LSE seeks partners, not acquisitions

LONDON Wed May 15, 2013 9:26am EDT

Electronic information boards display market information at the London Stock Exchange in the City of London January 2, 2013. REUTERS/Paul Hackett

Electronic information boards display market information at the London Stock Exchange in the City of London January 2, 2013.

Credit: Reuters/Paul Hackett

LONDON (Reuters) - The London Stock Exchange (LSE.L) said it was seeking partnerships with fast-growing exchanges to boost its revenue, shunning pressure to consolidate further.

Exchanges are looking to buy each other due to falling trading volumes in an uncertain economic climate and increased regulation, which are squeezing profits.

The LSE, which earlier this month acquired a majority stake in London clearing house LCH.Clearnet, is trying to diversify its revenue and cut costs to protect profits.

Earlier this month Turkey's deputy prime minister said his country was in talks with the LSE and Nasdaq (NDAQ.O) about a partnership which could involve it selling a stake in return for technology support.

"We are always looking to build significant partnerships with fast-growing exchanges," LSE Chief Executive Xavier Rolet told reporters on a conference call, declining to comment specifically on any talks with Istanbul.

"If and when there is an opportunity to take a small stake to cement that relationship, this is obviously something we'd consider," he added.

Technology services are seen as one area, along with clearing and data, that will help exchanges sustain profits if trading levels stay low, as expected.

"We are delivering growth to our clients and shareholders through the growth of our business, not the leveraging of our balance sheet," said Rolet.

The exchange reduced its operating net debt to 549.9 million pounds over the last year, from 703 million pounds in 2012.

On Wednesday, the LSE reported a 7 percent rise in full year revenue to 726.4 million pounds ($1.1 billion). A consensus of 14 analysts polled by the exchange had predicted revenue of 717 million pounds.

Adjusted operating profit fell 3 percent on the previous year to 430.2 million pounds, although that was above the consensus forecast of 414.3 million pounds.

"Our industry still has consolidation issues. But the bottom line is that is not where we are focusing. We will let others do that. We are focusing on our business," Rolet said.

Atlanta-based IntercontinentalExchange Inc. (ICE.N) last year sparked another round of consolidation when it agreed to buy NYSE Euronext NYX.N for $8.2 billion, while in February, Deutsche Boerse denied a report it was in talks with CME Group Holdings Inc (CME.O).

The LSE, which was the subject of bid speculation after its plan to buy the Toronto Stock Exchange collapsed in 2011, already has several tie-ups in place worldwide.

In January the LSE agreed a technology partnership with the Lima exchange, and is helping to develop the stock exchange and capital markets infrastructure in resource-rich Mongolia.

Its 2011 acquisition of index provider FTSE International helped the LSE increase revenue from information services in the year to 31 March by 40 percent.

"LSE's diversification strategy is showing its benefits," Peter Lenardos, analyst at RBC Capital markets said in a note.

Rolet said the company had already started work on making cost savings as a result of synergies from the LCH deal.

The LSE's shares, which have risen more than 27 percent since the start of the year, were up 6.4 percent on the day by 1211 GMT at 1420 pence.

($1 = 0.6554 British pounds)

(Editing by Elaine Hardcastle)

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