Press Release

LCH.Clearnet Group results and announcements

London, 29 August 2006 – LCH.Clearnet today announced its results for the half year ended 30 June 2006

Financial highlights

• Organic growth in turnover of 63.2%¹ to €608.7m;

• 639.3 million trades cleared, an increase of 28.6% ²;

• Operating profit increased by 238.4% to €71.4m, despite the write off of the Generic Clearing System related asset of €47.8m.

¹ Compared to the equivalent period in 2005. No account has been taken of the impact of the movement in average exchange rates as these are immaterial.
² Compared to the equivalent period in 2005 on a like for like basis.

A full copy of the LCH.Clearnet Group Limited Consolidated Financial Statements for the six months ended 30 June 2006 is available on the LCH.Clearnet website at www lchclearnet.com.

Commenting on the Group’s performance, Roger Liddell, Group Chief Executive, said “LCH.Clearnet has seen spectacular levels of clearing activity, with record volumes being established, broken and then re-broken in clearing cash markets, and unprecedented monthly nominal values in fixed income. On a like for like basis, clearing volumes have risen more than 28% against the same period in 2005, reaching a total of 639.3m contracts. These high levels of business activity have resulted in net revenues increasing by €58.5m (35.5%) to €223.1m. At the same time strong control exercised over the cost base has resulted in costs and expenses, excluding exceptional items, falling by €13.5 m (11.5%) to €103.9m.

“During the period, the Group undertook a further review of its technology strategy. As a result of this review, the Group has decided not to continue to use assets from the Generic Clearing System (GCS) within its technology strategy. Accordingly, a €47.8m write off (2005:€20.1m), which substantially relates to those assets, has been recognised in the consolidated income statement for the 6 months to 30 June 2006. The total cost of GCS was €121.3m, of which a substantial proportion was expensed directly to the Income Statement as incurred. The GCS programme has now been fully written off.

“Given the short period that has elapsed since my appointment, this statement at the half year point has been necessarily brief; I look forward to being able to make more detailed comments at the year end. In particular, I will be undertaking a strategic review of our business and supporting technology, and I will be better placed to comment thereafter.”

Financial Review

LCH.Clearnet Group
Summarised consolidated income statement
for the six month ended 30 June 2006

Total Revenue 

Total revenue from continuing operations increased by 63.2% to €608.7m.

Gross clearing fees increased by €61.0m (39.6%) to €215.1m (2005: €154.1m) reflecting substantially higher trading volumes in equities, derivatives and swaps, and commodities and energy, compared to the corresponding period in 2005.

Interest payments to clearing members

Interest income from cash and collateral margin balances increased by €170.9m (93.0%) to €354.6m (2005: €183.7m), principally due to the substantially higher average cash collateral balances arising from increased levels of market activity during the current period. Interest payments to clearing members in respect of cash and collateral margins increased broadly in line by €158.3m (97.4%) to €320.9m (2005: €162.6m).

Interest earned on Default Funds was €3.6m (14.6%) higher at €28.3m (2005: €24.7m) as a result of the increase in the balance of Default Funds. Interest paid to members in respect of Default Funds increased by €2.6m (8.5%) to €33.1m (2005: €30.5m).

Fees payable and similar charges

These amounts principally relate to retrocession fees collected on behalf of a related party, Euronext, and have increased in line with the increase in volumes and clearing fee income experienced in continental Europe. Additionally a number of contractual revenue and fee guarantees provided by Euronext, that were previously offset against the retrocession fees, expired at the end of 2005.

Administrative expenditure

Overall, administrative expenditure has fallen by €13.5m (11.5%) to €103.9m (2005: €117.4m).

The main changes are in the area of operating expenses, which have fallen by €14.9m (20.1%) from €74.1m to €59.2m. The decrease in operating expenses being driven by the renegotiation of key IT contracts and a significant reduction in the use of IT contractors and consultants as the Group completed the review of its GCS technology strategy.

Depreciation has increased by €1.2m (from €6.1m to €7.3m) following the commencement of depreciation on a number of software licences.

Write off of capitalised development costs

During the period the Group undertook a further review of its technology strategy. As a result of this review the Group has decided not to continue to use assets from the Generic Clearing System (GCS) within its technology strategy. Accordingly, a €47.8m write off (2005: €20.1m), which substantially relates to those assets, has been recognised in the consolidated income statement. The total cost of GCS was €121.3m, of which a substantial proportion was expensed directly to the Income Statement as incurred. The GCS programme has now been fully written off.

Operating profit

The definition of operating profit used within the Group includes income generated from the re-investment of clearing member margin and Default Fund balances, but excludes interest income from shareholders’ funds and interest expenses relating to redeemable convertible preference shares (RCPS) and subordinated loans – all of which are included separately in net finance costs.

Substantial revenue increases, combined with savings in IT costs, resulted in an increase in operating profit of €50.3m to €71.4m (2005: €21.1m) after allowing for the impairment of capitalised development costs of €47.8m (2005: €20.1m).

Net finance cost

Interest income on shareholders funds now exceeds that payable in respect of long term financing with the result that the net finance cost is now a net finance income.

Interest costs attributable to the RCPS and subordinated loan have increased by €0.5m (13.2%) to €4.3m (2005: €3.8m) due to the increase in Euro interest rates.
Interest on shareholders’ funds has risen due to the increase in the level of the Group’s own cash balances, which were unaffected by the GCS write off. In addition, the Group has also benefited from increasing interest rates on Euro denominated funds.

Taxation expense

The effective tax rate is 34.4% (six months ended 30 June 2005: 40.0%; year ended 31 December 2005: 37.1%).
The rate exceeds the standard UK rate of 30.0% due to the generation of some of the Group’s profits in Europe, where effective tax rates are higher, as well as certain expenses, including the finance costs relating to RCPS, being ineligible for tax relief.

LCH.Clearnet Group Limited
Extracts from the 2006 Consolidated Financial Statements
for the six months ended 30 June 2006

LCH.Clearnet Group
Consolidated Income Statement
for the six months ended 30 June 2006

LCH.Clearnet Group
Consolidated balance sheet
as at 30 June 2006

LCH.Clearnet Group Limited
Consolidated Cash Flow Statement
for the six months ended 30 June 2006

LCH.Clearnet Group Limited 
Consolidated Statement of Changes in Equity 
for the six months ended 30 June 2006

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