London Stock Exchange : Announcement of Interim Results for the three months ended 30 June 2014

London Stock Exchange Group is publishing interim results for the three months ended 30 June 2014 (Q1), to provide latest financial information in connection with the Group's proposed acquisition of Frank Russell Company and associated fully underwritten rights issue.

• Strong financial performance - Q1 adjusted total income1 up 16 per cent to £323.9 million 
• Revenue increased 20 per cent overall and 12 per cent on an organic and constant currency basis, with growth across nearly all business segments 
• Adjusted operating expenses1 up 8 per cent to £175.7 million, reflecting inclusion of acquisitions, including LCH.Clearnet (Q1 FY 2014: £162.1 million) 
• Core operating expenses1, excluding impact of acquisitions and FX, decreased 3 per cent 
• Strong operational leverage with adjusted operating profit1 up 25 per cent at £148.2 million (Q1 FY 2014: £118.2 million); operating profit up 36 per cent at £102.0 million (Q1 FY 2014: £74.8 million) 
• Adjusted profit before tax1 up 26 per cent at £129.8 million (Q1 FY 2014: £103.1 million); profit before tax of £83.6 million (Q1 FY 2014: £59.7 million) 
• Adjusted basic EPS1 up 18 per cent at 31.9 pence (Q1 FY 2014: 27.0 pence); basic EPS of 19.2 pence (Q1 FY 2014: 13.1 pence) 
• Capital Markets revenues up 16 per cent, with strong growth in primary markets as the number of new issues more than doubled; secondary markets benefitted from improvements in fixed income trading and Italian cash equity volumes
• Post Trade Services (CC&G and Monte Titoli) revenues up 4 per cent, and up 8 per cent on an organic and constant currency basis with increases in clearing volumes and within settlement and custody 
• LCH.Clearnet total income up 14 per cent on a pro forma, constant currency basis, with good growth in OTC and commodities revenues 
• Information Services revenues up 5 per cent, reflecting good performances from FTSE and a number of other services 
• Technology Services revenues declined 8 per cent, mainly as the result of the phasing of customer deliveries 
• The Group announced the proposed acquisition of Frank Russell Company on 26 June 2014;  a Circular for a shareholder meeting and a Prospectus for the accompanying rights issue is expected to be posted later today

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

"We continue to make good progress, delivering a strong financial performance this quarter with an increase in operating profit, reflecting organic growth and inorganic revenues across the Group. We have seen a resurgence in the IPO market with an increase in both the number of companies joining our markets and the amount of money raised. While the summer period is seasonally slower, our diversified business is very well positioned for further growth.

"As previously stated, the proposed acquisition of Russell Investments will help to expand the global footprint of the Group, particularly in the key U.S. market. This is a strong strategic acquisition for the Group, which will accelerate development in one of our core strengths, intellectual property, and offers significant growth potential. We continue to make good progress on obtaining the necessary approvals to complete the acquisition and to deliver the financial benefits of the transaction to the Group."

Current trading and outlook

In primary markets, new issues remained strong in July with 28 new issues on the Group's UK and Italian markets, compared with a total of 25 in July last year. The amount of money raised in the month also rose, doubling to £5.2 billion.  New issue activity has continued in August, with 7 IPOs so far in what is normally a seasonally quiet period.

In secondary markets, cash equities trading in London increased 6 per cent in July compared with the same month last year.  Trading in July in Italy was also good with a 25 per cent rise year on year in the number of trades, and Turquoise delivered a 23 per cent increase in pan-European value traded.  In fixed income markets, MTS saw year on year growth in both cash and repo trading in July, up 27 and 4 per cent respectively.  Fixed income and equities trading across the Group's markets to date in August has been good with average daily volumes above the levels for the same month last year.  Both FTSE and LCH.Clearnet have continued to perform well since the quarter end.

The Group has made good progress so far in the financial year.  Activity in both primary and secondary markets so far in the current quarter has been good and the pipeline of companies seeking to raise capital on the Group's markets remains encouraging. Overall, the Group remains well placed to benefit from continued positive market trends through its increasingly diversified businesses and from the work to realise the previously announced integration synergies at LCH.Clearnet Group.

The Group expects to provide a pre-close update for the five month period to 30 August 2014 on 10 September 2014

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.

Further information is available from:

Additional information on London Stock Exchange Group can be found at www.lseg.com

Further information

A conference call for analysts and investors will be held at 9:00 (UK time) on Friday 22 August.  On the call will be Xavier Rolet (CEO), David Warren (CFO) and Paul Froud (Head of Investor Relations).

To access the Telephone conference call dial 0800 694 0257 or +44 (0) 1452 555 566

Conference ID: 9056 9314

For further information, please call the Group's Investor Relations team on +44 (0) 20 7797 3322.

Financial Summary

Unless otherwise stated, all figures below refer to the three months ended 30 June 2014.  Comparative figures are for the three months ended 30 June 2013.  Variance is also provided at organic and constant currency.  The basis of preparation is set out at the end of this report.

1Exchange rates for the relevant period are detailed at the end of this section
 Adjustments to calculate organic growth:

1)      Removal of EuroTLX and Bonds.com revenue (Capital Markets - Fixed Income)

2)      LCH.Clearnet pro forma for three months

3)      MTS Indices remove from Capital Markets Fixed Income revenue and include in Information Services FTSE revenue

2LCH.Clearnet Q1 FY 2014represents two months ended 30 June 2013

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

Unless otherwise stated, all figures refer to the three months 30 June 2014 and comparisons are against the same corresponding period in the previous year

For a breakdown of segmental revenues and key performance indicators, see our Interim Management Statement for the period April to June 2014 issued 16 July 2014

Operational Performance 

Capital Markets

The Group's Capital Markets revenue, which comprises primary and secondary market activities, increased by £12.0 million, or 16 per cent., from £75.0 million in the three months ended 30 June 2013 to £87.0 million in the three months ended 30 June 2014. This increase was due to strong growth in primary markets as the number of new issues more than doubled; secondary markets benefitted from improvements in fixed income trading and Italian cash equity volumes.

Primary Markets revenues increase by 30 per cent. to £25.3 million, reflecting continued IPO activity with 78 issuers joining our markets over the three months ended 30 June 2014 compared to 33 in the three months ended 30 June 2013. The total amount of capital raised across our equity markets, both through new issues and further issues increase from £6.1 billion in the three months ended 30 June 2013 to £19.9 billion in the three months ended 30 June 2014 with strength in both domestic and international markets.

Secondary Market revenues increase by 11 per cent. to £59.3 million, mainly driven by increased activity in Italian equity trading with the number of trades up 20 per cent. to 273,000 in the three months ended 30 June 2014. In the UK the average order book daily value traded was down 5 per cent., offset by buoyant trading in Turquoise, our pan-European equities platform, which was up 40 per cent. with €3.83 billion average daily equity value traded.

Fixed income also produced a strong performance up 28 per cent. from £15.5 million in the three months ended 30 June 2013 to £19.9 million in the three months ended 30 June 2014. This increase included £3.8 million of revenue relating to businesses acquired after the three months to 30 June 2013 (Euro TLX £3.4 million and Bonds.com £0.4 million). Organic revenue also increased, primarily due to MTS cash and BondVision value traded up 36 per cent., partly offset by an 18 per cent. decrease in MOT volumes.

Post Trade Services - CC&G and Monte Titoli

The Group's revenue from Post Trade Services - CC&G and Monte Titoli increased by £0.9 million, or 4 per cent., from £25.1 million in the three months ended 30 June 2013 to £26.0 million in the three months ended 30 June 2014 with increases in clearing volumes and within settlement and custody. Settlement revenues increased by 14 per cent. to £5.0 million with Monte Titoli processing 18.4 million trades for the 3 months ended 30 June 2014 compared with 14.4 million in the three months ended 30 June 2013.

Post Trade Services - LCH.Clearnet

The Group's revenue from Post Trade Services - LCH.Clearnet increased by £34.2 million, or 70 per cent. The period ended 30 June 2013 included only two months' worth of LCH.Clearnet revenue, which was £49.0 million compared to £83.2 million for the three months ended 30 June 2014. The underlying increase excluding the impact of one extra month's revenue was due to growth in OTC revenues (Swapclear members increased from 83 as at 30 June 2013 to 106 members as at 30 June 2014), commodities and fixed income clearing.

Information Services

The Group's Information Services revenue increased by £4.1 million, or 5 per cent., from £83.9 million in the three months ended 30 June 2013 to £88.0 million in the three months ended 30 June 2014. This increase reflected good performances from FTSE and a number of other information services. FTSE revenue increase by 6 per cent. to £44.1 million in the three months ended 30 June 2014, reflecting a 31 per cent. increase in ETF AUM benchmarked in the period. Real time data declined 5 per cent. to £21.3 million as a result of fewer users in both the UK and Italy, down 2 per cent. and 4 per cent. respectively. These falls were largely the result of headcount reductions and general cost cutting in the sector.

Technology Services

The Group's Technology Services revenue decreased by £1.2 million, or 8 per cent., from £15.5 million in the three months ended 30 June 2013 to £14.3 million in the three months ended 30 June 2014. This decrease mainly reflecting timing of third party systems work.

Total revenue. As a result of the factors detailed above, including an additional month of LCH. Clearnet, the Group's total revenue increased by £50.2 million, or 20 per cent., from £249.7 million in the three months ended 30 June 2013 to £299.9 million in the three months ended 30 June 2014.

Net treasury income-CC&G. The Group's net treasury income-CC&G decreased by £9.2 million, or 55 per cent., from £16.7 million in the three months ended 30 June 2013 to £7.5 million in the three months ended 30 June 2014. CC&G as already guided completed the move to a minimum 95 per cent. secured investment level for cash margin, required to meet EMIR regulatory standards, with a subsequent reduction in yields resulting in a decrease in income.

Net treasury income-LCH.Clearnet. The Group's net treasury income-LCH.Clearnet increased by £3.3 million, or 28 per cent., from £11.8 million in the three months ended 30 June 2013 to £15.1 million in the three months ended 30 June 2014. Net treasury income is earned by investing the cash margin held, retaining any surplus after members are paid a return on their cash collateral contributions. The average cash collateral held increased by 12 per cent. to €46.5 billion in the period.

Other income. The Group's other income decreased by £0.7 million, or 33 per cent., from £2.1 million in the three months ended 30 June 2013 to £1.4 million in the three months ended 30 June 2014.

Total income. As a result of the factors discussed above, the Group's total income increased by £45.5 million, or 16 per cent., from £279.1 million in the three months ended 30 June 2013 to £324.6 million in the three months ended 30 June 2014.

Operating expenses before amortisation of purchased intangible assets and non-recurring items. The Group's operating expenses before amortisation of purchased intangible assets and non-recurring items, increased by £13.6 million, or eight per cent., from £162.1 million in the three months ended 30 June 2013 to £175.7 million in the three months ended 30 June 2014. This increase included one extra month's cost of £21.5 million of costs relating to LCH.Clearnet which was included for only two months in the period ending 30 June 2013. Excluding acquisitions, costs were down £3.4 million with cost increases in IT costs and professional fees more than offset by decreases in depreciation and property costs.

Operating profit before amortisation of purchased intangible assets and non-recurring items. As a result of the factors discussed above, the Group's profit increased by £31.9 million, or 27 per cent., from £117.0 million in the three months ended 30 June 2013 to £148.9 million in the three months ended 30 June 2014.

Amortisation of purchased intangible assets and non-recurring items. The Group's amortisation of purchased intangible assets and non-recurring items increased by £4.7 million, or 11 per cent., from £42.2 million in the three months ended 30 June 2013 to £46.9 million in the three months ended 30 June 2014. This increase was due to additional acquisition amortisation of £1.8 million and integration costs of £1.7 million as a result of the acquisition of LCH.Clearnet Group.

Operating profit. As a result of the factors discussed above, the Group's operating profit increased by £27.2 million, or 36 per cent., from £74.8 million in the three months ended 30 June 2013 to £102.0 million in the three months ended 30 June 2014.

Finance income. The Group's finance income increased by £0.1 million, or four per cent., from £2.7 million in the three months ended 30 June 2013 to £2.8 million in the three months ended 30 June 2014. This increase was due to interest earned on higher levels of cash balances.

Finance expense. The Group's finance expense increased by £3.4 million, or 19 per cent., from £17.8 million in the three months ended 30 June 2013 to £21.2 million in the three months ended 30 June 2014. This increase was due to interest paid on additional debt and fees in relation to a new credit facility.

Taxation. The Group's taxation increased by £0.2 million, or one per cent., from £22.5 million in the three months ended 30 June 2013 to £22.7 million in the three months ended 30 June 2014.

Profit for the financial period. As a result of the factors discussed above, the Group's profit for the financial period increased by £23.7 million, or 64 per cent., from £37.2 million in the three months ended 30 June 2013 to £60.9 million in the three months ended 30 June 2014.

Cash flow and balance sheet

Net cash inflow/(outflow) from operating activities. Net cash inflows from operating activities increased by £42.4 million, or 39 per cent., from £108.7 million in the three months ended 30 June 2013 to £151.1 million in the three months ended 30 June 2014. This increase was primarily due to increased cash generated from operations.

Net cash inflow/(outflow) from investing activities. Net cash flows from investing activities decreased by £92.4 million, or 167 per cent., from an inflow of £55.2 million in the three months ended 30 June 2013 to an outflow of £37.2 million in the three months ended 30 June 2014. This decrease was primarily due to net cash recognised on the acquisition of LCH.Clearnet Group.

Net cash inflow/(outflow) from financing activities. Net cash flows from financing activities decreased by £385.8 million, or 106 per cent., from an inflow of £365.6 million in the three months ended 30 June 2013 to an outflow of £20.2 million in the three months ended 30 June 2014. This decrease was primarily due to these proceeds received by LCH.Clearnet Group pursuant to a capital raise from non-controlling interests and proceeds from borrowings receipt to fund the LCH.Clearnet Group acquisition.

At 30 June 2014, adjusted net debt (after setting aside £822.6 million of cash for regulatory and operational support purposes for the core LSEG businesses and assuming no surplus cash at LCH.Clearnet) was £1,023.0 million while drawn borrowings of £1,189.3 million are £34.4 million lower  than at the start of the current financial year. 

Prior to the announcement of the proposed acquisition of Frank Russell Company, the Group put in place new, committed, multicurrency revolving credit facilities of £600 million for a term of up to 3 years. The new facilities have been arranged on similar terms to the Group's existing £700 million syndicated deal, signed in July 2013, and are available for part financing the Russell transaction. Committed debt and credit lines available for general group purposes at 30 June 2014 totalled £2.26 billion, extending out to 2016 or beyond.  At 30 June 2014, adjusted net debt:EBITDA had reduced to 1.7 times.

Other than the new facility arrangements, there are no material changes to the Group's financial position since the last financial year end.

The Group had net assets of £1,961.1 million at 30 June 2014 (31 March 2014: £1,956.9 million), including LCH.Clearnet following the acquisition of a 57.8 per cent stake from 1 May 2013.  The central counterparty clearing business assets and liabilities within both CC&G and LCH.Clearnet are shown gross on the balance sheet as the amounts receivable and payable, which largely offset each other, are unable to be netted under accounting treatments.

Basis of Preparation

Results for Borsa Italiana and LCH.Clearnet for the period ended 30 June 2014 have been translated into Sterling using the average monthly exchange rate for the period of €1.23: £1.  Constant currency growth rates have been calculated by translating prior period results at the average exchange rate for the current period.

For further information please visit the Investor Relations section of the website - www.lseg.com/investor-relations