LSE first half revenues soar but operating profits dip

Source: LSE

Announcement of interim results for the six months ended 30 September 203:

  •  Good overall financial performance with headline revenue growth across all of the Group's main business areas
  • Revenue up 44 per cent to £504.2 million (H1 FY 2013: £349.8 million), including five months' contribution from LCH.Clearnet; revenue up 8 per cent on organic and constant currency basis
  • Total income (excluding unrealised gains/losses at LCH.Clearnet) up 34 per cent at £567.1 million (H1 FY 2013: £423.7 million); down 4 per cent on organic and constant currency basis
  • Underlying operating expenses kept broadly flat, reflecting continued good cost control
  • Adjusted operating profit up 6 per cent at £229.9 million (H1 FY 2013: £217.2 million); down 13 per cent on organic and constant currency basis; operating profit of £151.0 million (H1 FY 2013: £186.8 million)
  • Adjusted basic EPS1 of 48.2 pence (H1 FY 2013: 51.8 pence); basic EPS of 24.9 pence (H1 FY 2013: 43.0 pence)
  • Interim dividend up 4 per cent to 10.1 pence per share (H1 FY 2013: 9.7 pence per share)
  • Acquisition of majority stake in LCH.Clearnet completed in May 2013, with major project programmes now live to deliver operational efficiencies, synergies and other benefits; new LCH.Clearnet Group CEO appointed
  • SwapClear discussions are ongoing to ensure EMIR compliance
  • Numerous new products, services and projects live in the period, including: a CSD in Luxembourg; MTS swaps service; a London-based derivatives market; the  launch of FTSE Super Liquid contracts; new FTSE fixed income indices business and acquisition of  majority stake in the EuroTLX retail bond platform

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

"This has been a good overall first half for td overall first half for the Group. The 44 per cent rise in our revenue reflects an underlying increase of 8 per cent, with growth across all our business divisions, as well as the first time inclusion of LCH.Clearnet.  Particular highlights include strong performances from our fixed income business, the resurgent IPO market and further growth in FTSE from both the organic business and the new fixed income indices business. 

"The Group is increasingly international and diverse and we are well positioned in a wide range of businesses and markets.  We remain focused on developing growth opportunities, realising the benefits from the acquisition of LCH.Clearnet, and delivering on our strategy."

1 before amortisation of purchased intangibles, non-recurring items and unrealised net investment gains/losses at LCH.Clearnet.

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

Chairman's Statement

Overview

Over the last four years, the Group has been successfully executing on its strategy to grow and diversify revenues and to develop its international scale and reach, both organically and by selected acquisitions.  We continue to make good progress, in particular with the completion of the acquisition of a majority stake in LCH.Clearnet during the period, which gives us a systemically important financial infrastructure asset with significant international scale. This acquisition also provides us with the ability to further transform our business over coming years, working in partnership with customers, by developing growth opportunities in OTC and other markets and by implementing operational efficiencies and service improvements. While still early days, we have formed detailed programmes to start achieving the various benefits of this transaction, and we will report further in future periods as we make progress.

The Group also established an international fixed income indices business, FTSE TMX Global Debt Capital Markets, in April 2013.  This transaction increases FTSE's profile in North America and strengthens its position in fixed income, the fastest growing asset class in the ETF and mutual fund segments.  In addition, the Group acquired a 70 per cent stake in EuroTLX, an Italian multilateral trading facility in the retail fixed income market. A number of new initiatives were also launched, including:

  • a Central Securities Depository in Luxembourg, which extends the Group's CSD services through an open-access model to help customers meet regulatory obligations, with the first major bank customer already signed to use the service;
  • MTS Swaps, a new platform that will give buy-side institutions the ability to trade interest rate swaps electronically; and
  • a new contract, FTSE UK Large Cap Super Liquid index (FTSE UK SLQ) futures, available to trade on the new London Stock Exchange Derivatives Market.

We highlight the major factors determining Group performance in our principal business segments, over the past six months, in the commentary below.

Operational Performance

Information Services revenues increased 14 per cent to £168.3 million (up 9 per cent on an organic and constant currency basis).  This growth mainly reflects the strong performance by the FTSE indices business, with revenues up 29 per cent to £83.9 million, which includes contribution from the Vanguard contract win as funds completed the switch to FTSE indices as well as from the new fixed income indices business which contributed £5.8 million in the period.  Nearly two years following completion of the acquisition of the outstanding 50 per cent share of FTSE, the Group is on track to achieve the aggregate target £28 million revenue and cost synergies from the transaction, and expects to exceed the £10 million cost saving by the end of the three year timetable.

The number of professional users of real time UK data at 30 September 2013 declined 7 per cent year on year to 80,000, while the number of professional users of Italian data reduced by 9 per cent over the same period.  Helping to offset the reduction in real time sales was a 6 per cent increase in revenue from other information services.

Post Trade Services, comprising CC&G and Monte Titoli in Italy, grew revenue by 8 per cent to £48.1 million (up 1 per cent at constant currency) with clearing revenues impacted by the reduction in Italian equity and derivatives trading volumes. Settlement revenues rose 11 per cent (up 4 per cent at constant currency) as total settlement instructions increased, while custody revenues grew 7 per cent (flat at constant currency).  Treasury income decreased as expected, declining 59 per cent to £28.1 million.  CC&G completed the move to the 95 per cent secured investment level for cash margin, needed to meet EMIR requirements, by September 2013, with a consequent reduction in yields. 

LCH.Clearnet contributed revenue of £111.2 million and net treasury income of £30.5 million in the five month period as part of the Group. The SwapClear OTC IRS clearing business performed well, contributing clearing revenue of £41 million with increased dealer and client membership (one of the principal revenue drivers) and a 24 per cent year on year increase in notional value cleared. Revisions to the profit sharing arrangements were agreed for the period, whereby LCH.Clearnet's share of profit from Swapclear is expected to be approximately 34 per cent in 2013.  As part of this revision, LCH.Clearnet commenced funding a proportion of the future development expenditure for the SwapClear service.  Further discussions are also in progress regarding the way in which SwapClear and other LCH.Clearnet services are structured, governed and managed, to ensure they meet EMIR and other regulatory requirements for clearing houses.

While the transaction was only completed in May, we remain even more convinced of the opportunities in the business, and we have progressed speedily in a number of areas to start the process of achieving benefits from the change in majority ownership.  Work is underway to quantify further efficiencies in addition to the synergies already documented at the time of the transaction.  Investment continues where needed to drive growth, enhance risk management and ensure on-going regulatory compliance.  A new Group CEO, Suneel Bakhshi, was recently appointed, due to start in Q1 calendar 2014.  He brings substantial experience in risk management and process change in complex organisations, which should prove invaluable as LCH.Clearnet executes its strategy as part of LSEG.

Revenue for the Group's Capital Markets segment, which includes primary and secondary market activities, increased 12 per cent to £145.2 million.  In primary markets, the total amount of capital raised increased 114 per cent to £16.3 billion, reflecting a good recovery in equity issuance for domestic and international companies across our markets. In total, 52 companies were admitted to trading on AIM, 6 companies came to market in Italy and 21 issuers joined our main markets in London.   Looking ahead, the pipeline of companies working on joining our markets remains encouraging. In Italy, the ELITE programme, which helps companies that are exploring listing, has grown to over 130 firms.

In secondary markets, average daily value traded in the UK cash equities market increased 2 per cent to £4.2 billion, while in Italy the average daily number of trades reduced by 8 per cent to 209,000, reflecting a generally weak trend across many markets in Europe.  Trading on Turquoise was stronger, with a 63 per cent rise in average daily equity value traded on a pan-European basis. The Group's derivatives markets experienced weak conditions with 34 and 24 per cent declines in volume traded in the UK and Italy respectively.

The fixed income business produced a good performance with trading volumes on the MTS repo markets up 10 per cent year on year while the MTS cash market and BondVision (the dealer to client electronic bond platform) increased 37 per cent. MOT, the Italian retail bond market, grew 7 per cent.

Revenues for Technology Services increased 15 per cent to £29.4 million, up 6 per cent on an organic constant currency basis.  MillenniumIT performed well, with revenues up 11 per cent at constant currency, mostly relating to growth in the Enterprise Service Provision operation. Revenues from other technology services also grew, with contribution from the recently acquired specialist GATELab IT business.

For full figures click here. 

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