London Stock Exchange Group announcement of results for the six months ended 30 September 2007
London Stock Exchange Group plc (the “Exchange”) today reports results for the six months ended 30 September 2007. The merger with Borsa Italiana was completed after the half year-end and consequently the interim results do not include contributions from this business.
· Revenue up 24 per cent to £203.1 million
· Operating profit up 41 per cent to £114.7 million
· Basic (and adjusted) EPS up 48 per cent to 35.7 pence
· Interim dividend per share up 33 per cent from 6.0 pence to 8.0 pence per share reflecting continued excellent results and confidence in future growth prospects for the enlarged group
· Broker Services delivered 77 per cent growth in SETS volumes to 555,000 bargains per day, facilitated by successful introduction of new technology platform – TradElect – during the period
· Issuer Services saw an 89 per cent increase in Main Market new issues to 72, including a near four-fold increase in international new issues
· Information Services increased the number of terminals receiving real-time market data by 17,000 to 126,000 year on year, including a 12,000 increase in number of professional users to 103,000
· London Stock Exchange and Borsa Italiana agreed merger - successfully completed early October, valuing the Milan exchange at £1.3billion
· The Exchange returned approximately £94 million to shareholders through a share buyback programme, and announced further return of £500 million
Commenting on the six months, Clara Furse, Chief Executive said:
“The Exchange has produced an excellent first half performance, with revenue up 24 per cent and earnings per share increasing by 48 per cent. This result reflects very strong performances in each division, particularly in Broker Services with the continued growth of trading on our SETS electronic order book, following the launch of our new TradElect trading platform in June.
“The quality of our technology, products, market model and regulatory integrity, plus our ability to provide best execution, means we are well placed to continue to compete successfully and meet the evolving needs of increasingly international market users. The integration of the Borsa Italiana business has started well, to create further opportunities and efficiencies for the market, and in so doing deliver increased value for shareholders.”
Chris Gibson-Smith, Chairman of the Exchange, said:
“This is another highly satisfactory result. Highlights of the half year include continued strong growth in each of our divisions; the successful introduction of TradElect, bringing with it faster and more efficient trading for the market; and completion of the merger with Borsa Italiana. Our very strong performance for the year so far and the contribution from Borsa Italiana in the second half supports our confidence in a good outcome for the full year.”
Further information is available from:
London Stock Exchange
John Wallace – Media
020 7797 1222
Patrick Humphris – Media
020 7797 1222
Paul Froud – Investor Relations
020 7797 3322
020 7251 3801
The Exchange has produced an excellent set of results for the first half. Set against a backdrop of heightened activity in financial markets associated with credit market liquidity events, Broker Services continues to be the principal driver of growth, with 31 per cent revenue growth in the period. The SETS electronic order book delivered volume growth of 77 per cent, achieving new record trading levels over the summer and exceeding one million trades per day for the first time, assisted by the introduction of our new trading platform, TradElect. Issuer Services enjoyed a good start to the year with strong growth in UK and international Main Market activity. The Information Services division also produced another strong performance, with an increase in the number of terminals receiving our real-time trading data.
We have made significant progress in realising our vision to be the world’s capital market. The increase in the number of overseas companies on our markets, the growth in trading and the demand for our market data on an increasingly international basis all demonstrate the success of our strategy. The merger with Borsa Italiana has now been successfully completed, and integration work has started well, to deliver strategic and commercial benefits. It enhances our unique strategic position and will accelerate the growth of the business.
Unless otherwise stated, all figures below refer to the six months ended 30 September 2007. Comparative figures are for the corresponding period last year. The merger with Borsa Italiana was completed after the half year-end and consequently the interim results do not include contributions from this business.
The Exchange produced an excellent performance in the first six months of the financial year, with revenue up 24 per cent to £203.1 million (2006: £163.3 million). Operating costs increased as expected, reflecting higher spend in a number of areas as the business grows, rising 8 per cent to £88.4 million (2006: £82.0 million). Operating profit for the period increased 41 per cent to £114.7 million (2006: £81.3 million).
Both basic and adjusted earnings per share were 35.7 pence, an increase of 48 per cent over basic earnings of 24.2 pence per share last year.
Cash flows from operating activities increased 28 per cent to £127.2 million, (2006: £99.7 million), with cash balances at 30 September 2007 standing at £77.5 million (31 March 2007: £72.9 million), retained principally for regulatory purposes.
At 30 September 2007 borrowings amounted to £462.8 million, mainly comprising a £250 million 10 year sterling bond issued in 2006, and bank borrowings of £200.7 million, principally including £48 million on a £200 million 5 year revolving credit facility, and £154 million on a £250 million bridge facility repayable by July 2009.
Net liabilities at 30 September 2007 were £324.8 million, compared to net liabilities of £349.9 million at 31 March 2007.
Issuer Services enjoyed a strong first half, as revenue increased 24 per cent to £35.5 million (2006: £28.7 million), contributing 17 per cent of total turnover.
The number of Main Market new issues almost doubled to 72 (2006: 38), including 27 international companies, a near four-fold increase over the same time last year (2006: 7). AIM, the world’s most successful market for smaller companies, also performed well, with 163 companies joining the market during the period (2006: 209). In total there were 236 new issues on the Exchange’s markets (2006: 247), including 1 on the Professional Securities Market.
The total amount of new capital raised on the Exchange’s markets during the first six months of the financial year was £25.9 billion (2006: £25.7 billion).
This strong performance reflects the strength of London as a global financial centre, and in particular the efficient and low cost of capital raising on the Exchange, attracting a significant number of overseas companies to our markets. In total, the number of international new issues increased 30 per cent to 79 (2006: 61), with the Exchange again outperforming other major exchanges in Europe and North America. We achieved 52 international IPOs on the Exchange’s markets during the period exceeding those on NYSE Euronext, Nasdaq and Deutsche Börse put together.
At 30 September 2007 the total number of companies on our markets reached 3,297 (30 September 2006: 3,212), including 1,682 companies traded on AIM (2006: 1,590).
During the period, we announced the launch of the Specialist Fund Market (SFM), launched on 1 November 2007. SFM will be the Exchange’s regulated market for highly specialised investment entities that wish to target institutional, professional and highly knowledgeable investors. It is expected to appeal to large hedge funds, private equity funds, and certain emerging market and specialist property funds seeking admission to a public market in London.
RNS, the Exchange’s financial communications service performed well, with a 75 per cent market share of all regulatory announcements and over 90 companies in the FTSE 100 using RNS in the half year. RNS, together with training and consultancy services, contributed £6.5 million to Issuer Services revenue (2006: £6.0 million).
Broker Services produced an excellent performance, with revenue for the half year rising 31 per cent to £99.4 million (2006: £76.1 million), accounting for 49 per cent of total turnover.
Trading on SETS, the electronic order book, was again the primary driver of this very strong growth as volumes increased 77 per cent to a total 69.4 million bargains (2006: 39.3 million). The daily average number of bargains increased by a similar amount to 555,000 (2006: 314,000). Increased market volatility over the summer added to the already strong growth experienced during the earlier part of the financial year. Strong trading associated with credit market liquidity events and heightened activity in financial markets continued in September, with the month registering the second highest level of average trading volumes, following the records set in August.
Value traded on SETS during the first half of the financial year increased 48 per cent to £1.1 trillion (2006: £744 billion), a daily average of £8.7 billion (2006: £6.0 billion). The average value of a SETS bargain decreased to £15,700 (2006: £18,900) with the yield per bargain reducing as expected during the period, to £0.99 (2006: £1.38). Overall, trading on SETS contributed 85 per cent of Broker Services’ revenue, including order charges (2006: 83 per cent).
The introduction of TradElect, our new trading platform launched in June, played a critical role in stimulating electronic order book growth. The greatly increased capacity and improved latency resulting from the new system facilitated the significant uplift in trading volumes during the latter part of the period, in particular enabling customers to trade at much higher frequencies at times of peak demand and heightened market activity. TradElect is the final major phase of our four year technology investment programme, although further enhancements will continue to increase performance and launch new services. A new release took place in October, to further upgrade system latencies and capacity, and to introduce new pan-European products following changes arising from the introduction of MiFID this month.
Our strong results during the period also reflect a continuation of the secular change in equities trading we have noted on previous occasions. Such developments include the continued and high level investment by market users in technology, stimulating growth of algorithmic/black box trading, coupled with a trend toward greater direct market access. Trading has also increased as derivatives traders increasingly use our market to hedge exposure in over the counter equity markets.
Trading levels have also increased as a consequence of actions taken by the exchange to facilitate more efficient trading. Our volume discount pricing scheme rewards high levels of trading on the order book and reduces the incremental costs of trading. SETSmm, which trades 777 mid-cap, small-cap and large UK AIM securities on the electronic order book, continues to reduce spreads and improve liquidity, with volumes averaging 149,000 bargains per day (2006: 67,000) - an increase of 122 per cent over the same period last year.
The Exchange has introduced a number of new products and services, to help market users meet new reporting and execution requirements under MiFID. For example, SETSqx, a trading platform for securities less liquid than those traded on SETS or SETSmm, was launched in June and expanded in October, for all Main Market and EU AIM equity securities not already traded on a full order book. SETSqx combines a periodic electronic auction book (four times each day) with standalone quote driven market making.
The total value of UK equity bargains for the period increased 40 per cent to £2.1 trillion (2006: £1.5 trillion) while the total number of UK equity bargains rose 70 per cent to 75.5 million (2006: 44.4 million), a daily average of 604,000 bargains (2006: 355,000).
Information Services delivered a very good performance with a 14 per cent increase in revenues to £58.1 million (2006: £50.9 million), comprising 29 per cent of total income.
The total number of terminals taking our real time price and trading data increased by 17,000 to 126,000 as at 30 September 2007 (2006: 109,000). Included in this number were 103,000 terminals attributable to professional users, up 7,000 on the number at the start of the financial year and up 12,000 on the comparable period (2006: 91,000). The strong increase in professional terminals reflects an increase in market users outside the UK accessing our market data. During the period, the number of international terminals increased by 3,000 to 23,000. Proquote, the Exchange’s provider of financial market software and data, performed well, increasing the number of installed screens to 3,800 (2006: 3,300).
SEDOL, the Exchange’s service providing unique identification for a range of global tradable securities, also made good progress with growth in the number of users of this service.
derivatives Services, mainly comprising EDX London, the Exchange’s equity derivatives business, increased revenues to £5.7 million in the half year (2006: £4.4 million). The total number of contracts traded on EDX during the period rose by 41 per cent to 21.5 million (2006: 15.3 million). Of this total, the trading of Scandinavian equity derivatives contracts rose 21 per cent to 18.5 million (2006: 15.3 million) while trading in Russian derivatives amounted to 3.1 million contracts, having been launched at the end of 2006.
On 25 June 2007, the Exchange and Borsa Italiana S.p.A. announced an agreement to merge. Following overwhelming shareholder support at both companies’ EGMs, the merger was completed on 1 October, just after the Exchange’s half year end, valuing Borsa Italiana at £1,308 million (€1,878 million).
The merger creates the leading diversified exchange group in Europe and the platform for additional strong growth on a European and global scale. As the European exchange leader in the listing and trading of equities and the leader in electronic trading of ETFs, securitised derivatives and fixed income products, the combination will provide significant benefits for customers and shareholders.
Borsa Italiana’s financial performance for the six months to 30 September 2007 is provided as an attachment to this report.
Board of Directors
A number of changes to the London Stock Exchange Group Board have taken place, principally reflecting the agreed structure arising from the successful completion of the merger with Borsa Italiana. We are pleased to welcome Sergio Ermotti, Paolo Scaroni and Andrea Munari, along with Angelo Tantazzi as Deputy Chairman and Massimo Capuano as Deputy Chief Executive.
As announced in September 2007, Peter Meinertzhagen and Gary Allen both stood down from the Board, and we thank them for their substantial contribution during their long service. Both have seen the company through demutualisation and listing, providing invaluable guidance and advice as members of Board Committees appointed during the Exchange’s successful bid defences.
Since the half year end, Jonathan Howell has announced his intention to leave the company in January. Over his eight years as Director of Finance, Jonathan has been instrumental in the delivery of exceptionally strong shareholder value, developing the Exchange’s financial strategy and putting it to the forefront of the sector for balance sheet efficiency. We wish him well in his new role.
Share Buyback Programme
The Exchange made good progress on its capital return programme, making on-market purchases of 7.2 million shares during the first half of the year at an average price of £13.04, amounting to £94 million. As at 30 September 2007, the Exchange had completed £154 million of the £250 million share buyback commitment announced in January 2007.
In July 2007 the Exchange announced an increase to its programme of capital return, indicating a further £500 million would be returned to shareholders following the completion of the Borsa Italiana merger (including the outstanding £96 million from the earlier £250 million programme). The Board has reviewed options for the Company’s capital structure and announces it intends to resume its programme of on-market share repurchases, subject to this being in the best interests of shareholders.
The Directors have declared an interim dividend of 8.0 pence per share, representing a 33 per cent increase in interim dividend per share (2006: interim dividend 6.0 pence). This increased payment reflects the Exchange’s excellent H1 financial performance and underscores the Board’s confidence in the prospects for the new enlarged business. The Board remains committed to sustainable, progressive dividends, with payment on an approximate one third/two third basis between the interim and the final dividend.
The interim dividend will be paid to those shareholders on the register on 7 December 2007, for payment on 4 January 2008.
The Exchange has delivered an excellent first half result with each of the main business areas performing well. Looking ahead, overall trends remain good, in particular with trading in the secondary markets continuing strongly:
· the primary market remains active though new issues are lower than in recent months, with the number of Main Market new issues in October at 10 compared with 13 for the same period last year;
· trading on SETS continues strongly, with 73 per cent growth in daily bargains in October over the same period last year; and
· demand for real time pricing and trading data remains good.
As stated at the time of announcing the merger with Borsa Italiana, we expect the effects of the combination to be earnings neutral to positive in the current financial year. We remain confident of maintaining good progress in the second half of the financial year, with continued topline growth, including Borsa Italiana, though interest costs will rise. Overall, we expect a good outcome for the new enlarged group for the full year.
15 November 2007
The Exchange will host a presentation of its Interim Results for analysts and institutional shareholders today at 9.30am at 10 Paternoster Square, LondonEC4M 7LS. The presentation will be accessible via live web cast which can be viewed at www.londonstockexchange-ir.com, or listened to on +44 (0)20 7162 0025 (UK / Europe) or +1 334 323 6201 (US Local Connect). For further information, please call the Exchange’s Investor Relations department at 020 7797 3322.
A conference for members of the Press will be held at 11:15am.
15 November 2007