Interim Results
London Stock Exchange Plc
07 November 2002
7 November 2002
LONDON STOCK EXCHANGE plc
ANNOUNCEMENT OF RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
London Stock Exchange plc today reports results for the six months ended 30
September 2002.
Highlights:
• Turnover up 12 per cent to £119.5 million
• Operating profit up 18 per cent to £40.5 million
• Adjusted earnings per share up 17 per cent to 10.5 pence per share
• Interim dividend up 18 per cent to 1.3 pence per share
Commenting on the six months ended 30 September 2002, Don Cruickshank, Chairman
of the Exchange, said:
"The Exchange continues to build upon its proven business model. During the
period, we produced robust financial results and are recommending an 18 per cent
increase in the interim dividend to shareholders. Overall, the Directors expect
a satisfactory outturn for the year given current market conditions.
"As one of the leading exchanges in the world, keen to compete effectively, we
continue to push for open markets, particularly across Europe. We welcome the
recent move by Euroclear and CrestCo to merge, creating Europe's largest
settlement organisation - a major step towards delivering a single, user-owned,
user-governed, exchange-neutral system across Europe. But we are disappointed
by progress on the Financial Services Action Plan. Indeed the Prospectus
Directive denies us the opportunity to compete."
Clara Furse, Chief Executive, said:
"The first half results show the resilience of our business and our revenue
streams. Turnover rose 12 per cent, whilst adjusted earnings per share
increased 17 per cent. In a period of record market volatility, we have
demonstrated the strength of our competitive position and quality of our
customer and product base.
"We continue to focus on expanding our business through initiatives such as
covered warrants, the RSP Gateway and Crest Network. By developing our core
services, we are securing future growth."
Further information is available from:
London Stock Exchange John Wallace - Media 020 7797 1222
Paul Froud - Investor Relations 020 7797 3322
Ruth Anagnos - Investor Relations 020 7797 3322
Finsbury James Murgatroyd 020 7251 3801
Melanie Gerlis 020 7251 3801
Chairman's statement
The London Stock Exchange has delivered robust financial results for the half
year and continues to make progress against the backdrop of difficult market
conditions.
We continue to upgrade our systems and introduce new markets, products and
services to benefit our customers. We now account for three quarters of all
Western European Initial Public Offerings (IPOs), while SETS continues to
attract record volumes. The internationalisation of our markets goes on apace
with collaboration with the Hong Kong Stock Exchange and a local presence in the
Nordic region.
We continue to shape changes in market infrastructure. In particular, we
encouraged and supported the recent move by Euroclear and CrestCo to merge,
creating Europe's largest settlement organisation.
Financial results
Unless otherwise stated, all figures referenced below are before exceptional
items and refer to the six months ended 30 September 2002 and the corresponding
period last year.
Financial performance in the first six months of the year has been robust,
despite economic uncertainty and unsettled markets. Turnover increased to
£119.5 million, up 12 per cent (2001: £106.8 million). Administrative expenses
increased seven per cent to £73.4 million (2001: £68.4 million), reflecting
additional IT support costs relating to the Exchange's new high capacity
communications network and the roll out of new products. This resulted in an 18
per cent increase in operating profit to £40.5 million (2001: £34.2 million).
During the period, a net exceptional gain of £2.3 million was recognised.
Profit after tax including the net exceptional gain increased to £32.3 million
(2001: £22.6 million).
Adjusted earnings per share increased 17 per cent to 10.5 pence per share (2001:
9.0 pence per share). Earnings per share increased to 11.1 pence per share from
7.7 pence per share.
For the six months, operating cash flows were £53.8 million, up 30 per cent
(2001: £41.5 million). At 30 September 2002, cash balances were £237.1 million
(2001: £173.0 million).
Issuer Services
Despite a weak IPO market, Issuer Services contributed 16 per cent of total
turnover for the half year, increasing from £13.8 million to £19.2 million.
This increase largely reflected selective tariff changes which took effect on 1
April 2002.
The number of companies on our markets at 30 September 2002 was 2,849 (2001:
2,919). The Exchange receives an annual fee from each company on its markets
and for the half year, annual fees contributed 55 per cent of Issuer Services'
turnover (2001: 45 per cent).
The number of new listings on the Exchange's markets decreased 25 per cent to
128 (2001: 170). Nevertheless, a total of £12 billion of new capital was raised
on the Exchange's markets during the half year and the Exchange accounted for
over 75 per cent of the IPOs in Western Europe, demonstrating the continued
relative attractiveness of the Exchange's markets (2001: 58 per cent). In
particular, AIM, our international market for growing companies, continued to
attract new participants, including seven North American companies and PRI
Group, the largest IPO in the seven year history of AIM. At 30 September 2002,
686 companies were traded on AIM, up 13 per cent over the same period last year
(2001: 606).
During the half year, Issuer Services continued to make progress on extending
the reach of the Exchange's markets. In particular, the Exchange announced a
listing facilitation collaboration with the Hong Kong Stock Exchange and
established a local presence in the Nordic region. Based in Stockholm, the
office opened on 1 October 2002 and aims to accelerate the growth of the
Exchange's Nordic business.
Broker Services
At £43.7 million, Broker Services' turnover for the half year increased 10 per
cent (2001: £39.9 million) and accounted for 37 per cent of total turnover.
This increase in turnover reflected high levels of trading activity on our
markets, particularly on our electronic order book SETS.
During the first half of the year, the total number of equity bargains rose 11
per cent to 26.4 million (2001: 23.8 million), a daily average of 210,000
bargains (2001: 191,000). The total value of these bargains decreased 14 per
cent to £2.4 trillion (2001: £2.8 trillion). In the same period, the daily
average number of bargains transacted on SETS increased 59 per cent to 97,000
(2001: 61,000) and the average value of a SETS bargain decreased 29 per cent to
£29,000 (2001: £41,000).
During the half year, over 60 per cent of the value traded in SETS listed
securities was traded on the SETS order book. SETS contributed approximately 55
per cent of Broker Services' income for the half year (2001: 47 per cent).
The growth in SETS was off-set in part by a decline in the number of off book
and international bargains reported to the Exchange. The daily average number
of off book and international bargains was 54,000 (2001: 62,000) and 59,000
(2001: 68,000) respectively.
Broker Services continued to develop a number of initiatives including:
• Covered Warrants - successfully launched on 28 October 2002, the
covered warrants market broadens the Exchange's product range and widens
the investment choice of private investors. There are currently 170
warrants traded on the Exchange's markets through four issuers;
• RSP Gateway - first customers went live in July 2002. From 31
October 2002, brokers have access to prices in equities which account for
over 76 per cent of retail trading by value, including all FTSE 100
securities, 120 FTSE 250 securities and covered warrants. During
November, the service will be expanded to include trading in bonds; and
• Crest Network Service - successfully launched in July 2002,
utilises Extranex, the Exchange's new high capacity internet protocol
network, to provide brokers secure access to both the Exchange's trading
system and the Crest settlement system using a single electronic link.
The new service could reduce connection costs to Crest by up to 50 per
cent.
Information Services
At £50.7 million (2001: £47.2 million), Information Services was the largest
contributor to turnover for the half year, representing 42 per cent of total
turnover.
During the first half of the year, the number of terminals fell from 105,000 to
100,000 (2001: 109,000). Of those, approximately 94,000 terminals were
attributable to our professional customer base, down from 96,000 at the end of
the last financial year (2001: 101,000). The decline in terminals was off-set
by demand for the Exchange's other information products. In particular, the
Regulatory News Service (RNS) contributed £3.4 million to Information Services'
turnover following the start of commercial operations in April 2002 (2001: £1.0
million). RNS has secured a significant share of the highly competitive
regulatory news distribution market, with over 90 companies in the FTSE 100
using RNS to release regulatory announcements.
In addition Information Services benefited from the income received from the
Exchange's joint venture, FTSE. For the six months, the Exchange's share of
FTSE turnover was £5.6 million, an increase of 33 per cent over the
corresponding period last year (2001: £4.2 million).
During the period, the Exchange began development of the Corporate Data
Warehouse, its new technology infrastructure aimed at exploiting strong market
demand for Exchange originated data. The first phase of the new infrastructure,
scheduled to be rolled out in the next financial year, will broaden the
Exchange's existing information products by offering customers enhanced value
added real time and historical UK equities market data.
Exceptional Items
During the period, a net exceptional gain of £2.3 million was recognised. This
reflects an exceptional VAT credit of £9.3 million off-set in part by a £7.0
million exceptional property charge.
Following successful negotiations with Customs and Excise, a retrospective
change in the method for calculating VAT recoverable on expenditure has been
agreed. This allowed for the recovery of VAT paid between 1997 and 2001
amounting to £9.3 million. This gain was off-set in part by a £7.0 million
increase in provision for leasehold properties in respect of space to be sublet
in our new headquarters at Paternoster Square, reflecting the widely reported
decline in rental values in the commercial property market in recent months.
Interim Dividend
The Directors propose an interim dividend of 1.3 pence per share (2001: 1.1
pence per share) to those shareholders on the register on 6 December 2002, for
payment on 6 January 2003.
Board of Directors
In October, I announced that I would not seek to extend my term as Chairman
beyond the next Annual General Meeting in 2003. Ian Salter, Deputy Chairman and
Chairman of the Board's Nominations Committee, will lead the process of finding
my successor.
Current trading and prospects
Since 30 September 2002, the Exchange's trading performance has been good
despite uncertain market conditions. In particular:
• Issuer Services' turnover continues to be impacted by the weak
IPO market with a 22 per cent decrease in the number of new and further
issues on the Main Market compared to the previous October. The Exchange
is however well positioned to benefit from any upturn;
• SETS trading volumes have remained strong, although current
market volatility makes it difficult to forecast future trading activity;
and
• although demand for other information products has been
generally stable, there are no indications to suggest the recent rate of
decline in terminal numbers has slowed.
Overall, the Directors expect a satisfactory outturn for the year given current
market conditions.
Don Cruickshank
Chairman
7 November 2002
Consolidated profit and loss account
Six months ended 30 September 2002
Six months ended Year ended
30 September 31 March
Notes 2002 2001 2002
£m £m £m
Turnover
Group and share of joint venture 119.5 106.8 215.6
Less: share of joint venture's turnover (5.6) (4.2) (9.0)
Net turnover 2 113.9 102.6 206.6
Administrative expenses -operating costs (73.4) (68.4) (136.1)
-exceptional items 3 2.3 (3.6) (3.6)
(71.1) (72.0) (139.7)
Operating profit -before exceptional items 40.5 34.2 70.5
-after exceptional items 42.8 30.6 66.9
Share of operating profit of
joint venture and income from
other fixed asset investments 0.6 0.4 1.0
Net interest receivable 4 4.0 3.9 7.3
Profit on ordinary activities before taxation 47.4 34.9 75.2
Taxation on profit on ordinary activities 5 (15.1) (12.3) (25.3)
Profit for the financial period 32.3 22.6 49.9
Dividends (3.7) (3.2) (10.6)
Retained profit for the financial period 28.6 19.4 39.3
Earnings per share 6 11.1p 7.7p 17.1p
Diluted earnings per share 6 11.0p 7.7p 17.0p
Adjusted earnings per share 6 10.5p 9.0p 18.3p
Dividend per share 1.3p 1.1p 3.6p
There were no other recognised gains and losses during the period
Consolidated balance sheet
30 September 2002
30 September 31 March
Notes 2002 2001 2002
£m £m £m
Fixed assets
Tangible assets 114.9 115.7 115.4
Investments
Investments in joint venture 1.9 2.4 1.5
Other investments 7 10.8 13.2 12.1
12.7 15.6 13.6
127.6 131.3 129.0
Current assets
Debtors
Debtors - amounts falling due within one year 41.9 35.6 38.9
Deferred tax - amounts falling due after more
than one year 7.3 7.4 7.9
49.2 43.0 46.8
Investments - term deposits 233.0 163.0 186.0
Cash at bank 4.1 10.0 3.9
286.3 216.0 236.7
Creditors - amounts falling due within one year 75.6 63.8 62.7
Net current assets 210.7 152.2 174.0
Total assets less current liabilities 338.3 283.5 303.0
Provisions for liabilities and charges 8 28.4 22.1 21.7
Net assets 309.9 261.4 281.3
Capital and reserves
Called up share capital 14.9 14.9 14.9
Reserves
Revaluation reserve 44.9 46.8 45.8
Profit and loss account 250.1 199.7 220.6
Total equity shareholders' funds 309.9 261.4 281.3
Consolidated cash flow statement
Six months ended 30 September 2002
Six months ended Year ended
30 September 31 March
Notes 2002 2001 2002
£m £m £m
Net cash inflow/(outflow) from continuing
operations:
-ongoing operating activities 10(i) 53.8 41.5 82.4
-exceptional items 10(i) 9.3 (1.0) (3.8)
Net cash inflow from operating activities 63.1 40.5 78.6
Returns on investments and servicing of finance
Interest received 4.7 3.6 8.8
Dividends received 1.2 0.2 0.2
Net cash inflow from returns on investments
and servicing of finance 5.9 3.8 9.0
Taxation
Corporation tax paid (6.7) (0.3) (15.8)
Capital expenditure and financial investments
Payments to acquire tangible fixed assets (8.4) (7.5) (15.8)
Payments to acquire own shares - (5.0) (5.0)
Receipts from sale of fixed asset investments 0.6 - 0.7
Net cash outflow from capital expenditure and
financial investments (7.8) (12.5) (20.1)
Dividends paid (7.3) (6.4) (9.7)
Net cash inflow before use of liquid resources
and financing 47.2 25.1 42.0
Management of liquid resources
Increase in term deposits 10(ii) (47.0) (20.0) (43.0)
Increase/(decrease) in cash in the period 10(ii) 0.2 5.1 (1.0)
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 2002 and are unaudited. The
interim financial information does not constitute statutory financial statements
within the meaning of section 240 of the Companies Act 1985.
Comparative figures for the year ended 31 March 2002 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
2002 2001 2002
£m £m £m
2. Turnover
Continuing operations
Issuer Services 19.2 13.8 26.9
Broker Services 43.7 39.9 81.2
Information Services 50.7 47.2 94.9
Other income 5.9 5.9 12.6
Gross turnover 119.5 106.8 215.6
Less: share of joint venture's turnover (5.6) (4.2) (9.0)
Net turnover 113.9 102.6 206.6
The comparative figures for 2001 have been restated to include RNS turnover of
£1.0m within Information Services, which was previously classified as Other
income.
For the purposes of Segmental Reporting, the directors consider that the Company
has one class of business with the three principal revenue streams noted above
derived from that business, with principal operations being in the United
Kingdom.
Six months ended Year ended
30 September 31 March
2002 2001 2002
£m £m £m
3. Exceptional items
VAT repayment 9.3 - -
Provision in respect of leasehold properties (7.0) - -
Fees in respect of the Company's introduction to the Official List - (3.6) (3.6)
2.3 (3.6) (3.6)
The VAT repayment above represents a recovery of VAT paid between 1997 and 2001.
Following successful negotiations with Customs and Excise, a retrospective
change in the method for calculating VAT recoverable on expenditure has been
agreed, resulting in this repayment.
The increase provision for leasehold properties is in respect of space to be
sublet in our new headquarters at Paternoster Square.
Six months ended Year ended
30 September 31 March
2002 2001 2002
£m £m £m
4. Net interest receivable
Interest receivable
Bank deposit and other interest 4.4 4.5 8.5
Interest payable
Interest on discounted provision for leasehold properties (0.4) (0.6) (1.2)
Net interest receivable 4.0 3.9 7.3
Six months ended Year ended
30 September 31 March
2002 2001 2002
£m £m £m
5. Taxation
Current tax:
Corporation tax for the period at 30% 14.3 11.8 25.2
Adjustments in respect of previous periods - (3.0) (3.1)
14.3 8.8 22.1
Deferred taxation 0.6 3.3 2.8
Joint venture 0.2 0.2 0.4
Taxation charge 15.1 12.3 25.3
The adjustments for previous periods were mainly in respect of timing
differences, the effect of which was previously dealt with in deferred taxation,
and reflect revised assumptions for the allowance of certain expenses.
Factors affecting the current tax charge for the period
The current tax assessed for the period is higher than the standard rate of
corporation tax in the UK of 30% (2001: 30%).
The differences are explained below:
Six months ended Year ended
30 September 31 March
2002 2001 2002
£m £m £m
Profit on ordinary activities before tax 47.4 34.9 75.2
Profits on ordinary activities multiplied by standard rate
of corporation tax in the UK of 30% 14.2 10.5 22.6
Expenses disallowed for the purpose of tax provision
(primarily professional fees and depreciation on
expenditure not subject to capital allowances) 0.6 1.7 2.5
Accounting deduction less than capital allowances - timing
difference (0.1) (0.4) (0.5)
Movement in provisions (0.4) - 0.6
Adjustments to tax charge in respect of previous periods - (3.0) (3.1)
Corporation tax charge 14.3 8.8 22.1
Factors that may affect future tax charges
The disposal of properties at the revalued amount would not give rise to a tax
liability.
6. Earnings per share
Earnings per share is presented on three bases: earnings per share; diluted
earnings per share; and adjusted earnings per share. Earnings per share is in
respect of all activities and diluted earnings per share takes into account the
dilution effects of share options and share awards under the Employee Share
Ownership Plan (ESOP). Adjusted earnings per share excludes exceptional items
to enable comparison of the underlying earnings of the business with prior
periods.
Six months ended Year ended
30 September 31 March
2002 2001 2002
£m £m £m
Adjusted earnings per share 10.5p 9.0p 18.3p
Earnings per share 11.1p 7.7p 17.1p
Diluted earnings per share 11.0p 7.7p 17.0p
Profit for the financial period 32.3 22.6 49.9
Adjustments:
Exceptional items (2.3) 3.6 3.6
Tax effect of exceptional items 0.7 - -
Adjusted profit for the financial period 30.7 26.2 53.5
Weighted average number of shares - million 291.8 292.1 291.8
Effect of dilutive share options and awards - million 2.9 2.2 2.1
Diluted weighted average number of shares - million 294.7 294.3 293.9
The weighted average number of shares excludes those held in the ESOP, reducing
the weighted average number of shares to 291.8m. For diluted earnings per
share, the weighted average number of shares assumes share options and share
awards granted to employees either convert or vest.
7. Fixed asset investments
Other investments include £10.4m (September 2001: £12.8m; March 2002: £11.7m) in
respect of shares held in the Company.
Shares held in the Company are in a separately administered trust for the
purposes of the ESOP. The difference between the purchase price of 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 awards and options are granted.
8. Provisions for liabilities and charges
Pensions Property Total
£m £m £m
1 April 2002 0.9 20.8 21.7
Utilised during the period (0.1) (0.6) (0.7)
Interest on discounted provision - 0.4 0.4
Increase in provision - 7.0 7.0
30 September 2002 0.8 27.6 28.4
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.
Property
The property provision represents the estimated net present value of future
costs for least rentals and dilapidation costs less the expected receipts from
sub-letting space which is surplus to business requirements. The leases have a
maximum term of 12 years to expiry. The increase in provision is in respect of
space to be sublet in our new headquarters at Paternoster Square.
9. Reconciliation of movements in shareholders' funds
Six months ended Year ended
30 September 31 March
2002 2001 2002
£m £m £m
Profit for the financial period 32.3 22.6 49.9
Dividends (3.7) (3.2) (10.6)
Net addition to shareholders' funds 28.6 19.4 39.3
Opening shareholders' funds 281.3 242.0 242.0
Closing shareholders' funds 309.9 261.4 281.3
Six months ended Year ended
30 September 31 March
2002 2001 2002
£m £m £m
10. Notes to the consolidated cash flow statement
i) Reconciliation of operating profit to net cash inflow from
operating activities
Operating profit 42.8 30.6 66.9
Depreciation of tangible assets 9.6 8.9 17.5
(Increase)/decrease in debtors (4.5) 2.5 (0.7)
Increase/(decrease) in creditors 15.5 (0.5) (3.3)
Provisions utilised during the period (0.7) (1.4) (2.6)
Amortisation of own shares 0.4 0.4 0.8
Net cash inflow from operating activities 63.1 40.5 78.6
Comprising:
Ongoing operating activities 53.8 41.5 82.4
Exceptional items (see note 3) 9.3 (1.0) (3.8)
Net cash inflow 63.1 40.5 78.6
At 30
At 1 April Cash September
2002 flows 2002
£m £m £m
ii) Analysis of changes in net funds
Cash in hand and at bank 3.9 0.2 4.1
Current asset investments 186.0 47.0 233.0
Total net funds 189.9 47.2 237.1
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 10. 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 2002.
PricewaterhouseCoopers
Chartered Accountants
London
7 November 2002
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