AGM Statement

RNS Number : 7132V

London Stock Exchange Group PLC

15 July 2009

 



LONDON STOCK EXCHANGE GROUP PLC

Annual General Meeting

Wednesday 15 July 2009

Chairman's statement by Chris Gibson-Smith

Good afternoon ladies and gentlemen and welcome to Plaisterers Hall for the annual general meeting of London Stock Exchange Group.

Before we begin the official part of the meeting, I would like to take a moment to welcome our new CEO, Xavier Rolet, to his first AGM with the Company. Xavier brings with him a deep knowledge of the markets we serve and an extensive customer network, experience that is already being deployed as we continue to develop the business.

I would also like to say on behalf of the Board how grateful we are to Xavier's predecessor, Clara Furse, for her major contribution to the success of your Company over the last eight years. Her hard work, dedication and leadership have contributed to the Company's transformation from mutual organisation to a dynamic international business, now one of the 100 largest in the UK.

As there is a quorum present, we can start.

. . .

As we reflect on the past year and look to the future, the Board appreciates that the external events which have affected our markets and your investments in the last 12 months must be quite disconcerting.

For the next few minutes, I would like to talk about how the Group has faired in this environment, and to outline the bases upon which the Board remains confident of your Company's future prospects.

As I do so, I would like to draw your attention to four actions the Company has been taking, namely:

• Continuing to innovate and to invest for the future;

• Progressing the integration of the London Stock Exchange and Borsa Italiana and related synergies;

• Improving further the cost base of the combined Group; and

• Maintaining appropriate levels of financial flexibility

A turbulent year

The past year has, without doubt, been an extraordinary one for financial markets. 

A year ago we were experiencing a financial recession, but there were hopes that an economic recession might still be averted. 

Today, we are in the midst of the first global economic recession in 60 years, which is likely to have noticeable political repercussions and carry high social costs.

It is therefore not surprising that the fallout has affected our markets and, in so doing, our business performance.

For instance, while the volatility spikes created exceptionally high trading volumes over the course of September and October during the worst of the turmoil, the drop off in index values has led to a considerable fall in the value traded on our markets. 

In addition, the uncertain market conditions have also resulted in a marked decline in the Initial Public Offerings where London has developed a significant international lead.

Nevertheless, this very testing environment has also underlined the resilience of our business model in two important respects:

First, it should be noted that our markets remained open throughout the turmoil. While IPOs were thin on the ground compared with previous years, companies across our markets raised record sums through further issues. Over the course of the year, we facilitated capital injections amounting to £106 billion, well above the £60 billion achieved in 2007.

And in Q1 alone a further £36 billion was raised on our markets.

Indeed, this year has demonstrated a deep and fundamental truth; that a sustainable economic recovery will rely strongly on the access to funding that our markets provide. And without the rescue capital that companies were able to access, both in London and Italy, a great many companies would simply have ceased to exist.

In the trading sphere, too, our markets have remained liquid and transparent, with the value traded holding up well within the year relative to asset prices falls and amid an increasing line up of alternative trading venues. 

Second, the diversification of the Group's business following the combination of London Stock Exchange and Borsa Italiana is bearing fruit. The combined business now has a much broader mix of customers (both by geographical location and client type), of products (covering cash equities, derivatives, Exchange Traded Funds and fixed income), currency exposure and additional services along the value chain. 

This point can be illustrated by two facts: (i) UK cash equities trading accounted for less than a quarter of revenue last year; while (ii) post trade services performed strongly with constant currency revenues increasing 7 per cent.

Continued delivery

During the past year, we have maintained our focus on delivery.

In particular, I am delighted to say that Italian and UK cash equities, Exchange Traded Funds and covered warrants are now all traded on the same technology platform, creating Europe's largest and most liquid market. 

In addition, we are realising increasing benefits from the Merger, and have delivered nearly £20 million of cost synergies over the financial year, bringing total expected annual cost synergies to over £32 million. That's 60 per cent higher than originally forecast. 

Alongside last year's successful technology integration, we have also invested in additional functionality for our core trading engine, and struck technology and business partnerships with TMX of Canada as well as Oslo Bors.

Financials - A resilient performance 

The resilience of the business model, combined with the continued delivery of management, is reflected in a good underlying financial performance for the Company.

I would like to draw your attention to the following key pro forma data:

• Revenues increased one per cent to £671 million; 

• Costs were up three per cent, though down five per cent at constant currency; and

• Adjusted operating profit was broadly stable at £339 million, while adjusted basic earnings per share grew two per cent to 74.2 pence.

Despite all this, following an annual review of goodwill, we have taken a £484 million non-cash impairment charge, largely in respect of the all-share merger with Borsa Italiana. While the impairment reflects the major deterioration in economic conditions and increased uncertainty about the future, it has no impact on our day-to-day operations, our ability to generate cash or our banking covenants.

Indeed, the value of Borsa Italiana in sterling terms remains comfortably above the valuation at the time of the merger.

The Board is proposing a final dividend of 16 pence per share, making a total of 24.4 pence for the year, an increase of two per cent.  This payment reflects the resilience of the business balanced by the Board's belief that it is appropriate to remain cautious while markets remain quite uncertain. The dividend will be paid on 17 August to shareholders on the register on 24 July.

Q1 2009 - Signs of stabilisation  

As an update on performance since year end, this morning we released our first quarter results.

While year on year comparisons show an expected reduction, we have seen an improved performance across most of the business in the three months ended 30 June relative to the previous quarter, with an increase in total revenue of five per cent - or 7 per cent at constant currency - to £161.9 million.

Our Capital Markets division, which includes all of our primary markets and secondary markets operations, generated a 5 per cent increase in revenue at constant currency, while Information & Technology Services grew five per cent and Post Trade delivered an impressive 19 per cent uplift in revenue.

Looking Ahead

As we look ahead, market conditions are likely to remain challenging. 

However, there are some positives we can highlight.

In particular, we are helping to facilitate significant capital raising in the form of further issues and we believe Initial Public Offerings will return in due course.

There is also some evidence of a stabilisation in credit markets which should help our bond market businesses.

Nevertheless, we cannot take any market improvements for granted, and we remain focused on ensuring that we are in good shape and respond fast to challenging markets, with a new, leaner organisation taking effect under Xavier, and by ensuring we have an appropriate capital structure.

In June we increased our financial flexibility further with the successful issuance of a £250 million 10 year bond. This replaces short term bank facilities that were due to expire next April. 

Actions continue that will, the Board believes, position your Company to weather possible future storms and to take advantage of opportunities that may arise in this fast moving environment.

Further information is available from:

London Stock Exchange	Patrick Humphris - Media	020 7797 1222
	Paul Froud - Investor Relations	020 7797 3322
Finsbury	James Murgatroyd	020 7251 3801

 

END

 

 

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