Preliminary results of London Stock Exchange Group plc
Announcement of preliminary results of London Stock Exchange Group plc for the year ended 31 March 2008
22 Mag 2008 - 08:07
In summary, the enlarged Group has delivered an excellent overall performance, reflecting strong organic growth and the merger with Borsa Italiana:
Revenue up 56 per cent to £546.4 million; and adjusted operating profit (before exceptional items and amortisation of purchased intangibles) up 56 per cent to £289.0 million
Operating profit including exceptional items and amortisation up 52 per cent to £265.2 million and basic earnings per share up 45 per cent to 73.1 pence
Adjusted basic earnings per share up 30 per cent to 73.1 pence
Cash generated from ongoing operating activities, and inclusion of Borsa Italiana for 6 months, up 42 per cent to £282.7 million
Total dividend for the year up 33 per cent to 24.0 pence per share
£139 million returned to shareholders through share buyback programmes
Financial highlights - Pro forma:
(As if Borsa Italiana had been acquired on 1 April 2006, with translation of prior year using the same average exchange rate as the year ended 31 March 2008)
Revenue increased 15 per cent to £666.8 million; pro forma adjusted operating profit up 27 per cent to £343.0 million
Adjusted basic earnings per share up 29 per cent to 72.9 pence
Commenting on the results, Chris Gibson-Smith, Chairman of the London Stock Exchange, said:
"This has been another year of considerable achievement from both a financial and strategic perspective. In financial terms, the Exchange performed strongly with adjusted basic earnings per share 30 per cent higher at 73.1 pence per share. In strategic terms the company has continued to invest in long term growth as well as successfully completing the merger with Borsa Italiana. In light of these excellent financial results and our confidence in the future, the Board intends to pay a total dividend for the year of 24 pence per share, an increase of 33 per cent."
Clara Furse, Chief Executive of the Exchange, said:
"The Exchange has delivered excellent results, with each division recording strong growth, despite more testing conditions towards the end of the year. In particular, Trading Services delivered an exceptional performance, following the successful launch of TradElect, the Exchange's new trading platform, as trading volumes increased by more than eighty per cent during the year.
"The merger with Borsa Italiana diversifies our business, with a number of new assets and products that will accelerate our international development. Our integration is on track and we expect to deliver at least the synergies as announced last year.
"In a dynamic market environment, we are confident of achieving further growth this year."
Operational highlights of the year (pro forma data):
Completion of merger with Borsa Italiana to create Europe's leading diversified exchange Group - good progress made on integration and expect to deliver approximately half of the £40 million synergies in the current financial year, with full run rate cost synergies by the start of next year
Successful launch of our new high capacity and low latency trading system, TradElect, helped to deliver an 82 per cent increase in average daily SETS bargains to 642,000 - with record levels of trading in the final quarter of the financial year - and a 39 per cent increase in average daily SETS value traded to £9.1bn
Cash equities trading in Italy up 20 per cent to an average 290,000 trades per day over the year, and migration to new TradElect platform planned for end of calendar 2008
Commenced development of exchange traded CFDs on a combined order book offering single point of access for both cash equities and CFDs; and further upgrades to trading system planned during coming year to enhance functionality and speed
Good overall primary market activity with a total of 411 new issues in London and Milan, and underlining London's pre-eminent position with 128 international companies joining our markets, with more international IPOs than the other major European and US exchanges combined
Number of new initiatives to develop international business, including announcement with Tokyo Stock Exchange of intention to create new market for growth companies; and opening of representative office in Beijing to extend international reach in this important region;
Total terminals taking LSE data up 22,000 to record 138,000, of which terminals attributable to professional users up 16,000 to 112,000; Professional users of Italian data up 13,000 to 160,000
Plans announced for post-trade router to reduce cost of clearing services and enable settlement netting, based on X-TRM router used in Borsa Italiana
Further information is available from:
London Stock Exchange
John Wallace - Media
020 7797 1222
Alessandro Pavesi - Media
+39 02 72426 211
Patrick Humphris - Media
020 7797 1222
Paul Froud - Investor Relations
020 7797 3322
020 7251 3801
London Stock Exchange Group plc ("the Exchange") today issued its Preliminary Results for the year ended 31 March 2008. The results reflect inclusion of Borsa Italiana S.p.A. from 1 October 2007, with comparative information for the prior year reflecting the Exchange only. In addition, to assist investors in understanding the performance of the enlarged Group, pro forma figures are presented for the full year and the prior comparative year as if Borsa Italiana had been acquired on 1 April 2006, with translation of prior year using the same average exchange rate as the year ended 31 March 2008 ("pro forma basis"). Details relating to the pro forma calculations are set out with tables at the end of this statement. All data relating to key drivers is provided on a pro forma basis for the full financial year and equivalent prior period unless otherwise stated.
The enlarged Group has produced an excellent financial performance, driven in particular by continued very strong growth in Trading Services but also reflecting strong contributions from all main business areas.
Revenue for the year ended 31 March 2008 increased to £546.4 million, up 56 per cent over the previous year (2007: £349.6 million) and up 15 per cent on a pro forma basis to £666.8 million (2007: pro forma £578.4 million).
Administrative expenses, excluding exceptional items and amortisation of purchased intangibles, were £257.4 million (2007: £164.0 million), and on a pro forma basis were £323.8 million (2007: pro forma £307.3 million). Exceptional costs of £2.3 million were incurred, related to integration activities associated with the merger with Borsa Italiana. In addition, amortisation of purchased intangibles, relating to the Italian business, amounted to £21.5 million for the six months from completion on 1 October 2007.
Adjusted operating profit (excluding exceptional items and amortisation of purchased intangibles) increased 56 per cent to £289.0 million (2007: £185.6 million) and on a pro forma basis up 27 per cent to £343.0 million (2007: pro forma £271.1 million). Including exceptional items and amortisation, operating profit increased 52 per cent to £265.2 million (2007: £174.2 million).
Net finance costs for the year were £32.7 million (2007: £14.6 million), reflecting an increase in borrowings following the merger with Borsa Italiana and continuation of a return of capital to shareholders through an ongoing share buyback programme.
Profit before taxation was £234.7 million (2007: £161.5 million). After tax and minority interests, profit attributable to equity holders for the year was £173.8 million (2007: £109.6 million).
The taxation charge of £56.2 million included an exceptional credit of £19.7 million reflecting the impact of the reduction in Italian tax rate on 1 January 2008 on deferred tax liabilities. Adjusting for exceptional items and amortisation of purchased intangibles, the tax rate of 31 per cent reflects an effective tax rate of 28 per cent for UK earnings and 39 per cent on Italian earnings, including the reduction in Italian tax on 1 January 2008. On a pro forma basis the tax rate is 35 per cent.
Adjusted basic earnings per share, before exceptional items and amortisation of purchased intangibles, rose 30 per cent to 73.1 pence per share (2007: 56.2 pence per share), and on a pro forma basis was up 29 per cent to 72.9 pence per share (2007: pro forma 56.6 pence). Basic earnings per share increased 45 per cent to 73.1 pence per share (2007: 50.5 pence per share).
The enlarged Group delivered good operating cash flows from ongoing operating activities, increasing 42 per cent to £282.7 million (2007: £198.6 million) reflecting strong operating performance and the inclusion of Borsa Italiana cash flows in the second half of the year.
For the six month period from 1 October 2007 to 31 March 2008, the acquired Borsa Italiana business contributed revenues of £133.2 million and operating profit of £57.5 million (excluding exceptional items and amortisation of purchased intangibles).
Reflecting the enlarged Group's excellent performance, the Board proposes a final dividend of 16.0 pence per share, to be paid to those shareholders on the register on 18 July 2008, for payment on 11 August 2008. Together with the interim dividend of 8.0 pence per share paid in January 2008, the total dividend for the year rises to 24.0 pence per share, an increase of one-third over the previous year (2007: 18.0 pence per share).
Capital return - share buyback programme
The Exchange returned £139 million to shareholders through on-market share re-purchases. In the first half of the year, the Exchange completed share buybacks amounting to £94 million, completing £154 million of the £250 million share buyback programme current at that time. Following the merger with Borsa Italiana on 1 October 2007, the remaining £96 million of the £250 million programme was rolled into a £500 million share buyback programme. By the end of March 2008 the Exchange had re-purchased 2.9 million shares for a total £45 million, and between then and 21 May 2008 has bought back an additional 1.2 million shares for £13 million.
The Group reports its revenues by business segments, these being Issuer Services, Trading Services, Information Services and Post Trade Services.
The Issuer Services' division comprises the primary market operations of London Stock Exchange and Borsa Italiana. Revenue for the combined Issuer Services' businesses increased 30 per cent to £82.4 million (2007: £63.2 million) and on a pro forma basis increased 6 per cent to £97.1 million (2007: £91.5 million).
Activity on the Exchange's primary markets reflected the uncertainty created by liquidity events in global credit markets. While the number of new issues remained strong during the first part of the year, activity levels reduced later, particularly in the final quarter.
In London there were a total of 378 new issues in the year (2007: 503), including 110 new issues on the Main Market, slightly up on the previous year (2007: 106). On AIM, the world's most successful market for smaller growth companies, new issues remained good at 262, though below the level in the prior year (2007: 395). In addition, there were a total of 3,824 further issues (2007: 3,817), including 494 on the Main Market (2007: 622), and 3,330 on AIM, an increase on last year (2007: 3,195). Total money raised on the London markets reached £38.1 billion (2007: £53.7 billion).
The Exchange enjoyed another strong year in terms of attracting international listings, with the total number of overseas companies joining the Main Market growing to 39 (2007: 35), and with 83 international companies joining AIM (2007:102). In addition, 6 overseas companies joined PSM, our market for debt, convertibles and depositary receipts for professional investors (2007: 2). Momentum has continued into the new year, in less than two months adding eight overseas companies on the Main Market, including first ever listings from Mexico and Czech Republic, and raising over USD4 billion. Two of the companies are primary listings and possible entrants in to the FTSE 100 Index.
Once again, the Exchange attracted a higher number of international IPOs than any other major global exchange, with 84 in London during the year - more than the other major European and US exchanges combined. In total, the number of companies on the UK markets at 31 March 2008 was 3,273 (2007: 3,245). Of these, 1,681 companies were quoted on AIM (2007: 1,637).
In Italy, new issue activity was good, with an increase in number of new equity issues in the year to 33 (2007: 25), together with significant growth in issues of ETFs at 134 and ETCs at 47 (2007: 62 ETFs and 0 ETCs). Across both London and Milan markets there are now 641 ETFs and ETCs. Bonds decreased slightly with 142 issued in the year (2007:145). The number of new securitised derivatives listed in the year remained strong overall, totalling 7,269, though reduced on the previous year (2007: 8,713). As at 31 March there were a total of 306 companies on Borsa Italiana's markets (2007: 288).
Including further issues and debt, pro forma total admission fee income for the enlarged Group increased to £34.3 million representing 35 per cent of Issuer Services' revenue (2007: pro forma £34.1 million; 37 per cent). Annual fee income, the revenue the Exchange receives from companies on its markets, rose 9 per cent on a pro forma basis to £40.7 million, contributing 42 per cent of Issuer Services' revenue (2007: pro forma £37.4 million; 41 per cent).
A number of new initiatives were announced during the year to further extend our international reach. In partnership with Tokyo Stock Exchange, the Exchange announced its intention to create in Japan a new market for growth companies. In China, the opening of a representative office in Beijing along with the Chief Executive's participation in the Shanghai International Financial Advisory Council, which first met on 8 May 2008, increases the Exchange's presence in this important region. During the year the Exchange also signed a cooperation agreement with Bahrain Stock Exchange and a Memorandum of Understanding with Ho Chi Minh Stock Exchange.
RNS, the Exchange's financial communications service performed well, with a 20 per cent increase in the number of company announcements during the year. Servizio Titoli, which provides company secretarial services to listed companies in Italy, also made good progress. These businesses, together with other training and consultancy services, contributed a pro forma £22.0 million to Issuer Services revenue (2007: pro forma £19.9 million).
The Trading Services division consists of the cash equities, derivatives and fixed income trading activities of the enlarged Group. This division delivered an excellent result with overall revenue increasing 53 per cent to £264.7 million (2007: £173.1 million), and on a pro forma basis increased 18 per cent to £310.0 million (2007: pro forma £261.9 million). This performance was principally driven by the very strong growth in trading on SETS, the Exchange's electronic equities order book.
The total number of SETS bargains increased 81 per cent to 161.0 million (2007: 89.0 million), with an 82 per cent increase in average daily bargains to 642,000 (2007: 353,000). Total value traded on SETS was up 39 per cent to £2,273 billion (2007: £1,638 billion), representing a daily average of £9.1 billion (2007: £6.5 billion). Trading was strong throughout the year, with notably high levels of activity during the summer due to market volatility at that time, and trading in the final quarter reached record levels with an average of 812,000 bargains per day, an increase of 84 per cent over the same quarter last year.
Very high volume growth during the year was facilitated by the introduction of TradElect, the Exchange's new trading platform, successfully launched in June 2007. This new system provides significantly increased capacity and improved latency, which enables customers to trade at much higher frequency and with greater certainty of execution. An upgrade took place in October to further improve performance and add new functionality, and other enhancements are planned over the next 12 months. The investment we have made in this new generation technology, together with the investment taking place by customers in new trading technologies and programmes continues to create a shift in the nature of order flow as new, higher velocity algorithmic/black box trading by hedge funds, intermediaries and specialist technical trading firms continue to grow strongly. SETS is also continuing to benefit from growth in derivatives-linked business, as trading on SETS provides a more immediate and efficient hedging mechanism for exposures originating in the UK over the counter market equity markets than alternative markets.
The average value of a SETS bargain reduced during the year to £14,000 (2007: £18,000) with an expected reduction in average yield per SETS bargain to £0.88 (2007: £1.32). Also contributing to the reduction in trading costs during the year was an increase in the level of volume discounts achieved by customers as their trading volumes have risen. Over 70 per cent of trades in the year qualified for discounts, with customers benefiting from new tariffs introduced during the period, including a SETS internaliser offering that significantly reduced costs for firms that match their own orders on the SETS order book.
Cash equities trading in Italy increased 19 per cent in the year, with 72.6 million trades in the period (2007: 61.2 million), and average daily trades rose 20 per cent to 290,000 (2007: 241,000). Value traded increased 23 per cent to €1,518 billion (2007: €1,235 billion), and on an average daily basis was up 25 per cent to €6.1 billion (2007: €4.9 billion). Trading in Italy also benefited from significant volatility associated with credit market events and heightened activity in financial markets at a number of points during the year, particularly in the summer. Growth in trading tailed off in the final two months, principally due to falls in the value of the MIB Index and lower levels of volatility. During the course of the new financial year we will migrate cash equities trading in Italy to TradElect, thereby increasing its potential to attract institutional and new, latency sensitive trading flows.
Other major projects are also in the pipeline. Over recent months we have been consulting with the market on establishing exchange traded CFDs. This is to be delivered in a combined order book, offering single point of access for both cash equities and CFDs. The service will bring many of the key attributes that the Exchange has delivered to the cash equities market, including straight through processing, netting and cross margining as well as greater transparency, removal of counterparty risks, improved market efficiencies, lower cost of trading and a deeper liquidity pool. The service is expected to go live in the first quarter of 2009.
Overall, equities order book trading, including order charges, contributed 67 per cent of Trading Services revenue on a pro forma basis (2007: pro forma 61 per cent).
The Exchange's Derivatives operations also performed well, with good growth on both the Italian and the EDX London derivatives businesses. Trading on the Italian derivatives market IDEM grew 12 per cent to 37.2 million contracts (2007: 33.2 million), and contracts traded on EDX London increased 55 per cent to 48.6 million (2007: 31.4 million), driven in part by the success of Russian derivatives, introduced at the end of 2006. On a pro forma basis, total income from Derivatives trading made up 8 per cent of the division's revenue (2007: pro forma 8 per cent).
On the fixed income markets, trading conditions were more challenging as a consequence of credit market liquidity events, particularly in the money markets since the summer. On MTS, the leading market in Europe for electronic trading of bonds, nominal value traded was broadly flat year on year at €20.3tn (2007: €20.2tn). MTS repo trading remained unchanged with nominal value traded of €17.4tn. On MOT, Borsa Italiana's Electronic Bond and Government Securities Market, value traded increased 21 per cent to €152 billion (2007: €126 billion). In total, pro forma revenue from fixed income represented 10 per cent of Trading Services turnover (2007: pro forma 13 per cent).
Information Services consists of the information products businesses in London and Milan. The division produced a very strong performance, with a 36 per cent increase in total revenue to £143.6 million (2007: £105.9 million), and on a pro forma basis increased 16 per cent to £161.9 million (2007: pro forma £139.8 million). Underpinning this growth was a rise in the number of users taking the Exchange's and Borsa Italiana's real-time market data, with very good increases in both professional and private terminals.
Total terminals taking London Stock Exchange data rose strongly to 138,000 (2007: 116,000), including 112,000 terminals attributable to professional users, up 16,000 on the previous year (2007: 96,000) and 5,000 since 31 December 2007 (107,000). Fuelling this increase was the growth in international terminals, with the number of users outside the UK increasing to 71,000 (2007: 60,000). Private terminal numbers also increased, to 26,000, a rise of 6,000 (2007: 20,000).
In Italy there was good growth in the number of professional users of the DDM service (which provides real time Italian market data) to 160,000 (2007: 147,000). Private individuals registering for information also increased, up 43,000 to 784,000 (2007: 741,000).
Proquote, the Exchange's provider of financial market software and data, continued to make good progress. The number of installed screens at year end increased to 4,200 (2007: 3,700), with a near doubling of higher value Proquote International screens. In Italy, the number of users of Market Connect (to whom real time information on non Italian markets is supplied) increased 67 per cent to 20,000 (2007: 12,000).
SEDOL, the securities numbering service that provides unique identification for securities on a global basis, produced a good performance with an increase in number of securities covered to more than 2.4 million (2007: 1.8 million).
Post Trade Services
Post Trade Services comprises the Italian-based clearing, settlement and custody businesses. Revenues for the six months since acquisition were £42.8 million, and on a pro forma basis for the full year were £82.0 million, an increase of 13 per cent (2007: pro forma £72.4 million).
The CC&G clearing business delivered a very strong performance with revenues of £20.1 million for the six months, and on a pro forma basis for the year were up 41 per cent to £37.4 million (2007: pro forma £26.6 million).
Clearing transaction volumes increased strongly as a result of increased trading volumes during the year, with the number of equity contracts up 19 per cent to 73.8 million (2007: 62.2 million) and derivative contracts up 12 per cent to 37.2 million (2007: 33.2 million). Open interest at the end of March 2008 was flat at 3.5 million contracts (2007: 3.5 million). The Clearing business also benefited from an increase in cash deposit handling fees resulting from higher levels of deposits and more favourable treasury conditions.
Settlement revenues for the Monte Titoli settlement business were £8.0 million for the six months, and a on a pro forma basis for the year were down 11 per cent to £15.1 million (2007: pro forma £17.1 million). The number of settlement instructions during the year decreased five per cent to 52.7 million (2007: 55.5 million) due to increased settlement netting and consolidation among bank customers, with a new flat fee pricing structure introduced at the start of the year.
Monte Titoli custody revenues for the six months were £14.6m, with a three per cent rise in revenues on a pro forma basis to £29.5 million (2007: 28.7 million). The average value of assets under custody increased 4 per cent to €2.8 trillion (2007: €2.7 trillion).
In January, the Exchange announced plans for a post-trade router, based on the X-TRM router used in Borsa Italiana, to reduce cost of clearing services and enable settlement netting. The Exchange continues to assess developments in the post trading landscape in determining further steps for our post trade services.
Integration with Borsa Italiana
Good progress has been made with integration of the two exchanges since the merger with Borsa Italiana was completed on 1 October 2007. A new management structure has been put in place and various integration workstreams are underway in the UK and Italy to deliver the synergy benefits.
The Exchange expects to deliver the targeted financial benefits set out when the merger was proposed. We expect cost synergies amounting to at least £20 million per annum by FY 2010, with over £10 million to be achieved in the current financial year; and revenue synergies totalling £20 million per annum are expected by FY 2011, with approaching half to be delivered this year. Total costs for achieving these synergies will be no more than £40 million, of which c£6 million was incurred in FY 2008 and the majority of the remaining £34 million is expected in the current financial year, including an estimated £20 million to be taken as capitalised expense and the remainder as an exceptional item.
In January 2008 we announced that Doug Webb, currently Chief Financial Officer at QinetiQ Group plc, has agreed to join the Exchange as its new Chief Financial Officer. He will commence this role and join the Group Board as an Executive Director on 2 June 2008. Doug will stand for election at the Group's forthcoming AGM on 9 July 2008.
Current trading and prospects
Although market conditions remain testing in certain areas, the Exchange has nevertheless made an encouraging start to the new financial year. Trading volumes continue to grow in the UK and the introduction of TradElect in Italy later this year should encourage a structural shift in trading in this market. Primary markets activity is still relatively subdued but there remains a flow of new and further issues, including good levels of international business in the first weeks of the year. Demand for real time data remains resilient.
A number of new entrants have announced that they will establish pan-European trading operations in the coming year. Through our continuous investment in technology, development of a range of new market services and a tariff schedule structured to incentivise growth, we believe the Exchange is well positioned . Together with the benefits from integration with Borsa Italiana, the Exchange is confident of delivering further growth in the year ahead.
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 team on 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 London Press Office on 020 7797 1222 or Milan office on +39 02 72 426 212
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