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- Turnover up four per cent to £259.7 million
- Operating profit before exceptional items and goodwill amortisation down one per cent to £82.0 million and down ten per cent including exceptional items and goodwill to £73.2 million
- Profit before tax up slightly to £89.1 million, including profit on disposal of Tower of £7.2m
- Basic earnings per share up seven per cent to 23.1 pence and adjusted basic earnings per share up 11 per cent to 23.5 pence
- Final dividend of 5.0 pence per share bringing the total dividend for the year to 7.0 pence per share, up 46 per cent
Commenting on the results, Chris Gibson-Smith, Chairman of London Stock Exchange, said:
“The Exchange benefited from successful new initiatives and improving market conditions, with a four per cent growth in turnover and 11 per cent increase in adjusted basic earnings per share. We are pleased to raise the final dividend to 5.0 pence per share, which gives a 46 per cent lift in total dividend per share, reflecting the Board’s confidence in the business.
“Although we have been engaged in discussions regarding possible offers for the Company and await the findings of the Competition Commission, we nevertheless remain focused on the operational performance of our business and are confident the Exchange is well placed for the future.”
Clara Furse, Chief Executive of the Exchange, said: “Our performance reflects improvement in each of our core business areas: an uplift in new issue activity, continued strong trading volumes on the SETS electronic order book and an increase in the number of professional terminals taking Exchange data. The continuation of these positive trends in our business provides encouragement for the year ahead.”
Further information is available from: London Stock Exchange John Wallace - Media 020 7797 1222
Paul Froud - Investor Relations 020 7797 3322
Lyndal Kennedy - Investor Relations 020 7797 3322
Finsbury James Murgatroyd 020 7251 3801
Melanie Gerlis 020 7251 3801
Financial results
Gross turnover for the year ended 31 March 2005 increased four per cent to £259.7 million (2004: £250.4 million), while net turnover rose three per cent to £244.4 million (2004: £237.0 million). All core business areas performed well though revenue in Issuer Services was affected by reductions in tariffs. Administrative expenses excluding exceptional items rose six per cent to £164.4 million (2004: £155.8 million) mainly reflecting expected cost increases from higher depreciation. In addition, exceptional costs of £6.8 million were incurred for advisors’ fees in respect of potential offers for the Company received in the second half of the year.
Operating profit excluding exceptional costs and goodwill amortisation reduced one per cent to £82.0 million (2004: £82.9 million) and decreased ten per cent to £73.2 million including exceptional costs and goodwill amortisation (2004: £81.3 million).
Net interest receivable during the year was £7.0 million. Following the disposal of the Tower, an exceptional gain of £7.2 million was recognised, contributing to an increase in profit before tax to £89.1 million (2004: £88.8 million).
Basic earnings per share increased seven per cent to 23.1 pence per share (2004: 21.6 pence per share). Adjusted basic earnings per share, excluding exceptional items and goodwill amortisation, rose 11 per cent to 23.5 pence per share (2004: 21.2 pence per share). Following the share consolidation in July 2004 associated with the special dividend paid in August 2004, the weighted average number of shares decreased in the year from 293.0 million to 269.0 million.
Cash flows for the year from operating activities, before exceptional items, were £100.9 million (2004: £105.4 million). Cash outflow of £105.7 million (2004: inflow £8.7 million) includes payment of the special dividend of £162.5 million and capital expenditure of £40.8 million (2004: £54.2 million), of which £15.2 million was for completion of the fit out and move to Paternoster Square. At 31 March 2005, cash balances were £124.4 million (2004: £227.9 million).
Issuer Services
Issuer Services’ turnover decreased nine per cent to £35.2 million (2004: £38.5 million), representing 14 per cent of total turnover for the year (2004: 15 per cent). The decrease reflects the effects of changes to tariffs for both our Main Market and AIM, partly offset by significantly increased new issue activity on both markets.
As at 31 March 2005, the total number of companies on our markets increased to 2,916 (2004: 2,693). Annual fee income, the revenue the Exchange receives from companies on its markets, contributed 49 per cent of Issuer Services’ turnover (2004: 56 per cent).
Total new issues on the Exchange’s markets more than doubled to 514 (2004: 236) including 366 IPOs (2004: 117). Over the year, new and further issues together raised £18.0 billion (2004: £21.0 billion). The Exchange was once again the leading European exchange in attracting companies to its markets, accounting for 80 per cent of the IPOs in Western Europe (2004: 85 per cent).
Growth in Main Market new issues was strong, increasing over 90 per cent to 82 (2004: 43), reflecting a pick up in activity in the second half of the year with 52 new issues (H1 2005: 30). The number of international new issues, at 13, was nearly double the number last year (2004: 7), including high profile listings from China, Russia, India and Korea. To reinforce its commitment to the region, the Exchange opened an Asia-Pacific office in Hong Kong in October.
AIM, our international market for smaller, growing companies, enjoyed a record year. The total number of companies traded on AIM rose 42 per cent during the year to 1,127 as at 31 March 2005 (2004: 792), including 134 international companies. New issues on AIM rose by more than 120 per cent to 432 (2004: 193) of which 74 were overseas listings. To further enhance AIM’s profile and attractiveness, new AIM indices were launched in May 2005 which will help increase research coverage and institutional investment in this market.
Broker Services
Turnover for the Broker Services division increased six per cent to £99.8 million (2004: £94.1 million), contributing 38 per cent of total turnover (2004: 38 per cent). Another year of strong performance reflects the continued success of SETS, our electronic order book, which accounted for approximately 66 per cent of Broker Services’ revenue for the year (2004: 64 per cent).
The total number of equity bargains for the year ended 31 March 2005 rose 15 per cent to 67.9 million (2004: 59.3 million), a daily average of 271,000 (2004: 234,000). Over the same period, the number of SETS bargains rose to a total of 42.8 million (2004: 34.7 million), reflecting a 24 per cent increase to an average 170,000 bargains per day (2004: 137,000). Performance in the last quarter of the year was particularly strong, seeing successive record trading months, with a record daily average 207,000 SETS bargains in March.
The total value of equity bargains for the year increased 15 per cent to £4.7 trillion (2004: £4.1 trillion), attributable to the increase in order book trading and a rise in number of international bargains which grew to 52,000 bargains per day (2004: 40,000). The total value of off book bargains also increased although the average number of off book bargains reduced 16 per cent to 48,000 (2004: 57,000).
The continued strong growth on SETS was partly attributable to the success of SETSmm which trades mid-cap securities on a hybrid market structure. In its first full year of operation, SETSmm traded an average 16,000 bargains per day (five months ended 31 March 2004: 9,000). The success of SETSmm in improving liquidity and reducing trading costs has led to the next stage of development, the addition of further securities to the trading platform. The first tranche of up to 200 Small Cap securities is planned for introduction in July 2005. Also contributing to the growth of trading on SETS was the introduction, effective from 1 April 2004, of a new discount scheme which provides progressive discounts for member firms trading above certain monthly volume levels on SETS.
Partly offsetting the benefit of increased numbers of SETS bargains was a further decline in the average value of a SETS bargain, down 5 per cent to £21,000 (2004: £22,000).
The trading service for liquid Dutch securities was launched in May 2004. This service provides the efficiency and reliability of the UK SETS platform and uses the existing post trade clearing and settlement infrastructure for the Dutch market. Although we have received some encouraging feedback, with an average market share of less than two per cent since launch we will need to see increased levels of trading to meet our expectations for this service.
Information Services
Information Services’ turnover rose nine per cent to £110.3 million (2004: £101.0 million), accounting for 42 per cent of total turnover (2004: 40 per cent). This good growth was primarily attributable to the new SEDOL Masterfile service and rising turnover from Proquote and FTSE International.
As at 31 March 2005, the number of terminals taking the Exchange’s real time market data increased six per cent to 95,000 (2004: 90,000). Of this total, approximately 83,000 terminals (2004: 80,000) were attributable to professional users which, as noted at Q3, represents the first increase by this market segment for over three years. The 2,000 increase in private terminals to 12,000 at the financial year end also provides an encouraging sign of improvement in this market.
SEDOL Masterfile, which provides unique identification for a range of global tradable instruments, has enjoyed a good start since launch in March 2004. Over 1,000 licences have been taken for the use of this service and the number of instruments has grown from 250,000 to 450,000. The success of SEDOL Masterfile should continue with a further extension of instruments and geographic areas covered by this service and plans for carrying other security identification codes to allow easier cross referencing of data.
Proquote, the Exchange’s provider of financial market software and data, continued to make progress, increasing the number of installed screens at year end by 50 per cent to 2,700 (2004: 1,800). Contributing to this increase has been the success in signing up new group contracts and the enhancements to functionality and the range of data.
RNS, the Exchange’s financial communications service, achieved another satisfactory performance, contributing £7.5 million to turnover (2004: £7.2 million). RNS remains the market leader in the highly competitive UK regulatory news distribution market, with over 90 companies in the FTSE 100 continuing to use RNS to release regulatory announcements.
FTSE, the joint venture indices business, increased turnover by 15 per cent to £15.3 million (2004: £13.3 million), continuing an unbroken record of growth since launch nine years ago. This result reflects continued sales of Global and UK Equity Index Series products and contributions from new asset classes such as FTSE Hedge and FTSE Global Bonds.
The Exchange’s Technology Roadmap, a programme to fundamentally refresh its technology systems and operations, has made good progress. Substantial preparation work has been completed for the next stage of the project - Infolect, the new delivery system for Information Services. The new Infolect system will be launched in Q2 financial year 2005/06, providing greater capacity and faster delivery of real-time market data. When completed by the end of 2006, with customer deployment of the trading platform in 2007, the Technology Roadmap will provide a multi-product capable, flexible and scalable technology platform that will increase current capabilities and capacity, enable new products to be developed more cost effectively and reduce overall profit and loss technology costs.
Derivatives Services
Derivatives Services contributed £6.8 million to turnover (2004: £6.1 million for the nine months ended 31 March 2004), representing three per cent of total revenue.
EDX London, our 76 per cent owned equity derivatives business, traded a total of 18.3 million contracts (2004: 13.7 million for nine months ended 31 March 2004) and during the year added Finnish derivatives to the products offered by the other Scandinavian exchanges linked to EDX. Development of services to improve efficiencies in over the counter (OTC) derivatives trading took further shape, with customer testing of our new OTC clearing service taking place.
Trading in the covered warrants market continued to improve over the year, with an increase in the number of brokers offering to trade these products.
International Financial Reporting Standards (IFRS)
The key changes arising from the introduction of IFRS, which takes effect from the 2005/06 financial year, are in respect of goodwill amortisation, pensions, share-based payments, lease rentals, property depreciation and dividends. In April we disclosed a restatement of our 2003/04 results under IFRS in order to give an indication of the impact of IFRS on the Exchange.
Alongside the UK GAAP results announced today, we are providing an indication of the unaudited impact of IFRS on our 2004/05 results, as follows:
- profit before tax under IFRS would have been £92.2 million, three per cent higher than £89.1 million under UK GAAP;
- IFRS basic earnings per share would have been 24.2 pence, compared with UK GAAP basic earnings per share of 23.1 pence, five per cent higher; and
- adjusted basic earnings per share, before goodwill amortisation and exceptional items, would have been 24.2 pence under IFRS, three per cent higher than 23.5 pence per share under UK GAAP.
Net assets as at 31 March 2005 would have been £236.3 million under IFRS, six per cent lower compared with £251.6 million under UK GAAP, in part reflecting the company’s decision on transition to IFRS to fully recognise the defined benefit pension deficit in reserves and restate retained freehold properties to fair value.
A restatement of the 2004/05 results on an IFRS basis will be provided at a later date, before the Interim Results announcement, in order to provide comparative financial information for the 2005/06 financial year.
The IFRS financial information provided has been prepared on the basis of current IFRS standards and interpretations issued by the IASB. These are subject to ongoing amendment by the IASB and subsequent endorsement by the EU and could therefore change. As a result, the comparative amounts reported for 2004/05 in the 2005/06 financial statements may vary from those included above.
Dividend
Following approval at the AGM in July 2004, £162.5 million was returned to shareholders by way of a special dividend of 55 pence per share, reflecting good cash flows in recent years and anticipated receipt of proceeds from the disposal of the Tower. This return was accompanied by a consolidation of six new shares for every seven shares in issue at that time.
In terms of ordinary dividends, the Board remains committed to a progressive dividend policy and, reflecting confidence in the business, the Directors propose a final dividend of 5.0 pence per share to those shareholders on the register on 22 July 2005, for payment on 15 August 2005. Together with the interim dividend of 2.0 pence per share paid in January 2005, this takes the total dividend for the year to 7.0 pence per share (2004: 4.8 pence per share), an increase of 46 per cent.
Current trading and prospects
Since 31 March 2005, trading conditions have remained positive, with a continuation of the trends seen particularly in the second half of the last financial year:
- new issue activity on both the Main Market and AIM remains good;
- trading volumes on SETS have continued strongly, averaging over 200,000 bargains per day in April; and
- professional terminals have increased since the financial year end.
Further information
The Exchange will also host a presentation of its Preliminary Results for analysts and institutional shareholders today at 09:30am at 10 Paternoster Square, London EC4M 7LS. The presentation will be accessible via live web cast which can be viewed at www.londonstockexchange-ir.com. For further information, please call the Exchange’s Investor Relations department at 020 7797 3322.The Exchange will also hold a presentation of its Preliminary Results for members of the press today at 11:30am at 10 Paternoster Square, London EC4M 7LS.
