Bourse operator London Stock Exchange Group Plc (LSE.L), Thursday, reported a decrease in its third quarter revenues, reflecting lower revenues from capital market and post trade divisions. The company attributed the decline to testing market conditions during the period, particularly in cash equities trading.
For the third quarter, the UK-based company's total revenues fell 9% to GBP 154.9 million from GBP 169.4 million in the prior-year period, reflecting decline in UK cash equities trading levels and lower tariffs within capital markets segment. The decline also reflects a reduction in clearing revenues due to lower interest spreads on margins held compared to the unusually high levels in the same period last year. At constant currency, total revenues were down 12%.
During the three-month period, cash equities trading revenues in UK and Italy together slumped 29%, with a reduction in UK trading activity combined with a lower yield following September price changes.
London Stock Exchange operates in mainly three segments: Capital Markets, Information & Technology, and Post Trade.
Capital Markets business revenues were down 13% to GBP 69.9 million from GBP 80.1 million last year. Capital markets comprises the company's primary markets activities, providing access to capital for corporates and others, and secondary market trading of cash equities, derivatives and fixed income.
Primary market revenues for the quarter were GBP 18.2 million versus GBP 16.0 million a year earlier. LSE stated that money raised on its markets was strong at GBP 25.9 billion, including GBP 22.8 billion raised in secondary issues, contributing to a 14% increase in primary market revenues. Revenues from secondary markets dropped 23% to GBP 42.4 million from GBP 54.8 million in the 2009-year period, while other revenues were up 1% to GBP 9.3 million from GBP 9.2 million last year.
In the third quarter, average daily value traded on UK order book slumped 29% to GBP 4.4 billion per day, in part reflecting continued competition from alternative venues, together with an overall lower level of value traded in the markets.
At Information & Technology segment, total revenues increased 3% to GBP 55.4 million from GBP 54.0 million in the previous year quarter, reflecting the first time contribution from Sri Lankan software company MillenniumIT, which was acquired by LSE in October 2009 for US$30 million. LSE noted that the total number of professional users of real time information was broadly unchanged since the half year though down on the prior year, while revenues from other data and IT businesses were solid overall.
In Post Trade division, total revenues were down 13% to GBP 29.1 million from GBP 33.5 million in the 2009-year period, reflecting the anticipated reduction in interest on margin held in clearing business from the unusually high levels in the previous year.
Commenting on results, chief executive Xavier Rolet said, "Market conditions have not been easy in the last quarter, particularly in cash equities, though the Group has benefitted from the breadth of its activities, with good performances in primary markets and fixed income trading, and the Information & Technology Services division has also proven resilient."
LSE noted that since the start of calendar 2010, cash equities value traded in UK has been in-line with average for third quarter and that Derivatives trading has started slowly.
For the nine-month period, the stock exchange's total revenues dropped 9% to GBP 465.8 million from GBP 512.0 million in the same period last year. At constant currency, revenues were down 13%.
Year-to-date revenues from Capital markets were GBP 217.1 million, down 19% from GBP 267.6 million in the prior-year period, while Information & Technology revenues were GBP 158.9 million versus GBP 156.4 million in the corresponding period prior year. Revenues from Post Trade rose 5% to GBP 88.5 million from GBP 84.5 million a year ago.
For the first half of 2010, LSE's attributable profit plummeted to GBP 49.3 million or 18.4 pence per share from GBP 81.7 million or 30 pence per share in the same period last year. Six-month revenues were GBP 310.9 million versus GBP 342.5 million in the year-ago period. In constant currency, revenues were down 13%.
In October 2009, LSE announced an agreement to acquire pan-European share trading platform Turquoise MTF. In December, LSE said it intends to create a new pan-European trading venture by merging its dark pools platform Baikal Global Ltd. with alternative trading platform Turquoise Trading Ltd. The new venture, which is to be owned 60% by LSE and 40% by existing Turquoise shareholders, will continue to trade under the Turquoise name. As per the deal, LSE will fully fund the cash needs of the new venture within an agreed framework for the first 24 months from completion. LSE sees to incur exceptional costs of up to GBP 20 million in the current financial year as a result of the acquisition.
Looking ahead to the remainder of the year, the company expects market conditions to remain testing. "We continue to focus on improving the shape of the business, with actions clearly underway to reduce underlying operational costs, and improve business efficiency and our competitive position," Rolet added.
LSE also said its financial position remains broadly unchanged since September 30, 2009, with no change in committed credit lines. As at December 31, 2009, the company had a total of 93 thousand UK terminals as compared with 111 thousand terminals in the previous year, and Borsa Italiana Professional Terminals totaled 143 thousand, down 8% from the comparable period prior year.
LSE is currently trading on the London Stock Exchange at 696.00 pence per share on a volume of 320,576 shares. In the past 52-week period, the shares have been trading in a range of 355.75 pence to 949.50 pence.
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