It is, of course, possible to have economic growth and falling stockmarkets, but falls of this magnitude should not be dismis sed lightly. As well as reacting to grossly overvalued equity prices and widespread corporate abuses and deception, overseas markets are worried about the sustainability of US household consumption, the boom in housing and the value of the US dollar.
The Japanese and European economies are unfortunately in no shape to come to the rescue. You will understand that against this background your Board and Management have taken some pride in our results for the year under review.
As you may have read in our annual report to shareholders, or in previous market announcements, ASX recorded a strong profit of $59.1 million for the full year ended 30 June 2002. This was an increase of almost 16% on the previous year resulting from revenue growth of 6.5% and effective cost management. This result is a great credit to the staff and management led by Richard Humphry, and I sincerely thank them for their efforts. More recently we have released an unaudited revenue and profit update for the first three months of the 2003 financial year.
This result showed further steady growth in revenue, which increased to $53.3 million compared with $50.7 million for the corresponding three months to September last year. Even more impressive was the profit result of $15.8 million compared with $13.2 million for the corresponding quarter. Despite the unpredictability of trading volumes in the short term, this is a good start for the new year.
The options business has been the outstanding performer so far this year, which is very pleasing given our efforts to promote education and awareness in this space. Knowledge is lifeblood for investors, which is why ASX has devoted so much time to improving the level of information freely available to every investor.
During the past year we have enhanced our website where more than three years of company announcements are now available live and free of charge. And in the past week we have donated a complete history of company information dating back more than 100 years to each State library around Australia. This is undeniably the foremost provision of company information by any exchange in the world.
Last month we paid a fully franked final dividend of 21.1 cents per share, consistent with our established policy of paying 70% of profit after tax. During the past 4 years since our listing, ASX has paid $2.05 per share in dividends including a special dividend and capital return. In total, we have paid more than $205 million, during these four years, to our shareholders and still our business is healthier today than when we first entered the listed domain. We now hold a sum of cash that is appropriate for our business, including clearing and settlement, and which gives the necessary strategic flexibility in the current uncertain climate. We are debt free, and well positioned.
Now, more generally, I would like to briefly address two core issues that have been dominating our financial headlines during the past year.
- I began with the uncertain state of world markets for that is clearly the largest cloud on our horizon, and deserves some further attention; and
- I would also like to refer to some issues on corporate governance
Domestically our economy continues to grow, and indeed this year is forecast to grow faster than
any other OECD economy. This is in contrast to the more pessimistic international mood, where
global markets are retreating to levels not seen for several years, or even decades in the case of
Japan. The Australian market currency adjusted, is still the world's best performer. However,
external factors will have a significant influence on future directions and activity.
Which brings me to the second topic of this address, corporate governance and what can be
done to prevent a repeat of the abuses and excesses of the late nineties.
The cornerstone to better corporate behaviour is to insist on greater transparency through our
continuous disclosure framework. I do not mean to simplify what is a complex practical issue,
but our disclosure framework is designed to provide investors with all the information
necessary for them to make an informed investment.
ASX understands the importance of pursuing effective corporate disclosure for the integrity of
our markets. Animal spirits may ebb and flow like the tide, but information on which investors
base their judgements, must be timely and reliable.
In 1994, the law was amended to support ASX's requirement for companies to provide
continuous disclosure of material information to the market. This required all listed companies
to make an announcement to ASX if there is information that is material to the market. Since
that time, ASX has also required that all companies report at least annually on their corporate
governance practices. For example, whether a company had an audit committee, and if not,
why not? Australia has led the world in this approach to transparency, a fact that has been
publicly acknowledged by Senator Ian Campbell, the Parliamentary Secretary to the Treasurer.
As you may have read in our annual report, we have convened the ASX Corporate Governance
Council with representatives of every relevant investor, professional and industry group within
Australia. In all, this encompasses 21 diverse associations. The Council is reviewing all of the
current practices with a view to further enhancing Australia's corporate governance framework.
The Council is aiming to produce a consolidated and updated articulation of corporate
governance principles together with best practice recommendations to lead enhanced corporate
governance practices. Companies will be required to report on their corporate governance
practices by reference to these recommendations and to highlight any areas where they depart
from best practice. They will need to include the reasons for that departure. We aim to give
guidance to companies and provide enhanced disclosure for investors to enable informed
assessments as to the suitability of practices adopted.
At the same time, we have also released for discussion some amendments to our listing rules
that are designed to strengthen our stance in promoting good disclosure within the market. We
have further provided a paper on how the Australian continuous disclosure regime works in
practice to the SEC in the United States as they work toward improving their practices in the
reporting of current information to investors..
On the topic of governance, I also want to touch on ASX's role and position in what is a rapidly
changing landscape. The Financial Services Reform Act is the most significant piece of financial
legislation during the past decade and has a major impact on ASX and the industry at all levels
of our business. It will involve a complete review of all of our market and clearing and
settlement licenses, as well as our listing and business rules. Ultimately this will lead to an
enhanced framework and efficiency in our corporate structure. The greatest emphasis within
the legislation is providing enhanced levels of service and protection to private investors who
will be the main beneficiaries. Advisers will be required to meet new standards in education
and ongoing professional standards, as well as make significant disclosures to their clients.
Clearly the government recognises, as ASX does, the importance of retail investors to our
markets. We also believe in the empowerment of shareholders. Their constructive involvement
in good governance is a powerful force.
Australia, unlike the United States, has adopted a principles rather than a rules based regulatory
system. As the supervisor of its markets, ASX collaborates in a partnering relationship with
ASIC, the Australian Securities and Investment Commission. Market irregularities or
corporate lapses are referred to ASIC for further action. ASX made 54 referrals to ASIC last
year.
Since the publication of our annual report, ASX has received the first report from ASX
Supervisory Review, the company established to oversee the effectiveness and diligence of the
supervisory functions of ASX. The report was generally favourable but made some constructive
recommendations, which ASX will implement.
Principles based systems put emphasis on codes of conduct for boards and management and
generally go to the essence of good behaviour and peer group pressure. With all their
imperfections, these arrangements, would seem to produce better outcomes than the
prescription of rules based models.
This theme is picked up by Jeffrey A Sonnenfeld in his article in the Harvard Business Review
titled "What Makes Great Boards Great" when he says that simply following good governance
recipes doesn't necessarily produce good boards. He maintains that the key isn't structural, its
social. "The most involved, diligent, value-adding boards may or may not follow every
recommendation in the good governance handbook", he writes, "what distinguishes exemplary
boards is that they are robust, effective social systems".
Sonnenfeld lists issues like mutual trust and respect and candour among board members, a
culture of open dissent - dissent is not the same as disloyalty - and not allowing directors to get
trapped in rigid typecast positions. He believes in ensuring individual accountability and giving
directors tasks from time to time. There needs to be evaluation of individual director's
performance. "No matter how good a board is, it's bound to get better if it is reviewed
intelligently", he says.
Sonnenfeld acknowledges, as does ASX, that we all owe the shareholder activists, accountants,
lawyers and analysts, who study corporate governance, a debt for alerting us to the importance
of independent directors, audit committees, ethical guidelines and other structural elements
that can help ensure that a corporate board does its job. But, he says, and we would agree, "If a
board is to truly fulfil its mission - to monitor performance, advise the CEO, and provide
connections with a broader world - it must become a robust team - one whose members know
how to ferret out the truth, challenge one another, and, even have a good fight now and then.".
I think the ASX Board is such a competent and robust team which practices what Sonnenfeld
preaches. We have not perfected the practice, but we are working on it. However, I do believe
that the success of ASX owes much to the way your Board functions in its relationship with
management and the outside world. It is an appropriate mix of skill sets and personalities and
its members have specific, as well as diverse backgrounds and experiences which are an
excellent mix given the special position ASX occupies in Australia's capital markets.
During the year, Mr Clive Batrouney retired and was replaced by Mr Trevor Rowe. Mr Rowe
was selected after advice from Korn Ferry and from a list of some thirty domestic and
international candidates considered by the Board.
Mr Rowe was appointed to the Board from 1 July 2002. After he has addressed this meeting,
you will later be asked to vote on his candidacy for the Board. The remaining Board members
support his appointment and election.
Fellow shareholders, ladies and gentlemen, we are living in an uncertain world, both
economically and politically. International events seem likely to influence our results more than
what happens at home. We at ASX take our responsibilities to our shareholders seriously and
all of us are dedicated to adding value to our company. At the same time, we have an additional
duty to uphold the systemic stability and integrity of our markets and we pursue this obligation
with equal dedication and vigour.
Our markets are deep, liquid and well regulated, which is why under the Morgan Stanley
Capital Index (MSCI) ratings we are ranked nine in the world, ahead of Italy, Spain, Hong
Kong and Singapore. All the evidence shows that deep, liquid and efficient markets deliver
significant competitive advantages to their economies. We earnestly urge all those who would
seek to impose a new layer of regulations to be careful what they wish for. The biggest mistake
would be to sacrifice the benefits that our well-functioning markets are delivering to the
community, for an illusion of better governance.
It is now my pleasure to ask the Managing Director, Richard Humphry, to speak.
