Friday2 August 2019 ★ FINANCIAL TIMES 17UK COMPANIES
November 2017:
London Stock Exchange, having had a
£21bn merger with Deutsche Börse
blocked by regulators over concerns it
would take too much of the clearing
market — which, with capital markets
business, still provides most of its revenue
— parts company with chief executive
Xavier Rolet after a row over his future
between the board and a shareholder.August 2019:
London Stock Exchange, after announcing
a $27bn deal to buy data provider
Refinitiv— which will treble its revenue,
with information services now by far the
largest part — hails its transformation into
a business that chief executiveDavid
Schwimmercalls “a leading global
Financial Markets Infrastructure group”,
and shareholders deem 20 per cent more
valuable.Today, the LSE looks a very different
business to the one mired in a
governance crisis 20 months ago. But
its Refinitiv dealdemonstrates both
changes, and challenges, in three areas:1) Strategy
In 2017, the LSE’s most visible strategy
was seeking exchange mergers and
clearing house deals to maximise
transaction volumes and efficiencies.
In fact, its Deutsche Börse merger
ultimately failed because it could not
countenance a regulatory requirement
to sell an Italian trading venue. And,
once the deal was over, it reversed a
move to sell of its French clearing arm.
In 2019, the LSE’s strategy has shifted
to recognise that data drives
transactions, and supplying it can grow
revenues from both, especially as
trading becomes more algorithm
driven. Data and analytics were and
remain Mr Schwimmer’s strategic
priority, as they support his two other
stated aims: to make LSE more global,
with revenues from Asia, emerging
markets and North America; and to
make LSE more diversified by asset
class, by adding foreign exchange andfixed income to its equity offering — for
an client base increasingly asset class
agnostic. Its challenge is to convince
shareholders that £225m of revenue
synergies exist, and customers that
Refinitiv’s one-fifth share of the data
terminal market deserves to be nearer
Bloomberg’s one-third.2) Financial performance
In 2017, the LSE’s total revenue was
£1.8bn — less than a third of that from
its Refinitiv combination, but growing
fast: at 17 per cent a year. And its
margin, based on earnings before
interest, tax, depreciation and
amortisation, was improving as sales
increased: already above 50 per cent
and heading for 55 per cent. Debt,
meanwhile, fell to 1.7 times earnings.
In 2019, LSE anticipates a compound
revenue growth rate of 5 to 7 per cent
in the first three years after a Refinitiv
deal — lower than analysts’ estimates
for its own business in 2020. Its target
ebitda margin is only 50 per cent. And
it will add Refinitiv’s $12.5bn debt to its
own £1bn, lifting leverage from 1.2 to
more than 3.5 times earnings. Its
challenges, then, are to convinceshareholders that lower growth of a
bigger revenue number is worth
buying, margins can improve and net
debt can fall to 2 times earnings in
three years without impeding growth.3) Leadership
In 2017, Mr Rolet was still credited with
a turnround that had boosted the LSE’s
value from £800m to more than
£14bn, and arguably uncredited with
data deals for Russell and FTSE. But,
looking back, analysts talk of LSE
businesses operating in silos under a
chief executive who so divided opinion
that shareholder Chris Hohn sought to
unseat the chairman to keep him in
post, while the board considered
releasing a dossier about his behaviour.
In 2019, Mr Schwimmer has already
used the word “team” so many times
that 2017’s silos and paranoid blasts
and counterblasts seem distant
memories. With new chairmanDon
Robertspeaking the same language of
“strategic importance”, management
appear aligned. Their challenge, like
that of the data analytics they so value,
is to make the synergy and earnings
numbers make sense.Revolut’s equity rotation
Revolut’s move to offer free
sharedealingmight seem, well,
revolutionary. But, like much in
fintech, it has been tried before.
Lombard, in a previous incarnation on
Investors Chronicle, recalls eye-
catching commission-free deals in the
noughties: offered by naughty trading
platforms trying to convert amateur
stockpickers to racy derivative deals.
Revolut, however, is not seeking to
win customers from existing brokers
with a loss leader — it reckons its
subscription model can break even.
Nor is it cross-selling anything more
racy to first time traders than its cash
deposit service.
Still, even if it is only targeting
younger fintech types, it will need to
offer them what it currently cannot:
UK stocks in tax-efficient wrappers.
And that will mean a conversation with
regulators — who currently view
fintechs like Revolut with the same
degree of caution as an Investors
Chronicle reader offered a spread bet.[email protected]LSE-Refinitiv: two years and $27bn make all the difference
Kier has begun to make progress with
restructuring plans as the struggling
contractor launched the sale of its
housebuilding business and cut debt
levels faster than expected.
The rare good news from the
company — which is also appointing a
finance chief with restructuring
experience — was tempered by a
warning that 2019 revenue would be
£100m down on 2018.
Investors sent the shares up as much
as 44 per cent yesterday to 89p. They
ended the day up 33 per cent.
Kier has been under pressure, having
racked up debt through acquisitions.In
June, two trade credit insurers — which
cover suppliers against potential losses— stopped doing business with the
outsourcers’ subcontractors.
That month, Kier announced
plans to cut 1,200 jobs and offload
large parts of its business.
Yesterday, it said it had received
“significant interest” in Kier Living,
its housebuilding division, and had
begun a sale process for the unit.
It said it had reduced net debt to
£167m at the end of its financial
year on June 30, which analysts said
was lower than expected.
Kier has appointedSimon
Kestertonchief financial officer. He
spent six years in the role at
packaging group RPC.
Myles McCormickAsset sale
Kier cuts debt
fast as it sets
house in order
NICHOLAS MEGAWRevoluthas launched a commission-
free stock trading service in a push to
challenge major trading platforms such
asHargreaves Lansdownand differenti-
ate itself from rivalbanking start-ups
such asMonzoandStarling Bank.
Customers who pay for its £12.
monthly “metal” subscription service
were able to buy and sell US stocks from
yesterday, while those who use thecheaper premium or free accounts will
gain access to the service in the next few
weeks.
André Mohamed, Revolut’s head of
wealth and trading, said the company
wanted to “democratise” access to
investing, and criticised the high fees
charged by incumbents.
Revolut’s free users will receive three
free trades a month, and pay £1 per
trade for further transactions. Premium
subscribers — who pay £6.99 per month
— will get eight free trades, while metal
subscribers will get 100. The app will
have no minimum investment size, and
will be the first European company to
allow investors to buy fractions of
shares.
Hargreaves Lansdown, the UK’s larg-est online trading platform, charges up
to £11.95 per order, falling to £5.95 for
the most frequent traders. Others, such
asInteractive Investor,AJ BellandBar-
clays, charge£4.95to £10 a trade.
“If you drill down into it, it definitely
doesn’t cost £12 [to execute a trade]”,
Mr Mohamed said. Revolut expects to
make money mainly by encouraging
users to sign up for its subscription serv-
ices, but said the £1 charge for users who
went over their monthly quota also
“more than covers the cost — it’s not a
loss leader for us”.
Revolut, which was valued at $1.7bn
in a fundraising last year and is looking
to raise more cash at a higher valuation,
is the highest-profile European start-up
trying to disruptthe stockbroking
industry. Peers include UK-basedFreet-
rade— which Mr Mohamed co-founded
— and Amsterdam-basedBUX.
However, while companies such as
Freetrade and US pioneerRobinhood
focus on trading, Revolut’s move is also
designed to bolster its efforts to build a
“global digital bank”. The company ini-
tially specialised in cheap travel money,
but has since expanded into cryptocur-
rency trading with a full banking licence
in the eurozone and desire to gain simi-
lar licences in the UK and elsewhere.
Digital start-ups such as Revolut and
Monzo have proven popular with cus-
tomers who use accounts for travel
expenses or budgeting, but have made
slower progress in convincing people to
use them as a more regular bank.
Mr Mohamed said the trading service
would help to increase the average
amount of money customers loaded on
to the app, encourage them to log in
more and increase trust in the company.
See LombardFinancials
Revolut rolls out
commission-free
trading service
Digital challenger aims
to ‘democratise’ buying
and selling of stocksThe £1 charge for users
who go over their quota
‘more than covers the cost— it’s not a loss leader’
Matthew
Vincent
Chris Ratcliffe/BloombergDAVID CROWBarclaysdoubled down on its full-year
profitability target despite a “challeng-
ing” first half and said it would imple-
ment deeper cost cuts to boost returns.Insiders have described the bank’s main
profitability target for 2019 — a return
on tangible equity (ROTE) of more than
9 per cent — as “sacrosanct”evenasa
majority of analysts expect the lender to
fall short.
However,Jes Staley, chief executive,
insisted the bank could meet the profit-
ability goal, in part by reducing costs by
more than previously planned.
“One of our advantages is discretion
and control over our expenses,” Mr
Staley told reporters on a call to discuss
the bank’s second-quarter results.He said Barclays, which employs
82,000 people, had cut 3,000 jobs dur-
ing the quarter, primarily by eliminat-
ing what the bank described as “non-
revenue producers”.
Mr Staley said the lay-offs would
result in lower costs in the second half,
as he signalled that the bank would
reduce bonuses and lower its invest-
ment spend. As a result, Barclays said it
expected to cut annual expenses to
below £13.6bn versus its previous guid-
ance for costs of £13.6bn to £13.9bn.
Mr Staley announced the renewed
focus on cost control as the bank posted
second-quarter profits that fell short of
analysts’ expectations.
The bank generated a net profit of
£1.03bn in the second quarter, which
was 16 per cent lower than a year agoand 3.7 per cent behind forecasts.
Andrew Coombs, banks analyst at
Citi, said it “now looks highly unlikely”
that Barclays could hit its full-year prof-
itability target. It posted a ROTE of 9 per
cent in the second quarter, versus
expectations for 9.3 per cent, and
returns tend to be lower in the second
half of the year. Despite the tough trad-
ing conditions, Barclays boosted its
interim dividend by 20 per cent to 3p, as
it benefited from an absence of the regu-
latory fines levied on the bank in recent
years, which have hampered its ability
to return capital to shareholders.
Shares in the group, which have fallen
more than 13 per cent over the past year,
weredown 2.5 per cent in afternoon
trading yesterday in London.
See LexBanks
Barclays vows to hit target with costs focus
KATE BEIOLEYCasio Electronics has found itself out of
tune with UK competition rules after
receiving a £3.7m fine for illegally pres-
suring shops to sell its keyboards and
digital pianos at high minimum prices.Between 2013 and 2018, the company
used software that monitored online
prices in real time in order to press
shops into complying with its policy, the
Competition and Markets Authority
found. The company, a division ofCasio
Computer Company, also encouraged
retailers to inform on others who were
discounting against Casio’s wishes.
The regulator said Casio’s behaviour
“meant that individual retailers had less
incentive to discount for fear of being
caught and potentially sanctioned”.The fine is the CMA’s largest ever for a
case of resale price maintenance, the
practice of preventing customers from
shopping around for better deals.
The watchdog opened its investiga-
tion in April 2018 and ruled 12 months
later that Casio had broken the law.
Casiolast month admitted to break-
ing the law and offered to settle, result-
ing in a 20 per cent discount on its fine.
“After a year of uncertainty while the
investigation was conducted... it is in
the best interest of our employees, sup-
pliers, shareholders, distributors and
customers to agree settlement and
return our focus to daily business,” said
Tim Gould, deputy managing director.
Casio said it had changed its practices
since the investigation and now “fully
applies with applicable laws”.Technology
Casio fined over stores pricing
Edited by
Patrick Jenkins
[email protected]City
Insider
David Schwimmer
Among FriendsWhen the boss of theLondon Stock
Exchangebecame front-page news
and the spotlight shone on its little-
known chief executive, how many
colleagues went up to the dazzled
David Schwimmer, pictured, and
quipped: “So no one told you life
was gonna be this way.” They
probably won’t have added: “Your
job’s a joke” (running the LSE is
quite a big deal) or “you’re broke”
(he gets paid £5m a year). But yes,as fans ofFriendswill appreciate,
the boss of the LSE, whoyesterday
confirmed the acquisition of the old
Thomson Reutersdata business
Refinitiv, shares a name with the
actor who plays Ross. Here’s hoping
the rest of the theme tune doesn’t
play out for Schwimmer as he
pursues his acquisition-based
growth strategy: “It’s like you’re
always stuck in second gear, When
it hasn’t been your day, your week,
your month, or even your year.”
Clap clap clap clap.Mike Ashley
Testing times
Mike Ashley, the maverick founder-
boss ofSports Direct, might wish
he’d putHouse of Fraserthrough a
few more tests before he acquired
it last August. It’s blown a €674m
tax hole in the accounts. But his
love of testing elsewhere goes on
unabashed. Worker bees at his
Shirebrook warehouse in
Derbyshire are searched after each
shift. During efforts to keep
Debenhamsout of the hands of US
hedge funds, he suggestedtop
brass take lie detector tests. Among
the curious lines in the latest
results statement, he said: “We
believe there should be a voluntary
drug test for CEOs and CFOs of
listed companies”, so that
“undisclosed personal issues” do
not lead to blackmail threats “[that
would] force CEOs and CFOs to
make decisions based on saving
their own skin”. City Insider
assumesChris Wootton, Ashley’s
incoming finance director, has
passed with flying colours.Noel Edmonds
Switching offIn his battle withLloyds Bankas an
allegedly mistreated customer of its
HBOSunit, TV personalityNoel
Edmondshas made plenty of noise.
He’s set up websites abusing boss
António Horta-Osórioand a radio
stationwhich intersperses horror
stories from ex-customers with
songs such as “You’ve got to pick a
pocket or two”. Last week Radio
Edmonds went off-air, as did the
websites. A press release from
Lloyds announced a settlement had
been reached, though with no
financial details. Sums of £5m have
been speculated about. This would
be an odd outcome. Not long ago
Edmonds was claiming more than
£60m. His obligation to litigation
funderTheriummay be £2m-£3m.
Hardly enough to buy that dream
pad in New Zealand he is said to be
hankering after. Meanwhile, those
whose cases Edmonds championed
on air have been left puzzled. Is
their bearded saviour simply
resting ahead of a fresh assault, as
his friendsclaim, or is he off to
Antipodean pastures new?Iain Conn
Tin earNo wonder those who have worked
with outgoingCentricachief exec
Iain Conndescribe him as having a
tin ear. Reporting a hefty loss and
slashing the dividend against a
background of a 70 per cent slump
in the share price under his tenure,
he’s rarely taken advice or
entertained self-doubt. Conn still
had the chutzpah this week to offer
Boris Johnson a tip: scrap the
energy bills cap that has been so
popular with Tory backbenchers.
This time his own advice seems
likely to fall on a tin ear.City Insider returns in September
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