London Stock Exchange Group plc · LSE:LSEG
London Stock Exchange — FY2004 Earnings Presentation
39 slides from London Stock Exchange's earnings presentation, May 20, 2004
Slide 1: London Stock Exchange Preliminary Results 20 May 2004
London Stock Exchange Preliminary Results 20 May 2004
Slide 2: Agenda
Agenda Introduction Chris Gibson-Smith Chairman Financial Review Jonathan Howell Director of Finance CEO Overview Clara Furse Chief Executive Officer Q&A 2
Slide 3: Introduction
Introduction • Satisfactory results – turnover and earnings up against backdrop of variable market conditions • Total dividend up 12% to 4.8 pence per share • Special dividend of 55 pence per share • Maintain financial flexibility to pursue growth opportunities 3
Slide 4: Jonathan Howell, Director of Finance
Jonathan Howell Director of Finance
Slide 5: Overview of results
Overview of results Satisfactory financial performance in variable market conditions Year ended 31 March 2004 2003 Change Turnover £m £m % Issuer Services 38.5 36.0 7 Broker Services 94.1 87.3 8 Information Services 101.0 102.2 (1) Derivatives Services 6.1 - - Other income 10.7 11.8 (9) Gross turnov
Slide 6: Overview of results (continued)
Overview of results (continued) Year ended 31 March 2004 2003 Change £m £m % Operating profit* 83.2 81.7 2 Exceptional items - (11.6) - Profit before tax 89.1 79.5 12 Tax (25.7) (26.8) 4 Minority Interest 0.3 - Profit for the financial year 63.7 52.7 21 Earnings per share (pence) 21.7 18.1 20 Adjust
Slide 7: Issuer Services
Issuer Services New issue activity mixed Turnover up 7% Key metrics £38.5m £36.0m • New issues up from 202 to 236 of which: - 193 AIM (2003: 154) – up 25% £16.8m £14.7m - 43 Main Market (2003: 48) – down 10% • Annual Fees up 2% representing 56% of Issuer Services’ turnover (2003: 59%) £21.3m £21.7m
Slide 8: Broker Services
Broker Services SETS volumes continue to grow Key metrics Turnover up 8% • Average daily equity bargains up 9% to 234,000 £94.1m £87.3m - order book bargains up 26% to 137,000 per day £34.2m - off book bargains up 12% to £38.9m 57,000 per day - international bargains down 27% to 40,000 per day £59.9
Slide 9: Information Services
Information Services Turnover impacted by fall in terminal numbers Key metrics Turnover down 1% • Terminal population 90,000 (2003: 94,000) £102.2m £101.0m £6.8m £7.2m • Professional investor terminals at £11.4m £13.3m 80,000 (2003: 88,000) • Over 1,800 Proquote screens £84.0m £80.5m • FTSE JV – Sha
Slide 10: Derivatives Services
Derivatives Services EDX • New division – continuing diversification • Contributed £5.9m to turnover for the first 9 months of operation • Small loss as business develops OTC equity derivatives services 10
Slide 11: Operating and development costs
Operating and development costs Cost/income 64% 66% • Higher incremental costs in H2 £155.5m • Staff costs – year end headcount £144.3m £21.9m 522 (2003: 501) £19.0m £40.8m • Depreciation reflects continuing £43.0m investment £44.5m £41.1m • Delivered IT cost savings £41.2m £48.2m • Property/marketi
Slide 12: Summarised Cash Flow
Summarised Cash Flow Strong cash flows from operating activities Year ended 31 March 2004 2003 £m £m Net cash inflow from: - ongoing operating activities (after pension funding) 105.4 74.8 Taxation (22.2) (25.2) Capital expenditure (54.2) (28.1) Dividends paid (12.9) (11.1) Free cash flow - pre one-
Slide 13: Summarised Balance Sheet
Summarised Balance Sheet Balance sheet remains strong 31 March 31 March 2004 2003 £m £m Fixed assets Goodwill 24.3 14.1 Tangible assets & Investments 176.6 137.9 Total fixed assets 200.9 152.0 Current assets - debtors 61.1 64.3 - cash 227.9 211.0 Creditors: due within one year (78.9) (64.0) Creditor
Slide 14: Special dividend and share consolidation
Special dividend and share consolidation Rationale • Strong cash flows and Tower disposal proceeds provide surplus funds for shareholders • Financial flexibility maintained – including cash generation and £300m loan facility • Adjusted EPS enhancement of 9% (on pro forma 2003/04 basis) Implementatio
Slide 15: Pro forma balance sheet
Pro forma balance sheet As at 31 March 2004 Current Pro forma £m £m Total fixed assets 201 145 • Net assets decrease from Current assets - debtors 61 88 £372m to £215m - cash 228 100 Creditors (80) (80) • Cash of c£100m – maintains financial flexibility Provisions (38) (38) Net assets 372 215 15 Not
Slide 16: Track Record
Track Record Strong financial progress over the last five years £250m £237m £105m £216m £193m £82m £164m £75m £75m £46m £82m £83m £71m £58m £42m 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 Turnover Operating Profit Operating cash flow • Turnover increased 52% and operating profit almost double
Slide 17: Current trading conditions
Current trading conditions • Reflect trends seen at end of last year: - AIM new issue activity remains strong and main market activity broadly in line - SETS volumes remain strong - Rate of decline of professional terminals shows signs of slowing 17
Slide 18: Clara Furse, Chief Executive Officer
Clara Furse Chief Executive Officer
Slide 19: Introduction
Introduction Overview • Highlight track record and strength of core business • Reiterate strategy and unique attributes of London market model • Demonstrate how our competitive positioning continues to improve 19
Slide 20: Our market: Europe's capital raising centre
Our market: Europe’s capital raising centre 100% 90% 85% 80% 69% 70% 66% 60% 50% 47% 40% 30% 25% 22% 18% 18% 20% 13% 11% 10% 7% 9% 3% 3% 4% 0% 0% 2001 2002 2003 2004 DBAG ENXT Others LSE • LSE captured 85% of Western European IPOs 20
Slide 21: Our market: SETS performs
Our market: SETS performs 40 800 35 700 30 600 SETS value traded (£bn) SETS bargains (m) 25 500 20 400 15 300 10 200 5 100 0 0 2000 2001 2002 2003 2004 SETS bargains (lhs) SETS value traded (rhs) • SETS volumes have increased at a compound annual growth rate of 41% over a 5 year period 21
Slide 22: London Stock Exchange
London Stock Exchange We will compete globally to become the market of choice: • Reinforce and extend position as premier source of equity market services in European time zone • Operate a diversified business, capitalising on an innovative environment • Deliver superior value to customers and share
Slide 23: Opportunities
Opportunities A developing single market in Europe • Regulatory changes encouraging customers to examine how they conduct business • Evolving investment strategies stimulating demand for greater product range • Consolidating post-trade infrastructure providing choice among transaction venues 23
Slide 24: London Market Model: Technology Roadmap
London Market Model Technology Roadmap to be completed end of 2006 Calendar Year 2003 2004 2005 2006 2007 Information Warehousing Real-time Information Surveillance Trading 24
Slide 25: London Market Model: Impact of Technology Roadmap
London Market Model Impact of Technology Roadmap • Changes non disruptive to customers • Multi-product capability • Target 20% reduction in P&L technology costs by FY 2007/08 • Scalability at significantly lower cost 25
Slide 26: Stamp Duty Revenues
London Market Model Marked structural change in trading Stamp Duty Revenues and UK Equity Market Turnover (by value) 2.5 5.0 4.5 2.0 4.0 Value of UK equity turnover (£tr) Stamp Duty Revenues (£bn) 3.5 1.5 3.0 2.5 1.0 2.0 1.5 0.5 1.0 0.5 0.0 0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Slide 27: London Market Model: Pricing Advantage
London Market Model Pricing Advantage Cash trading revenues as a proportion of domestic equity 1.80 market turnover 1.59 1.60 1.53 1.47 1.40 1.20 1.13 Basis Point extracted 1.00 0.92 0.79 0.80 0.70 0.64 0.65 0.60 0.40 0.20 0 LSE ENXT DBAG 2002 2003 2004 Sources: All data taken from exchanges' Annual
Slide 28: London Market Model: Customers make the market
London Market Model Customers make the market Customers Internalisation Off book Trade reporting & Order book services trade transparency services SEATS SEAQ-I SEAQ SETS SETSmm DTS IOB PLUS 28
Slide 29: EUROSETS
EUROSETS Competing to create a European marketplace • To be launched 24 May 2004 • Customer feedback positive • 85% of market in Dutch equities signed up 29
Slide 30: Highlights from a year of achievement
Highlights from a year of achievement Reinforcing our position as the leading international equities May 2003 AIM fast track admissions ✓ market May 2003 Level One Plus ✓ Exploiting the first stage of our Technology Roadmap June 2003 Launch of EDX London ✓ Expanding our business into equity derivati
Slide 31: AIM is a phenomenon
Business and product development AIM is a phenomenon Number of AIM companies 900 792 800 705 700 641 600 550 500 400 385 300 200 100 0 2000 2001 2002 2003 2004 UK International 31
Slide 32: Migration to the order book
Business and product development Migration to the order book Average daily bargains in SETSmm securities 20,000 18,000 Average daily number of bargains 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 32 Order book Off book
Slide 33: Proquote
Proquote 80% growth in number of screens in first year Number of Proquote screens 2000 1800 1600 1400 1200 1000 800 600 Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- 03 03 03 03 03 03 03 03 03 03 03 04 04 04 04 33
Slide 34: SEDOL extends our network
Business and product development SEDOL extends our network 700+ customers at 31 March 2004 Global customer base – investment banks, fund managers, custodians 250,000 SEDOL codes – to be expanded to 2 million covering all global asset classes (in next 18 months) Forecast revenues of c£5m in 2004/05 3
Slide 35: EDX is growing
Business and product development EDX is growing EDX London average daily contracts 140,000 131,591 120,000 Average daily number of contracts 98,588 100,000 95,628 87,479 80,000 66,607 63,053 60,000 56,676 54,009 45,270 45,997 40,000 20,000 0 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Ma
Slide 36: Summary
Summary • Core business performing as expected • Exchange improving its competitive position • Focused on creating a superior quality of market based on: − Operational excellence − Embracing competition 36
Slide 37: Appendix
London STOCK EXCHANGE
Slide 38: Half year revenue and cost split
Half year revenue and cost split 2003/04 2002/03 H1 H2 Full year H1 H2 Full year £m £m £m £m £m £m Issuer Services 18.4 20.1 38.5 19.2 16.8 36.0 Broker Services 43.7 50.4 94.1 43.7 43.6 87.3 Information Services 50.2 50.8 101.0 50.7 51.5 102.2 Derivatives Services 1.7 4.4 6.1 - - - Other income 5.6
Slide 39: Property
Property Tower • Sale of Tower for consideration of £67.0m: - £3.4m deposit upon exchange of contracts - £30.4m upon completion (July 2004) - £33.2m on 31 December 2005 • Net profit at least £5m Paternoster Square • Normal ongoing net cost to P&L of c£10m • Total fit-out and relocation costs of c£40
London Stock Exchange Group — FY2004 Earnings Presentation on 6ix