Transcript No Slide Title

London Stock Exchange Group plc
Interim Results 8 November 2006
Agenda
Introduction
Chris Gibson-Smith
Chairman
Financial Review
Jonathan Howell
Director of Finance
CEO Overview
Clara Furse
Chief Executive Officer
Q&A
2
Introduction
 Excellent H1 performance - Good growth in all businesses
 Strong value creation:
– Balance sheet efficiency from c£510m capital return and increased
dividends – up 50% to 6.0 pence per share
– High quality business with central role in London financial centre
– Shareholders and customers benefit from our investment in technology
as market becomes more efficient and international
– Capitalising on our global brand and unique strategic position
 Success of our strategy underlines our increasing value
3
Jonathan Howell
Director of Finance
Strong half year performance
Financial Highlights

Revenue - up 20% to £163.3m

Operating profit - up 60% to £81.3m

Adjusted earnings per share - up 54% to 24.2 pence
5
Overview of results
Good growth in all divisions – excellent SETS performance
Six months ended
30 September
2006
2005
£m
£m
Change
%
Year ended
31 March
2006
£m
Revenue
Issuer Services
Broker Services
Information Services
Derivatives Services
Other Income
Total revenue
28.7
76.1
50.9
4.4
3.2
163.3
26.8
56.9
45.1
3.9
3.4
136.1
7
34
13
13
(6)
20
56.9
125.5
94.11
7.7
6.9
291.11
Operating costs
(82.0)
(85.3)1
(4)
(171.0)1
Operating profit
81.3
50.81
60
120.11
Operating margin
50%
37%1
41%1
6
1
Before exceptional items
Overview of results (continued)
Six months ended
30 September
2006
2005
£m
£m
Operating profit
Net exceptional items
81.3
50.8
Year ended
31 March
2006
£m
Change
%
120.11
60
-
(25.7)
(34.7)
Net Finance and Investment
Income
(4.6)
4.3
8.1
Profit before tax
76.7
29.4
(22.4)
(8.8)
Profit after tax
54.3
20.6
164
66.8
Earnings per share
Adjusted earnings per share
Dividend per share
24.2
24.2
6.0
9.6
15.7
4.0
152
54
50
27.8
37.4
12.0
Tax
1
Before exceptional items
161
1
93.5
(26.7)
7
Issuer Services
Primary markets remain active
Key metrics
 Money raised up 93% to £25.7bn
£28.7m
£26.8m
£5.0m
£11.9m
£6.0m
£11.6m
 Admission activity strong though fee
income down 3%, with new issues at
247 (H1 FY 2006: 306)
– 38 Main Market (H1 FY 2006: 47)
– 209 AIM (H1 FY 2006: 259)
 Average size of Main Market IPO up
40% to £465m
£9.9m
£11.1m
H1 FY 2006
H1 FY 2007
Annual Fees
Admission Fees
RNS/Other
 Annual fee income up 12% with growth
in total number of companies to 3,212
(H1 FY 2006: 3,013)
 RNS revenue £5.1m (H1 FY 2006:
£4.2m)
8
Broker Services
Excellent SETS trading growth
£76.1m
£21.9m
£56.9m
£18.5m
£54.2m
£38.4m
H1 FY 2006
H1 FY 2007
1
Order Book
1
Excluding order charges
Other
Key metrics
 Average daily equity bargains up
36% to 432,000
– SETS bargains up 56% to 314,000
per day
– Off book bargains down 7% to
41,000 per day
– International bargains up 6% to
76,000 per day
 Value traded on SETS up 42% to
£744bn – SETS yield per bargain
reduced to c£1.40 (H1 FY 2006:
£1.50)
 SETS contributed 71% of Broker
Services revenue (H1 FY 2006:
67%)
9
Order book
£40.9m
Strong growth record continues
 Growth driven by secular
changes in equities trading
 Average bargains/day up
103% from H1 FY 2005
 Value traded up 75% over the
same period
 SETS growth ahead of rate
required to reach FY 2008
forecast of at least 340,000
bargains/day
Bargains/
day (1,000)
350
£bn
800
300
700
600
250
350
800
200
300
700500
250
600400
150
500
300
200
100
400
150
200
300
50
0
100
200100
50
H1
0
FY
100
0
H2
H1
2005
H1
H2
H2
H12006 H2
FY
Average SETS bargains/day
Average SETS bargains/day
H1
0
FYH12007
SETS value traded
SETS value traded
10
Information Services
Continued growth in professional terminals
Key metrics
£50.9m
£45.1m

Terminal population up 11% to 109,000
(H1 FY 2006: 98,000)

Professional investor terminals at
91,000 (H1 FY 2006: 85,000)

3,300 Proquote screens (H1 FY 2006:
2,900)

SEDOL revenue up 25% to £5m
£18.8m
£15.6m
£29.5m
H1 FY 2006
Data charges
£32.1m
H1 FY 2007
Other
11
Operating and development costs
On track to meet FY 2007 cost commitment
Cost/Income
 Costs down 4% - on track to meet
FY 2007 savings target of £7m
 Property and IT/Network down
£4m reflecting restructuring of
services
63%
50%
£85.3m
£82.0m
£13.4m
£12.8m
£21.1m
£18.4m
£23.0m
£21.7m
£27.8m
£29.1m
H1 FY 2006
H1 FY 2007
 Depreciation down c£1m
 Staff costs up c£1m - mainly
provision for performance related
pay
Staff
Property/marketing/other
IT/Network
Depn
12
Summarised cash flow
Continued strong cash generation
Six months ended
30 September
2006
2005
£m
£m
Year ended
31 March
2006
£m
Net cash inflow from operating activities 1
104.3
77.9
145.9
Taxation
(13.9)
(12.5)
(29.0)
Capital expenditure
(10.6)
(14.4)
(25.8)
Ordinary dividends paid
(20.5)
(12.6)
(22.8)
59.3
38.4
68.3
(58.8)
-
(4.7)
(148.8)
-
-
(4.6)
(1.9)
27.9
4.9
5.2
10.9
41.7
102.4
Free cash flow 1
Share buyback and ESOP share purchases 2
Surplus cash used for capital return, debt repayments
Exceptional items 3
Other, including dividends received and interest
(Decrease)/Increase in cash
(148.0)
1
Before exceptional items
2
Includes ESOP purchases - £32m
3
Including restructuring costs (FY 2007), advisers’ fees, Tower disposal (FY 2006: £33.2m)
13
Summarised Group balance sheet
New position reflects capital return
Non-current assets
Current assets
- Debtors
- Cash
Total assets
30 September
31 March
2006
£m
2006
£m
Change
£m
130.1
137.6
(7.5)
53.1
78.8
49.3
226.8
3.8
(148.0)
262.0
413.7
(151.7)
Current liabilities
- Bank borrowings
- Other
(97.6)
(113.2)
(78.7)
(97.6)
(34.5)
Non-current liabilities
- Bond
- Other
(248.3)
(41.8)
(46.2)
(248.3)
4.4
(238.9)
288.8
(527.7)
Net (liabilities)/assets
14
Current trading and prospects

Excellent start to financial year – good growth in all divisions

Continuation of positive trends into H2:

–
Primary market remains active – Main Market new issues in October up from 11 to 13
–
Trading on SETS remains very strong – bargains/day up 45% to 331,000
–
Demand for real time pricing and trading data remains robust
Good momentum supports expectation of excellent full year results
15
Clara Furse
Chief Executive Officer
Creating increasing value for the market and our
shareholders
 Very strong H1 performance
–
£26 billion raised on primary markets
–
56% increase in order book bargains per day
–
11,000 more data terminals
 Positioned for further growth
–
Supporting the globalisation of capital markets
–
Fuelling technology-led growth
Our vision is to be the world’s capital market
17
The world’s capital market
•
Leading global listing venue for third consecutive year
•
1,444 new companies since 2004 –of which 311 international
Growing share of money raised
Leading share of Western European IPOs
60
500
55
50
400
40
Percent
300
200
30
23
20
100
29
30
14 16
18
15
10
0
0
2002
LSE
2003
Euronext
2004
Scandinavia
2005
2006
1
Deutsche Börse
Source: Thomson Financial Securities Data; exchange websites
1
January – September only
FY 2005
LSE
FY 2006
DBAG/ENXT
Source: PwC IPO Watch
H1 FY 2007
Rest of Europe
USA
18
An international equities market
•
610 companies from 65 countries on our markets
•
41 international IPOs in H1
•
Oxera report (June 2006) – London is the most competitive listing venue
30
29.0
Trend in Market Share of
International Companies1
25
International IPOs in H1
50
21.6
Percent
20
40
15.7
15
30
12.2
10.6
10
20
5.0
5
4.5
10
1.5
0
0
London
including
AIM
NYSE
Nasdaq
Source: WFE (Financial Year End March)
1
Euronext
Luxembourg
2005
2006
as percentage of total number of foreign listed companies
Deutsche
Börse
Sep-06
Switzerland
Tokyo/HK
LSE
Lux
Source: PwC IPO Watch
US
DBAG/
ENXT
19
Broadening the international success story
AIM
•
54 international companies joined AIM
in H1 bringing the total to 283
•
Now 41 companies from China1 –
combined market capitalisation of $5bn
•
87 European companies
•
Regulatory review to develop AIM’s
international success
Geographic origin of non-UK companies
on AIM at 30 September 2006
22%
24%
2%
6%
17%
13%
16%
1
All with non-Chinese domicile
Europe
Aus/NZ
Canada
ME
FE
Other
USA
20
LSE price formation role goes global
Data on over 3,000 securities from 66 countries
Terminal numbers (’000)
6,000 growth in professional
terminals
●
Real-time market data
received in 105 countries
●
SEDOL – codes for 1.5m
securities in over 200
markets – improving market
efficiency on global scale
●
Proquote – international realtime data on 3,300 screens
109
110
104
100
●
98
95
90
90
80
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
21
Sustainable competitive advantage
•
Based on the principle of mutual advantage
•
Pricing strategy supports order book growth
•
Lowering the cost of trading through new pricing and product
1.20
Exchange Cash Trading Revenue as Proportion of
Domestic Equity Market Value Traded (June 2006)
1.05
Basis points extracted
1.00
0.91
0.80
0.67
0.60
0.40
0.20
LSE
Source: WFE and exchanges’ financial reporting
ENXT
DBAG
22
New technology fuels growth
•
TRM to complete in Q2 2007
•
Infolect has already reduced latency to under 2ms
•
TradElect – end to end latency will reduce to 10ms with 4-fold capacity increase
Growth in Trading Throughput1
700
600
500
400
300
200
100
1
Peak number of daily messages entered into the trading system per second
04/10/2006
Oct-06
04/04/2006
Apr-06
04/10/2005
Oct-05
04/04/2005
Apr-05
Oct-04
04/10/2004
04/04/2004
Apr-04
04/10/2003
Oct-03
04/04/2003
Apr-03
0
04/10/2002
Oct-02
Throughput (Units per second)
800
23
New technology platform
2,500+ Units
•
100% system reliability
•
Much faster execution
•
Much cheaper capacity upgrades
•
Multi-product capable
TradElect™
(June 2007)
Capacity
Trading Latency
600ms
Trading Capacity
Upgrade (Oct 05)
Upgrade
(Jan 03)
Infolect™ live September 2005
1,000 units (to be upgraded to 2,500+)
2ms Information latency
593 Units
Upgrade
(Nov 01)
SETS Go_Live Capacity
186 Units
300 Units
10 ms
100 Units
1997
2000
2003
2006
2007
24
SETS leads
Order book volume growth
60%
56%
53%
51%
Growth in average bargains/day YOY
6 months to September 30 2006
41%
40%
40%
37%
30%
26%
22%
20%
12%
0%
LSE
CBOE
CME
EUREX
ISE
ENXT
DBAG
LIFFE
NDAQ1
CBOT
LSE
Source : Exchange websites, Options Clearing Corp
1
Assumes all trades on order book
Other Cash exchanges
Derivatives exchanges
25
SETS growth
Well ahead of February 2006 forecast
Average bargains per
day (‘000)
400
2007 actuals
to date
350
Forecast
340
314
300
Forecast
255
250
223
200
170
150
100
FY 2005
FY 2006
FY 2007
FY 2008
26
A secular change
● Permanent shift in the nature of order flow
● New technology produces step change in efficiency
● OTC derivatives growth accelerates, improving liquidity on SETS
27
LSE races ahead of Eurex and LIFFE
Year on year growth in SETS value/volume vs total derivatives contracts traded
60%
50%
50%
47%
40%
30%
26%
23% 24%
20%
17%
25% 25%
20%
14%
10%
7%
5%
0%
CY 2004
Liffe contracts
Source: FESE, Exchange websites, Factsheets
CY 2005
Eurex contracts
2006 Jan-Sep
SETS value
SETS trades
28
Our market is in the midst of major change
•
40% of SETS trades from European hedge funds represent just 2% of FUM
•
SETSmm and IOB stocks show huge growth
•
New asset classes – ETFs and Exchange Traded Commodities
Growth in European funds under
management (FUM)
$bn 18,000
16,000
300
Conventional CAGR: 16%
14,000
Hedge Fund CAGR: 50%
250
12,000
10,000
200
8,000
150
Hedge funds
Conventional
350 $bn
6,000
100
4,000
50
2,000
Source : Eurohedge, IFSL
1
Estimate for conventional FUM
2001
1
2002
2003
Conventional
2004
Hedge fund
2005
29
Velocity
•
Stamp duty abolition should eliminate gap between LSE and its competitors
Turnover velocity (order book trading)
160%
138%
140%
120%
94%
100%
80%
62%
76%
68%
60%
40%
31%
20%
0%
1
2000
Source : FESE
1 Annualised September year to date
2006
SETS
Xetra
EXT
30
MiFID will improve efficiency across Europe
● MiFID is an opportunity to create a more efficient pan-European network
● SETS will continue to grow at the expense of off-book
● Barriers to efficiency in post trade infrastructure are also starting to
come down
31
Summary
The LSE’s unique global brand is enhanced by:
– Our principles-based regulatory regime
– An unrivalled pool of international talent
– The largest international pool of funds under management
– Exceptionally cost-efficient access to capital, and
– 200 years of integrity, experience and creativity
Our vision to be the world’s capital market is a reality today
32
Q&A
Appendix
Segmental Information
Six months ended 30 September
Operating Profit
Expenses
Revenue
2005
2006
2005
2006
2005
2006
£m
£m
£m
£m
£m
£m
Issuer Services
28.7
26.8
(17.9)
(16.6)
10.8
10.2
Broker Services
76.1
56.9
(25.8)
(28.4)
50.3
28.5
Information Services
50.9
45.1
(25.8)
(26.4)
25.1
18.7
Derivatives Services
4.4
3.9
(3.9)
(29.0)2
0.5
(25.1)2
Other
3.2
3.4
(3.3)
(3.5)
(0.1)
(0.1)
-
-
(5.3)
(7.1)
(5.3)
(7.1)
163.3
136.1
(82.0)
(111.0)
81.3
25.1
Corporate
Group
1
Excludes share of profit after tax of joint venture
2
Includes exceptional goodwill impairment and provision for EDX London
1
1
35