The profit was achieved on revenues of $192.6 million(1), in line with revenues achieved for 1999/00. While revenues from equities trading, clearing and settlement and listing fees were slightly lower, this was offset by strong revenue increases from derivatives and market data.
As foreshadowed, operating expenses for the year increased due to higher staff and equipment costs associated with the development and implementation of the company's longer-term growth initiatives. Total operating expenses were $121.0 million compared to $117.7 million for the previous year.
The Board has declared a fully franked final dividend of 16.5 cents per share, representing a payout ratio of 70% of second half net profit after tax. This payout ratio is in line with the amendment to ASX's payout ratio announced by the Board in February 2001. When added to the interim dividend of 26.8 cents per share (a payout ratio of 100% of interim profit after tax), the total dividend paid to shareholders for the year is 43.3 cents per share, representing a payout ratio of 86% of net profit after tax.
Commenting on the results, ASX Managing Director, Mr Richard Humphry, said: "Public listing three years ago gave us the corporate structure we needed to respond to the challenges of a rapidly changing marketplace. While our existing markets again performed very well, the year was equally important for the progress we made on a number of new initiatives. These projects are central to ensuring the future growth of Australia's markets and ASX.
"Market activity during the year remained at very high levels. Although equities volumes were slightly lower than those for the year before, which reflected the high level of activity associated with the technology sector, volumes in the options market were at record highs and the warrants market experienced excellent growth in both listings and trading levels. Coupled with the continued growth in sales of market data, primarily to the professional market overseas and in Australia, it has been a healthy year for the Australian market and ASX.
"The recent growth in the derivatives market, which has been largely driven by retail investors, as well as growth in our Interest Rate Market, provide an indicator that investors are seeking to diversify their portfolios. This provides a positive sign for some of our longer-term initiatives, which are in part aimed at meeting these changing investor demands. During the year, we: established a trading link in to the US markets; launched a new platform for trading managed funds including Exchange Traded Funds; and, most recently, applied for a licence to enable an extension of our derivatives operations into equity-based futures," he said.
OPERATIONAL PERFORMANCE
- Revenue from equities trading, clearing and settlement decreased by 7% to $84.4 million, due to lower levels of equities trading volumes. Daily average trades per day were 51,386, compared to the record 54,706 achieved in the previous year. However, volumes achieved for 2000/01 remained substantially higher than the-previous record of 32,656 trades per day, achieved in 1998/99. ASX's average one-sided fee per trade charged to brokers for trading, clearing and settlement was $1.79.
- Revenue from derivatives trading, clearing and settlement was $32.5 million, 15% higher than the $28.2 million recorded for the previous year due to strong growth in both the options and warrants markets. The average number of option contracts traded daily reached a record high of 46,226, 20% higher than the 38,519 recorded for the previous year. The average fee per contract was $1.69 compared to $1.77 recorded for the previous corresponding period (due to increased activity from market makers).
Following ASX's restructuring of fees for the warrants market in November 2000 as well as some structural changes to the industry, the warrants market also achieved strong growth. During the year, 1,403 new series were listed compared to 642 for 1999/00. Total warrant series at the end of the financial year were 1,010 compared to 551 at 30 June 2000. Daily average warrant trades and turnover also increased substantially, with trades averaging 1,223 per day compared to 754 per day for the previous year.
- Revenue from listings was $34.1 million compared to $36.5 million, reflecting: an increase in the number of listed companies with smaller market capitalisations, but offset by the overall increase in the total number of listed entities (1,499 compared to 1,381); and fewer new listings (156) than for the previous year (183), although the average market capitalisation of new listings was larger.
- An 11% increase in revenue from market data to $33.3 million from $30.1 million, underpinned by continued growth in sales to the professional market both internationally and in Australia, with the total number of active terminals now in excess of 35,000.
The changing market conditions confronted by exchanges - in particular those of globalisation of financial markets and growing investor demands - have continued to underpin ASX's longer-term strategic initiatives during the year. To meet these changing conditions,ASX remains committed to its broad strategies of: enhancing core business, capacity, access and liquidity; broadening the number of markets it conducts or supports; increasing the number of marketplace services it provides; and increasing its international integration. During the year:
- Market reliability remained strong, with markets maintained at levels of 99.8% availability for the year. As part of ASX's focus on providing a more efficient and cost-effective method of information dissemination, ASX has also started to roll out its Virtual Private Network (VPN).
- ASX's Interest Rate Market also continued to expand, with an increase in the number of products available driving increased turnover. There are currently 110 listings, with 90 in the retail market and 20 in the wholesale market, which has also shown good growth.
- Significant progress was made on the development of APRL's new share registry system, which is currently undergoing intensive testing prior to conversion of clients (which will begin in September). The new system will enable APRL to provide a range of new services to both corporate clients and investors as well as achieve operational efficiencies. In addition, in February, APRL entered into a strategic alliance agreement with Lloyds TSB Registrars, under which APRL and Lloyds will work together to provide multi-national services to corporate clients with global registers and employee share plans.
- On 2 August 2001, BridgeDFS announced it had exceeded its prospectus forecasts for the six months to 30 June 2001, recording a profit after tax of $5.73 million. During the period, BridgeDFS' parent company Bridge Information Systems Inc sold down its remaining 55% in the company to institutional investors. ASX holds a 15% interest in BridgeDFS and the two companies remain committed to pursuing a number of opportunities to enhance the products and services they provide to the institutional market.
- In February 2001, trials were completed for ASX World Link's first service, a trading link into Nasdaq, NYSE and Amex. The service, now available to brokers, enables Australian investors to trade, settle and hold approximately 65 securities quoted on Nasdaq, over 100 quoted on NYSE and 4 quoted on AMEX, the major Exchange Traded Fund market. As at 30 June 2001, 10 of ASX's 90 active participating organisations had signed up for the service and a small number of trades have been executed. It is expected that these levels will increase with: more participating organisations taking up the service; increased market awareness of the service; expected increases in investor demand for international product; and as more favourable market conditions arise.
- Work has progressed well on the agreement between ASX and the Singapore Exchange (SGX) to develop co-trading between the Australian and Singapore markets. ASX anticipates that this service will be introduced later in the 2001 calendar year, subject to the resolution of outstanding regulatory and technical matters. ASX and SGX believe this model has the potential to be rolled out to establish linkages with other markets.
- The establishment of a new company, ASX Supervisory Review Pty Ltd. The new company, designed to enhance the transparency and accountability of ASX Group's supervisory activities, became operational in March 2001 under the chairmanship of David Hoare.
- Additional courses, including a number of online courses, were added to ASX's investor education syllabus. During the year, over 120,000 people participated in one of ASX's education courses or events.
Since the end of the period, ASX has also:
- Announced its intention to develop a market for equity futures. While the company had a licence to clear and settle futures for Australian Derivatives Exchange, it has now formally lodged an application and is awaiting regulatory approval to establish a market to trade, clear and settle futures contracts. ASX believes that providing equity futures, and in particular index futures, will complement its existing equity derivatives products. Subject to regulatory approval, ASX expects to introduce its first futures products during the current financial year.
- Launched a new platform for listing and trading of managed funds. The first managed funds were listed by BNP in July and, on 28 August, the first ETFs on this platform were listed by State Street Global Advisors (SSgA) over the ASX/S&P 50 and ASX/S&P 200. In addition to providing a further opportunity for investors to diversify their portfolios, ASX believes listed managed funds will complement its ASX World Link program and benefit ASX-listed companies by providing an easy mechanism for overseas investors to gain exposure to ASX's market.
Commenting on the company's outlook, Mr Humphry said: "The company's revenue will continue to be determined principally by the overall level of market activity. While the percentage contribution of equities trading and clearing to 2000/01 revenue was lower than for 1999/00 (due largely to the strong growth recorded by derivatives and market data), equities volumes will continue to underpin revenues for 2001/02. Although these volumes can fluctuate significantly in the short-term, over the last ten years we have experienced average growth of 24% per annum. In addition, we expect the abolition of stamp duty on marketable securities to have a positive impact on trading volumes over time, although the immediate magnitude of this impact remains difficult to forecast.
"As was the case last year, we will continue to develop a number of new initiatives which, while they will have a short-term impact on costs, are essential for the company's longer-term growth. These include: the development of our new markets in listed managed funds and futures; the completion of the system-build for APRL and migration of customers to the new system; and the further rollout of our ASX World Link initiatives," he said.,P. In addition, since the end of the year, the Financial Services Reform Bill, which was introduced to Parliament from April 2001, has been passed. The new Act increases the permitted voting power in ASX from 5% to 15% of issued shares (with Ministerial discretion to exceed this limit, subject to Parliamentary disallowance within 15 sitting days). Given the rapid changes taking place in our sector, ASX believes this is a positive step that will allow the company greater flexibility in pursuing commercial relationships. To become effective, the increase in the limitation will require shareholder approval and will be put to the Annual General Meeting in Melbourne in October.
