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Edited Transcript of ASX.AX earnings conference call or presentation 14-Aug-19 11:30pm GMT

Full Year 2019 ASX Ltd Earnings Presentation

Sydney Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of ASX Ltd earnings conference call or presentation Wednesday, August 14, 2019 at 11:30:00pm GMT

TEXT version of Transcript


Corporate Participants


* Dominic John Stevens

ASX Limited - MD, CEO & Executive Director

* Gillian Larkins

ASX Limited - CFO


Conference Call Participants


* Brendan Carrig

Macquarie Research - Research Analyst

* Edmund Anthony Biddulph Henning

CLSA Limited, Research Division - Research Analyst

* Edward Pham

Morgan Stanley, Research Division - Research Associate

* Chris Reason




Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [1]


Okay. Good morning, everyone. We might get started. So good morning to everyone in the room, and welcome to ASX's 2019 Annual Results Presentation whether here at ASX or on the phone or via webcast. My name is Dominic Stevens. I'm the CEO of ASX.

This morning, I'll start with the overall highlights and then give an update of our strategic progress. I'll then hand to our CFO, Gillian Larkins, to cover our financial performance in detail. And then I'll return to summarize and comment on outlook. We'll then have questions from analysts and followed by media. So with no further ado, let's begin.

FY '19 was another strong year for ASX with NPAT up 10.5% on a statutory basis. We saw increased market activity across all our transactional businesses, continued growth in our technical and information services and an increase in net interest income. This led to a record bottom line, and for the seventh year in a row, an increase in our ordinary dividends. We're also paying a fully franked special dividend following the sale of our shareholding in IRESS.

Among the achievements this year has been the substantial work that we've done to strengthen the way we manage financial and nonfinancial risks. We also progressed significantly on our multiyear program to maintain a flexible and contemporary technology platform from which to operate and grow. These initiatives contribute to the quality and trust in our infrastructure.

We continue to enhance our core businesses with customer-focused innovations, not only to improve how our customer interacts with ASX, but how customers interact with each other. This can create new efficiencies and a lower total cost of ownership, drawing on the successful model of our Australian Liquidity Centre, or ALC as we call it.

We're expanding our Listings business by growing the number of technology companies, offshore listings and ETFs. They sit on top of our deep markets in mining, financial services and other industry sectors. They offer diversity to investors and create opportunities for the local capital markets' ecosystem. The expansion of listings also helps lower the cost of capital for a range of new industries.

ASX DataSphere, DLT Solutions and Sympli are all good examples of how ASX is looking to develop industry-wide solutions for the benefit of our customers, and I'll address this more in detail later in the presentation.

So if I turn to our financial performance for FY '19, as you can see on the screen there, revenue rose 8 -- to $863.8 million, reflecting pleasing growth impacting all of our 4 businesses, with Trading Services and Derivatives and OTC Markets growing the strongest. Expenses for the year increased by $19.3 million, which is a 9.9% increase on the prior year. As a result, EBITDA was up $33.6 million to $649 million. This is a pleasing result given the significant foundational work that's been done this year at ASX.

Interest and dividend income was up strongly, which helped statutory NPAT increase to $492 million, a rise of 12.6% on a like-for-like accounting basis. Consistent with ASX's dividend policy to pay out 90% of underlying profit, the final dividend was $1.143 a share fully franked, taking the total ordinary dividend for the year to $2.287 a share fully franked. As I said earlier, we're also paying a special dividend of $1.291 per share fully franked, with the proceeds from the sale of ASX's shareholding in IRESS last February.

In summary, our FY '19 numbers reflect a strong year for ASX, and there's been also a significant amount of work done developing and delivering our strategy, which I'll take you through now.

So to begin, I'd like to take a step back and discuss how our technology-driven strategy continues actually a long tradition of enhancing the flow of information and capital in our markets. So if I start with the bottom of the slide and work my way up. Firstly, ASX has increased the connectivity and liquidity of markets from chalkboards to globally-connected electronic markets. With speeds moving from days to nanoseconds, ASX has often led these technology advancement.

So currently, at the right-hand part of the slide, ASX provides a highly efficient technology, communications and liquidity hub for our customers at the ALC, which has become the heart of Australia's financial markets. The ALC supports a highly diverse ecosystem connected seamlessly from all around the globe to create one of the most liquid and transparent marketplaces in the world.

Secondly, AS -- in the middle there, ASX has continually improved systemic resilience and data integrity from uncleared paper scrip, through dematerialized securities and the netting efficiencies that we enjoy here in the Australian financial markets. And currently, ASX provides significant capital support and clearing risk management. It is also looking to replace CHESS with a globally leading technology that will enable more secure and more reliable data for a wider range of customers.

And up the top, finally, over many decades, ASX has leveraged its expertise into a wide range of new areas, from acquiring the futures exchange, to setting up mFunds, quoting ETFs. These initiatives have expanded our core skills into adjacent asset classes, products and services. So currently, ASX is developing valuable new adjacencies, such as e-conveyancing, data science and investigating possible other uses of DLT.

ASX's success over the decades has come from building infrastructure that allows our domestic and global customers to communicate, collaborate and connect with confidence, which, in turn, enables them to create products and services for their clients. So when I'm asked why we built ALC, why we're investing in DLT or ASX DataSphere, my answer is simple: This is what ASX has always done. This is ASX's raison d'etre. It's what our customers and regulators expect of us.

If I take where we are currently on the right-hand side, and compare with our broader strategy, which we've talked about before on the next slide, you can see that our strategy is technology-driven. We're at the leading edge of our industry with initiatives like DLT and ASX DataSphere. Our strategy is customer-focused on industry-wide solutions. The ALC, ASX DataSphere and DLT all allow our customers to interact not just with ASX, but with each other. And we're building on our strength in operating critical infrastructure to expand into adjacent opportunities.

So before I hand over to Gillian to go through the numbers, I'll provide a bit of an update of where we're at on our Stronger Foundations progress, which I've talked about at previous meetings such as this; some detail about the development of our 4 core businesses; and how we're pursuing emerging growth opportunities.

So let's begin with how we've been strengthening our foundations of trust, integrity and resilience. I'm pleased to say we've made tremendous progress over the last 12 months. We've achieved the goals we set out as part of our Stronger Foundations program in the area of clearing, enterprise and technology risk, and these initiatives will now wind back into business as usual over the first half of FY '20.

In relation to our market oversight activities, we restructured our Listings Compliance team to sharpen our industry specialization and improve the admission processes for ETPs. We've also spent a significant amount of time developing our culture and engaging our people. Our employees have a better understanding of our strategy, which has increased engagement, improved awareness of everyone's role in pursuing ASX's vision. While these are not direct drivers of revenue, these foundations are extremely valuable, especially in the post-Hayne environment for a company like ASX, where trust, integrity and resilience and customer service are vitally important and generate tremendous value for our brand.

So moving to the next slide. ASX continues to invest in contemporary technology infrastructure. We see this as an important path of securing our own future success as well as the industry's ability to digitally transform over the next decade. Very shortly, we'll complete the multiyear upgrade of our financial markets network, ASX Net, which will simplify connectivity to ASX services and enable ASX to support connectivity to an increasing range of third parties. Not far behind is the commissioning of a new secondary data center in October, which will come online progressively over the following 6 months. This has allowed us to design a more secure, reliable and efficient primary and secondary data center architecture as well as improve ASX's resilience by contemporizing our hardware. These core infrastructure enhancements allow ASX to maintain the high standards of robustness and integrity expected of a leading industry platform such as ours.

We'll also include a number of significant customer-driven technology projects over the course of the year, including, obviously, the CHESS replacement and associated infrastructure that goes with that, and I'll delve into that a little bit deeper later. ASX Trade upgrade, ASX Trade being our equity trading platform, which provides a refresh of the hardware and software that supports the cash equity market. And these projects are in addition to our ongoing BAU projects you see on the screen there, which include our digital refresh. We're in the stages of rebuilding asx.com.au, a screen grab on the screen there from the beta site, and that will go live after testing this year. And our ongoing program to continually enhance our cyber resilience goes without saying.

Now as I move to discussing each of our businesses, I'll draw out a few key themes in each of them.

So if I start with our Listings business. It's interesting. Much has been written about the de-equitization of public markets around the world and the growth of private markets. The decline in the number of U.S.-listed companies since 1990 is often highlighted. In Australia, the number of companies has been gradually increasing, in fact. And as you can see on the chart, the total capitalization of the ASX as a percentage of GDP has, in fact, been growing. While this obviously includes valuation effects, it shows that in Australia, at least, the average listed company is becoming larger, and the listings market remains very sizable and very relevant. And this is good news for investors. Whilst we see growing private equity and venture capital markets providing tremendous value to the economy, we see the transparency and liquidity of the listed market as the fundamental bedrock of the capital allocation process in a market economy.

ASX has a strong Listings business that continues to find ways to create value for customers. Over the last 5 years, the listed technology sector has grown materially from 1.3% to 3.4% of the market by value. There were 202 tech companies, as you can see on the screen, by the end of FY '19, with 13 of them capitalized at over $1 billion. We believe that Australia should develop its listed technology sector further, particularly as the -- particularly as the relevance of technology in the economy increases. Our role is to promote the attractiveness of the ASX market, set the admission standards and provide the infrastructure to enable listing a fair, orderly -- and have fair, orderly, transparent trading, and this, in turn, allows the market to determine the company's value and creates opportunities for other capital market service providers.

But our focus on technology, let me be clear, does not come at the cost of ignoring sectors of which ASX is traditionally based. So including mining, and more recently, financials, providing diversity for the investor market is our goal.

So to move on to Derivatives and OTC Markets, which is our largest business, accounting for 36% of overall revenues. Well-functioning derivative markets are vitally important to the global economy. And as the fourth largest rates futures market in the world, ASX punches well above its weight here.

In FY '19, we're seeing continued volume growth and new customers across all our asset classes. In particular, the changes in the Australian interest rate environment have seen a significant increase in activity as customers use our futures markets to hedge changes in their desired risk profile. As a result, we saw activity up 119% in the 30-day interbank cash rate futures contract, and up over 50% in OTC clearing activity, and good growth in our other interest rate futures products. And because ASX offers 24-hour clearing of our futures and OTC markets in a single venue, our cross-margining service has reduced customers' margins on average 30%. It's also worth noting that ASX continues to contribute a significant amount of capital to the clearinghouse default fund. This is valuable for our customers as it reduces the amount of capital they need to operate their businesses. These deeply liquid and efficient markets remain attractive globally. This means we've continued to use our overseas distribution capabilities to add new customers to our market.

FY '19 has also been a year of new product development. In June this year, in response to customer requests, we launched the new S&P/ASX 200 gross total return futures contract. For those customers who invest on a total return basis, it provides an alternative to over-the-counter products or our existing equity futures products. So early signs are encouraging as we focus on growing liquidity, and that's off to a good start.

I'm also pleased to note that ASX Benchmarks became the first benchmark administrator to be licensed in Australia. Benchmarks are a vital component of Australia's financial markets. And in May this year, we started to publish the new realized AONIA rate, which is a cash-based rate alongside BBSW, which helps us support the expanded use of risk-free rates in Australia.

Austraclear and ASX Collateral are part of the critical infrastructure at the heart of Australia's financial markets. During FY '19, Austraclear's registry issuance rose 6.1% to $1.8 trillion, mainly driven by increased securitization issuance we saw during the year. We also added U.S. dollar payment capabilities to expand our foreign currency payment offering and to support future product development.

In ASX Collateral, we added new customers and now account for an average of 35% market share of the reserve bank's open market operations. This delivers significant automation and operational efficiency for customers as well as capital efficiency gains, which could be improved by the optimization of capital.

So maybe to move on to our Trading Services business. Revenues were up across-the-board here. So as well as reflecting a more vibrant market in FY '19, the growth in cash market trading revenue also reflects the value customers place on the services that we offer. Customers particularly value the benchmark pricing and deep liquidity offered by our closing option service as well as the liquidity and information protection that's available in our Centre Point product.

Within Technical Services, ALC remains a strong source of revenue growth. In addition to low latency access for those customers who value speed, large institutions are increasingly using the ALC and ASX Net to access alternative venues, service providers and customers. This leads to an increased demand for ALC cabinets and connections. Customers choose ALC and ASX Net because they deliver cost benefits and risk reductions to their overall business. Growth in Technical Services is also coming from new international customers who value the infrastructure that ASX provides and the highly liquid and regulated markets that we offer. This is both increasing revenue and domestic market liquidity.

Information Services revenue growth was driven by ASX 24 market data and the index and benchmark services. ASX data is considered a benchmark for price discovery in the Australian financial markets and is also the basis of price discovery in the OTC debt and equity markets. Specific benchmarks such as the S&P/ASX 200 index and the suite of BBSW benchmarks also experienced increased demand in FY '19. Consistent with the growth in our global connectivity, we continue to experience a rise in customer numbers for our Information Services.

And now to the final of our 4 businesses, Equity Post-Trade Services. While it might be our smallest business by revenue, it's a business attracting the greatest interest, thanks to the CHESS replacement program.

Firstly, what I'd say here is the replacement of CHESS was never an if but always a when. It was a flag in our 2015 results as something ASX would be doing even before we considered distributed ledger technology. Our CHESS replacement project, like any system replacement, it enables a new system to be built on more secure, modern hardware and contemporary software. The new system will enable customers to clear and settle equities in the Australian market, just as CHESS does today, but with a system that offers better performance, better resilience, better security and as well a new -- many new functions that have actually been requested by customers during our extensive market consultation. Also, the new system uses the global messaging protocol ISO 20022, bringing it into line with the standard used by the RBA and other international exchanges.

And all of that was before we even talked about an option that will allow customers to realize the benefits of a DLT-based connection to the system. The DLT infrastructure we're building ensures data consistency through sharing the same data with permissioned parties and it will ensure all copies of a ledger are synchronized and provably accurate. And by using smart contracts, the new system can ensure that all data is interpreted and processed the same way. We're excited about the possibilities that provided -- providing a trusted ledger state to those who have the permission to see it. And if you can do this, the wider industry will be able to innovate in areas well beyond clearing and settlement of cash equities.

If ASX had not included the DLT option, Australia's financial markets would have missed a major opportunity to benefit from this important technological innovation. And indeed, it would have been contrary to ASX's history of embracing innovation that I outlined earlier, in which CHESS itself was a prime example 25 years ago.

So that's a good segue into an update on how ASX is leveraging its expertise into some adjacent opportunities. What I just described for the equity post-trade market is relevant effectively to any logistical system in any industry that relies on disparate databases and multiple sources of truth. It's through what we call our DLT Solutions capability that we're looking at other ways we can use our growing expertise in this area to help customers identify how they might be able to benefit from using a distributed ledger.

Our DLT Solutions team is having a range of discussions about equity and nonequity-related opportunities, and also because the DAML smart contracting language of our DLT partner, Digital Asset, is now open source, it's available for those wanting to investigate how they might use it on our distributed ledger, on other distributed ledgers and as well on traditional databases.

Significant progress has also been made in our data analytics initiative, ASX DataSphere, which is a data science and machine learning platform. ASX DataSphere's design is an open but highly governed privacy-preserving platform, which will support the pooling of data from a broad range of customers and data partners. The objective is to provide a range of scalable analytics solutions to regulatory, risk, valuation and compliance problems and to support the digital transformation of the industry. It's already working internally and with pilot customers. It will launch its initial services to external customers and data partners in October via its web store.

Another adjacency we're focused on is Sympli, a joint venture with InfoTrack parent ATI in the electronic property conveyancing space. Sympli is progressing well. Its core platform is now built, and it has approvals from the registrars of New South Wales, Victoria and Queensland, which covers 80% of the national residential real estate market by value. Early trials indicate workspace creation, document preparation and lodgement to be circa 25% to 50% more efficient than the competitor. Its flexible workflow and permissions design means Sympli's service adapts to its customers' processes rather than users needing to adapt their processes. These and other workflow enhancements will be available both to banks and conveyancers. Sympli has connected to, and is looking to launch with, its first major bank in the next month or so. And we'll progressively connect to others up as we go after that.

As I think, to take a step back now, it's clear from my update, we've got a full agenda of customer-focused initiatives that position ASX as having a flexible and contemporary platform, being a trusted and reliable provider of technology infrastructure services, with a strong brand and also at the leading edge of relevant new technologies, like DLT and data science, and we're looking to expand our expertise into other areas.

So with that, I'll now hand over to Gillian to take you through our financials, and then I'll come back to summarize. Thanks, Gill?


Gillian Larkins, ASX Limited - CFO [2]


Thank you. Thanks, Dom, and good morning to everyone in the room and on the line. ASX's results for 2019 reflects strong customer activity across our portfolio of businesses. In particular, our cash trading, derivatives franchise and technical services offering have underpinned company profit in a period when we also incurred higher expenses to support our current and future infrastructure investments.

Turning to the financials on Slide 16. We adopted the new accounting standard for revenue, AASB 15, in 2019. This is relevant for revenue related to our Listings business. And as per the allowance of the standard, we have not restated 2018 in the statutory accounts. However, for the purpose of year-on-year comparability, we have adjusted last year retrospectively in the operating financial review, OFR, using the term like-for-like. I'll be talking to these numbers this morning.

Starting with the top line. Revenue for the year was up 6.5% on a like-for-like basis from 2018, reflecting 2 strong halves of heightened trading volumes. For the year, overall expenses for the group increased by 9.9% on FY '18, which I will explain shortly. However, moving through the table, you will see that the growth in revenue more than absorbed the higher than historical expense growth, allowing ASX to achieve a solid EBITDA growth of 5.5%, leading to an EBITDA margin of 75.1%.

The second half of FY '19 saw a slight uptick in depreciation as some infrastructure projects were completed. This included, among other things, our ASX Net communication hardware. However, for the full year, depreciation and amortization came in fairly flat to last year with D&A as a percentage of revenue being maintained at a similar percentage to past years. With our interest income up 25.7% more than FY '18 due to the portfolio composition and associated returns, this contributed to an underlying profit after tax increase of 7.7%. And taking into account the significant item booked last year, we delivered a statutory profit after tax increase of 12.6%.

In terms of profitability metrics, EPS on NPAT increased by 10.5%. These results allowed the board to declare a dividend of $1.143 for the half, bringing 2019 full year dividends to $2.287 per share. In addition to the final dividend, the majority of the proceeds received from the sale of ASX's shareholding in IRESS will be paid out as a special dividend of $1.291 per share. ASX believes the best use for the IRESS sale proceeds is to return the bulk of the funds to shareholders and retain a portion to further invest in our growth initiatives.

Now to the revenue results of our key business lines. ASX is a diversified business that allows us to deliver stable revenue across all market cycles. 2019 was no different. It was a year that saw a number of things play out across the portfolio, including business development momentum, which is evidenced in the Listings and Issuer Services business and the Trading Services business, which combined makes up 52% of ASX's portfolio.

Listings saw 16 more technology companies join the ASX Board and an increase in the number of exchange-traded products, ETPs, traded. Our Trading Services arm saw a 7.6% increase in cabinet hosting and cross-connections volume growth of 8.5%. Of note, the number of customers using the ALC increased by close to 9%.

Our Derivatives and OTC Markets business and our Equity Post-Trade Services business, which combined makes up 48% of our overall portfolio, saw elevated volumes in the market, which supported the overall operating revenue increase of 6.5%. Continued growth in ASX's core businesses allows the company to develop adjacent offerings over time. Our 49% stake in Sympli, a provider of e-conveyancing, is one of these. You can see on the other line, at the bottom of the slide, that we have booked our share of its expected first year trading loss. We believe that, in time, Sympli and our other investments will complement and broaden our current product and service suite.

On a like-for-like basis for the year, our Listings and Issuer Services revenue is 5.5% higher. The increase was mainly due to a strong capital raisings from prior years and the continued growth in the domestic equity market capitalization.

When looking at the Listings line, with the advent of AASB 15, amortizing the initial listings revenue over 5 years and the secondary listings over 3 years, the variance between halves was muted. However, overall, the Listings business for FY '19 is still higher by 7.3% on last year. This was assisted by the increase in offshore entities listing on our market over the last few years.

On the right-hand side of the slide, you can see each of the previous years' amortization contribution for both initial and secondary listings. This provides guidance to the revenue composition over the next little while.

Of note, the market cap of new listings is higher than last year by 45.6%, primarily due to the Coles demerger in the first half. Other listings revenue was down due to fewer reinstatements and debt raisings. Offsetting this, however, was an increase in ETP revenues.

Issuer Services revenue has come in flat on last year, with a small dip half-on-half, due to CHESS services activity being down slightly.

Moving to the Derivatives and OTC Markets slide. The strength of our offering in Derivatives and OTC markets has facilitated higher volumes from both new and existing participants, with the increased volatility in rates also benefiting derivative volumes materially. This is evident by the 9.9% increase in futures trading volumes and approximately 54% rise in OTC clearing volumes for the year. This supported the overall revenue increase for this business of 9.6%. As you can see, activity was heightened in the second half due to the volatility experienced in the fixed income market.

Austraclear saw average holdings up 5% and higher registry activity, with revenue coming in 7.4% more than FY '18. One of the drivers for this was the increase in securitization activity during the first half of the year and an increase in depository holdings. In contrast, equity options declined from both the previous year and between halves, due to subdued activity with market maker activity relatively flat year-on-year.

Cash market trading saw its revenue up 12.9% from last year due to overall on-market trading being up 11.7%. Of note is the continued increase in the use of our Auctions and Centre Point offerings, with Auctions increasing its percentage share of the total on-market value. You can see this in the top table on the right-hand side of the slide.

Information Services saw 2 consecutive halves of growth, assisted by an increase in benchmark and index revenue and an increase in client usage. While Technical Services saw an overall increase in revenue of 10.3%, mainly due to an increase in the number of cabinets as new and existing customers expanded their footprint. It was also pleasing to see the increase in revenue from ALC cross-connects and income from global connections through the ASX Net offering.

Moving now to the Equity Post-Trade Services results. High clearing and settlement activity levels translated into a 4.9% increase in cash market clearing revenue for 2019. Cash market settlement revenue increased by 2.1%, supported by the increase in message volume that you can see on the right-hand side of the slide.

Moving now to operating expenses. Operating expenses came in slightly above guidance at $214.8 million, 9.9% higher than 2018. The expense uplift was mainly due to hiring more than 100 full-time employees, which contributed to an overall staff increase of 11.5%. The new employees provide additional resourcing for our critical license to operate activities as well as supporting key project initiatives such as CHESS replacement. This growth will abate over the coming year.

Occupancy costs increased by 9.5% due to employee growth, with equipment costs increasing 10.2% to $30.7 million due to additional licensing and maintenance costs associated with the new initiatives. Variable costs increased by 5.6% with higher postage costs and the supervisory levy increasing more than previously expected at 19.3% higher than last year, leading to an overall expense rise for the group of 9.9%. The higher-than-market guidance result was primarily due to the unexpected increase in our levy.

As highlighted, the depreciation and amortization line is similar to last year. However, the new lease standard, effective from the 1st of July, will alter the profile of expenses going forward. For the next half, we will start recording the portion related to leases in the D&A line rather than as an occupancy expense as it is currently. Currently, leases make up half of the occupancy expense line.

Also of our note -- also of note is our guidance for expenses next year, which will be in the range of 6% to 8% growth, inclusive of both operating expenses and D&A.

Net interest and dividend income increased 25.7% to $103.9 million for the year. Interest income on our cash balances increased 28.7% due to higher-margin balances and increased investment earnings. The increase seen in the second half is due to the increase in cash holdings after divestment of our IRESS shareholding.

Net interest earned on our participant balances grew 49.7% due to the increase in average collateral balances, which is reflective of a higher number of open positions, and also due to investment earnings averaging 51 basis points compared to 34 basis points above the official overnight cash rate. Half-on-half, you can see the impact of the decrease in investment spread in the last 3 months of the year.

The near-term expectation is that rates will remain low. So looking ahead, the portfolio's composition should remain fairly constant. However, portfolio returns will decline as maturing investments continue to be replaced with lower-yield investments. This decline will, in part, depend on the timing of actual cuts in the overnight cash rate relative to the expectations of the cuts that will be reflected in market rates. Also of note in this slide is the dividend revenue, which was lower than last year due to the sale of our shareholding in IRESS in February 2019, which meant we forewent its dividend in the second half.

Moving now to examine ASX's balance sheet and key performance indicators. ASX's balance sheet is conservatively positioned, with the most notable difference being our total margin and commitments of $10.8 billion, up 27.8% from last year. This is due to the increase in average collateral balances from participants and with the proceeds of selling our shareholding in IRESS, which you can see in the reduction in our investments line. This has increased our cash and available-for-sale asset balances to in excess of $12 billion.

We currently have an S&P long-term rating of AA- and continue to hold no debt.

This slide shows ASX's approach of investing in the integrity of our core business and pursuing growth initiatives. Through a strong balance sheet and consistent revenue growth, we've been able to support a portfolio spend this year of just over $75 million. This is inclusive of our CHESS replacement project, moving to a new secondary data center and corporate actions program. Much of our technology work continues into FY '20, and we are expecting capital expenditure to the tune of $75 million to $80 million in the coming year.

On the right-hand side of the slide, you can see the ongoing commitment we are making to our adjacent businesses. Sympli is on track with our previous guidance of a $30 million investment, having invested $11 million to date. And we retain a shareholding of 7% in Digital Asset and 46% in Yieldbroker.

Alongside the increase in profit for the year, ASX delivered an increase in EPS of 10.5%, allowing the ASX Board to determine a second half '19 fully franked dividend of $1.143 per share, bringing total ordinary fully franked dividends for the 12 months to $2.287 per share, representing an increase of 5.7% on FY '18. The dividend can be fully funded from retained earnings and represents a payout ratio of 90% of underlying NPAT, in line with our dividend policy guidance.

As already mentioned, we are also announcing a special dividend of $1.291 cents per share, with both dividends being paid out on the 25th of September.

Our strong result for 2019 allows management to continue to invest in ASX's foundations, at the same time as investing in core business growth and adjacencies for the future. We're confident that this strategy works well for our shareholders, customers and Australia's financial markets.

With that, I will hand back to Dom.


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [3]


Okay. Thank you, Gill. So now just to briefly sum up. As Gill said, ASX delivered a strong financial result in 2019, or fiscal year '19, including a record overall dividend and additional special dividend, both being fully franked.

In addition, we made significant progress on our multiyear initiatives to strengthen, enhance and grow ASX. This is continuing in FY '20 with a number of key initiatives, as I've spoken about earlier in my presentation, coming online in the next 12 months.

We also believe that in FY '20 we'll see ongoing elevated volatility, given the geopolitical situation, which continues, and the changing expectations for interest rates that we've certainly seen over the last 6 months. The early weeks of the new fiscal year reflect this, with strong equity and futures volume both continuing in the early half of the FY '20 year.

Our strategy for FY '20 remains technology-driven and customer-focused. And this entails working hard to preserve the trust and integrity in our markets, which we're doing, contemporizing our technology foundations, making business easier for customers and developing solutions that are for the benefit of our users and the broader industry.

So with that, that concludes the formal presentation, and happy now to open up to questions from analysts and the media. And I'll leave that up to whoever's organizing that, first here in the room and then via the phone. Thank you.


Questions and Answers


Brendan Carrig, Macquarie Research - Research Analyst [1]


Brendan Carrig from Macquarie. Just for my first question, maybe referring to Slide 10, just with your listing numbers. Second half is obviously a little bit weaker. It's fair to assume that's probably due to market conditions, but maybe just a couple of comments on those focus areas being foreign and technology. How have the discussions been going with those clients? Are you still optimistic that assuming market conditions persist, that you could see some growth, continued growth in those target areas? And are there any other areas or sectors that you might be looking to target outside of those?


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [2]


Yes, so I think your analysis is right. I guess the third quarter is usually -- of the FY year is usually sort of slow anyway, and then coming out of the back of what was a significant, I think, probably close to 15% sell-off in Q2. I think, as you said, that left the market in a little bit of a difficult spot. I think when I was here last time, I spoke to sort of talking about the fact that we thought that the next 6 months was going to be quite difficult because we had seen that in the market. I'd look at the results we've seen over the last 6 months and say that, that's probably better than we would have expected. And there is actually quite a bit on. We've got our largest both technology and foreign listing tomorrow, Fineos, which is an insurance tech company, sort of north of $0.5 billion listing here tomorrow. So at the moment, the pipeline actually looks in a reasonable state compared to what I might have thought of 6 months ago.

And I think with these things, I think all of this stuff takes time. And if you go back 3 or 4 years where we were in the technology sector and we didn't have 13 sort of like north of $1 billion companies, and actually, there's a developing critical mass. You saw on the slide, 200 companies. I think the sector has narrowed in its sort of like nomenclature. So in fact, it's probably closer to 250 under the old methodology. So that's going well.

On the foreign side, I think the interesting thing when I talk to our listings people who also do a bit of traveling around the world, is actually over the last number of years, actually, it takes a while for the word to get out. And I think people are actually looking at Australia much more as an opportunity from the West Coast of the States, from Israel, from Southeast Asia. So I think that is going well.

I think also if you look at what's going on in some of the other centers of the world around Brexit and what's going on in Hong Kong, things are a little more uncertain there, so that sort of also helps the situation down here.

So I look at that as a continuing strategy. Markets will go up and markets will go down. But the more important thing is that we're here for the long term and we're growing both of those businesses.


Brendan Carrig, Macquarie Research - Research Analyst [3]


And maybe one for you, Gill, just on the interest income that you pointed out. Obviously, spreads have come down quite materially. Could you maybe provide any other commentary as to where spreads you're seeing sort of today versus the average of the 51 basis points that you've called out for the year?


Gillian Larkins, ASX Limited - CFO [4]


Unfortunately, we don't do quarterly reporting. But certainly, our last quarter, if you took that average and then swung it across the next year, that would actually be -- so you might be able to do the math over half.


Brendan Carrig, Macquarie Research - Research Analyst [5]


Sure. And then just on -- last one, just on DLT. No update on the timing, so is it fair to assume that we're still on track for pre-existing timing of, was it, in first quarter of '21?

And then also, just during the period, we saw opening up to some more testing, or you allowed opening up for some testing for other participants to, I guess, try some of their software. How has that been going? How have the discussions been going and how's their experiences been going?


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [6]


Yes, that's all correct. And yes, the dates are still on track. And yes, the customer development environment is open. That's going well. There's 7 technology drops. And I think we're just about to get the third one out there. What was interesting to me, we had a packed house here about a week ago, where some of the technology providers who are building on top of this solution were coming and starting to even showcase some of the things that they were doing that would sit on top of that platform. So if you think about trying to start the early stages of building out an ecosystem, the technology that sits on top of this, that's sort of in its early stages. And some of the large software vendors were here the other day, sort of showing their wares to customers, which is really exciting.


Operator [7]


Your first question is from Ed Henning from CLSA.


Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [8]


Team, just have a couple of questions. Firstly, CapEx continues to increase as you're investing in the business. Is this a new norm for you guys? Or do you see CapEx levels coming down at some point is the first one?


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [9]


Yes. Thanks, Ed. On the CapEx, like, what's driven the rise of the last sort of 2 years has been -- as we sort of pointed out, has been 2 things, which was sort of more once in 20-, 25-year things, one being the secondary data center, the second one being CHESS. Secondary data center is actually -- as I said in my notes, is completing this year or this coming fiscal year. And CHESS, a lot of the work will be finished by the end of this year, but it still rolls into -- obviously, into next year.

I think the interesting thing with that is that, obviously, we're building, as we build more systems, we have a bigger technology footprint. And as we roll out things like DataSphere and various other projects, you end up with a bigger footprint. However, what I'd say is that going forward into the more distant future, it's hard to predict exactly where you're at with that, but what that will reflect is actually opportunities that we have.

So I'm hopeful, in some senses, that we will have exciting things to invest in, out in 2022 and 2023. So as far as I don't know where the "new norm" is, but if we have a business that actually has a whole lot more opportunities, which I hope we do, perhaps the new norm will be higher than it was.


Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [10]


Okay. The next 2 just on Technical Services and also Information Services. Technical Services, while it grew very strongly for you, it slowed in the second half. Can you just give us kind of how you're thinking about that going forward? And also Information Services, again very strong, and I think you touched on there was a bit of the benchmark coming in there. Can you touch on the outlook there with more data service and the DataSphere coming on? What kind of -- should this continue to accelerate growth or stay at these elevated levels going forward?


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [11]


I think there's a continuous thing. I guess if you look at the Information Services, obviously, benchmarks and then people forget we actually have an index business, being the S&P, sort of ASX S&P indices. Obviously, there is increased use of that with increased uses of ETFs. And increasingly, people want to use the indices. I think that's more of a sort of like a longer-term growth story.

There certainly has been sort of in Technical Services around the liquidity cross-connects, people wanting to connect to -- sort of like to the instantaneous movements of the markets. And then you've got connections, just pure cross-connects at the ALC, where we've had a number or increasing number of institutions sort of using more broader services, rather than just sort of like a location at the ALC. My thought is that, that still continues, and there's still a pipeline there; hard to forecast out into the distant future.

The other thing I'd say, though, Ed, is that, like, if you think about things like DataSphere, you think about things like DLT, that what we're trying to build is something where there are more opportunities for customers to use our services. So if you think that DLT will be something that people will be interested in and DataSphere is as well, that will probably be more people will be interacting with the ALC and interacting with our information.


Gillian Larkins, ASX Limited - CFO [12]


Can I just add, I mean, we're very happy with the increase this year, but the long-term run rate has actually been about 7%. So that probably gives you an indication.


Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [13]


Okay, Gill. And just one final one, if I can. Just on the other income and the loss from Sympli, when are you guys forecasting a profit to come through there, assuming loss for a couple of years?


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [14]


Okay. Yes. So I think when we talked about this, we were talking about FY '21. I think actually, the spend so far has been a little bit less than actually we'd thought. It's broadly going to that schedule. And I don't think we've got an update on that at this stage.


Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [15]


So you said breakeven was '21.


Gillian Larkins, ASX Limited - CFO [16]


We did, end of '21,


Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [17]


End of, okay. Appreciate your time.


Operator [18]


Your next question is from Ed Pham from Morgan Stanley.


Edward Pham, Morgan Stanley, Research Division - Research Associate [19]


Just on the OpEx guidance for 6% to 8%. So the AASB takes out the leases from that line, so it's really -- is it right to think it's more like 10%?


Gillian Larkins, ASX Limited - CFO [20]


I think -- sorry, you came in and out at the start. Are we just talking about the lease standard, AASB?


Edward Pham, Morgan Stanley, Research Division - Research Associate [21]


That's what I meant, yes. So the OpEx guidance for next year is 6% to 8%. The next year benefits from some of that OpEx being moved to the D&A line?


Gillian Larkins, ASX Limited - CFO [22]


Sorry. No, we actually tried to help you in that we said 6% to 8% for the total. So the total is both your operating expenses and D&A. I think every company this year is going to have the same issue. So we thought it was actually easier just to give you the total expense line. I think I also gave you indication in the speech of how much the operating leases are and how they would move. So I think you can probably work it out from that.


Edward Pham, Morgan Stanley, Research Division - Research Associate [23]


Okay. And the second question on AASB. We had some movement in the shape of the yield curve just this year. Like do you have a view on whether yes, in general, that's positive for the volumes at the SFE business or how it just impacts that business?


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [24]


Good question. I think at the moment, just given the -- there's been an -- it feels to us that there's been an enormous shift in balance sheets worldwide, sort of, who were all positioned for maybe a year ago for the movement in rates being up, which they were in some foreign countries. That's all changed, and so there's been a tremendous volume there. Hard to pick how that's going to play out in the next 6 to 12 months. But I would say, probably, it leads to sort of more volatility rather than less in the near term. If rates then just settle down at very, very low levels, and actually, you become less volatile, that's less of a positive picture. But we've sort of been bouncing around here, and it seems to be with the geopolitical situation, there's a lot of things going on in the world. I think the dominant force is that it's probably a more unstable environment than a stable environment for the next 6 to 12 months.


Operator [25]


Thank you. There are no further questions from the phone.


Chris Reason, [26]


Chris Reason from Channel 7. Just a follow-up on that last question and comment from you, and I'm looking here for a broad-based answer, if you could, for a mass-market audience. But can you give us a feel on what you think will be happening on our market fronts over the next 12 months, given the intensifying trade war, given the troubling news out of the States overnight? And you talk there about a more unstable time than a stable time. Can you give us more of your impressions on that?


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [27]


Well, look, it's interesting because -- it's funny, because it's been sort of a trend that we've sort of talked about in the last couple of years. I mean, maybe if I look at the times pre-sort of 2007, the markets were -- they were calling it the great moderation or the stabilization. And since then, a lot has changed since sort of 2000 to 2011 and '12. And so I look out over -- into the future, and it's only my personal view, but I think that there is quite a lot of things that have been sort of like unwound in the world. And as such, it's going to take a while to see the resolution of that. There's trade issues. There's sort of the issues in Europe around Brexit. There's political issues. There's also the issues of global debt, low interest rates. So that's not something that sort of will wrap itself up and solve itself in 6 months. So I feel like we're in a more sort of unstable environment than a stable environment, if that's helpful.

Having said that, I would say that if I look to Australia, Australia probably isn't reflective of a lot of that. Australia is in a reasonably good position, has a good fiscal balance. The regulators, the reserve bank have sort of -- have got a strong hand on the wheel.


Chris Reason, [28]


Swung out to (inaudible), what do you want with the (inaudible)?


Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [29]


I'm sure they'll do as good a job as they can. Any other questions in the room or we'll -- are we good?

Okay. Thanks, everyone, both on the webcast, the line and also here today, and good luck. Thank you.