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Edited Transcript of ASX.AX earnings conference call or presentation 12-Feb-20 10:30pm GMT

Half Year 2020 ASX Ltd Earnings Presentation

Sydney Mar 3, 2020 (Thomson StreetEvents) -- Edited Transcript of ASX Ltd earnings conference call or presentation Wednesday, February 12, 2020 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dominic John Stevens

ASX Limited - MD, CEO & Executive Director

* Gillian Larkins

ASX Limited - CFO

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Conference Call Participants

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* Andrei Stadnik

Morgan Stanley, Research Division - VP

* Ashley Dalziell

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Edmund Anthony Biddulph Henning

CLSA Limited, Research Division - Research Analyst

* Kieren Chidgey

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Matthew Dunger

BofA Merrill Lynch, Research Division - Research Analyst

* Nigel Pittaway

Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst

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Presentation

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

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Okay. We might begin. So good morning, everyone, and welcome to ASX's First Half 2020 Annual Results Presentation, whether here in the room at ASX or on the phone or via the webcast. My name is Dominic Stevens, and I'm the CEO of ASX.

And to begin, I'd like to acknowledge that this briefing is being held on the traditional lands of the Gadigal people, and I pay my respects to elders past and present.

So this morning, I'll start with overall highlights for the first half, then give an update on 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 followed by media.

So with that, let's begin. As you'll see by the numbers today, ASX has continued to deliver on its reliable earnings track record, while strengthening its foundations and making significant strategic progress. EBIT for the half was up 6% on PCP, which was driven by solid results from 4 business lines. This strong operational performance was somewhat offset by the effect of lower RBA rates on our interest income. And the loss of dividend income from the sale of our stake in IRESS last year. With the completion of our multiyear, Building Stronger Foundations program, our enterprise risk management and operational governance have been significantly enhanced and will return to a normal path of continuous improvement in this area.

In addition, the last half saw the introduction of new listing rules and updated guidance. This will improve market disclosure and make compliance processes easier. ASX is also well progressed on a significant structural upgrade of our technology stack. For every enterprise today, the maintenance of contemporary technology is critical to meeting the changing and diverse needs of customers. Our best-known project is the rollout of the CHESS replacement system, around which a growing number of third parties are exploring how the underpinning distributed technology might be deployed in other areas. ASX is also leveraging its expertise into data, with our DataSphere initiative and into payments with the e-conveyancing business, Sympli.

So moving to the headline numbers for the half, we see that the revenue was up by $30.2 million to 500 -- $454.9 million, which is a strong 7.1% rise over PCP. Pleasingly, the growth was broad-based across all of our business areas. Total expenses rose by $12.5 million to $139.8 million, a rise of 9.8%, reflecting the investment in people and equipment we flagged over the last year. We've maintained our full year expense guidance, which Gill will talk to in a minute, and we see expense growth moderating in the second half. This sees EBIT up by $17.7 million, and that's an increase of 6%, which is pleasing given the elevated expense growth driven by foundational and strategic long-term growth initiatives.

As I mentioned earlier, interest and dividend income was lower due to lower RBA rates and the sale of IRESS. However, the income from participant balances remained more robust than expected, which I'll leave Gill to take you through. So overall, net profit after tax for the half came in at $250.4 million, a rise of $4.3 million or 1.8% on PCP. Both earnings per share and dividends per share increased by 1.7% on PCP, and I note this was based on somewhat less capital, given the $250 million special dividend in the last half.

Let me now add some detail on the drivers of revenue growth. As you can see on the screen, the activity chart, and I'm on Page 5, we can see that the total capital raised by ASX companies tends to be lumpy over the medium term, up there on the top left. However, the $42 billion raised in this half was a respectable performance in a quieter market. And I note that December 2019, the last month of that period was the strongest month by a number of new listings since November 2017. FY '20 has continued the robust equity trading growth we saw in FY '19. With ASX on-market value rising by almost 9% on PCP, and this has continued into the new calendar year as markets grapple with a range of global issues including the coronavirus and the approaching U.S. election.

Our futures business also delivered a strong half with uncertainty over short-term interest rates, leading to more trading in the rates complex.

Finally, I provided a chart on the increase in securities balances in our Austraclear business. This has seen respectable growth via new mortgage-backed securities issuance.

So turning to Page 6. We can see how ASX's revenue also reflects the flow and benefits of our customer focus over the previous years. In our equity trading business, revenue growth is helped by a global team, offering seamless on-boarding and connectivity to our markets. This attracts users to the diverse execution services that sit on our platform. Our futures business also benefits from this global customer focus, providing data, connectivity and support. And the fact that a significant part of our market trades overnight reflects the valuable work done here on a 24-hour basis. Also being able to clear OTC trades and cross margin them with futures delivers further efficiencies to our customers. This half saw a strong performance from our Information Services business, reflecting growth and demand for exchange data and index products. We also continue to see growth in our indexing partnership with S&P with the launch of the S&P ASX All Technology Index later this month.

And finally, in Technical Services, the work done over the last 5 years to grow our ALC ecosystem is paying dividends. We're attracting new customers, filling additional cabinets and providing fresh connections, and so ALC has lowered the total cost of ownership of these services for many users over many years.

In summary, these initiatives are long-term in nature and focus on making business easy for customers. So I'd now move on to our strategic update. The value of trust, integrity and resilience has never been more important to financial services firm and indeed to all businesses. As such, it's critical we focus on the maintenance of ASX's franchise value and take a long-term approach when thinking about the sustainability of the company. This is why we're building an exchange for the future, an exchange that provides resilient and trusted market infrastructure and services, while also pursuing new opportunities that harness our experience, expertise and technology. This will deliver opportunities for innovation, cost and risk reduction for our customers, both for them and across the Australian economy. We're driven by our, as you can see on the screen, customer-focus and technology-driven strategy. Customer focus, because we see there are many areas where we can help our customers grow their business or make their operations more efficient. And technology driven, as we can see that the contemporization, simplification and the open nature of our technology is driving our ability to add value for our customers. ASX has a long history of being at the forefront of the global exchange industry in the adoption of technology for the benefit of customers, investors and regulators. We need to continue to drive that technological change in our products and services. And so if I look out for the next 5 or 10 years, companies no matter how loyal their customers are, will find it difficult to compete if they're operating on technology materially older than that of the new entrants.

ASX's current and future strategy is not about replacing CHESS or upgrading the future system, we're actually transforming our entire technology stack from the operational databases and communications infrastructure we use to the way we deploy distributed ledger, cloud, big data, AI tools. We're excited about the future opportunities that the new infrastructure will create for us and the marketplace. And in particular, we energize how these technologies actually can be leveraged by our customers to improve their businesses and how we can help them to do this. The ALC and ASX Net are great examples of this. They have allowed our customers to more easily connect to ASX and other markets but also more easily to connect and interact with each other. Our DataSphere initiative is designed to enable better access to ASX data and enable customers or new fintech vendors to use the platform to correct their own data analysis tools and products. And in the equity settlement, post-trade world after bedding down the base clearing and settlement functionality of CHESS, DLT will generate value by helping our customers better engage with each other by leveraging ASX infrastructure to add new products, services and efficiencies. Our strategy is not just about foundational change only. We'll continue to add improved functionality and new products and services across our product suite. And in addition, ASX is seeking new opportunities that leverage its significant skills into adjacent areas. So the execution of this strategy has gained momentum over the last year or so, and in the coming 12 to 18 months, a whole bunch of milestones will be achieved. I've mapped this out in the following slides by detailing some of the strategic initiatives each in various stages of execution. They separate into 3 themes that over the long-term will enable ASX to maintain its strong brand and franchise and grow new revenue streams. These are firstly, maintaining high levels of trust and resilience, which includes contemporizing our technology platform, which is really the bottom part of that pyramid there, developing our core customer value proposition, which sits on top of that. And then on the very top seeking adjacencies that leverage ASX's broad skill base.

So if I begin with the first theme down the bottom there, we want people to continue to see ASX as a company that they trust, a company that operates reliable infrastructure and resolves issues quickly and fairly. It's not something we take lightly, having the best risk management and operational governance in place is extremely important to the sustainable value of this franchise. ASX has just completed our multiyear Building Stronger Foundations enhancement program, as you can see on the screen. Throughout this program, we work closely with our regulators, ASIC and RBA, which were engaged and constructive in testing our assumptions and asking us the tough questions. And as you can see from the slide, much of the work was also technology-driven, including a rollout of 2 new technologies, 1 in our enterprise risk area and 1 in our technology governance area.

Turning to compliance, the listing of companies and the ongoing monitoring of their compliance to higher standards are critical to market integrity. Enhancing these capabilities will never end, and we rolled out a new set of listing rules and guidance in 2019 that came into effect on January 1 of this year. Not only does the package provide efficiencies and clarity across a number of compliance areas, it also aligns with our effort to offer the digitization of basically a comprehensive range being all of corporate actions based on ISO 20022 as a global standard. This means actually digitizing what are often complex financial adjustments, so they can be straight through process, not only by us but by our customers and by their customers.

So in addition, on the next slide, the contemporization of our technology platform continues apace. The CHESS replacement program is the one you'll read about in the media. However, as you can see up on the screen, there are many other technology-driven projects, aims at improving the ability of ASX to service its customers. To call out a few, the upgrade and consolidation of ASX Net, we've talked about this in the past, from 6 independent networks supporting various products and services to 1 integrated system will improve the reliability and speed of our network and to give the sense of importance of this, the RITS high-value settlement and transfer system of the RBA that supports Australia's banking sector travels over this network. So this project is now complete. Our secondary data center -- our new secondary data center is a significant upgrade that replaces the facility that faithfully supported the exchange for the last 20-plus years. With changes in technology, the newer facility will enable a low risk of fail-over and backup, low risk of fail-over and a better backup, and will actually align with our ALC in Gore Hill. This is due for completion at the end of this fiscal year. ASX is also upgrading the ASX Trade equity-trading platform. The platform will be more resilient with increased systems performance and the ability to introduce new functionality more efficiently, and this is also due for completion at the end of this fiscal year. In our equity business, there are a number of technologies that help manage data transport storage, reporting, et cetera, et cetera. Some of these services are a similar vintage to the CHESS application. The replacement of these with modern systems will enable ASX to move faster in meeting customers' need for change, reporting requirements, regulator inquiries and cyber updates. This project has 3 stages. The first is complete, we're now in Stage 2, and we'll see the full completion of Stage 3 in calendar year 2021 with the rollout of CHESS.

It's generally hard to replace these deeply embedded technologies. However, the benefit of getting a technology stack that's contemporary from the top all the way down to the bottom, is significant for us and it's significant for our customers.

And finally there on the screen, our cyber resilience program continues to ensure a safer ASX. With a multiyear program that's constantly refreshed, this not only gives comfort to us at ASX and our regulators, but also our customers who rely on the safety and security of multiple ASX services.

On the second theme of creating customer value, ASX has also made progress with enhancements to our underlying products and services over the last year, and I'll just mention a few here. Firstly, today, ASX softly launched a fresh, new website, which will operate in parallel with our current site for the next few months. This will give people time to explore and become familiar with the new site before switching over fully then. ASX has been working on upgrading, consolidating our multiple web presences for some time, especially to make them more contemporary and usable. And at the end of this calendar year, we plan to begin rolling out a more comprehensive digital experience, which will include enhanced issuer portal with richer functionality. A further example of ASX delivering value to customers is the work we've done in the benchmark business, specifically around BBSW. One of the largest issues faced in the banking world currently is the ending of the global equivalent to our BBSW benchmark, and that's LIBOR. Due to the compliance issues related to LIBOR, banks will be no longer posting rates and the global industry is working hard to come up with replacement benchmarks. This will see transactions that currently use the LIBOR benchmark having to be rebooked, the paperwork adjusted, systems re-coded. We're talking about something that's hundreds of trillions of dollars of contracts based on LIBOR. The global cost of this has been estimated in the multibillions. ASX has worked hard with the local banks, the local regulator and the bank bill trading market to avoid these costs in Australia. And has made changes that's enabled BBSW to become a licensed benchmark that's actually based of actual trades. Thus, it's enabled continued use. And this has seen our bank bill market transform from a market operated on telephones to an electronic traded market on Yieldbroker and other platforms where the trades are collected by ASX to calculate the benchmark. Cost saving to the local financial services industry of not having to replace every BBSW-based swap, loan, investment or financial product could easily be in the hundreds of millions. Additionally, in this area, ASX has created the ASX Realized AONIA product based on government borrowing rates to add to its benchmark suites. So this is the beginning of a series of products.

And finally there, mirroring the increased importance of technology to ASX as a company has been the rise of technology as an industry sector upon our exchange. Our new S&P ASX All Technology Index with the code XTX is launching next week. It will enhance the profile and understanding of the tech sector in Australia and increase opportunities for investors. This is a further step along the path of ASX developing a globally respected listed technology sector. Final theme on the strategy is looking at adjacent areas where ASX skills and infrastructure can be used to grow our revenue and provide new services to customers.

Here, I'll provide an update of 3 focus areas. Our DLT Solutions opportunity is focusing on encouraging others to innovate on our platform, be it adding valuable functionality to the cash equities market or helping develop new DLT technologies in areas totally separate to CHESS. We're looking at offering training in the DAML language and rolling out DAML partners program in conjunction with our technology partner, Digital Asset. There are a number of organizations working currently in this space. We see it gaining more traction once the significant workload of rolling out the core CHESS application is done. Our DataSphere platform opened during the last half and by the end of this half, the majority of ASX's data catalog will be curated and loaded. This platform is providing big data solution for ASX that can be also accessed and leveraged by our customers. So going on our theme of a more open solution for everyone.

Finally, we're using ASX's payment expertise to build a new solution in the growing e-conveyance market. Here, ASX is the challenger rather than the incumbent. We're building what we believe is a superior solution that will integrate better with the banking and conveyancing market. I'm pleased to confirm that we're connected to the RBA and connected or connecting to 2 of the majors, and this has allowed simply to complete its first financial conveyance as well as other transactions, and we're confident that the remaining connections will take place over the course of 2020.

So to summarize, ASX has never been busier. We're making long-term investments in the future of our core underlying franchise by improving the management of enterprise risk, enhancing our risk culture and we're taking -- undertaking a significant contemporization of the technology stack here. We're also enhancing our products and services, as you've seen, with an eye to customer value. And finally, we're investing in adjacencies that have the ability to produce significant revenues over the medium term.

So I'll hand over to Gill in a minute, but let me just provide an update on the CHESS replacement program. This project is significant to ASX, to the industry and the nation. And when traveling overseas on business, the first question I'm asked is always about the CHESS project. The intensity of interest has only increased over the last year.

While this is obviously a substantial project for ASX, I'd like to particularly acknowledge the collaboration and hard work of all of our stakeholders out there, including our customers their service providers and the regulators as we approach commencement of operational readiness activities, once the industry-wide test environment opens in July. We understand that replacing a complex and sophisticated 26-year-old system is a major undertaking for the industry, but it needs to be done. Much of the original CHESS has enabled customers to generate efficiencies, reduce costs and offer new products and services. So the replacement of CHESS in the same way, will enable innovation for the next quarter of a century. We're very excited about the long-term benefits this can bring to clearing and settlement, specifically, and to the efficiency of the securities industry in Australia, generally. The opportunities that DLT-enabled CHESS offers are being recognized by customers and third parties and these opportunities are developing in a range of areas, including risk management and process automation. Of course, while these opportunities are exciting, our focus is firmly on getting CHESS replacement project completed. So with that, I'll come back to sum up, but I'll hand to Gill now to take you through the financials. Thanks, Gill.

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Gillian Larkins, ASX Limited - CFO [2]

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Thanks, Dom, and good morning to everyone in the room and on the line. ASX's result for the first half of the 2020 financial year reflects positive activity trends across most of our business portfolio. In particular, our cash trading derivatives franchise and technical services offering continue to support company profit in a period when we incurred expenses to underpin our current and future infrastructure investments. And so lower interest income earned through lower investment spread in our cash portfolio.

Turning to the financials and starting with the top line. Operating revenue was up 7.1% on first half 2019, reflecting a solid growth in ASX volumes induced by the elevated market volatility over the last year.

With the introduction of the lease standard AASB 16 this year, which moves our operating lease expense to the depreciation line, the line that gives you the best expense comparator from prior years is total expenses, which is up 9.8% from the first half 2019. However, only 3.4% up on the second half. This was a consequence of the annualization effect of the additional employees taken on over the last year, which we highlighted in our previous results presentation. With the introduction of the new lease standard, our traditional focus on EBITDA has shifted to EBIT.

Moving through the table, you can see that ASX has achieved a solid EBIT margin of 69.3% despite the increased investments in both people and systems over the last year. This half saw the end to the elevated investment spread income that the business has enjoyed in 2018 and 2019. This, combined with the non-receipt of dividend income from our previous shareholding in IRESS explains the 19.7% decrease in interest and dividend income from last half, contributing to an underlying profit after tax increase of 1.8%. This has allowed the board to determine a dividend of $1.164 in the first half of 2020.

Now to the revenue results of our key business lines. This half saw ASX continue to deliver stable revenue across its business lines in both pre and post-trade offerings. The revenue contribution of the 4 business lines did not change markedly from the previous half. However, a number of themes did play out across the portfolio. Our listings business saw a slight decline in initial listing activity for the half, yet the resilience of the revenue profile now in this business, assisted by the adoption in 2019 of the revenue recognition accounting standard. It removes the previous annual volatility and IPO and secondary listing earnings. Having said that, it was pleasing to see secondary listing revenue increasing from the past year due to stronger corporate action activity. Our Trading Services arm continued to see an increase in cabinet hosting and cross connections, with ASX maintaining an 88.9% share of on-market turnover for the half. 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 company's operating revenue increase of 7.1%. Apologies, gone too fast. Just to go back to the slide. Our Other line houses our share of current losses and profits in our equity investments, such as Sympli. This number is similar to the first half '19, but a larger loss in the second half due to the receipt of a one-off debt recovery in that half. As Dom mentioned earlier, our Sympli JV leverages the payment infrastructure and expertise and our Derivatives and OTC business. Accordingly, in future periods, Sympli will be reported within that unit.

Running through each of the business lines. Firstly, Listings and Issuer Services. This is 2.2% higher than first half 2019. The Listings revenue profile for the year has seen less growth this half compared to previous, primarily due to lower initial capital raisings, mainly because of the Coles demerger, which occurred in the first half of 2019. Coupled with this were fewer IPOs coming to market this half, with only 55 versus 72 in the first half 2019. However, it's pleasing to note this number was higher than the second half of 2019. Secondary capital raised increased 11%, with a strong flow of institutional and retail placements as well as share purchase plans by corporates. While other listings also lifted this half due to a higher number of backdoor and AQUA listings at an increase of 14 exchange-traded products. The advent of AASB 15, amortizing the initial listings revenue over 5 years, and the secondary listings over 3 means the variance between halves is muted. In the appendix, you can see each of the previous year's amortization contribution for both initial and secondary listings. This provides guidance to the revenue composition over the next little while. Issuer Services revenue has come in higher than first half 2019 at 2.3% due to an increase in primary market facilitation revenue and higher market activity for this half.

Moving to Derivatives and OTC markets. The elevated market volatility, which we have seen over the last 18 months has benefited Derivative volumes materially leading to a 10.7% increase over the first half 2019. Contract growth was particularly up in the first quarter, following recent RBA activity and further rate speculation. However, we have seen this volatility drop off since due to monetary policy easing. Of note, our commodities volume also increased due to a rise in the number of customers and the introduction of a market making scheme. The increase in securitization activity in the market in 2019 has flowed into the first half of this year, where we saw the total balance of issuances grow, assisting our Austraclear business to post an 8.3% increase over first half 2019. In contrast, equity options has continued to decline through subdued activity since last year with both single stock and index options down on the first half 2019 by 13%. All of these activities support the overall revenue growth of this business at 8.6% over first half 2019.

Now turning to Trading Services and Equity Post-Trade results. Cash market trading saw its revenue up 7.6% on first half 2019 due to average daily on market value trading being up 8.1%. Of note is the continued increase in the use of options, with its value growing by 15.8% over first half 2019. Information Services had another good half 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 8.1%, mainly due to an increase in the average number of cabinets as new and existing customers expanded their footprint. It was also pleasing to see the increased revenue from ALC cross-connects through the ASX Net offering.

Moving now to Equity Post-Trade. Higher clearing and settlement activity levels translated into a 7.2% increase in Post-Trade revenue for the first half of this year. One can see the strong correlation between the 9.1% increase and on-market value cleared and the increase on the first half '19 of 9.7%. Cash market settlement revenue increased by 4.7%, supported by the rise in total message volumes, in particular, the securities transfers and conversions.

Moving now to total expenses. For the first half of this year, total expenses have been contained to market expectations, and we're on track with our guidance range of 6% to 8% growth for the full year. As expressed before, the largest component of the expense increase is the impact of the full annualization of circa 100 employees we took on over the previous financial year. You can see this on the top line of the chart, where first half '20 is 14.6% more than the first half '19. The new employees added resourcing to our critical license to operate activities, as well as supporting key project initiatives such as CHESS replacement. Recruitment has slowed since last year with only nominal business as usual growth. Occupancy costs have dropped substantially with the introduction of the lease standard this half, the standard requires leases to be capitalized on the balance sheet with a corresponding annual charge recorded in the depreciation and amortization line going forward. Other notable expense line increases include equipment costs that grew by 5.1% on first half due to higher spending on digital and cyber related expenses, whilst administration expenses were 21.3% higher, mainly due to increased insurance premiums. As mentioned, the depreciation and amortization line has grown by 15.1% due to the inclusion of the operating lease amortization. Excluding this charge, depreciation was down 6.2% on PCP, reflecting lower asset additions in the half and the roll-off of some old assets. Net interest and dividend income is down on the first half 2019 by 19.7%. However, excluding the nonrecurring dividend income from IRESS, this decrease is 11.4%. This is mainly due to increased interest income on our cash balances, decreasing 43.8%, with the 3 RBA cuts, having a direct impact on our earnings, with our maturing investments being replaced by lower yield investments. Of note, our average earnings rate decreased 80 bps over the half, and we expect this will remain at this level over the short term. Net interest earned on our participant balances was down 2.4% on PCP due to investment spreads dropping to 35 bps compared to 54 bps in the first half 2019. Compensating this drop, however, was the increase in participant balances to $10.1 billion, a rise of 25% compared to PCP. The near-term expectation is that rates will remain low, but we expect participant balances to remain. Of note, however, is an ASX determination from December onwards. Then in light of the current interest rate conditions, we have lowered our futures client charge from 65 to 45 bps. This has had a nominal impact this half, but will have a larger impact over the next 6 months.

Moving now to examine ASX's balance sheet. ASX's balance sheet is conservatively positioned with no change to our Standard & Poor's long-term credit rating of AA-. There are a couple of observations, which I'll talk to you briefly. In the table on the left-hand side, you will note the cash line is lower than the previous half by the proceeds of the IRESS shareholding divestment being used to fund our $250 million special dividend announced last half. Also of note is the increase in investments through our participation and the latest funding rounds in Digital Asset, bringing our total investment to $44.1 million. And also our increased investment in our Sympli joint venture of a further $5 million, bringing our total investment to $16.8 million. Our strong balance sheet and consistent revenue growth has allowed ASX to support a portfolio spend this half of $43.4 million. This is inclusive of our CHESS replacement project, new secondary data center and ASX Trade refresh. This technology work continues into the second half, where we are on track with our capital expenditure guidance to the tune of $75 million to $80 million. It is pleasing to note, we have had a positive half that has seen the previously announced special dividend paid out alongside the continuation of our investment in core business growth and future adjacencies. We are confident that this investment will support and sustain Australia's financial markets. Aligned with the increase in the profit for the half, ASX delivered EPS growth of 1.7%, allowing the ASX board to determine a first half 2020 fully franked dividend of $1.164 per share. The dividend can be fully funded from retained earnings and represents a payout ratio of 90% of underlying impact.

With that, I will hand back to Dom.

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

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Thank you, Gill, and I will just close now with a few summary points, and then we can move to questions. Just the strength of ASX's diverse business has delivered another period of solid earnings growth and sustainable shareholder returns. We've got strong momentum in our business and behind our technology-driven customer-focused strategy, it's been a good start to 2020, as I mentioned a bit earlier, as seen in the January monthly activity report, which you can get, trading volumes and equities and futures are strong and the strength in Listings experienced last December has continued into the new year. Ongoing uncertainty arising from various global challenges that I mentioned earlier, I think, is likely to keep volatility elevated. And ASX has a full program on at the moment, as you can see, and we're focused on the execution of strategic initiatives. These initiatives will continue to strengthen the foundations of our operating platform and make doing business easier for our customers and allow us to leverage our skills into new opportunities. So we see this as creating a stronger ASX that will enable our stakeholders to have confidence in the resilience and integrity of our business today and into the future.

So with that, I think we'll go to questions. And so I'll hand it over to those at the back. I think we're going to start with anyone in the room and followed by those on the phone. So I'll hand it over to whoever.

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Gillian Larkins, ASX Limited - CFO [4]

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We might go to questions on the phone?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [5]

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Questions on the phone?

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Questions and Answers

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Operator [1]

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The first telephone question comes from Ed Henning with CLSA.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [2]

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I've got a couple. Firstly, just on the futures charge you talked about, if that had played through in the first half, what would have been the impact on profit?

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Gillian Larkins, ASX Limited - CFO [3]

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Given that number. But if you actually go to Page 38 in the appendix, you can actually work out what that number would be, when you apportion that 45 charge to each of the lines.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [4]

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Okay. No worries. I'll look at that. Then if you look at the futures and OTC volumes, 90-day bank bills down 3 bond -- bond yields -- bonds down 30-day and today cash rate down. And you look over the last couple of periods, obviously, it's been elevated with the rates moving around a little bit. But given the low rate environment, are you worried these volumes are going to continue to slide?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [5]

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Well, I actually, I think that what you've seen is we had last year, sort of a, and we talked about this, a big change in interest rate expectations that caused an uplift. This year, we've seen actually an uplift in those contracts. And if you look at some of the specific contracts, particularly around the short end, like the 30-day, the contracts saw more -- saw significant growth, sort of like multiples of its growth. I think the bank bills were sort of like reasonably flat. And then the other part of the complex were up to some degree. So I think you've seen that -- I think, Ed, sort of going out into the future, I think it's too early to call that just things suddenly settle down. You've seen -- it was the sort of like everyone thought that U.S. rates were just slowly going to climb. And then last year, we had them fall, and now it looks like they might stay sort of stable at this level for a while. We've got a U.S. election coming up, so that probably stabilized thing to a degree. But I think, if I look out into the future, if rates had been low and had been -- had a lack of volatility for a multiyear period. I think you might think that, but I sort of think that, actually, we'll continue to see things that enter the market that cause volatility up and down, U.S. election, the -- what's going on and a whole bunch of things around the world.

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Gillian Larkins, ASX Limited - CFO [6]

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Yes. Can I just add to that. I think we're asked that question, certainly the last 2 halves that I've been here, I think we've been asked the same question. What I just go back to is the running CAGR over the last 5 years. So I think, certainly, it's a little bit heightened at the moment. But if you go out to that average, potentially it might come down to that average, but only slightly.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [7]

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Okay. No. That's great. And just 1 last one, while I've got you. Again, you're talking a lot about the new adjacencies and you're giving good detail on that. Can you just run through when you anticipate to get some revenue contributions from these, or is it more of just a medium-term play?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [8]

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I think it's more of just -- I think -- well, I think 2 things. I think 1 is, it's, in some senses, the things like DataSphere, that is open, you can go to the web store and you can buy data now. Has that started? Yes, in a small way, but as -- I think I might have even used the word last year, I think these things are slow burns because what they are like, actually now getting people to look at that and say, "Oh, okay, that's there, what can I do with that?" And then actually, I think the team on the data side are actually going out and now starting to -- now that's up, starting to market to banks and saying well, how can we help you with this? Or have -- do you know this thing exists and what you could actually do on it. So I think that sort of takes time. I think, Sympli is more directed at getting the 4 major banks on board. And so over the -- since we last spoke, we've actually -- or the 4 major banks and the Central Bank, and over the last period, we've actually achieved some of those milestones. And I think as I said last time, it's sort of something that you can't do it all in parallel. It's sort of something you can do in series. So Central Bank done, first bank done, second bank doing, third bank try to -- getting planned and then fourth banks sort of coming after that.

And then on the deal taking, I think it's interesting. There's a lot going on in the background, where people are actually looking at what they can do. And as we get to sort of the industry test environment being out there and people sort of getting a more fulsome picture. I think actually, more of these things will sort of come out in the open. There's also -- there's also sort of inquiries that are sort of based around not CHESS, but based around DLT and what can this do? And I think because we've seen to be a leader in that space, people are coming to us and saying, how could we do this? And how actually could we use your technology and maybe someone else builds it, that actually we roll it out with this technology because we can see that it works. So all of these things, I'd put them in more of the longer-term buckets, but it's actually starting to set up optionality within ASX, which has a very, very strong core business. And actually, these give us areas to grow into.

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Gillian Larkins, ASX Limited - CFO [9]

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I might just add -- I was just going to add, I mean, the strength of our revenue profile and our balance sheet allows us to actually grow these organic opportunities, so it's very different to inorganic, and it does take time, but it is progressing.

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Operator [10]

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The next question comes from Matt Dunger with Bank of America.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [11]

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Yes, you've noted that you're completing the BBSW transformation, also ASX net in FY '20. Did these 2 initiatives fit into the slow burn for adjacencies because I would have thought they're defined offerings, will they have any near-term revenue implications?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [12]

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Well, the ASX Net thing actually just makes everything a lot more efficient. And so perhaps that will attract other people onto that network. Well, it certainly helps attract other people on to that network. On BBSW, there is actually increasing revenue coming from that. You might remember going back a couple of years, we actually purchased that as a sort of business that used to be run by AFMA, and it's been sort of significantly changed, and we've actually sort of moved it on from there. And I think where it comes from is, the next thing is, is that we're also publishing Realized AONIA Rates, which is sort of like the -- basically the cash rate in a sort of like an average interest rate form that actually then could be used to base funding issuance off. And so there has actually -- there's the start of that happening now. So there are banks who are looking at, and I think, there's been 1 to start it, who is actually using that as a basis for borrowing. And then there's also banks and financial institutions who are looking at actually taking that as a feed, and that is something that we are selling. And we're also looking at are there other secured overnight rates, or other rates that we could actually provide as benchmarks to the market.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [13]

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Great. And just 1 more question on costs, if I could. You're talking to 705 of FTE. What's the outlook for the FTE post the completion of DLT in 2021. Do we -- are we at a point where we start to see FTE reductions? Or is this fixed into the cost basis?

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Gillian Larkins, ASX Limited - CFO [14]

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We actually -- yes, look at the moment, we're progressing with the project. And we haven't quite connected fee reduction with actually employees, but it was probably a good question. We'll think about that. Certainly, look, we're back to BAU from an employee growth perspective. And I think that's probably about it. I don't think there's anything more.

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [15]

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Yes. I think on the slide that you had there that just showed that really that there's been sort of a step -- there was a step change. That was sort of a year ago, and it sort of flows into an annualization process of this year, but actually, the -- we see that that growth has moderated and will continue to remain that way.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [16]

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You look at it as a split of project versus BAU FTE? Can you give us some indication of this?

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Gillian Larkins, ASX Limited - CFO [17]

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Yes. No, we can't give you that because actually some elements of what we actually took on with that 100. They were technology specialists. But actually, that was also part of our Stronger Foundations work. Where we're really securing good BAU personnel going forward, who will also actually work on the projects as well. So no, we don't give that split.

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [18]

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Just to point, but certainly, a good chunk of that is on project work and implementation stuff that's going on over the course of the next year.

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Operator [19]

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The next question comes from Jeff Qui with Citi.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [20]

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I'm sorry, it's Nigel Pittaway here just from Citi. Just first of all, if I could, just following up on the couple of questions on the significant revenue streams over the medium term. I mean, what's your definition of medium term? Does that mean sort of 3 to 5 years? Would that be a reasonable expectation of the sort of timing you're referring to there?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [21]

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I think that's right. And it goes sort of, Nigel, to sort of like a bigger thing, like I see an incredible importance in -- if I look out to, say, 2025, and I'm just using that because it's a round number, Nigel, rather than like anything in specific. But by that stage, if I think about where the rest of the world is on technology and everything, I think that you want to be in a place where, actually, we've done a whole lot of things to put us, put us in a place where we don't have anything that's sort of like legacy, and we're in a solid space. And to go to the point of some of the things that we're doing are sort of part of that. And I think that these are things that, as I've said, are sort of like they -- with a lot of the stuff with ASX, it sort of like starts in a -- in some sense, in a way that like some people join that, they get benefits of that. They talk to other people, and if you look at what's happened with ALC and ASX Net, what we hope to happen with DLT and DataSphere is actually we provide these services, they become known and they build out. So as far as growth profiles, I think it is more sort of like your 3 to 5 years to get to significant levels, but there is a bunch of things going on here. And I think the interesting thing is, is that with a lot of these things, particularly with Datasphere and with DLT the things where the growth of that is driven not only by what ASX can do or is doing, but also is driven by what others can do using the tools that we've put out there. So that actually can help supercharge that. So what we would hope to see is that people can see that there are benefits to using DLT benefits of using DataSphere and actually, they can go off and multiply on that, and that becomes helpful to us, but that's not something that's just going to happen overnight and you just switch that on because you've got to bring those people on.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [22]

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Okay, great. That's helpful. Second question, just I was wondering whether you could give some commentary on the participant balances because I think you mentioned they may have surprised you a bit how well they've held up and then you are guiding to them to sort of hold up moving forward. So can you just maybe explain sort of what you think is going on there and why they're likely to remain elevated moving forward?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [23]

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It's a hard one. And obviously, sort of like same for same, more volume probably means more open interest, and open interest is probably what drives those numbers, although they're not totally correlated because you can have a lot of trading that goes in and out. That doesn't sort of leave open interest on the table. Now you've seen more volume, that's going to be helpful, but it appears that we've actually got also an increase in open interest. And then maybe what there's also going on in there, Nigel, is a -- perhaps within the clearing participants themselves, there's a little bit of a decoupling of risks such that actually, some of the offsets that you might see within financial institutions are less than they might have been such that actually, they end up in our sort of -- in our clearinghouse. So there's been some moving around of customers who, within those clearing participants that then actually, they might have offset in 1 and maybe they're not offsetting in another. That's another sort of way that could work. And so obviously, larger positions, more trading, a few customers moving around that has actually maybe created a bit more as well. So it seems like that actually has sort of like gone up to another level. It could easily come back. There's been -- in the last 6 months, or in that last 6 months, there are up and downs in these things, but it seems to have sort of been higher for longer, if you will. But there's a bunch of things.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [24]

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Okay. And then maybe just finally, I mean, on Sympli, you've obviously made some progress. You've invested a bit more money. But I mean, it does sound as though that might be tracking a little bit slower than you anticipated. Am I reading that correctly? Or is that an incorrect statement?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [25]

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I think, what I would -- the way I would answer that is to say, really happy with the way that we've gone through and achieve what we have in getting those or in Sympli getting those banks up and running and getting a process through that. Probably, what we couldn't have sort of like predicted at the beginning of this process going back sort of like a year or 2 was that not only we would have an enormous pressure on the banking space and the technology part of the banking space. And that actually, a lot of that, particularly focused in the payment space. If you think about what's happened in the last year, some of the things that have been in the media are basically in that payment space. So yes, that doesn't help us in actually speeding the process up.

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Operator [26]

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The next question comes from Kieren Chidgey with UBS.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [27]

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Most of my questions have already been covered. But perhaps just to try and clarify, Gill, on your commentary in regards to this futures client charge change. The 20 basis points, does that apply to sort of all those categories that you outlined on Slide 38, which add up to about $10 billion, or sort of, is it only on a segment of that futures margins balances?

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Gillian Larkins, ASX Limited - CFO [28]

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Sure. So if I'd just direct you to Page 38, if you had the appendix in front of you. We're talking about the impact being on really the client, initial margins client and also the top line. So that would be the impact of the reduction but also, then you have to factor also in our reduction, obviously, 54% to 35% as well on the average daily margin balance. So there's 2 impacts.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [29]

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Okay. So it's roughly 20 basis points on $7 billion. And then there's the rest on, yes, your own balances?

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Gillian Larkins, ASX Limited - CFO [30]

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Yes.

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Operator [31]

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The next question comes from Andrei Stadnik with Morgan Stanley.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [32]

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Can you hear me okay? Hello, can you hear me okay?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [33]

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It's an easy one to answer.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [34]

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Sorry, can you hear me okay now?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [35]

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Yes, I can.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [36]

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Often does that, sorry.

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [37]

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That's alright.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [38]

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Thank you for your patience. Just wanted to ask firstly, like what are your thoughts on pursuing a more aggressive strategy in terms of being an alternative platform in the wall space, noting Magellan, Challenger announcing new products and advanced products will be listed on the ASX, do you think there's more that you can do to be viable kind of one-stop platform?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [39]

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I think it's an interesting question. I don't think we're in the Challenger, Magellan zone. But I think the point that you're making is actually that there's been a tremendous growth in listed sort of like investment products and that seems to be continuing. I think where actually ASX could help the market in a big way is that in the infrastructure that we provide in trying to make things easier and make things more efficient. So if there are -- if you look at the equity market and the efficiencies that things like CHESS provide and what new CHESS provides or whatever, and having a lot of standardization and a lot of efficiency there. There are -- there are, certainly -- I think, there are processes there that perhaps ASX can help customers help custodians, registries, investment banks and all that in actually making those things more efficient. So it's not something that we have a specific project we're working on at the moment.

But certainly, I think ASX has the skills and ability and has the trust of customers to be able to deliver solutions into that market. If they -- and if you look at the platform that is -- that ASX provides for 4 ETFs, what that is doing is actually providing a very efficient infrastructure for the actual movement of funds management products around the market. And so perhaps that's the reason why it's growing. Probably certainly a reason why it's growing. And that's something that is interesting to look into.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [40]

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And my second question, just thinking about tech budget from another direction, is it big enough because you're talking about 3 to 5 years to get meaningful revenue from a number of these options. Sympli is progressing quite slowly against the dominant competitor. You mention you need to get customer buy-in, which could accelerated if you put in a bigger marketing budget. So given how much value investors seem to be ascribing to those revenue options. I mean, is your tech budget actually big enough to drive that as hard as you can?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [41]

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Yes. Yes, that's, again, another interesting question, and we think about that. I think over the next sort of -- there's just a focus on to -- if you look at sort of -- actually all of them Sympli, DataSphere and DLT, DLT, there's a big focus in actually just getting the CHESS piece of that done, DataSphere getting all the data there. The platform is ready to go. We can use it. There's -- as anyone in any financial institution knows, it's actually the curating and cleansing of the data is actually incredibly detailed and significant task. That's -- we're heading towards completion on that. And then on the Sympli thing, is actually getting the connectivity there. But actually, when you get to the next stage of that, when you have all the data there, when you have the connectivity when sort of CHESS is actually sort of more off and running, that it does beg the question of actually -- that's the time where you would actually, maybe, look at investing more in those adjacencies to actually push them harder in a marketing sense. I would say actually in the DataSphere sense, that's beginning. I think, as I said, when I was talking earlier, the -- on the data side, we are actually -- are actually doing a number of things where we're going out to financial institutions and saying, do you understand that we could actually do this and actually how that can help you. So perhaps we're at the -- well, we're at the early stages of that.

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Operator [42]

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The next question comes from Ashley Dalziell with Goldman Sachs.

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Ashley Dalziell, Goldman Sachs Group Inc., Research Division - Equity Analyst [43]

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Just the first question on what's been another pretty strong result for the Information and Technical Services divisions, are you able to offer up any assistance on, I guess, the outlook for growth there in the near term? Should we continue to extrapolate sort of the recent trend?

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Gillian Larkins, ASX Limited - CFO [44]

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Sure. I mean, that result was a very good result for this half and was probably a little bit heightened. We actually had a true-up of Standard & Poor royalty. So when you actually take that off, we're probably more near the CAGR run that we've actually had over the last 5 years. So hopefully, that gives you some guidance.

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Ashley Dalziell, Goldman Sachs Group Inc., Research Division - Equity Analyst [45]

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That's helpful. Just a second question, picking up on the Sympli conversation from earlier. I mean, I think, you're kind of broadly guiding to breakeven there for FY '21. Based on your comments, is that still sort of the target? Or has there been some slippage maybe into '22?

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [46]

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I think given what the comments I made earlier about the time taken and sort of like the serious nature of making those connections, that, that would actually be pushed out into the next year.

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Gillian Larkins, ASX Limited - CFO [47]

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Can I just add to that? I mean the technology is good. It's just an element of connectivity with the banks that we're actually -- that's why there's a delay.

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [48]

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That's right. I mean it's basically, what it does give us is actually time to actually like hone the product, and there's a lot of work being done, whilst that's been going on in actually talking to banks and saying, while we're doing this, what actual things can we do for you that would actually mean that you don't have to do -- what are the problems that you have with this, that when conveyance fails in the last, sort of, like hour because someone's put in sort of like a $120 charge, and it's made the whole thing fall over. How can we do things to help that. So there's certainly a lot of work going in on the functionality side, while we actually get the connectivity happening.

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Operator [49]

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There are no further telephone questions at this time.

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Dominic John Stevens, ASX Limited - MD, CEO & Executive Director [50]

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Okay. Well with that, if there's nothing else in the room, we might -- I'd like to thank everyone for joining us today. And thank you.