The London Stock Exchange Group PLC (LSE.LN), which posted
higher full-year profits Friday, said it is focusing on integrating
the businesses it has bought recently, and is "excited" to use its
growing post-trade, clearing and derivatives businesses to compete
head-on with larger rivals Deutsche Boerse AG (DB1.XE) and NYSE
Euronext (NYX).
Chief Executive Xavier Rolet said that, apart from its
traditional U.K. equities-trading business, "we do see the focus on
much larger asset classes for us going forward, particularly in the
fixed-income market where we've made remarkable progress and in
derivatives as well where we now have the tools in our
kit--intellectual property and, if LCH is approved, access to
collateral pools--to compete with the European duopoly [Deutsche
Boerse and NYSE Euronext]. We're excited about that."
In March, the LSE announced a EUR463 million deal to buy up to
60% of LCH, a move that will enhance the LSE's post-trade business
and strengthen its derivatives platform.
Rolet has long wanted to boost the LSE's strength in derivatives
trading, which command fatter trading fees than stocks.
Clearing functions like those performed by LCH also play a
central role in regulators' efforts to tighten practices in the
estimated $700 trillion global market for privately traded
derivative contracts.
"The European equity derivatives market is basically a duopoly
between NYSE Liffe and [Deutsche Boerse's] Eurex...With almost 2
billion contracts traded annually and combined derivatives revenue
of EUR1.2 billon per annum, this market is understandably an
attractive one for us," Rolet said in a speech in late 2010.
On Friday, Rolet said: "This year is going to be a year of
consolidation in ourselves. We've made some bets. We're doing well
in terms of integrating FTSE...On LCH, we're still working through
the pretty time-consuming process of regulatory approval. But the
early indication is this is going well. We'll focus on that."
In December, the LSE bought the remaining 50% stake in FTSE
International Ltd. that it didn't already own from Pearson PLC
(PSON.LN) for GBP450 million.
"We always remain open to [acquisition] opportunities, but now
that we have a much better mix of products, our focus is going to
ensure the execution and leveraging of what we own is done very
competently and professionally," he said.
The CEO of the Mongolian Stock Exchange told Dow Jones Newswires
recently that an approach by the LSE would be "absolutely
positive".
The LSE, which also runs Italy's Borsa Italiana, said operating
profit before amortization and one-off items for the year ended
March 31 was GBP441.9 million, up 30% from GBP341.1 million a year
earlier. The result was higher than the GBP427.5 million average
expected by 11 analysts.
Total revenue was GBP679.8 million, up 10% from GBP615.9 million
previously. Total income, which added higher results from central
counterparty clearing services and other income to the revenue
figure, was at GBP814.8 million, up 21% from GBP674.9 million the
previous year.
LSE said its total dividend for the year increased 6% to 28.3
pence per share.
Net profit more than tripled to GBP522 million from GBP151.6
million a year earlier. The increase was due partly to a GBP324.3
million gain from the value of LSE's 50% stake in FTSE
International, which wasn't previously reflected in LSE's
accounts.
Removing the effects of acquisitions and other one-off items,
net profit would have been GBP271.3 million, up 37% from GBP197.9
million the year before.
At 1100 GMT, LSE shares were up 5.4% at 1,017 pence, while the
FTSE 100 index was off 0.7%.
Numis Securities said the LSE's earnings results were "strong",
and upgraded the stock to a buy from an add rating.
"While issuance, market volumes and terminal numbers are all
expected to remain under pressure, we expect continued good growth
from FTSE and elevated treasury income," Numis said.
"Key will be the performance of LCH which faces significant
competition in what is a growth industry. The LSE has largely
rebalanced and repositioned itself in the recent past," it
said.
In the briefing, Rolet said the LSE's pipeline of initial public
offerings is "very strong", with potential IPO candidates from the
U.K., Europe and rest of the world.
Still, he said actual flotations depend a lot on the "the IPO
windows which tend to open and close more quickly than in the
past."
"No doubt, there would've been many more deals had the macro
environment been more supportive...The euro zone is perhaps at its
darkest hours at the moment. But there's no doubt that government
and political leaders understand the importance of a competitive
economy and of no longer resorting to debt."
Last year, 76 companies from across the globe raised GBP12.9
billion in their initial public offerings in the LSE, up from the
GBP10.07 billion raised by 89 companies in 2010.
- By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0)
2078429486, vladimir.guevarra@dowjones.com
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