REPORT OF INDEPENDENT AUDITORS
| To: | The Board of Directors OM London Exchange Limited |
We have audited the accompanying balance sheets of OM London Exchange Limited as of 30 June 2002 and 31 December 2001 and 2000, and the related profit and loss accounts and statements of cash flows and movements in shareholders’ equity for the six month period ended 30 June 2002 and for each of the three years in the period ended 31 December 2001. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards and United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OM London Exchange Limited at 30 June 2002 and 31 December 2001 and 2000, and the results of its operations and its cash flows for the six-month period ended 30 June 2002 and for each of the three years in the period ended 31 December 2001 in conformity with accounting principles generally accepted in the United Kingdom which differ from those generally accepted in the United States (see Note 22 of Notes to the Financial Statements).
Ernst & Young LLP
London, England
April 28, 2003
OM LONDON EXCHANGE LIMITED
Report and Financial Statements
For the period 1 January 2002 to 30 June 2002
OM London Exchange Limited
DIRECTORS
P Cox
C Gilchrist
K Hessius
C Fritz
N Nicholls
SECRETARY
D Oliver
AUDITORS
Ernst & Young LLP
Rolls House
7 Rolls Buildings
Fetter Lane
London EC4A 1NH
REGISTERED OFFICE
131 Finsbury Pavement
London EC2A 1NT
1
OM London Exchange Limited
The directors submit their report and financial statements for the period 1 January 2002 to 30 June 2002.
PRINCIPAL ACTIVITIES
OM London Exchange is a Recognised Investment Exchange in the United Kingdom and is regulated by the Financial Services Authority. It has held this status since its inauguration as OM London in 1989.
The company’s principal activity consists of the provision of electronic exchange and clearing services, primarily destined for the trading of derivative financial instruments.
Current products offered include Scandinavian financial derivatives comprising of futures and options contracts on Scandinavian stocks, stock Indices, and fixed income products.
OM London Exchange also offers exchange trading of a variety of electricity contracts, combined with clearing services for the UK electricity market, under the UK Power Exchange (UKPX) brand.
Other product offerings include derivative products on wood pulp and the provision of a cross-border stock exchange for European and US equities under the trade name Jiway.
BUSINESS REVIEW
An analysis of turnover is provided in note 3 to the financial statements. In the first half of 2002 volumes were lower by around 11% across the board. Contract fees, in contrast, decreased by approximately 45%. The disproportionate effect results from two factors, firstly the fact that 2001 income is strongly weighted towards Q1 and secondly the 2001 fee reduction did not take full effect until Q2. In contrast, 2002 fees were all charged at the reduced rate and, in addition, volumes decreased.
Other Income benefits from a one off TSEK 12,000 recovery of Jiway VAT, from Jiway member licence income (not present in 2001 comparatives) and from increased licence income from UKPX licence agreements, contributing to a threefold increase in other revenues. Collateral Income reflects the decrease in 2002 volumes.
Developments in the spot market for U.K. electricity have been in line with expectations. OM London Exchange has captured the majority of exchange traded business market share and over 40 qualified market participants. In April 2002 UKPX launched OTC clearing services for UK Power contracts with the expectation that the market would build up interest over a period of time.
RESULTS
The net result for the period was a loss of TSEK 63,277 (six months to 30 June 2001 (unaudited): loss of TSEK 7,861; 2001: loss of TSEK 48,527; 2000: profit of TSEK 38,328; 1999: profit of TSEK 12,359). The full results for the period are set out in the profit and loss account on page 8. No interim or final dividend is proposed.
The company has continued to make losses in the year to date since 30 June 2002.
DEVELOPMENTS
OM London Exchange offerings are under constant review and continued uncertainty in world financial markets combined with the innovative nature of the Jiway offering meant that the timing of returns on this product became less certain.
In the final quarter of 2002, in the light of this ambiguity, a decision was made to cease operating the Jiway exchange offering. The exchange had a duty to close the market in an orderly manner and this was accomplished on plan on 31 January 2003.
Building upon the success of the core exchange business and in keeping with its goal of spearheading international growth for the OM group, OM London Exchange held talks with the London Stock Exchange (LSE) in 2002 with a view finding areas of potential co-operation.
2
OM London Exchange Limited
DEVELOPMENTS(continued)
The approach culminated in an agreement, signed on 8 December 2002, to build an international equity derivatives business, based on the existing OM London Exchange Scandinavian derivatives business, OM Technology trading platforms and the cash equity franchise of the London Stock Exchange.
In 2003, the securities trading arm of OM London Exchange is to be transferred, for a total consideration of £24 million, to a new company, EDX London Ltd which will be jointly owned by OM and LSE (24%: 76%). This transaction is due to complete in the second quarter of 2003 upon the fulfilment of the sale conditions.
OM London Exchange will continue to act as the clearing house, and hence the guarantor of trades, for EDX London until a time, expected to be in the fourth quarter of 2003, when that role is taken over by the London Clearing House.
The transfer will underpin the future growth of the securities business, under the auspices of LSE, whilst freeing up resources to further develop the current OM London Exchange offerings, principally the UK Power Exchange.
CHANGE OF ACCOUNTING REFERENCE DATE
On 19 December 2002 the directors decided to change the company’s accounting reference date from 31 December 2002 to 30 June 2002.
FUTURE DEVELOPMENTS
In 2003, OM London Exchange will concentrate on the UK Power Exchange product, focus will be on increased marketing and sales efforts, co-ordinated with further product development. Planned new products include the introduction of UKPX DART, a day-ahead price index for UK power, and the introduction of new forward instruments.
Greater attention will be paid to establishing deeper relations with customers on all levels of their organisation and a marketplace service will be introduced to encourage additional trading participation.
DIRECTORS AND THEIR INTERESTS
The following served as directors during the year:
| P Cox C Gilchrist K Hessius C Fritz N Nicholls A Whalley | (appointed 10 June 2002) (appointed 10 June 2002) (resigned 31 March 2002) |
There are no directors’ interests requiring disclosure under the Companies Act 1985.
POLITICAL AND CHARITABLE DONATIONS
No political or charitable donations were made during the period (30 June 2001: SEK Nil; 31 December 2001: SEK Nil; 2000: SEK Nil; 1999: SEK Nil).
3
OM London Exchange Limited
AUDITORS
A resolution to reappoint Ernst & Young LLP as auditors will be put to the members at the Annual General Meeting.
By order of the Board
Secretary
4
OM London Exchange Limited
Company law requires the directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing those financial statements, the directors are required to:
| • | select suitable accounting policies and then apply them consistently; | |
| • | make judgements and estimates that are reasonable and prudent; | |
| • | prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. |
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
5
INDEPENDENT AUDITORS’ UK REPORT TO THE MEMBERS OF OM LONDON EXCHANGE LIMITED
We have audited the company’s financial statements for the period ended 30 June 2002, which comprise Profit and Loss Account, Balance Sheet, Reconciliation of Shareholder’s Funds, Cash Flow Statement and the related notes 1 to 23. These financial statements have been prepared on the basis of the accounting policies set out therein.
This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As described in the Statement of Directors’ Responsibilities, the company’s directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards.
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with the company is not disclosed.
We read the Directors’ Report and consider the implications for our report if we become aware of any apparent misstatements within it.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
6
INDEPENDENT AUDITORS’ UK REPORT TO THE MEMBERS OF OM LONDON EXCHANGE LIMITED (continued)
Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of the company as at 30 June 2002 and of its loss for the period then ended and have been properly prepared in accordance with the Companies Act 1985.
Ernst & Young LLP
Registered Auditor
London
Date
7
OM London Exchange Limited
| Six months ended 30 June | Year ended 31 December | |||||||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||||||
| Notes | SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| Turnover | 3 | 104,202 | 94,892 | 175,302 | 187,082 | 109,600 | ||||||||||||||||||
| Administrative expenses | 4 | (164,679 | ) | (99,231 | ) | (223,728 | ) | (144,674 | ) | (89,257 | ) | |||||||||||||
OPERATING (LOSS)/PROFIT | 4 | (60,477 | ) | (4,339 | ) | (48,426 | ) | 42,408 | 20,343 | |||||||||||||||
| Interest receivable from fellow subsidiaries | — | 1,057 | 1,200 | 5,203 | 5,233 | |||||||||||||||||||
| Other interest receivable | 4,859 | 418 | 1,075 | 1,424 | 540 | |||||||||||||||||||
| Interest payable to parent company on subordinated debt | (3,328 | ) | (3,360 | ) | (6,922 | ) | (5,104 | ) | (6,750 | ) | ||||||||||||||
| Other interest payable | (4,331 | ) | (1,637 | ) | (5,647 | ) | (410 | ) | (507 | ) | ||||||||||||||
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION | (63,277 | ) | (7,861 | ) | (58,720 | ) | 43,521 | 18,859 | ||||||||||||||||
| Taxation | 7 | — | 3,638 | 10,193 | (5,193 | ) | (6,500 | ) | ||||||||||||||||
(LOSS)/PROFIT FOR THE FINANCIAL PERIOD/YEAR | (63,277 | ) | (4,223 | ) | (48,527 | ) | 38,328 | 12,359 | ||||||||||||||||
DIVIDENDS | ||||||||||||||||||||||||
| Ordinary dividend paid on equity shares | — | — | — | — | (45,000 | ) | ||||||||||||||||||
(LOSS)/PROFIT TRANSFERRED FROM/TO RESERVES FOR THE FINANCIAL PERIOD/YEAR | �� | (63,277 | ) | (4,223 | ) | (48,527 | ) | 38,328 | (32,641 | ) | ||||||||||||||
There were no recognised gains or losses other than the (loss)/profit for each financial period/year.
Loss/profit under United States generally accepted accounting principles is set out in note 22.
The notes to the financial statements are an integral part of these financial statements.
8
OM London Exchange Limited
| At 30 June | At 31 December | |||||||||||||||
| 2002 | 2001 | 2000 | ||||||||||||||
| Notes | SEK’000 | SEK’000 | SEK’000 | |||||||||||||
FIXED ASSETS | ||||||||||||||||
| Tangible assets | 9 | 147,498 | 149,924 | 35,796 | ||||||||||||
CURRENT ASSETS | ||||||||||||||||
| Debtors — amounts due within one year | 10 | 301,051 | 230,645 | 86,330 | ||||||||||||
| Debtors — amounts due after more than one year | 10 | 14,016 | 75,995 | 46,100 | ||||||||||||
| Cash at bank and in hand | 15, 16 | 2,778,210 | 2,147,898 | 2,214,889 | ||||||||||||
| 3,093,277 | 2,454,538 | 2,347,319 | ||||||||||||||
CREDITORS | ||||||||||||||||
| Amounts falling due within one year | 11 | 3,069,658 | 2,162,136 | 2,099,034 | ||||||||||||
NET CURRENT ASSETS | 23,619 | 292,402 | 248,285 | |||||||||||||
TOTAL ASSETS LESS CURRENT LIABILITIES | 171,117 | 442,326 | 284,081 | |||||||||||||
CREDITORS | ||||||||||||||||
| Amounts falling due after more than one year | 12 | 125,000 | 332,932 | 125,000 | ||||||||||||
PROVISIONS FOR LIABILITIES AND CHARGES | 13 | — | — | 1,160 | ||||||||||||
| 46,117 | 109,394 | 157,921 | ||||||||||||||
CAPITAL AND RESERVES | ||||||||||||||||
| Called up share capital | 100,000 | 100,000 | 100,000 | |||||||||||||
| Profit and loss account | (53,883 | ) | 9,394 | 57,921 | ||||||||||||
TOTAL SHAREHOLDER’S FUNDS | 46,117 | 109,394 | 157,921 | |||||||||||||
Signed on behalf of the Board
Director
Shareholder’s funds under United States generally accepted accounting principles are set out in note 22.
The notes to the financial statements are an integral part of these financial statements.
9
OM London Exchange Limited
| Total | ||||||||||||
| Profit | share- | |||||||||||
| Share | and loss | holder’s | ||||||||||
| capital | account | funds | ||||||||||
| SEK’000 | SEK’000 | SEK’000 | ||||||||||
| At 1 January 1999 | 100,000 | 52,234 | 152,234 | |||||||||
| Profit for the year ended 31 December 1999 | — | 12,359 | 12,359 | |||||||||
| Dividend | — | (45,000 | ) | (45,000 | ) | |||||||
| At 31 December 1999 | 100,000 | 19,593 | 119,593 | |||||||||
| Profit for the year ended 31 December 2000 | — | 38,328 | 38,328 | |||||||||
| At 31 December 2000 | 100,000 | 57,921 | 157,921 | |||||||||
| Loss for the year ended 31 December 2001 | — | (48,527 | ) | (48,527 | ) | |||||||
| At 31 December 2001 | 100,000 | 9,394 | 109,394 | |||||||||
| Loss for the period ended 30 June 2002 | — | (63,277 | ) | (63,277 | ) | |||||||
| At 30 June 2002 | 100,000 | (53,883 | ) | 46,117 | ||||||||
The notes to the financial statements are an integral part of these financial statements.
10
OM London Exchange Limited
| Six months ended 30 June | Year ended 31 December | |||||||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||||||
| Note | SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES | 16 | (a) | 647,749 | (187,250 | ) | (129,663 | ) | 662,773 | 89,119 | |||||||||||||||
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE | 16 | (b) | (2,800 | ) | (3,522 | ) | (10,294 | ) | 1,112 | (1,483 | ) | |||||||||||||
TAXATION | 16 | (b) | — | (1,267 | ) | (1,142 | ) | (6,968 | ) | (15,057 | ) | |||||||||||||
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT | 16 | (b) | (14,637 | ) | (94,346 | ) | (133,823 | ) | (29,967 | ) | (3,239 | ) | ||||||||||||
EQUITY DIVIDENDS PAID | 16 | (b) | — | — | — | — | (45,000 | ) | ||||||||||||||||
FINANCING | 16 | (b) | — | — | 207,932 | — | — | |||||||||||||||||
INCREASE/(DECREASE) IN CASH | 630,312 | (286,385 | ) | (66,990 | ) | 626,950 | 24,340 | |||||||||||||||||
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
| Six months ended 30 June | Year ended 31 December | |||||||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||||||
| Note | SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| Increase/(decrease) in cash | 630,312 | (286,385 | ) | (66,990 | ) | 626,950 | 24,340 | |||||||||||||||||
| Decrease/(increase) in debt due after one year | 207,932 | — | (207,932 | ) | — | — | ||||||||||||||||||
| Movement in net funds | 838,244 | (286,385 | ) | (274,922 | ) | 626,950 | 24,340 | |||||||||||||||||
NET FUNDS AT 1 JANUARY | 1,814,966 | 2,089,888 | 2,089,888 | 1,462,938 | 1,438,598 | |||||||||||||||||||
NET FUNDS AT 30 JUNE / 31 DECEMBER | 16 | (c) | 2,653,210 | 1,803,503 | 1,814,966 | 2,089,888 | 1,462,938 | |||||||||||||||||
Cash flows under United States generally accepted accounting principles are set out in note 22.
The notes to the financial statements are an integral part of these financial statements.
11
| OM London Exchange Limited NOTES TO THE FINANCIAL STATEMENTS | ||
| 1. | NATURE OF BUSINESS AND BASIS OF PREPARATION | |
| Organisation | ||
| The company is a recognised investment exchange in the United Kingdom and is regulated by the Financial Services Authority. | ||
| A range of futures and options on Swedish, Norwegian and Danish stocks and on the OMX (Swedish), OBX (Norwegian) and KFX (Danish) Indices are traded. In addition, the Exchange trades Swedish bond futures contracts and clears several Swedish denominated Interest rate products. The Exchange also trades in pulp contracts and electricity futures. | ||
| The majority of clearing turnover is Swedish Krona denominated with expenses incurred in Swedish Krona and sterling. | ||
| The accompanying financial statements have been prepared under both UK GAAP and US GAAP. Since the company is registered with SEC, it is required to provide US GAAP disclosures in order to meet certain SEC requirements. Note 22 to the financial statements provides reconciliations of differences between the UK GAAP and US GAAP. | ||
| The company has changed its accounting reference date from 31 December to 30 June. The change in accounting reference date and SEC disclosure rules relating thereto require prior years’ information to be presented in a specified manner. In accordance with such requirements these financial statements include unaudited comparative profit and loss account and cash flow statements for the six-month period ended 30 June 2001. In addition, the information on profit and loss and cash flows for the years ended 31 December 2001, 2000 and 1999 has been presented. The comparative balance sheets have been disclosed for the years ended 31 December 2001 and 31 December 2000. The reconciliation of shareholder’s funds has been presented for the years ended 31 December 1999, 2000, 2001 and the six month period ended 30 June 2002. | ||
| 2. | ACCOUNTING POLICIES | |
| Accounting convention | ||
| The financial statements are prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. | ||
| Turnover | ||
| Turnover represents fees received for operating the marketplace and clearing house for financial derivatives together with other fees. All fees were derived in the United Kingdom and are net of VAT. Turnover includes net interest income on collateral. | ||
| The company uses a trade date basis of accounting. | ||
| Tangible fixed assets | ||
| Tangible fixed assets are stated at cost less amounts written off and are depreciated over their useful lives on a straight-line basis. | ||
| Furniture, fixtures and office equipment — 5 years Leasehold improvements — 10 years |
12
| 2. | ACCOUNTING POLICIES(continued) | |
| Foreign currency | ||
| Due to the number and significance of Krona transactions and as most of the company’s assets and liabilities are denominated in Krona, the company’s financial statements are prepared in Swedish Krona. | ||
| Transactions in currencies other than Swedish Krona are recorded in Swedish Krona at the rate ruling at the time of the transaction. Any gain or loss arising from a change in exchange rates, subsequent to the date of the transaction, is included as an exchange gain or loss in the profit and loss account. | ||
| Monetary assets and liabilities are recorded in the balance sheet in the currency in which they are held or are to be settled and are valued at the rate of exchange ruling at the balance sheet date. | ||
| Operating leases | ||
| Rentals payable and receivable under operating leases are charged/credited to the profit and loss account as incurred. Rental holidays are allocated over the lease term on a straight-line basis. | ||
| Deferred taxation | ||
| Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at the date that will result in an obligation to pay more, or a right to pay less or to receive more, tax. | ||
| Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. | ||
| Deferred tax is measured on an undiscounted basis at the tax rate that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. | ||
| Pension costs | ||
| The company contributes to a defined contribution scheme for the benefit of each eligible employee contributions are charged to the profit and loss account or on accrual basis. | ||
| Use of estimates | ||
| The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
13
| 3. | TURNOVER | |
| Turnover comprises the following: |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Contract fees | 46,337 | 71,158 | 119,851 | 150,237 | 89,294 | |||||||||||||||
| Other income | 48,330 | 10,627 | 24,473 | 12,602 | 8,126 | |||||||||||||||
| Interest received on collateral | 36,174 | 42,772 | 93,990 | 95,975 | 39,878 | |||||||||||||||
| Interest paid on collateral | (26,639 | ) | (29,665 | ) | (63,012 | ) | (71,732 | ) | (27,698 | ) | ||||||||||
| 104,202 | 94,892 | 175,302 | 187,082 | 109,600 | ||||||||||||||||
| Other income represents fees for trading terminals rented to OM members together with facilities management charges in respect of running the linked Norwegian Market. It also includes the lease rental earned on the sublet portion of the operating lease. Other income for the period ended 30 June 2002 benefits from SEK 12,000,000 write back of specific Jiway provisions in respect of license fees. | ||
| 4. | OPERATING (LOSS)/PROFIT |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| This is stated after charging/(crediting): | ||||||||||||||||||||
| Auditors’ remuneration — audit | 723 | 413 | 825 | 1,034 | 457 | |||||||||||||||
| — other | 382 | 521 | 1,042 | 689 | 612 | |||||||||||||||
| Depreciation and impairment of fixed assets | 16,785 | 7,698 | 18,101 | 2,095 | 2,243 | |||||||||||||||
| Loss on disposal of fixed assets | 279 | — | 1,595 | — | — | |||||||||||||||
| Operating lease rentals — property | 22,876 | 23,560 | 44,652 | 27,579 | 5,085 | |||||||||||||||
| Foreign exchange gains | (3,144 | ) | — | (925 | ) | (1,470 | ) | (2,500 | ) | |||||||||||
| 5. | DIRECTORS’ EMOLUMENTS |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Emoluments | 1,051 | 1,094 | 2,187 | 2,023 | 1,726 | |||||||||||||||
| Amounts paid to third parties in respect of directors’ services | 68 | 128 | 255 | 226 | 193 | |||||||||||||||
| Company contributions paid to money purchase pension schemes | 105 | 220 | 440 | 407 | 397 | |||||||||||||||
14
| 5. | DIRECTORS’ EMOLUMENTS(continued) |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| No. | No. | No. | No. | No. | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Members of money purchase pension schemes | 1 | 1 | 1 | 1 | 1 | |||||||||||||||
| The amounts in respect of the highest paid director are as follows: |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Emoluments | 1,051 | 1,094 | 2,187 | 2,023 | 1,726 | |||||||||||||||
| Company contributions paid to money purchase pension schemes | 105 | 220 | 440 | 407 | 397 | |||||||||||||||
| 6. | STAFF COSTS | |
| Employee costs during the period/year amounted to: |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Salaries | 34,620 | 17,576 | 44,989 | 24,442 | 19,602 | |||||||||||||||
| Social security costs | 3,679 | 1,946 | 4,646 | 2,702 | 2,310 | |||||||||||||||
| Other pension costs | 2,572 | 1,567 | 3,625 | 2,262 | 2,028 | |||||||||||||||
| 40,871 | 21,089 | 53,260 | 29,406 | 23,940 | ||||||||||||||||
15
| 6. | STAFF COSTS(continued) | |
| The average number of persons employed by the company during the period/year was as follows: |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| No. | No. | No. | No. | No. | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Jiway | 24 | — | — | — | — | |||||||||||||||
| Management | 3 | 2 | 3 | 2 | 2 | |||||||||||||||
| Trading | 10 | 12 | 15 | 15 | 13 | |||||||||||||||
| Clearing and finance | 12 | 12 | 15 | 13 | 9 | |||||||||||||||
| Marketing | 1 | 5 | 3 | 6 | 9 | |||||||||||||||
| Legal | 4 | 3 | 4 | 3 | 3 | |||||||||||||||
| Administration | 9 | 8 | 9 | 3 | 2 | |||||||||||||||
| IT | 5 | 1 | 6 | 3 | 1 | |||||||||||||||
| Development/UK PX | 21 | 16 | 20 | 7 | 3 | |||||||||||||||
| 89 | 59 | 75 | 52 | 42 | ||||||||||||||||
| 7. | TAXATION |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Current period/year corporation tax (credit)/charge | — | — | (3,373 | ) | 5,193 | 6,500 | ||||||||||||||
| Prior year over provision | — | (6,820 | ) | (6,820 | ) | — | — | |||||||||||||
| Deferred taxation | — | 3,182 | — | — | — | |||||||||||||||
| — | (3,638 | ) | (10,193 | ) | 5,193 | 6,500 | ||||||||||||||
| Reconciliation of statutory rate to effective rate of corporation tax: |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| % | % | % | % | % | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| United Kingdom statutory tax rate | 30.0 | 30.0 | 30.0 | 30.0 | 30.2 | |||||||||||||||
| Movement in unprovided deferred tax | (27.1 | ) | (11.1 | ) | (16.0 | ) | (3.5 | ) | (0.7 | ) | ||||||||||
| Disallowable expenses | (2.8 | ) | (59.4 | ) | (8.3 | ) | 0.8 | 4.2 | ||||||||||||
| Prior period adjustments | — | 86.8 | 11.6 | — | — | |||||||||||||||
| Other differences | (0.1 | ) | — | 0.1 | 5.4 | 0.8 | ||||||||||||||
| Group relief received for no consideration | — | — | — | (20.8 | ) | — | ||||||||||||||
| — | 46.3 | 17.4 | 11.9 | 34.5 | ||||||||||||||||
16
| 8. | DEFERRED TAX | |
| The unprovided amount of deferred tax on all timing differences is as follows: |
| 30 June | 31 December | |||||||||||
| 2002 | 2001 | 2000 | ||||||||||
| SEK’000 | SEK’000 | SEK’000 | ||||||||||
| Depreciation in advance of capital allowances | 2,598 | (4,060 | ) | (918 | ) | |||||||
| Other timing differences | 349 | 194 | 48 | |||||||||
| Losses carried forward | 15,949 | 12,943 | — | |||||||||
| Total deferred tax assets/(liabilities) | 18,896 | 9,077 | (870 | ) | ||||||||
| The amount of deferred tax provided as at 30 June 2001 is as follows: |
| 30 June | ||||
| 2001 | ||||
| (unaudited) | ||||
| SEK’000 | ||||
| Depreciation in advance of capital allowances | (3,230 | ) | ||
| Other timing differences | 48 | |||
| (3,182 | ) | |||
| 9. | TANGIBLE FIXED ASSETS |
| Furniture, | ||||||||||||
| fixtures | ||||||||||||
| Leasehold | and office | |||||||||||
| improvements | equipment | Total | ||||||||||
| SEK’000 | SEK’000 | SEK’000 | ||||||||||
| Cost: | ||||||||||||
| At 1 January 2000 | — | 16,760 | 16,760 | |||||||||
| Additions | — | 29,995 | 29,995 | |||||||||
| Disposals | — | (28 | ) | (28 | ) | |||||||
| At 31 December 2000 | — | 46,727 | 46,727 | |||||||||
| Additions | 121,635 | — | 121,635 | |||||||||
| Acquisitions | — | 12,285 | 12,285 | |||||||||
| Disposals | — | (2,306 | ) | (2,306 | ) | |||||||
| At 31 December 2001 | 121,635 | 56,706 | 178,341 | |||||||||
| Additions | 14,637 | — | 14,637 | |||||||||
| Disposals | — | (464 | ) | (464 | ) | |||||||
| At 30 June 2002 | 136,272 | 56,242 | 192,514 | |||||||||
17
| 9. | TANGIBLE FIXED ASSETS(continued) |
| Furniture, | ||||||||||||
| fixtures | ||||||||||||
| Leasehold | and office | |||||||||||
| improvements | equipment | Total | ||||||||||
| SEK’000 | SEK’000 | SEK’000 | ||||||||||
| Depreciation: | ||||||||||||
| At 1 January 2000 | — | 8,849 | 8,849 | |||||||||
| Charges | — | 2,095 | 2,095 | |||||||||
| Disposals | — | (14 | ) | (14 | ) | |||||||
| At 31 December 2000 | — | 10,930 | 10,930 | |||||||||
| Charges | 9,213 | 8,888 | 18,101 | |||||||||
| Disposals | — | (614 | ) | (614 | ) | |||||||
| At 31 December 2001 | 9,213 | 19,204 | 28,417 | |||||||||
| Charges | 6,909 | 3,290 | 10,198 | |||||||||
| Impairment loss | — | 6,587 | 6,587 | |||||||||
| Disposals | — | (186 | ) | (186 | ) | |||||||
| At 30 June 2002 | 16,122 | 28,894 | 45,016 | |||||||||
| Net book value: | ||||||||||||
| At 30 June 2002 | 120,150 | 27,348 | 147,498 | |||||||||
| At 31 December 2001 | 112,422 | 37,502 | 149,924 | |||||||||
| At 31 December 2000 | — | 35,797 | 35,797 | |||||||||
| The acquisitions in 2001 represent the net value of fixed assets taken over from Jiway as a part of the business acquisition in the prior year. In accordance with FRS 11 — ‘Impairment of fixed assets and goodwill’, the carrying values of the Jiway assets at 30 June 2002 have been compared to their estimated recoverable amounts and fully provided against. |
18
| 10. | DEBTORS |
| 30 June | 31 December | |||||||||||
| 2002 | 2001 | 2000 | ||||||||||
| SEK’000 | SEK’000 | SEK’000 | ||||||||||
| Trade receivables | 52,811 | 57,030 | 24,376 | |||||||||
| Amounts owed by group undertakings | 122,229 | 112,157 | 26,116 | |||||||||
| Tax receivables | 17,774 | 17,646 | 7,333 | |||||||||
| Other debtors | 60,868 | 95,944 | 53,822 | |||||||||
| Prepayments and accrued income | 61,385 | 23,863 | 20,783 | |||||||||
| 315,067 | 306,640 | 132,430 | ||||||||||
| Amounts falling due after more than one year included above are: | ||||||||||||
| Rental deposit | — | 46,100 | 46,100 | |||||||||
| Clearing deposit | 14,016 | 29,895 | — | |||||||||
| 14,016 | 75,995 | 46,100 | ||||||||||
| Trade receivables stated above are net of provision of SEK 835,000 (31 December 2001: SEK 2,000,000; 2000: SEK 2,000,000) in respect of old outstanding fee. |
| 30 June | 31 December | |||||||||||
| 2002 | 2001 | 2000 | ||||||||||
| SEK’000 | SEK’000 | SEK’000 | ||||||||||
| At 1 January | 2,000 | 2,000 | 2,000 | |||||||||
| Released during the period/year | (1,165 | ) | — | — | ||||||||
| At 30 June/31 December | 835 | 2,000 | 2,000 | |||||||||
| 11. | CREDITORS:amounts falling due within one year |
| 30 June | 31 December | |||||||||||
| 2002 | 2001 | 2000 | ||||||||||
| SEK’000 | SEK’000 | SEK’000 | ||||||||||
| Amounts owing to exchange members | 2,587,024 | 1,967,139 | 2,015,089 | |||||||||
| Trade payables | 98,331 | 62,881 | 23,493 | |||||||||
| Amounts owed to group undertakings | 323,988 | 87,076 | 1,846 | |||||||||
| Other creditors | 20,381 | 14,540 | 26,113 | |||||||||
| Taxation and social security | 1,621 | 2,444 | 5,629 | |||||||||
| Accruals and deferred income | 38,313 | 28,056 | 26,864 | |||||||||
| 3,069,658 | 2,162,136 | 2,099,034 | ||||||||||
| Included in amounts owed to group undertakings as at 30 June 2002 is SEK 207,932,000 subordinated debt (see note 12). |
19
| Included in other creditors are unpaid amounts due on the defined contribution pension scheme outstanding as at 30 June 2002 of SEK 1,000 (31 December 2001: SEK 2,000; 2000: SEK 2,000). |
20
| 12. | CREDITORS:amounts falling due after more than one year |
| 31 December | |||||||||||||
| 30 June | |||||||||||||
| 2002 | 2001 | 2000 | |||||||||||
| SEK’000 | SEK’000 | SEK’000 | |||||||||||
| Amounts repayable between one and two years: | |||||||||||||
| Subordinated debt issued to OM AB | 125,000 | 332,932 | 125,000 | ||||||||||
| The debt is repayable after a period of one year, subject to termination on two years’ notice given by each party. | ||
| It carries interest which is payable on a half-yearly basis on the equivalent rate for six-month Swedish Treasury bills. At 30 June 2002 this was 4.35% (31 December 2001: 3.73%; 2000: 4.16%). | ||
| The debt is subordinate to the rights of unsubordinated creditors and, in the event of liquidation, will be repaid only out of assets remaining after payment of sums in respect of such prior obligations. | ||
| 13. | PROVISIONS FOR LIABILITIES AND CHARGES |
| 31 December | |||||||||||||
| 30 June | |||||||||||||
| 2002 | 2001 | 2000 | |||||||||||
| SEK’000 | SEK’000 | SEK’000 | |||||||||||
| At 1 January | — | 1,160 | — | ||||||||||
| Provided during the year | — | — | 1,160 | ||||||||||
| Applied during the year | — | (1,160 | ) | — | |||||||||
| At 31 December | — | — | 1,160 | ||||||||||
| Provision was made in 2000 for the expected shortfall in lease receipts compared to the lease obligations on vacation of the lease of the company’s former premises. | ||
| 14. | SHARE CAPITAL |
| Ordinary | Ordinary | Ordinary | ||||||||||
| share capital | share capital | share capital | ||||||||||
| Authorised | Authorised | Authorised | ||||||||||
| 30 June | 31 December | 31 December | ||||||||||
| 2002 | 2001 | 2000 | ||||||||||
| 10,000,000 shares of GBP 1 each (£000) | 10,000 | 10,000 | 10,000 | |||||||||
| 10,000,000 shares of SEK 10 each (SEK’000) | 100,000 | 100,000 | 100,000 | |||||||||
21
| 14. | SHARE CAPITAL(continued) |
| Allotted, called up and fully paid | |||||||||||||
| 31 December | |||||||||||||
| 30 June | |||||||||||||
| 2002 | 2001 | 2000 | |||||||||||
| SEK’000 | SEK’000 | SEK’000 | |||||||||||
| 5,000,100 shares of GBP 1 each | 51,200 | 51,200 | 51,200 | ||||||||||
| 4,880,000 shares of SEK 10 each | 48,800 | 48,800 | 48,800 | ||||||||||
| 100,000 | 100,000 | 100,000 | |||||||||||
| The GBP shares are recorded at the historical exchange rate when issued. Shares rank pari passu in all respects. | ||
| 15. | MARGIN AND CLEARING FUND DEPOSITS | |
| The OM London Exchange operates a risk-based portfolio margining system, OMS II. It employs various techniques to minimise its exposure to loss in the event of default by a clearing member. Cash and non-cash collateral is held to cover daily margin calls. The cash deposits of clearing members are invested by the company and are disclosed in the balance sheet under cash and bank deposits. Cash collateral is only available to the company in the event of a member defaulting on its contractual duties with the company. |
| 31 December | |||||||||||||
| 30 June | |||||||||||||
| 2002 | 2001 | 2000 | |||||||||||
| SEK’000 | SEK’000 | SEK’000 | |||||||||||
| Cash collateral | 2,565,371 | 1,967,139 | 2,015,089 | ||||||||||
| Non-cash collateral: | |||||||||||||
| Securities held | 1,692,966 | 2,475,159 | 2,666,569 | ||||||||||
| Bank guarantees | 120,082 | 124,875 | 140,350 | ||||||||||
| The OM London Exchange is authorised by the Financial Services Authority to operate as a Recognised Investment Exchange and is also permitted to offer integrated clearing services. | ||
| One of the principal functions of a clearing house is to guarantee that all contracts traded will be honoured. This means that the clearing house becomes the counterparty to all transactions. | ||
| Concentrations of credit risk | ||
| Collateral is held at a variety of banks and custodians, which are constantly reviewed to monitor credit and concentration risk. |
22
| 16. | NOTES TO THE STATEMENT OF CASH FLOWS | |
| (a) Reconciliation of operating (loss)/profit to net cash inflow/(outflow) from operating activities |
| Six months ended 30 June | Year ended 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Operating (loss)/profit | (60,477 | ) | (4,339 | ) | (48,426 | ) | 42,408 | 20,343 | ||||||||||||
| Depreciation and impairment of fixed assets | 16,785 | 7,698 | 18,101 | 2,081 | 2,243 | |||||||||||||||
| Loss on disposal of fixed assets | 279 | — | 1,595 | — | — | |||||||||||||||
| Decrease/(increase) in debtors | (8,428 | ) | 954 | (162,875 | ) | (49,761 | ) | (19,618 | ) | |||||||||||
| Increase/(decrease) in creditors | 699,590 | (191,563 | ) | 61,942 | 668,045 | 86,151 | ||||||||||||||
| Net cash inflow/(outflow) from operating activities | 647,749 | (187,250 | ) | (129,663 | ) | 662,773 | 89,119 | |||||||||||||
| (b) Analysis of cash flows for headings netted in the statement of cash flows |
| Six months ended 30 June | Year ended 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE | ||||||||||||||||||||
| Interest received | 4,859 | 1,475 | 2,275 | 6,627 | 5,774 | |||||||||||||||
| Interest paid | (7,659 | ) | (4,997 | ) | (12,569 | ) | (5,515 | ) | (7,257 | ) | ||||||||||
| (2,800 | ) | (3,522 | ) | (10,294 | ) | 1,112 | (1,483 | ) | ||||||||||||
TAXATION | ||||||||||||||||||||
| Corporation tax paid | — | (1,267 | ) | (1,142 | ) | (6,968 | ) | (15,057 | ) | |||||||||||
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT | ||||||||||||||||||||
| Purchase of fixed assets | (14,637 | ) | (94,946 | ) | (133,920 | ) | (29,967 | ) | (3,239 | ) | ||||||||||
| Receipts from disposal of fixed assets | — | — | 97 | — | — | |||||||||||||||
| (14,637 | ) | (94,946 | ) | (133,823 | ) | (29,967 | ) | (3,239 | ) | |||||||||||
| Equity dividends | ||||||||||||||||||||
| Equity dividend paid | — | — | — | — | (45,000 | ) | ||||||||||||||
FINANCING | ||||||||||||||||||||
| Proceeds from subordinated debt issue | — | — | 207,932 | — | — | |||||||||||||||
23
| 16. | NOTES TO THE STATEMENT OF CASH FLOWS(continued) | |
| (c) Analysis of changes in net funds |
| At | ||||||||||||||||||||||||
| At | Reclassified to | At | 30 June | |||||||||||||||||||||
| 30 June | creditors due | 31 December | 2001 | |||||||||||||||||||||
| 2002 | Cashflow | within one year | 2001 | Cashflow | (unaudited) | |||||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | |||||||||||||||||||
| Cash collateral | 2,565,371 | 598,232 | 1,967,139 | 152,352 | 1,814,787 | |||||||||||||||||||
| Other cash at bank and in hand | 212,839 | 32,080 | 180,759 | 67,043 | 113,716 | |||||||||||||||||||
| 2,778,210 | 630,312 | — | 2,147,898 | 219,395 | 1,928,503 | |||||||||||||||||||
| Debt due after one year | (125,000 | ) | — | 207,932 | (332,932 | ) | (207,932 | ) | (125,000 | ) | ||||||||||||||
| 2,653,210 | 630,312 | 207,932 | 1,814,966 | 11,463 | 1,803,503 | |||||||||||||||||||
| At | ||||||||||||||||||||
| 30 June | At | At | ||||||||||||||||||
| 2001 | 31 December | 31 December | ||||||||||||||||||
| (unaudited) | Cash flow | 2000 | Cashflow | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| Cash collateral | 1,814,787 | (200,302 | ) | 2,015,089 | 658,022 | 1,357,067 | ||||||||||||||
| Other cash at bank and in hand | 113,716 | (86,083 | ) | 199,799 | (31,072 | ) | 230,871 | |||||||||||||
| 1,928,503 | (286,385 | ) | 2,214,888 | 626,950 | 1,587,938 | |||||||||||||||
| Debt due after one year | (125,000 | ) | — | (125,000 | ) | — | (125,000 | ) | ||||||||||||
| 1,803,503 | (286,385 | ) | 2,089,888 | 626,950 | 1,462,938 | |||||||||||||||
| At | At | |||||||||||
| 31 December | 1 January | |||||||||||
| 1999 | Cash flow | 1999 | ||||||||||
| SEK’000 | SEK’000 | SEK’000 | ||||||||||
| Cash collateral | 1,357,067 | 96,214 | 1,260,853 | |||||||||
| Other cash at bank and in hand | 230,871 | (71,874 | ) | 302,745 | ||||||||
| 1,587,938 | 24,340 | 1,563,598 | ||||||||||
| Debt due after one year | (125,000 | ) | — | (125,000 | ) | |||||||
| 1,462,938 | 24,340 | 1,438,598 | ||||||||||
24
| 17. | FINANCIAL COMMITMENTS | |
| Operating leases | ||
| The company leases the premises from which it operates on long-term leases. These obligations are included in the following disclosure. The minimum annual rentals under these leases are as follows: |
| 31 December | |||||||||||||
| 30 June | |||||||||||||
| 2002 | 2001 | 2000 | |||||||||||
| Property | Property | Property | |||||||||||
| SEK’000 | SEK’000 | SEK’000 | |||||||||||
| Payments due within one year; leases which expire: | |||||||||||||
| - after 5 years | 45,752 | 42,843 | 41,968 | ||||||||||
| 45,752 | 42,843 | 41,968 | |||||||||||
| Amounts due: | |||||||||||||
| 2003 | 45,752 | ||||||||||||
| 2004 | 45,752 | ||||||||||||
| 2005 | 45,752 | ||||||||||||
| 2006 | 45,752 | ||||||||||||
| 2007 | 45,752 | ||||||||||||
| Thereafter | 411,771 | ||||||||||||
| 640,531 | |||||||||||||
| A portion of the above lease has been sublet and the minimal annual rentals under these sub-leases are as follows: |
| 31 December | |||||||||||||
| 30 June | |||||||||||||
| 2002 | 2001 | 2000 | |||||||||||
| Property | Property | Property | |||||||||||
| SEK’000 | SEK’000 | SEK’000 | |||||||||||
| Receipts due within one year; leases which expire: | |||||||||||||
| - within 5 years | 5,197 | 4,629 | 10,620 | ||||||||||
| 5,197 | 4,629 | 10,620 | |||||||||||
| Amounts due: | |||||||||||||
| 2003 | 5,197 | ||||||||||||
| 2004 | 4,377 | ||||||||||||
| 2005 | 4,377 | ||||||||||||
| 2006 | 2,188 | ||||||||||||
| 16,139 | |||||||||||||
25
| 18. | PARENT UNDERTAKING AND CONTROLLING PARTY | |
| The company’s immediate parent undertaking is Stockholmbörsen. It has included the company in its group financial statements, copies of which are available from its registered office: Norrlandsgatan 31, SE-105-78, Stockholm, Sweden. | ||
| In the directors’ opinion, the company’s ultimate parent undertaking and controlling party is OM AB, which is incorporated in Sweden. Copies of its group financial statements, which include the company, are available from Norrlandsgatan 31, SE-105-78, Stockholm, Sweden. | ||
| 19. | PARENT COMPANY GUARANTEE | |
| In order to assure the position of OM London Exchange and Stockholmsbörsen (formerly “OM Stockholm Exchange AB”) as counterparties and to maximise funds available for member clearing, it is important that the market operates with sufficient capital resources. | ||
| OM London Exchange operates under a parent company guarantee issued by its direct parent company, Stockholmsbörsen, itself a wholly owned subsidiary of OM AB. | ||
| The guarantee covers OM London Exchange’s obligations to members arising from its exchange and clearing operations and is backed by Stockholmsbörsen’s risk-bearing capital of SEK 1 billion. | ||
| In addition, a credit insurance policy was put in place with AIG Europe (Ireland) Limited in 1999 which provided cover to OM London Exchange and Stockholmsbörsen against the risk arising from the defaults of members. This policy operated on a three-year rolling renewal basis and remained in effect until 16 February 2002. Subsequently it was replaced by a similar policy from OM Capital Insurance AG. OM Capital Insurance AG, whose ultimate parent is OM AB, is structured as a special purpose vehicle whose only purpose is to insure the counterparty risk of Stockholmsbörsen and OM London Exchange. It operates in Switzerland as an authorised insurance company and as such maintains paid in reserves and, in addition, substantially reinsures its obligations through external companies. | ||
| The combined effect of the insurance policy and the Stockholmsbörsen guarantee is that the total pool of assets available to fulfil clearing obligations owed to members of OM London Exchange is approximately SEK 2 billion. The guarantee can only be terminated by Stockholmsbörsen giving three months’ advance notice to the members of Stockholmsbörsen and OM London Exchange. | ||
| 20. | ACQUISITION OF BUSINESS | |
| In 2001, OM London Exchange acquired the operations of the Jiway market from Jiway Limited, which was previously owned by OM AB (60%) and Morgan Stanley International (40%). The accounting methodology used is consistent with both acquisition accounting for UK GAAP and purchase accounting for US GAAP. | ||
| 21. | RELATED PARTY TRANSACTIONS | |
| During the period/year the company entered into transactions, in the ordinary course of business, with other group undertakings. Transactions entered into are as follows: |
| 30 June | 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Administrative expenses | 54,705 | 34,098 | 80,072 | 47,430 | 14,700 | |||||||||||||||
| The amount due from and due to group undertakings are disclosed in notes 10 and 11 respectively. |
26
| 22. | DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES | |
| Accounting principles | ||
| The company’s financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom (“UK GAAP”), which differ from United States generally accepted accounting principles (“US GAAP”). The significant differences as they apply to the company are summarised below. | ||
| Impairment loss on fixed assets | ||
| Under UK GAAP the impairment loss on fixed assets is included in the depreciation charge, whereas under US GAAP this loss is deducted from the cost of the assets. | ||
| Deferred taxation | ||
| In the accounting periods of 2000 and earlier, the company provided for deferred taxation, using the liability method, on timing differences which would probably reverse. Deferred tax was not provided on timing differences which, in the opinion of the directors, would not reverse. Deferred taxation assets were only recognised if recovery without replacement by equivalent debit balances was reasonably certain. Under US GAAP, deferred taxation is provided using the liability method on all temporary differences and deferred tax assets are recognised to the extent that their realisation is more likely than not. As a result of adoption of FRS 19, the UK GAAP treatment of deferred taxation applied by the company is consistent with the US GAAP treatment. Reconciliations of profit for the year and shareholders’ equity assuming US GAAP had been applied are as follows: |
| Six months ended 30 June | Year ended 31 December | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| (Loss)/ profit for the period/year as reported under UK GAAP | (63,277 | ) | (4,223 | ) | (48,527 | ) | 38,328 | 12,359 | ||||||||||||
| Adjustment relating to deferred taxation | — | — | 870 | (1,160 | ) | (131 | ) | |||||||||||||
| (Loss)/profit as adjusted to accord with US GAAP | (63,277 | ) | (4,223 | ) | (47,657 | ) | 37,168 | 12,228 | ||||||||||||
| Equity shareholder’s funds as reported under UK GAAP | 46,117 | 153,698 | 109,394 | 157,921 | 119,593 | |||||||||||||||
| Cumulative adjustments relating to deferred taxation | — | — | — | (870 | ) | 290 | ||||||||||||||
| Equity shareholder’s funds as adjusted to accord with US GAAP | 46,117 | 153,698 | 109,394 | 157,051 | 119,883 | |||||||||||||||
27
| 22. | DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued) | |
| Cash Flow Statement | ||
| The cash flow statements prepared under UK GAAP present substantially the same information as those required under US GAAP. UK GAAP and US GAAP differ, however, with regard to classification of items within the statements and as regards the definition of cash and cash equivalents. | ||
| Under US GAAP, cash and cash equivalents do not include cash collateral and bank overdrafts whereas they are included under UK GAAP. US GAAP requires only three categories of cash flow activity to be reported: operating (including cash flows from cash collateral), investing and financing (including movements in bank overdrafts). Cash flows from taxation and returns on investments and servicing of finance, shown separately under UK GAAP, would be included as operating activities under US GAAP, except for dividends paid which would be included as financing activities. | ||
| The categories of cash flow under US GAAP can be summarised as follows: |
| Year ended 31 December | ||||||||||||||||||||
| 30 June | 30 June | |||||||||||||||||||
| 2002 | 2001 | 2001 | 2000 | 1999 | ||||||||||||||||
| SEK’000 | SEK’000 | SEK’000 | SEK’000 | SEK’000 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Cash inflow/(outflow) from operating activities | 46,717 | 8,863 | (93,149 | ) | (1,105 | ) | (23,635 | ) | ||||||||||||
| Cash outflow on investing activities | (14,637 | ) | (94,946 | ) | (133,823 | ) | (29,967 | ) | (3,239 | ) | ||||||||||
| Cash inflow (outflow) from financing activities | — | — | 207,932 | — | (45,000 | ) | ||||||||||||||
| Increase/decrease in cash and cash equivalents | 32,080 | (86,083 | ) | (19,040 | ) | (31,072 | ) | (71,874 | ) | |||||||||||
| Cash and cash equivalents at 1 January | 180,759 | 199,799 | 199,799 | 230,871 | 302,745 | |||||||||||||||
| Cash and cash equivalents at 30 June / 31 December | 212,839 | 113,716 | 180,759 | 199,799 | 230,871 | |||||||||||||||
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| 23. | SUBSEQUENT EVENTS | |
| OM London Exchange offerings are under constant review and continued uncertainty in world financial markets combined with the innovative nature of the Jiway offering meant that the timing of returns on this product became less certain. | ||
| In the final quarter of 2002, in the light of this ambiguity, a decision was made to cease operating the Jiway exchange offering. The exchange had a duty to close the market in an orderly manner and this was accomplished on plan on 31 January 2003. | ||
| Building upon the success of the core exchange business and in keeping with its goal of spearheading international growth for the OM group, OM London Exchange held talks with the London Stock Exchange (LSE) in 2002 with a view finding areas of potential co-operation. | ||
| The approach culminated in an agreement, signed on 8 December 2002, to build an international equity derivatives business, based on the existing OM London Exchange Scandinavian derivatives business, OM Technology trading platforms and the cash equity franchise of the London Stock Exchange. | ||
| In 2003, the securities trading arm of OM London Exchange is to be transferred, for a total consideration of £24 million, to a new company, EDX London Ltd which will be jointly owned by OM and LSE (24%: 76%). This transaction is due to complete in the second quarter of 2003 upon the fulfillment of the sale conditions. | ||
| OM London Exchange will continue to act as the Clearing House, and hence the guarantor of trades, for EDX London until a time, expected to be in the fourth quarter of 2003, when that role is taken over by the London Clearing House. | ||
| The transfer will underpin the future growth of the securities business, under the auspices of LSE, whilst freeing up resources to further develop the current OM London exchange offerings, principally the UK Power Exchange. | ||
| On 1 April 2003, premises operating leases and the related leasehold improvements were transferred to OM Technology. |
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