Trading Statement
London Stock Exchange Group PLC
09 January 2007
9 January 2007
LONDON STOCK EXCHANGE GROUP plc
TRADING STATEMENT
UNAUDITED RESULTS FOR THE THREE AND NINE MONTHS ENDED 31 DECEMBER 2006
AND UNAUDITED EARNINGS PER SHARE FOR THE 12 MONTHS ENDED 31 DECEMBER 2006
London Stock Exchange Group plc ('the Exchange') today issued its quarterly
trading statement for the three months and nine months ended 31 December 2006
('Q3') together with earnings per share on a calendarised basis for the 12
months ended 31 December 2006. All figures for the current year are unaudited.
In summary, the Exchange delivered an excellent financial performance, with
strong growth continuing in all major business areas in the third quarter,
compared to the same quarter last year:
• Main Market new issues increased 39 per cent to 50 and there was a 68
per cent increase in the average size of each Main Market IPO
• Average daily SETS bargains up 57 per cent to 342,000, significantly
outperforming the February 2006 SETS growth forecast
• Total terminals up 14,000 since Q3 last year to a record 113,000 at end
of December 2006, including an 8,000 rise in the number of professional
terminals
Reflecting this strong performance in Q3, financial results (excluding
exceptional items) for the nine months ended 31 December 2006 show:
• Revenue up 20 per cent to £253.2 million
• Adjusted basic EPS up 53 per cent to 39.1 pence
Commenting on financial performance and prospects, Clara Furse, Chief Executive
Officer, said:
'Very strong revenue and earnings growth has again highlighted the Exchange's
increasing operational and strategic value. Adjusted basic EPS was up 53 per
cent for the nine months to 31 December. We are confident of an excellent
outcome for the current financial year and continuing strong business
fundamentals should ensure a strong performance for the next financial year
ending 31 March 2008.
This excellent performance supports the Board's rejection of Nasdaq's offer
which significantly undervalues the business and the Exchange's unique strategic
position. We believe that our strong growth prospects will continue to enhance
the quality of our markets and the value of our international brand, delivering
increasing value to our shareholders and our market.'
Financial Results
For the three months ended 31 December 2006, revenue was £89.9 million (2005:
£80.9 million). Operating profit was £47.8 million (2005: £37.5 million) and
basic EPS was 14.7 pence (2005: 11.1 pence). Before exceptional items, revenue
grew 21 per cent to £89.9 million (£74.5 million) and operating profit increased
50 per cent to £48.6 million (2005: £32.4 million) while adjusted basic EPS
showed growth of 53 per cent, rising to 15.0 pence (2005: 9.8 pence; forecast in
shareholder circular dated 19 December: 14.5 pence).
For the nine months ended 31 December 2006, revenue was £253.2 million (2005:
£217.0 million), an increase of 17 percent. Operating profit was £129.1 million
(2005: £62.6 million) and basic EPS was 38.7 pence (2005: 20.7 pence per share).
Before exceptional items, revenue rose 20 per cent to £253.2 million (2005:
£210.6 million), operating profit climbed 56 per cent to £129.9 million (£83.2
million) and adjusted basic EPS increased 53 per cent to 39.1 pence (2005: 25.5
pence; forecast in shareholder circular dated 19 December: 38.6 pence).
For the 12 months ended 31 December 2006, adjusted basic EPS was up 60 per cent
from 31.9 pence to 50.9 pence, higher than the forecast of 50.4 pence in last
month's shareholder circular, reflecting the sustained and very strong trading
volumes and excellent new issue activity for the month of December. Basic EPS
was 45.2 pence.
Issuer Services
Issuer Services produced a record performance in Q3 with revenue increasing 21
per cent to £18.8 million (2005: £15.5 million), reflecting the appeal of the
London markets.
During the quarter there were a total of 183 new issues on the Exchange's
markets, up 9 per cent on the same period last year (2005: 168), including 50 on
the Main Market (2005: 36). In the third quarter there was also a record number
of international new issues, with 59 overseas companies joining the Exchange's
markets. Money raised in new and further issues increased 45 per cent to £17.6
billion (2005: £12.1 billion) and the average size of each Main Market IPO
increased 68 per cent to £450 million.
The growth in the size of new and further issues for the first nine months of
the financial year contributed to a 12 per cent rise in Issuer Services' revenue
to £47.5 million (2005: £42.3 million). During the period there were a total of
430 new issues (2005: 474), including 88 Main Market new issues (2005: 83). AIM
performed strongly with 341 new issues (2005: 389), underlining its continuing
appeal to both UK and overseas companies. As at 31 December 2006, the total
number of companies on our markets increased to 3,256 (2005: 3,093), including
1,634 on AIM (2005: 1,399).
RNS, the Exchange's financial communications service, contributed revenues of
£2.4 million for the quarter (2005: £2.5 million). For the nine months of the
financial year to date, revenue increased 10 per cent to £7.4 million, mainly
reflecting an increase in the number of company announcements during the year.
Broker Services
Broker Services delivered another excellent result as revenue in Q3 increased 28
per cent to £39.5 million (2005: £30.9 million). While the total value traded
during the period increased 29 per cent to £1.8 trillion (2005: £1.4 trillion),
the average number of equity bargains per day increased 42 per cent to 487,000
(2005: 344,000).
With very strong trading volumes in October and November continuing through
December, SETS, the Exchange's electronic order book, remained the principal
driver of Broker Services' revenues. The average number of SETS bargains per day
for the quarter grew strongly, reaching record levels at 342,000 (2005:
218,000), an increase of 57 per cent. Trading on SETSmm also increased
significantly, with bargains per day rising 114 per cent to 79,000 (2005:
37,000), accounting for 23 percent of trading on SETS during the period.
Value traded on SETS increased 34 per cent to £392 billion (2005: £292 billion).
For the quarter, the average value of a SETS bargain decreased 14 per cent to
£18,000 (2005: £21,000), and the average yield per bargain reduced to £1.32
(2005: £1.54).
Overall, trading on SETS contributed 72 per cent of Broker Services' revenue
during the quarter.
In Q3, the average number of off-book bargains decreased to 42,000 per day
(2005: 44,000) while the average number of international bargains rose to
103,000 per day (2005: 82,000).
For the nine months ended 31 December 2006, Broker Services' strong performance
was reflected in a 32 per cent increase in revenue to £115.6 million (2005:
£87.8 million). During the period, the daily average number of equity bargains
was 450,000 (2005: 326,000) and the daily average number of SETS bargains was
324,000 (2005: 206,000), a financial year to date increase of 57 per cent. The
average value of a SETS bargain reduced over the same period last year at
£19,000 (2005: £21,000) and the average yield per bargain reduced to £1.36
(2005: £1.51).
Information Services
Information Services performed well during the quarter. Revenue for Q3 rose 12
per cent to £27.3 million (2005: £24.4 million), with good growth in number of
terminals as well as increased contributions from Proquote and SEDOL.
The overall number of terminals taking real time Exchange data increased to
113,000, up 14,000 since the same point last year (31 December 2005: 99,000), a
new record high level. Included in this number were 94,000 terminals
attributable to professional users, up 8,000 over the same time last year (31
December 2005: 86,000), and up 3,000 since the half year end. Proquote, the
Exchange's provider of financial market software and data, made good progress
with 3,500 screens (31 December 2005: 3,000).
SEDOL, the Exchange's service providing unique identification for a range of
global tradable securities, continued to perform well with increasing demand for
its services. The number of securities covered by SEDOL codes rose to 1.6
million (2005: 1 million).
Information Services' revenue for the financial year to date, increased 13 per
cent to £78.2 million (2005: £69.5 million), mainly attributable to the increase
in number of terminals taking Exchange data and the success of other information
products.
Current Trading and Prospects
The Exchange has built on the excellent performance seen in the first half of
the year with strong trading in all main business divisions continuing into the
second half. The Exchange's position as a major international listing venue
remains pre-eminent, trading volumes on SETS continue to significantly
outperform targets set less than a year ago and demand for real time price and
trading data remains strong, with a record number of terminals taking Exchange
information.
The Exchange is confident of an excellent outcome for the current financial year
and continuing strong business fundamentals should ensure a strong performance
for the financial year ending 31 March 2008.
Further information is available from:
London Stock Exchange John Wallace - Media 020 7797 1222
Paul Froud - Investor Relations 020 7797 3322
Finsbury James Murgatroyd 020 7251 3801
The Directors of the Exchange accept responsibility for the information
contained in this announcement. To the best of the knowledge and belief of the
Directors of the Exchange (who have taken all reasonable care to ensure that
such is the case), the information contained in this announcement for which they
accept responsibility is in accordance with the facts and does not omit anything
likely to affect the import of such information.
PricewaterhouseCoopers LLP, Merrill Lynch International and Lehman Brothers
Europe Limited have each given and not withdrawn their consent to the inclusion
of their respective reports in this announcement.
Merrill Lynch International, which is regulated in the United Kingdom by the
Financial Services Authority, is acting exclusively for the Exchange and no-one
else in connection with the offer and will not be responsible to anyone other
than the Exchange for providing the protections afforded to clients of Merrill
Lynch International nor for providing advice in relation to the offer.
Lehman Brothers Europe Limited, which is regulated in the United Kingdom by the
Financial Services Authority, is acting exclusively for the Exchange and no-one
else in connection with the offer and will not be responsible to anyone other
than the Exchange for providing the protections afforded to clients of Lehman
Brothers Europe Limited nor for providing advice in relation to the offer.
Consolidated income statement
Three months ended 31 December Nine months ended 31 December
___________________________________________________________________
2006 2005 2006 2005
Unaudited Unaudited Unaudited Unaudited
Continuing operations Notes £m £m £m £m
_______________________________________________________________________________________________________________________
Revenue
Issuer Services 18.8 15.5 47.5 42.3
Broker Services 39.5 30.9 115.6 87.8
Information Services - ongoing 27.3 24.4 78.2 69.5
Information Services - exceptional 2 - 6.4 - 6.4
Derivative Services 2.2 1.9 6.6 5.8
Other 2.1 1.8 5.3 5.2
_______________________________________________________________________________________________________________________
Total 89.9 80.9 253.2 217.0
_______________________________________________________________________________________________________________________
Expenses
___________________________________________________________________
Operating expenses before exceptional items (41.3) (42.1) (123.3) (127.4)
Exceptional expenses 2 (0.8) (1.3) (0.8) (27.0)
___________________________________________________________________
Total (42.1) (43.4) (124.1) (154.4)
_______________________________________________________________________________________________________________________
Operating profit 47.8 37.5 129.1 62.6
_______________________________________________________________________________________________________________________
Analysed as:
Operating profit before exceptional items 48.6 32.4 129.9 83.2
Exceptional items 2 (0.8) 5.1 (0.8) (20.6)
_______________________________________________________________________________________________________________________
Operating profit 47.8 37.5 129.1 62.6
_______________________________________________________________________________________________________________________
Finance income 3.9 5.2 12.7 15.1
Finance costs (8.1) (3.5) (22.6) (10.0)
___________________________________________________________________
Net finance (costs)/income (4.2) 1.7 (9.9) 5.1
Share of profit after tax of joint venture 0.6 0.3 1.4 0.9
Investment income - - 0.3 0.3
_______________________________________________________________________________________________________________________
Profit before taxation 44.2 39.5 120.9 68.9
Taxation (13.1) (11.4) (35.5) (20.2)
_______________________________________________________________________________________________________________________
Profit for the financial period 31.1 28.1 85.4 48.7
_______________________________________________________________________________________________________________________
Profit/(loss) attributable to minority interest 0.1 (0.1) 0.3 (3.9)
Profit attributable to equity holders 31.0 28.2 85.1 52.6
_______________________________________________________________________________________________________________________
31.1 28.1 85.4 48.7
_______________________________________________________________________________________________________________________
Basic earnings per share 3 14.7p 11.1p 38.7p 20.7p
Diluted earnings per share 3 14.4p 11.0p 38.0p 20.5p
Adjusted basic earnings per share 3 15.0p 9.8p 39.1p 25.5p
1. Basis of preparation and accounting policies
The statement above has been prepared on the same basis and applying the same accounting policies as were applied in
preparation of the Group's Interim Report for the six months ended 30 September 2006 approved and issued on 8 November
2006 and in accordance with the Listing Rules of the Financial Services Authority.
From 1 April 2005 the Group consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards ('IFRS') and International Financial Reporting Interpretations Committee ('IFRIC')
interpretations adopted by the European Union, and with those parts of the Companies Act 1985 applicable to companies
reporting under IFRS.
The results for the three month periods ended 31 December 2005 and 2006 are based on the unaudited management accounts
for the three months ended 31 December 2005 and 2006.
The results for the nine month periods ended 31 December 2005 and 2006 are based on the unaudited management accounts
for the three month periods ended 31 December 2005 and 2006 and the unaudited interim results for the six month
periods ended 30 September 2005 and 2006.
The financial information is unaudited and does not constitute statutory financial statements within the meaning of
section 240 of the Companies Act 1985.
2. Exceptional items
Three months ended 31 December Nine months ended 31 December
___________________________________________________________________
2006 2005 2006 2005
Unaudited Unaudited Unaudited Unaudited
Continuing operations £m £m £m £m
_______________________________________________________________________________________________________________________
Exceptional revenue (see note 1 below) - 6.4 - 6.4
Fees in respect of potential offers for the
Company (see note 2 below) (0.8) (1.3) (0.8) (3.9)
Impairment of goodwill and provision in respect
of EDX London Ltd - - - (23.1)
_______________________________________________________________________________________________________________________
Total (0.8) 5.1 (0.8) (20.6)
_______________________________________________________________________________________________________________________
1. The exceptional revenue in 2005 relates to a settlement reached with a customer in relation to reporting for
information services.
2. Additional costs in relation to the Nasdaq bid for London Stock Exchange dated 20 November 2006 are expected to be
reported as exceptional items, in accordance with the Group's accounting policies, in the financial year ended
31 March 2007. Such costs will become quantifiable at the latest on the outcome of the bid.
3. Earnings per share
Three months ended 31 December Nine months ended 31 December
___________________________________________________________________
2006 2005 2006 2005
Unaudited Unaudited Unaudited Unaudited
Continuing operations £m £m £m £m
_______________________________________________________________________________________________________________________
Basic earnings per share 14.7p 11.1p 38.7p 20.7p
Diluted earnings per share 14.4p 11.0p 38.0p 20.5p
Adjusted basic earnings per share 15.0p 9.8p 39.1p 25.5p
_______________________________________________________________________________________________________________________
Profit for the financial period attributable
to equity holders 31.0 28.2 85.1 52.6
Adjustments:
Exceptional items 0.8 (5.1) 0.8 20.6
Tax effect of exceptional items - 1.9 - (4.7)
Exceptional items and taxation attributable
to minority interest - - - (3.7)
_______________________________________________________________________________________________________________________
Adjusted profit for the financial period
attributable to equity holders 31.8 25.0 85.9 64.8
_______________________________________________________________________________________________________________________
Weighted average number of shares - million 211.6 254.2 219.7 254.0
Effect of dilutive share options and awards - million 4.1 3.0 4.5 2.9
_______________________________________________________________________________________________________________________
Diluted weighted average number of shares - million 215.7 257.2 224.2 256.9
_______________________________________________________________________________________________________________________
Earnings per share is presented on three bases: basic earnings per share; diluted earnings per share; and adjusted
basic earnings per share.
Basic earnings per share is in respect of all activities and diluted earnings per share takes into account the
dilution effects which would arise on the conversion or vesting of share options and share awards under the
Employee Share Ownership Plan (ESOP).
Adjusted basic earnings per share excludes exceptional items to enable comparison of the underlying earnings of the
business with prior periods.
4. Statement of earnings per share and adjusted earnings per share for the 12 months ended 31 December 2006
The Adjusted basic earnings earnings per share (excluding exceptional items) and basic earnings per share for the
calendar year ended 31 December 2006 has been calculated as set out in the table below:
Twelve months ended 31 December
_______________________________________
2006 2006
Adjusted Unadjusted
Actual Actual
£m £m
_______________________________________
Earnings:
Year ended 31 March 2006 95.2 70.7
Less: 9 months ended 31 December 2005 (64.8) (52.6)
Add: 9 months ended 31 December 2006 85.9 85.1
_______________________________________
12 months ended 31 December 2006 116.3 103.2
_______________________________________
Weighted average number of shares for calendar year ended
31 December 2006 - millions 228.5 228.5
_______________________________________
Unaudited adjusted basic earnings per share for calendar year
ended 31 December 2006 - pence 50.9p
_______________________________________
Unaudited basic earnings per share for calendar year ended
31 December 2006 - pence 45.2p
_______________________________________
The Directors
London Stock Exchange Group plc
10 Paternoster Square
London EC4M 7LS
Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
Lehman Brothers Europe Limited
25 Bank Street
London E14 5LE
Merrill Lynch International and Lehman Brothers Europe Limited are henceforth
collectively referred to in this letter as the 'Advisers'.
9 January 2007
Dear Sirs
London Stock Exchange Group plc
We report on the unaudited results of the London Stock Exchange Group plc (the
'Company') and its subsidiaries (together the 'Group') for the three and nine
month periods ended 31 December 2006, and the adjusted and basic earnings per
share of the Group for the twelve months ended 31 December 2006 (together, the
'Unaudited Financial Information'). The Unaudited Financial Information and the
basis on which it is prepared are included in the Company's third quarter
results announcement issued by the Company on 9 January 2007 (the 'Document').
This report is required by Rule 28.3(b) of the City Code on Takeovers and
Mergers issued by the Panel on Takeovers and Mergers (the 'City Code') and is
given for the purpose of complying with that rule and for no other purpose.
Accordingly, we assume no responsibility in respect of this report to
Nightingale Acquisition Limited, a wholly owned subsidiary of The Nasdaq Stock
Market, Inc., (the 'Offeror') or The Nasdaq Stock Market, Inc. or any other
person connected to, or acting in concert with, the Offeror or to any other
person who is seeking or may in future seek to acquire control of the Company
(an 'Alternative Offeror') or to any other person connected to or acting in
concert with an Alternative Offeror.
Responsibilities
It is the responsibility of the directors of the Company (the 'Directors') to
prepare the Unaudited Financial Information in accordance with the requirements
of the City Code. In preparing the Unaudited Financial Information the Directors
are responsible for correcting errors that they have identified which may have
arisen in unaudited financial results and unaudited management accounts used as
the basis of preparation for the Unaudited Financial Information.
It is our responsibility to form an opinion as required by Rule 28.3(b) of the
City Code as to the proper compilation of the Unaudited Financial Information
and to report that opinion to you.
Save for any responsibility under Rule 28.3(b) of the City Code to any person as
and to the extent there provided, to the fullest extent permitted by law we do
not assume any responsibility and will not accept any liability to any other
person for any loss suffered by any such other person as a result of, arising
out of, or in connection with this report or our statement, required by and
given solely for the purposes of complying with Rule 28.4 of the City Code,
consenting to its inclusion in the Document.
Basis of Preparation of the Unaudited Financial Information
The Unaudited Financial Information has been prepared on the basis stated in
the Document, and:
a) for the three months ended 31 December 2006 is based on the unaudited
management accounts for the three months ended 31 December 2006;
b) for the nine months ended 31 December 2006 is based on the unaudited
interim financial results for the six months ended 30 September 2006, and
the unaudited management accounts for the three months ended 31 December
2006; and
c) for the twelve months ended 31 December 2006 is based on the unaudited
management accounts for the three months ended 31 March 2006, the
unaudited interim financial results for the six months ended 30 September
2006, and the unaudited management accounts for the three months ended
31 December 2006.
The Unaudited Financial Information is required to be presented on a basis
consistent with the accounting policies of the Group.
Basis of Opinion
We conducted our work in accordance with the Standards for Investment Reporting
issued by the Auditing Practices Board in the United Kingdom. Our work included
evaluating the basis on which the historical financial information for the
periods included in the Unaudited Financial Information has been prepared and
considering whether the Unaudited Financial Information has been accurately
computed using that information and whether the basis of accounting is
consistent with the accounting policies of the Group.
We planned and performed our work so as to obtain the information and
explanations we considered necessary in order to provide us with reasonable
assurance that the Unaudited Financial Information has been properly compiled on
the basis stated.
However, the Unaudited Financial Information has not been audited. The actual
results, therefore, may be affected by revisions to accounting estimates due to
changes in circumstances, the impact of unforeseen events and the correction of
errors in the unaudited interim financial results for the six month period ended
30 September 2006 and the unaudited management accounts. Consequently we can
express no opinion as to whether the actual results achieved will correspond to
those shown in the Unaudited Financial Information and the differences may be
material.
Our work has not been carried out in accordance with auditing standards
generally accepted in the United States of America or auditing standards of the
Public Company Accounting Oversight Board (United States) and accordingly should
not be relied upon as if it had been carried out in accordance with those
standards and practices.
Opinion
In our opinion, the Unaudited Financial Information has been properly compiled
on the basis stated and the basis of accounting used is consistent with the
accounting policies of the Group.
Yours faithfully
PricewaterhouseCoopers LLP
Chartered Accountants
The Directors
London Stock Exchange plc
10 Paternoster Square
London EC4M 7LS
9 January 2006
Dear Sirs,
We have discussed with you as Directors of London Stock Exchange Group plc the
unaudited results of London Stock Exchange Group plc and its subsidiaries for
the three and nine month periods ended 31 December 2006 and the adjusted and
basic earnings per share for the twelve month period ended 31 December 2006
included in the third quarter results announcement to be issued on 9 January
2007 (together the 'Unaudited Financial Information') and the basis on which
this has been prepared.
We have also discussed the accounting policies and basis of calculation for the
Unaudited Financial Information with PricewaterhouseCoopers LLP, London Stock
Exchange Group plc's auditors, and have considered their letter of today's date
addressed to yourselves and ourselves on this matter. You have confirmed to us
that all information material to the Unaudited Financial Information has been
disclosed to us. We have relied on the accuracy and completeness of all such
information and have assumed such accuracy and completeness for the purpose of
rendering this letter.
On the basis of the foregoing, we consider that the Unaudited Financial
Information, for which you as Directors of London Stock Exchange Group plc are
solely responsible, has been compiled with due care and consideration.
This letter is provided to you solely in connection with Rule 28.3(b) of the
City Code on Takeovers and Mergers and for no other purpose.
Yours faithfully,
Merrill Lynch International Lehman Brothers Europe Limited
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