Source: London Stock Exchange
London Stock Exchange plc today reports results for the six months ended 30 September 2005.
Financial Highlights:
Turnover up 15 per cent to £136.1 million
before exceptional items:Operating profit up 24 per cent to £50.8 millionAdjusted earnings per share increased 40 per cent to 15.7 pence per shareInterim dividend per share doubled from 2.0 pence to 4.0 pence per share reflecting re-setting of dividend payout and strong performanceIntention to return £250 million to shareholders following the end of the Offer period, or as soon as circumstances allow, and subsequent share buyback programme, reflecting the Exchange's on-going strong trading performance and cash generation
including exceptional items:Operating profit down from £45.4 million to £25.1 million, principally reflecting a £23.1m exceptional charge for the impairment of EDX goodwillBasic earnings per share reduced from 12.8 pence to 9.6 pence per share
Operational Highlights:New issues up 43 per cent to 306, including a 57% increase in Main Market new issues from 30 to 47AIM continued strong growth as the number of international companies nearly doubled to 185, reflecting success of overseas marketingBroker Services benefited from 30 per cent growth in SETS bargains, helped by success of SETSmm which doubled trading over past yearNumber of terminals receiving real time market data up 8,000 to 98,000, including 5,000 increase in number of professional users to 85,000Infolect, the Exchange's new delivery system for real time market data, was successfully implemented in September. The new system is 15 times faster, with the capacity to support future market growth at a tenth of the development cost of the previous system.
Commenting on the six months, Clara Furse, Chief Executive, said: "The Exchange has made an excellent start to the year, with particularly strong growth in Issuer and Broker Services contributing to a 15 per cent increase in turnover. This has generated a 24 per cent rise in operating profit before exceptional costs and a 40 per cent increase in adjusted earnings per share.
"Technology enhancements underpin our expectations of a continuation of this strong performance. This is supported by improving operational efficiencies and cost control which should keep costs flat next year."
Chris Gibson-Smith, Chairman of the Exchange, said: "The Exchange has clearly demonstrated its robust strength as an independent business, delivering strong results, despite the backdrop of an Offer period and the significant resources this has entailed. The Exchange's excellent trading performance, and the increasing value this creates for shareholders, reflects the quality of the business and the actions taken to ensure we are able to capitalise on improvements in market conditions.
"Our confidence in the prospects for the Exchange is reflected in the doubling of the interim dividend, to four pence per share, our intention to return £250 million to shareholders following the end of the Offer period and a subsequent ongoing share buyback programme."
Chairman's statement
The Exchange has demonstrated robust strength as an independent business, making an excellent start to the financial year, despite the backdrop of an Offer period. We have delivered strong trading in all of the Exchange's core business areas, reflecting our initiatives to encourage greater market activity during a period of improving market conditions. Issuer Services saw a significant increase in the number of new issues on both the Main Market and on AIM, including an increase in international listings. Broker Services continued to demonstrate impressive growth on the SETS electronic order book as daily bargains reached new levels, helped by our development of SETSmm as well as the incentives to greater trading provided by the volume discount initiative. A further uplift in the number of terminals taking real time Exchange data and SEDOL's success helped Information Services to post increased revenues.
The Exchange is capitalising on more buoyant equity markets through products and initiatives that make our markets amongst the most attractive in the world. The Exchange continues to develop to meet the opportunities of a changing global exchange landscape through innovative services and close customer relationships. Together with our upgraded technology platform, strong brand and position at the centre of Europe's largest equity market, the Exchange will continue to grow.
Financial results
Unless otherwise stated, all figures below refer to the six months ended 30 September 2005. Comparative figures are for the corresponding period last year, restated under International Financial Reporting Standards.
The Exchange delivered an excellent trading performance in the first six months of the year, with turnover up 15 per cent to £136.1 million (2004: £118.3 million). Operating costs excluding exceptional items rose 10 per cent to £85.3 million (2004: £77.4 million) and, reflecting the operational gearing of the business, operating profit (before exceptional items) increased 24 per cent to £50.8 million (2004: £40.9 million).
Total expenses for the half year rose to £111.0 million (2004: £77.4m) with the inclusion of £25.7 million of exceptional items incurred in the period, comprising £2.6 million for advisers' fees in respect of potential offers for the company, and a £23.1 million charge in respect of EDX London, principally for the impairment of goodwill.
Adjusted earnings per share, excluding exceptional items, increased 40 per cent to 15.7 pence per share (2004: 11.2 pence per share). Basic earnings per share reduced to 9.6 pence per share from 12.8 pence per share.
For the half year, operating cash flows from operating activities increased significantly to £76.0 million, up 29 per cent (2004: £59.0 million). At 30 September 2005, cash balances rose to £166.1 million (31 March 2005: £124.4 million).
Issuer Services
Issuer Services delivered a strong first half performance with revenue increasing 34 per cent to £26.8 million (2004: £20.0 million), contributing 20 per cent to total turnover.
For the first six months of the financial year there were 306 new issues on the Exchange's markets, a notable 43 per cent increase over the same time last year (2004: 214). Included in this total were 82 new issues in June alone, the highest monthly number for eight years. New issues on the Main Market increased from 30 to 47, with the average market capitalisation of an IPO during the period increasing to £353 million (2004: £212 million).
In total, new and further issues raised £12.4 billion of new capital (2004: £9.5 billion) in the period. The appeal of the Exchange's markets is demonstrated by the 69 per cent share of IPOs in Western Europe (2004: 78 per cent) as companies access the largest liquidity pool in Europe. At 30 September 2005 the number of companies on our markets increased to 3,013 (2004: 2,765).
AIM, the world's most successful market for smaller, growing companies, delivered further strong growth in the period, with 259 companies joining the market in the first half of the financial year (2004: 184). At 30 September 2005 the number of companies traded on AIM increased to 1,311 (2004: 936), including 185 international companies, nearly double the number last year (2004: 94). AIM appeals to companies from a wide range of industries, covering 33 sectors, with notable success in attracting mining and oil and gas companies, as well as increases in chemicals, telecoms, support services and IT hardware sector stocks.
At the beginning of October 2005 the Exchange announced AIM for Europe, its plan to meet the demand among small and medium sized companies across Europe for equity growth capital. To this end the Exchange is developing a network of links with investors, advisers, intermediaries and issuers across Europe to extend the environment that has made AIM an international success.
RNS, the Exchange's financial communications service, contributed £4.2 million to Issuer Services' turnover (2004: £3.6 million). With over 90 companies in the FTSE 100 continuing to use the Exchange to release regulatory announcements in the half year, RNS has maintained a significant share of the regulatory news distribution market.
Broker Services
Broker Services produced another excellent performance as turnover for the half year increased 17 per cent to £56.9 million (2004: £48.6 million), accounting for 42 per cent of total turnover.
During the period, the total number of equity bargains rose 31 per cent to 40.6 million (2004: 31.0 million), a daily average of 317,000 bargains (2004: 246,000). The daily average number of bargains traded on SETS, the electronic order book, increased 30 per cent to 201,000 (2004: 155,000), with July a record month as SETS bargains per day averaged 222,000. Value traded during the first half increased 23 per cent to £523 billion (2004: £424 billion). The average value of a SETS bargain decreased to £20,000 compared to H1 last year (2004: £22,000) but increased slightly on the second half of last year.
A number of factors have contributed to the growth of trading on SETS, including the increased activity on the Exchange's primary markets, use of algorithmic/ black box trading and the increasing impact of derivatives-based business originating in the broader UK market. In addition, the growth reflects the continued effects of the volume discount scheme introduced last year, which lowers the cost of trading and therefore provides an incentive for greater trading volumes.
Trading on the electronic order book also benefited from the development of SETSmm, which trades mid-cap securities on a hybrid market structure. SETSmm averaged 29,000 bargains per day (2004: 13,000) and has helped drive increased liquidity and reduced spreads in the stocks traded. In July 2005 an additional 198 securities were added to SETSmm, bringing the total to 453.
During the half year, SETS contributed approximately 68 per cent of Broker Services' income (2004: 65 per cent), with 65 per cent of eligible trades (by value) executed on the electronic order book (2004: 62 per cent).
The total value of equity bargains for the period increased 14 per cent to £2.5 trillion (2004: £2.2 trillion), reflecting the increase in SETS trading and the number of international bargains which rose to an average 72,000 bargains per day (2004: 45,000). During the period, the daily average number of off book bargains reduced slightly to 44,000 (2004: 46,000).
Information Services
Information Services' revenue rose six per cent to £45.1 million (2004: £42.4 million), contributing 33 per cent of total turnover for the half year.
The number of terminals taking the Exchange's real time market data continued the rise seen since the start of the second half of last year, increasing to 98,000 at 30 September 2005, up 8,000 from the same point last year (2004: 90,000). Of this total, approximately 85,000 terminals were attributable to professional users, up 2,000 on the number at the end of the last financial year and up 5,000 on the comparable period (2004: 80,000). Proquote, the Exchange's provider of financial market software and data, increased the number of installed screens to 2,900 (2004: 2,300).
SEDOL Masterfile, the extension to the Exchange's securities numbering service that provides unique identification for securities on a global basis, continues to make good progress. The number of securities with SEDOL identification has increased from 450,000 at end of March 2005 to over 700,000, with over 1,000 licences signed for the use of the service.
Infolect, the Exchange's new high performance delivery system that carries real time market data to customers, was successfully tested over the summer and was implemented in September. This marks an important milestone in the Exchange's Technology Roadmap, a four year project to transition the Exchange's IT systems and operations to next generation technology. Infolect provides a 15 times faster service, with the capacity to support future market growth and increased message volumes, at a tenth of the development cost of the previous system.
Derivatives Services
Turnover for Derivatives Services, which mainly comprises EDX London, the Exchange's jointly owned equity derivatives business, increased to £3.9 million in the half year (2004: £3.6 million). During the period EDX traded a total of 10.1 million contracts (2004: 9.2 million). Although development of services for the over-the-counter equity derivatives market continued during the period, this service does not justify further investment. Accordingly, we have recognised an exceptional charge of £23.1m, principally in respect of the impairment of goodwill.
Interim Dividend
The Directors have declared an interim dividend of 4.0 pence per share (2004/5: interim 2.0 pence per share; final 5.0 pence per share). This doubling of the interim dividend reflects a re-setting of the dividend payout, the strong trading seen so far this financial year and the Directors' confidence in the future prospects of the business. The level of increase is consistent with the Exchange's desire to move the dividend payment further forward, and signals the Company's new dividend policy of sustainable, progressive dividends. The interim dividend will be paid to those shareholders on the register on 9 December 2005, for payment on 6 January 2006.
Capital Return and Share Buyback Programme
Following the return to shareholders of £162.5 million by special dividend in August 2004, the Board has kept the Exchange's capital position under regular review. The strong trading performance and cash generation over the past year has enabled the Board to recommend a further distribution of cash to shareholders. Accordingly, the Exchange intends to effect a capital return of
£250 million, subject to shareholder and court approval. Implementation of the capital return is expected to commence when the current Offer period in respect of the Exchange expires, or as soon as circumstances allow. In addition, the Exchange intends to commence an ongoing share buyback programme following the return of capital.
A new company structure arising from a Scheme of Arrangement will be effected in such a way as to maintain sufficient distributable reserves to enable payment of dividends and possible future capital returns. The Board believes that the Exchange has the financial flexibility to pursue opportunities for further growth through its proposed new structure, its continued cash generation capability, together with significant available loan facilities.
Outlook
Many of the positive trends apparent in our markets in the first half of the financial year have continued into the second half: the primary market remains buoyant, with the average size of new issues on our Main Market in October more than double last year;SETS continues to perform strongly, with 32% growth in daily bargains in October over the same period last year; anddemand for real time trading data remains encouraging.
Meanwhile, the Exchange continues to focus on improving operational efficiencies while continuing to invest in the business. Ongoing cost control should keep costs next year at the same level as the current financial year.
Going forward, our focus on the business needs of our issuers, intermediaries and investors, product innovation and international business development supports our expectation of continuing strong trading performance.
Chris Gibson-Smith
ChairmanDownload the document now 68.3 kb (Adobe Acrobat Document)