Press releases 2008

13 November 2008
London Stock Exchange Group plc announcement of financial results for the six months ended 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.”

Further information is available from:

London Stock Exchange	Patrick Humphris – Media	+44 (0) 20 7797 1222
	Alessandro Pavesi – Media	+39 02 72426 211
	Paul Froud – Investor Relations	+44 (0) 20 7797 3322
Finsbury	Alex Simmons	+44 (0) 20 7251 3801

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.

Issuer Services

Following a strong first quarter performance, Issuer Services saw a decline in new and further issue activity in the second quarter, with revenue for the half year down seven per cent on a pro forma constant currency basis to £49.4 million, contributing 14 per cent of total Group revenue.

Annual fee income was good at £20.8 million, highlighting the resilient nature of the revenue line. At 30 September 2008 the total number of companies on our markets stood at 3,489, including 305 on Borsa Italiana’s markets.

Income from Admission activity declined in the period, reflecting the generally difficult conditions for new equity issuance resulting from the global crisis in financial markets. The total number of Main Market new issues reduced to 49 and numbers were also subdued in Borsa Italiana. Nevertheless, the number of international new issues remained good overall in the period, with 21 international IPOs on the Exchange’s markets during the period, easily exceeding those on NYSE Euronext, Nasdaq OMX and Deutsche Börse. The total amount of new capital raised on the Exchange’s markets during the first six months of the financial year rose to £43.6 billion (2007: £29.6 billion), principally due to a near tripling of money raised by further issues to a record £34 billion.

	Six months ended
	30 September		Variance
	2008	2007	%
New Issues
Main Market, PSM & SFM	49	73	-33%
AIM	60	163	-63%
Blt	5	23	-78%
Total	114	259	-56%
Company Numbers (as at 30 September)
Main Market, PSM & SFM	1,575	1,615	-2%
AIM	1,609	1,682	-4%
Blt	305	304	0%
Total	3,489	3,601	-3%
Market capitalisation (as at 30 September)
Main Market (UK only) (£bn)	1,445	1,950	-26%
AIM (£bn)	62	102	-39%
BIt (€bn)	480	772	-38%
BIt (£bn)	383	544
Total (£bn)	1,890	2,596	-27%

RNS, the Exchange’s UK financial communications service performed well, maintaining around 75 per cent market share of all regulatory announcements with over 90 companies in the FTSE 100 using RNS in the half year.

Trading Services

	Six months ended			Variance at
	30 September		Variance	constant
	2008	2007	%	currency %
Cash	105.1	105.5	0%	-2%
Derivatives	13.5	11.8	14%	8%
Fixed income	12.9	17.6	-27%	-34%
Other	19.6	18.1	8%	0%
Revenue £m	151.1	153.0	-1%	-5%

The Trading Services division, which consists of cash equities, derivatives and fixed income trading activities, produced a solid overall performance against the backdrop of significant falls in market value, contributing 44 per cent of Group revenues.

Trading on SETS, the UK electronic order book, remained strong in volume terms, with average daily bargains up 33 per cent, driven in part by the continued growth in high frequency, algorithmic traders using the low latency trading opportunities provided by our platform. Increased market volatility over the period, particularly in September, also contributed to the first half performance.

	Six months ended
	30 September		Variance
	2008	2007	%
Equity Volume Bargains (m)
LSE	94.6	69.4	36%
BIt	33.8	36.0	-6%
Total	128.4	105.4	22%
Equity Value Traded
LSE (£bn)	1,068	1,086	-2%
BIt (€bn)	568	833	-32%
BIt (£bn)	451	587	-23%
Total (£bn)	1,519	1,673	-9%
Equity Average Daily Bargains (‘000)
LSE	739	555	33%
BIt	262	286	-8%
Total	1,001	841	19%
Equity Average Daily Value Traded
LSE (£bn)	8.3	8.7	-5%
BIt (€bn)	4.4	6.6	-33%
BIt (£bn)	3.5	4.7	-26%
Total (£bn)	11.8	13.4	-12%
Equity Average Bargain Size
LSE (£’000)	11.3	15.7	-28%
BIt (€’000)	16.8	23.1	-27%

In terms of value traded on SETS, there was a two per cent fall to £1,068 billion traded in the half year, partly reflecting a 12 per cent fall in the average value of the FTSE 100. The average value of a SETS bargain decreased to £11,300 with the yield per bargain declining, as expected, to £0.74 (2007: £0.99).

Average daily number of trades in Italy declined eight per cent, reflecting a reduction in retail trading arising from the turmoil in financial markets and a 27 per cent average fall in the value of the MIB index. Migration to the lower latency TradElect platform which took place on 10 November is expected to facilitate increased levels of trading due to high speed and significantly improved execution certainty.

The Exchange introduced a new tariff structure for order book trading in London from 1 September to provide new incentives for liquidity provision, leading in turn to tighter spreads and lower overall transaction costs. This new structure is already stimulating growth in trading among the high frequency technical traders (or electronic liquidity providers), which have become an important new source of liquidity provision, and has helped increase the velocity of trading.

In June the Exchange announced its intention to launch a pan-European non-display, or “dark pool”, trading venue, called Baikal. The service was originally announced in cooperation with Lehman Brothers. Following Lehman’s move into administration the Exchange has reviewed a number of interesting options in connection with Baikal. The Exchange remains fully committed to Baikal, expects to announce new partners shortly and aims to launch the venture late second quarter 2009, subject to regulatory approval. While it is likely that Baikal will launch into challenging markets the Exchange continues to expect a significant return on investment.

The Exchange’s Derivatives operations performed well overall, with good growth at EDX London. EDX recorded a 49 per cent increase in contracts traded, driven in part by very strong growth in Russian derivatives. Trading on the Italian derivatives market IDEM reduced slightly, reflecting the decline in the Italian equities market, though open interest increased more than 20 per cent. Trading commenced on Borsa Italiana’s new energy derivatives market, IDEX, at the beginning of November.

	Six months ended
	30 September		Variance
	2008	2007	%
Derivatives (contracts m)
EDX	32.0	21.5	49%
IDEM	19.4	19.6	-1%
Total	51.4	41.1	25%
Fixed Income (Nominal Value Traded)
BIt MOT (€bn)	78.3	73.9	6%
MTS (€tn)	9.9	10.9	-9%

On the Fixed Income markets, trading conditions remained difficult as a consequence of continued credit market liquidity events. On MTS, nominal value traded on repo and cash trading decreased nine per cent in total. However on MOT, Borsa Italiana’s Electronic Bond and Government Securities Market, value traded increased six per cent.

Information Services

	Six months ended			Variance at
	30 September		Variance	constant
	2008	2007	%	currency %
Data charges	60.6	52.3	16%	12%
Other	29.2	24.8	18%	16%
Revenue £m	89.8	77.1	16%	13%

The Information Services division in London and Milan delivered a strong performance, with a 13 per cent increase in pro forma constant currency revenues, comprising 26 per cent of total Group income.

	Six months ended
	30 September		Variance
	2008	2007	%
LSE Terminals
Professional - UK	45,000	43,000	5%
Professional - International	67,000	61,000	10%
Private	28,000	23,000	22%
Total	140,000	127,000	10%
BIt Terminals
Professional	161,000	154,000	5%
Private	831,000	719,000	16%
Total	992,000	873,000	14%

The total number of terminals taking London Stock Exchange data rose strongly compared with the position at September 2007. The 112,000 terminals attributable to professional users are unchanged on the level at the start of the financial year. The increase over the last year has been driven by growth in international terminals, with the number of users outside the UK increasing to 67,000 (2007: 61,000).

In Italy there was good year on year growth in the number of professional users of the DDM service (which provides real time Italian market data), with no change over the last six months.

SEDOL, the Exchange’s service providing unique identification for a range of global tradable securities, grew strongly in the period. Proquote also delivered a strong first half performance.

During the half year the Exchange launched two new Information products. Performance Channels is a new high speed delivery mechanism for real time data over 100 megabyte lines primarily designed for market users requiring low latency connections.

Also, a Server Hosting service was launched, providing trading firms with the ability to physically locate their servers within the Exchange’s own data centre which allows sub-millisecond access to TradElect by eliminating network latency.

Post Trade Services

	Six months ended			Variance at
	30 September		Variance	constant
	2008	2007	%	currency %
Clearing	21.7	18.1	20%	6%
Settlement	7.9	7.7	3%	-8%
Custody	17.1	15.2	12%	0%
Revenue £m	46.7	41.0	14%	1%

The Post Trade Services division delivered a good result given the decline in trading volumes in the markets in which it operates, making up 14 per cent of Group revenues.

	Six months ended
	30 September		Variance
	2008	2007	%
CC&G Clearing:
Equity Clearing (m)	34.3	36.5	-6%
Derivative Clearing (m)	19.4	19.6	-1%
Total Contracts (m)	53.7	56.1	-4%
Open interest (m)	3.7	3.0	23%
Monte Titoli:
Settlement Instructions (m)	18.0	26.8	-33%
Custody assets under management (€tn)	2.7	2.8	-4%

Clearing transaction volumes at CC&G declined as a result of falls in both Italian cash equities and derivatives trading volumes. However, open interest at the end of September 2008 grew strongly, up 23 per cent at 3.7 million contracts. Clearing revenues benefited from an increase in cash deposits. The strength of CC&G’s management of counterparty risk was demonstrated in a period marked by crisis in financial markets and consequent trading defaults that arose, without call on the Group.

In Monte Titoli, the number of settlement instructions during the half year decreased by a third, reflecting both a reduction in equities trading and higher levels of settlement netting.

Custody revenues for the six months were flat on a constant currency pro forma basis. The average value of assets under custody fell four per cent to €2.7 trillion (2007: €2.8 trillion) mainly due to the decrease in market value.

Operating costs

Operating costs, before amortisation of purchased intangibles and exceptionals, increased six per cent to £165.6 million on a pro forma basis, flat in constant currency.
The principal movements were a £5 million increase in staff costs, mainly reflecting the in-sourcing of technology support in October 2007, with a related £8 million reduction in IT costs. £6.1 million of bad debt and other provisions associated with the bankruptcy of Lehman Brothers was taken in the period. Excluding the Lehman provision, at constant currency operating costs were reduced by four per cent.

Group headcount was reduced three per cent to 1,179, down from 1,210 at year end and the Exchange remains closely focused on the cost structure of the Group.

Current trading and Outlook

The Exchange delivered a good overall first half performance, set against challenging market conditions and a difficult trading environment. Trading volume has remained strong since the half year end, though value traded has declined. Volatile and weak market conditions mean that new issue activity remains subdued, although the pipeline for further issues appears robust.

Looking ahead to the rest of the financial year, activity on the Exchange will continue to reflect changes in market capitalisation and difficult and uncertain market conditions. However, the business has demonstrated its resilience across many product lines, underlining its critical role in equity funding and price formation, providing deep liquidity and certainty of execution in a well regulated market. Synergies from the integration of Borsa Italiana have been increased, and the Exchange is confident that it is well placed to exploit opportunities arising from its unique strategic position in a more difficult global market environment.

Chris Gibson-Smith
Chairman
13 November 2008

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