November 13, 2008

London Stock Exchange Group plc announcement of financial results for the six months ending 30 September 2008

London Stock Exchange Group plc (the “Exchange”) today reports results for the six months ended 30 September 2008.

Financial Highlights:

• Revenue up 70 per cent to £345.5 million; a five per cent increase on a pro forma basis (flat at constant currency) assuming Borsa Italiana had been acquired on 1 April 2007

• Operating profit before amortisation of purchased intangibles and exceptionals up 57 per cent to £179.9 million; five per cent pro forma growth (flat in constant currency)

• Profit before tax up 30 per cent to £127 million

• Basic EPS of 30.3 pence, and adjusted basic EPS up ten per cent to 39.3 pence

• Interim dividend per share up five per cent to 8.4 pence per share

Financial Structure:

• Strong net cash flow from operating activities of £145.4 million – up from £87.3 million last year

• £700 million of committed borrowing facilities through to 2012 or beyond compared to £624 million drawn debt

Operational Highlights:

• SETS volumes continued to grow, increasing 33 per cent to 739,000 trades per day. SETS value traded declined two per cent, a resilient performance set against an average 12 per cent fall in the FTSE 100 compared to the prior period. Trading at Borsa Italiana was eight per cent lower at 262,000 trades per day

• London is the leading international listing venue with 21 international IPOs on our markets, and a total 114 new issues in London and Italy

• Demand for the Group’s real time data remained strong with 112,000 professional users of LSE information, up 8,000 over last year and unchanged since the start of the financial year; and in Italy professional terminals were up 7,000 on last year to 161,000, and level with the number six months ago

• Italian cash equities market successfully migrated to TradElect in early November; overall integration programme is ahead of plan, with expected cost synergies up 20 per cent to at least £24 million

Commenting on the six months, Clara Furse, Chief Executive said:

“The Exchange has delivered good results, with adjusted basic earnings per share increasing by ten per cent against a backdrop of challenging markets.

“This performance underlines the quality and resilience of our business, illustrating our critical capital raising and price forming role as a well regulated market with an exceptionally strong international brand. We are busy developing a number of new services and products as well as the opportunities arising from our merger with Borsa Italiana. Integration synergies are increasing and being achieved at a faster rate, with a 20 per cent uplift in cost savings to at least £24 million. Activity on the Exchange will continue to reflect more difficult and uncertain market conditions. However, we are well positioned and financially strong, ready to serve our increasingly international market community.”

Chris Gibson-Smith, Chairman of the Exchange, said:

“The business has performed well in what are very challenging times for financial markets. We remain focused on providing increasingly efficient markets and services for all of our users.

”We have announced a five per cent increase in interim dividend, recognising both the good first half financial performance and the Board’s belief that it is appropriate to remain conservative at this interim stage, with market conditions remaining difficult.”

Chairman’s statement

Against the backdrop of volatile and increasingly difficult market conditions, the Exchange has delivered a good result for the first half of the financial year. Issuer Services made a strong start in the first quarter and London’s share of international IPOs remains very high, though overall new issue activity has, unsurprisingly, been more subdued in the latter part of the period. Information Services produced a strong performance in the period, with an increase in the number of professional users of our real-time price and trading data, reflecting growth in international demand for information. The Trading Services division has delivered a solid result. Trading in cash equities in London remained good, with a 33 per cent rise in daily trading volume and, while value traded declined two per cent, this was set against an average 12 per cent fall in the FTSE 100. Elsewhere, derivatives performed well though cash equities in Italy remained under pressure due to the decline in the MIB index, and fixed income also suffered in a difficult trading environment. The Italian based post trade operations delivered a strong result and the clearing house has demonstrated its strength in a period marked by higher risk resulting from the financial market turmoil.

The first half performance highlights the high quality and resilient nature of our businesses, particularly the value of our critical capital raising, the deep liquidity of our markets and price forming role as a well regulated market. We have seen growth in trading by high frequency technical traders which has driven trading both on our markets and on competitor platforms, contributing to the overall growth of the market. During the period we introduced a new trading tariff structure which rewards and incentivises such liquidity provision, making our markets more efficient and attractive.

The merger with Borsa Italiana is making good progress and we now expect to exceed the promised cost savings by 20 per cent and achieve them at a faster rate, anticipating an extra £4 million in cost synergies by next year. This increases total synergies by ten per cent to at least £44 million, with an additional £4 million uplift in implementation costs to £44 million to achieve the extra savings.

The Exchange faces a very difficult and uncertain macro environment, though we remain well positioned to meet the evolving needs of an increasingly international community in a period of great change.

Financial results

Unless otherwise stated, all figures below refer to the six months ended 30 September 2008. Comparative figures are for the corresponding period last year. In addition, to assist investors in understanding the performance of the enlarged Group, pro forma figures are presented for the prior comparative period as if Borsa Italiana had been acquired on 1 April 2007. The basis of preparation is set out at the end of this report. All data relating to key performance indicators is provided on a pro forma basis for the full financial year and equivalent prior period unless otherwise stated.

The Exchange produced a good overall performance in the first six months of the financial year, with revenue up 70 per cent to £345.5 million (2007: £203.1 million). On a pro forma basis revenue increased five per cent (from £329.0 million), flat in constant currency. Operating costs before amortisation of purchased intangibles and exceptional integration costs increased from £88.4 million to £165.6 million, up six per cent on a pro forma basis (from £156.9 million), flat in constant currency. This includes £6.1 million of costs associated with the collapse of Lehman Brothers. Operating profit for the period, also before amortisation of purchased intangibles and exceptional integration costs, increased 57 per cent from £114.7 million to £179.9 million, up five per cent (from £172.1 million) on a pro forma basis and flat in constant currency.

Net finance costs increased to £27.2 million, up from £17.8 million, which includes the recycling from reserves of a £6.8 million non-cash charge associated with the end of hedge accounting for a gilt lock which was put in place to mitigate interest rate movements on a future bond issue. The underlying group tax rate of 31.5 per cent, above the standard UK tax rate of 28 per cent, reflects the mix of profit between the UK and Italy.

Basic earnings per share was 30.3 pence, a decrease of 12 per cent over basic earnings of 34.3 pence per share last year. Adjusted basic earnings per share increased ten per cent to 39.3 pence.

Net cash flow from operating activities increased 67 per cent to £145.4 million (2007: £87.3 million).

Capital expenditure in H1 amounted to £26.3 million, including £7.7 million associated with integration projects. Further integration expenditure will be incurred in H2 and, with a number of technology and other projects being developed, spend is expected to increase in the second half, with total capital expenditure above £70 million for the year.

The Exchange has retained a prudent financial structure. At 30 September 2008 drawn borrowings amounted to £624 million. A new £250 million, five year revolving credit facility at LIBOR plus 80 basis points, was taken out in July to replace a £250 million bridge facility due to expire in July 2009. The Group also arranged a new £25 million three year facility in October 2008 and on 12 November agreed to extend its £180 million bridge and £200 million revolving credit facilities until April 2010 and February 2012 respectively. Committed facilities available for general Group purposes total £905 million, of which £700 million extends to 2012 or beyond, providing comfortable headroom.

Interim Dividend and Share Buyback

The Directors have declared an interim dividend of 8.4 pence per share, representing a five per cent increase in interim dividend (2007: 8.0 pence). The increased payment recognises both the good first half financial performance and the Board’s belief that it is appropriate to remain cautious at this interim stage while market conditions remain difficult.

The interim dividend will be paid on 5 January 2009 to shareholders on the register on 5 December 2008.

The Exchange made on-market purchases of 5.9 million shares during the first half of the year, for a total consideration of £51.5 million, and has completed purchases of almost £100 million in the past year. As at 30 September 2008, the number of ordinary shares in issue was 270,518,518.

The Board remains committed to returning capital when it is in shareholders’ interest to do so but believes that following the significant changes in global financial market conditions, it is currently prudent to retain a more robust balance sheet and to provide financial flexibility to pursue investment opportunities. It is therefore bringing to an end the £500 million share buyback programme currently in place.

Board of Directors

The Exchange is pleased to welcome Doug Webb to its Board of Directors. Doug joined the Group as Chief Financial Officer at the start of June, having been with QinetiQ Group plc for the previous five years, latterly as CFO.

Operating Performance

A more detailed review of the operational performance of the business is provided in the operating report below. All comparative information is provided on a pro forma basis.

View the full announcement, with the operating report.


Patrick Humphris
+44 (0) 20 7797 1222

Alessandro Pavesi
+39 02 72426 211

Investor Relations
Paul Froud
+44 (0) 20 7797 3322

Alex Simmons
+44 (0) 20 7251 3801

LSEG (London Stock Exchange Group) is a leading global financial markets infrastructure and data provider, playing a vital social and economic role in the world’s financial system.

With our open approach, trusted expertise and global scale, we enable the sustainable growth and stability of our customers and their communities. We are dedicated partners with extensive experience, deep knowledge and a worldwide presence in data and analytics; indices; capital formation; and trade execution, clearing and risk management across multiple asset classes. 

LSEG is headquartered in the United Kingdom, with significant operations in 70 countries across EMEA, North America, Latin America and Asia Pacific. We employ 23,000 people globally, more than half located in Asia Pacific. LSEG’s ticker symbol is LSEG.