Press releases 2005
13 July 2005
ANNUAL GENERAL MEETING
Good afternoon, ladies and gentlemen. I am pleased to welcome you to Merchant Taylors’ Hall for the annual general meeting of London Stock Exchange plc.
As there is a quorum present, we can start the annual general meeting.
To avoid interruptions would you please ensure that all mobile phones are switched off.
On the platform with me are:
Nigel Stapleton – Chairman of The Remuneration Committee, Oscar Fanjul, Janet Cohen, Peter Meinertzhagen, Clara Furse – Chief Executive, Lisa Condron – Company Secretary, Gary Allen – Chairman of The Audit Committee, Jonathan Howell – Finance Director and Robert Webb.
Before moving to the formal business of the AGM, I would like to say a few words.
Today is an opportunity for our shareholders to review the progress of the company over the last year and to look ahead at its prospects.
It has been an eventful period, certainly since the unsolicited approaches by Deutsche Börse and Euronext last December. I will cover them later.
But first your company – clearly the pre-eminent equity market in Europe –with the goal of becoming the world’s most highly rated equity exchange business. Two key strengths will help us achieve this:
• First, the virtuous circle we have created in the London equity market, which anticipates and meets customers’ needs through innovation in our market and investment in technology, which deepens the liquidity of companies’ shares and drives down the cost of trading. This in turn attracts new companies from all around the world and continuously builds our business.
• Second, our ability to be a force for change and improvement in global capital markets, based on our international position in London, the City’s expertise and its abundant investors, and our reputation as the venue of choice for issuers from around the world.
The result has been a rising trend of trading volumes on our Main Market and AIM, and more companies than ever raising capital over the past year, together further strengthening the City of London’s position as a global financial centre.
Let me give you some figures that illustrate how we are meeting our goal:
• the London Stock Exchange is by far the largest equity exchange by value traded in Europe - £2.8 trillion in 2004 - more than twice that of Euronext, our nearest European rival, and third in the world;
• we are one of the most cost efficient of all the world’s major exchanges;
• last year we attracted 80% of all western European Initial Public Offerings, amounting to 366 new companies; and
• we handled 45% - £1.2 trillion - of the total global trading in foreign equities, which itself grew in value by over half in 2004.
In the past year we have built on the strength of our business model, and delivered growth in all key areas of the business. We have achieved this through strong relationships with our customers, improvements to the efficiency of our market, such as SETSmm, and heavy investment to keep us at the leading edge of exchange technology. At the same time we have encouraged additional trading through price discounts for higher trading volumes, further reinforcing our competitiveness in the global market place.
Our financial results for the past year bear out the progress we have made in strengthening our business. Turnover was up 4 per cent to £260 million despite an £8m reduction in issuer tariffs. Adjusted basic earnings per share increased 11 per cent, reflecting in part the share consolidation associated with the special dividend of £163 million paid last August.
The quality of our earnings and the ability of our business to generate cash underpin our dividend policy and the Board is proposing a final dividend of 5 pence per share. This takes the total dividend for the year to 7 pence - a payment of £18 million, up 26 per cent on the previous year.
We are dedicated to building on this success and we are positioning our markets to deliver what our customers, our investors and our companies, great and small, need as global capital markets go through a period of rapid change.
Let me explain what we are doing in detail:
First, meeting our customers’ needs – we play a vital role in reducing companies’ cost of capital, in the UK and across Europe. In order to compete, companies of all sizes need cost-effective access to the investment capital that is abundant in London. We work closely with the banks and brokers to grow trading volumes, to deepen the pool of liquidity available to companies and to lower the cost of accessing the equity capital markets. The results speak for themselves - over the last three years we have admitted nearly 1000 new companies to our markets, delivered an increase in trading volumes of 36 per cent and a reduction in FTSE 100 headline spreads between the bid and offer price of 56 per cent.
We have attracted new types of business onto our trading platforms. Our services and prices reflect the impact our new technology is having on the way that investors and market participants are using the equity markets, especially in the highly sophisticated areas of trading, such as statistical arbitrage or “black box” trading.
These changes all contributed to record order book volumes last year. Five years ago the average daily volume was 25,000 trades per day. Last year we averaged over 170,000 bargains per day, achieving growth in overall bargains of 14 per cent – and that against a backdrop of negative cash equity growth on other exchanges in Europe.
Other changes to our primary markets include new AIM indices, which will bring even more investor attention to our hugely successful growth company market, improving its attractiveness to companies and investors alike. This past year was our busiest year ever for new issues. The 366 IPOs launched on our markets represent a level of new business which outstripped every major exchange in the world.
Secondly, the cost efficiency of our trading platform is founded on our commitment to technology leadership. Our current programme of investment in new systems, the Technology Road Map, will extend that lead, enabling us to increase capacity at very low cost and diversify our product range more quickly and more simply than ever. This will facilitate easier and much cheaper access to our market, laying the foundation for further growth and development in the market place.
Thirdly, we have taken advantage of developments in the global economy as economic growth in China, India and Russia has leapt ahead of the ability of their capital markets to support it. This has given us an opportunity to benefit from their growth by helping them to access London’s international capital to fund their future expansion. This is why we opened our Asia office in Hong Kong last year. We have extended our lead in international listings, with 87 international companies joining the Main Market and AIM over the past year, including Air China and Sistema, the largest ever Russian IPO.
So what does all this mean for the London Stock Exchange?
It confirms that we have a sound business model and that we are delivering on our commitments to shareholders and customers. It means that we are strengthening our brand, thus increasing our influence and our ability to shape the economic environment in Europe in the years to come. It means that we are well-positioned to continue our growth and consolidate our position as the equity market of choice for companies and traders looking to Europe as the place to do business in the future.
For our shareholders, it means that we have delivered steady earnings growth through difficult times. Our adjusted EPS over the last five years has risen from 15.2p per share to 23.5p per share while our dividend has grown at an annual compounded rate of 22 per cent over the same period.
This year, our business is continuing to deliver, as you can see from our Q1 trading statement – a copy of which is available at the back of the room.
Turnover for the three months ended 30 June 2005 increased 13 per cent to £67.7 million. This strong performance was driven by a 40 per cent increase in Issuer Services’ turnover, reflecting a doubling in the number of new and further issues on our Main Market and AIM from 92 in the corresponding period last year to 184 this year – June alone saw 82 new issues, the highest monthly figure in recent history. Broker Services’ turnover increased 11 per cent with daily average trading on SETS, the electronic order book, up 27 per cent with a 13 percent growth in the value of shares traded. Information Services’ turnover rose six per cent reflecting growth in terminal numbers over the corresponding period last year.
This strong start to the new financial year demonstrates why our confidence is high.
It also explains why the other two leading European exchanges have been so keen to acquire the London Stock Exchange. Your Board has retained an open mind about the advantages of a possible combination. We recognise that if the right terms are achievable, a combination could be in the best interests of our shareholders. But this means there must be something in a combination which meets the expectations of investors, our customers and the many other stakeholders whose livelihoods depend, at least in part, on the health and future prosperity of the London Stock Exchange.
We have made every effort to assist the Competition Commission to understand the nature of our business and to reach a conclusion that will reconcile all of these varied interests. In doing so we have of course been mindful of our duty to you, our shareholders, and of the significant role the Exchange plays in the UK economy.
The Board recognises that the London Stock Exchange is at the heart of the most international capital market in the world. We are confident about our future and our ability to drive our strategy forward.
I would now like to invite any questions you may have in relation to the business of this AGM, rather than dealing with them as we go along.
Those wishing to ask questions should raise their hands and you will be handed a microphone. As you know, shareholders and duly authorised corporate representatives of corporations may speak but, in accordance with the Articles of Association, proxy holders are not entitled to speak, although they may do so with my agreement. It would be helpful, therefore, when you wish to speak, if individual shareholders and corporate representatives would show the purple voting card you were given at the registration desk.
May I therefore request any questions from the floor and I ask that you state your name and, if appropriate, the company which you represent before asking your questions