LCH.Clearnet posts rise in operating profit for 2006

Source: LCH.Clearnet Group

Financial highlights

  • Strong growth in net revenue of 26.9%(1) to EUR443.7m from record traded volumes in 2006;
  • 1,270 million trades, an increase of 16.6%(2) on 2005;
  • Record traded values of EUR500 trillion;
  • Operating profit increased by 105.8% to EUR177.6m.

(1) Percentage changes are on an annualised basis compared to the year ended 31 December 2005. No account has been taken of the impact of the movement in average exchange rates as these are immaterial.
(2) Measured on a like-for-like basis.

Commenting on the Group's performance, LCH.Clearnet's Chief Executive Roger Liddell said: "2006 was a challenging year for the Group, with significant change taking place in the industry as a whole and within LCH.Clearnet as well. It was also a year which saw record levels of clearing activity across the full range of services offered, which resulted in a very strong financial performance. At the same time, a great deal of work has been undertaken to ensure that our systems and internal processes are and will continue to be appropriate to meet current service requirements and future development needs.

"LCH.Clearnet saw spectacular levels of clearing activity and at the year end, the Group had cleared a total of 1.27 billion contracts, an increase of 16.6% over 2005. These reflected a traded value of just over €500 trillion, an increase of 23.0% over 2005, and a notable indicator of the size of and our key position in modern financial markets.

"Transaction revenue increased by 28.3% over 2005 to €421.8 million. This growth was primarily due to the high levels of activity in equity and energy markets during the year. The change in product mix drove a higher proportional increase in transaction revenue than overall volumes. Treasury revenues grew rapidly, driven by unprecedented levels of cash and non-cash margin commitments, particularly in the equity and commodity sectors. Cash margins and default fund contributions under Treasury management peaked early in the summer at €23.5 billion, against an average over the year of €16 billion.

"Interest payments to members, in respect of cash and collateral margin payments, increased by 92.6% to €661.6 million, reflecting the size of balances arising from these high activity levels. Our focus on cost control continued during the year and resulted in administrative expenditure decreasing by 7.5% to €218.3 million."

Mr Liddell added: "There is no doubt that LCH.Clearnet faces a serious competitive business challenge from a number of directions - "clearing-driven" mergers, new entrants in our market space, development of alternative trading platforms attracting liquidity from customers served by us. At the same time, we are affected by regulatory pressure and by the increasing scrutiny of the sector by competition authorities. For us to continue to prosper as an organisation, we must seek to minimise or remove the incentive for disintermediation, whatever its source. We believe that this can be best achieved by adjusting our operating model to enable us to focus more clearly on delivering benefits to users. We firmly believe that our members, the prime users of our services, would prefer to see more immediate financial benefit from substantially lower fees than from future rebates or dividends. To achieve the conditions for us to be able to deliver a considerably lower tariff, it will be necessary to reduce the shareholding of the largest returns-focused shareholder. We have achieved agreement with Euronext, subject to shareholder approval at an Extraordinary General Meeting to be called later in the year, for the early redemption of its redeemable convertible preference shares, and for a programme, to be completed by the end of 2008, to buy back and retire the great majority of its ordinary shares. These actions will help to free up LCH.Clearnet's ongoing financial commitments to the extent that we will be able to deliver long term and fully sustainable low price services."

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