Interim Results
London Stock Exchange Plc
6 November 2001
6 November 2001
LONDON STOCK EXCHANGE plc
ANNOUNCEMENT OF INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2001
London Stock Exchange plc today reports interim results for the six months
ended 30 September 2001.
Highlights:
* Turnover from continuing operations up 18 per cent to £106.8 million
* Operating profit from continuing operations before exceptional items
up 18 per cent to £34.2 million
* Earnings per equity share up 126 per cent to 7.7 pence
* Adjusted earnings per equity share before exceptional items up 18 per
cent to 9.0 pence
* Interim dividend up 10 per cent to 1.1 pence per share
Commenting on the results, Don Cruickshank, Chairman of the Exchange, said:
'These results demonstrate the very real progress being made by the new
management team headed by Clara Furse. We now have the flexibility to
exploit strategic opportunities in pursuit of our primary objective -
maximising shareholder value.'
'Following our recent approach to LIFFE, we are disappointed that its Board
did not share our bold vision for the future, however we are engaged in other
opportunities to broaden the scope and scale of our business both organically
and through corporate transactions.'
Clara Furse, Chief Executive, said:
'The first half results show the resilience of our business during a time of
market volatility. This reflects the diversity of our revenue streams and the
breadth of our customer base.'
'It is difficult to predict with certainty what effect the current economic
climate will have on our business. We anticipate new issue activity will
remain at low levels as a result of the weak IPO market, however trading
volumes have continued at a high level since 30 September 2001. We believe
the first half results provide a solid foundation for the full year and view
the prospects for the Exchange with confidence.'
Further information is available from:
London Stock Exchange John Wallace - Media 020 7797 1222
Ruth Anagnos - Investor Relations 020 7797 3322
Finsbury James Murgatroyd 020 7251 3801
CHAIRMAN'S STATEMENT
Creating opportunities, delivering results
2001 is proving to be a momentous year for your company. Not only is it 200
years since the formation of the first regulated market in London, the
organisation that became London Stock Exchange plc, but it is also the year in
which we completed our transition from a mutual entity to a listed public
company. Listing marked an important milestone in the Exchange's commercial
development. We now have the flexibility to exploit strategic opportunities
in pursuit of our primary objective - maximising shareholder value. While we
are disappointed that the Board of LIFFE did not share our vision for the
creation of a combined business and an integrated trading platform for
securities and derivatives, we are engaged in other opportunities to broaden
the scope and scale of our business through business development initiatives
and corporate transactions.
Financial results
This is the first set of financial results reported since the listing on 20
July. Financial performance in the first six months of the year has been
strong, despite economic uncertainty and market volatility. Turnover from
continuing operations increased 18 per cent to £106.8 million (2000: £90.6
million). Operating profit from continuing operations before exceptional
items was up 18 per cent to £34.2 million (2000: £29.1 million). The
operating margin for continuing operations and excluding joint ventures rose
slightly to 33.3 per cent.
After taxation of £12.3 million, profit for the period was £22.6 million.
Adjusted earnings per share before exceptional items increased 18 per cent to
9.0 pence (2000: 7.6 pence).
Broker Services
Turnover from Broker Services for the half-year ended 30 September 2001
contributed 37 per cent of total turnover. This represented 35 per cent
growth over the same period last year, up from £29.6 million to £39.9 million.
The increase in Broker Services turnover reflected high levels of trading
activity on our markets, and in particular the number of bargains transacted
through our electronic order book SETS. In the six months ended 30 September
2001, the total number of equity bargains rose 28 per cent to 23.8 million
(2000: 18.6 million), a daily average of 191,000 equity bargains (2000:
148,000). In the same period, the total number of equity bargains transacted
on the electronic order book SETS increased to 7.7 million (2000: 4.0 million)
- testifying to the attractiveness of its pricing and liquidity.
The total value of UK equity bargains increased two per cent in the period to
£896 billion (2000: £881 billion).
Broker Services delivered a number of new business initiatives in the period,
many developed in conjunction with our customers. These included the
successful introduction of the International Retail Service, which provides UK
retail investors with easy access to trading in international securities, and
the International Order Book, which offers investors an open and flexible
trading platform for developing market depositary receipts.
Issuer Services
Turnover from Issuer Services for the half-year decreased 11 per cent from £
15.5 million to £13.8 million. The division contributed 13 per cent of total
turnover.
The performance of Issuer Services reflected the lower number of new issues in
the period. The amount of new capital raised was three per cent lower at £105
billion (2000: £108 billion), although the amount raised by UK listed
companies was higher at £18 billion (2000: £14 billion). The number of
companies traded on our markets as at 30 September 2001 was 2,919 (2000:
2,874). This includes 606 companies on AIM, our international market for
growing companies, an increase of 29 per cent over the same time last year
(2000: 471).
During the half-year, Issuer Services completed the successful national
rollout of landMARK, our attribute market that highlights companies in each
region of the UK, and we are fully prepared to commercialise RNS following
completion of FSA's review into regulatory news dissemination.
Information Services
Information Services was the largest contributor to turnover for the
half-year. Information Services revenue was 14 per cent higher, up from £40.4
million to £46.2 million, representing 43 per cent of total turnover.
Increased Information Services turnover reflected higher demand for Exchange
market data and the consequent rise in the number of terminals receiving
Exchange data on a real time basis. The number of terminals as at 30
September 2001 was approximately 109,000 (2000: 104,000). Of those,
approximately 101,000 terminals were attributable to our professional customer
base, a nine per cent increase over last year.
Information Services launched a new service, Tick Data, in September. This
service provides historical intra-day trading data, building on our suite of
products distributed via our website, and opens up opportunities for widening
our customer base. We have also continued to develop our new communication
service, Extranex, which will enable the Exchange to deliver new products and
services to customers. An Extranex pilot will commence early next year.
Interim dividend
The Directors propose an interim dividend of 1.1 pence per share to those
shareholders on the register on 7 December 2001, for payment in January 2002.
Management
We continued to strengthen our executive management team throughout the
period. Key appointments during the half-year included the appointment of
Marc Bailey, Director of Business Development, Phil Bruce, Head of Corporate
Strategy and David Lester, Chief Information Officer.
Other activities
Listing and bonus issue
Shares in London Stock Exchange plc were listed on the main market of the
Exchange on 20 July 2001. This followed approval of amendments to the
Articles of Association of the Exchange at an Extraordinary General Meeting of
shareholders on 19 July 2001. Simultaneously with listing, the Exchange
completed a bonus issue of shares on the basis of 9 new ordinary shares for
each share held.
JSE Securities Exchange South Africa agreement
In July, we signed two commercial agreements with the JSE Securities Exchange
South Africa. The Technology Agreement is for the provision by the Exchange
of our leading-edge technology platform SEQUENCE (including SETS) and
information dissemination system LMIL. The Business Agreement provides for
each exchange to assist in the marketing of the other's data together with
arrangements to facilitate cross-membership and dual trading.
Property
In June, we signed a 25-year lease for new headquarters at Paternoster Square
in the City of London. We are due to move to the new premises in 2004. As
part of that move, we appointed City Offices London Management Ltd to advise
the Exchange on maximising the value of the 1.4 acre Exchange Tower site prior
to any sale in the open market.
Technology developments
During the first half, we continued our technology development and investment
programme. In July, WorldCom was appointed to help install the high capacity
network that will link the Exchange and its customers using Internet Protocol
communication technology. In August, we extended our Services Management
Agreement with Accenture plc to provide facilities management services for our
trading and information systems for up to a further five years.
Current trading and prospects
Since 30 September 2001, our trading performance has continued to be
satisfactory, with trading volumes continuing at a high level. It is
difficult to predict what effect current economic uncertainty will have on our
business, although the Directors anticipate new issue activity will remain low
as a result of the weak IPO market.
The Directors believe the first half results provide a solid foundation for
the full year and view the prospects for the Exchange with confidence.
Don Cruickshank
Chairman
6 November 2001
Consolidated profit and loss account
Six months ended 30 September 2001
Six months ended Year ended
30 September 31 March
2001 2000 2001
£m £m £m
Notes Restated
Turnover
Group and share of joint - Continuing operations 106.8 90.6 193.4
venture
- Discontinued - 1.2 1.2
operations
Gross Turnover 106.8 91.8 194.6
Less: share of joint venture's turnover- (4.2) (2.7) (6.2)
Continuing operations
Net turnover 2 102.6 89.1 188.4
Administrative expenses - operating costs (68.4) (59.2) (129.7)
- exceptional items 3 (3.6) (13.8) (18.9)
(72.0) (73.0) (148.6)
Operating profit - Continuing - before exceptional 34.2 29.1 57.9
operations items
- after exceptional 30.6 15.3 39.0
items
- Discontinued operations - 0.8 0.8
30.6 16.1 39.8
Share of operating profit of joint venture and
income from other
fixed asset investments 0.4 0.3 0.3
Net interest receivable - before exceptional 4 3.9 4.0 7.9
item
- exceptional item - - (17.6)
3.9 4.0 (9.7)
Profit on ordinary activities before taxation 34.9 20.4 30.4
Taxation on profit on ordinary activities 5 (12.3) (10.3) (15.2)
Profit for the financial period 22.6 10.1 15.2
Dividend (3.2) (3.0) (9.5)
Retained profit for the financial period 19.4 7.1 5.7
Earnings per equity share 6 7.7p 3.4p 5.1p
Diluted earnings per equity share 6 7.7p 3.4p 5.1p
Adjusted earnings per equity share 6 9.0p 7.6p 15.2p
Dividend per equity share 1.1p 1.0p 3.2p
Statement of total recognised gains and losses
Profit for the financial period 22.6 10.1 15.2
Other recognised gains and losses for the period
Prior period adjustments - 10.8 11.0
Total recognised gains for the period 22.6 20.9 26.2
Note: Comparative figures for the six months ended 30 September 2000 have been
restated following a change in accounting policy made in the financial
statements for the year ended 31 March 2001 to meet the requirements of FRS 19
on deferred taxation. This has resulted in an increase to the taxation charge
for the six months to 30 September 2000 of £0.2m due to the increase in the
deferred tax charge.
Consolidated balance sheet
At 30 September 2001
30 September 31 March
2001 2000 2001
£m £m £m
Notes restated
Fixed assets
Tangible assets 115.7 110.7 117.1
Investments
Investments in joint venture 2.4 2.3 2.3
Other investments 7 13.2 0.4 10.1
15.6 2.7 12.4
131.3 113.4 129.5
Current assets
Debtors
Debtors- amounts falling due within one year 35.6 32.3 37.3
Deferred tax - amounts falling due after more than one 7.4 12.7 10.7
year
43.0 45.0 48.0
Investments - term deposits 163.0 208.0 143.0
Cash at bank 10.0 4.1 4.9
216.0 257.1 195.9
Creditors: amounts falling due within one year 63.8 67.1 58.8
Net current assets 152.2 190.0 137.1
Total assets less current liabilities 283.5 303.4 266.6
Creditors: amounts falling due after more than one - 30.0 -
year
Provisions for liabilities and charges 8 22.1 30.0 24.6
Net assets 261.4 243.4 242.0
Capital and reserves
Called up share capital 9 14.9 1.5 1.5
Reserves
Revaluation reserve 46.8 48.7 47.7
Trade compensation reserve - 15.0 -
Profit and loss account 199.7 178.2 192.8
Total shareholders' funds 261.4 243.4 242.0
Consolidated cash flow statement
Six months ended 30 September 2001
Six months Year
ended ended
30 September 31
March
2001 2000 2001
£m £m £m
Notes restated
Net cash inflow/(outflow) from:
- ongoing operating activities 11(i) 41.5 38.7 74.5
- exceptional items 11(i) (1.0) (7.2) (22.4)
Net cash inflow from operating activities 40.5 31.5 52.1
Returns on investments and servicing of finance
Interest received 3.6 6.0 12.1
Interest paid - (1.5) (4.1)
Premium on redemption of debenture - - (17.6)
Dividends received 0.2 - 0.1
Net cash inflow/(outflow) from returns on
investments and servicing of finance 3.8 4.5 (9.5)
Taxation
Corporation tax paid (0.3) (9.7) (20.6)
Capital expenditure and financial investments
Payments to acquire tangible fixed assets (7.5) (5.8) (22.7)
Payments to acquire own shares (5.0) - (10.0)
Net cash outflow from capital expenditure and (12.5) (5.8) (32.7)
financial investments
Equity dividends paid (6.4) - (3.0)
Net cash inflow/(outflow) before use of liquid
resources and financing 25.1 20.5 (13.7)
Management of liquid resources
(Increase)/decrease in term deposits 11(ii) (20.0) (12.0) 53.0
Financing
Redemption of mortgage debenture - - (30.0)
Redemption of 'A' shares - (8.8) (8.8)
Increase/(decrease) in cash in the period 11(ii) 5.1 (0.3) 0.5
Notes to the financial information
1. Basis of preparation
Basis of accounting and consolidation
The interim financial information is prepared in accordance with applicable UK
accounting standards under the historical cost convention modified by the
revaluation of certain fixed assets. The interim financial information is
prepared on the basis of the accounting policies set out in the Group's
statutory accounts for the year ended 31 March 2001 and are unaudited. The
interim financial information does not constitute statutory financial
statements within the meaning of section 240 of the Companies Act 1985.
Prior year comparatives
Comparative figures for the six months ended 30 September 2000 have been
restated following a change in accounting policy made in the financial
statements for the year ended 31 March 2001, to meet the requirements of FRS 19
on deferred tax.
Comparative figures for the year ended 31 March 2001 are an abridged version of
the Group's full accounts which carried an unqualified audit report and have
been delivered to the Registrar of Companies.
Six months ended Year ended
30 September 31 March
2001 2000 2001
2. Turnover £m £m £m
restated
Continuing operations
Issuer services 13.8 15.5 31.9
Broker services 39.9 29.6 64.2
Information services 46.2 40.4 85.3
Other income 6.9 5.1 12.0
106.8 90.6 193.4
Discontinued operations
Competent authority - 1.2 1.2
Gross turnover 106.8 91.8 194.6
Less: share of joint venture's turnover (4.2) (2.7) (6.2)
Net turnover 102.6 89.1 188.4
The Company has one class of business, with principal operations in the United
Kingdom.
3. Exceptional items
Fees in respect of the proposed merger with
Deutsche Borse AG and
in defence of the bid from OM Gruppen - 13.8 18.9
Fees in respect of the Company's Introduction
to the Official List 3.6 - -
3.6 13.8 18.9
4. Net interest receivable/(payable)
Interest receivable
Bank deposits 4.5 6.4 12.4
Interest payable
On bank and other loans repayable after five
years - (1.5) (2.8)
Interest on discounted provision for
leasehold properties (0.6) (0.9) (1.7)
Total (0.6) (2.4) (4.5)
Net interest receivable - before exceptional 3.9 4.0 7.9
item
Exceptional item - Premium on redemption of
mortgage debenture - - (17.6)
Net interest receivable/(payable) -
after exceptional item 3.9 4.0 (9.7)
5. Taxation
Current tax:
Corporation tax for the period at 30% 11.8 11.4 15.0
Adjustments in respect of previous periods (3.0) (0.7) (1.4)
8.8 10.7 13.6
Deferred taxation, including adjustments in
respect of previous periods 3.3 (0.5) 1.5
Joint venture 0.2 0.1 0.1
Taxation charge 12.3 10.3 15.2
The effective rate of taxation in the six months to 30 September 2001 is higher
than the standard rate of taxation primarily because certain expenses are
disallowed for the purposes of calculating the tax provision.
The adjustments for previous periods are partly in respect of timing
differences and reflect revised assumptions for the allowance of certain
expenses.
Factors affecting the tax charge for the period
The tax assessed for the period is higher than the standard rate of corporation
tax in the UK of 30% (2000, 30%). The differences are explained below:
Profit on ordinary activities before tax 34.9 20.4 30.4
Profit on ordinary activities multiplied by
standard rate of corporation tax in the UK
of 30% 10.5 6.1 9.1
Expenses disallowed for the purpose of
tax provision (primarily professional
fees and depreciation on expenditure
not subject to capital allowances) 1.7 4.8 6.8
Accounting deduction (less)/greater than
capital allowances - timing difference (0.4) 0.5 0.3
Release of provisions - - (1.2)
Adjustments to tax charge in respect of
previous periods (3.0) (0.7) (1.4)
Corporation tax charge 8.8 10.7 13.6
Factors that may affect future tax charges
The disposal of properties at their revalued amount would not give rise to a
tax liability.
6. Earnings per equity share
Earnings per equity share is presented on three bases: earnings per equity
share; diluted earnings per equity share; and adjusted earnings per equity
share. Earnings per equity share is in respect of all activities and diluted
earnings per equity share takes into account the effects of dilution relating
to share options and awards made under the Employee Share Ownership Plan
(ESOP). Adjusted earnings per equity share excludes discontinued operations
and exceptional items to enable comparison of the underlying earnings of the
business with prior periods.
Six months ended Year ended
30 September 31 March
2001 2000 2001
£m £m £m
Restated
Profit for the financial period 22.6 10.1 15.2
Adjustments:
Exceptional items 3.6 13.8 18.9
Exceptional interest costs - redemption of - - 17.6
debenture
Discontinued operations - (0.8) (0.8)
Tax effect of exceptional items and - (0.6) (5.9)
discontinued operations
Adjusted profit for the financial period 26.2 22.5 45.0
Weighted average number of equity shares - 292.1 297.0 295.7
million
Effect of dilutive share options and awards 2.2 - 0.3
- million
Diluted weighted average number of equity 294.3 297.0 296.0
shares - million
Adjusted earnings per equity share 9.0p 7.6p 15.2p
Earnings per equity share 7.7p 3.4p 5.1p
Diluted earnings per equity share 7.7p 3.4p 5.1p
The weighted average number of equity shares excludes those held in the ESOP,
reducing the weighted average number of equity shares to 292.1 million (2000,
297.0 million). For diluted earnings per equity share, the weighted average
number of equity shares assumes share options and share awards granted to
employees either convert or vest.
The weighted average number of equity shares for prior periods has been
adjusted for the 9 for 1 bonus issue of shares that was made on 20 July 2001.
7. Fixed asset investments
Other investments include £12.8m (September 2000, Nil; March 2001, £9.7m) in
respect of shares held in the Company.
Shares held in the Company are in a separately administered Trust for the
purposes of the Company's Initial and Annual Share Plans. The difference
between the purchase price of the shares and the exercise price of the awards/
grants is charged to the profit and loss account over the period of service for
which the options and awards are granted.
8. Provisions for liabilities and charges
Pensions Property Total
£m £m £m
1 April 2001 1.1 23.5 24.6
Utilised during the period (0.1) (1.3) (1.4)
Interest on discounted provision - 0.6 0.6
Surplus provision released - (1.7) (1.7)
30 September 2001 1.0 21.1 22.1
Pensions
The pensions provision represents a pension surplus which first arose in 1990
and is being released to the profit and loss account over the expected
remaining service lives of scheme members in accordance with the accounting
policy for pension costs.
Property
The property provision represents the estimated net present value of future
costs for lease rentals and dilapidation costs less the expected receipts from
sub-letting for those properties which are surplus to business requirements.
The leases have a maximum term of 13 years to expiry. The surplus provision
transferred to the profit and loss account mainly reflects the increase in
expected receipts from sub-letting and lower future costs.
9. Share capital
30 September 31 March
2001 2000 2001
Authorised
Ordinary shares of 5p each - number 500,000,000 40,000,000 40,000,000
- £ 25,000,000 2,000,000 2,000,000
Issued, called up and fully paid
Ordinary shares of 5p each - number 297,000,000 29,700,000 29,700,000
- £ 14,850,000 1,485,000 1,485,000
At an Extraordinary General Meeting on 19 July 2001 shareholders approved the
adoption of new Articles of Association required to effect the Introduction to
the Official List and a 9 for 1 bonus issue, increasing the number of issued
shares to 297.0 million.
10. Reconciliation of movements in shareholders' funds
Six months Year
ended ended
30 September 31 March
2001 2000 2001
£m £m £m
Restated
Profit for the financial period 22.6 10.1 15.2
Dividend (3.2) (3.0) (9.5)
Redemption of 'A' shares during the period - (8.8) (8.8)
Net addition/(reduction) to shareholders' funds 19.4 (1.7) (3.1)
Opening shareholders' funds 242.0 245.1 245.1
Closing shareholders' funds 261.4 243.4 242.0
11. Notes to the consolidated cash flow statement
i) Reconciliation of operating profit to net cash
inflow from operating activities
Operating profit 30.6 16.1 39.8
Depreciation of tangible assets 8.9 9.5 19.9
Decrease/(increase) in debtors 2.5 3.8 (1.3)
(Decrease)/increase in creditors (0.5) 3.8 (3.2)
Provisions utilised during the period (1.4) (1.7) (3.4)
Amortisation of own shares 0.4 - 0.3
Net cash inflow from operating activities 40.5 31.5 52.1
Comprising:
Ongoing operating activities 41.5 38.7 74.5
Exceptional items (1.0) (7.2) (22.4)
Net cash inflow 40.5 31.5 52.1
At 1 At 30
April Cash September
2001 Flows 2001
£m £m £m
ii) Analysis of changes in net funds
Cash in hand and at bank 4.9 5.1 10.0
Current asset investments 143.0 20.0 163.0
Total net funds 147.9 25.1 173.0
Independent review report to London Stock Exchange plc
Introduction
We have been instructed by the company to review the financial information set
out on pages 4 to 11 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors
are responsible for preparing the interim report in accordance with the
Listing Rules of the Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of management and applying
analytical procedures to the financial information and underlying financial
data and, based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than
an audit performed in accordance with United Kingdom Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2001.
PricewaterhouseCoopers
Chartered Accountants
London
6 November 2001
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