Market operator lifts profit on new listings, but costs also rising


“But I know we are all in agreement it needs to be right. The financial markets are a complex ecosystem of many players, and we are one cog in the heart of that. We acknowledge customer concerns. They have their own tech to build and have to plan resources around it. We will make sure we are putting ourselves in our customers’ shoes, listening and taking on feedback about what it means to them and what they need from us.”

ASX confirmed it had spent $216 million on the CHESS replacement project as at the end of June 30 – the first time it has put a number on the project after calls for more transparency.

Capital expenditure for the year was $105.2 million and this will rise to between $115 million and $125 million this year, including costs relating to the CHESS delay, which has also lifted regulatory scrutiny on ASX.

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Higher salary and technology costs pushed operating expenses up by 10.3 per cent to $283 million in the year to June 30, after 8.9 per cent growth the previous year. ASX said expenses would rise this financial year by between 10 per cent and 12 per cent because of inflation, headcount, technology and risk management. The market had expected a 7 per cent lift.

UBS analyst Scott Russell said the “cost and capex outlook is likely to disappoint the market”. ASX shares were down 2.5 per cent at $82.49 mid-afternoon and are roughly flat over the past 12 months.

But Ms Lofthouse said it was important to continue to invest in new technology. ASX is confident the blockchain technology underpinning the new CHESS system is operating properly, and it has started to offer it as a service to other companies. “Investing in technology will remain a strong theme of our strategy,” she said.

ASX’s net profit after tax for the 2022 financial year was up 5.7 per cent to $508.5 million, and it increased its dividend by the same amount. The total dividend of $2.36 a share, fully franked, was 90 per cent of its profit, a steady payout ratio.

A surge in new listings on the equity market during the financial year – 217 new IPO listings was the highest number since 2008 – underpinned revenue growth of 7.5 per cent.

Equity deals including the BHP reunification, Block’s secondary listing after it acquired Afterpay, and the GQG Partners and PEXA initial public offerings provided a tailwind, although analysts expect fewer big deals this financial year. Futures volume for the year were subdued, down 5.1 per cent due to low activity in the long-end interest rate market.

Focus on culture

Ms Lofthouse reported her first set of results after taking over from Mr Stevens, who was paid $4.5 million over the past year according to the ASX annual report, also released on Thursday.

It has been a tumultuous period for management with a string of departures that also includes CFO Gillian Larkins, who is leaving in two weeks “to pursue new opportunities elsewhere”. Former NAB chairman Ken Henry who has stepped off the ASX board. In addition, well-respected head of listings Max Cunningham left in April, while general manager of trading and technology David Raper and executive general manager of post-trade services Cliff Richards left last year.

“Like many organisations, ASX faces challenges attracting and retaining skilled talent in today’s tight labour market, particularly in key areas such as technology, risk and compliance,” Ms Lofthouse said on Thursday, pointing to high salaries as a driver of costs.

She said she would focus on improving culture at the exchange. “Our people are encouraged to speak up about risks and compliance issues, and are comfortable doing so”, but there was “room for improvement,” she said.

Morgan Stanley analyst Andrei Stadnik and CLSA’s Ed Henning pushed for detail during the earnings call on new revenue opportunities, given ASX’s elevated technology investment. Ms Lofthouse said the exchange is exploring carbon futures in response to demand from customers.

It remains confident about property e-settlements joint venture, Sympli, despite its loss doubling this year, and she also pointed to data services offered by DataSphere, including in debt capital markets, and distributed ledger services being provided by Synfini.

“Some of our investments in future growth have matured and become parts of our business,” she said. “But as an operator of critical market infrastructure, part of our focus at the moment is on our core businesses as well. As we have such a wide-ranging impact on so many people, it is very important we continue to invest in the quality and continuity of those platforms, which will offer opportunities to add new product capabilities as well.”

Performance issues

Mr Stevens had declared CHESS – the most important upgrade to Australia’s financial markets infrastructure in 25 years – “effectively a delivered system” in June last year, only for a fourth delay to be announced in March, which one senior broker described as “extremely annoying”.

In February, as Mr Stevens announced has plans to retire, he declared the new CHESS would go live on schedule in April this year. But just a month later, confidence in the ASX’s ability to deliver the upgrade sank to a new low as another delay was announced. ASX pointed to unspecified performance and functionality issues with the software being developed and that its partner Digital Asset will be the focus of the Accenture review.

ASX has “identified that more development is needed in parts of the application to meet the market’s scalability and resiliency requirements,” Ms Lofthouse said. “The transition to a new platform needs to be safe and reliable.”



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Market operator lifts profit on new listings, but costs also rising

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