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London Stock Exchange Chairman's Statement - Creating Opportunities, Delivering Results

Date 06/11/2001

2001 is proving to be a momentous year for your company. Not only is it 200 years since the formation of the first regulated market in London, the organisation that became London Stock Exchange plc, but it is also the year in which we completed our transition from a mutual entity to a listed public company. Listing marked an important milestone in the Exchange's commercial development. We now have the flexibility to exploit strategic opportunities in pursuit of our primary objective - maximising shareholder value. While we are disappointed that the Board of LIFFE did not share our vision for the creation of a combined business and an integrated trading platform for securities and derivatives, we are engaged in other opportunities to broaden the scope and scale of our business through business development initiatives and corporate transactions.

Financial results

This is the first set of financial results reported since the listing on 20 July. Financial performance in the first six months of the year has been strong, despite economic uncertainty and market volatility. Turnover from continuing operations increased 18 per cent to £106.8 million (2000: £90.6 million). Operating profit from continuing operations before exceptional items was up 18 per cent to £34.2 million (2000: £29.1 million). The operating margin for continuing operations and excluding joint ventures rose slightly to 33.3 per cent.

After taxation of £12.3 million, profit for the period was £22.6 million. Adjusted earnings per share before exceptional items increased 18 per cent to 9.0 pence (2000: 7.6 pence).

Broker Services

Turnover from Broker Services for the half-year ended 30 September 2001 contributed 37 per cent of total turnover. This represented 35 per cent growth over the same period last year, up from £29.6 million to £39.9 million. The total value of UK equity bargains increased two per cent in the period to £896 billion (2000: £881 billion).

Broker Services delivered a number of new business initiatives in the period, many developed in conjunction with our customers. These included the successful introduction of the International Retail Service, which provides UK retail investors with easy access to trading in international securities, and the International Order Book, which offers investors an open and flexible trading platform for developing market depositary receipts.

Issuer Services

Turnover from Issuer Services for the half-year decreased 11 per cent from £15.5 million to £13.8 million. The division contributed 13 per cent of total turnover.

The performance of Issuer Services reflected the lower number of new issues in the period. The amount of new capital raised was three per cent lower at £105 billion (2000: £108 billion), although the amount raised by UK listed companies was higher at £18 billion (2000: £14 billion). The number of companies traded on our markets as at 30 September 2001 was 2,919 (2000: 2,874). This includes 606 companies on AIM, our international market for growing companies, an increase of 29 per cent over the same time last year (2000: 471).

During the half-year, Issuer Services completed the successful national rollout of landMARK, our attribute market that highlights companies in each region of the UK, and we are fully prepared to commercialise RNS following completion of FSA's review into regulatory news dissemination.

Information Services

Information Services was the largest contributor to turnover for the half-year. Information Services revenue was 14 per cent higher, up from £40.4 million to £46.2 million, representing 43 per cent of total turnover. Increased Information Services turnover reflected higher demand for Exchange market data and the consequent rise in the number of terminals receiving Exchange data on a real time basis. The number of terminals as at 30 September 2001 was approximately 109,000 (2000: 104,000). Of those, approximately 101,000 terminals were attributable to our professional customer base, a nine per cent increase over last year.

Information Services launched a new service, Tick Data, in September. This service provides historical intra-day trading data, building on our suite of products distributed via our website, and opens up opportunities for widening our customer base. We have also continued to develop our new communication service, Extranex, which will enable the Exchange to deliver new products and services to customers. An Extranex pilot will commence early next year.

Interim dividend

The Directors propose an interim dividend of 1.1 pence per share to those shareholders on the register on 7 December 2001, for payment in January 2002.

Management

We continued to strengthen our executive management team throughout the period. Key appointments during the half-year included the appointment of Marc Bailey, Director of Business Development, Phil Bruce, Head of Corporate Strategy and David Lester, Chief Information Officer.

Other activities

Listing and bonus issue

Shares in London Stock Exchange plc were listed on the main market of the Exchange on 20 July 2001. This followed approval of amendments to the Articles of Association of the Exchange at an Extraordinary General Meeting of shareholders on 19 July 2001. Simultaneously with listing, the Exchange completed a bonus issue of shares on the basis of 9 new ordinary shares for each share held.

JSE Securities Exchange South Africa agreement

In July, we signed two commercial agreements with the JSE Securities Exchange South Africa. The Technology Agreement is for the provision by the Exchange of our leading-edge technology platform SEQUENCE (including SETS) and information dissemination system LMIL. The Business Agreement provides for each exchange to assist in the marketing of the other's data together with arrangements to facilitate cross-membership and dual trading.

Property

In June, we signed a 25-year lease for new headquarters at Paternoster Square in the City of London. We are due to move to the new premises in 2004. As part of that move, we appointed City Offices London Management Ltd to advise the Exchange on maximising the value of the 1.4 acre Exchange Tower site prior to any sale in the open market.

Technology developments

During the first half, we continued our technology development and investment programme. In July, WorldCom was appointed to help install the high capacity network that will link the Exchange and its customers using Internet Protocol communication technology. In August, we extended our Services Management Agreement with Accenture plc to provide facilities management services for our trading and information systems for up to a further five years.

Current trading and prospects

Since 30 September 2001, our trading performance has continued to be satisfactory, with trading volumes continuing at a high level. It is difficult to predict what effect current economic uncertainty will have on our business, although the Directors anticipate new issue activity will remain low as a result of the weak IPO market.

The Directors believe the first half results provide a solid foundation for the full year and view the prospects for the Exchange with confidence.