Earnings Transcript for LSEG.L - Q4 Fiscal Year 2020

Paul Froud: Good morning. Thank you very much for joining this call. In just a moment, I am going to hand over to David Schwimmer, LSEG Group CEO, who will provide a brief introduction. Anna Manz, the Group CFO, will then take you through some financial highlights before David takes a look at the group as we move forward. After the prepared remarks, we will then take Q&A. So just before we start here are some important logistics information. If you are watching this through the webcast, that’s fine, but you will only be able to listen in to the Q&A. There will be slides appearing on the screen as we speak, but you can download those from the website as well.

David Schwimmer: Thanks, Paul. Good morning, everyone. Despite the challenging environment presented by the pandemic and broader geopolitical events, LSEG has delivered a strong financial performance. Throughout, LSEG has been focused on ensuring the welfare of our employees and continuity of service to our customers, demonstrating strong operational resilience. Our systemic role has perhaps never been clearer, maintaining access to our capital markets, managing risk through our clearing operations and providing important information services to market participants, with record volumes executed in our trading venues and clearing houses during highly volatile markets. The completion of the acquisition of Refinitiv at the end of January 2021 marked an important milestone in LSEG’s history. This transformational transaction brings together two highly complementary global businesses with a shared commitment to an open access philosophy and partnership with our customers. The strategic rationale for the deal is even more compelling today, and I am excited about the significant opportunity going forward. LSEG is very well positioned to capitalize on the trends driving change across our industry, helping customers to access data, trading tools, analytics and risk management across the financial markets and at scale around the world. It also accelerates our strategy to be a leading global financial markets infrastructure and data provider. I’ll talk in more detail about some of the industry trends and multiyear opportunities across our three core operating divisions. But first, let me hand over to Anna to talk through the full year 2020 financial results announced this morning.

Anna Manz: Thanks, David. Good morning. I am delighted to be here for my first LSEG results and I look forward to meeting all of you in person when we can. Today, I am going to provide detail on the strong performance LSEG delivered in 2020. And recognizing your real focus is on the impact of the Refinitiv acquisition, I will set out the financial priorities, which underpin the delivery of our financial targets. Turning to Slide 5, as you have seen from this morning’s announcement, we have delivered strong financial results against a challenging market backdrop. The main highlights are shown here. Total income increased 6% to £2.4 billion, driven by good organic growth and a strong contribution from NTI. After deducting cost of sales, gross profit increased 6%, up to £2.2 billion. Underlying operating costs increased 6%, with higher spend on people and technology to drive growth and improve our operational resilience. Adjusted EBITDA increased 5% at £1.3 billion and adjusted earnings per share rose by 5% to 209.7p. And finally, the proposed dividend of 51.7p per share brings the full year dividend to 75p, an increase of 7% and within our target cover range.

David Schwimmer: Thanks, Anna. I should mention that I am delighted to have Anna on board as we move forward and deliver on the benefits of the transaction. Let’s turn to Slide 19. As a leading global financial markets infrastructure and data provider, LSEG provides high-value services to customers around the world, helping to drive financial stability, empowering economies and enabling customers to create sustainable growth. LSEG is now truly global with a significant presence in North America, Europe, Asia and emerging markets, bringing together exceptional skills and experience at scale. We are now focused on integration and delivering the strategic and financial benefits of the transaction to our customers, shareholders and other stakeholders. The work we’ve done so far confirms the quality of the business and the extensive opportunities to capitalize on long-term market trends to deliver sustainable revenue growth, product innovation, scale efficiencies and substantial synergies. Turning to Slide 20, financial markets infrastructure is a rapidly evolving sector and our customers’ needs are changing. They are looking for stronger, deeper relationships with fewer partners. Change is happening at an even greater pace today, with emphasis on flexible access to markets, increasing electronification of trading and the data, analytics and workflow that facilitate these developments. Our transaction fits well into this evolving landscape. It brings together businesses across the trade life cycle, underpinned by data content and distribution channels that will enable us to deliver a connected product offering for our customers. The group is well positioned across the financial markets value chain, with multi-asset class capabilities, strengthened data and analytics tools and world-class risk management expertise. On to Slide 21, our significantly enhanced capabilities will enable us to take advantage of a number of the industry megatrends driving change. For example, the increased digitization of markets is driving customer demand for sophisticated data content and analytics provided on flexible and open platforms. How customers choose to receive access and use this data is also changing, with direct feeds and cloud-based delivery of content, enabling greater use of automation and machine learning tools. The group is also well positioned to address the continued growth in passive investing. Passive assets under management are now over $10 trillion and continuing to grow. FTSE Russell’s multi-asset class capabilities are a key differentiator, allowing greater product innovation across global equities and fixed income. The importance of having multi-asset class capabilities will only increase in financial markets driven by electronic trading and passive investment as customers seek efficiency and simplicity with fewer but deeper partner relationships. Extending our reach to support customers in areas such as wealth management, where Refinitiv has a significant U.S. footprint and growing presence in Asia, also brings new growth areas for LSEG.

Operator: Please standby for your first question, which comes from the line of Haley Tam of Credit Suisse. Please go ahead.

Haley Tam: Good morning, everyone and a warm welcome to Anna. Can I ask three questions, please? First one, just quickly on Slide 14 and the refinancing strategy, I just wondered if you could provide us with any guidance on when we might expect a new debt issue to replace the Refinitiv debt that you assumed or the bridge facility, I suppose I should say. Do you have to wait for the proceeds from Borsa Italiana to come through first or could you do a partial replacement of the bridge facility first if market conditions are supportive? And the second question just on the next slide, the £1 billion investment spend, I just wonder if you could help us by splitting this into amounts relating to the Refinitiv integration, the Borsa Italiana separation and then I suppose business-as-usual investment? And I guess here I am just trying to reconcile the numbers we had in the prospectus in December, particularly for Refinitiv. And then the last question, if I may, just on Slide 27, thank you very much for going through some of the growth opportunities for the Data & Analytics division. I just wondered if you could help us quantify this growth outlook, given the revenue here on a pro forma basis, I think, grew 2% year-on-year, including a 1% decline in trading and banking solutions. So if there is any quantification you can give us on which segments you think are going to be the bigger growth drivers that will be very useful? Thank you.

Anna Manz: Should I work through the first couple?

David Schwimmer: Sure.

Anna Manz: So with respect to the refinancing strategy, you can see that we have moved with real pace so far in our refinancing and you should expect that pace to continue. I am not going to guide to specific timing for debt issuance, but it is worth saying that I don’t see debt issuance and completing the Borsa transaction as interdependent. I think we can manage those two things separately. So moving forward as – with pace as fast as we can. Second one, the £1 billion, just to break that out for you. The way I think about it is the two legacy businesses had ongoing CapEx spend. So if you look at legacy LSEG, we have been spending around about £200 million or a little bit over a year. And if you look at legacy Refinitiv spend was a little bit over £400 million or so. So that sort of starting point of around about £700 million is the ongoing investment required to maintain our products and services and drive ongoing growth in those business. In addition, on top, you have got, call it, another £150 million that relates to CapEx investment with respect to those synergies and also the Borsa separation, the Borsa separation being £50 million of that and the rest being around underpinning those synergy deliveries.

David Schwimmer: So I will take the third question, in terms of some of the growth opportunities. And one of the conversations that we have had with you all consistently over the last 18 months since we announced the transaction is the building blocks of growth. And those are all consistent. So just to touch on a few of those, the growth engines that exist within each of LSEG, legacy LSEG and the legacy Refinitiv business continue to be very attractively growing. So that would be, of course, LCH and the index business of LSEG. And then on the Refinitiv side, Tradeweb, the risk business and then, depending on market activity levels, some of the execution venues in terms of FX and other execution-exposed parts of the business, but just to lay that out now that we are a combined company and we have the five segments across Data & Analytics, let me get into that in a little bit more detail. So, we are very pleased and excited about the opportunity with enterprise data. That’s growing attractively. That segment is growing and our positioning in that segment is growing. Wealth is another area where there are very strong trends. Lots of growth opportunity in Asia. And so that’s another attractively growing space. I already touched on the index business within investment solutions. I touched on the very attractive growth in the third party and customer risk solutions business. On the trading and banking solutions business, that area, we have got some work to do there. Blackstone has been investing in that area. We will continue investing. I think there are opportunities, and we have some clear targets in terms of what we are going to be doing to improve some of the workflow, improve some of the analytics rollout the new Refinitiv Workspace. So, more to do there, but we are very focused on improving that business as well. So, lots of different areas of opportunity for growth and we look forward to keeping you updated as we work down that path.

Haley Tam: That’s very clear. Thank you. If I could just risk a follow-up, given the size of trading and banking solutions, is it reasonable for us to therefore expect that investment and the work that you continue to do to turn that around from shrinkage to growth in the future?

David Schwimmer: We will be investing in that area, but there are a number of other areas to invest in across the business. but that is one area that we will be investing in.

Haley Tam: Thank you.

Operator: Thank you for that. Your next question is from Benjamin Goy of Deutsche Bank. Please go ahead.

Benjamin Goy: Yes, hi, good morning. Two questions, please, from my side. First, you reiterated your 1x to 2x leverage target, just wondering is that driven by rating agencies by your own appetite for leverage or regulatory constraints? And linked to that, should we only expect the smart M&A you mentioned in your presentation, once you get closer to 2x leverage again? And then the second question is on FX, I saw it was only flat, sounds – would suggest it kind of underperformed platforms, but in particular, the banks last year. So I was just wondering what are the reasons to see why FX all and related businesses had a bit of a flat year last year? Thank you.

David Schwimmer: Do you want to take the first one?

Anna Manz: Take the first one, yes. So, we absolutely are focused on getting back to 1x to 2x leverage rating and that is certainly exactly where we are headed at the moment. And we will continue to assess whether that is the right range going forward. In terms of smart M&A, we will do – we will continue to look for those strategic bolt-ons that meet our returns framework and are strategic to the acceleration of our business. And so I would consider that business as usual. But in the meantime, yes, we are rapidly de-levering and actually Borsa Italiana will take us a big jump of the way there to get back to our 1x to 2x target range.

David Schwimmer: And then on your question, Benjamin, with respect to FX, so that business – there are a couple of different dynamics in that business. One of course is what’s going on in the markets and whether there is significant volatility in associated trading volume across the FX space and we certainly have seen some of that in certain areas. The other aspect of that business is that there are different dynamics in the dealer to customer space and in the interdealer space. And I think FXall has a strong and healthy position in dealer to customer. I think on the matching side that has been a flatter business and there is more work to be done there. I mentioned earlier in my remarks that we are going to be investing in and re-platforming our FX business and we look forward to improving our capabilities, upgrading the technology, increasing the speed of execution on that platform. So as I mentioned earlier, more to do in investment in a few different areas, that’s one of the areas that will benefit from that investment.

Benjamin Goy: Thank you.

Operator: Thank you for that. Your next question is from Kyle Voigt of KBW. Please go ahead.

Kyle Voigt: Hi, good morning. Maybe a couple of questions from me. Maybe first on the Refinitiv, the Workspace rollout, if you just kind of help us understand how that’s gone so far, early indications of customer uptake and subscriber count? And then maybe linked with that, any progress on – or any update on the strategy of moving more towards enterprise pricing for some of your dealer relationships?

David Schwimmer: Thanks, Kyle. So I’d say on the Workspace rollout, so far so good, but its early days. And this is a business – there are hundreds of thousands of users of the Eikon platform across Refinitiv. And so the rollout of the new Workspace platform, we are doing in a thoughtful and careful way and making sure that that transition works well for the customers. So I am not in a position to give specific numbers on the rollout right now, but we are doing it segment by segment. So, so far the rollout has started in the wealth segment and moving into the banking segment and then we look forward to doing the trading segment as well over a period of time, but this will be a transition again given the hundreds of thousands that we need to work through. This will be a transition that takes – this will take us a couple of years to work through. Was there a second question that you had?

Kyle Voigt: Yes. I asked about the strategy of moving more towards an enterprise-wide type pricing structure for some of your dealer relationships?

David Schwimmer: Sure, yes. So – and just so everyone is on the same page here just in terms of the context. In our industry and this is not specific to LSEG or to Refinitiv, we are seeing a structural decline in the number of humans accessing desktops or terminals, but we are seeing a significant structural growth in the demand for the data, the analytics, the workflow that we provide. And so one of the transitions that Refinitiv has been going through prior to our closing of the transaction, but we will continue to move down this path, is a shift of the revenue model to what is called Refinitiv access and this is an opportunity for customers to access the data, offerings, the content, the workflow in whatever distribution channel works best for them. So we obviously distribute our content across the human distribution channel, which is the desktop, but of course, importantly across electronic feeds, through the cloud, on-premise and partnerships. And this continued rollout of the access program also will take some time. It’s done as each contractual relationship is renegotiated and so that’s not necessarily a 1-year process because some of our contractual relationships are multiyear. So we’ll continue to be doing this going forward. It has had substantial growth in 2020, and we expect to see more customers taking on Refinitiv access this year and beyond.

Kyle Voigt: On expenses, just really quick in terms of the trajectory of expenses and kind of what you are guiding to with mid single-digit growth in underlying OpEx. If we look at 2019 to 2020 on a pro forma basis, expenses were down. Refinitiv obviously had their efficiency program they are realizing throughout the year 2020 and you are going to be layering on, on top of that cost synergies. So, I guess can you help us bridge the gap between what we saw in 2020, which was down expenses to kind of what you are guiding to now even with the cost synergies coming on of that mid single-digit underlying growth in OpEx? Thank you.

David Schwimmer: Sure.

Anna Manz: Sure. So, I very much see 2021 as a transition year. And what we have coming through in 2021 is the benefits from the cost synergies starting to come in, some of the roll-on benefits from the Blackstone synergies and then we have some very targeted areas of investment, specifically around resilience and that particularly relates to some of the Refinitiv operations and very targeted investments around growth, growth of the two existing businesses and investment ahead of the revenue synergies on top, because the investment starts before the revenue synergy flows through. And the final building block in that bridge is, there are a couple of acquisitions that Refinitiv has made in the third-party customer and risk space, great acquisitions, but as they annualize that has an impact on the cost base. So, that’s really the bridge for you. I guess the other thing that might actually be help is therefore as you look forward to 2022, you would expect to see the greater benefit from cost savings coming through as we ramp up our synergies further and you will start to see the revenue synergy benefits coming through, so you don’t have the sort of distortion of spending ahead of that benefit.

Kyle Voigt: Understood. Thank you.

Operator: Thank you for that. Your next question comes from Philip Middleton of BofA. Please go ahead.

Philip Middleton: Yes, good morning. Two questions. Firstly, David quite rightly points to the opportunities around working across divisions, but you set out a very strong divisional management team. Who and how will be delivering on those opportunities of interactions between the operating divisions? I think that’s a big challenge for a lot – for you and for your peers. And secondly, I am afraid, one quick one on costs again, you gave very good breakdown of the £850 million, the £150 million of OpEx, how much of that breaks down into more continuing and how much of that is more Borsa Italiana driven and one-off extraction driven?

David Schwimmer: Sure. Thanks. I will take the first question and then Anna will address the second question. In terms of working across the divisions, so a couple of thoughts on this. First of all, we will, in terms of the near-term, be focused on the integration of the businesses and a lot of that focus will take place within the divisions and particularly within Data & Analytics, where the core LSEG Information Services business is coming together with the core Refinitiv business. However, if you look at our executive team, Deb Walton is our Chief Revenue Officer and that is a responsibility across the group. And so that’s just an example of how we are going to be developing and evolving in this direction. So, initial focus is on delivering the opportunities within the divisions, making sure that we are addressing the customer needs and customer relationships from a divisional perspective, but we are already at this point structurally planning to work towards a group-wide approach to our customer relationships and to enhancing the opportunities, the products and the revenue on a cross-divisional basis. But as I mentioned earlier in my remarks, this is something that we are in the early days of, but we look forward to keeping you posted as we move forward down this path.

Anna Manz: And on your second question, the £150 million of OpEx investment, it’s predominantly all ongoing and it’s investment to improve the resilience of predominantly the legacy Refinitiv tech platforms and it’s investment ahead of growth, so getting the right things in place to deliver on the revenue synergies and some of our other new products and services as they come to market.

Philip Middleton: Okay, thanks.

David Schwimmer: Thank you.

Operator: Your next question is from Arnaud Giblat of Exane BNP Paribas. Please go ahead.

Arnaud Giblat: Hi, good morning. A few questions, please. Firstly, on costs, you’ve given some clear guidance on 2021, clearly, a lot of investments for future growth. I’m wondering if most of the investment is happening in 2021 or should we be thinking about further investment down the line? And secondly, I’m wondering as well in terms of the opportunity to cross-sell as one of the big logic of the deal. Specifically, could you talk perhaps about FTSE Russell? The combination of FTSE Russell with Refinitiv, does that give you better opportunity to grow subscriptions, analytics, other products? If you could give, I guess, some specific examples there of the upside that you see? And my final question is on dis-synergies through the sale of Borsa Italiana. I think you’ve got a clearing contract with Euronext. There is a risk of them, I suppose moving clearing to CC&G. I was wondering if you could help us think through the risks there? Thank you.

David Schwimmer: Sure. Thanks, Arnaud. Maybe Anna will take the first question on cost, and then I’ll take your last two.

Anna Manz: So 2021 is very much a transition year, where we’re putting the investment in but we’re not yet getting the benefit of all of the synergies flowing through. We do need to invest and we will need to invest over a couple of years, but we will be seeing those cost synergies and revenue synergies ramping up as we move through that period. So the level of net investment decreases.

David Schwimmer: Thanks, Anna. So on your second question, Arnaud, in terms of the opportunity to cross-sell, let me give you a couple of examples. So, one area is with respect to FTSE Russell indices, prior to closing on the transaction, some of the data that went into the FTSE Russell indices came from Refinitiv, but not all of it. We are going to move further down the path of utilizing Refinitiv data and embedding that in the FTSE Russell indices. And what that does is, when we are working with customers, customers who already have existing FTSE Russell indices also will have an incentive to have the same data so that they – if there is a portfolio manager that wants to be tracking an index, he or she will want to have the Refinitiv data for FTSE Russell indices that are using Refinitiv data. So that is a strong synergy between the actual sale of the index products and then the enterprise data segment. That’s one example. Another example would be – and again, I’ll stick with some of the index products. We’ve talked about the opportunity in sustainability in ESG products. Refinitiv has one of the world’s leading content sets in terms of sustainability or ESG, with something like 450 different metrics across 10,000 companies. And so we will be using that data set to improve and roll out some new products on the index side and potentially both on the equity and fixed income side. So I think those are a couple of different areas specifically with respect to FTSE Russell where we see opportunities and potential synergies around combining the two businesses. In terms of your question on whether there are any dis-synergies, I’m not in a position to speculate on what the plans might be for Euronext around their clearing. What I would say is that it is not a simple proposition to shift clearing volumes. And it’s really the – I’ll say it’s the decision or the determination, in many cases, by the customer base as opposed to by the clearing house. The other aspect of this is that there would be important technological and regulatory issues to work through if one did want to move those volumes. And then the third thing I would say is that if one did want to move those volumes, there is still a multiyear contract in place. So we have a good, very strong working partnership with Euronext and with many other market infrastructure players around the world. We look forward to continuing to work closely with them. And if there are aspects to report on in terms of changing contractual relationships, we’ll certainly let you know. But at this point, that’s not something that we view as a near-term dis-synergy.

Arnaud Giblat: That’s very helpful. Thank you.

Operator: Thanks, sir. Your next question is from Gurjit Kambo of JPMorgan. Please go ahead.

Gurjit Kambo: Hi, good morning. Just a couple of questions. So firstly in terms of equivalence, so at the moment, ESMA has given you equivalence to, I think, it’s June 2022. If that is not extended or made permanent, what sort of options does LSEG have? Is it sort of using the clearing house in France or any other sort of thoughts how we should think about that? So that’s the first question. Secondly, can you just confirm, on the revenue CAGR target, the 5% to 7%, is that on a sort of constant currency basis or is that sort of just reported? And then finally, just on costs. In terms of getting to the sort of mid-single growth in 2021, that’s clearly after the synergies. And I know the 25% run rate, but what’s the kind of impact on 2021 numbers? How much should we think is netted off for the synergies in 2021 on, I guess, on a full year basis? Thank you.

David Schwimmer: Great. Thanks. I’ll take the first one. And then if okay, Anna, you can take the last two.

Anna Manz: Yes.

David Schwimmer: So on equivalence, this has been an ongoing discussion, obviously, in terms of our work with ESMA, the European Commission. And we look forward to being in a position to have an opportunity to get permanent recognition from the EU so that LCH can continue to serve EU customers. And there has been recognition now for – I think we are on our third or maybe fourth level of temporary recognition, the reason that there continues to be that recognition is because of the systemic role of LCH in Europe. We’ll work with the authorities to get to what we hope is the right place. If there is, and obviously we have seen some, I’ll say, elevation in the rhetoric in recent weeks, if there were to be some kind of forced relocation, which I think would be very bad systemically for our customers in Europe, it would be expensive for them to move their positions, it would increase their risk, it would increase the amount of capital that they would have to put into clearing because they wouldn’t get the benefits of netting through our clearing house. But if that sort of decision were made with all of those negative consequences for EU-domiciled customers, it’s worth pointing out that the – in the pool of SwapClear, which is a very large liquidity pool, the percentage of euro-denominated swaps from EU-domiciled customers is about 6%. So again, we’re not expecting to see any departure of volumes. If anything, we’ve seen volumes from that customer set grow over the past few years while this has been a discussion. But if there were to be some kind of very negative downside scenario, that is the percentage of volumes in the pool. And I would say that our very, very strong base case here is that there will be a resolution of this issue that is healthy for European customers and does not push European customers to have much greater risk and much less capital efficiency.

Anna Manz: Thanks. And the second two questions, the revenue guidance of 5% to 7% growth, that’s on a constant currency basis. We haven’t assumed currency fluctuations in there, particularly and it’s on a pro forma basis. And I think your second question – or your third question was looking for guidance on the amount of cost synergies in the period. We’ve given you the run rate at the end of the year, so 25% cost synergies run rate. The way I’d think about it is it takes a little bit of time to ramp these up. So you’ll see the benefit of cost synergies in the year impacting the second half more than the first. And we’ll give you more precise guidance at the half year.

Gurjit Kambo: Okay.

Operator: Thanks, sir. Your next question is from Johannes Thormann of HSBC. Please go ahead.

Johannes Thormann: Good morning, everybody. Johannes Thormann. Three questions if I may. First of all, if you could add some more color on FTSE Russell Index business, your previous growth story mainly. But we saw now a disconnect of the asset-based fees from the volume growth we’ve seen in the asset base. So if you could elaborate on that, please. And secondly, probably for FTSE Russell as well, any comments on the outlook for the usage of FTSE Russell Index derivatives at Eurex? What are you expecting from this? Secondly, on your dividend policy, have you made any changes to this policy because, historically, the final dividend would have been 2.5x approximately of the interim dividend, and now you’ve gone more to 2x? And last but not least, I have to come back to the ESMA and EU commission discussion. How can the Bank of England probably help you to mitigate the problem? I think the EU commission is concerned also about the fact that the Bank of England can’t be the lender of last resort in a systematic crisis. How can you mitigate this? Thank you.

David Schwimmer: Thanks, Johannes. So I want to make sure we get through the four questions there. Let me just touch quickly on the outlook for FTSE at Eurex. We just announced that this past week. So it is consistent with the open access approach that we have on a global basis. We’ve got FTSE Russell products now. They’ll be trading on Eurex. They trade in Chicago at the CBOE and CME. They trade in Singapore on the SGX. So it is a consistent expansion of what’s a very strong franchise of derivatives products on other exchanges. And we’re really, really pleased with that. Not in a position to give you any targets or expectations on where we expect that to go in terms of growth, but we think it’s a really interesting opportunity to expand that franchise. In terms of the discussion with ESMA and the Bank of England, I’m not in a position to talk about how the Bank of England and ESMA can work through this. I know – I think we all know that they are in ongoing discussions. The Bank of England is the primary regulator for LCH Limited, but LCH is also directly regulated by ESMA. And so they will just need to come to an accommodation of what kind of information sharing or what kind of responsibilities they each want to share. I should just point out that this is not a novel arrangement. For 15 or 17 years or so, the Bank of England and the CFTC have worked very, very well in partnering. We – LCH is also fully regulated by the CFTC in the U.S. And the CFTC recognizes the Bank of England as the primary regulator. But they also have access to us. They are very active in that regulatory relationship. And partnership works very, very well. The last thing I should just say on that topic is – I mentioned earlier some of the percentages of EU customers and euro-denominated swaps. It’s worth pointing out that the similar statistics around U.S. dollar swaps are much, much bigger, depending on the year. They are somewhere between 40% and – greater than 50% of the overall pool of interest rate swaps. And so that’s obviously a huge percentage of the SwapClear pool. And the regulators in the U.S. are very comfortable with the regulatory relationship with the Bank of England and with those positions being executed or being cleared through LCH, even though that is not viewed as an onshore U.S. clearing house. So we think there is certainly a path to getting resolution here. Should I turn it over to you for dividend policy and...

Anna Manz: Yes. So shall I do dividend policy and then just unpack a little bit the 2020 FTSE Russell performance. So dividend policy unchanged. That one’s really easy. Now just your question on FTSE Russell Index performance, just to unpack that a little bit, subscriptions grew in the year 6%. That was a really pleasing performance, particularly in a year where we’ve seen – we’ve chosen to take lower price increases and we’ve chosen to work more closely with our customers. And I think for me, the evidence of that is the increasing pace of bringing new ETFs to market which would say that, that approach is working. So I’m pleased with that 6% growth. Now you’re right, the assets under management impact went backward. So that had a negative 2% impact on growth in the period. Now the way I think about this is, that number reflects the average assets under management over the course of the year. And also, there is a lag in that we’re always sort of looking back. So you will absolutely see an improvement looking forward if we continue to see higher levels of assets under management, as we have at the full year, as we did at the – right at the end of the year, but it will take a little while for that to filter through into our revenues because of that lag.

Johannes Thormann: Thank you.

David Schwimmer: Thank you.

Operator: Thank you for that. Next question waiting is from Andrew Coombs of Citi. Please go ahead.

Andrew Coombs: Good morning. Four questions, but they are all short. Firstly, the path to the 50% adjusted EBITDA margin, 47% in 2020. You are clearly guiding to that to fall in 2021. Should we then assume a linear recovery up towards 50% or is it going to be more a back-end loaded improvement? That’s the first question. Second question on synergies, the timetable we have given the costs looks to be unchanged. On revenues, year three and year five unchanged. But if I remember rightly, you used to have a 15% target run-rate for year one on revenue synergies that no longer appears to be there. So could I just check if the case of the revenue synergies, are coming through later than you first thought? Third question would just be on the £1.6 billion of revenues in Data & Analytics for trading and banking. Could you give us an idea of how much of that is terminals versus data feeds, please? And then the final and last question. The financial targets, unchanged. They were set, when was it, back in August 2019. The world has moved on a long way since then in terms of FX rates, refinance costs, obviously, Borsa Italiana, and now more recently your commentary on investment spend. It feels like these targets are quite stale. When do you plan to update the market on those targets? Thank you.

David Schwimmer: Okay. Anna, do you want to work through that list there?

Anna Manz: Work my way down them. So the path to the 50% margin, I think we’ve guided quite clearly for this year. And then we would see improvement after that to get to the 50% margin as we’ve described. With respect to synergies, the revenue synergies are unchanged. We’re doing exactly what we said we would. And the wording we’ve used is a direct lift, and I’m very confident in the delivery of them. And no, there is no change in our plans whatsoever there. In terms of the £1.6 billion of revenues that relates to trading and banking, no, we haven’t broken out the element of those terminals versus other things because that’s not how we look at it. As David described to you earlier, what we’re selling to our customers here is an offering that is a combination of data of workflow and analytics and we provide it to them in the way that works best. And in some cases, that is an element of terminals. And in other cases, it’s direct feeds through the cloud, through on-prem, whatever it is. So breaking out the pieces of that is not something we’re going to do. Are we going to change our targets? Are they stale? I’ve been here almost bang on 3 months now, and you can imagine that the first thing I’ve done coming in is to really scrub my way through those targets and make sure that I felt comfortable with them. And then the second thing that we’ve done is, post-closing 5 weeks ago, to scrub our way through all of the detail to make sure that there was nothing now we’re running the business that was different. And I’m pleased to say that these are the right targets, particularly post close, as we’ve gone through the detail of the Refinitiv business, what we found is exactly what we expected to find, so, no change coming around the corner here.

Andrew Coombs: Okay, thank you.

David Schwimmer: Thank you.

Operator: Thank you. Our next question is from Mike Werner of UBS. Please go ahead.

Mike Werner: Thank you. Three questions, please. First, LSEG is going to be generating a greater portion of its revenues and earnings in U.S. dollars. Is there any intention or plan from a hedging perspective from FX moves? How do you think about that from a high-level perspective? Second, in terms of the Refinitiv acquisitions you referred to, I was just wondering if you could provide what the full year cost base of those acquisitions was for 2020. And then finally kind of going back to the equivalence question, I guess the question here is if equivalence is not rolled over, will this also impact the U.S. dollar swap clearing of EU-based clients? And if so, what portion or what percentage of the margin pool is that? Thank you.

David Schwimmer: Thanks Mike. Maybe Anna will take the first two, and then I’ll address the question about equivalence.

Anna Manz: Sure. So your first question about us being substantially exposed to U.S. dollars, you’re right, we’ve disclosed that in one of the appendix slides, 60%ish of our revenues and cost is in dollars. Now what you’re talking about is a translation risk as we consolidate into our reporting currency. That is not something that under current accounting practices you can readily hedge, which is why we very transparently share our exposure to the dollar so that you can calculate the implications yourself for your models. That said, the question you’re asking is a good question. We are significantly exposed to dollars, is sterling the right reporting currency? And the answer to that is it’s something that we’re looking at, but we’ve absolutely not made any conclusions at this point. In terms of the full year cost base of the acquisition, I’m afraid we haven’t disclosed that level of detail, and we’re not going to. They are relatively small acquisitions.

David Schwimmer: Thanks, Anna. So, in terms of the – coming back to the equivalence discussion, so just to give you a little bit more color around this. Not clear, and I think Andrew Bailey made some comments to this effect over the last couple of weeks, it’s not clear exactly how or what authority would exist for a forcing of volumes in other currencies to take place in Europe. And the – just to put some numbers around that, I mentioned earlier that euro-denominated swaps traded by EU-domiciled customers is around 6%. If you look at the volume traded by EU-domiciled customers in all currencies, so euros, dollars and the 25 other currencies that SwapClear clears products in, that’s roughly half that. So we’re talking low double digits. So again, there is – it’s not clear if and how that volume could be forced through some kind of location policy to clear in Europe. That – as I mentioned earlier, that would be a negative direction from a risk perspective. It would be a negative direction from a capital efficiency perspective. And, this is important to mention, as we’ve seen with the derivatives trading obligation, and this is an area that is not directly affecting LSEG, but we’ve certainly seen what has happened in this space, under the EU’s derivatives trading obligation, another regulation, a lot of the volume that was traded in the U.K. and was not able to be traded in the UK because the EU did not give equivalence under the derivatives trading obligation, that volume moved to the U.S. So I would put that in the category of unintended consequences. And I think if there were an attempt to try to force volume to move to Europe, regardless of how it might be done. There is a decent chance it might also – in the clearing space there might also be some kind of unintended consequences of moving some of that volume to the U.S. So look, we’re not in a position really to speculate on how this may play out other than I will express the same thought I expressed earlier, which is that we do have a high level of confidence that there is a strong realization among stakeholders in Europe, including ESMA, including a number of national regulators, including at the ECB, how systemically important LCH is. LCH is directly regulated by ESMA. Going forward, there will be an opportunity for the ECB to have direct oversight of the amount in euros that LCH is clearing. So we look forward to continuing to work with all of those different stakeholders to get to a solution that is the right solution for the markets from a risk management perspective and from a systemic stability perspective.

Mike Werner: Thank you. That’s very helpful.

David Schwimmer: Yes.

Operator: Thank you for that. Your next question is from Bruce Hamilton of Morgan Stanley. Please go ahead.

Bruce Hamilton: Hi, good morning and thanks for the presentation and the comprehensive answers. I just had a couple of follow-up questions. One on costs, and sorry if this is going over old ground, but the guidance for 2021 is obviously very clear. Beyond that, just to think through the moving pieces, so we’ll obviously have the cost synergies coming through, the revenue synergies coming through. In terms of the sort of additional spend in 2021, £150 million, it sounds like that doesn’t necessarily drop away or not much of it. So I’m just trying to understand if that’s right. And then also, what sort of underlying cost growth you would expect for the business? Is it 3%, 4%? Is it as high as 5% or would it be lower? And then secondly, on the sort of revenues for Refinitiv, obviously the Workspace rollout is important. So when might we start to see impacts? And what sort of KPIs should we be tracking? And if it’s revenues, should we expect the revenue improvement to come in wealth solutions given the rollout first to the wealth side? And then given that Bloomberg seems most embedded with sales and trading, I guess, is it necessary for the trading and banking solutions business to grow for you to hit the 5% to 7% target for the group or can you get there in any case? I’m just trying to understand how optimistic we need to be on turning the most tricky part of Refinitiv I guess? Thank you.

David Schwimmer: Okay. You want to take the cost question? And I’m happy to do the rest of them.

Anna Manz: Yes, sure. So post 2021, we will see the benefit of the cost synergies come through. And we will see relatively low, so not 5% growth on the cost base, far lower than that. And we will continue to invest, so perhaps not at the level that we’re investing this year, but we will continue to invest where we see opportunities for growth, so product investment in growth, where we’re confident that those returns will deliver. So I would expect there to be continued investment, exactly how much will depend on the opportunities that we are evaluating at the time, and we will work our way through that. But why we’re investing for growth is because we – there is an opportunity to accelerate this business and we can see the investment in the products that will allow us to deliver it.

David Schwimmer: Thanks, Anna. So, on the revenue side, with respect to where you might see the benefits of the Workspace rollout, as I mentioned, this is going to be a process over a couple to a few years. We will not be talking about numbers of desktops or terminals. We don’t view that as a relevant metric in a business or a model where it’s about providing a comprehensive solution that can be delivered across different distribution channels. So we will be continuing to report and provide information across these different customer segments. You mentioned, will we see it initially in wealth? We are, as I mentioned earlier, starting the rollout of Workspace in the wealth space, but it is also going to be happening in the banking space, which is part of trading and banking solutions. And then a little bit further down the path, we will see it in trading. In terms of your – the second part of your question, how necessary is it for trading and banking to grow? We don’t need to get that up to the 5% to 7% target growth rates that we are aiming for across the combined business. We have much higher growing businesses in other parts of LSEG. But we do want to turn that business around and have it growing at a modest rate. It does not need to be that 5% to 7%, but we want to improve it. We’ll continue to investing in, as I mentioned earlier, in Workspace, in the analytics capability and the broader offerings across that segment. So we’ll keep you posted on this, and you will see the investments that we are making in that space. But again, that’s not an area where we have to turn that into a 5% to 7% growth business.

Bruce Hamilton: Understood. Very helpful. Thank you.

David Schwimmer: Yes.

Operator: Thanks for that. As we have no further questions waiting, I’d like to hand the call back to Paul Froud.

Paul Froud: Great. Thank you very much, everybody. Thank you for joining us today and thank you for all those questions, I hope we answered those. We’re going to conclude the conference call here now today, and we look forward to seeing you all as soon as it’s possible to do so and speaking to you all very shortly. So thank you very much, and that’s now the end of the call.