London Stock Exchange Group Preliminary Results 25 May 2006
Jan 17, 2016
London Stock Exchange GroupPreliminary Results 25 May 2006
2
Agenda
Introduction Chris Gibson-Smith Chairman
Financial Review Jonathan HowellDirector of Finance
CEO Overview Clara Furse Chief Executive Officer
Q&A
3
Introduction
Strong progress in primary and secondary markets delivered an excellent financial performance:
Revenue1 up 19%
Adjusted EPS up 55%
Confidence in future growth prospects has enabled:
Return of more than 20% of market capitalisation in under two years
Commitment of up to £50m per annum share buyback
71% increase in full year dividend
Indications of interest from other parties not reflected growth prospects and unique strategic position
Confident that Exchange’s growth prospects built on firm foundations – will continue to explore options for additional shareholder value
1 Before exceptional items
Jonathan Howell Director of Finance
5
Strong trading performanceHighlights
Revenue1 - up 19% to £291m
Operating profit1 - up 42% to £120m
Adjusted earnings per share1 - up 55% to 37.4 pence
Full year dividend - up 71% to 12 pence per share
1 Before exceptional items
6
Overview of results
1 Before exceptional items
2006 2005 Change £m £m %
Revenue1 291.1 244.4 19
Issuer Services 56.9 43.3 31
Broker Services 125.5 100.6 25
Information Services 94.1 86.7 9
Derivatives Services 7.7 6.8 13
Other 6.9 7.0 (1)
Operating costs1(171.0) (159.8) 7
Operating profit1120.1 84.6 42
Operating margin1 41% 35%
Year ended 31 March
7
Overview of results (continued)
1 Before exceptional items
2 Including share of joint venture income
2006 2005 Change £m £m %
Operating profit 1 120.1 84.6 42
Net exceptional items (34.7) (0.1)
Net Finance and Investment Income2 8.1 7.7
Profit before tax 93.5 92.2 1
Tax (26.7) (27.7) (4)
Profit after tax 66.8 64.5 4
Basic earnings per share 27.8 24.2 15
Adjusted earnings per share1 37.4 24.2 55
Dividend per share 12.0 7.0 71
Year ended31 March
p p
p
p p
p
8
Strong revenue growthRevenue1 up £47m (19%) to £291m
200.0
210.0
220.0
230.0
240.0
250.0
260.0
270.0
280.0
290.0
300.0
2005 IssuerServices
BrokerServices
InformationServices
Other 2006
£m
1 Before exceptional items
244.4
13.6
24.97.4 0.8
291.1
Growth by division
2005 H1 H2 2006
£m
£m17.8
28.9
244.4
291.1
H1 vs. H2
H1118.3
H2126.1
H2155.0
H1136.1
£m
9
£17.4m £20.3m
£17.8m
£25.9m
£8.1m
£10.7m£43.3m
£56.9m
2005 2006
Annual Fees Admission Fees RNS/Other
Issuer ServicesBuoyant new issue activity
Up 31%
1 Including 5 issues on PSM
Key metrics
New issues up 108 to 6221 (2005: 514)of which:
– Main Market – 107 (2005: 82)
– AIM – 510 (2005: 432)
Total equity raised up 81% to £34.1bn(2005: £18.8bn)
Annual Fees represented 36% of IssuerServices revenue (2005: 40%)
3,141 companies (2005: 2,916)
including 1,473 on AIM (2005: 1,127)
RNS and Other revenue £10.7m (2005: £8.1m)
10
Broker ServicesRecord SETS volumes drive excellent growth
£34.3m£33.8m
£66.0m£86.5m
£34.6m
£39.0m£100.6m
£125.5m
2005 2006
Order Book Other
Up 25%
Key metrics
Average daily equity bargains up 29% to 349,000
– Order book bargains up 31% to223,000 per day
– Off book bargains down 2% to47,000 per day
– International bargains up 52% to79,000 per day
Total order book value traded up 35% to £1.2 trillion
Average SETS bargain size at £21,000and average SETS yield at c£1.50both unchanged
SETS contributed 69% of Broker Services
revenue (excluding order charges)
11
Information ServicesSteady improvement in terminal numbers
1 Before exceptional items
2 Includes Proquote
£60.2m £64.0m
£26.5m£30.1m
£86.7m£94.1m
2005 2006
Data charges Other
£15.3m
Up 9%1
2
Key metrics
Total terminals 104,000 (2005: 95,000)
Professional investor terminals 88,000 (2005: 83,000)
SEDOL revenue c£8m (2005: c£6m)
12
£43.8m £45.4m
£47.9m£57.2m
£39.4m£41.9m
£28.7m£26.5m
£159.8m£171.0m
2005 2006
Property/marketing/other Staff IT/Network Depn
Operating costsCosts held flat in H2
Cost/income ratio reduced to 59%Staff costs up mainly due toperformance-related pay
Year end headcount of 501(2005: 519)
IT costs up due to network upgradesand delivery of TRM
Depreciation lower, property/marketingup slightly
Cost efficiencies programme
– £7m in FY 2007
– Full run rate of £10m in FY 2008
13
1 Before exceptional items
2 Before interest and dividends received, share scheme and other funding items
31 March 2006 2005£m £m
Cash generated from ongoing operating activities1145.9 100.9
Taxation (29.0) (24.3)
Capital expenditure (25.8) (40.8)
Ordinary dividends paid (22.8) (15.1)
Free cash flow before one-off items 68.3 20.7
One-off items - Tower proceeds 33.2 32.3 - Other (11.5) (5.5) - Special Dividend - (162.5)
Free cash flow290.0 (115.0)
Year ended
Summarised Cash FlowStrong cash generation
14
Summarised Balance Sheet pre-capital returnFinancial flexibility
31 March 31 March
2006 2005£m £m
Non-current assets 137.6 154.1
Current assets - debtors 49.3 81.9 - cash 226.8 124.4
Current liabilities (78.7) (76.8)
Non-current liabilities (46.2) (47.3)
Net assets 288.8 236.3
15
£510m commitment in February 2006 - return complete 26 May 2006
Exchange at forefront of good capital management
Returned £673m, or more than 20% of market capitalisation in under two years (including £163m in 2004)
Ongoing share buyback programme of up to £50m per annum
Recognises strong cash generation and continues process of:
Managing cash position Improving balance sheet efficiency Enhancing shareholder value
Capital Return£510m return to shareholders
16
Current trading Trading conditions remain positive in core businesses
Total equity raised ahead of last year
Average daily value traded on SETS remain strong - up 78%
Demand for real time data by professional users remains healthy
Clara Furse
Chief Executive Officer
18
● Operational gearing is driving record performance
● Globalising our business
● Unique strategic position and rapidly increasing value
● Step change in our growth prospects
Creating increasing value for shareholders and customers
19
10
28
104
LSE US Markets ENXT DBAG11
The World’s capital market
409
64 62
1657
LSE Scandi ENXT DBAG Other
Listing venue of choice for Western Europe (FY 2006)
1 Source: PwC IPO Watch
• Venue of choice – London has unique attributes
• 622 new issues (including 409 IPOs) from 32 countries
1
Leading share of international IPOs (FY 2006)
20
1,473
1,127
792705641
550
385311310269
136
1996 1998 2000 2002 2004 2006
185
247
134
6850
4233221922
1996 1998 2000 2002 2004 2006
Total AIM companies at 31 March International AIM companies at 31 March
Another record year for AIMAn international growth story
21
● Real-time market data received in over 100 countries
● SEDOL – 1,100 licences – improving market efficiency on global scale
● Proquote goes international
Terminal Numbers ('000)
909090
95
98
104
Sep-03 M ar-04 Sep-04 M ar-05 Sep-05 M ar-06
Market data – key element of international story
22
Winning the battle for liquidityOrder book volume growth vs Index performance
Source : FESE Order Book trades
European exchanges FY 2004 to FY 2006
9% 9%
28%
146%
99%
65%
0%
20%
40%
60%
80%
100%
120%
140%
160%
DBAG ENXT LSE
CAGR - Order Book trades Index change 31/3/03 to 31/3/06 (DAX / CAC40 / FTSE100)
23
● SETS value traded up 58%
● SETS bargains up 38%
● Total revenue up 27%
● Operating profit up 73%
London Stock Exchange was the fastest growing listed exchange in calendar Q1 2006
FY 2006 – Q4 performance
24
• September 2005: Infolect launch
• October 2005: SETS capacity upgrade
• Investment banks significantly increase IT spend in equity trading
Next Generation Technology goes live
25
• New trading platform – to execute at under 10ms
• Speed of information dissemination – down to 2ms since September 2005
• Infolect’s latency improves trade to order ratio
Milliseconds matter
26
• Completing TRM in first half of 2007 with new trading platform go-live
InfolectRelease 2
SurveillanceRelease 3
New Trading PlatformRelease 4
DownstreamRelease 1
20072004 2005 20062003
Trading Capacity UpgradeRelease 4a
Technology Roadmap (TRM)
Today
Code CompleteDesign Complete Internal Testing Complete Migration Complete
New technology improves market efficiency
• 100% availability delivered for 6th consecutive year
27
0
1
2
3
4
5
6
7
Q1 Q2 Q3 Q4
Va
lue
tra
de
d p
er d
ay
(£
bn
)
0%
10%
20%
30%
40%
50%
60%
Gro
wth
Value traded per day Growth
Growth in SETS value traded (FY 2006)
Secular change in trading:Acceleration of growth on SETS
28
327
170
223
340
255
100
150
200
250
300
350
400
FY 2005 FY 2006 FY 2007 FY 2008
AverageSETS bargains per day
('000)
FY 2007 actuals to date
Forecast
Forecast
SETS growth vs February forecastWell ahead of FY 2008 target
29
Buy-side algorithmic trading grows
Source: Greenwich Associates, Lehman Brothers Research
Share trading volume - US and European buy-side 2005
8%
3%
0%
2%
4%
6%
8%
10%
12%
14%
Self-directed using algorithms
US institutions European institutions
30
FTSE 100 order entry rates for top 6 firms 2000-present
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Jan-
00
May
-00
Sep
-00
Jan-
01
May
-01
Sep
-01
Jan-
02
May
-02
Sep
-02
Jan-
03
May
-03
Sep
-03
Jan-
04
May
-04
Sep
-04
Jan-
05
May
-05
Sep
-05
Jan-
06
Ord
ers/
day
Capacity upgrade Capacity upgrade Infolect and capacity upgrade
Order entry rates improve post Infolect
31
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2001 2002 2003 2004 2005 2006
-
100,000
200,000
300,000
400,000
500,000
600,000
On exchange UK equity & index derivatives SETS
Strong positive correlation between cash and derivatives growth
SETS and equity derivatives trading
Source:LIFFE; WFE
On
ex
ch
an
ge
UK
eq
uit
y d
eri
va
tiv
es
(n
oti
on
al
va
lue
pe
r q
ua
rte
r, €
bn
)S
ET
S v
alu
e tra
de
d p
er q
ua
rter (€
bn
)
32
Volume growth outpaces growth at Eurex and Liffe
Growth in SETS value / volume vs Growth in derivatives contracts traded
45%
26%24%
58%
20%23%
20%17%
5%
27%
7%
14%
0%
10%
20%
30%
40%
50%
60%
70%
2006 Q120052004
Gro
wth
Liffe-contracts Eurex-contracts SETS value SETS trades
Source:Exchange websites, Factsheets
33
53%72%
95%115%
137%
311%337%
529%
Nordic Spain France UK Italy US Netherlands Germany
UK equity derivatives market remains underdeveloped
Ratio of on-exchange equity derivatives notional value traded to cash equities market capitalisation (2005)
Source:Eurex; Euronext; BIS; OCC; FESE; OMX; WFE; LSE analysis
34
Secular, not cyclical:Relative underperformance of UK market
Source:Datastream
58%
104%
140% 142%
0%
20%
40%
60%
80%
100%
120%
140%
160%
FTSE100 DOW DAX CAC40
10 year index growth to 30 April 2006
35
12.3%
4.6%
8.6%
(7.6%)
(2.3%)
6.2%
10.4% 10.7%
6.1%
3.7%
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
15.0%
Trading volume growth Index growth
LSE1 Nasdaq2ENXT1 DBAG1 NYSE2
Secular, not cyclical:Our relative growth stands out
1 Order book volumes2 Total equity volumes
Volume vs index growth (January to March 2006)
36
Velocity - Order Book trading
30%
67%
53%
85%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 FY 2006
An
nu
al
tra
din
g v
Ye
ar
av
era
ge
Ma
rke
t C
ap
ita
lis
ati
on
LSE Average Europe
Source : FESE
Secular, not cyclical:Velocity gap continues to close
37
Increasingly valuable global business
● Combination of unique features:
– The defining exchange brand– Business philosophy and market structure– Next generation technology– London's deep pools of international capital– Intelligent principles-based regulation
The World’s Capital Market
Q&A
Appendix
40
Segmental Information
1 Includes investment in joint venture
2 After exceptional items
3 After exceptional items, including profit on disposal of Stock Exchange Tower
2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m
Issuer services 56.9 43.3 (33.0) (29.7) 23.9 13.6 19.0 21.5
Broker services 125.5 100.6 (56.0) (50.2) 69.5 50.4 75.2 57.8
Information services - ongoing 94.1 86.7 (55.0) (54.2) 45.5 32.5 61.1 1 73.2 1
- exceptional 6.4 -
Derivatives services - ongoing 7.7 6.8 (11.3) (11.5) (26.8) (4.7) 1.3 21.3 - exceptional (23.2) -
Other 6.9 7.0 (6.7) (5.9) 0.2 1.1 4.5 6.3
Corporate - ongoing - - (9.0) (8.3) (26.9) (8.4) 252.6 180.3 - exceptional (17.9) (6.8)
Group 297.5 244.4 (212.1) (166.6) 85.4 2 84.5 3 413.7 360.4
Assets
Year ended 31 March
Revenue Expenses Operating profit
41
Pro forma consolidated balance sheet
31 March 2006 Pre-return Movement Post-return £m £m £m Non-current assets 138 138 Current assets Trade & other receivables 49 49 Cash and cash equivalents 227 (160) 67 276 (160) 116 Total liabilities (125) (350) (475) Net assets 289 (510) (221) Ordinary share capital 15 15 Share premium 4 4 Reserves 268 (510) (242) Minority interest 2 2 Total shareholders’ funds 289 (510) (221)
Capital Return – balance sheet impact
● c£510m return funded by c£160m cash and c£350m debt
● c£70m cash retained to meet FSA requirements
● c£220m negative net assets on a consolidated basis
● However, company reserves for LSEG plc and LSE plc remain strong at c£2.2bn and c£270m respectively
Consolidated balance sheet