LSEG Preliminary results

Financial Headlines:

• Total income of £628.3 million (2009: £671.4 million) – with good performance in Italian cash equities and fixed income trading, as well as the Post Trade and Information & Technology divisions, reflecting breadth of business; revenue excluding net interest income through CCP businesses and other income was £605.6 million (2009: £644.7 million)
• Continued focus on cost reduction - organic cost base down eight per cent at constant currency before acquisition impairment and amortisation, and exceptional items (and excluding one-off costs of £25.3 million taken in relation to TradElect replacement by MillenniumIT)
• Adjusted operating profit (before acquisition impairment and amortisation, and exceptional items) of £280.3 million (2009: £340.7 million); or £305.6 million excluding one-off TradElect replacement costs; statutory operating profit of £182.3 million (2009: loss of £207.9 million)
• Adjusted basic earnings per share of 60.1 pence (2009: 74.2 pence), including a 6.8 pence per share reduction for the one-off TradElect replacement costs
• Total dividend for the year maintained at 24.4 pence per share
• Net cash flow from operations after exceptional items remained strong at £301.2 million (2009: £352.6 million)

Strategic Highlights

• Number of actions taken in a short period to strategically re-position the Group to develop opportunities and meet challenges, including: strengthening of management team with experienced capital markets and technology specialists; continuation of cost reduction programme including a 13 per cent headcount reduction; reduction of external post trade costs and our own tariff adjustments to encourage new business in equities and derivatives
• Acquisition of Turquoise to develop pan-European lit and dark pool trading services in a joint venture with 12 leading banking clients
• MillenniumIT, an innovative software development company based in Sri Lanka, acquired to provide new, low cost, high performance trading technology to the Group, as well as other capital markets clients

Operational Highlights:

• The Group again underlined its fundamental capital raising role with £77 billion raised by companies on our markets, the second highest annual amount (2009: a record £106 billion), with a 20 per cent increase in admission fee income and an accelerating rate of new issues in H2
• Good performances in Italian cash equities and fixed income trading (the latter reflecting 31 per cent growth in value traded on MTS) with revenues up seven per cent (constant currency) in both businesses
• Good overall performance from Post Trade Services – increased revenues in settlement and custody, and growth in clearing transaction volumes (up 4 per cent) although offset by reduction in non transaction revenues compared to unusually high levels of volatility last year
• Demand for real time data in H2 remained generally robust, with 93,000 professional users of LSE information at year-end, down just 1,000 since H1; and broadly unchanged in Italy over the same period with 142,000 professional users
• Good growth from non real time data businesses, with revenues up 10 per cent, reflecting growing contributions from SEDOL, UnaVista, FTSE and Proquote; and Technology services up 37 per cent, including first time contribution from MillenniumIT
• Continuing focus on operational cost efficiencies with elimination of a further 50 roles, partly through natural attrition

Commenting on the results, Chris Gibson-Smith, Chairman of London Stock Exchange Group, said:

“The market, economic and regulatory environment in which our business operates is going through a period of significant change.  We continue to take steps to ensure the business remains central to capital markets, competing for business as an efficient, low cost and client focused organisation with a clear strategy to deliver growth and value.”

Xavier Rolet, Chief Executive, said:

“We have made very good progress to get in shape, to leverage our assets and develop the opportunities, and the acquisitions of MillenniumIT and Turquoise help us in many regards.  We recognise that there remains much work to be done and that, in many cases, the fruits of our labour to date have yet to be harvested.

“In the coming year, as we continue to deliver on the key elements of our strategy within a fluid market and regulatory environment, we expect to see further progress across our business.”

Further information is available from:

• London Stock Exchange    
  Patrick Humphris – Media             +44 (0) 20 7797 1222
  Luca Grassis – Media                    +39 02 72426 212
  Paul Froud – Investor Relations    +44 (0) 20 7797 3322
• Citigate Dewe Rogerson
  Patrick Donovan/Grant Ringshaw/Lucie Holloway
  +44 (0) 20 7638 9571

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Chief Executive’s Review

Against a difficult operating environment for exchange businesses in the past twelve months, we have delivered a resilient performance. Despite a weak IPO market, lower equity market valuations, subdued investor trading in the secondary markets, robust competition for trading and a contraction in financial market professionals who consume our real time and reference data, we achieved revenue of £605.6 million, only six per cent less than last year. Adjusted operating profit before acquisition impairment and amortisation, and exceptional items, was £280.3 million reflecting tight control of our costs but also certain one-off costs associated with the acquisition of MillenniumIT.

Through the merger with Borsa Italiana, completed in 2007, we have a good product portfolio beyond equities, encompassing derivatives and fixed income trading together with post trade services. The merger has also demonstrated our success in integrating businesses while, critically, preserving market identities.

Notwithstanding the strength of our brand and the quality of our assets, we are operating in a fast changing and challenging environment, characterised by robust competition and a number of potential regulatory changes. It is essential, therefore, that we have a clear, executable strategy that will enable us to thrive in the evolving markets in which we operate.

Strategy

At the heart of our strategy is a fundamental corporate philosophy: to be a truly client-centred business. However, the breadth, diversity and changing composition of our client base creates certain challenges. The onus is on us to prove to our clients the fundamental value of an exchange as an independent, neutral, efficient and profitable provider of core capital markets infrastructure. By getting this right shareholders will also benefit as we successfully grow the business.

Within this context our strategy can be characterised as getting in shape, leveraging our assets and developing the opportunities for other forms of growth from joint ventures, partnerships and acquisitions. The strategic imperatives comprise the following elements:

• Drive efficiency
• Build scale
• Increase scope
• Extend reach

Over the course of the year, we have developed the top team to deliver this strategy. As well as harnessing the existing talent among senior managers within the company, the management team has been augmented by select external appointments – such as Kevin Milne, who now heads up our Post Trade Services division, and Antoine Shagoury, who has joined us as Chief Information Officer – and through acquisition in the case of Tony Weeresinghe who is responsible for our global development, overseeing our commercial and business relationships with other exchanges, as well as continuing as CEO of MillenniumIT.

Drive Efficiency

Identifying and establishing further efficiencies throughout the Group has been a priority over the past year. Faced with a drop in value traded on our market, through a combination of lower velocity, lower capital commitment by banks and increased competition, we have taken a number of actions to reduce our cost base, encompassing our three largest areas of cost: people, technology and property.

Early last summer we made a number of management changes to streamline and accelerate decision taking. In the process, we took some difficult decisions with respect to a number of roles across the Group, reducing the workforce at that time by 12 per cent and generating £11 million of annualised cost benefit. The positive way in which staff members have responded to these changes is testament to the quality of the people working here.

A smaller workforce in London has enabled us to improve our position on property costs through the release and subletting of another floor in our Paternoster Square headquarters, providing a net benefit of £3 million per annum from 2010/11. Meanwhile in Milan, we are managing the future cost increase of our lease on Palazzo Mezzanotte, our Italian HQ, by upgrading the building, which will enable us to consolidate all our Milan-based staff there over the next year and close two other facilities.

We also completed a major review of our technology requirements across the Group, culminating in the acquisition of MillenniumIT, an innovative software development firm based in Sri Lanka. As well as providing the Group with a new, high performance, scalable trading platform for our cash equities markets, MillenniumIT brings us our own in-house software development capability with dedicated R&D resource. We have already identified at least £10 million in technology related savings once our new trading system is rolled out, and believe that further savings will be forthcoming in due course.

Increased efficiency has enabled us to make some important tariff cuts in our UK cash equities business. As well as making our fees more competitive, we have sought to differentiate them from those of our competitors, underlining our desire to provide a balanced and neutral marketplace for the broadest range of clients.

Build Scale

In a highly competitive environment, the old adage about exchanges being scale businesses has never been more true. It is therefore essential that we continue to promote our world class listing business and establish new products that take advantage of existing infrastructure.

Through the combination with Borsa Italiana, we have a broad range of products and services, across asset classes and through the value chain. A number of these products, though, do not yet enjoy the full benefits of scale. Achieving greater scale in our business is critical to being able to reward both clients and shareholders alike.

Over the past year, we have made steady progress on leveraging our assets. In July, our clearing business, CC&G, was approved by the FSA to operate in the UK, following which we have started to use its services for our UK-regulated derivatives business, EDX. In February, we launched a retail bond market in the UK based on our offering in Italy, which is by far the most successful example of its kind in Europe.

Among product enhancements over the coming year, we will extend the range of equity derivatives contracts traded beyond our Italian, Russian and Scandinavian based products, and are part way through the process of migrating all derivatives trading to a single, high performance platform.

Increase Scope

Alongside building scale it is imperative that we increase the scope of our activities – in product development, trading functionality, post trade and information services. The acquisition of MillenniumIT is integral to our ability to achieve this.

As well as providing cost effective trading platforms, MillenniumIT will be used to deliver market surveillance, ticker plant, desktop services, smart order routing and post trade technology. In the process, we will be able to accelerate our time to market for new products and functionality enhancements while at the same time reducing our overall development and ownership costs.

In addition to improving our in-house assets and capabilities, our ability to introduce new products and services hinges on the quality of our client relationships. A significant development in this regard has been our recent creation of a partnership with 12 of the world’s leading banks to lead Turquoise in the next phase of its development. As the majority shareholder, we will ensure that the pan-European platform is neutral, efficiently run, open to the broadest pool of clients and develops services on an international scale; as important stakeholders in the venture, the banks will support innovative product initiatives and broader strategy development.

Extend Reach

The acquisitions of Turquoise and MillenniumIT in the past year not only provide new assets but, importantly, also help us extend our reach. Through Turquoise, we have for the first time a platform with a pan-European footprint and significant potential for growth. And since the year end we have launched trading in US securities on the platform. Meanwhile, our brand and balance sheet backing of MillenniumIT has improved its international prospects and ability to extend the global reach of its technology sales. For us, this increases our capacity to broaden and deepen our commercial, business and strategic relationships with exchanges around the world.

We believe that our future depends on our ability to become a truly global player, anchored in London but with a significant presence in other time zones. We will only achieve this goal through significant partnerships and inorganic growth opportunities within our industry.

A Year of Progress

This has been an eventful year, a period of change and challenge, and I am grateful to staff, shareholders and clients for the welcome and support they have shown to me since taking on the job. Collectively, we have made very good progress against our objectives, but we recognise that there remains much work to be done. We are aware that, in many cases, the fruits of our labour to date have yet to be harvested.

In the coming year, as we continue to deliver on the key elements of our strategy within a fluid market and regulatory environment, we expect to see further progress across our business.

Xavier Rolet
Chief Executive