Annual Financial Report

RNS Number : 5396H

London Stock Exchange Group PLC

31 May 2011

London Stock Exchange Group plc Annual Report and Accounts, Notice of Annual General Meeting 2011 and related documents.

The Annual Report and Accounts of the London Stock Exchange Group plc (the "Group") for the year ended 31 March 2011 (the "Annual Report"), Notice of Annual General Meeting 2011 (the "AGM Notice") and related form of proxy for the Group's 2011 Annual General Meeting (the "AGM") are being mailed to shareholders today and, in accordance with paragraph 9.6.1 of the FSA Listing Rules, have been submitted to the National Storage Mechanism where they will shortly be available for inspection at www.hemscott.com/nsm.do.

London Stock Exchange Group plc	Paul Froud - Investor Relations	+44 (0) 20 7797 3322
	Victoria Brough - Media Relations	+44 (0) 20 7797 1222

In compliance with DTR 6.3.5 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 13 May 2011 (the "Preliminary Results"). The information reproduced below and the Preliminary Results together 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, the Preliminary Results and the AGM Notice can be viewed and downloaded at www.londonstockexchangegroup.com/investor-relations/investor-relations.htm.

The Annual Report contains the following statements regarding important events that have occurred during the year on pages 10 - 11:

"Chairman's Statement

Market and operating environment

The Group operates in an increasingly dynamic and fast paced sector. In particular, the environment remains characterised by widespread regulatory change and further exchange sector consolidation.

We are proponents of regulatory regimes that place great value on efficient, transparent, independent and trusted capital markets services. Currently, the EU is developing its new European Markets and Infrastructure Regulation (EMIR), conducting a review of the Markets in Financial Instruments Directive (so-called MiFID II) and undertaking a large infrastructure project - Target 2 Securities (T2S) - in the post trade landscape (see page 9 of this report for further details).

We are actively involved in these regulatory processes, providing responses to consultations, reviewing draft policy and seeking engagement with policy-makers. All of this regulation will impact our business opportunities.

In the UK, the Government is currently consulting on a new approach to financial regulation. Again we are active in our lobbying, focusing on themes of transparency, efficiency, commerciality and the UK's attractiveness as a global financial centre. We have also been vocal on the need for London to have an effective voice at an EU level. It is expected that the Government's proposals will be implemented in mid-2011, with the aim of introducing a new regulatory framework by the end of 2012.

As domestic and international economies evolve, the Group's equity and debt markets continue to provide an important source of financing to business at home and overseas. This funding function is essential for economic prosperity. The year saw strong overall growth in the number of new equity issues, up 68 per cent with a more than threefold increase in money raised by new issues. In particular, we were delighted to celebrate the 15th anniversary of AIM, our junior market, in 2010 and we have been working closely with the Government and European policy makers to find ways of encouraging equity investment in growing businesses. AIM continues to play a pivotal role in the funding of innovation and business success, in turn driving

economic growth, directly supporting 250,000 UK jobs. We are staunch advocates of the importance of the SME sector and the role it plays in economic prosperity.

Strategic Development

We aim to develop the Group further, with increasing international scale, together with extended reach and scope to provide competitive services to global customers. This approach underpins the rationale for our proposed merger with Canada's TMX Group, announced in February this year. We believe this transaction will create a leading diversified international exchange group with exciting opportunities for growth. The process of achieving necessary approvals is underway and will include seeking approval from shareholders of both companies.

Our focus has also been on driving efficiency through management changes, cost reduction, client alignment and new technology. The results are showing through in improved operational and financial performance, and the efforts in this area will continue.

The second pillar of our strategic approach, characterised as "leveraging our assets", is also delivering results. We have announced plans to launch pan-European equity derivatives trading in the first quarter of the new financial year. We have also strengthened our equities trading offering, stabilised our share of trading and have developed a number of new information and technology products.

The CEO's review and the update on strategy provide more detail on our plans and progress.

Financial performance

It has been a good year for the Group, set against the backdrop of more stable though still highly competitive markets. We made real strides in delivering on our stated strategy to deliver greater efficiencies and to grow existing Group operations.

Reflecting the upturn in financial performance, the Board is proposing a 12.5 per cent increase in the final dividend to 18.0 pence per share, resulting in a dividend for the full year of 26.8 pence per share, a 10 per cent rise. The final dividend will be paid to shareholders on the register on 29 July 2011.

Board of Directors

We have refreshed the Board with the appointments of Paul Heiden, Gay Huey Evans and Massimo Tononi as Non-Executive Directors, and the addition of Raffaele Jerusalmi as an Executive Director. Angelo Tantazzi, Oscar Fanjul and Nigel Stapleton stepped down during the year and we thank them for their substantial contributions during their tenure.

Please see the Governance section of this report on pages 38 to 63 for more details of the Board and our report on Corporate Governance.

Conclusion

Looking forward, we expect that regulatory changes, macroeconomic factors, competition and developments in the exchange sector will continue to exert considerable influence on the way we operate and future opportunities for the Group.

We are very much engaged with the processes that shape these developments. The actions that we have taken to ensure our Group remains efficient, competitive and focused on building increased scale, scope and reach have put us in a strong position. We look forward to continuing to make progress and to further strengthen the Group, as we enter a new phase in our global industry.

Chris Gibson-Smith

Chairman"

The Annual Report contains the following statements regarding principal risks and uncertainties facing the business, with respect to principal market and operational risks, on pages 32 - 37, and, with respect to financial risks, on pages 73-75:

"The principal risks and uncertainties facing the Group are described below.

The Group is subject to a variety of foreseeable and unforeseeable risks and uncertainties which may have an impact on the Group's ability to execute its strategy and deliver its expected performance. The identification, assessment and management of these risks are central to the Group's operating framework. The risk management framework is described in the Corporate Governance section on page 44.

In addition to the principal market and operational risks outlined below, the Group is exposed to financial risks that are detailed on pages 73 to 75.

"Principal Market Risks

The risks arising from the economic, political, competitive and regulatory environment within which the Group operates.

Risks

Mitigating factors and additional commentary

Clients and competition

We operate in markets that are characterised by increasing competition and choice for clients, as well as continued concentration of business from a relatively small customer base. Client alignment is paramount to the successful operation and growth of our business.

Whilst regulatory changes removed some barriers to competition and afforded the Group the opportunity to compete for pan-European trading, it also resulted in increased competition, a consequent loss of market share and pressure on fee levels in the Group's existing markets.

In our international primary markets business New York remains competitive but there is increasing competition from Asia, particularly Hong Kong, which is seeking to attract high profile international listings.

The Group has implemented a new, structured client engagement programme with senior management sponsorship and named individuals responsible for ensuring effective customer liaison. This, coupled with a focus on cost reduction and new technology deployments, is designed to increase our competitiveness. The early results of these initiatives have seen our share of trading in cash equities stabilise in the past year.

We aim to align our commercial activities with the interests of our major clients as demonstrated through our successful partnership with 12 global investment banks to grow the market for pan-European equity and derivatives trading through Turquoise.

We maintain a dedicated international marketing team focused on key target markets, promoting the benefits of listing on Group markets to international issuers, the global advisory community and the stakeholders. The proposed merger with TMX Group is intended, among other objectives, to enhance our leading position in the international listings market.

Changing regulatory environment

Following the financial crisis and other market events (eg the "Flash Crash" in the USA), a range of measures intended to reduce risk in financial services have been proposed or are under discussion in the EU, often mirroring similar proposals in other jurisdictions, principally the USA.

Driven in part, but not exclusively, by commitments to the G20 objectives by the EU and Member States, these measures will lead to closer and more intrusive regulation of all financial services firms and infrastructure providers.

There is also strong political pressure for increased central EU supervision and regulation in reaction to the financial crisis.

The key measures directly affecting the Group are likely to be the Review of MiFID, European Market Infrastructure Regulation (EMIR) and Short Selling Regulation. There are also planned measures on capital requirements, central securities depositories, securities law, corporate governance, market abuse, issuer transparency, financial transaction/activity taxes and crisis management.

In the UK, the Government is progressing with its plans to replace the FSA with two new regulators, the PRA (micro prudential regulation) and FCA (conduct, markets and consumer protection). The Financial Policy Committee will advise on macro systemic risk.

Regulatory change creates a more uncertain environment for the Group to plan and execute its business strategy. Changes may occur that have an adverse effect on the Group's business but may also provide new growth opportunities. Associated risks include potentially increased capital requirements and higher compliance costs.

Changes in the regulatory environment form a key input into our strategic planning.

We continually monitor regulatory developments and have direct engagement with regulatory and Government authorities at a national, EU and international level. We also have relationships with the key political stakeholders at EU and UK level.

Potential impacts from regulatory change are assessed and, depending on the impact, opportunities are developed and mitigating actions are planned.

As the various proposals take shape, there is greater certainty about the proposed measures. The Group considers that, balancing the negative and positive outcomes, the likelihood of major adverse regulatory development has reduced slightly during the course of the year as the proposals in the MiFID review and EMIR in particular become more certain. Further opportunities exist for the Group to deliver solutions to help the market address the changing regulatory environment.

The Group believes that it should be able to ensure that the Group's capital requirements remain appropriate.

Fiscal regime and political environment

Public finances in Europe are under increasing pressure as Governments tighten the fiscal environment, which could reduce activity in capital markets.

London's status as a global financial centre could be diminished by a tax regime that is less attractive than alternative global locations and by increasing regulatory pressures, thereby reducing its ability to retain and/or attract investment. This could have a significant impact on the Group's revenues.

The reduction in UK corporation tax over the next four years provides some certainty and benefit for the Group.

As the Group extends its reach into other geographical regions so its exposure to political risk also increases.

With the acquisition of MillenniumIT the Group is now exposed to any increase of political instability in Sri Lanka where MillenniumIT's development centre is located. Changes to the constitution following Presidential and parliamentary elections in 2010 could increase the risk of intrusive political or regulatory action or erode the quality of the current working environment.

The Group liaises closely with Government bodies and maintains cross party political relationships, playing an active role by sharing expertise and experience with policy makers on the impact of Government and regulatory decisions on financial markets.

The Group's revenue base is not wholly dependent on London with approximately half its total annual income being generated from its Italian businesses.

The move away from corporate debt (and in particular bank) financing is positive for the Group's equity business. In addition, Government debt requirements can assist the Group's fixed income business.

The Group maintains regular contact with key Governmental parties in Sri Lanka and has appropriate contingency plans in place to ensure key technology operations are not dependent on a single geography.

Principal Operational Risks

The risks arising from the people, systems and processes through which the Group operates.

Change management

The Group has a number of major, complex projects and strategic actions underway concurrently, including implementation of new technology systems, cost management initiatives, a client engagement programme and strategic development of the Group's post trade and derivatives businesses. If not delivered to sufficiently high standards and within agreed timescales, these could have an adverse impact on the operation of core services, and revenue growth, as well as damaging the Group's reputation.

The volume of simultaneous change could also lead to a loss of client goodwill, and the projects are not certain to deliver the anticipated synergies and cost benefits. With regard to the capability of the Group's MillenniumIT offering, losing the balance between key growth projects and ongoing product development may undermine the future competitiveness of the Group's technology platforms.

The senior management team, which has been further strengthened during the year, is focused on the implementation of the Group's strategy and the project pipeline in view of their importance to the Group's future success.

Each project is managed via a dedicated project workstream, overseen by senior management.

Rigorous software design methodologies, testing regimes and test environments are employed to minimise implementation risk.

Product development teams are being strengthened to ensure that the Group can continue to deliver advanced trading and information technology to meet clients' needs.

The risk has reduced as the Group has successfully implemented significant projects in the past year, including IDEM's migration to SOLA and the roll out of Millennium Exchange in the UK.

Employees

The calibre, quality and retention of employees are critical to the success of the Group.

The loss of key members of staff could have an adverse impact on the Group's operations and ability to execute its change programme. The Group recognises the importance of retaining and developing employee skills and balancing resource allocation in the face of the changing nature of the Group's business environment. The Group's ability to attract and retain high quality individuals depends on the condition of recruitment markets and corresponding compensation packages of financial services, technology firms and regulators with which the Group competes for the same key staff. This risk likelihood has fluctuated in the current year in the context of increased recruitment activity (particularly in the financial services sector in London) which has resulted in some increase in staff attrition rates but generally the risk remains unchanged.

The Group operates a performance management and appraisal system, and Executive development opportunities are provided with the Nominations Committee responsible for considering succession plans for key senior positions.

A performance related annual bonus and pay review process is in place for all employees and regular benchmarking of reward and incentive systems is performed to ensure they are competitive.

The Group also offers Long Term Incentive Plans for high performers and critical staff, although these have not realised any value in recent years.

Staff turnover is monitored and reported to

the senior executive quarterly.

A centralised training budget, which has been recently increased, allows a co-ordinated approach to development across the Group.

Security threats

The Group is dependent on having secure premises and uninterrupted operation of its IT systems and infrastructure. Potential security threats therefore require continuous monitoring and assessment.

Terrorist and cyber attacks and similar activities directed against our offices, operations, computer systems or networks could disrupt our markets, harm staff, tenants and visitors, and severely disrupt our business and operations. Similarly civil or political unrest could impact on companies within the Group.

Long term unavailability of key premises or trading and information outages and corruption of data could lead to the loss of client confidence and reputational damage. Security risks have escalated due to the increasing sophistication of cyber crime.

The Group has well established business continuity and crisis management procedures.

The Group take security threats very seriously and has robust security arrangements in place.

Extensive information and IT security measures are in place. These include the monitoring of intelligence and close liaison with the police and Government agencies.

Security risk has increased, however risk mitigation against both physical and IT threats is long and well established.

Ongoing operations

The Group's businesses and major revenue streams are highly dependent on secure and stable technology performing to high levels of availability and throughput. Any technology failures will impact on our clients and can potentially lead to a loss of trading volumes and adversely impact the Group's reputation and brand.

The Group now increasingly provides its IT development and operations in-house, with particular reliance on MillenniumIT following the successful migration of the Group's UK markets onto Millennium technology. Whilst this gives the Group a greater degree of control in this area, there remains a risk of resource over-stretch to meet both the requirements of the Group and those of third parties.

The Group also has dependencies on a number of third parties for the provision of hardware, software, communication and networks for elements of its trading, data and other systems.

The performance and availability of the Group systems are constantly reviewed and monitored to prevent problems arising where possible and ensure a prompt response to any potential service interruption issues.

The Group's Technology Services management team mitigates this risk by ensuring prioritisation of all development and operations activities, and resource utilisation and allocation is kept under constant review.

The MillenniumIT systems are designed to be fault tolerant and in addition alternative standby computer facilities are maintained to minimise the risk of system disruptions.

The Group actively manages relationships with key strategic IT suppliers to avoid any breakdown in service provision which could adversely affect the Group's businesses. Where possible the Group has identified alternative suppliers that could be engaged in the event of a third party failing to deliver on its contractual commitments.

Investment risk

The Group's clearing provider, CC&G, holds a significant quantum of cash and securities deposited as margin or as default funds by clearing members. There is a risk of a partial loss of the funds should a bank in which funds are deposited default.

CC&G guarantees trades and manages counterparty risk in a range of assets and instruments including cash equities, derivatives, energy products and Government bonds. As such the Group is exposed to country risk, credit risk, issuer risk, market risk, liquidity risk, interest rate risk and FX risk.

To date, CC&G has not experienced a failure of one of its deposit counterparties nor any loss as a result of the default of a member.

The financial risks associated with clearing trades are mitigated by:

· strict membership rules;

· the maintenance of prudent levels of margin and default funds to cover exposures to participants; and

· back-up credit facilities supporting daily liquidity.

Committees overseeing membership, risk and financial risk meet on a regular basis.

Investments are made in compliance with the Financial Management Policy issued by the Financial Risk Committee of CC&G. This limits deposits of margin and default funds to investment grade banks or (if unrated) Italian listed banks that are appropriately capitalised.

During the year we have extended the number of counterparties that take CC&G's deposits to diversify this risk and we maintain a close dialogue with Bank of Italy, the regulator of CC&G and its deposit-taking bank counterparties.

All deposits are monitored daily and are subject to regular reporting to the Executive Committee.

Financial risk management

Capital Risk

The Group considers that a scarcity of debt or equity (driven by its own performance or financial market conditions) and an increase in regulatory requirements are the principal risks to managing its capital.

The Group's capital base comprises equity capital, debt capital and retained profits, details of which are set out in the Consolidated Statement of Changes in Equity and in note 26.

The Group is mindful of its overall cost of capital, as it seeks to provide superior returns to its shareholders, fulfil its obligations to the relevant regulatory authorities and other stakeholders and ensure that it is not overly dependent upon short and medium term debt that might not be available at renewal. Maintaining the flexibility to invest for growth is a key capital management consideration.

The Group can manage its capital structure by varying returns to shareholders, issuing new shares, or increasing or reducing borrowings. The Board reviews dividend policy and funding capacity on a regular basis and the Group maintains comfortable levels of debt facility headroom. The Group has the strategic objective of maintaining an investment grade credit rating.

To maintain the financial strength to access new capital at reasonable cost, the Group monitors capital in a number of ways, including reviewing its leverage ratio, Net debt to adjusted EBITDA (Group consolidated earnings before net finance charges, taxation, impairment, depreciation and amortisation and non-recurring items). This ratio calculates total current and non-current borrowings less the cash and cash equivalents that are not set aside to meet regulatory requirements and compares this with its adjusted EBITDA. Net debt to adjusted EBITDA at 31 March 2011 was 1.0 times (2010: 1.5 times).

The Group also has two bank facility covenants that have a bearing on its capital structure, a net leverage covenant and a debt service ratio. Performance against these covenants is comfortable and they should not inhibit the Group's operations or financing plans.

As at 31 March 2011 approximately £125 million cash and cash equivalents was set aside to cover regulatory and operational requirements. This amount is subject to ongoing review with regulators in the UK and Italy. In particular, discussions continue with the FSA following their proposal to amend the basis on which the regulatory capital is calculated for LSE plc. Indications are that this could increase the total amount set aside by up to one third.

Capital Risk

CC&G, in its role as central counterparty clearer (CCP) to Italian financial market participants, guarantees final settlement of transactions acting as buyer towards each seller and as seller towards each buyer. It faces the risk of losses from the deterioration in the creditworthiness, or the default, of a participant.

As a consequence of its risk management approach (described below), CC&G invests significant amounts of margin and default fund cash with Italian banks and faces the risk of direct loss from a deterioration or failure of one or more deposit counterparties.

More broadly, credit risk relates to the Group's customers and counterparties being unable to meet their obligations to the Group either in part or in full, including:

· customer receivables

· repayment of cash and cash equivalents including bank deposits

· settlement of derivative financial instruments

CC&G

To address the market participant risk, CC&G has established financial safeguards against single or multiple defaults. Clearing membership selection is based upon supervisory capital, technical and organisational criteria. Each member must pay margins, computed at least daily, to cover the theoretical costs which CC&G would incur in order to close out open positions in the event of the member's default. Margins are calculated using established international risk models and are debited by CC&G directly from participants' accounts held with Bank of Italy. Clearing members also contribute to default funds managed by CC&G to guarantee the integrity of the markets in the event of multiple defaults in extreme market circumstances. Amounts are determined on the basis of the results of periodic stress testing examined by CC&G's risk committee and exceed standards agreed by the European Association of Central Counterparty Clearing Houses. To date, no default of a direct participant has occurred.

Deposit counterparty risk for CC&G margin and default funds is managed by investing cash with counterparties that are rated investment grade or who, if not rated, are publicly quoted and have a minimum level of capital, for periods of up to 12 months. CC&G liaises closely with the Bank of Italy regarding the Italian banking institutions with whom these funds are deposited.

Group

Credit risk is controlled through policies developed at a Group level. Group companies make a judgement on the credit quality of their customers based upon the customer's financial position and past experience. Management assesses customer credit quality as high based upon a low concentration of credit risk across a large number of customers, the recurring nature of the billing and collection arrangements and, historically, a low incidence of default. Credit risk of cash and cash equivalents is managed by limiting the exposure to £25 million with counterparties who have a minimum long term rating of Aa3 (per Moody's). Derivative transactions are undertaken with well-capitalised counterparties, authorised by policy, to limit the credit risk underlying these transactions.

The Group recognises that sovereign and geo-political risk assessment plays a part in its

criteria for counterparty selection.

Market risk - Foreign Exchange

The Group operates predominantly in the UK, Italy and Sri Lanka. With the exception of MillenniumIT, which invoices some contracts in US dollars (regarded as reasonably correlated to the Sri Lankan Rupee) and the Indian Rupee, Group companies generally invoice revenues, incur expenses and purchase assets in their respective local currencies. As a result, foreign exchange risk arises mainly from the translation of the Group's euro earnings, assets and liabilities into its reporting currency, sterling, and from large intercompany transactions.

The Group faces less significant foreign exchange exposures from transaction risk on export earnings, occasional strategic investments made in currencies other than the currency of the investing operation and dividends that are remitted in currencies other than the currency of the recipient operation.

The Group seeks, where it can, to match the currency of its assets with the currency of its liabilities. Subject to its approach to capital management, the Group aims to balance the currency of its debt liabilities with its EBITDA generation in the same currency.

The Group applies this methodology to its net asset exposure, in particular to movements between sterling and the euro, by regularly distributing its euro cash earnings in dividends and by absorbing euro cash earnings through interest payments on debt re-denominated in euros through the use of cross-currency swaps. At 31 March 2011 £265.1m (2010: £284.0m) of the Group's debt was swapped into euros and designated as a hedge of the net investment in the Italian Group and a gain of £6.5m for the financial year (2010: loss of £9.9m) on foreign currency borrowings was recognised in equity. The hedge was fully effective.

Whilst transactional foreign exchange exposure is limited, the Group hedges material transactions in accordance with Group Treasury policy which requires that cash flows of more than £1m or equivalent per annum should be hedged. Hedge accounting is considered in each case and applied to certain transactions, following review at Treasury Committee, where material levels of income statement volatility might result.

The Group reviews sensitivities to movements in exchange rates which are appropriate to market conditions. As at 31 March 2011 the Group has considered movements in the euro over the last year including recent volatility affecting this currency and has concluded that a 10 per cent movement in rates is a reasonable benchmark. At 31 March 2011, if sterling had weakened/strengthened by 10 per cent against the euro with all other variables held constant, post tax profit for the year would have been £0.8m higher/£0.6m lower (2010: £1.8m higher/£1.5m lower); however, equity would have been £10.8m lower (2010: £16.4m lower)/£8.8m higher (2010: £13.4m higher). This reflects foreign exchange gains/losses on translation of euro denominated trade receivables, financial assets at fair value through profit or loss and foreign exchange gains/ losses on translation of euro denominated borrowings.

Market risk - Cash Flow and Fair Value Interest Rate Risk

The Group's interest rate risk arises through the impact of changes in market rates on cash flows associated with cash and cash equivalents, investments in financial assets and borrowings held at floating rates.

To provide a degree of income statement stability, and reflecting material levels of cash and cash equivalents held for short periods, the Group seeks to maintain a proportion of its net debt at fixed rates of interest over the medium term. Substantially all of the Group's borrowings have been issued at fixed rates of interest with only a proportion, £100 million (2010: £100 million), swapped to floating rates. Given the cash generative nature of the Group's businesses, net debt has fallen and floating rate borrowings have been repaid using free cash generated during the year. As a result fixed rate borrowings are greater than 100 per cent of net debt. Opportunities to swap further fixed rate borrowings to floating rate have been evaluated during the year but not executed. This is due in part to unfavourable economics and in part to the Group's preference to increase floating rate borrowings naturally as strategic investments are undertaken.

In its review of the sensitivities to potential movements in interest rates, the Group has considered interest rate volatility over the last year and prospects for rates over the next 12 months and has concluded that a two percentage point upward movement (and no downward movement) reflects a reasonable level of risk to current rates. At 31 March 2011, if interest rates on sterling-denominated and euro-denominated cash and borrowings (including floating rate swap obligations) had been two percentage points higher with all other variables held constant, post-tax profit for the year would have been £2.2m higher (2010: £1.7m higher) mainly as a result of higher interest income on floating rate cash and cash equivalents.

Liquidity risk

The Group's operations are exposed to liquidity risk to the extent that they are unable to meet their daily payment obligations. In addition, CC&G and certain other subsidiary companies are required to maintain a level of liquidity within their own legal entities to meet regulatory requirements and/or ensure the smooth operation of their respective markets.

Group businesses are profitable and generate strong free cash flow. The Group maintains sufficient liquid resources to meet its financial obligations as they fall due and to invest in capital expenditure, make dividend payments, support acquisitions or repay borrowings. The Group maintains headroom through undrawn committed borrowing facilities to supplement its cash flow.

Management monitors forecasts of the Group's liquidity, prepared to reflect expected cash flow, and overlays sensitivities to these forecasts to reflect assumptions about more difficult market conditions.

Treasury policy requires that the Group maintains adequate credit facilities provided by a diversified lending group to at least cover its expected funding requirements for the next 24 months. During the year, a new five year £250 million committed revolving credit facility was arranged, replacing shorter dated facilities and broadening the funding support from the Group's syndicate of banks. At 31 March 2011 £500m of the Group's facilities were unutilised (2010: £368.4m), with committed lines of credit (including bond issues) having an average life to maturity of over five years.

CC&G has access to bespoke committed and uncommitted lines of credit with intra-day financing from the Bank of Italy to meet the cash requirements of the clearing and settlement cycle that it manages in association with Monte Titoli (see note 22). In addition, the Group maintains operational support facilities from banks to manage intraday and overnight liquidity."

The Annual Report contains the following statements regarding responsibility for financial statements on page 62:

"Directors' responsibilities in respect of the Annual Report, the Directors' Remuneration Report and the financial statements

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 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 Remuneration Report comply with the Companies Act 2006 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 governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Introduction, Market Position and Outlook and Business Review on pages 1 to 37. In particular, the current economic conditions have created a number of risks and uncertainties for the Group and these are set out in Principal Risks and Uncertainties on pages 32 to 37.

The financial risk management objectives and policies of the Group and the exposure of the Group to capital risk, credit risk, market risk and liquidity risk are discussed on pages 72 to 75. The Group continues to meet Group and individual entity capital requirements and day-to-day liquidity needs through the Group's cash resources and available credit facilities. Committed funding at 31 March 2011 increased to £1,000 million (2010: £975 million) all of which is committed until July 2013 or beyond (2010: £950 million committed until February 2012), described further in the Financial Review on pages 26 to 29.

The Directors have reviewed the Group's forecasts and projections, taking into account reasonably possible changes in trading performance, which show that the Group has sufficient financial resources. On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Directors' Responsibility Statement

Each of the Directors, whose names and functions are set out on pages 38 to 39 of this Annual Report, confirm that, to the best of their knowledge and belief:

· the financial statements, 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 Directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and Group taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Lisa Condron

Group Company Secretary

13 May 2011"

The Annual Report contains the following statements regarding details of certain related party transactions on page 99:

"35. Transactions with related parties

FTSE International Ltd

Details of transactions with FTSE International Ltd are included in note 14.

For the purposes of this Announcement, note 14 to the Group financial statements on page 84 of the Annual Report provides these details as follows:

"The Group is entitled, under a shareholders' agreement, to receive royalties from FTSE. The amount receivable by the Group from FTSE for the year ended 31 March 2011 was £11.3m (2010: £9.6m).

During the year the Group received dividends of £3.7m (2010: £2.3m) from FTSE. The final dividend for 2010, of which the Group's share is £2.5m (2009: £1.5m), was approved by the shareholders and paid after the publication of FTSE's 31 December 2010 results."

Key management compensation

Compensation for Directors of the Company and key personnel who have authority for planning, directing and controlling the Group: