- Turnover up six per cent to £250.4 million
- Operating profit up 17 per cent to £81.6 million
- Operating profit before exceptional items and goodwill amortisation up two per cent to £83.2 million
- Earnings per share up 20 per cent to 21.7 pence
- Adjusted earnings per share up two per cent to 21.3 pence
- Final dividend of 3.4 pence per share bringing the total dividend for the year to 4.8 pence per share, up 12 per cent
- Return of approximately £162 million surplus cash by way of a 55 pence per share special dividend and share consolidation
"Strong cash generation, together with the anticipated proceeds from the Tower disposal, results in the Exchange holding significant cash balances. The Board is therefore recommending a special dividend to return surplus cash of approximately £162 million to shareholders whilst maintaining the financial flexibility to continue to pursue opportunities for growth."
Clara Furse, Chief Executive of the Exchange, said: "Whilst market conditions in Information Services remained challenging, performance in our Broker Services' division was good and our Issuer Services business grew in the second half of the year. We also made progress in diversifying and growing our business through the introduction of new services, such as SETSmm and SEDOL Masterfile and the launch of our equity derivatives business EDX London.
"The Exchange is pursuing all opportunities to expand its business by leveraging its flexible trading model, leading technology through its Technology Roadmap programme and strong relationships with a broadening customer base. With our good ongoing cash flow enabling us to continue investment in new initiatives, the Exchange is well positioned for the future."
Financial results
Financial performance for the year ended 31 March 2004 has been satisfactory against a backdrop of variable market conditions. Turnover increased six per cent to £250.4 million (2003: £237.3 million), with a nine per cent increase in the second half of the year over the first half. Administrative expenses excluding exceptional items increased eight per cent to £155.5 million (2003: £144.3 million) due to the inclusion of EDX London from 30 June 2003 and relocation to our new headquarters at Paternoster Square.
Operating profit increased 17 per cent to £81.6 million (2003: £70.0 million), last year's profit having been impacted by an exceptional property charge. Operating profit before exceptional items and goodwill amortisation rose two per cent to £83.2 million (2003: £81.7 million). Profit before tax was £89.1 million (2003: £79.5 million).
Earnings per share increased 20 per cent to 21.7 pence per share (2003: 18.1 pence per share). Adjusted earnings per share excluding exceptional items and goodwill amortisation increased two per cent to 21.3 pence per share (2003: 20.9 pence per share).
For the year, operating cash flows before exceptional items were £105.4 million (2003: £74.8 million). At £227.9 million, cash balances at 31 March 2004 were £16.9 million higher than last year (2003: £211.0 million). This increase in cash balances was achieved after capital expenditure of £54.2 million, including significant one-off spend for the fit out of new offices at Paternoster Square.
The number of shares in issue at the year end was 297 million. During the year the Exchange made no purchases of its own shares under the authority obtained at the AGM in July 2003. The Exchange will seek renewal of this authority at the forthcoming Annual General Meeting (AGM) on 14 July 2004.
Issuer Services
Turnover from Issuer Services increased seven per cent to £38.5 million (2003: £36.0 million), contributing 15 per cent of total turnover for the year (2003: 15 per cent). The uplift reflects increases in both admission and annual fee income.
The number of companies on our markets at 31 March 2004 was 2,693 (2003: 2,777), with annual fee income, the revenue the Exchange receives from companies on its markets, accounting for 56 per cent of Issuer Services' turnover (2003: 59 per cent).
Equity new issue activity on the Exchange's markets over the year was mixed, with AIM showing particularly strong growth. In total, new issues rose to 236 (2003: 202) as weak conditions in the first half of the year were offset by a stronger overall performance in the second half, due to high levels of activity in December and March. The growth in new issues was attributable to a 25 per cent increase in AIM new issues to 193 whilst main market activity fell 10 per cent to 43 new issues. The amount of new capital raised on the Exchange's markets during the year rose 17 per cent to a total of £21.0 billion (2003: £17.9 billion). The Exchange performed strongly compared to European competitors, accounting for 85 per cent of the IPOs in Western Europe (2003: 69 per cent).
AIM, our international market for smaller, growing companies, enjoyed a successful year. At 31 March 2004, 792 companies were traded on AIM, an increase of 12 per cent (2003: 705). During the year the fast track route to AIM was introduced, which allows companies from designated markets to take advantage of a streamlined admission process. Eight companies, from countries including Canada, Australia and Germany have used this service since launch in May 2003.
Broker Services
Broker Services' turnover increased eight per cent to £94.1 million (2003: £87.3 million), generating 38 per cent of total turnover (2003: 37 per cent). This good performance is mainly attributable to the continued growth in the number of bargains transacted on SETS, our electronic order book, which accounted for approximately 64 per cent of Broker Services' revenue for the year (2003: 55 per cent).
For the year ended 31 March 2004, the total number of equity bargains increased nine per cent to 59.3 million (2003: 54.3 million), a daily average of 234,000 (2003: 215,000). During the same period, the number of SETS bargains grew 26 per cent to a total of 34.7 million (2003: 27.5 million), representing a daily average of 137,000 bargains (2003: 109,000). The daily average number of UK off book bargains rose 12 per cent to 57,000 (2003: 51,000).
Partly offsetting the benefit of increased numbers of SETS bargains were i) a continued decline in the average value of a SETS bargain, down 12 per cent to £22,000 (2003: £25,000) and ii) a 27 per cent reduction in the number of international bargains reported to the Exchange, to 40,000 per day (2003: 55,000).
During the year, two new initiatives were launched:
- Iceberg Orders - introduced in September, this service enables large orders to be put through SETS in a more efficient manner, maintaining time priority and reducing market impact; and
- SETSmm - introduced in November, this is a new order book for trading mid-cap securities. This extension to SETS is a hybrid market supported by continuous liquidity provision from market makers. An extra 221 securities are now capable of being traded electronically, resulting in an increase of over 30 per cent in the value of shares traded and a reduction in spreads of nearly 40 per cent. In the last quarter of the year, volumes on SETSmm averaged 11,000 bargains per day.
During the year we also announced EUROSETS, the trading service for liquid Dutch securities, due for launch on 24 May 2004. This service offers the efficiency and reliability of the UK SETS platform and has been set up to use the existing post trade clearing and settlement infrastructure for the Dutch market. Development of network connections and IT requirements is complete and we are encouraged by the level of interest expressed by customers in this market.
Information Services
Information Services' turnover fell one per cent to £101.0 million (2003: £102.2 million), accounting for 40 per cent of total turnover (2003: 43 per cent).
The decline in revenue mainly reflects the continued fall in terminals receiving real-time Exchange data, particularly the reduction in higher-yield professional users. At 31 March 2004, there were 90,000 terminals taking Exchange data (2003: 94,000), of which approximately 80,000 terminals (2003: 88,000) were attributable to professional users. This area of the Exchange's business is "late cycle" compared to some of our other activities which are quicker to benefit from recovery in equity markets.
Proquote, the Exchange's low cost financial markets software and real-time price data company made good progress. The number of installed Proquote screens at year end exceeded 1,800, almost doubling that at acquisition in February 2003 and achieved against a backdrop of falling overall terminal demand. The product offering has been enhanced over the year, with expanded news and data services and improved functionality.
RNS performed well in its second year of commercial operations, contributing £7.2 million to turnover (2003: £6.8 million). With over 90 companies in the FTSE 100 using RNS to release regulatory announcements, RNS remains the market leader in the UK regulatory news distribution market.
FTSE, the joint venture indices business, increased turnover by 17 per cent to £13.3 million (2003: £11.4 million). This growth reflects continued strong demand for existing indices and associated market data and the launch of new indices.
SEDOL Masterfile, the extension to the Exchange's previous securities identifier, was launched in March 2004. This service aims to reduce the cost of failed cross-border trades arising from incorrect instrument identification. Market response has been positive, with reference data user groups recognising SEDOL Masterfile as meeting all criteria for global securities identification. Nearly 800 contracts have been signed for use of this new service.
The Corporate Data Warehouse, the first phase of the Exchange's Technology Roadmap - a programme to fundamentally update its technology systems and operations - was completed in May 2003. The remaining phases, including a new information system for distribution of real time trading data and the enhancement of the Sequence trading platform, are due to be completed by December 2006. The Technology Roadmap will provide a flexible and scalable platform that will increase current capacity, enable new products to be developed more cost effectively and reduce overall profit and loss technology costs by a target of 20 per cent in financial year 2007/08. It will be implemented without major disruption for customers.
Derivatives Services
Derivatives Services, our new business division, contributed £6.1 million to turnover, representing three per cent of total revenue.
The principal part of this division is EDX London, our 76 per cent owned equity derivatives business, which commenced trading on 30 June 2003. For the first nine months of operation, turnover was £5.9 million, with operating costs of £7.1 million including spend on the development of new over the counter (OTC) services. Migration of the central counterparty to LCH.Clearnet was successfully carried out in February, and in March the preparations for a clearing service for vanilla OTC equity derivatives were completed, with further services to follow. Overall, the business has made good progress, with 13.7 million contracts traded.
Trading in the Covered Warrants market has grown over the year following improving underlying market conditions and growing investor awareness.
Tower Disposal
In April 2004, the Exchange announced that it had reached agreement to dispose of the Tower site for total consideration of £67.0 million. Payment will comprise an initial instalment of £33.8 million payable on completion, expected in July 2004, and a deferred payment of £33.2 million on 31 December 2005. The relocation to new Headquarters at Paternoster Square is on schedule to be completed in June 2004 and 32,000 square feet of around 80,000 square feet of surplus space in the new offices is now contracted or under offer to sub-tenants.
Final dividend
The Directors propose a final dividend of 3.4 pence per share to those shareholders on the register on 23 July 2004, for payment on 16 August 2004. Combined with the interim dividend of 1.4 pence per share paid in January 2004, this takes the total dividend for the year to 4.8 pence per share (2003: 4.3 pence per share), an increase of 12 per cent. Going forward, the Board remains committed to a progressive dividend policy.
Special dividend and share consolidation
Continuing strong cashflows and the anticipated receipt of proceeds from the disposal of the Tower results in the Exchange holding significant cash balances. Accordingly, the Board believes that it is appropriate to return surplus cash of approximately £162 million to shareholders. The Board remains committed to maintaining the Exchange's financial flexibility to pursue opportunities for further growth.
The Board proposes to carry out the return by way of a special dividend of 55 pence per share, payable to shareholders on the register on 23 July 2004, for payment on 16 August 2004. The return will be accompanied by a consolidation of the current shares in issue on the basis of six new shares for every seven existing shares. The special dividend and share consolidation is conditional on shareholder approval at the AGM on 14 July 2004.
Current trading and prospects
Trading conditions in the first few weeks of the new financial year reflect the trends seen at the end of last year. Notably:
- AIM new issue activity remains strong and the level of main market new issues remains broadly in-line with the preceding month, although it may be too soon to determine a strong trend. Additionally, Issuer Services' revenue will be impacted by lower tariffs, effective from 1 April 2004;
- trading volumes on SETS have remained strong, though slightly down on levels seen in Q4; and
- the rate of decline of professional terminals continues to show signs of slowing.
Further information
The Exchange will host a presentation of its Preliminary Results for members of the press today at 09.30am at 10 Paternoster Square, London EC4M 7LS. For further information, please call the Exchange's Press Office at 020 7797 1222.
The Exchange will also host a presentation of its Preliminary Results for analysts and institutional shareholders today at 11.00am 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.
Click here to view the financial statements.
