TIDMLSE TIDMLSEB
RNS Number : 3186T
London Stock Exchange Group PLC
03 June 2009
3 June 2009
London Stock Exchange Group plc Notice of Annual General Meeting 2009 and Annual
Report and Accounts.
In compliance with Listing Rule 9.6.1, London Stock Exchange Group plc (the
"Group") has today submitted to the Financial Services Authority ("FSA") two
copies of each of the documents listed below:
1. Annual Report and Accounts for the year ended 31 March 2009 (the "Annual
Report")
2. Notice of 2009 Annual General Meeting
3. Proxy forms
4. Letter in respect of Shareholder Electronic Communications
Copies of the above documents will shortly be available for inspection at the
FSA's Document Viewing Facility, which is situated at:
The Financial Services Authority
25 The
North Colonnade
Canary Wharf
London
E14 5HS
Further information is available from:
+------------------------+------------------------------+-------------------+
| London Stock Exchange | Patrick Humphris - Media | 020 7797 1222 |
+------------------------+------------------------------+-------------------+
| | Paul Froud - Investor | 020 7797 3322 |
| | Relations | |
+------------------------+------------------------------+-------------------+
In compliance with Rule 6.3.5 of the FSA's Disclosure Rules and Transparency
Rules and Listing Rule 9.6.3, the following information is extracted from the
Annual Report and should be read in conjunction with the Group's preliminary
results announcement of 20 May 2009 (the "Preliminary Results"), both of which
can both be found in the Investor Relations section of
www.londonstockexchange.com. The information reproduced below and the
Preliminary Results constitute the material required by DTR 6.3.5 to be
communicated in full, unedited text through a regulatory information service.
This is not a substitute for reading the full Annual Report. Page numbers and
cross references in the extracted information below refer to page numbers and
cross-references in the Annual Report.
The Annual Report contains the following statements regarding important events
that have occurred during the year on pages 12-13:
"Chairman's Statement
The last 12 months have been extraordinary and turbulent as we have seen the
banking crisis deepen and many of the world's economies slip into recession.
While the Group's markets have been affected by the crisis, we have delivered a
good underlying performance, underpinned by robust cash flows, as the benefits
of a more diversified business emerge following our merger with Borsa Italiana.
While the impact of the very difficult environment has been reflected in the
share prices of many listed companies, including your own, our markets have
become ever more essential, as we perform our central economic function at the
heart of the real economy, bringing together companies with investors from
around the world.
Following a review of goodwill, we have taken a GBP484 million non-cash
impairment charge, primarily in respect of the all-share Borsa Italiana merger.
This impairment reflects the major deterioration in current economic conditions
and the greater uncertainty about the future, but has no impact on our
day-to-day operations, our ability to generate cash or our banking covenants.
Given the strengthening of the euro, the assessed value in use of Borsa Italiana
remains comfortably above the GBP1.3 billion value at the time of completion of
the all-share merger.
We continue to make very good progress in bringing together the businesses and
cultures of Borsa Italiana and the London Stock Exchange, and have benefited
significantly from a more diversified business, with strong revenue growth in
Post Trade Services for example.
The role of strategic partnerships between exchanges is increasingly important.
Our TOKYO AIM joint venture with the Tokyo Stock Exchange, to deliver a new
growth market in Japan and Asia, is progressing well. Meanwhile, I am delighted
that the Group has added Oslo Børs and TMX Group, the Canadian equity and
derivatives exchange, to its list of international partner exchanges.
The good overall performance is reflected in revenues of GBP671.4 million.
Adjusted basic earnings per share for the year, excluding goodwill impairment,
amortisation of purchased intangibles and exceptional items, was up two per cent
to 74.2 pence.
Reflecting the year's performance, 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. The payment reflects the resilience of the business balanced by the
Board's belief that it is appropriate to remain cautious at this stage while
market conditions remain exceptionally uncertain.
I would like to offer my and the Board's sincere thanks to all our employees in
Italy, the UK and across the world for their hard work in delivering such a
robust performance. These times of change have brought into sharp relief the
quality and calibre of the Group's employees.
On 13 February we announced that Clara Furse would be stepping down as Chief
Executive, to be replaced by Xavier Rolet. Clara has made a major contribution
to the success and history of your Company, leading our transformation from
mutual organisation to a dynamic international business. I would like to offer
the Board's considerable gratitude for her hard work, dedication and leadership.
Xavier Rolet formally assumes the role of Chief Executive on 20 May, and brings
to the Group some 25 years of experience and a thorough understanding of capital
markets. Xavier's deep knowledge and extensive customer network means he is
highly qualified to lead the Group through the next stages of its development
and progress.
I would also like to take the opportunity to welcome formally Doug Webb as our
Chief Financial Officer. He joined the Board on 2 June 2008.
As we look to the future, and markets and the economic environment remain
challenging, I believe the exchange model will be seen as vital. Over the next
year, I expect companies to continue to seek equity funds and we will continue
to justify the trust that investors place in our well regulated, highly
efficient and price forming service.
We are working closely with governments and other policy makers to help ensure
that the response to the banking and economic crisis is proportionate and
internationally coordinated. We also continue to lobby in the UK and Italy for a
tax system that recognises the essential and positive role of equity markets to
our economic well-being.
Although market conditions are expected to remain testing, the Board believes
the Group is well placed for the future. We remain at the heart of global equity
capital markets at a time when such markets are fundamental to the recovery of
the real economy.
Chris Gibson-Smith
Chairman"
The Annual Report contains the following statements regarding important events
that have occurred during the year on pages 14-15;
"Chief Executive's Review
Our business links companies large and small to the world's capital flows
In the last year, against the backdrop of extraordinarily difficult financial
markets and economic circumstances, we have facilitated access to unprecedented
amounts of equity capital for companies quoted on our markets and have continued
to provide transparent, liquid and price forming trading services.
Operating profit, excluding goodwill impairment, amortisation of purchased
intangibles and exceptional items, increased 17 per cent to GBP338.6 million.
This performance underlines the resilience of our business model, the real and
meaningful benefits arising from a full year's contribution from our merger, and
the hard work and quality of our staff.
We have had a busy year integrating London Stock Exchange and Borsa Italiana and
I am grateful to our colleagues at Borsa Italiana for their hard work and
dedication in developing the many assets that Borsa Italiana brings to the
Group.
In November, we reached a key milestone in successfully migrating our Italian
cash equities market onto our TradElect platform, creating the largest and most
liquid equity market in Europe. AIM Italia was established in December and six
Italian intermediaries had already been admitted as Nominated Advisers by year
end, with a road show across Italy to promote AIM Italia to hundreds of
entrepreneurs taking place.
By year end, GBP19 million of cost synergies had been delivered and we now
expect total cost synergies from the merger to be at least GBP32 million, an
increase of 60 per cent on our original forecast. The full run rate of at least
GBP32 million will be delivered in the coming financial year.
I would also acknowledge the engagement and support we received throughout the
year from our customers and the regulatory authorities, CONSOB and Banca
d'Italia, in Italy. This has been fundamental to the
success of our merger.
Demonstrating the critical role that our equity market plays in supporting the
real economy, we saw a record GBP106 billion of money raised in new and further
issues across the Group. This included a total of 160 new issues and a record
GBP99 billion of further money raised as companies issued new equity to fund
growth or repay debt and strengthen balance sheets.
To build on our position as the world's most international capital market, we
continued to promote London around the world. In the last year we held a series
of events for global companies and investors from the Americas, the Middle East
and Asia. We attracted 21 international IPOs, raising GBP3 billion between them,
once again more than all of our major exchange competitors put together.
Highlights from the year included nine companies joining us from the Middle East
raising a combined GBP1.4 billion, and the Mexican mining company Fresnillo
joining our Main Market, raising over GBP900 million.
Equity trading for the full year was resilient, although it weakened in the
second half as the de-leveraging effects of the financial crisis were felt. As a
number of new entrants emerged, our market share in the electronic trading of
FTSE 100 securities remained around 75 to 80 per cent and over 90 per cent in
S&P/MIB securities. We continue to offer best execution; the tightest spreads
and the greatest certainty of execution in the shares of the companies listed on
our market. For the full year in London, average daily value traded decreased 24
per cent to GBP6.9 billion per day, reflecting the 22 per cent fall in the
average value of the FTSE 100 index and general de-leveraging. However, the
average daily number of trades continued to grow, increasing 15 per cent to
740,000 trades per day. In Italy, average trades per day declined 12 per cent on
a pro forma basis to 256,000 although volumes increased in March, as share
prices started to recover from recent lows.
The growth in the number of trades in London reflects the increasing importance
of high frequency, highly automated electronic trading which we have highlighted
in previous years. Indeed, new specialist trading firms continue to join our
markets, supporting volume growth. This high frequency trading flow requires a
very high speed service and a different fee structure. To incentivise their
participation, we launched a new equity price list in September that introduced
a tiered credit scheme for liquidity provision.
We also continue to invest in the speed and capacity of our trading platform and
are busy preparing the next stage of our technology development. Our derivatives
business performed well, with Group volumes increasing 14 per cent on a pro
forma basis to a record total for the year of 98 million contracts. This growth
was driven in particular by very strong trading in our Russian derivatives
service. In November we launched a new Italian power derivatives market, IDEX,
which has started well with 14 trading members already using the service.
Information Services also delivered a strong performance, reflecting the quality
and value of our trading information. Demand for professional terminals
receiving real time London Stock Exchange data was resilient throughout most of
the year with a small decline in the last quarter to 104,000. Professional users
of Borsa Italiana data were down 9,000 to 151,000. As part of our continuing
development and diversification, in September we launched our Hosting service,
providing speed-hungry trading firms with even faster access to our trading and
information services. This is one example of a number of new initiatives being
developed by the Group.
Throughout the financial crisis our clearing service, CC&G, performed its
crucial function as central counterparty very effectively, highlighting the
quality of its risk management processes and operational excellence. Working
with LCH.Clearnet in London, we also launched a new central counterparty service
for the 50 most liquid depositary receipts on the London Stock Exchange's
International Order Book. Monte Titoli's post trade router, X-TRM, is now being
used in the UK market for the first time as part of this service.
We continued to build our international network, entering into a strategic
partnership with Oslo Børs which will
use TradElect for Norwegian equities and fixed income trading. In March we also
partnered with TMX Group. As part of this collaboration, our London derivatives
business, EDX London, will use TMX Group's derivatives trading platform by the
end of the year and TMX Group has recently invested in EDX London, with a view
to building new products and services together.
As I step down after eight eventful and very enjoyable years, I am delighted
that Xavier Rolet will assume the role of Chief Executive. I believe he is
exceptionally well qualified to take the Company forward.
I would particularly like to extend my deepest gratitude to my Chairman and
Board, my colleagues, our customers, shareholders and advisors for their
steadfast support over the last eight years. I wish you all very well in the
years ahead.
Clara Furse
Chief Executive"
The Annual Report contains the following statements regarding principal risks
and uncertainties facing the business on pages 32-33:
"Principal Risks and Uncertainties
the group operates mandatory groupwide risk management procedures which allow
management to make better, more informed and more Consistent decisions based on
a clear understanding of the risks involved
Risks are identified at project, operational and strategic levels. Whilst the
management of risk remains a line responsibility, risks are also monitored at a
corporate level by the relevant Group committees.
Whilst our revenues and profitability, as a provider of services to the
financial services sector, are highly dependent on the levels of activity within
that industry, we as a Group do not carry the significant balance sheet risks or
liabilities typically associated with that sector (see Counterparty/Credit Risk
below). The financial services industry is dynamic and unpredictable and is
directly affected by many macro-economic variables beyond our control. At the
same time, other factors which could impact on the Group's long-term performance
are specific to the business.
The following section covers the principal risks and uncertainties currently
facing the Group. In addition, the main risks arising from the Group's use of
financial instruments are discussed in note 1 to the financial statements.
Risks relating to the industry
Economic Environment
The ongoing recessionary environment could reduce customer demand for our
services and the ability of our customers, lenders and other counterparties to
meet their obligations to us. The current recession has reduced trading values
across our markets and the pace of initial public offerings has declined to
levels below those of recent years. The outlook for recovery in the market for
initial public offerings is closely tied to the availability of risk capital
which may not return to historic levels for some time. The demand for real time
data may reduce due to cut backs in headcount and costs among customers.
The need for increased management of counterparty risk may result in a shift of
OTC traded products on-exchange or extend the use of the CCP model, giving the
Group's regulated markets a clear advantage and opportunity for growth.
Regulation
The securities industry is closely regulated and as such, in addition to having
to comply with company law, local government and EU legislative requirements,
Group companies are subject to authorisation and continuous oversight by
regulatory bodies in the UK and Italy, which ultimately have the power to revoke
these authorisations. The Directors are not aware of any circumstances which
would result in the authorisations being revoked, and comprehensive procedures
are in place to ensure ongoing compliance with all legal and regulatory
requirements.
The securities markets have recently been the subject of increasing governmental
and public scrutiny in response to the global economic crisis. During the coming
months, it is possible that there will be significant changes in our regulatory
environment. In the UK, the Turner Review and the FSA's accompanying Discussion
Paper "A regulatory response to the global banking crisis" indicate a commitment
to revise the FSA's regulatory philosophy and enhance its supervisory approach.
The Group continuously monitors developments and engages in dialogue with
regulatory and government authorities at both the national and EU level.
Competition
The implementation of MiFID in Europe has made it easier for multilateral
trading facilities to establish themselves as low-cost alternatives to regulated
exchanges, thereby increasing the number of liquidity pools, with several new
entrants. This competition may further intensify in the near future especially
as technological advances create pressure to reduce the costs of trading. In
addition, a high proportion of our trading business is concentrated in a small
number of market participants which may lead to further pressure on pricing.
Both the European Code of Conduct, to which the Group is a signatory, and the
plan by the European Central Bank to create a centralised settlement mechanism
for Eurozone securities, may increase competition among post trading
organisations.
The Group is well placed to respond to these developments and continues to focus
on leveraging its post trade assets and on developing and delivering competitive
products, technology, pricing structures and services to reduce the overall cost
of trading which is key to maintaining strong customer relationships and deep
pools of liquidity.
Risks relating to the business
Technology
To compete effectively, the Group must be able to anticipate and respond, in a
timely and effective manner, to the need for new and enhanced technology. The
markets in which we compete are characterised by rapidly changing technology,
evolving industry standards, frequent enhancements to existing products and
services, the introduction of new services and products and changing customer
demands.
Our businesses depend on technology which is secure, stable and performs to high
levels of availability and throughput. If our systems cannot expand to cope with
increased demand or otherwise fail to perform, we could experience unanticipated
disruptions in service, slower response times and delays in the introduction of
new products and services.
The Group is investing continually to increase the capacity, responsiveness,
functionality and accessibility of its systems. It employs rigorous software
design methodologies, logistics planning and assembly and testing regimes to
minimise implementation risk and maintains alternative computer facilities to
reduce the likelihood of system disruptions.
Counterparty/Credit Risk
Acting as central counterparty, CC&G clears a range of equity-related,
fixed-income-related and derivative products. It assumes the counterparty risk
for all transactions that are cleared through its markets. CC&G closely monitors
its exposure to clearing members, and addresses this exposure by holding
collateral in the form of margin deposits from clearing members and by
maintaining default funds of clearing members' contributions. During the year,
the quantum of margins taken from, and default funds held for, its clearing
members have increased significantly, demonstrating a prudent approach taken in
light of prevailing financial market conditions. CC&G has not, to date,
experienced a default of any of its clearing members and has never made use of
default funds held.
The Group is exposed to credit risk from third parties, including customers,
counterparties and clearing agents. These parties may default on their
obligations to us due to bankruptcy, lack of liquidity, operational failure or
other reasons. The Group has stringent and proactive credit management processes
in place to mitigate this risk and these processes have had, and continue to
receive, very significant focus at managerial and Board level.
Brand Name & Reputation
The Group's strong reputation and brand names are a key competitive strength.
Damage to the Group's reputation could have an adverse effect on revenue and can
be caused by:
* Litigation;
* Negative publicity;
* Technology failures;
* Failure of market supervision;
* Instances of market abuse; and
* Inaccurate trade information, financial and market data.
The Group constantly monitors those areas of the business that could cause harm
to the reputation of the business and evaluates its procedures accordingly.
Financing
The Group needs to invest in its operations to maintain and grow the business.
Although the Group believes its current capital requirements can be met from
internally generated funds, cash on hand and available borrowings under existing
credit facilities, if the capital and credit markets continue to experience
volatility, access to new/incremental capital or credit may not be available on
acceptable terms or at all. Any additional equity financing may be dilutive to
holders of ordinary shares, while any debt financing may require restrictions to
be placed on the Group's future financing and operating activities.
In addition, further capital may not be available in the debt markets to support
subsequent re-financing activities as these become due. During the year, the
Group successfully arranged new committed five and three year credit facilities
as well as extending existing facilities. Through these financing activities the
Group has also broadened the number of its supporting banks from two to nine.
The Group maintains an active dialogue with its relationship banks as well as
seeking independent advice on key factors affecting the equity and debt markets.
Employees
The calibre and performance of our senior management and other key employees are
critical to the success of the Group. Our ability to attract and retain key
personnel is dependent on a number of factors including prevailing market
conditions, compensation packages offered by companies competing for the same
talent and any regulatory impact thereon and the impact of share price
performance on our share schemes. Failure to attract and retain key personnel
may adversely affect our ability to conduct our business through an inability to
execute business strategies effectively. To manage this, the Group regularly
reviews its reward and incentive systems to ensure they are competitive,
operates performance appraisal systems and provides executive development
opportunities. Additionally, the Nominations Committee considers the succession
plans for key positions.
Partnerships/Joint Ventures
New business initiatives, such as Baikal and AIM Italia, together with
partnerships and joint ventures with third parties, for example, Oslo Børs and
TSE, are an important part of our growth strategy. Such ventures may require
significant resources, result in unanticipated losses, costs or liabilities, or
fail to achieve the forecast benefits. Appropriate structures and processes are
in place to ensure such initiatives progress smoothly and that there is
sufficient management focus on delivering the projected benefits.
Foreign Exchange
Geographical expansion has meant that the Group is now exposed to volatility in
the sterling/euro foreign exchange rate. The business has limited transactional
foreign exchange exposure as most of its revenues and related costs arise in the
currencies of its operations, whilst major monetary transfers between euro and
sterling entities are hedged. Borsa Italiana S.p.A represents around 44 per cent
of Group revenue and a one cent movement in the euro exchange rate has an impact
on revenue of approximately GBP2 million. The Group partially hedges euro
denominated net assets with euro borrowings, thus providing some mitigation of
the economic risk as euro earnings are used to service and repay euro
denominated debt."
The Annual Report contains the following statements regarding responsibility for
financial statements on page 53:
"DIRECTORS' RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
THE DIRECTORS are responsible for preparing the annual report, the directors'
remuneration report and the financial statements in accordance with applicable
law and regulations
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group and parent
Company financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The financial
statements are required by law to give a true and fair view of the state of
affairs of the Company and the Group and of the profit or loss of the Group for
that period.
In preparing those financial statements, the directors are required to:
* Select suitable accounting policies and then apply them consistently;
* Make judgements and estimates that are reasonable and prudent;
* State that the financial statements comply with IFRSs as adopted by the European
Union; and
* Prepare the financial statements on the going concern basis, unless it is
inappropriate to presume that the Group will continue in business.
The Directors confirm that they have complied with the above requirements in
preparing the financial statements.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and to enable them to ensure that the financial statements
and the Directors' Remuneration Report comply with the Companies Act 1985 and,
as regards the Group financial statements, Article 4 of the IAS Regulation. They
are also responsible for safeguarding the assets of the Company and the Group
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's
website and legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Each of the Directors, whose names and functions are listed in the Board of
Directors section of the Directors' Report, confirm that, to the best of their
knowledge:
* The Group financial statements, which have been prepared in accordance with
IFRSs as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group; and
* The Business Review, whose contents are detailed on page 49 of the Directors'
report, includes a fair review of the development and performance of the
business and the position of the Group, together with a description of the
principal risks and uncertainties that it faces.
By order of the Board
Lisa Condron
Group Company Secretary
20 May 2009"
The Annual Report contains the following statements regarding details of certain
related party transactions on page 92:
38. Transactions with related parties
FTSE International Ltd
Details of transactions with FTSE International Ltd are included in note 16.
Key management compensation
Compensation for directors of the Company and key personnel who have authority
for planning, directing and controlling the Group:
2009 2008
GBP000 GBP000
Salaries and other short term benefits6,758 5,123
Pensions 207 155
Share based payment2,048 6,536
9,013 11,814
Inter-Company transactions with subsidiary undertakings
London Stock Exchange Plc
During the year the Company was charged by London Stock Exchange plc GBP12.0m
(2008: GBP17m) for interest payable on the inter-company loan. The Company was
also charged GBP4.9m (2008: GBP9.7m) by London Stock Exchange plc in respect of
employee share schemes.
The Company received dividends of GBP117.9m (2008: GBP185.0m) from its
subsidiary, London Stock Exchange plc.
The amounts owed by the Company to its subsidiary London Stock Exchange plc are
disclosed in note 26. The loan is for a term of 25 years and is repayable in
five equal annual instalments commencing on the 21st anniversary of the first
drawdown, in May 2027. The loan bears interest at LIBOR plus two per cent.
London Stock Exchange Employee Benefit Trust
During the year the Company made loans of GBP26.3m to the London Stock Exchange
Employee Benefit Trust to fund the acquisition of Company shares to meet share
award/option commitments to Group employees. The loans are not repayable and do
not bear interest. At 31 March 2009, the outstanding balance was GBP60.5m (2008:
GBP63.9m).
Borsa Italiana S.p.A.
During the year the Company charged Borsa Italiana S.p.A. GBP6.0m (2008:
GBP0.8m) for interest receivable on the intercompany loan. The company was also
charged GBP5.5m (2008: GBP2.6m) by Borsa Italiana S.p.A. in respect of employee
share schemes.
The amounts owed by Borsa Italiana S.p.A. to the Company are disclosed in note
22. The loan is for a term of 20 years and is repayable in five equal annual
instalments commencing on the 16th anniversary of the first drawdown, in January
2024. The loan bears interest at Euribor plus 1.2 per cent."
This information is provided by RNS
The company news service from the London Stock Exchange
END
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