London Stock Exchange Group interim results for the six months ended 30 September 2012

  • Strong financial performance in challenging markets with good contribution from the Group’s Information Services, Post Trade Services and Technology businesses
  • FTSE performing well, with major US and European client wins announced; range of new services and initiatives launched; further successful roll out of MillenniumIT platforms; and continued success of UK and Italian retail bond markets
  • Total income up 10 per cent at £423.7 million (H1 FY 2012: £386.5 million)
  • Revenue up 7 per cent to £349.8 million (H1 FY 2012: £328.1 million)
  • Adjusted operating profit1 up 1 per cent at £217.2 million (H1 FY 2012: £214.3 million); operating profit of £186.8 million (H1 FY 2012: £192.5 million)
  • Adjusted basic EPS1 up 9 per cent at 51.8 pence (H1 FY 2012: 47.6 pence); basic EPS broadly stable at 43.0 pence (H1 FY 2012: 43.1 pence)
  • Interim dividend up 4 per cent to 9.7 pence per share (H1 FY 2012: 9.3 pence per share)
  • Successful inaugural retail bond on Group’s ORB platform – increases facility headroom and extends maturity of financing through a £300 million, 4.75 per cent 9 year bond
  • Strong net cash inflow from operating activities of £172.5 million; operating net debt to adjusted EBITDA was 1.4 times, in line with the position at the start of the year
  • Regulatory and anti-trust processes are progressing in respect of the acquisition of up to 60 per cent of LCH.Clearnet, with approval received from French lead regulator; the Group remains in discussions to explore options regarding potential implications of increased capital requirements for LCH.Clearnet

Commenting on performance of the Group, Xavier Rolet, Chief Executive said:

“We have delivered a strong first half financial performance. The 10 per cent uplift in total income highlights the benefits of our increasingly diversified international Group and reflects growth from our Information, Post Trade and Technology businesses.

“Good performances, business wins and development of new initiatives have characterised another busy period for the Group. FTSE’s recent significant US and European client wins, the continued progress of our retail bond platforms in Italy and the UK, the development of our International Board and the successful migration to MillenniumIT trading systems, are all particular highlights.

“We remain focused on realising operational and integration efficiencies, developing growth opportunities and progressing our transaction with LCH.Clearnet. We continue to adapt to an evolving regulatory landscape and market conditions remain challenging in some areas, notably in Capital Markets, but we remain strongly placed to benefit from market improvements and the opportunities presented by industry changes.”

1 before amortisation of purchased intangibles and non-recurring items

All comparisons are against the same corresponding period in the previous year unless stated otherwise

Further information is available from:

London   Stock Exchange Group

Victoria   Brough – Media

+44   (0) 20 7797 1222

 

Paul   Froud – Investor Relations

+44   (0) 20 7797 3322

     

Citigate   Dewe Rogerson

Patrick   Donovan/Grant Ringshaw

+44   (0) 20 7638 9571

Notes to editors:

About London Stock Exchange Group:

London Stock Exchange Group (LSE.L) sits at the heart of the world’s financial community. The Group operates a broad range of international equity, bond and derivatives markets, including London Stock Exchange; Borsa Italiana; MTS, Europe's leading fixed income market; and Turquoise, offering UK and Russian derivatives trading, pan-European and US lit and dark equity trading. Through its markets, the Group offers international business unrivalled access to Europe’s capital markets.

The Group is a leading developer of high performance trading platforms and capital markets software and also offers its customers around the world access to an extensive range of real-time and reference data products and market-leading post-trade services. The Group is also home to a world leading index provider FTSE, which creates and manages over 200,000 equity, bond and alternative asset class indices.

Headquartered in London, United Kingdom with significant operations in Italy and Sri Lanka, the Group employs around 1,900 people.

Further information on London Stock Exchange Group can be found at www.londonstockexchangegroup.com

Chairman’s Statement

Introduction

The Group has produced a strong first half financial performance in challenging markets, with income growth in our Information Services, Post Trade Services and Technology business segments. The good results are further testament to the benefits of increased scope and diversification of our business, reflecting the success of our strategy for increased expansion and reach that we have been actively following for the past three years. We also continue to focus on operational efficiencies, controlling costs which remained flat on an underlying basis and working hard on the integration of new businesses, such as FTSE, in to the Group. We have seen a busy period with a number of successful business wins and development of new initiatives as we seek further growth opportunities, through customer partnerships and new services. We highlight the progress we have made, and the factors affecting Group performance over the past six months, in the commentary below.

Operational Performance

The Information Services division delivered a headline 66 per cent increase in revenue to £147.6 million, reflecting inclusion of FTSE since the acquisition of full control in December 2011. On an organic and constant currency basis, revenues increased 1 per cent. The number of professional users of real time UK data at 30 September 2012 declined 8 per cent year on year to 86,000 although the number of users of Italian data grew 4 per cent over the same period. Offsetting the reduction in real time sales was a 17 per cent increase in revenue from other information services, with good performance in particular from UnaVista, Sedol and Proquote.

The FTSE indices business produced a good performance, with revenues of £64.8 million. In October, FTSE announced that it has been selected by Vanguard, one of the top three US asset management firms, as the index benchmark provider for six international equity index funds with aggregate assets of $170 billion as of 31 August 2012. This contract win represents the largest ever international index provider benchmark switch, and helps to establish FTSE as the third-largest equity ETF index benchmark provider globally as well as helping cement a strong presence in the important US market. French exchange-traded funds provider Lyxor also selected FTSE as the index provider for two of its funds.Progress is being made to integrate FTSE into the Group and achieve the planned cost and revenue synergies. Work is underway to deliver IT savings, organisational changes are being made and new products have been launched, such as global FX indices in partnership with Curex. With the benefit of new business in H2, we expect FTSE will deliver double digit revenue growth for the full financial year.

Post Trade Services produced another strong performance with total income, including net treasury income, growing 6 per cent to £112.7 million, up 16 per cent at constant currency. Treasury income through the CC&G central counterparty (CCP) business increased 38 per cent at constant currency to £68.1 million, as the quantum of initial cash margin held was 21 per cent higher than the same period last year at an average €10.5 billion, and deposit yields remained at elevated levels. Excluding treasury income, revenues for clearing and settlement declined 13 per cent at constant currency, mainly reflecting a reduction in trading of Italian equities and derivatives in the period. In the Monte Titoli custody operations, the value of assets under management increased to €3.19 trillion, with a 4 per cent increase in revenues at constant currency.

During the period, Monte Titoli launched a new service to provide tri-party collateral management through its X-Com service, which allows customers to manage their investment strategies and financing more efficiently. Monte Titoli also signed the ECB’s T2S framework agreement and will be a first wave participant in the project, which aims to provide a harmonized and competitive European securities settlement infrastructure.

Proposed technical standards for CCPs under the forthcoming European Markets Infrastructure Regulation, due to come into effect from early 2013, were published at the end of September. Although the new regulatory framework is likely to provide more stringent rules on regulatory capital, the Group has stated that requirements would be met from CC&G's existing capital resources and current year profit generation.

The proposed standards also require that a CCP's cash deposits placed with financial institutions shall be subject to collateralised arrangements, with 95 per cent of such deposits collateralised with debt instruments meeting certain conditions regarding, among other things, liquidity and credit and market risk. As indicated at the time, the Group expects that as market conditions improve it will see a more normalised return compared to recent elevated levels and the recommendations, if adopted in their current form, would further reduce net treasury income in the Group's financial year ended 31 March 2014 as a consequence of the proposed requirements in relation to deposits of collateral. Although details of a revised investment approach are not fully agreed and the new standards are not yet adopted, CC&G is already adapting its investment policy in advance of the mandatory enforcement, with in excess of €4 billion of cash margin currently invested on a fully collateralised basis. Our latest assessment, given its strength in H1 and if market conditions are maintained, is that net treasury income will slightly exceed current FY 2013 market estimates.

Revenue for the Group’s Capital Markets segment, which includes primary and secondary market activities, reduced 19 per cent to £129.7 million as markets continued to be impacted by macro economic uncertainties and trading and issuance levels were consequently subdued.

In primary markets, the total amount of capital raised was £7.9 billion, down on the strong comparable period last year (H1 FY 2012: £23.3 billion). Nonetheless, our markets have remained active and have provided capital raising for a number of domestic and international issuers, with 43 companies admitted to trading on AIM, four companies coming to market in Italy and 12 in London, including Sberbank, the largest commercial bank in Russia, which joined our Main Market in September and became our fourth largest ever international capital raising.

ORB, our retail bond market in London, continued to make good progress with a number of new issuers, including its first Renminbi-denominated retail bond. Following the Group’s own successful inaugural retail bond last month, ORB has successfully raised in excess of £2.8 billion for companies from the retail investor community since launch in 2010, with £1.3 billion raised since March 2012. In Italy, the MOT retail bond market also performed well and last month saw more than €18 billion raised on its market with the third issue of BTP Italia, the biggest ever bond sale in Europe.

In secondary markets, average daily value traded in the UK cash equities market declined 18 per cent to £4.1 billion, while in Italy, the average daily number of trades reduced 15 per cent to 227,000, indicative of widespread declines in equities trading across Europe. Trading in derivatives was also similarly affected, with a 32 per cent overall decline across the IDEM and Turquoise markets. IDEM recently announced the launch of the FTSE 100 Mini-future, the first Italian futures contract based on the euro denominated FTSE 100 index.

The fixed income business delivered a resilient performance with trading on MOT up 26 per cent and MTS repo markets flat year on year. MTS cash markets declined 16 per cent although, within this segment, trading increased on BondVision, the dealer to client electronic bond market. During the period MTS announced plans to launch a daily repo index series for the euro, in conjunction with other partners. The index series will include indices for a number of European sovereign bond markets.

Revenues for Technology Services increased 3 per cent to £25.6 million, up 10 per cent at constant currency. MillenniumIT performed well, with revenues up 36 per cent at constant currency, as its technology successfully went live on three markets in three continents during the period; five different trading platforms, including cash equities, fixed income and structured products at Borsa Italiana, now hosted in Milan, successfully migrated to Millennium Exchange, while Johannesburg Stock Exchange and the Mongolian Stock Exchange also went live on MillenniumIT trading platforms. Since the period end, trading has successfully gone live on MillenniumIT technology on Oslo Børs and it was also recently announced that a MillenniumIT surveillance system is to be used by London Metal Exchange.

In July, the Group announced the signing of a Memorandum of Understanding with the Singapore Stock Exchange (SGX) to allow the largest and most actively traded stocks on each exchange to be traded by their respective member firms. The trading of SGX-listed shares on LSE is expected to launch in the near future.

Board and Management changes

During the period a number of key Board and senior management changes and appointments were announced. Doug Webb stepped down as Chief Financial Officer after four busy years in the role. He played a significant part in the recent strategic diversification, strong financial performance and growth of the organisation and the Board is grateful for his contribution over this time. David Warren joined the Group as CFO in July, bringing a wealth of senior level experience both in banking and in running exchanges, including 9 years as CFO at Nasdaq OMX.

Alexander Justham was appointed to the new role of CEO London Stock Exchange plc and Director of Regulation & Public Affairs. He will draw not only on his experience in banking but also from four years in regulation as Director of Markets at the FSA. Elsewhere, existing senior executives took on new or additional roles: Antoine Shagoury was appointed Group COO; David Lester was appointed Group Director of Strategy; and Mark Makepeace joined the Executive Committee as Group Director of Information Services in addition to his role as CEO of FTSE. These appointments further strengthen the Group’s executive management team as the business continues to pursue its strategic and operational ambitions.

LCH.Clearnet

Regulatory and anti-trust processes are progressing in respect of the announced acquisition of up to a 60 per cent stake in LCH.Clearnet. The competition authorities in the UK and Portugal are continuing to review the proposed transaction with the UK OFT and Portuguese competition authority decisions expected before the end of 2012. Clearances have been received from the Spanish competition authority, CNC, and the French regulator, ACP.

Following the release in September of proposed technical standards for CCPs under the forthcoming European Markets Infrastructure Regulation, LCH.Clearnet announced that it estimates that it will be required to increase its regulatory capital by between €300 million to €375 million. The Group is in discussions with LCH.Clearnet regarding the potential financial implications of the proposed technical standards and the measures LCH.Clearnet is exploring to ensure it can continue to deliver an acceptable return on its capital employed. The Group will disclose the outcome of these discussions in due course.

Financial Summary

Unless otherwise stated, all figures below refer to the six months ended 30 September 2012. Comparative figures are for the six months ended 30 September 2011 (H1 FY 2012). Variance is also provided at organic and constant currency. The basis of preparation is set out at the end of this report.

     

Organic and

 

Six months ended

 

constant

 

30 September

 

currency

 

2012

2011

Variance

variance

 

£m

£m

%

%

Revenue

       

Capital   Markets

129.7

159.8

(19%)

(16%)

Post   Trade Services

44.6

52.4

(15%)

(6%)

Information   Services

147.6

89.0

66%

1%

Technology   Services

25.6

24.8

3%

10%

Other   revenue

2.3

2.1

10%

15%

Total   revenue

349.8

328.1

7%

(8%)

         

Net   treasury income through CCP business

68.1

54.3

25%

38%

Other   income

5.8

4.1

41%

45%

Total   income

423.7

386.5

10%

(1%)

         

Operating   expenses

(206.5)

(174.5)

18%

3%

Share   of profit of JVs and associates

-

2.3

-

 

Amortisation   of purchased intangibles and non-recurring items

(30.4)

(21.8)

39%

 

Operating   profit

186.8

192.5

(3%)

8%

Adjusted   operating profit*

217.2

214.3

1%

(2%)

         
         

Basic   earnings per share (p)

43.0

43.1

(0%)

 

Adjusted   basic earnings per share (p)*

51.8

47.6

9%

 
         

Dividend   (p)

9.7

9.3

4%

 
         

*   before amortisation of purchased intangibles and non-recurring items

The Group produced a strong financial performance in challenging markets. Total income rose 10 per cent to £423.7 million (H1 FY 2012: £386.5 million); revenue increased 7 per cent to £349.8 million (H1 FY 2012: £328.1 million)

Operating expenses, before amortisation of purchased intangibles and non-recurring items, rose 18 per cent to £206.5 million (H1 FY 2012: £174.5 million), principally reflecting FX impacts and £35.3 million operating costs relating to FTSE. Adjusting for currency changes, estimated inflation and the impact of the acquisitions of FTSE and TRS, operating costs remained flat, reflecting tight control of our underlying cost base.

Adjusted operating profit for the period, before amortisation of purchased intangibles and non-recurring items, increased 1 per cent to £217.2 million (H1 FY 2012: £214.3 million).

Net finance costs were £21.4 million, up from £19.2 million in H1 last year, reflecting the utilisation of credit facilities to fund the acquisition of the outstanding 50 per cent stake in FTSE in December 2011. The underlying effective Group tax rate was 29.0 per cent, down slightly on the rate for the year ended 31 March 2012 (29.2 per cent).

Basic earnings per share were 43.0 pence, in line with last year (H1 FY 2012: 43.1 pence). Adjusted basic earnings per share increased 9 per cent to 51.8 pence (H1 FY 2012: 47.6 pence).

During the period the Group received a non-recurring payment of C$29 million (£18.3 million) from TMX Group in respect of last year's terminated merger transaction.

Net cash inflow from operating activities was £172.5 million (H1 FY 2012: £154.2 million). Capital expenditure in the period amounted to £26.7 million. Net cash generated after capex, other investments and dividends was £79.5 million (H1 FY 2012: £113.5 million). Free cash flow per share (pre dividend) was 50.0 p (H1 FY 2012: 63.0p)

At 30 September 2012 adjusted net debt was £662.6 million (after setting aside £200 million of cash for regulatory and operational support purposes) while drawn borrowings of £713.2 million are £44 million lower than at the start of the current financial year. Committed credit lines available for general group purposes at 30 September 2012 totalled £1.35 billion, with £750 million extending to 2015 or beyond.

Since the period end, the Group successfully issued a £300 million, 4.75% 9 year sterling fixed rate bond on the Group’s ORB platform. This bond provides a more diversified source of longer term financing for the Group and extends debt maturities out to 2021.

The Group had net assets of £1,458.3 million at 30 September 2012 (31 March 2012: £1,449.7 million). As usual, the central counterparty clearing business assets and liabilities within CC&G largely offset each other and are shown gross on the balance sheet as the amounts receivable and payable are with different counterparties.

Interim Dividend

The Directors have declared an interim dividend of 9.7 pence per share, an increase of 4 per cent on the interim dividend paid last year.The interim dividend will be paid on 7 January 2013 to shareholders on the register on 7 December 2012.

Current Trading and Outlook

The Group has delivered a strong first half performance, demonstrating the benefits of a more diversified, international business. Market conditions continue to present challenges in some areas, notably in our Capital Markets businesses, although the successful Direct Line IPO (the largest UK equity capital raising this year) demonstrates that our markets remain active.

Looking ahead, the Group is well placed as we continue to adjust our business to an evolving industry and regulatory landscape. We will continue our focus on operational and integration efficiencies, progressing the transaction with LCH.Clearnet as well as developing further opportunities to grow and diversify the Group.

Chris Gibson-Smith
Chairman
16 November 2012

Operating Performance – Key statistics

To assist investors in understanding the underlying performance of the Group, percentage changes are also presented on a constant currency basis.

Capital Markets

Capital Markets comprises the Group’s primary markets activities, providing access to capital for corporates and others, and the secondary market trading of cash equities, derivatives and fixed income.

Capital   Markets

       
         
 

Six months ended

 

Variance at

 

30 September

 

constant

 

2012

2011

Variance

currency

Revenue

£m

£m

%

%

Primary   Markets

       

Annual   fees

19.2

20.1

(4%)

(2%)

Admission   fees

14.5

20.4

(29%)

(28%)

 

33.7

40.5

(17%)

(15%)

Secondary   Markets

       

Cash   equities UK & Turquoise

40.1

52.1

(23%)

(23%)

Cash   equities Italy

12.2

16.2

(25%)

(17%)

Derivatives

6.8

9.0

(24%)

(18%)

Fixed   income

15.9

18.8

(15%)

(8%)

 

75.0

96.1

(22%)

(19%)

Other

21.0

23.2

(9%)

(3%)

Total   revenue

129.7

159.8

(19%)

(16%)

 

Capital   Markets - Primary Markets

       
   

Six months ended

 
   

30 September

Variance

   

2012

2011

%

New   Issues

       

UK   Main Market, PSM & SFM

 

12

39

(69%)

UK   AIM

 

43

58

(26%)

Borsa   Italiana

 

4

5

(20%)

Total

 

59

102

(42%)

         

Company   Numbers (as at period end)

       

UK   Main Market, PSM & SFM

 

1,393

1,457

(4%)

UK   AIM

 

1,107

1,156

(4%)

Borsa   Italiana

 

288

294

(2%)

Total

 

2,788

2,907

(4%)

         

Market   Capitalisation (as at period end)

       

UK   Main Market (£bn)

 

1,885

1,713

10%

UK   AIM (£bn)

 

64

64

-

Borsa   Italiana (€bn)

 

345

337

2%

Borsa   Italiana (£bn)

 

275

292

(6%)

Total   (£bn)

 

2,224

2,069

7%

         

Money   Raised (£bn)

       

UK   New

 

4.1

11.5

(64%)

UK   Further

 

2.4

3.3

(27%)

Borsa   Italiana new and further

 

1.4

8.5

(84%)

Total   (£bn)

 

7.9

23.3

(66%)

 

Capital   Markets - Secondary Markets

       
   

Six months ended

 
   

30 September

Variance

   

2012

2011

%

Totals   for period

       

UK   value traded (£bn)

 

508

626

(19%)

Borsa   Italiana (no of trades m)

 

28.6

34.2

(16%)

Turquoise   value traded (€bn)

 

200.8

276.3

(27%)

         

SETS   Yield (basis points)

 

0.68

0.70

(3%)

         

Average   daily

       

UK   value traded (£bn)

 

4.1

5.0

(18%)

Borsa   Italiana (no of trades '000)

 

227

267

(15%)

Turquoise   value traded (€bn)

 

1.57

2.14

(27%)

         

Derivatives   (contracts m)

       

Turquoise

 

13.4

21.7

(38%)

IDEM

 

20.4

28.3

(28%)

Total

 

33.8

50.0

(32%)

         

Fixed   Income

       

MTS   cash and Bondvision (€bn)

 

1,103

1,318

(16%)

MTS   money markets (€bn term adjusted)

 

32,977

33,008

(0%)

MOT   number of trades (m)

 

2.68

2.12

26%

Post Trade Services

The Post Trade Services division principally comprises the Group’s Italian-based clearing, settlement and custody businesses.

 

Six months ended

 

Variance at

 

30 September

 

constant

 

2012

2011

Variance

currency

 

£m

£m

%

%

Revenue

       

Clearing

17.7

21.6

(18%)

(10%)

Settlement

7.0

9.8

(29%)

(21%)

Custody   & other

19.9

21.0

(5%)

4%

Total   revenue

44.6

52.4

(15%)

(6%)

Net   treasury income through CCP business

68.1

54.3

25%

38%

Total   income

112.7

106.7

6%

16%

         

 

 

Six months ended

   
 

30 September

 

Variance

 

2012

2011

 

%

CC&G   Clearing (m)

       

Equity   clearing (no of trades)

30.1

36.1

 

(17%)

Derivative   clearing (no of contracts)

20.4

28.3

 

(28%)

Total  

50.5

64.4

 

(22%)

Open   interest (contracts as at period end)

4.8

5.6

 

(14%)

Initial   margin held (average €bn)

10.5

8.7

 

21%

         

Monte   Titoli

       

Pre   Settlement instructions (trades m)

13.8

16.8

 

(18%)

Settlement   instructions (trades m)

12.6

17.4

 

(28%)

Total   Settlement

26.4

34.2

 

(23%)

Custody   assets under management (average €tn)

3.19

3.05

 

5%

Information Services

The Information Services division consists of real time data products and a number of other discrete businesses, including Global Indices products, Trade Processing operations, Desktop and Work Flow products.

 

Six months ended

 

Variance at

 

30 September

 

constant

 

2012

2011

Variance

currency

 

£m

£m

%

%

Revenue

       

Real   time data

45.3

50.2

(10%)

(7%)

Other   information services

37.5

32.1

17%

13%

FTSE   royalties

-

6.7

-

-

FTSE   revenue

64.8

-

-

-

Total   revenue

147.6

89.0

66%

1%

Total   revenue excluding FTSE revenue and royalties & TRS revenue

81.1

82.3

(1%)

1%

 

 

30 September

 

Variance

 

2012

2011

 

%

UK   Terminals

       

Professional   - UK

35,000

38,500

 

(9%)

Professional   - International

51,000

54,500

 

(6%)

Total  

86,000

93,000

 

(8%)

Borsa   Italiana Professional Terminals

140,000

134,000

 

4%

Technology Services

Technology Services comprises technology connections and data centre services for clients of London Stock Exchange and Borsa Italiana, plus the MillenniumIT software business, based in Sri Lanka, which provides technology for the Group as well as third party sales and enterprise services.

 

Six months ended

 

Variance at

 

30 September

 

constant

 

2012

2011

Variance

currency

 

£m

£m

%

%

Revenue

       

MillenniumIT

11.4

9.6

19%

36%

Technology

14.2

15.2

(7%)

(4%)

Total   revenue

25.6

24.8

3%

10%

Basis of Preparation

Results for the Italian business have been translated into Sterling using the exchange rates set out below. Constant currency growth rates have been calculated by translating prior period results at the average exchange rate for the current period.

 

Closing € : £ rate

Average € : £ rate for the period ended

30   September 2012

€1.25

€1.25

30   September 2011

€1.15

€1.14

31   March 2012

€1.20

€1.16

Further information

The Group will host a presentation of its Interim Results for analysts and institutional shareholders today at 9.30am at 10 Paternoster Square, London EC4M 7LS. The presentation will be accessible via live web cast which can be viewed at http://www.londonstockexchangegroup.com/investor-relations/investor-relations.htm, or listened to on +44 (0) 1452 585 937. For further information, please call the Group’s Investor Relations team on +44 (0) 20 7797 3322.