Final Results
London Stock Exchange Group PLC
25 May 2006
25 May 2006
LONDON STOCK EXCHANGE GROUP PLC
ANNOUNCEMENT OF PRELIMINARY RESULTS OF LONDON STOCK EXCHANGE PLC FOR THE YEAR
ENDED 31 MARCH 2006
London Stock Exchange Group plc (the 'Group') became the new holding company of
London Stock Exchange plc (the 'Exchange') with effect from 15 May 2006 as a
result of the scheme of arrangement approved by shareholders at the Court
Meeting and Extraordinary General Meeting held on 19 April 2006. Following the
scheme of arrangement, previous shareholders of the Exchange are now
shareholders of the Group. The results set out below relate to the Exchange for
the year ended 31 March 2006.
Financial highlights:
• Revenue before exceptional items up 19 per cent to £291.1 million
• Operating profit before exceptional items up 42 per cent to £120.1
million
• Adjusted basic earnings per share up 55 per cent to 37.4 pence
• Operating profit including exceptional items up one per cent to £85.4
million and basic earnings per share up 15 per cent to 27.8 pence
• Cash generated from ongoing operating activities up 45 per cent to £146
million
• Total dividend for the year of 12 pence per share, up 71 per cent
Operational highlights:
• Total new issues up 21 per cent to 622, including 409 IPOs representing
67 per cent of all Western European IPOs
• Total money raised by new and further issues increased 81 per cent to
£34.1 billion
• 31 per cent increase in average daily SETS bargains to 223,000,
reflecting accelerated growth in the fourth quarter with SETS average daily
bargains up 38 per cent
• 34 per cent increase in average daily SETS value traded to £4.7bn
• Total terminals up 9,000 to 104,000, of which terminals attributable to
professional users up 5,000 to 88,000
Capital return:
• £510m to be returned to shareholders on 26 May 2006 to increase balance
sheet efficiency and enhance shareholder returns
• Exchange is at forefront of good capital management in exchange sector
• Intention to implement ongoing share buyback programme of up to £50
million per annum
Commenting on the results, Chris Gibson-Smith, Chairman of the London Stock
Exchange, said:
'The growing strength of our business underpins the excellent financial
performance delivered by the Exchange this year - revenue increased 19 per cent
and adjusted earnings per share were up 55 per cent. The Board has increased the
total dividend for the year by 71 per cent to 12 pence per share, reflecting our
ongoing confidence in the Group's future growth prospects.
'We remain focussed on driving the business forward, while continuing to explore
options to create additional value for shareholders and customers.'
Clara Furse, Chief Executive of the Exchange, said:
'The Exchange has delivered an outstanding result for 2006, increasing value for
shareholders and customers. The internationalisation of our market and very
strong technology led and derivatives linked growth on SETS reflect our
increasing customer focus and efforts to build our growth story around our
customers' rapidly developing global businesses.
'We have made a very good start to the current financial year. We expect to
deliver another very strong performance in 2007 as the secular change in the
trading of UK equities continues. Our unique strategic position underpins the
step change in our growth prospects.'
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
Financial Results
The Exchange delivered an excellent financial outcome for 2006, benefiting from
strong performances in all core business areas.
Total revenue for the year ended 31 March 2006 increased 22 per cent to £297.5
million, including exceptional income of £6.4 million in respect of a settlement
reached with a customer in relation to reporting for information services.
Before exceptional items, revenue grew 19 per cent to £291.1 million (2005:
£244.4 million), reflecting strong performances by all core business areas.
Administrative expenses, excluding exceptional items, were up 7 per cent to
£171.0 million (2005: £159.8 million), mainly reflecting an increase in staff
costs. As forecast, second half costs were in line with the first half.
Exceptional costs of £41.1 million were incurred, comprising: the previously
announced £23.1 million charge in respect of EDX London, principally for the
impairment of goodwill; one-off implementation costs of £5.9 million associated
with achieving additional cost efficiencies; and £12.1 million for advisors'
fees in respect of potential offers for the Company.
Operating profit excluding exceptional revenues and costs increased 42 per cent
to £120.1 million (2005: £84.6 million) and one per cent to £85.4 million
including exceptional items (2005: £84.5 million).
After net finance income, share of profit after tax of FTSE and investment
income, profit before taxation of £93.5 million was one per cent above last year
(2005: £92.2 million). The taxation charge of £26.7 million is below the
standard tax rate due mainly to adjustments to the tax charge in respect of
previous years. After tax and minority interests, profit attributable to equity
holders for the year was £70.7 million (2005: £65.0 million).
Adjusted basic earnings per share, excluding exceptional items, rose 55 per cent
to 37.4 pence per share (2005: 24.2 pence per share). Basic earnings per share
increased 15 per cent to 27.8 pence per share (2005: 24.2 pence per share).
Capital return and ongoing buyback
During the period the Exchange announced a capital return of approximately £510
million. The return represents a significant step change towards a more
efficient capital structure and builds on the Exchange's track record of good
capital management. Recognising the strong cash generation of the business, the
Exchange also announced its intention to implement an ongoing share buyback
programme of up to £50 million per annum.
At a Court meeting and EGM on 19 April 2006, shareholders approved resolutions
relating to the return by way of a Scheme of Arrangement, under which
shareholders received 51 B shares and 43 new ordinary shares for every 51
existing ordinary shares. Dealings in the New Ordinary Shares and B Shares of
London Stock Exchange Group plc commenced on 15 May 2006. Payment to
shareholders will be made on 26 May 2006 to holders on the register at 5pm on 12
May 2006.
Dividend
As announced on 7 March 2006, the Directors resolved to pay a second interim
dividend in lieu of a final dividend of 8.0 pence per share, taking the full
year dividend to 12.0 pence per share, an increase of 71 per cent (2005: 7.0
pence). The second interim dividend will be paid on 26 May 2006 to those
shareholders on the register at 5pm on 12 May 2006. The balance of the dividend
for the year is being paid by way of a second interim dividend so that
entitlements could be determined prior to the consolidation accompanying the
capital return.
TRM
Capital expenditure was £25.6 million (2005: £33.0 million), including spend on
our Technology Roadmap (TRM). TRM, a four year programme to move the Exchange's
core systems to next generation technology, is progressing well. Infolect, the
new high speed information delivery system carrying real time market data to
customers, was successfully implemented in September 2005. Infolect is 15 times
faster than its predecessor, thereby providing customers with even greater
certainty of order execution. Its faster delivery is especially important for
automated trading applications and derivatives linked business where speed and
certainty of execution are paramount.
The final major phase of TRM is the introduction of a new trading platform in
2007. As well as providing much greater capacity and speed, TRM will offer
multi-asset class capability. In addition, it will give the Exchange a
significant cost advantage, with scale upgrades expected to cost a fraction of
the pre-TRM amount.
Revenue
Issuer Services
Issuer Services' revenue increased 31 per cent to £56.9 million (2005: £43.3
million) mainly reflecting increases in both the size and number of new issues.
Total money raised on the Exchange's markets increased 81 per cent to £34.1
billion (2005: £18.8 billion) with the average market capitalisation of a Main
Market IPO increasing 118 per cent to £285 million (2005: £131 million).
Total new issues on the Exchange's markets increased 21 per cent to 622 (2005:
514). Growth in Main Market new issues was strong, increasing 30 per cent to 107
(2005: 82). AIM, the world's most successful market for smaller, growing
companies, enjoyed another record year with 510 new issues (2005: 432). Once
again the Exchange listed the majority of IPOs in Western Europe, capturing a 67
per cent share. The total number of companies on our markets at 31 March 2006
was 3,141 (2005: 2,916). Of these, 1,473 companies were traded on AIM, an
increase of 31 per cent (2005: 1,127).
It was a record year for international listings on the Main Market and AIM,
which were up 71 per cent to 149 (2005: 87). These included a number of high
profile companies from key target regions, including Comstar, Russia's second
largest IPO ever, and Lotte Shopping, a major Korean retailer.
In July 2005, coinciding with the introduction of new Listing Rules by the FSA,
the Exchange established the Professional Securities Market ('PSM') for debt
securities and depository receipts. There were 5 new GDR issues on PSM during
the period.
Annual fee income, the revenue the Exchange receives from companies on its
markets rose 17 per cent to £20.3 million and contributed 36 per cent of Issuer
Services' turnover (2005: 40 per cent).
RNS performed very well during the year delivering a 23 per cent increase in
revenue to £9.2 million (2005: £7.5 million). RNS delivered 76 per cent of all
regulatory announcements during the year and continues to service 90 per cent of
FTSE 100 companies.
Broker Services
Broker Services performed strongly during the period, with revenue up 25 per
cent to £125.5 million (2005: £100.6 million), reflecting another year of
excellent performance on SETS, the electronic order book.
Growth on SETS accelerated during the year, reflecting a secular shift in
trading patterns, including the increased use of algorithmic trading, direct
market access and equity swaps. Higher levels of SETS activity also reflected
the increase in derivatives-based business originating in the UK over the
counter (OTC) market. New types of trading have been facilitated by the
Exchange's investment in a new technology platform, and pricing policy. 19 of
the 20 busiest ever trading days on SETS occurred since the introduction in
September of Infolect, the Exchange's new high speed information delivery
system, and a trading capacity upgrade in October.
Over the period, the total number of SETS bargains increased 33 per cent to 56.8
million (2005: 42.8 million), reflecting a 31 per cent increase in average daily
bargains to 223,000 (2005: 170,000). Total value traded on SETS was up 35 per
cent to £1,190 billion (2005: £881 billion), representing a daily average of
£4.7 billion (2005: £3.5 billion). Growth in SETS trading in the final quarter
strengthened markedly, with successive monthly records for both average daily
value and volume traded. In March, average daily SETS volume of 289,000 bargains
(2005: 207,000) was up 40 per cent on March 2005.
SETSmm, the Exchange's hybrid trading platform also continues to support SETS
growth, significantly improving liquidity and reducing spreads in the stocks
traded. Daily SETSmm bargains averaged 36,000, more than double the previous
year (2005: 16,000). In July 2005, 198 securities were added to SETSmm and in
December 2005 it was extended to include constituents of the AIM 50 Index and
the 100 Main Market small cap stocks not already traded on the service.
In the circular to shareholders dated 17 February 2006, the Exchange stated that
the average number of trades per day on SETS is expected to increase by at least
50 per cent in financial year 2007 and 100 per cent in financial year 2008,
relative to financial year 2005. The rate of growth in average SETS bargains per
day since 1 January 2006 - 47 per cent - is well ahead of the rate required to
meet these targets.
The average value of a SETS bargain for the year was steady at £21,000 (2005:
£21,000) and, at just over £1.50, average yield per SETS bargain was broadly in
line with last year. Overall, SETS trading (excluding order charges) contributed
69 per cent of Broker Services revenue (2005: 66 per cent).
Reflecting the strong performance by SETS, the total number of equity bargains
increased 31 per cent to 89.0 million (2005: 67.9 million), a daily average of
349,000 bargains (2005: 271,000). Total value traded increased 23 per cent to
£5.8 trillion (2005: £4.7 trillion).
The average number of off-book bargains decreased two per cent to 47,000 per day
(2005: 48,000) while the average daily number of international bargains
increased 52 per cent to 79,000 (2005: 52,000).
Information Services
Information Services continued to make good progress. Revenue for the year rose
nine per cent to £94.1 million (2005: £86.7 million), reflecting growth in the
number of terminals taking the Exchange's real-time market data, as well as the
increasing contribution of recent initiatives.
Total terminals increased nine per cent to 104,000 (2005: 95,000). Of this
number, 88,000 terminals were attributable to the professional user base, up
5,000 on the previous year (2005: 83,000) and 2,000 since 31 December 2005
(86,000). Proquote, the Exchange's provider of financial market software and
data, increased the number of installed screens at year end by 11 per cent to
3,000 (2005: 2,700), benefiting from the introduction of Proquote International.
SEDOL Masterfile, the securities numbering service that provides unique
identification for securities on a global basis, continues to perform very well.
At the end of the period, it had increased the number of licences signed to
1,100 (2005: 1,000) and the number of securities covered to more than 1.2
million (2005: 450,000).
Derivatives Services
Derivatives Services contributed £7.7 million to revenue (2005: £6.8 million) up
13 per cent. EDX London, the Exchange's 76 per cent owned equity derivatives
business, traded a total of 22.2 million contracts (2005: 18.3 million),
representing an average of 86,000 per day (2005: 73,000) up 18 per cent.
Current trading and prospects
Since 31 March 2006, trading conditions have remained very positive. The
accelerated growth on SETS seen in the fourth quarter of last financial year,
driven by structural changes in the patterns of trading facilitated by the
Exchange's investment in a new technology platform, has continued. Total equity
raised on our markets is ahead of the same period last year and demand for real
time data by professional users remains healthy.
Continued strong trading should keep us on track to deliver another very strong
financial performance in 2007.
As usual, following the release of its Preliminary Results, the Exchange will be
meeting with shareholders including Nasdaq Stock Market, Inc. In accordance with
rule 2.8 of the City Code Nasdaq is currently restricted from announcing an
offer or possible offer for the Exchange, except as set out in Nasdaq's
announcement of 30 March 2006.
Further information
The Group will 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 Group's Investor Relations department at 020 7797 3322.
The Group 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. For
further information, please call the Exchange's Press Office at 020 7797 1222.
CONSOLIDATED INCOME STATEMENT
Year ended 31 March 2006
2006 2005
Continuing operations Notes £m £m
__________________________________________________________________________________________________________________
Revenue 2
Ongoing revenue 291.1 244.4
Exceptional revenue 3 6.4 -
__________________________________________________________________________________________________________________
Total 297.5 244.4
Expenses
______________________
Operating expenses before exceptional items (171.0) (159.8)
Exceptional expenses 3 (41.1) (6.8)
______________________
Total (212.1) (166.6)
Profit on disposal of Stock Exchange Tower 3 - 6.7
__________________________________________________________________________________________________________________
Operating profit 85.4 84.5
__________________________________________________________________________________________________________________
Analysed as:
______________________
Operating profit before exceptional items 120.1 84.6
Exceptional items 3 (34.7) (0.1)
______________________
__________________________________________________________________________________________________________________
Operating profit 85.4 84.5
______________________
Finance income 20.2 19.2
Finance costs (13.6) (12.7)
______________________
Net finance income 4 6.6 6.5
Share of profit after tax of joint venture 1.2 1.1
Investment income 0.3 0.1
__________________________________________________________________________________________________________________
Profit before taxation 93.5 92.2
Taxation 5 (26.7) (27.7)
__________________________________________________________________________________________________________________
Profit for the financial year 66.8 64.5
__________________________________________________________________________________________________________________
Loss attributable to minority interest (3.9) (0.5)
Profit attributable to equity holders 70.7 65.0
__________________________________________________________________________________________________________________
66.8 64.5
__________________________________________________________________________________________________________________
Basic earnings per share 6 27.8p 24.2p
Diluted earnings per share 6 27.4p 23.9p
Dividend per share in respect of the financial year
(excluding special dividend) 7
Dividend per share paid during the year 9.0p 5.4p
Dividend per share declared for the year 12.0p 7.0p
__________________________________________________________________________________________________________________
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE
Year ended 31 March 2006
2006 2005
£m £m
__________________________________________________________________________________________________________________
Profit for the financial year 66.8 64.5
Defined benefit pension scheme actuarial loss, net of tax (2.8) (1.8)
Tax allowance on share options/awards in excess of expense recognised 2.6 -
__________________________________________________________________________________________________________________
Total recognised income and expense for the financial year 66.6 62.7
__________________________________________________________________________________________________________________
Attributable to minority interest (3.9) (0.5)
Attributable to equity holders 70.5 63.2
__________________________________________________________________________________________________________________
66.6 62.7
__________________________________________________________________________________________________________________
CONSOLIDATED BALANCE SHEET
31 March 2006 2006 2005
Notes £m £m
__________________________________________________________________________________________________________________
Assets
Non-current assets
Property, plant and equipment 8 64.1 71.7
Intangible assets 9 51.6 65.0
Available for sale investments 0.4 0.4
Investment in joint venture 1.7 2.2
Deferred tax assets 19.8 14.8
__________________________________________________________________________________________________________________
137.6 154.1
__________________________________________________________________________________________________________________
Current assets
Trade and other receivables 10 49.3 81.9
Cash and cash equivalents 226.8 124.4
__________________________________________________________________________________________________________________
276.1 206.3
__________________________________________________________________________________________________________________
Total assets 413.7 360.4
__________________________________________________________________________________________________________________
Liabilities
Current liabilities
Trade and other payables 11 51.1 49.1
Current tax 11.9 13.0
Borrowings 0.6 2.8
Provisions 12 15.1 11.9
__________________________________________________________________________________________________________________
78.7 76.8
__________________________________________________________________________________________________________________
Non-current liabilities
Borrowings 0.5 0.5
Retirement benefit obligations 13 20.3 18.7
Provisions 12 25.4 28.1
__________________________________________________________________________________________________________________
46.2 47.3
__________________________________________________________________________________________________________________
Total liabilities 124.9 124.1
__________________________________________________________________________________________________________________
Net assets 288.8 236.3
__________________________________________________________________________________________________________________
Equity
Capital and reserves attributable to the Company's equity holders
Ordinary share capital 14 14.9 14.9
Share premium 14 4.3 -
Retained earnings 14 268.0 220.3
__________________________________________________________________________________________________________________
287.2 235.2
Minority interest in equity 1.6 1.1
__________________________________________________________________________________________________________________
Total equity 288.8 236.3
__________________________________________________________________________________________________________________
CONSOLIDATED CASH FLOW STATEMENT
Notes
Year ended 31 March 2006 2006 2005
£m £m
__________________________________________________________________________________________________________________
Cash flow from operating activities
Cash generated from operations 15 140.6 95.4
Interest received 7.4 8.1
Interest paid (1.5) (0.2)
Corporation tax paid (29.0) (24.3)
__________________________________________________________________________________________________________________
Net cash inflow from operating activities 117.5 79.0
__________________________________________________________________________________________________________________
Cash flow from investing activities
Purchase of property, plant and equipment (5.3) (22.3)
Purchase of intangible assets (20.5) (18.5)
Receipts from disposal of Stock Exchange Tower 33.2 32.3
Further consideration for acquisition of subsidiary undertaking (6.2) -
Dividends received from joint venture 1.7 1.3
Dividends received from financial assets 0.3 0.1
__________________________________________________________________________________________________________________
Net cash inflow/(outflow) from investing activities 3.2 (7.1)
__________________________________________________________________________________________________________________
Cash flow from financing activities
Dividends paid (22.8) (177.6)
Issue of ordinary share capital 4.3 -
Issue of ordinary share capital to minority interest 1.6 0.2
Loans received from minority shareholder 0.6 0.3
Redemption of loan notes - (1.5)
Purchase of own shares by ESOP trust (4.7) (2.5)
Proceeds from own shares on exercise of employee share options 2.7 5.7
__________________________________________________________________________________________________________________
Net cash outflow from financing activities (18.3) (175.4)
__________________________________________________________________________________________________________________
Increase/(decrease) in cash and cash equivalents 102.4 (103.5)
Cash and cash equivalents at beginning of year 124.4 227.9
__________________________________________________________________________________________________________________
Cash and cash equivalents at end of year 226.8 124.4
__________________________________________________________________________________________________________________
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
Up until 31 March 2005, London Stock Exchange plc ('the Group') prepared its financial statements under UK Generally
Accepted Accounting Principles ('UK GAAP'). From 1 April 2005 the Group consolidated financial statements are
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 impact of the transition from UK GAAP to IFRS on the Group's total equity at 1 April 2004 (date of transition to
IFRS) and 31 March 2005 is set out in note 17. In addition, a reconciliation is provided between profit for the
financial year ended 31 March 2005 under UK GAAP and IFRS. The comparative data disclosed in these financial
statements has been restated on an IFRS basis.
The financial statements are prepared under the historical cost convention and on the basis of the principal
accounting policies set out below. The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries, all having co-terminous accounting periods, with all inter-company balances and
transactions eliminated.
ACCOUNTING POLICIES
REVENUE
Revenue represents the total amount receivable for the provision of goods and services, excluding value added tax.
Revenue is recognised in the period when the service or supply is provided:
a) annual fees are recognised over the 12 month period to which the fee relates;
b) admission fees are recognised at the time of admission to trading; and
c) data, transaction and Exchange charges are recognised in the month in which the data is provided or the
transaction is effected.
EXCEPTIONAL ITEMS
Items of income and expense that are material by size and/or nature and are non-recurring are classified as
exceptional items on the face of the income statement within their relevant category. The separate reporting of these
items helps give an indication of the Group's underlying performance.
FOREIGN CURRENCIES
The consolidated financial statements are presented in sterling, which is the Group's presentation and functional
currency.
Transactions in foreign currencies and currency balances at the year end are converted at the rate ruling at the
transaction date or the year end date respectively, with any gains or losses recognised in the income statement.
INTANGIBLE ASSETS
a) Goodwill arising on the acquisition of subsidiaries represents the excess of consideration paid over the
identifiable fair value of net assets acquired. Goodwill is tested annually for impairment and is carried at
cost less accumulated impairment losses.
b) Third party software costs for the development and implementation of systems which enhance the services provided
by the Group are capitalised and amortised over their estimated useful lives, which is an average of three years.
PROPERTY, PLANT AND EQUIPMENT
a) Freehold properties, including related fixed plant, are included in the financial statements at cost less
accumulated depreciation and any provision for impairment. Freehold buildings and related fixed plant are
depreciated to residual value, based on cost at the beginning of the year plus subsequent additions, over their
estimated economic lives. The estimated useful lives of properties are approximately 50 years, the estimated
useful lives of fixed plant range from five to 20 years.
b) Leasehold properties and improvements are included at cost and depreciated to residual value over the shorter of
the period of the lease or the economic life of the asset.
c) Plant and equipment is stated at cost and is depreciated to residual value on a straight line basis over the
estimated useful lives of the assets, which are mainly in the range from three to five years.
d) The Group selects its depreciation rates based on expected economic lives, taking into account the expected rate
of technological developments, market requirements and expected use of the assets. The selected rates are
regularly reviewed to ensure they remain appropriate to the Group's circumstances. Residual values and economic
lives are reviewed at each balance sheet.
JOINT VENTURES
Investments in joint ventures are accounted for under the equity method and are initially recognised at cost. The
Group's share of profits or losses after tax from joint ventures is included in the consolidated income statement.
Cumulative post-acquisition movements are adjusted against the carrying amount of the investment in the Group's
balance sheet.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprises cash at bank and term deposits that are readily convertible to known amounts of
cash and are subject to insignificant risk of changes in value.
FINANCIAL INSTRUMENTS
a) Investments (other than fixed deposits and interests in joint ventures and subsidiaries) are designated as
available for sale and are recorded on trade date at fair value with changes in fair value recognised in equity.
Where the fair value is not reliably measurable, the investment is held at cost.
b) Foreign currency derivatives are recorded at fair value. The method of recording gains or losses depends on
whether the derivative is designated as a hedging instrument, and if so, the nature of the item hedged. Where
they meet the relevant criteria in IAS 39, Financial instruments: recognition and measurement, the Group
designates foreign currency derivatives as cash flow hedges with the movement in fair value recognised in
equity. Amounts recognised in equity are transferred to the income statement when the hedged item is recognised
in the income statement.
c) The Company's own shares held by the ESOP trust are deducted from equity until they vest unconditionally in
employees.
d) Consideration paid in respect of Treasury shares is deducted from equity until the shares are cancelled,
reissued or disposed of.
PROVISIONS
A provision is recognised where there is a present obligation, whether legal or constructive, as a result of a past
event for which it is probable that a transfer of economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation.
OPERATING LEASES
Rental costs for operating leases are charged to the income statement on a straight line basis. Lease incentives are
spread over the term of the lease. Provision is made in the accounts for lease commitments less income from
sub-letting, for property space which is surplus to business requirements. Such provisions are discounted where the
time value of money is considered material.
PENSION COSTS
The Group operates defined benefit and defined contribution pension schemes. For the defined benefit scheme the
service cost, representing benefits accruing to employees, is included as an operating expense and the expected
return on scheme assets and interest cost from unwinding of the discount on scheme obligations are included as finance
income and finance costs respectively. Actuarial gains and losses arising from experience adjustments, changes in
actuarial assumptions or differences between actual and expected returns on assets are recognised at each period end
net of tax in the statement of recognised income and expense. The net asset or liability recognised on the balance
sheet comprises the difference between the present value of pension obligations and the fair value of scheme assets.
For defined contribution schemes, the expense is charged to the income statement as incurred.
DEFERRED TAXATION
Full provision is made, using the liability method, for temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the financial statements. Deferred taxation is determined using tax
rates that are substantially enacted at the balance sheet date and are expected to apply when the asset is realised or
liability settled.
Deferred tax assets are recognised to the extent it is probable that they will be recoverable against future
taxable profits.
SHARE BASED COMPENSATION
The Group operates a number of equity settled share based compensation plans for employees. The charge to the income
statement is determined by the fair value of the options granted or shares awarded at the date of grant and recognised
over the relevant vesting period.
IFRS 1 TRANSITIONAL ARRANGEMENTS
The following exemptions have been applied to the financial statements:
a) Business combinations
The Group has chosen not to restate business combinations prior to the transition date, 1 April 2004;
b) Fair value or revaluation at deemed cost
The Group has chosen to restate freehold properties, other than the Stock Exchange Tower which has since been
sold, to fair value as deemed cost at the transition date;
c) Employee benefits
The Group has chosen to recognise all cumulative pension scheme actuarial gains and losses in equity at the
transition date; and
d) Share based payments
The Group has chosen to apply IFRS 2 Share-based payments to awards granted after 7 November 2002.
2. SEGMENT INFORMATION
Segmental disclosures for the year ended 31 March 2006 are as follows:
______________________________________________________________________________________________________________________
Issuer Broker Information Derivatives
Services Services Services Services Other Corporate Group
£m £m £m £m £m £m £m
______________________________________________________________________________________________________________________
Revenue
Ongoing revenue 56.9 125.5 94.1 7.7 6.9 - 291.1
Exceptional revenue (see note 3) - - 6.4 - - - 6.4
______________________________________________________________________________________________________________________
Total revenue 56.9 125.5 100.5 7.7 6.9 - 297.5
______________________________________________________________________________________________________________________
Expenses
Depreciation and amortisation (2.6) (13.0) (9.2) (0.9) (0.2) (0.6) (26.5)
Exceptional costs (see note 3) - - - (23.2) - (17.9) (41.1)
Other expenses (30.4) (43.0) (45.8) (10.4) (6.5) (8.4) (144.5)
______________________________________________________________________________________________________________________
Total expenses (33.0) (56.0) (55.0) (34.5) (6.7) (26.9) (212.1)
______________________________________________________________________________________________________________________
Operating profit 23.9 69.5 45.5 (26.8) 0.2 (26.9) 85.4
Share of profit after tax of joint venture - - 1.2 - - - 1.2
______________________________________________________________________________________________________________________
Assets 19.0 75.2 59.4 1.3 4.5 252.6 412.0
Investment in joint venture - - 1.7 - - - 1.7
______________________________________________________________________________________________________________________
Total assets 19.0 75.2 61.1 1.3 4.5 252.6 413.7
______________________________________________________________________________________________________________________
Liabilities (11.2) (13.9) (14.7) (5.8) (33.9) (45.4) (124.9)
Capital expenditure 1.1 20.0 3.5 0.1 0.8 0.1 25.6
______________________________________________________________________________________________________________________
Comparative segmental disclosures for the year ended 31 March 2005 are as follows:
Issuer Broker Information Derivatives
Services Services Services Services Other Corporate Group
£m £m £m £m £m £m £m
______________________________________________________________________________________________________________________
Revenue 43.3 100.6 86.7 6.8 7.0 - 244.4
______________________________________________________________________________________________________________________
Expenses
Depreciation and amortisation (2.8) (13.6) (10.7) (0.7) (0.4) (0.5) (28.7)
Exceptional costs (see note 3) - - - - - (6.8) (6.8)
Other expenses (26.9) (36.6) (43.5) (10.8) (5.5) (7.8) (131.1)
______________________________________________________________________________________________________________________
Total expenses (29.7) (50.2) (54.2) (11.5) (5.9) (15.1) (166.6)
______________________________________________________________________________________________________________________
Profit on disposal of Stock
Exchange Tower - - - - - 6.7 6.7
Operating profit 13.6 50.4 32.5 (4.7) 1.1 (8.4) 84.5
Share of profit after tax of joint venture - - 1.1 - - - 1.1
______________________________________________________________________________________________________________________
Assets 21.5 57.8 71.0 21.3 6.3 180.3 358.2
Investment in joint venture - - 2.2 - - - 2.2
______________________________________________________________________________________________________________________
Total assets 21.5 57.8 73.2 21.3 6.3 180.3 360.4
______________________________________________________________________________________________________________________
Liabilities (9.2) (12.5) (15.0) (8.9) (37.4) (41.1) (124.1)
Capital expenditure 3.2 15.6 12.3 0.8 0.5 0.6 33.0
______________________________________________________________________________________________________________________
The Other segment represents property letting and activities not directly related to the main four business segments.
Corporate expenses are for corporate services which cannot reasonably be allocated to business segments.
Principal operations and customers of the Group are in the United Kingdom.
3. EXCEPTIONAL ITEMS
2006 2005
£m £m
__________________________________________________________________________________________________________________
Exceptional Information Services revenue (1) 6.4 -
Fees in respect of potential offers for the Company (12.1) (6.8)
Impairment of goodwill and provision in respect of EDX London Ltd (see notes 9 and 12) (23.1) -
Restructuring costs (2) (5.9) -
Profit on disposal of Stock Exchange Tower (3) - 6.7
__________________________________________________________________________________________________________________
Total exceptional items (34.7) (0.1)
__________________________________________________________________________________________________________________
1 Terminals permissioned to access Exchange real-time data are reported by users and data charge invoices are based
on these reports. The Exchange reviews these returns and, following one such review, an under-declaration by one
user of data accesses has been identified. A one-off revenue settlement in respect of prior periods of £6.4m has
been agreed and paid by the user concerned. There is no material adjustment to the level of ongoing data charges.
2 Restructuring costs of £5.9m are the one-off implementation costs arising from the cost saving programme
announced in February 2006.
3 The profit on disposal of Stock Exchange Tower of £6.7m in 2005 was based on proceeds of £64.2m less book value
and disposal costs of £57.5m. No taxation was payable on the disposal as indexed base cost for tax purposes
exceeded disposal proceeds; accordingly, a nil effect on the Company's tax provision has been assumed.
4. NET FINANCE INCOME
2006 2005
£m £m
__________________________________________________________________________________________________________________
Finance income
Bank deposit and other interest 9.4 9.0
Expected return on defined benefit pension scheme assets (see note 13) 10.8 10.2
__________________________________________________________________________________________________________________
20.2 19.2
__________________________________________________________________________________________________________________
Finance cost
Interest on discounted provision for leasehold properties (1.6) (1.7)
Defined benefit pension scheme interest cost (see note 13) (11.2) (10.7)
Interest payable on other loans (0.8) (0.3)
__________________________________________________________________________________________________________________
(13.6) (12.7)
__________________________________________________________________________________________________________________
Net finance income 6.6 6.5
__________________________________________________________________________________________________________________
5. TAXATION
2006 2005
Taxation charged to the income statement £m £m
__________________________________________________________________________________________________________________
Current tax:
Corporation tax for the year at 30% (2005:30%) 30.4 25.1
Adjustments in respect of previous years (2.5) -
__________________________________________________________________________________________________________________
27.9 25.1
Deferred tax:
Deferred tax for the current year (2.0) 2.6
Adjustments in respect of previous years 0.8 -
__________________________________________________________________________________________________________________
Taxation charge 26.7 27.7
__________________________________________________________________________________________________________________
The adjustments in respect of previous years' corporation tax are mainly in respect of tax returns agreed with
HM Revenue & Customs.
2006 2005
Taxation on items included in equity £m £m
__________________________________________________________________________________________________________________
Deferred tax credit:
Defined benefit pension scheme actuarial loss (1.2) (0.8)
Tax allowance on share options/awards in excess of expense recognised (2.6) -
__________________________________________________________________________________________________________________
Factors affecting the tax charge for the year
The reconciling items between the standard rate of corporation tax in the UK of 30% (2005:30%) and the income
statement tax charge for the year are explained below:
2006 2005
£m £m
__________________________________________________________________________________________________________________
Profit before taxation 93.5 92.2
__________________________________________________________________________________________________________________
Profits multiplied by standard rate of corporation tax in the UK of 30% 28.1 27.7
Expenses not deductible/income not taxable 0.7 0.3
Share of joint venture consolidated at profit after tax (0.4) (0.3)
Adjustments in respect of previous years (1.7) -
__________________________________________________________________________________________________________________
Taxation charge 26.7 27.7
__________________________________________________________________________________________________________________
Factors that may affect future tax charges
The disposal of properties at their deemed cost amount would not give rise to a tax liability.
6. EARNINGS PER SHARE
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 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.
2006 2005
__________________________________________________________________________________________________________________
Basic earnings per share 27.8p 24.2p
Diluted earnings per share 27.4p 23.9p
Adjusted basic earnings per share 37.4p 24.2p
£m £m
__________________________________________________________________________________________________________________
Profit for the financial year attributable to equity holders 70.7 65.0
Adjustments:
Exceptional items 34.7 0.1
Tax effect of exceptional items (6.5) -
Exceptional items and taxation attributable to minority interest (3.7) -
__________________________________________________________________________________________________________________
Adjusted profit for the financial year attributable to equity holders 95.2 65.1
__________________________________________________________________________________________________________________
Weighted average number of shares - million 254.3 269.0
Effect of dilutive share options and awards - million 4.1 2.9
__________________________________________________________________________________________________________________
Diluted weighted average number of shares - million 258.4 271.9
__________________________________________________________________________________________________________________
The weighted average number of shares excludes those held in the ESOP, reducing the weighted average number of shares
to 254.3 million (2005: 269.0 million).
7. DIVIDENDS
2006 2005
£m £m
__________________________________________________________________________________________________________________
Final dividend paid August 2005:5.0p (2004: 3.4p) per Ordinary share 12.6 10.0
Interim dividend paid January 2006: 4.0p (2005: 2.0p) per Ordinary share 10.2 5.1
Special interim dividend paid August 2004: 55p per Ordinary share - 162.5
__________________________________________________________________________________________________________________
22.8 177.6
__________________________________________________________________________________________________________________
The Board has declared a second interim dividend in respect of the year ended 31 March 2006 of 8.0p per share,
amounting to £20.5m, in lieu of a final dividend for the year to be paid on 26 May 2006.
8. PROPERTY, PLANT & EQUIPMENT
Total
£m
__________________________________________________________________________________________________________________
Cost or deemed cost:
1 April 2004 241.9
Additions 16.0
Disposals (106.8)
__________________________________________________________________________________________________________________
31 March 2005 151.1
Additions 5.8
Disposals (44.3)
__________________________________________________________________________________________________________________
31 March 2006 112.6
__________________________________________________________________________________________________________________
Depreciation:
1 April 2004 117.7
Charge for the year 12.5
Disposals (50.8)
__________________________________________________________________________________________________________________
31 March 2005 79.4
Charge for the year 12.0
Impairment loss 0.3
Disposals (43.2)
__________________________________________________________________________________________________________________
31 March 2006 48.5
__________________________________________________________________________________________________________________
Net book values:
__________________________________________________________________________________________________________________
31 March 2006 64.1
__________________________________________________________________________________________________________________
31 March 2005 71.7
__________________________________________________________________________________________________________________
9. INTANGIBLE ASSETS
Goodwill Software Total
£m £m £m
__________________________________________________________________________________________________________________
Cost:
1 April 2004 26.0 69.3 95.3
Additions - 17.0 17.0
Recognition of contingent consideration (see note 12) 5.2 - 5.2
Disposals - (6.1) (6.1)
__________________________________________________________________________________________________________________
31 March 2005 31.2 80.2 111.4
Additions - 19.8 19.8
Revised estimate of contingent consideration (see note 12) 1.0 - 1.0
Disposals - (4.9) (4.9)
__________________________________________________________________________________________________________________
31 March 2006 32.2 95.1 127.3
__________________________________________________________________________________________________________________
Amortisation and accumulated impairment:
1 April 2004 1.7 34.6 36.3
Charge for the year - 16.2 16.2
Disposals - (6.1) (6.1)
__________________________________________________________________________________________________________________
31 March 2005 1.7 44.7 46.4
Charge for the year - 14.5 14.5
Impairment loss 19.4 0.3 19.7
Disposals - (4.9) (4.9)
__________________________________________________________________________________________________________________
31 March 2006 21.1 54.6 75.7
__________________________________________________________________________________________________________________
Net book values:
__________________________________________________________________________________________________________________
31 March 2006 11.1 40.5 51.6
__________________________________________________________________________________________________________________
31 March 2005 29.5 35.5 65.0
__________________________________________________________________________________________________________________
Goodwill is allocated by segment as follows:
2006 2005
£m £m
__________________________________________________________________________________________________________________
Information Services 11.1 11.1
Derivatives Services - 18.4
__________________________________________________________________________________________________________________
11.1 29.5
__________________________________________________________________________________________________________________
An impairment review of goodwill and other assets has been carried out in accordance with IAS 36 Impairment
of assets.
As part of that review, the future business plan for EDX London Ltd was considered, taking account of (i) developments
to date in EDX London Ltd business; (ii) management's assessment of current market requirements and future
developments; and (iii) management's view that the new over-the-counter clearing service does not justify further
investment. The business plan covered the next five years with a growth rate of 2.25 per cent beyond that and cash
flows discounted using a pre-tax discount rate of 13 per cent.
The carrying value of goodwill and intangible assets in respect of EDX London Ltd was not supported by the estimated
net present value of future cash flows and, accordingly, an exceptional impairment loss of £19.7m has been recognised.
An exceptional impairment loss of £0.3m was also identified in respect of plant and equipment (see note 8).
The carrying value of goodwill and other assets in respect of Proquote was supported by the estimated net present
value of future cash flows in the business plan over the next five years, with a growth rate of 2.25 per cent beyond
that and cash flows discounted using a pre-tax discount rate of 13 per cent.
10. TRADE AND OTHER RECEIVABLES
2006 2005
£m £m
__________________________________________________________________________________________________________________
Trade receivables 20.2 17.6
Less: provision for impairment of receivables (0.2) (0.4)
__________________________________________________________________________________________________________________
Trade receivables - net 20.0 17.2
Deferred consideration on disposal of Stock Exchange Tower - 31.8
Other receivables 0.2 5.5
Prepayments and accrued income 29.1 27.4
__________________________________________________________________________________________________________________
49.3 81.9
__________________________________________________________________________________________________________________
11. TRADE AND OTHER PAYABLES
2006 2005
£m £m
__________________________________________________________________________________________________________________
Trade payables 2.0 4.3
Social security and other taxes 1.9 1.3
Other payables 2.1 2.8
Accruals and deferred income 45.1 40.7
__________________________________________________________________________________________________________________
51.1 49.1
__________________________________________________________________________________________________________________
12. PROVISIONS
Contingent
Property consideration Other Total
£m £m £m £m
__________________________________________________________________________________________________________________
1 April 2005 34.8 5.2 - 40.0
Revised estimate of contingent consideration - 1.0 - 1.0
Exceptional charges during the year - - 9.0 9.0
Utilised during the year (4.8) (6.2) (0.1) (11.1)
Interest on discounted provision 1.6 - - 1.6
__________________________________________________________________________________________________________________
31 March 2006 31.6 - 8.9 40.5
__________________________________________________________________________________________________________________
Non-current 25.4 - - 25.4
Current 6.2 - 8.9 15.1
__________________________________________________________________________________________________________________
31.6 - 8.9 40.5
__________________________________________________________________________________________________________________
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 space which is surplus to business requirements. The leases have
between eight and 22 years to expiry.
Contingent consideration
Contingent consideration relates to the equity derivatives business acquired from OM London Exchange and the final
consideration of £6.2m was paid in February 2006.
Other
Other provisions relate to the one-off implementation costs arising from the cost saving programme announced in
February 2006, and onerous operating contracts in respect of EDX London Ltd (see note 3).
13. RETIREMENT BENEFIT OBLIGATIONS
The Group operates separate defined benefit and defined contribution schemes. The assets of the defined benefit and
defined contribution schemes are held separately from those of the Group and the funds are primarily managed by
Schroder Investment Management Limited and Legal & General Investment Management Limited respectively.
Defined benefit scheme
The defined benefit scheme is non-contributory and provides benefits based on final pensionable pay. Pension scheme
obligations and costs are determined by an independent qualified actuary on a regular basis using the projected unit
credit method. The last full actuarial valuation of the scheme was carried out at 31 March 2003 by an independent
qualified actuary.
Defined contribution schemes
The Group's defined contribution schemes are now the only schemes open to new employees. A core contribution of eight
per cent of pensionable pay is provided and the Group will match employee contributions up to a maximum of six per
cent of pensionable pay.
AMOUNTS RECOGNISED IN PROFIT OR LOSS 2006 2005
£m £m
__________________________________________________________________________________________________________________
Defined contribution schemes (2.7) (2.3)
Defined benefit scheme - current service cost (1.4) (1.5)
__________________________________________________________________________________________________________________
Total pension charge included in employee benefit expense (4.1) (3.8)
__________________________________________________________________________________________________________________
Finance income and costs
Interest cost, being the expected increase in the present value of scheme obligations (11.2) (10.7)
Expected return on assets in the scheme 10.8 10.2
__________________________________________________________________________________________________________________
Net finance cost (0.4) (0.5)
__________________________________________________________________________________________________________________
Total recognised in profit or loss (4.5) (4.3)
__________________________________________________________________________________________________________________
DEFINED BENEFIT ASSETS AND OBLIGATIONS
Funded obligations and assets are set out below: 2006 2005 2004
£m £m £m
__________________________________________________________________________________________________________________
Fair value of assets:
Equities 69.4 52.2 46.9
Bonds 153.3 139.1 130.7
__________________________________________________________________________________________________________________
Total fair value of assets 222.7 191.3 177.6
Present value of funded obligations (243.0) (210.0) (196.0)
__________________________________________________________________________________________________________________
Balance sheet liability (20.3) (18.7) (18.4)
__________________________________________________________________________________________________________________
MOVEMENT IN DEFINED BENEFIT OBLIGATION DURING THE YEAR 2006 2005
£m £m
__________________________________________________________________________________________________________________
1 April 2005 210.0 196.0
Current service cost 1.4 1.5
Interest cost 11.2 10.7
Benefits paid (5.4) (4.9)
Actuarial loss 25.8 6.7
__________________________________________________________________________________________________________________
31 March 2006 243.0 210.0
__________________________________________________________________________________________________________________
MOVEMENT IN FAIR VALUE OF PLAN ASSETS DURING THE YEAR 2006 2005
£m £m
__________________________________________________________________________________________________________________
1 April 2005 191.3 177.6
Expected return on assets 10.8 10.2
Contributions paid 4.2 4.3
Benefits paid (5.4) (4.9)
Actuarial gain 21.8 4.1
__________________________________________________________________________________________________________________
31 March 2006 222.7 191.3
__________________________________________________________________________________________________________________
14. STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Group
Ordinary share Share Retained Minority Total
capital premium earnings interest equity
Notes £m £m £m £m £m
______________________________________________________________________________________________________________________
1 April 2004 14.9 - 329.7 1.0 345.6
Total recognised income and expense for the
financial year - - 63.2 (0.5) 62.7
Final dividend relating to the year ended 31
March 2004 7 - - (10.0) - (10.0)
Special interim dividend paid August 2004 7 - - (162.5) - (162.5)
Interim dividend relating to the year ended
31 March 2005 7 - - (5.1) - (5.1)
Employee share schemes and own shares - - 5.0 - 5.0
Issue of share capital in subsidiary undertaking - - - 0.6 0.6
______________________________________________________________________________________________________________________
31 March 2005 14.9 - 220.3 1.1 236.3
Total recognised income and expense for the
financial year - - 70.5 (3.9) 66.6
Final dividend relating to the year ended 31
March 2005 7 - - (12.6) - (12.6)
Interim dividend relating to the year ended 31
March 2006 7 - - (10.2) - (10.2)
Issue of new shares (1) - 4.3 - - 4.3
Issue of share capital in subsidiary undertaking (2) - - - 4.4 4.4
______________________________________________________________________________________________________________________
31 March 2006 14.9 4.3 268.0 1.6 288.8
______________________________________________________________________________________________________________________
1 1.7 million ordinary shares were issued in January - March 2006, to satisfy exercise of options and vesting of
share awards under the Company's employee share schemes, creating share premium of £4.3m.
2 Issue of share capital in subsidiary undertaking to minority interest includes £2.8m of converted loans, giving
net cash impact of £1.6m.
15. CASH GENERATED FROM OPERATIONS
2006 2005
£m £m
__________________________________________________________________________________________________________________
Profit before taxation 93.5 92.2
Depreciation and amortisation 26.5 28.7
Impairment loss and provision for EDX London Ltd 23.1 -
Provision for restructuring costs 5.9 -
Profit on disposal of Stock Exchange Tower - (6.7)
Net finance income (6.6) (6.5)
Investment income (0.3) (0.1)
Share of profit after tax of joint venture (1.2) (1.1)
Decrease/(increase) in trade and other receivables 2.0 (8.2)
Increase in trade and other payables 3.4 3.4
Defined benefit pension obligation - contributions in excess of expenses charged (2.8) (2.8)
Provisions utilised during the year (4.9) (5.3)
Share scheme expense 2.0 1.8
__________________________________________________________________________________________________________________
Cash generated from operations 140.6 95.4
__________________________________________________________________________________________________________________
Comprising:
Ongoing operating activities 145.9 100.9
Exceptional items (see note 3) (5.3) (5.5)
__________________________________________________________________________________________________________________
140.6 95.4
__________________________________________________________________________________________________________________
16. POST BALANCE SHEET EVENT
In May 2006 London Stock Exchange Group plc (Exchange Group) became the holding company of the Company pursuant to a
scheme of arrangement. Under the scheme Exchange Group issued new ordinary shares and B shares to the Company's
shareholders. Shortly after the scheme, the nominal value of Exchange Group's new ordinary shares was reduced and the
merger reserve created by the scheme was capitalised and subsequently cancelled, creating sufficient distributable
reserves of London Stock Exchange Group plc to enable the return of approximately £510 million to shareholders. The
B shares were issued as the mechanism to facilitate the capital return. Payments to holders of B shares who had not
elected to defer payment of their entitlements will be made on 26 May 2006. The capital return has been funded by a
combination of existing cash reserves and new loan facilities to Exchange Group of £450 million, of which £350
million has been drawn down.
17. TRANSITION DISCLOSURES
Set out below are reconciliations between UK GAAP and IFRS for total equity at 1 April 2004 (date of transition to
IFRS) and 31 March 2005. In addition, a reconciliation is provided between profit attributable to equity holders under
UK GAAP and IFRS for the year ended 31 March 2005.
More detailed reconciliations of the comparative balance sheets and income statements were published in the IFRS
restatement on 21 July 2005, and will be provided in Note 33 of the Annual Report & Accounts for the year-ended
31 March 2006.
1 April 31 March
2004 2005
Reconciliation of total equity Notes £m £m
__________________________________________________________________________________________________________________
Total equity - UK GAAP 365.7 251.6
Employee benefits (a) (22.9) (23.2)
Freehold properties (b) (6.6) (5.2)
Leases (c) (0.8) (1.7)
Goodwill (d) - 1.7
Share based payments (e) 0.2 0.5
Dividends (f) 10.0 12.6
__________________________________________________________________________________________________________________
Total equity - IFRS 345.6 236.3
__________________________________________________________________________________________________________________
Year ended
31 March
2005
Reconciliation of profit attributable to equity holders Notes £m
__________________________________________________________________________________________________________________
Profit attributable to equity holders - UK GAAP 62.2
Employee benefits (a) 1.5
Freehold properties (b) 1.4
Leases (c) (0.9)
Goodwill (d) 1.5
Share based payments (e) (0.7)
__________________________________________________________________________________________________________________
Profit attributable to equity holders - IFRS 65.0
__________________________________________________________________________________________________________________
Explanation of reconciling differences between UK GAAP and IFRS
(a) IAS 19 Employee benefits
The Group has elected to recognise the defined benefit pension scheme deficit in full in the Group balance sheet at
transition date (1 April 2004). The charge to the income statement is the current period's service charge and a
financing charge for unwinding the discount applied to obligations and the expected return on pension scheme assets.
The impact on the income statement is to increase operating profit for the year ended 31 March 2005 by £2.7m and
reduce net finance income for the year ended 31 March 2005 by £0.5m. After the associated tax there is an increase
in profit attributable to equity holders for the year ended 31 March 2005 of £1.5m.
The impact on the balance sheet is to reduce total equity at 31 March 2005 by £23.2m (1 April 2004: £22.9m).
(b) IAS 16 Freehold properties
Under the transitional arrangements set out in IFRS 1 the Group has elected to restate freehold properties other than
the Stock Exchange Tower to their fair value at the date of transition, resulting in a reduction in the balance sheet
carrying amount. This lower carrying amount, together with the requirement to update residual values to reflect
current prices, has the effect of reducing depreciation compared with UK GAAP.
The impact on the income statement is to reduce the depreciation charge in respect of remaining freehold properties
for the year ended 31 March 2005 by £1.7m. In relation to the Stock Exchange Tower, there is a reduction in
depreciation charge and corresponding reduction to the profit on sale of the Tower for the year ended 31 March 2005
of £0.5m. After the associated tax there is an increase in profit attributable to equity holders for the year ended
31 March 2005 of £1.4m.
Total equity is £5.2m lower at 31 March 2005 (1 April 2004: £6.6m) as a result of the restated values of freehold
properties as at 1 April 2004, partly offset by the lower depreciation charge in the year ended 31 March 2005.
(c) IAS 17 Leases
All leases have been reviewed and remain as operating leases. Lease incentives under IFRS are spread over the term of
the lease, whereas under UK GAAP they were spread over the period to the first rent review. This results in an
increased charge to the income statement and consequent higher balance sheet accrual.
The impact on the income statement is to reduce operating profit for the year ended 31 March 2005 by £1.3m. After the
associated tax there is a reduction in profit attributable to equity holders for the year ended 31 March 2005 of £0.9m.
Total equity at 31 March 2005 is £1.7m lower (1 April 2004: £0.8m).
(d) IFRS 3 Goodwill
Under IFRS 3, goodwill is not amortised but is tested annually for impairment. On the balance sheet, under IFRS,
goodwill is held at the UK GAAP carrying amount at transition date less any subsequent impairments.
The effect is to increase operating profit for the year ended 31 March 2005 by £2.0m. After the associated tax and
minority interest, the increase in profit attributable to equity holders for the year ended 31 March 2005 is £1.5m.
The impact on the balance sheet is to increase total equity at 31 March 2005 by £1.7m (1 April 2004: nil).
(e) IFRS 2 Share based payments
Under IFRS 2, charges to the income statement are based on the fair value of the instrument granted determined using
an option pricing model. Under UK GAAP, the charge was based on the difference between the market price on the date of
grant and the exercise price. The balance sheet is adjusted to reflect the additional deferred tax arising from the
increased charge to the income statement.
This reduces operating profit for the year ended 31 March 2005 by £1.0m. After the associated tax there is a reduction
in profit attributable to equity holders for the year ended 31 March 2005 of £0.7m.
Recognition of deferred tax on the additional charge to the income statement results in an increase in total equity
at 31 March 2005 of £0.5m (1 April 2004: £0.2m).
(f) IAS 10 Dividends
Under IAS 10, dividends are recognised in the financial statements when declared rather than in the period to which
they relate. The impact on the balance sheet is to increase total equity by the amount of dividends declared after
31 March 2005 of £12.6m (1 April 2004: £10.0m).
Explanation of adjustments to the cash flow statement
Under UK GAAP the cash flow statement presented the movement in cash balances, analysed between nine categories of
cash flow. Under IFRS, the cash flow statement presents the movement in cash and cash equivalents, analysed between
operating, investing and financing activities. The principal consequences of these differences are that cash and cash
equivalents under IFRS includes term deposits which were included in management of liquid resources under UK GAAP,
and corporation tax paid, interest received and interest paid are classified within operating activities for
IFRS purposes.
As software developments are reported as intangible assets under IFRS, expenditure on these is separately reported
in the cash flow statement as purchase of intangible assets.
18. ABRIDGED ACCOUNTS
These abridged accounts do not constitute, but have been extracted from, the Group'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
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