May 18, 2012 1:42 pm

LSE boosted by acquisition of FTSE index

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The London Stock Exchange on Friday reported that full-year profits had risen a third as it expanded through acquisitions and focused on new markets such as clearing and technology sales.

For the year to March 31, total revenues rose 10 per cent to £679.8m and pre-tax profits more than doubled from 238.2m to £639.7m as the exchange made a one-off recognition of the value of its existing interest in FTSE International, the index compiler.

The bourse bought the 50 per cent of the long-standing venture it did not own for £450m in December from Pearson, the education and information group that owns the Financial Times. Excluding the one-off gain, adjusted profits rose 35 per cent to £401m.

Total income at the LSE rose 21 per cent to £814.8m as it benefited from the funding needs for Italian banks at its local clearing business, Cassa di Compensazione e Garanzia (CC&G).

The figures helped its shares outperform a falling market, rising 5.4 per cent in afternoon trade in London.

The results illustrate a year of significant change at the LSE as regulation and investors’ trading preferences reshape the market. Incoming regulation in the US and Europe is set to reshape the off-exchange derivatives market, fierce competition has cut profits in its core business of equities trading while pension funds are increasingly looking to trade globally and use other asset classes, such as derivatives.

In his three years as chief executive, Xavier Rolet has diversified the business beyond trading of UK equities into fixed-income trading, technology sales, indices licensing and post-trade services such as clearing and trade reporting. A deal to take a controlling stake in LCH.Clearnet, the privately-held clearing house, is awaiting clearance from UK, Spanish and Portuguese regulators.

However a C$3.6bn (£2.2bn) deal to merge with TMX Group, operator of Canada’s largest bourse, failed last summer.

“We have made great progress this year,” Mr Rolet said. “We have seen strong performances across all four business divisions and made significant progress on our diversification strategy.”

Mr Rolet, said that the results would have been stronger if deteriorating macroeconomic conditions had not limited the amount of initial public offerings. “There is no doubt there would have been more deals if the macroeconomic conditions had been more supportive,” he said. “The IPO windows open and close quicker than they did in the past.”

Total income was driven by higher revenues earned from CC&G, where it places traders’ collateral out in the overnight markets at a wide range of Italian banks. Clearing houses typically earn the bulk of their revenue from lending such funds out in the repo and other interest-bearing markets. Net interest income at CC&G more than doubled to £126.9m.

Revenues from information services rose 27 per cent to £218.9m as it benefited from the acquisition of FTSE International and the £15m acquisition of Transaction Reporting Service from the Financial Services Authority. Sales of technology rose 8 per cent to £52.6m.

The proposed final dividend rose 6 per cent to 19p, making a total of 28.3p, also up 6 per cent.

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