Release date: July 24, 2001
Contacts:
Investor Relations: Media Relations:
Harlan Flint Calvin Mitchell
Instinet Group Incorporated Instinet Group Incorporated
212 310 7264 212 310 7520
harlan.flint@instinet.com calvin.mitchell@instinet.com
INSTINET REPORTS 10% INCREASE IN NET INCOME IN SECOND QUARTER OF
2001, AND DILUTED EPS OF 18 CENTS SHARE OF US EQUITY
VOLUMES RISES TO RECORD 10.3%
NEW YORK, July 24, 2001 - Instinet Group Incorporated (Nasdaq: INET), the
world's largest electronic agency securities broker, today reported net earnings
of US$40.7 million for its fiscal second quarter ended June 30, 10% higher than
the comparable period in 2000. Diluted earnings per share remained unchanged at
US$0.18 compared to the same period in 2000 (on a pro forma basis).
"Instinet's share of total US equity market volumes in the second quarter
reached a record 10.3%," said Douglas Atkin, President and CEO of Instinet
Group. "We believe that liquidity and execution quality matter more in difficult
market conditions, and the value that Instinet offers to our market-making and
institutional clients was reflected in our second-quarter results."
Operating Highlights
- - During the second quarter, Instinet's market share in Nasdaq-quoted
trading volumes increased to 15.3% from 13.6% in the comparable period in
2000 and 15.1% in the first quarter of 2001.
- - Our customers used Instinet to trade 18.8 billion Nasdaq-quoted shares
during the quarter compared to 13.6 billion in the comparable period in
2000, a 38% increase.
- - Our NYSE-listed trading volume increased 15% to 2.6 billion shares
compared to the comparable period in 2000.
- - Our customers used Instinet to execute 27.2 million transactions in US
equity securities during the second quarter, a 39% increase on the
comparable period in 2000. In non-US equities, an additional 1.6 million
transactions were executed, 35% more than during the comparable period in
2000.
Revenues
Total revenues for the second quarter were $395 million, up 14% from the second
quarter of last year.
Transaction fee revenue increased 13% to $380 million from the comparable period
in 2000. This growth is primarily the result of a 34% rise in U.S. equity share
volumes, offset by a decrease in average revenue per share.
Our international transaction fee revenue represented approximately 24% of total
transaction fee revenue in the second quarter, compared to approximately 23% in
the comparable period in 2000.
Expenses
Operating expenses in the quarter were $322 million, up 14% from the year
earlier.
Compensation and benefits remain the largest element of costs at $121 million.
This category increased 19% from the comparable period in 2000 and represented
31% of total revenue. The increase was primarily attributable to an 18% rise in
average staff numbers to 2,256 from 1,914 in last year's second quarter.
This increase was partly offset by a decrease in professional fees, as expenses
related to external advisors declined.
During the second quarter, Instinet incurred expenses of $12 million related to
the ongoing development of its fixed income business, compared to $11 million in
the comparable period in 2000.
No expenses were incurred in the second quarter related to the company's retail
brokerage unit. All final shut-down costs were recorded in the first quarter.
Pre-tax Margins and Tax
Pretax margins in the second quarter were 18.4% compared to 19.0% in the second
quarter of last year. The provision for income taxes was $32 million in the
quarter, representing 44% of pretax income.
IPO
During the second quarter, Instinet successfully completed an initial public
offering by selling 36.8 million shares to the public at $14.50 a share. The
company's first day of trading under the "INET" stock symbol was May 18.
Following the IPO, our principal shareholder, Reuters Group PLC, continues to
hold approximately 85% of our outstanding shares.
Priorities and Expense Reduction Initiatives
Instinet's fundamental business has remained strong as evidenced by its market
share and financial performance. However, overall economic and market conditions
are in a period of relative weakness. In addition, there have been recent
changes in major equity markets, such as decimalization in the US and exchange
consolidation in Europe. These conditions have directly affected our customers
and other market participants, and the full impact on their businesses remains
to be seen. However, we believe that the benefits that Instinet delivers to
customers in terms of trading efficiency and improved investment performance
should enable the company to be successful.
In this environment, Instinet is placing increased focus on prudent cost
management. The company will focus resources on its key initiatives, and will
seek to reduce, defer or eliminate other expenses.
The primary criterion the company is using to establish its priorities is to
fund those initiatives designed to profitably increase trading volumes. We
expect that increased trade volumes will benefit Instinet's customers and
shareholders.
We have accordingly undertaken a review of spending initiatives with the aim of
reducing our underlying operating cost structure by $70 million annually
compared to the expense rate in the first half of this year. This will be
achieved by a reduction in world-wide staff counts of approximately 240 from
current levels, further cutbacks in the use of contractors and consultants, the
consolidation of some working groups and offices, and a reduction in
discretionary spending such as travel and advertising.
Instinet expects to initiate these cost reducing measures immediately, and
substantially complete the targeted reductions by the end of the third quarter.
Based on current estimates, we anticipate incurring the full cost of these
reductions in the third quarter with a one-time charge of approximately $25
million.
ProTrader Group
On July 23, 2001, Instinet signed a binding agreement to acquire ProTrader
Group, LP, a provider of advanced trading technologies and electronic brokerage
services, subject to regulatory approval. The acquisition excludes ProTrader's
proprietary trading business. The purchase price of $150 million will consist of
$50 million in cash and $100 million in Instinet stock. The transaction is
expected to be completed in the third quarter of 2001, and we do not anticipate
that it will be material to Instinet Group's 2001 financial results.
Webcast
A live audio webcast of a conference call to discuss Instinet's results will be
available from 10:30 am ET today on the Investor Relations section of our web
site at http://www.instinet.com/ir/webcast.shtml. On-demand replay of the
webcast will be available from approximately 2:00 p.m. today for 48 hours. A
transcript of the call will be available on our web site later this week.
About Instinet
Instinet, through affiliates, is the world's largest electronic agency
securities broker and has been providing investors with electronic trading
solutions for more than 30 years. Instinet operates an e-financial marketplace
where buyers and sellers worldwide can trade securities directly and anonymously
with each other, and have the opportunity to lower their overall trading costs.
Through its electronic platforms, customers also can access 40 securities
markets throughout the world, including Nasdaq, the NYSE and stock exchanges in
Frankfurt, Hong Kong, London, Paris, Sydney, Tokyo, Toronto and Zurich. Instinet
also provides its customers with access to research generated by Instinet and by
third parties, as well as various informational and decision-making tools. For
more information, please go to www.instinet.com.
# # #
This press release is for information purposes only and is not intended as an
offer or solicitation with respect to the purchase or sale of any security.
(C) 2001 Instinet Corporation and its affiliated companies. All rights reserved.
Member NASD/SIPC. INSTINET and the INSTINET Mark are service marks in the United
States and in other countries throughout the world. Approved for distribution in
the UK by Instinet UK Limited, which is regulated by the SFA and a member of the
LSE. Instinet Corporation is a subsidiary of Instinet Group Incorporated.
This news release may be deemed to include forward-looking statements relating
to Instinet. Certain important factors that could cause actual results to differ
materially from those disclosed in such forward-looking statements are described
in Instinet's prospectus contained in its registration statement on Form S-1,
filed with the SEC and available on its website, under the heading `Risk
Factors'. Certain information regarding Nasdaq trading volumes is also included
in the registration statement.
Instinet Group Incorporated
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three months ended June 30 Percent Chg
2001 2000 Incr/(Decr)
REVENUES
Transaction fees $ 379,727 $ 336,059 13.0 %
Interest 11,575 9,969 16.1
Investments 3,689 1,571 134.8
-------------- -------------
Total revenues 394,991 347,599 13.6
EXPENSES
Compensation and benefits 120,720 101,057 19.5
Communications and equipment 44,844 35,661 25.8
Soft dollar and commission recapture 54,228 46,349 17.0
Brokerage, clearing and exchange fees 36,224 35,845 1.1
Depreciation and amortization 20,505 18,002 13.9
Professional fees 9,275 20,824 (55.5)
Occupancy 14,473 9,133 58.5
Marketing and business development 8,577 7,733 10.9
Other 13,414 6,898 94.5
Total expenses 322,260 281,502 14.5
-------------- -------------
Income before income taxes 72,731 66,097 10.0
Provision for income taxes 32,001 29,083 10.0
-------------- -------------
Net income $ 40,730 $ 37,014 10.0 %
============== =============
-------------- -------------
Basic and diluted earnings per share $ 0.18 $ 0.18 -
============== =============
Weighted average shares outstanding - basic 222,675 206,900
Weighted average shares outstanding - diluted 223,122 206,900
Note: Shares outstanding and earnings per share prior to June 30, 2001 are pro
forma, based on the number of common shares that would have been held by Reuters
assuming Instinet's conversion into a corporation and a return of capital
payment of $150 million to Reuters.
Instinet Group Incorporated
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Six months ended June 30 Percent Chg
2001 2000 Incr/(Decr)
-------------- -------------
REVENUES
Transaction fees $ 795,190 $ 676,884 17.5%
Interest 24,382 18,183 34.1
Investments 6,094 1,060 474.9
-------------- -------------
Total revenues 825,666 696,127 18.6
EXPENSES
Compensation and benefits 254,505 195,391 30.3
Communications and equipment 90,235 64,558 39.8
Soft dollar and commission recapture 110,281 82,974 32.9
Brokerage, clearing and exchange fees 72,958 69,735 4.6
Depreciation and amortization 40,007 36,379 10.0
Professional fees 24,959 46,484 (46.3)
Occupancy 25,363 19,063 33.0
Marketing and business development 18,731 20,514 (8.7)
Other 26,417 19,061 38.6
-------------- -------------
Total expenses 663,456 554,159 19.7
-------------- -------------
Income before income taxes 162,210 141,968 14.3
Provision for income taxes 71,372 62,466 14.3
Net income $ 90,838 $ 79,502 14.3
============== =============
-------------- -------------
Basic and diluted earnings per share $ 0.42 $ 0.38 10.1%
============== =============
Weighted average shares outstanding - basic 214,831 206,900
Weighted average shares outstanding - diluted 215,060 206,900
Note: Shares outstanding and earnings per share prior to June 30, 2001 are pro
forma, based on the number of common shares that would have been held by Reuters
assuming Instinet's conversion into a corporation and a return of capital
payment of $150 million to Reuters.
Instinet Group Incorporated
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three months ended
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June 30, Mar 31, Dec 31, Sep 30, June 30, Mar 31, Dec 31, Sep 30, June 30, Mar 31,
2001 2001 2000 2000 2000 2000 1999 1999 1999 1999
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REVENUES
Transaction fees $ 379,727 $ 415,463 $380,705 $327,920 $336,059 $340,825 $250,622 $228,451 $232,751 $225,134
Interest
11,575 12,807 12,257 10,031 9,969 8,214 5,807 6,177 6,083 5,849
Investments
3,689 2,405 (1,645) 9,644 1,571 (511) 3,639 6,244 253 (1,566)
--------------------------------------------------------------------------------------------------
Total revenues 394,991 430,675 391,317 347,595 347,599 348,528 260,068 240,872 239,087 229,417
EXPENSES
Compensation and benefits 120,720 133,785 111,961 105,039 101,057 94,334 73,229 63,512 62,957 57,793
Communications and equipment 44,844 45,391 53,002 36,175 35,661 28,897 21,627 26,396 25,335 18,964
Soft dollar and commission
recapture 54,228 56,053 49,655 47,406 46,349 36,625 23,867 21,003 23,565 21,034
Brokerage, clearing and exchange
fees 36,224 36,734 34,986 32,725 35,845 33,890 23,098 19,319 17,998 18,551
Depreciation and amortization 20,505 19,502 21,267 20,075 18,002 18,377 19,176 18,057 16,991 16,982
Professional fees 9,275 15,684 26,249 22,523 20,824 25,660 25,796 15,998 11,628 9,315
Occupancy 14,473 10,890 8,827 10,360 9,133 9,930 9,439 5,970 5,631 6,056
Marketing and business development 8,577 10,154 8,018 4,147 7,733 12,781 7,645 10,022 3,092 2,688
Other 13,414 13,003 13,059 10,796 6,898 12,163 8,893 9,007 8,231 6,206
--------------------------------------------------------------------------------------------------
Total expenses 322,260 341,196 327,024 289,246 281,502 272,657 212,770 189,284 175,428 157,589
Income before income taxes 72,731 89,479 64,293 58,349 66,097 75,871 47,298 51,588 63,659 71,828
Provision for income taxes 32,001 39,371 28,288 25,674 29,083 33,383 19,577 21,713 26,771 30,194
--------------------------------------------------------------------------------------------------
Net income $ 40,730 $ 50,108 $ 36,005 $ 32,675 $ 37,014 $ 42,488 $ 27,721 $ 29,875 $ 36,888 $ 41,634
==================================================================================================
--------------------------------------------------------------------------------------------------
Basic and diluted earnings
per share $ 0.18 $ 0.24 $ 0.17 $ 0.16 $ 0.18 $ 0.21 $ 0.13 $ 0.14 $ 0.18 $ 0.20
==================================================================================================
Weighted average shares
outstanding - basic 222,675 206,900 206,900 206,900 206,900 206,900 206,900 206,900 206,900 206,900
Weighted average shares
outstanding - diluted 223,122 206,900 206,900 206,900 206,900 206,900 206,900 206,900 206,900 206,900
Note: Shares outstanding and earnings per share for quarters prior to June 30,
2001 are pro forma, based on the number of common shares that would have been
held by Reuters assuming Instinet's conversion into a corporation and a return
of capital payment of $150 million to Reuters.
Instinet Group Incorporated
KEY STATISTICAL INFORMATION
The following table presents key transaction volume information, as well as
certain other operating information.
Three months ended
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June 30, Mar 31, Dec 31, Sep 30, June 30, Mar 31, Dec 31, Sep 30, June 30, Mar 31,
2001 2001 2000 2000 2000 2000 1999 1999 1999 1999
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Total U.S. market share volume
(millions)(1) 208,587 222,389 212,642 171,756 173,683 196,112 152,868 120,097 123,108 118,778
Our total U.S. market share volume
(millions)(1) 21,389 22,742 20,500 15,472 15,922 14,817 11,298 9,972 10,023 9,854
Our percentage of total U.S. market share
volume(1) 10.3% 10.2% 9.6% 9.0% 9.2% 7.6% 7.4% 8.3% 8.1% 8.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Nasdaq share volume (millions)(2) 122,656 132,707 128,189 100,042 100,656 113,865 83,680 63,472 62,674 60,282
Our Nasdaq share volume (millions)(2) 18,776 20,053 17,819 13,072 13,645 12,854 9,710 8,461 8,566 8,475
Our percentage of Nasdaq share volume(2) 15.3% 15.1% 13.9% 13.1% 13.6% 11.3% 11.6% 13.3% 13.7% 14.1%
- ------------------------------------------------------------------------------------------------------------------------------------
NYSE share volume (millions) 85,931 89,682 84,453 71,714 73,027 82,247 69,188 56,625 60,434 58,496
Our NYSE share volume (millions) 2,613 2,689 2,681 2,400 2,277 1,963 1,588 1,511 1,457 1,379
Our percentage of NYSE share volume 3.0% 3.0% 3.2% 3.4% 3.1% 2.4% 2.3% 2.7% 2.4% 2.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Our U.S. equity transaction volume
(thousands) 27,208 27,488 25,757 18,986 19,594 18,101 12,446 10,408 11,221 10,828
Our international equity transaction
volume (thousands) 1,622 1,702 1,469 1,217 1,203 1,293 789 656 811 572
Our total equity transaction volume
(thousands) 28,830 29,190 27,226 20,203 20,797 19,393 13,235 11,064 12,031 11,399
- ------------------------------------------------------------------------------------------------------------------------------------
Our average U.S. equity transaction size
(shares per transaction) 786 827 796 815 813 819 908 958 893 910
Our average equity transactions per day
(thousands) 457 471 432 321 330 308 207 173 191 187
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Full time employees at period end 2,244 2,267 2,210 2,098 2,007 1,842 1,594 1,479 1,315 1,223
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1. U.S. shares consist of shares of NYSE-listed and Nasdaq-quoted stocks.