth within Data & Analytics was 6.2% (excl. impact of the Russia/Ukraine war) at December 2022, and demonstrated an accelerating trend through the year.
Adjusted EBITDA increased by 6.0%. EBITDA margin was flat year-on-year at 47.8%. The like-for-like EBITDA margin improvement, adjusting for the negative impacts of the Russia/Ukraine war, acquisitions completed in 2022 and non-cash FX-related balance sheet adjustments, was 110 basis points. Operating expenses before depreciation, amortisation and impairment grew by 4.1% on a constant currency basis, or by 3.4% excluding acquisitions completed in-year. Operating profit grew 33.1% on a reported basis to £1,417 million, helped by foreign exchange movements and the extra month from Refinitiv.
Financial performance is analysed in full in the Financial Review section starting on page 10 of this release.
Progress on our strategic priorities
LSEG is a leading global financial markets infrastructure and data provider. We are leaders in data and analytics; capital formation and trade execution; and clearing and risk management. We are also increasingly differentiated, both through our presence across the financial markets value chain and our scale and capabilities across multiple asset classes, including equities, fixed income, foreign exchange and related derivatives.
Our businesses enjoy strong growth drivers, including the increasing application of new technologies to data for decision-making, the electronification of financial markets, the growing digitisation of broader financial services, the growth of cross-border trading and customer need for greater capital efficiency.
Our strategy to maximise these opportunities is to be globally essential, multi-asset class and seamlessly connected. To deliver this strategy, we remain focused on three strategic priorities: 1) integrating our world-class businesses; 2) driving growth; and 3) building an efficient and scalable platform, particularly in Data & Analytics. Our progress against these priorities, as well as an update on Workspace, is described below.
Workspace progress
We continue to make steady progress with the roll-out of Workspace across different user groups. At the year-end, we were more than halfway through, and expect to be substantially complete by the end of 2024. All other variants are now in full production apart from Trading, which is in beta testing, and we have worked in close partnership with new groups of customers as we move towards launch.
At the same time, the pace of product development has been rapid, with over 200 new features delivered during 2022. For the core platform, these included infrastructure and reliability improvements, enhanced search capabilities, real-time analytics in Excel and streamlined access to training and support. There were significant additional enhancements within specific variants, too. For example, in Research and Portfolio Management we added a wide range of new functionality, including Sentimine data for transcripts, sustainable investing analytics, StarMine model upgrades and our Custom Index sandbox.
Customer feedback is positive. Customers rate Workspace well ahead of Eikon, the predecessor platform, for overall product satisfaction, and notably higher for key product enablers including resilience, workflow integration and ease of use. Trading & Banking customers are the most satisfied category.
For 2023 our priorities are to focus on migrating a lower number of high-usage, premium clients mainly in Trading and Research & Portfolio Management. Further Workspace upgrades will include the integration of some functionality from TORA, the multi-asset class order and execution management business acquired in 2022.
Integrating our world class businesses
2022 has been a year of strong progress with the integration of Refinitiv from both a revenue and cost perspective. We are achieving revenue synergies through a combination of cross-selling, the enhancement of existing services through the integration of data and analytics and the development of new products. At the end of 2022, we had delivered £68 million of recurring revenue synergies, above our previous expectations of £40-60 million. The main contributors to this have been the strong demand for data, particularly fixed income-related, from FTSE Russell customers, and the creation of new FTSE Russell indices drawing on the depth of Refinitiv’s data.
We have now raised our revenue synergy guidance from a £225 million runrate by 2025 to £350-400 million. The main drivers of this additional opportunity are the two areas outlined above, the increasing integration of Refinitiv’s FX platforms into ForexClear and other parts of the business, and growth from the automation of content distribution to serve smaller clients more efficiently. We now expect to incur total one-off costs of £550-600 million between 2021 and 2025 to achieve these revenue synergies, representing a very attractive return on investment.
On the cost side, the main areas of synergy are overlapping roles and organisational structure, real estate and vendor rationalisation. By the end of 2022, we had delivered recurring savings of £297 million, ahead of our £250 million target. We continue to expect total cost synergies of at least £400 million runrate by the end of 2025, which we raised last year from our original acquisition expectation of £350 million. We expect nearly all of the runrate cost synergies to have been achieved by the end of 2023, demonstrating the effectiveness of our integration programme. The cost to achieve these synergies is in line with our initial plans.
Just as importantly, we are integrating two groups of people and developing a new, unified culture, with a much stronger focus on performance and technology excellence, supported by data. We have set much clearer expectations and more stretching goals throughout the business, and this is already helping to deliver improved results, particularly in Data & Analytics, as described below.
The next steps in our sales transformation programme include increasing the level of dedicated resource to our top 250 customers (which represent the majority of Group revenue); evolving our “solution selling” platform through learning and development, deeper technology partnership with customers and greater consulting capability; and leveraging technology and a standardised approach to service smaller customers effectively.
We are also taking a much more rigorous and data-driven approach to customer response times, network resilience and other factors contributing to overall performance. Within Technology, we have made significant progress in bringing engineering expertise in-house. In 2022 alone, we moved from 70% external population to 60%, and our aim is to have the clear majority of our technology resource insourced. This is not only creating an LSEG culture of engineering excellence but also increasing our pace of product delivery and efficiency.
Driving growth
Data & Analytics
Revenue growth in Data & Analytics has accelerated through the year, from 5.1% in Q1 (adjusting for the impact of the Russia/Ukraine war) to 6.0% in Q4. This improving trend has been achieved through a combination of significantly-improved customer retention as a result of better execution, strong demand for our products and growing integration benefits.
We have improved execution on a number of fronts. We have restructured our sales incentives and set more stretching targets. We have developed significantly improved customer insights on usage, profitability and pricing, and as a result we are managing our renewal pipeline more rigorously and increasing the focus on cross-selling. This is aided by our increased importance as a trusted supplier to major financial institutions, where we are now engaged in a more strategic dialogue and working in partnership to develop solutions that are more customer-centred.
Within Enterprise Data, we are seeing strong demand for cloud solutions such as Real-Time Optimised and Tick History, where we have invested significantly to develop a valuable product, and the migration to a cloud environment is significantly improving customer access and stimulating growth. In Investment Solutions, FTSE Russell product launches are up 33% year-on-year, in response to substantial customer demand.
Revenue synergy highlights within Data & Analytics include ongoing very strong cross-sell of Fixed Income data into FTSE Russell clients, and Fixed Income Analytics, which achieved a second successive year of double-digit growth after a decade of low single-digit growth.
We also completed three acquisitions during the year. TORA brings multi-asset class order and execution management capabilities and we are integrating some of this functionality into Workspace to meet growing client demand. MayStreet provides low-latency (high speed) real-time data feeds, consolidating our presence across the latency spectrum in a high-growth area. GDC is a global provider of identity verification data and builds strategic capability within Customer & Third Party Risk Solutions.
Capital Markets
In Capital Markets, our growth opportunities lie in the structural trends in our markets; our ability to link our platforms and integrate data to provide enhanced services; and expansion into new geographies and asset classes such as private markets.
Within Tradeweb, the continued electronification of fixed income markets has been an ongoing tailwind, but the business is also growing share in credit trading and expanding into new geographies. In addition, its focus on ETFs in the equities space has contributed strongly to performance in 2022 and represents a significant additional runway for long-term growth.
During the year we announced plans to link Tradeweb and FXall, our market-leading FX trading platform, to enable customers trading local currency Emerging Market bonds to place their bond and currency trades simultaneously, streamlining their workflow and reducing risk. The longer-term opportunity to simplify workflow across multiple transaction types is significant.
Post Trade
We are leveraging our expertise in interest rate derivative clearing, the strength of our customer relationships and the power of Refinitiv’s multi-asset class venues to drive the next stage of growth in Post Trade. Two examples of this are in foreign exchange and in the development of Post Trade Solutions.
In foreign exchange, regulation is increasing the capital and administrative burden on bilateral derivative transactions, which is driving a shift to central clearing over time. Through building seamless, direct connectivity between our foreign exchange trading and clearing platforms, combined with our global footprint, we are well positioned to build momentum in FX forwards and options clearing.
In partnership with our members and clients we are developing Post Trade Solutions, to help financial market participants optimise their financial resources and reduce operational complexity and processing costs, particularly in uncleared positions. Post Trade Solutions will enable customers to route trades in the most efficient way, depending on their existing exposures, based on a single, centralised data source. In 2022 we completed one acquisition (Quantile) and announced another (Acadia) which significantly advance our solutions strategy. Quantile provides compression and optimisation services to reduce risk and capital requirements, and Acadia is a provider of automated uncleared margin processing and integrated risk and optimisation services.
Building an efficient and scalable platform
We are implementing a comprehensive investment programme in our technology and infrastructure to serve our customers better while also improving product profitability and overall margin over time. Our software defined network, which replaces a number of complex and costly legacy networks, will deliver better agility, higher capacity and increased resilience. Progress during 2022 has been ahead of plan, with over 2,400 server migrations, and we will complete the programme in 2024.
Our programmes to transform two of our leading franchises – FTSE Russell and FX Matching – are progressing well. The re-platforming of FTSE Russell will enable greater product flexibility. The migration of FX Matching to our own proven technology, and other enhancements, will improve latency (speed) by a factor of 10, and we expect the first new functionality to be launched by the end of 2023.
In December, LSEG and Microsoft announced a new long-term strategic partnership to architect our data infrastructure using the Microsoft Cloud, and to jointly develop new products and services in the data and analytics space. The deal significantly advances our strategy of building an efficient and scalable platform for Data & Analytics to deliver next generation services for customers through improved workflow and greater flexibility, and we expect it to increase our revenue growth meaningfully over time. Microsoft has also purchased a 4.2% stake in LSEG. The major workstreams are described below.
Data platform in the cloud
Working with Microsoft Azure, we will accelerate our cloud migration strategy, creating cloud-based data architecture that consolidates our datasets onto one, flexible infrastructure. Our customers will be able to access data faster when and wherever they need it – enabling resilience and adaptability as capital markets continue to evolve.
LSEG Workspace with Teams and Microsoft 365
Together LSEG and Microsoft will transform Workspace, creating an all-in-one data, analytics, workflow and collaboration solution. Through a single, simple-to-use interface, it will enable users to collaborate with other LSEG customers inside and outside of their organisations, using Teams, Excel and Powerpoint natively with LSEG data and analytics.
New cloud analytics and modelling services
Microsoft and LSEG will use Azure Machine Learning and our advanced analytics and modelling capabilities to co-develop a new suite of solutions. Businesses that rely on analytics and models will be able to scale quickly without the need for complicated processes and systems.
Cloud infrastructure built on Microsoft Azure
We have entered into a 10-year commercial agreement to migrate our data platform and other key technology infrastructure into the Microsoft Cloud. This will be the foundation for many product development programmes and enable us to build and run scalable applications to achieve faster speed to market and greater customer reach.
Capital allocation
Our goal is to invest for growth using the cash flows we generate, building a platform for long-term capital appreciation while rewarding investors today through a progressive dividend, growing broadly in line with AEPS. We will do that within a leverage range of 1-2x net debt to adjusted EBITDA, which offers a degree of flexibility while maintaining a sufficiently conservative structure even at the top of the range.
LSEG generated £3.3 billion in operating cash flow in 2022, and a further £1.1 billion from the disposal of non-core businesses and other property. Our leverage reduced from 1.9x at the start of the year to 1.8x by year-end. We deployed our capital as follows:
Business-as-usual capex – £750 million
Business-as-usual capex, on a constant currency accrued basis, was £750 million. We continued to focus on programmes to address growth, efficiency and resilience. Our investments in Tradeweb and Workspace product development are expected to drive continued revenue growth. The upgrades to our own infrastructure as we roll out our software-defined network, giving higher capacity and increased resilience, will benefit costs from 2023 onwards. Finally the development of our data platform, including cloud migration and the associated transformation of how we import new content, should underpin both future revenue growth and cost efficiency.
In addition to this capex, we also incurred £184 million of capex mainly related to delivering the synergies relating to the Refinitiv acquisition, which was in line with our plans. Total capex on a cash basis was £966 million.
M&A – £786 million
Our M&A strategy is twofold: businesses providing services which are complementary to our existing offer and can be scaled across our footprint and customer base; and technology-based businesses which, while often small in revenue terms, can enhance existing services at lower cost and higher speed than organic investment.
We completed four acquisitions in 2022. Of these, GDC, Quantile and TORA are established businesses which can benefit from our much greater scale and deeper customer relationships. MayStreet allows us to significantly enhance the breadth of our low latency data offering much more quickly and cost effectively than if we were to develop this in-house.
Dividend – £567 million
The proposed final dividend for 2022 is 75.3 pence – giving a total for the year of 107.0 pence, up 12.6% on 2021. This is consistent with our dividend policy and reflects a payout ratio of 34% of AEPS. Our dividend per share has grown at a compound annual rate of 17.4% over the last 20 years.
Share buyback – £300 million
We remain very focused on capital discipline and will, from time to time, return excess capital to shareholders to the extent that we stay within our leverage range. On the back of the disposal of BETA, a non-core business in the Wealth segment, we announced a £750 million share buyback, which was 40% complete by the end of the year. Looking ahead, we are seeking shareholder approval at the 2023 AGM for a directed share buyback, which will enable us to buy shares directly from entities owned by certain investment funds affiliated with Blackstone, an affiliate of Canada Pension Plan Investment Board, an affiliate of GIC Special Investments Pte. Ltd, and by Thomson Reuters, the former Refinitiv shareholders. We expect to deploy up to £750 million in directed buybacks by April 2024.
Outlook and guidance for 2023
The year has started well. The broader macroeconomic and geopolitical outlook remains uncertain, but while some of our customers’ businesses are under pressure, other areas are showing strong growth. More importantly, the broader, structural growth drivers that we are aligned to are well established and our customer relationships are increasing in strategic value.
We expect total income growth on a constant currency basis of 6-8%. This includes a contribution from acquisitions completed in 2022 of approximately 1%. We expect further progress in ASV growth in Data & Analytics in 2023 reflecting a greater annual price increase than last year, and continued improvements in sales and retention.
We expect to achieve an Adjusted EBITDA margin of around 48% after Microsoft-related costs. We remain on track to achieve our 2023 exit EBITDA margin target of at least 50%, as adjusted for acquisitions, disposals, Microsoft investments and the foreign exchange movements of the last two years.
Business-as-usual capex for 2023 is planned to be around £750 million, which is consistent with previous guidance of £650-700 million after adjusting for foreign exchange movements, acquisitions and Microsoft-related investments.
The 2023 EBITDA margin and capex guidance is based on exchange rates of GBP 1: USD 1.21 and GBP 1: EUR 1.14, and excludes announced acquisitions that are pending completion.
We anticipate completing the current £750 million share buyback by July 2023, and we will seek shareholder approval for buybacks directed at the Blackstone/Thomson Reuters consortium at the AGM in April 2023. This is expected to amount to up to £750 million in the twelve months between the 2023 and 2024 AGMs, starting in H2 2023.