HKEx profit up as LME brings in fresh revenue

London exchange acquisition boosts local bourse's first-half earnings past expectations, but has also brought in rising expenses

PUBLISHED : Friday, 16 August, 2013, 12:00am
UPDATED : Friday, 16 August, 2013, 3:58am

Hong Kong Exchanges and Clearing reported a better-than-expected interim net profit growth of 5 per cent in the first half of this year, on improved turnover and new revenue streams from its new acquisition, London Metal Exchange (LME).

HKEx, which expanded into commodities trading with a £1.39 billion (HK$16.66 billion) acquisition of the world's largest metal exchange in December, reported a net profit of HK$2.33 billion for the first six months, narrowly beating a Bloomberg consensus forecast of HK$2.298 billion and a HK$2.22 billion profit in the same period last year.

HKEx's second-quarter profit stood at HK$1.17 billion, up 10 per cent from HK$1.07 billion a year earlier and from HK$1.16 billion in the first quarter this year.

An interim dividend of HK$1.82 per share was announced.

This marks the first half-year earnings contribution from LME - of HK$267 million - to HKEx, which registered a 9 per cent year-on-year growth in trading volume during the period under review. Trading fee income from the LME stood at HK$436 million, making up 14.5 per cent of the HK$3 billion total fee income of HKEx.

The LME now runs a model that's not purely focused on profits
Charles Li, HKEX

Having LME in the group, however, also entailed additional staff and amortisation costs. Total expenses grew 37 per cent year on year to HK$1.34 billion, including a 27 per cent increase in staff costs to HK$755 million and 316 per cent increase in amortisation cost to HK$233 million.

HKEx chief executive Charles Li Xiaojia said rising expenses related to LME would have to be absorbed for some time but added that its future benefits would far outstrip the current costs.

"The LME now runs a model that's not purely focused on profits. When LME starts to run as a commercial organisation from 2015 and after LME Clear starts operations next year, its contribution would be higher," Li said.

Li said the exchange is in the final stages of identifying a successor for outgoing LME chief executive Martin Abbott who has resigned and will leave at the end of the year.

He also reiterated that several class action lawsuits filed in the US against LME were groundless.

HKEx benefited from higher stock and derivatives turnover, which translated into higher trading and clearing fee income. Average daily turnover of the stock market reached HK$68.28 billion during the first half, up 20 per cent from the year-earlier period, while derivatives trading jumped 10 per cent.

This was offset in part by a 58 per cent surge in information-technology expenses to the tune of HK$250 million as the exchange is upgrading its trading networks and establishing a new over-the-counter clearing house that will start operating this year.