LSE's profits fall a third as rival platforms win business

The London Stock Exchange yesterday blamed tougher competition and a fall in the number of listings as it reported a 37 per cent drop in pre-tax profits to £79m for the first half of the year. Platforms such as Chi-X and Bats have opened since 2007, when the European market was liberalised following the Mifid Directive, taking listings and other business away from the established exchanges.

The LSE said revenues in the six months to the end of September were 9 per cent lower than in the same period last year, while cuts in tariffs had a more dramatic effect on yields than the group had expected. The LSE changed its tariff structure in September, which it reckons will lead to fees falling by 9 per cent.

"The overall group performance reflected market conditions depressed by the fall-out from turmoil in financial markets last year and increased competition, particularly in UK cash equities trading which, as expected, resulted in a weaker performance in the Capital Markets division," said Xavier Rolet, who took over as the LSE's chief executive earlier this year.

Mr Rolet said that the company would continue to cut costs and "drive efficiency" to counter the problems in the market. However, Martin Price, an analyst at Bank of America-Merrill Lynch, said that improvements could take some time to filter through. "Whilst we see potential for greater efficiency, we expect cost savings to accrue slowly, as the company consolidates the rollout of the new MillenniumIT trading platform. In the interim, we see risks that price competition and market share losses could increase pressure on earnings before revenues from new initiatives can pick up sufficiently to compensate."

The LSE bought MillenniumIT, a Sri Lankan trading technology group, in October for $30m (£18m). The group is hoping that a number of exchanges will adopt its technology. The company also confirmed yesterday that it was still in with Turquoise, a pan-European platform, launched by a number of banks after the 2007 deregulation.

The LSE's small-cap exchange, Aim, has also struggled this year with 253 companies delisting so far, according to Aim data group Deal Monitor.