ASX LIMITED — AGM Information 2011

Sep 21, 2011

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MARKET ANNOUNCEMENT

2011 ANNUAL GENERAL MEETING

ADDRESSES BY CHAIRMAN AND MANAGING DIRECTOR AND CEO

22 September 2011

ADDRESS BY CHAIRMAN – DAVID GONSKI

Ladies and gentlemen,

It has been a very busy period at the ASX Group (ASX) since I last addressed you.

We have during that period:

• attempted a combination with the Singapore Exchange;

• continued to prepare for competition in the equity trading market;

• chosen a successor to our present Managing Director and CEO; and

• provided markets infrastructure for a world full of volatility and unpredictability.

I am very pleased to report that despite all this activity the business of ASX has continued to perform well in all its facets.

We are well prepared for the approaching new market environment, and I and the Board have every confidence in the Group’s future.

ASX’s headline results for the recently completed financial year should inspire confidence.

Operating revenue for FY11 was a record $617.6 million, surpassing the previous record level achieved in FY08 before the onset of the global financial crisis.

ASX’s underlying profitability was $356.6 million, the second highest ever, only 2.6% lower than the FY08 record.

We paid a final dividend of 93 cents per share, fully franked, maintaining our payout ratio of 90% of underlying net profit, and bringing total year dividends to 183.2 cents per share, 5.8% higher than the previous year.

These financial highlights were achieved while ASX was also working hard on the four major aspects I referred to previously. It was a busy period indeed, and a satisfying one too. As always, we are grateful for the continued support of our shareholders.

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Shortly after last year’s AGM we announced the attempted combination with the Singapore Exchange. Ours was the first of a number of high profile global exchange merger proposals that dominated business headlines for a time. In early April this year our transaction was terminated.

ASX believed strongly in the merits of the proposal. We remain committed to participate in regional and global exchange consolidation, and ASX will continue to evaluate strategic growth opportunities. But we haven’t dwelt on disappointment – ASX has moved on.

Moving on meant two main things: first, continued focus on preparing for competition and a more complex market environment in Australia; and second, finding and appointing a new Managing Director and CEO to replace Robert Elstone, who was stepping down.

ASX is ready for the new environment and has been working on its preparedness for several years. We have a history of successfully embracing the dynamic development of financial markets and proactively dealing with change.

With the challenges of change come opportunities for ASX to expand its range of products and services, develop new solutions for our customers, and build alternative revenue streams. You’ll find many of our initiatives outlined in the 2011 Annual Report. They demonstrate the resilience and versatility of the ASX Group. Ours is a diverse business providing exchange services beyond traditional listing and share trading. This breadth is vital as Australia’s market structure becomes more complex.

The good shape that ASX is in has been noted by market observers. For example, an article in the Financial Times (15 August 2011) just prior to our full-year results last month made the point that ASX has “learnt from its global peers” and has not been slow to anticipate new competitors or to modernise.

I do not want to appear over-confident. ASX is taking nothing for granted. But like a sporting coach, I know our preparation has been excellent and I have confidence in our team’s ability.

Leading our team will be a new captain. A new era is the ideal time for new leadership and fresh strategic thinking.

On 26 August we announced that Mr Elmer Funke Kupper would become ASX’s next Managing Director and CEO, with a start date of 6 October 2011.

The Board has no doubt that we have chosen the right person for the next chapter in ASX’s history, and that the future should be very exciting and rewarding for all our stakeholders.

Elmer was chosen after a comprehensive global search. He has experience as a CEO of a major ASX-listed company and has worked in senior executive roles in the financial services industry. He also has considerable experience working within complex regulatory environments and dealing with diverse and multiple stakeholders. He brings the ideal skill-set.

Our choice was made easier with the knowledge that ASX has a depth of talent among its executive ranks already. A tribute, of course, to the man Elmer replaces.

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It was at this meeting 12 months ago that I informed you that Robert Elstone did not wish to extend again his contract as Managing Director and CEO. As it happened, we did secure Robert’s services for a very important extra three months.

Robert has been CEO of ASX since the merger with SFE Corporation in July 2006. He was CEO of SFE for six years prior to that.

Robert and I have been like-minded throughout our partnership. But on nothing have I agreed with him more than on his written comment to shareholders that “two good companies merged to become an outstanding one”.

I want to publicly congratulate Robert on what he has achieved for us as our Managing Director and CEO, and to thank him most sincerely. I know I speak for all of my Board colleagues in saying it has been a privilege working with him. All of us at ASX wish him well for the future.

I would now like to invite Robert to address you.

ADDRESS BY MANAGING DIRECTOR AND CEO – ROBERT ELSTONE

Thank you David and good morning ladies and gentlemen.

My commentary in the ASX Annual Report released on 18 August 2011 described the FY11 year as one dominated externally by geopolitical and natural disaster events of local, regional and global significance and, internally, by ongoing preparation for competition for market services.

We have endeavoured again to meet best practice standards of disclosure in our Annual Report so I don’t propose to summarise the year’s achievements; other than to express satisfaction with, not only, the financial performance for shareholders, but also the Group’s operational and compliance performance for its wider stakeholders.

ASX’s state of readiness for a competitive era was allocated its own narrative in the Annual Report, which, hopefully, provides shareholders with a degree of comfort that we are very focused on ASX’s competitive positioning. The basis for that readiness is a product of the strong financial performance and cumulative investment in human capital and technology over recent years across the ASX Group of companies.

To explain that in more detail I will milestone some trends over the past five years, since the merger between the then Australian Stock Exchange and the Sydney Futures Exchange. Turning to the slides on the screen in front of you:

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OPERATING REVENUE
700
600
500
400
300
200
100
0
FY06 FY07 FY08 FY09 FY10 FY11
CASH OPERATING EXPENSES
175
170
165
160
155
150
145
140
135
130
125
120
115
110
FY06 FY07 FY08 FY09 FY10 FY11
UNDERLYING NET PROFIT AFTER TAX
400
350
300
250
200
150
100
50
0
FY06 FY07 FY08 FY09 FY10 FY11
$ Millions
$ Millions
$ Millions
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• $450.4 million in FY06 to $617.6 million in FY11

• Absolute growth 37%

• Average annual growth 7%

• Revenue per FTE employee increased from $0.686 million in FY06 to $1.223 million in FY11

• $168.8 million in FY06 to $135.6 million in FY11

• Absolute reduction 20%

• Average annual reduction 4%

• CPI increase over the five-year period of 13.7%

• $215 million in FY06 to $356.6 million in FY11

• FY11 cash earnings (EBITDA) the strongest in ASX's history, surpassing the FY08 peak prior to the GFC

• Underlying profit per FTE employee increased from $0.33 million in FY06 to $0.71 million in FY11

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DIVIDEND PER SHARE
250.0
200.0
58.5
150.0
93.9 74.5 84.0 93.0
91.5
100.0
63.9
50.0 98.5 90.4 89.1 90.2
72.3
56.2
0.0
FY06 FY07 FY08 FY09 FY10 FY11
Capital Return Final Dividend Interim Dividend
EARNINGS PER SHARE
225.0
200.0
175.0
150.0
125.0
100.0
75.0
50.0
25.0
0.0
FY06 FY07 FY08 FY09 FY10 FY11
Cents per share
Cents per share
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• $198 million in FY06 to $321 million in FY11

• 70% uplift in dividends

• Maintained 90% dividend payout ratio of underlying NPAT (fully franked)

• FY11 EPS of 204 cents per share, 53% higher than FY06

• Absolute growth 53%

• Average annual growth 9%

Whilst shareholder benefits have been delivered over the past five years, these have not come at the expense of benefits for users, be they listed entities, end investors or intermediary (trading, clearing and settlement) participants.

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CAPITAL EXPENDITURE
60.0
50.0
40.0
30.0
20.0
10.0
0.0
FY06 FY07 FY08 FY09 FY10 FY11
$ Millions
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• Total capital expenditure of $157 million since FY06

• Annual capex increased from $13.9 million in FY06 to $50.2 million in FY11

• Suite of new products delivered

• Core technology platforms upgraded

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LISTINGS • Number of listed
companies increased
100 GFC impact 2,300 from 1,930 to 2,247, a
90 2,250 16% increase over the
80 2,200 past five years
70 2,150
60 2,100 • Facilitated $74 billion of
2,050
50 initial capital raising
40 2,000 since FY06
1,950
30 1,900 • Facilitated $296 billion of
20 1,850 secondary capital
10 1,800 raisings since FY06
0 1,750
FY06 FY07 FY08 FY09 FY10 FY11
Initial capital raised (LHS) Secondary capital raised (LHS)
Total number of listed entities (RHS)
•
Average equity bid-offer
ASX Trade
AVERAGE ANNUAL BID-OFFER SPREADS - EQUITIES spreads have decreased
35%, from 0.62% to
0.66% 0.40% since FY06
0.63% (based on weighted
0.60% GFC impact average of all
0.57%0.54% companies listed on
0.51% ASX)
0.48%
0.45%
0.42%
0.39%
0.36%
0.33%
0.30%
FY06 FY07 FY08 FY09 FY10 FY11
$ Billions
Number of listed entities
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ASX Trade
DAILY AVERAGE CASH MARKET TRADES
600
550
500
450
400
350
300
250
200
150
100
50
0
FY06 FY07 FY08 FY09 FY10 FY11
Trades '000
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• Cash market daily average trades have grown from 125,000 to 570,000 over the fiveyear period (and in FY12 are more than 715,000)

• Absolute growth 356%

• Average annual growth 35%

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ASX Trade • Cash market average Cash market average
AVERAGE FEE PER TRADE - CASH MARKETS fee per trade decreased
$3.50 from $3.25 to $0.93, a
$3.30 71% decrease
$3.10
$2.90
$2.70
$2.50
$2.30
$2.10
$1.90
$1.70
$1.50
$1.30
$1.10
$0.90
$0.70
$0.50
FY06 FY07 FY08 FY09 FY10 FY11
ASX Trade • Cash market daily
CAPACITY average trade capacity
5.5 has increased 900%,
5.0 from 0.5 million to 5
4.5 million
4.0
•
Current daily average
3.5
trades in FY12 are more
3.0
than 715,000
2.5
2.0
1.5
1.0
0.5
0.0
FY06 FY07 FY08 FY09 FY10 FY11
Trades - Millions
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• Cash market average Cash market average fee per trade decreased from $3.25 to $0.93, a 71% decrease

• Current daily average trades in FY12 are more than 715,000

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ASX Trade • ASX Trade order
10.0 LATENCY execution latency has
9.5
9.0 improved from 70,000
8.58.0 SEATS 70,000 microseconds microseconds to 300
7.5 microseconds
7.0
6.5
6.0
5.5
5.0
4.5 ITS
4.0
3.5
3.0
2.5
2.0 ASX Trade
1.5
1.0
0.5
0.0
FY06 FY07 FY08 FY09 FY10 FY11
•
ASX Trade Cash market average
AVERAGE FEE PER VALUE TRADED - CASH MARKETS fee per value traded has
decreased from 1.04
1.30 basis points to 1.00 bps
1.25
1.20 • Headline trade
1.15 execution fee reduced
1.10 from 0.28 to 0.15 bps in
1.05 FY11
1.00
0.95
0.90
0.85
0.80
0.75
FY06 FY07 FY08 FY09 FY10 FY11
Microseconds '000
Basis Points
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ASX Trade24 • Futures and options
FUTURES & OPTIONS AVERAGE DAILY CONTRACTS average daily contracts
420 traded have increased
400 from around 283,000 in
380 FY06 to 383,000 in
360 FY11 (and in FY12 are
340 more than 470,000)
320
300 GFC • Absolute growth 35%
280 • Average annual growth
260 6%
240
220
200
FY06 FY07 FY08 FY09 FY10 FY11
Number of contracts '000
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ASX Trade24 • ASX Trade24 latency
LATENCY / CAPACITY has improved from
90 250 85,000 microseconds to
8580 225 2,000 microseconds
75
70 200 • Daily average capacity
6560 175 has increased from
5550 150 70,000 to 230,000
45 125 trades
40
35 100
30
25 75
20 50
15
10 25
5
0 0
FY06 FY07 FY08 FY09 FY10 FY11
Latency (LHS) Daily capacity (RHS)
Trades '000
Microseconds '000
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What such slides cannot do justice to are the ‘below the water line’ advances that have been made in the Group’s activities - like its compliance and risk management practices, its business continuity arrangements, and its broader conformance over many years with its licence obligations; or advances made by the ASX Corporate Governance Council in relation to the Council’s efforts to further advance the cause of governance practices via its Principles and Recommendations.

Whilst it is fashionable for some stakeholder groups to be critical of incumbent exchanges, I step down as CEO firmly of the view that ASX has made, and will continue to make, an enormous contribution to the financial economy and to the real economy of Australia.

As recently as August 2011, during the immediate aftermath of the resolution of the US debt ceiling issue, ASX processed (ie matched, cleared and settled) successive record single day trade volumes in equities, index options and futures contracts without disruption to any of its core technology platforms, and with sizeable capacity headroom for the uplift in order and trade activity levels anticipated in the near future. Whilst some of ASX’s stakeholders may take that capability for granted I and ASX employees, who work hard to deliver service reliability, certainly do not.

The additional costs and risks associated with competition for market services are only now coming into focus, which is unfortunate given the proximity of its introduction. Market microstructure complexity and the pace of technological change are likely to present policy makers and regulators with a number of challenges to avoid unintended consequences, and market participants with unanticipated costs and risks.

In closing, it remains for me to thank David and my Board colleagues for their wise counsel over the past five years; and I also acknowledge my executive colleagues and ASX staff who have worked tirelessly to deliver such strong results and a well-positioned franchise and platform for ASX in the future.

Thank you.

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