Final Results
London Stock Exchange Plc
23 May 2002
23 May 2002
LONDON STOCK EXCHANGE plc
ANNOUNCEMENT OF PRELIMINARY FINANCIAL RESULTS
FOR THE YEAR ENDED 31 MARCH 2002
Highlights:
• Turnover up 11 per cent to £215.6 million
• Operating profit from continuing operations and before exceptional
items up 22 per cent to £70.5 million
• Adjusted earnings per share up 20 per cent to 18.3 pence
• Final dividend 2.5 pence per share bringing the total dividend for the
year to 3.6 pence per share, up 13 per cent
Commenting on the results, Don Cruickshank, Chairman of the Exchange, said:
"Last year, our Bicentenary, was an important one for the Exchange. We became a
publicly listed company, gaining the commercial and financial flexibility to
continue to build our business. Our primary objective remains to maximise
shareholder value and we believe today's strong financial results support this.
We continue to view the Exchange's future with confidence."
Clara Furse, Chief Executive, said:
"Our strong financial performance is testament to the strength of our
competitive position, the breadth of our product range, and the quality of the
services we provide to our customers. Despite difficult market conditions, we
have delivered turnover growth of 11 per cent, significantly improved our profit
margins and increased our cash flows, all of which have strengthened our
financial position.
"During the year, we have implemented a series of important initiatives. These
include a £12 million upgrade to our electronic order book SETS, the development
of Extranex, our new global internet protocol network, and, since the year-end,
the commencement of the operation of RNS on a commercial basis. We are well
placed to explore further opportunities for growing our business and believe the
Exchange's first year since listing has been important in establishing a solid
platform for the future."
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
Financial results
Financial performance for the year ended 31 March 2002 has been strong.
Turnover increased 11 per cent to £215.6 million (2001: £193.4 million) and
administrative expenses were £136.1 million (2001: £129.7 million), up 5 per
cent, reflecting good cost management.
Operating margins rose to 34 per cent (2001: 31 per cent), resulting in an
increase of 22 per cent in operating profit from continuing operations before
exceptional items to £70.5 million (2001: £57.9 million).
Profit before tax was £75.2 million (2001: £30.4 million). Adjusted earnings
per share were up 20 per cent to 18.3 pence (2001: 15.2 pence) and earnings per
share increased to 17.1 pence (2001: 5.1 pence).
For the year, operating cash flows before exceptional items were £82.4 million,
up 11 per cent on the previous year (2001: £74.5 million).
Broker Services
Turnover from Broker Services increased 26 per cent to £81.2 million (2001:
£64.2 million).
The growth in Broker Services reflected an increase in the overall level of
trading activity on the Exchange's markets and in particular, the rapid growth
in the number of bargains transacted through the electronic order book, SETS.
For the year ended 31 March 2002, the total number of equity bargains increased
25 per cent to 50.1 million (2001: 40.2 million), a daily average of 200,000
(2001: 160,000). Over the same period, the daily average number of equity
bargains transacted on SETS grew by 86 per cent to 69,000 (2001: 37,000), a
total of 17.4 million (2001: 9.4 million). The exceptional growth in SETS
bargains was driven partly by the introduction of the Central Counterparty (CCP)
in February 2001, which delivered post-trade anonymity. SETS contributed
approximately 50 per cent of Broker Services' income for the year.
Broker Services implemented a number of other new business initiatives during
the year, including the introduction of the International Order Book, which
offers investors an open and flexible trading platform for developing market
depositary receipts, and the International Retail Service, which provides UK
retail investors with easy access to trading in international securities.
In addition, in December 2001, the Exchange completed a £12 million upgrade to
SETS, resulting in a trebling of its trading capacity.
The Exchange's technology agreement, entered into with the JSE in April 2001 for
the provision of core technology services, went live in May 2002. The principal
aim of the agreement is to achieve easier access to each other's markets for
both member firms and issuers.
The Exchange continues to develop a number of other projects including:
• a Retail Service Provider Gateway (RSP Gateway) aimed at lowering costs
of retail execution across the industry, the RSP Gateway is intended to
provide a single connection point for retail brokers to access the
widest possible number of execution options. Plans to launch the RSP
Gateway are substantially complete;
• the CREST network allows brokers to access both the Exchange and CREST
using a single electronic link and could reduce settlement
communications costs for trading customers by as much as 40-50 per
cent;
• a joint agreement with Euroclear and London Clearing House (LCH) to
develop straight through settlement in Euroclear for Exchange trades
cleared by LCH. This will increase choice and competition for
settlement services and should help reduce costs for cross-border
transactions; and
• the second stage of the CCP project, Central Counterparty Netting
working with CRESTCo and LCH, Central Counterparty Netting will allow
customers to net-off multiple transactions in a single security for
settlement purposes, thus reducing their marginal trading costs and
increasing operational efficiency.
Issuer Services
Issuer Services' turnover for the year decreased by 16 per cent from £31.9
million to £26.9 million.
Issuer Services' performance reflected the weaker conditions in the IPO market.
At 289, the number of new issues during the year was substantially lower than
the high levels recorded in the previous year of 467. Nevertheless, the
Exchange accounted for over 65 per cent of the IPOs in Western Europe during the
year, demonstrating the continued attractiveness of the Exchange's markets
(2001: 47 per cent).
In addition to revenues from new and further issues, the Exchange receives an
annual fee from each company traded on its markets, a revenue stream generally
more resilient to market conditions. At 31 March 2002, there were 2,879
companies on the Exchange's markets, only a modest decline on the prior year
(2001: 2,922). The number of companies on AIM, the Exchange's market for young
and growing companies, increased 17 per cent to 641 (2001: 550).
During the year, Issuer Services completed the national rollout of landMARK, the
Exchange's attribute market that highlights companies in each region of the UK
and Ireland, and techMARK mediscience, London's international market for
healthcare companies.
The Exchange also continued to promote its markets worldwide throughout the
year. The Exchange focused these efforts on countries with strong growth
potential such as Japan, with the result that several Japanese companies
recently joined its main market including UFJ Holdings and NTT DoCoMo.
Information Services
Information Services' turnover was up 9 per cent to £94.9 million from £87.0
million.
The performance of Information Services reflected resilience despite difficult
market conditions. At 31 March 2002, the total number of terminals receiving
Exchange data on a real-time basis was 105,000 (2001: 107,000), of which 96,000
terminals (2001: 96,000) were attributable to the professional user base. The
decline in overall terminal numbers reflected a reduction in the number of
lower-yield private investors' terminals (2002: 9,000; 2001: 11,000).
During the year, Information Services continued to develop its new communication
service, Extranex, which was launched in April 2002. Utilising state of the art
technology, this service will enable the Exchange to deliver new products and
services (such as the RSP Gateway) to customers.
In February, in preparation for a competitive market for regulatory news
dissemination in the UK, the Exchange launched a package of new Regulatory News
Service (RNS) products to enhance and expand services offered to customers. The
new services were designed to allow companies to deliver marketing messages
whilst targeting their most important audiences.
Last year, RNS published over 150,000 regulatory disclosure announcements to a
global audience of 250,000 investor terminals. Since commercialisation
commenced on 15 April 2002, RNS has enjoyed strong market share, reflecting the
quality and reliability of the service it provides.
Final dividend
The Directors have proposed a final dividend of 2.5 pence per share to those
shareholders on the register on 19 July 2002, for payment on 19 August 2002.
Combined with the interim dividend of 1.1 pence per share paid in January, this
takes the total dividend for the year to 3.6 pence per share (2001: 3.2 pence).
FRS 17
The Exchange continues to account for pension costs in accordance with SSAP 24,
Accounting for Pension Costs. The effect of the new accounting standard FRS 17
on Retirement Benefits is shown in Note 11.
Current trading and prospects
For the year ended 31 March 2002, the Exchange's overall business demonstrated
resilience in difficult market conditions. Since 31 March 2002, trading
conditions have been similar to those experienced during the second half of
financial year 2002:
• Broker Services continues to see stable trading volumes. The Exchange
should continue to benefit from the migration of trading to the order
book, albeit at a slower rate than in 2002;
• whilst difficult to predict whether the downturn in the IPO market has
bottomed out, the Exchange is well positioned to benefit from any
upturn; and
• the numbers of professional terminals receiving Exchange data have
remained relatively stable since 31 March 2002.
The Exchange does not foresee any immediate change to current levels of market
activity and expects modest revenue growth at the start of the year, increasing
in the second half of the year. The Directors continue to view the prospects of
the Exchange with confidence and believe it can build on its strong platform for
future growth.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 March 2002
2002 2001
Notes £m £m
Turnover
Group and share of joint venture - Continuing operations 215.6 193.4
- Discontinued operations - 1.2
Gross turnover 215.6 194.6
Less: share of joint venture's turnover - Continuing operations (9.0) (6.2)
Net turnover 1 206.6 188.4
Administrative expenses - Operating costs (136.1) (129.7)
- Exceptional items 2 (3.6) (18.9)
(139.7) (148.6)
Operating profit - Continuing operations - before exceptional items 70.5 57.9
- after exceptional items 66.9 39.0
- Discontinued operations - 0.8
66.9 39.8
Share of operating profit of joint venture and income from other fixed
asset investments 1.0 0.3
Net interest receivable/(payable) - before exceptional item 3 7.3 7.9
- exceptional item 3 - (17.6)
7.3 (9.7)
Profit on ordinary activities before taxation 75.2 30.4
Taxation on profit on ordinary activities 4 (25.3) (15.2)
Profit for the financial year 49.9 15.2
Dividends (10.6) (9.5)
Retained profit for the financial year 39.3 5.7
Earnings per share 5 17.1p 5.1p
Diluted earnings per share 5 17.0p 5.1p
Adjusted earnings per share 5 18.3p 15.2p
Dividend per share 3.6p 3.2p
There were no other recognised gains and losses during the years ended
31 March 2002 and 2001.
BALANCE SHEET
31 March 2002
Group
2002 2001
Notes £m £m
Fixed assets
Tangible assets 115.4 117.1
Investments
Investments in joint venture:
Share of gross assets 8.6 7.1
Share of gross liabilities (7.1) (4.8)
1.5 2.3
Other investments 6 12.1 10.1
13.6 12.4
129.0 129.5
Current assets
Debtors
Debtors - amounts falling due within one year 38.9 37.3
Deferred tax - amounts falling due after more than one year 7.9 10.7
46.8 48.0
Investments - term deposits 186.0 143.0
Cash at bank 3.9 4.9
236.7 195.9
Creditors - amounts falling due within one year 62.7 58.8
Net current assets 174.0 137.1
Total assets less current liabilities 303.0 266.6
Provisions for liabilities and charges 7 21.7 24.6
Net assets 281.3 242.0
Capital and reserves
Called up share capital 8 14.9 1.5
Reserves
Revaluation reserve 45.8 47.7
Profit and loss account 220.6 192.8
Total equity shareholders' funds 281.3 242.0
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 March 2002
2002 2001
Notes £m £m
Net cash inflow/(outflow) from:
- ongoing operating activities 10(i) 82.4 74.5
- exceptional items 10(i) (3.8) (22.4)
Net cash inflow from operating activities 78.6 52.1
Returns on investments and servicing of finance
Interest received 8.8 12.1
Interest paid - (4.1)
Premium on redemption of debenture - (17.6)
Dividends received 0.2 0.1
Net cash inflow/(outflow) from returns on investments and servicing of finance 9.0 (9.5)
Taxation
Corporation tax paid (15.8) (20.6)
Capital expenditure and financial investments
Payments to acquire tangible fixed assets (15.8) (22.7)
Payments to acquire own shares (5.0) (10.0)
Receipts from sales of fixed asset investments 0.7 -
Net cash outflow from capital expenditure and financial investments (20.1) (32.7)
Dividends paid (9.7) (3.0)
Net cash inflow/(outflow) before use of liquid resources and financing 42.0 (13.7)
Management of liquid resources
(Increase)/decrease in term deposits (43.0) 53.0
Financing
Redemption of mortgage debenture - (30.0)
Redemption of 'A' shares - (8.8)
(Decrease)/increase in cash in the year (1.0) 0.5
NOTES TO THE FINANCIAL STATEMENTS
1. Turnover
2002 2001
£m £m
Analysis of turnover:
Continuing operations
Issuer Services 26.9 31.9
Broker Services 81.2 64.2
Information Services 94.9 87.0*
Other income 12.6 10.3*
215.6 193.4
Discontinued operations
Competent authority - 1.2
Gross turnover 215.6 194.6
Less: share of joint venture's turnover (9.0) (6.2)
Net turnover 206.6 188.4
* The comparative figures for 2001 have been restated to include RNS turnover
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.
2. Exceptional items
2002 2001
£m £m
Fees in respect of the Company's Introduction to the Official List 3.6 -
Fees in respect of the proposed merger with Deutsche Borse AG and in defence of
the bid from OM Gruppen - 18.9
3.6 18.9
3. Net interest receivable/(payable)
2002 2001
£m £m
Interest receivable
Bank deposit and other interest 8.5 12.4
Interest payable
On bank and other loans repayable after five years - (2.8)
Interest on discounted provision for leasehold properties (1.2) (1.7)
Total (1.2) (4.5)
Net interest receivable - before exceptional item 7.3 7.9
Exceptional item
Premium on redemption of mortgage debenture - (17.6)
Net interest receivable/(payable) - after exceptional item 7.3 (9.7)
4. Taxation
2002 2001
£m £m
Current tax:
Corporation tax for the year at 30% (2001: 30%) 25.2 15.0
Adjustments in respect of previous periods (3.1) (1.4)
22.1 13.6
Deferred taxation 2.8 1.5
Joint venture 0.4 0.1
Taxation charge 25.3 15.2
The adjustments for previous years are 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 tax charge for the year
The current tax assessed for the year is higher than the standard rate of
corporation tax in the UK of 30% (2001: 30%).
The differences are explained below:
2002 2001
£m £m
Profit on ordinary activities before tax 75.2 30.4
Profit on ordinary activities multiplied by standard rate of corporation tax in
the UK of 30% 22.6 9.1
Expenses disallowed for the purpose of tax provision (primarily professional
fees and depreciation on expenditure not subject to capital allowances) 2.5 6.8
Accounting deduction (less)/greater than capital allowances - timing difference (0.5) 0.3
Movement in provisions 0.6 (1.2)
Adjustment to tax charge in respect of previous periods (3.1) (1.4)
Corporation tax charge 22.1 13.6
Factors that may affect future tax charges
The disposal of properties at their revalued amount would not give rise to a tax
liability.
5. 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 discontinued
operations and exceptional items to enable comparison of the underlying earnings
of the business with prior periods.
2002 2001
Adjusted earnings per share 18.3p 15.2p
Earnings per share 17.1p 5.1p
Diluted earnings per share 17.0p 5.1p
£m £m
Profit for the financial year 49.9 15.2
Adjustments:
Exceptional items 3.6 18.9
Exceptional interest costs - redemption of debenture - 17.6
Discontinued operations - (0.8)
Tax effect of exceptional items and discontinued operations - (5.9)
Adjusted profit for the financial year 53.5 45.0
2002 2001
Weighted average number of shares - million 291.8 295.7
Effect of dilutive share options and awards - million 2.1 0.3
Diluted weighted average number of shares - million 293.9 296.0
The weighted average number of shares excludes those held in the ESOP, reducing
the weighted average number of shares to 291.8 million (2001: 295.7 million).
For diluted earnings per share, the weighted average number of shares assumes
share options and share awards granted to employees either convert or vest. The
weighted average number of shares for 2001 has been adjusted for the 9 for 1
bonus issue of shares that was made on 20 July 2001.
6. Fixed asset investments
Other investments include £11.7m (2001: £9.7m) in respect of own shares.
Shares held in the Company are in a separately administered trust for the
purposes of the Company's Share Scheme. The difference between the purchase
price of the 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.
7. Provisions for liabilities and charges
Pensions Property Total
£m £m £m
1 April 2001 1.1 23.5 24.6
Utilised during the year (0.2) (2.4) (2.6)
Interest on discounted provision - 1.2 1.2
Surplus provision released to profit and loss account - (1.5) (1.5)
31 March 2002 0.9 20.8 21.7
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 lease rentals and dilapidation costs less the expected receipts from
sub-letting for those properties which are surplus to business requirements.
The leases have a maximum term of 12 years to expiry. The surplus provision
transferred to the profit and loss account mainly reflects the increase in
expected receipts from sub-letting and lower future costs.
8. Share capital
2002 2001
Authorised
Ordinary shares of 5p each - number 500,000,000 40,000,000
- £ 25,000,000 2,000,000
Issued, called up and fully paid
Ordinary shares of 5p each - number 297,000,000 29,700,000
- £ 14,850,000 1,485,000
At an Extraordinary General Meeting on 19 July 2001 shareholders approved the
adoption of new Articles of Association required to effect the Introduction to
the Official List and a 9 for 1 bonus issue, increasing the number of issued
shares to 297.0 million.
9. Reconciliation of movements in shareholders' funds
2002 2001
£m £m
Profit for the financial year 49.9 15.2
Dividend (10.6) (9.5)
Redemption of 'A' shares during the year - (8.8)
Net addition/(reduction) to shareholders' funds 39.3 (3.1)
Opening shareholders' funds 242.0 245.1
Closing shareholders' funds 281.3 242.0
10. Notes to the consolidated cash flow statement
2002 2001
£m £m
i) Reconciliation of operating profit to net cash inflow from operating
activities
Operating profit 66.9 39.8
Depreciation of tangible assets 17.5 19.9
Increase in debtors (0.7) (1.3)
Decrease in creditors (3.3) (3.2)
Provisions utilised during the year (2.6) (3.4)
Amortisation of own shares 0.8 0.3
Net cash inflow from operating activities 78.6 52.1
Comprising:
Ongoing operating activities 82.4 74.5
Exceptional items (see note 2) (3.8) (22.4)
Net cash inflow 78.6 52.1
At 1 April Cash At 31 March
2001 flows 2002
£m £m £m
ii) Analysis of changes in net funds
Cash in hand and at bank 4.9 (1.0) 3.9
Current asset investments 143.0 43.0 186.0
Total net funds 147.9 42.0 189.9
11. Pension costs
The Company operates one pension plan which includes separate defined benefit
and defined contribution schemes. Following a contribution holiday for the
defined benefit and defined contribution schemes, contributions recommenced
in March 2001. The pension charge for the year ended 31 March 2002 was £2.7m
(2001: £1.6m).
The Company continues to account for pension costs in accordance with
SSAP 24 - Accounting for Pension Costs. The following information is provided
under the transitional disclosure requirements of FRS 17 - Retirement Benefits.
The fair value of the assets and net position in the defined benefit scheme,
with the assumed expected rate of return at 31 March 2002 and 2001 were as
follows:
Long term Long term
31 March expected 31 March expected
2002 rate of return 2001 rate of return
Equities 40.8 7.75% 71.0 6.25%
Bonds 107.3 5.57% 80.0 5.25%
Total market value of net assets 148.1 151.0
Present value of liabilities 167.0 163.0
Deficit in the plan (18.9) (12.0)
Related deferred tax asset 5.7 3.6
Net pension liability (13.2) (8.4)
If the above amounts had been recognised in the financial statements, the
Group's net assets and profit and loss reserve at 31 March 2002 would have been
reduced by £12.6m (2001: £7.6m), being the deficit of the pension scheme
based on assumptions at that date of £13.2m less the existing pension provision
and related deferred tax asset.
12. Abridged accounts
These abridged accounts do not constitute, but have been extracted from, the
Company's statutory financial statements. The statutory financial statements,
which include an unqualified audit report, will be delivered to the Registrar of
Companies in due course.
This information is provided by RNS
The company news service from the London Stock Exchange
http://www.londonstockexchange.com/rns/mediastream/mediastream.asp?RNSNo=3046W
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