ASX Limited (OTCPK:ASXFF) Q4 2022 Earnings Conference Call August 17, 2022 8:30 PM ET
Company Participants
Helen Lofthouse – CEO
Gillian Larkins – CFO
Conference Call Participants
Andrei Stadnik – Morgan Stanley
Andy Chuk – Macquarie
Kieren Chidgey – Jarden
Ed Henning – CLSA
Siddharth Parameswaran – JPMorgan
Simon Fitzgerald – Jefferies
Nigel Pittaway – Citi
James Cordukes – Credit Suisse
Helen Lofthouse
Good morning, and welcome to ASX’ financial results briefing for the year ending 30th of June 2022 or FY ’22. Thank you for taking part in this virtual presentation. I hope you are safe and well wherever you are joining us. My name is Helen Lofthouse, Managing Director and CEO of ASX. I’m delighted to be here for the first time presenting our annual results, and I’m looking forward to meeting all of you personally in due course. Joining me today is ASX’ CFO, Gillian Larkins.
To begin, I’d like to acknowledge the Gadigal people of the Eora Nation, who are the traditional custodians of the country where I’m speaking today. We recognize their continuing connection to the land and waters and thank them for protecting this coastline and its ecosystems. We pay our respects to elders past and present and extend that respect to all First Nations people present today.
I’ll now take you through our FY ’22 results, beginning with an overview and the markets and operational drivers of the last 12 months. Gill will then present the financial detail, and then I’ll return with an update on our strategic progress and some comment on the outlook, and then we’ll take questions.
So let’s begin. I’m pleased to announce that the FY ’22 financial results are solid. The operating revenue of $1.02 billion is the first time the group has generated over $1 billion in revenue, and it’s a 7.5% increase on FY ’21. Strong equity market activity drove performance across several parts of the group, and this included IPOs through to trading, post-trade activity, equity futures and options and also increased demand for data and technology. All 4 of our businesses recorded growth in operating revenue. Expenses grew in line with our updated guidance with expense growth driven most significantly by technology and risk management initiatives. I’ll focus on this in the strategy section later.
Our net interest income was lower this year, as expected, given the very low interest rates. Gill will provide more detail on that shortly. The net profit after tax or NPAT of $508.5 million is also a record result. The growth in EBIT of 7.5% and NPAT and earnings per share of 5.7% reflect the strong operating revenue growth, and we’ve maintained our 90% dividend payout ratio to shareholders.
FY ’22 was a record year for listings revenue, driven by a mix of annual listing fees and initial and secondary listing fees. Annual listing fee revenue was up 21% to $109 million due to the growth in billable market capitalization. It was an all-time record year for total capital raised in FY ’22. And of course, it was a very strong year for IPOs as well, particularly in the first half with a total of 217 new listings. This shows that ASX continues to be an attractive destination for raising capital. The newly listed companies were from a diverse range of geographies and sectors. The cash earnings generated by listings helped develop a healthy profile of long-term earnings due to their accounting treatment, which Gill will talk to shortly.
Against a background of low interest rates, equity markets were attractive over the period for both issuers and investors. And as a result, it was a strong year for equity market activity broadly, which benefited a number of different businesses across ASX. Volatility grew later in FY ’22 as macro uncertainty increased, but cash market volumes remained strong as investors managed risk. Retail trading activity also remained quite elevated in FY ’22 at 14% of total value, which is less than last year but still ahead of FY ’20. There was also over 8% growth in the number of people with an active holding in their HIN account or holding identification number in the past year.
In cash market trading, on-market activity grew 15% over the prior year, and the second half of FY ’22 was the second largest ever in terms of total cash market activity. ASX’ share of cash market trading also stayed strong, increasing a fraction to just over 89% of total on-market activity. The strength in equity market trading flowed through to both our issuer services and equity post-trade businesses, and this equity market strength saw a welcome return to growth in the equity options market. Index options activity was up 11% and single stock options up 6%. Equity index futures activity also increased 3%. There were positive impacts flowing through to our Technology and Data business with increased demand from clients for ASX and ASX 24 data and connectivity services.
FY ’22 was a mixture for our futures business. It was a challenging period for interest rate futures, the largest part of our futures ecosystem, given the very low interest rate environment. Yield curve control policy was also in place for most of the first half of the financial year, impacting trading activity after the 3-year point. We started to see a recovery in the short-end volumes towards the end of the financial year as the changing outlook for interest rates led to more activity in both the cash rate futures and especially the 90-day bank bill futures.
Total bank bill futures volume was up 65% in FY ’22 and up 92% in the last quarter of FY ’22 compared to the last quarter of the prior year. However, 10-year treasury bond futures volumes declined for the year partly due to much lower levels of government bond issuance. This is in contrast to FY ’21 when record levels of government bond issuance were an important factor in the record volumes for the 10-year bond futures.
The decline in interest rate futures was partly offset both — by both the increase already mentioned in equity index futures and also a 20% increase in commodities activity. Electricity futures, in particular, have become an important part of ASX’ futures market and play a key role in supporting investment in the decarbonization of the Australian economy.
And I’ll now hand over to Gill to take you through the financials.
Gillian Larkins
Thanks, Helen. Turning to the financials and starting with the top line. Total operating revenue for the full year increased 7.5% on FY ’21. ASX undertook an operating model review in early 2021 and introduced a structure at the start of FY ’22 that better aligns business responsibilities. ASX now has 4 businesses: Listings, Markets, Technology and Data and Securities and Payments. All comparatives are restated in accordance with the structure.
All of the 4 businesses contributed to the company’s overall growth. This is seen most markedly by the Listings business increasing 16.9%. The Markets business showed a recovery in the second half with growth of more than 10% over the first half. Strong cash market trading contributed to the Markets and Securities and Payments results with the Technology and Data business servicing strong customer demand for market data, index and benchmark products and connections into the Australian Liquidity Centre across the whole of the year. This activity assisted in defraying the 7.5% increase in total expenses incurred through growth in staff, equipment costs and the reinstatement of ancillary operations spending following the easing of COVID restrictions. This was offset by a lower depreciation charge.
Moving through the table. The interest income line shows a decline from the previous year of 11.9% due to decreased earning rates, leading to a 5.7% increase in statutory profit after tax of $508.5 million. This translated into the same increase in EPS with the Board declaring a dividend of $1.20 per share for this half.
Now to the revenue results of our key business lines. Our Listings revenue was 16.9% higher than last year. As one can see, over half of the revenue is through the annual fee income that we charge issuers based on their market capitalization as of May 2021. Higher overall market capitalization at this date than in prior years, coupled with a strong number of new company listings, contributed to a 21.1% increase in annual listings revenue for FY ’22.
As already highlighted, the number of new listings increased by 23.3%, leading to a commensurate increase in initial listing revenue of 22.9%. The heightened initial listings earnings for FY ’22 will feed into the ASX revenue profile over a further 4 years as per our amortization policy of recognizing this revenue over 5 years.
Subsequent raisings increased by 14% with strong secondary capital raisings in both halves. The second half was marked by the BHP unification event, which contributed around 70% of the secondary capital amount raised. Investment products and other listing revenue declined by 12.2% due to lower reinstatement activity. This was offset by growth in ETF revenue through the higher funds under management balances.
Moving now to the Markets business. Our Markets business continued to experience growth in trading activity and in commodity products, partly offset by the lower rates environment prevailing across most of the period. Future volumes for the year were subdued, down 5.1% due to the low activity in the long-end interest rate market, although 90-day bank bill volumes grew with speculation on inflationary pressures and interest rate changes. It was not enough to combat the decrease in 3- and 10-year bond contract volumes, however.
Overall, the Markets business showed a decrease in futures revenues of 1.2% for FY ’22 with the volume decline partly offset by an increase in average fee, reflecting the strong growth in commodity products and lower proprietary trader volumes.
Equity options revenue increased by 33.4% from FY ’21 with both the index options and single stock option volumes up through higher activity due to market volatility and the cessation of the one-off rebate scheme, the Options Liquidity Growth Program, which was introduced in the third quarter of FY ’21. The 16.8% rise in cash market trading over the last year was underpinned by strong daily average turnover, particularly in the second half, with growth in our premium products Auctions and Centre Point. The large corporate transactions involving BHP, Block and The Lottery Corporation were also strong drivers assisting this volume growth.
Information services had a strong year with the growing demand for equities and futures market data. This demand, coupled with the price increase in January 2022 for a large part of the product suite, increased information service revenue by 10.6%. Technical services also increased with revenue coming in at 6.3% more than last year. Our ALC saw an increase in demand for cabinets, up by 4.9% as well as further demand for access and interconnectivity with ARC service connections up by 10%. This was negated slightly by a decrease in future connections with ASX 24 gateway access falling in line with lower future activities.
Finally, moving on to our fourth business, Securities and Payments. This business produced a 3.9% growth in total revenue, mainly supported by the equity post-trade services part of the business, which rose 6.5%. This can be attributed to the 14% increase in on-market value cleared. There was no rebate applicable for the settlement business for the year. However, $4.8 million is payable from the clearing business, commensurate with the revenue growth compared to no payout in FY ’21. Issuer services was 4.4% higher given the increase in listings and trading activity.
Our Austraclear business provides settlement, depository and registry services. FY ’22 saw higher registry and transaction activity with overall revenue coming in at 6.3% more than last year, excluding the investment in Sympli. Total holdings of debt securities remain high at $2.9 trillion, up 9.3% on last year. It is of note that the results of this business also include the performance of our investment in Sympli, for which ASX’ share in the operating losses came in at $12.3 million versus $6.3 million last year.
Total expense growth for FY ’22 has a similar composition to previous years with an overall increase of 7.5%. The uplift was mainly through the cost increase associated with the operating model redesign, head count increases, combined with the higher contractor costs to support key initiatives. Expenses associated with ASX’ technology program, including cybersecurity, are in the equipment cost line, coming in at 12.7% more than FY ’21. Administration expenses saw the largest percentage increase, mainly due to the use of consultants for internal projects and expenses associated with employees returning to the office with the easing of COVID-19 restrictions.
In line with the strong trading and listings activity for FY ’22, the variable cost loan came in at 9.1% more than last year with a reduction in the depreciation and amortization charge of 6.1% occurring through the roll-off of assets such as the ALC data center and the NTP derivative trading system. All these factors combined led to an overall decrease in total expenses of 7.5% for FY ’22.
The increase in expenses and capital expenditure over the last few years has been to bolster the technology and risk foundations of the ASX. The highest cumulative growth over this time has been in head count. However, the last 2 years’ expense profile also recognizes the growth of variable costs connected with market-related activity, the heightened equipment charges that have increased through the upgrade of operating and service capabilities and increasing software licenses and costs associated with the ASX’ technology strategy.
We expect the expense composition will be similar to previous years. However, we cannot escape the inflation impact on both market salaries and supply contracts that is now fully factored into our expense guidance for FY ’23 as well as the recognition that certain key parts of our businesses need to further bolster resources, namely project management and technology. Therefore, our expense guidance for FY ’23 is 10% to 12%, whereby the majority of that increase relates to inflation, head count and ASX’ ongoing initiatives in technology and risk management.
For FY ’22, the capital expenditure spent came in at circa $105 million. This was at the lower end of our guidance for the year due mainly to supply delays with hardware delivery. We expect our capital program to be a shade higher going into next year with our CapEx guidance set at $115 million to $125 million due to the catch-up on this year’s plan and the ongoing CHESS project. CHESS replacement is the largest project in our portfolio. Of note, we have spent $216 million on the project as at the end of FY ’22.
Total net interest income decreased 11.9% to $41.1 million for FY ’22. We are starting to see a recovery in the group net interest income line, which you can see slightly in the second half of FY ’22 through the increase in interest rates. The average earnings spread on participant balances, calculated as the difference between short-term BBSW and the cash rate, has moved from 13 bps to 10 bps, which contributed to a decrease in overall net interest on collateral balances of 11.9%. The decrease in the average collateral balance to $11.8 billion has also contributed to this result.
ASX’ balance sheet is strong and positioned conservatively with the Standard & Poor’s long-term rating of AA- and a nominal amount of debt for working capital purposes. Also of note has been the growth in the software balance, which is mainly attributable to the increase in capital expenditure in FY ’22.
From a shareholder return perspective, the strong trading and capital markets activity through the last 6 months offset the lower futures revenue and investment spread income, enabling the underlying profit after tax to increase by 5.7%. This led to an underlying EPS increase of the same amount. The Board has determined a second half ’22 fully franked dividend of $1.20 per share, contributing to an overall payout of $2.364 cents per share for the year. This represents an increase of 5.7% on FY ’21. The dividend is fully funded from retained earnings and represents a payout ratio of 90% of underlying NPAT, in line with our dividend policy.
In summary, the FY ’22 result reflects the strength of ASX’ diversified business. ASX continues to deliver resilient earnings and investment technology that positions us for the long-term sustainability. This will benefit ASX’ people, customers and shareholders and the future of Australia and New Zealand’s financial markets.
With that, I will hand back to Helen. Thank you.
Helen Lofthouse
Thanks, Gill. I’ll turn now to the strategy update. As a new CEO, I’m sure you appreciate that our strategy is an area which will evolve, and I look forward to providing more detail in time. For now, I wanted to discuss some key themes which will continue to be focus areas for ASX.
Our customers are a priority for me. Like every business, ASX needs to focus closely on its customers and their needs. First of all, good communication is important to operate ASX’ services effectively. ASX is a critical cog in Australia and New Zealand’s financial services ecosystem, and we have a big impact on our customers. So we need to maintain effective two-way communications with our customers, listening to them, understanding their needs and making sure that they have a good line of sight on what we’re doing.
ASX has a very diverse set of customers, and communicating with them is vital. We engage with them in many ways, from extensive one-on-one and small group meetings through product working groups and all the way to formal forums and public consultations to make sure that everyone has the opportunity to provide input.
In FY ’22, we created a dedicated customer team that brought together our cross-product customer service, client management, marketing, digital and communications areas. And this team is providing customers with more streamlined engagement with ASX. We’ve already had very positive feedback, for example, on our recent operational communications, including during incidents. But there’s still room for improvement, and that will be a focus for us.
Staying close to our customers is also important for ASX’ innovation and growth. The market and regulatory environments and our customers’ needs are constantly evolving. We need to listen to our customers and understand those changes so we can adapt and develop our products and services accordingly. Let me highlight a few examples, moving clockwise on this slide.
We’ve launched a new agribusiness index following the success of the All Tech Index. This will help raise the profile of listed entities, provide opportunities for investors and support an important part of the Australian economy. For equity options, we’ve significantly expanded market making, doubling available on-screen liquidity, and we’ve launched a number of new options series, several of which are now in the top 30 equity options series by trading volume.
In OTC clearing, we’ve expanded the types of transactions which can be cleared and added an annual compression service in response to client demand. And in the Australian debt markets, a lack of standardized, transparent market data has been a long-standing challenge for customers. So that’s an area we’ve been working on for a while, looking at ways to make the deep pool of data in Austraclear available to customers to increase market transparency while maintaining the confidentiality of individual customers. I’m delighted that in FY ’22, we launched several new data products on the DataSphere platform, which are now bringing more transparency for debt market customers in the form of standardized, machine-readable data products.
In FY ’22, we also did a wide rollout with issuers of our new straight-through processing capability for certain corporate actions. And now 93% of all corporate action volume is delivered in real time through ASX’ corporate action notification service. The resulting real-time flow of standardized information is significantly reducing both costs and operational risks for our customers.
In November ’21, we launched our DLT as a service platform, Synfini, and this allows third parties to develop and operate DLT applications using ASX infrastructure. I was delighted to see the first of those DLT applications go live on the platform recently, the Building Trustworthy Indicator from KPMG Origins in partnership with the New South Wales government. There are a number of other customers actively working on new applications in the Synfini environment, which will streamline workflows, reduce risks and improve compliance processes.
We embrace our role in providing critical national infrastructure and services. What we do matters, and how we do it matters, too. Risk management is a vital pillar of our operations and is embedded in our culture as an organization. It’s an important component of the key performance indicators for all of our people. We’re a highly regulated entity, and we’re held to very high standards. We think that’s appropriate given the importance of the services we provide. We have long-standing and constructive working relationships in place with our regulators. And we have many shared goals, including market integrity and financial system stability.
We’re also committed to continuous improvement in everything we do. We use input from a range of internal and external sources. So for example, as part of our internal audit process, every 3 years, we commission an independent review of our enterprise risk and compliance frameworks. And the findings form part of our continuous improvement programs. In addition, we welcome the input of reviews and recommendations such as the Financial Stability Standards assessment and the CHESS assurance program.
Technology is fundamental to what we do at ASX. Our products and services depend on having the right technology in place. You can expect to see investment in technology remain a strong and continuing theme in our strategy. Our technology strategy has 3 goals. Transformation is about moving our critical services to operate on contemporary, flexible technology so they can be maintained and expanded into the future and interact more easily with other services. Resilience is about reducing incidents and outages, even as the rate of change across our portfolio increases. It’s also about supporting market growth and managing surges in volatility and volume such as experienced during the COVID pandemic. And technology leverage is about exploring the opportunities for our technologies to be extended into new areas of growth for our customers as well as for ASX.
So first, let’s look at technology transformation. Moving to contemporary technology helps make our systems easier to maintain and gives us more flexibility to adapt to customer needs and to allow services to interact with one another. Over the last 6 years, we’ve made progress in updating our — the applications supporting our equity markets such as trading and surveillance as well as key ASX-wide infrastructure, including the website, our secondary data center, the ASX Net communications network, cybersecurity, access management and risk systems.
We’ve made good progress reducing the average age of our technology in those areas. And as is well known, we continue to work through the project to replace the CHESS system as well as the equity data warehouse. We’re beginning to focus on upgrades across various parts of our derivatives platform now.
When it comes to technology resilience, the number of instance is one of the important metrics we consider to see whether our investments in technology and risk management are working. I’m pleased to report that the number of instance impacting customers reduced by 75% over the last 2 years. It is important to note that the process of changing technology comes with its own risks, but the bigger risk is to do nothing.
The third focus of our technology strategy is to leverage our technology to improve services for customers and to enable growth for both our customers and for ASX. The Australian Liquidity Centre or ALC data center is a great example of the way we’re leveraging our technology. The ALC has expanded from servicing ASX’ own needs to now servicing the needs of many of Australia’s financial services participants as well. The ALC footprint has grown to meet this increasing client demand, and we’ve seen rising levels of connectivity between different customers at the data center in addition to customers connecting directly to ASX. And more recently, this technology leverage strategy is reflected in our investments in adjacent data and distributed ledger technologies such as DataSphere and Synfini as well as in our property e-Settlements joint venture, Sympli.
I’ll now focus on the CHESS replacement part of our technology transformation, and this follows our market update on the topic a couple of weeks ago. CHESS is the application that underpins the cash market clearing and settlement services for Australia. It is critical market infrastructure and a highly complex system accessed by hundreds of different stakeholders. The transition to a new platform needs to be safe and reliable.
We have identified that more development is needed in parts of the application to meet the market’s scalability and resilience requirements. While we don’t yet have a time line for completion, we have given guidance that based on the information we currently have, we don’t expect that the go-live could be before late 2024. Given the delay and the criticality of a safe go-live, we’ve commissioned an independent review of the application by Accenture. The aim is to investigate specific areas in the application that are presenting challenges to consider possible solutions and to provide input on the time line for implementation. We will provide further updates in due course.
I am disappointed that we’ve extended the time line for go-live for the third time. I know that our customers are disappointed, too. But we are all in agreement that this system needs to be right. Importantly, there has been significant progress to date, and this slide gives a snapshot of the current status in key areas. This includes the distributed ledger technology that underpins the project, which is operational in the industry test environment. And software vendors and in-house developers have been interacting with the application and the distributed ledger in the industry test environment.
It’s also worth emphasizing that we have made and we continue to make investments in the existing CHESS system. We’ve increased the system’s capacity, speed and resilience to manage surges in trading volume such as those seen during periods of COVID-related market volatility. Existing CHESS continues to be reliable and robust.
I’ll move to another key priority for me, our people and culture. Our people recognize the privilege and responsibility that comes with ASX’ role as a provider of critical national infrastructure. And this was reflected in the high standards of service that our staff maintained throughout the pandemic despite testing operating conditions. Nevertheless, we have some challenges. Our overall engagement score in the most recent employee survey was 64%. I intend to do more to support our people and to lift that score higher. There is room for improvement.
Fortunately, we start from a solid base with lots of goodwill. For example, 75% of our people recommend ASX as a great place to work. Diversity is embraced as a strength. Currently, 42% of our workforce are female, exceeding our previous target of 40%, and we’ve set a new target of 45% by FY ’25. And we recognize that diversity means much more than just gender, and this is an area in which I take particular interest. While we have several employee forums across ASX which support our diverse communities, including the LGBTQI community and our fabulous culture and heritage group, there is more we can and will do to promote and embrace diversity in all its forms.
As I mentioned earlier, risk management is crucial to the way we operate. Our people are encouraged to speak up about risks and compliance issues, and they tell us that they’re comfortable doing so. They have a deep understanding of their role and responsibilities in managing risks and a strong understanding of their regulatory requirements. I’m pleased to see this reflected every day in the way that our people work. And we’re committed to providing a healthy, safe and inclusive working environment. It’s been a pleasure for me to have been a sponsor of our well-being employee group at ASX, and I’ll continue to be personally invested in our progress there.
One of the challenges that we and most companies have had is attracting and retaining skilled talent in today’s tight labor market, and this is particularly acute in key areas for ASX: technology, risk and compliance. We continue to focus on providing opportunities for our people to feel valued, undertake meaningful work, develop their skills and make a difference to our markets.
ASX can trace its history back 150 years, and our aim is to generate long-term value for all our stakeholders. We’ve maintained and grown our position by earning trust in our actions as an organization, by resilient operation of our critical services and by supporting efficient markets. Given our position as a market operator, we have an important role to play in supporting corporate Australia in its sustainability goals.
First, though, we aim to lead by example. Last year, we detailed ASX’ own response to climate change. In FY ’23, we aim to source 100% renewable energy for ASX, reducing our total carbon emissions by at least 85%. Our target is to achieve net zero scope 1 and scope 2 emissions by FY ’25. As well as setting a high standard for ourselves, we continue to innovate in sustainability-focused products and services for our customers. And this includes electricity futures, which support investment in decarbonization, and CHESS e-statements that reduce paper.
We’re also exploring carbon futures in response to demand from our customers. For issuers, we provide sustainability education and training. For example, ASX has conducted training to help companies comply with TCFD guidelines. And sustainability disclosures and reporting are a significant area of focus for the ASX Corporate Governance Council, which met last week, especially in light of recent work by international standards bodies in proposing a global baseline of sustainability disclosure.
Finally, to the outlook. July 2022 activity was mixed with both cash market and futures market volumes down compared to last July. It was a holiday period for many in the Australian market now that COVID restrictions have lifted. So we’ll see in coming months whether that was a significant influence.
In terms of market outlook, first, the outlook for IPOs remains uncertain given current market conditions, although we’re still seeing some secondary capital raisings. We expect continued volatility, and this can be a positive for a number of ASX’ markets supporting our customers in their risk management. Inflation and a rising interest rate environment are already driving growth in activity at the short end of the interest rate futures market and OTC clearing, and it’s also starting to benefit our on net interest income.
In terms of FY ’23 guidance, I’ll reiterate 2 key points from Gill. First, our guidance on expense growth is between 10% and 12% for FY ’23. That’s driven by both the inflationary impacts that many companies are experiencing and also our continued investments in various areas, including technology and risk management. Second, our guidance on capital expenditure is a range of $115 million to $125 million next year, again, driven by our ongoing investments in technology.
With that, I’d like to now move to Q&A, where Gill and I are happy to answer your questions. I now hand over to the moderator.
Question-and-Answer Session
Operator
[Operator Instructions] Your question comes from Andrei Stadnik with Morgan Stanley.
Andrei Stadnik
Helen and Gill, just wanted to ask two questions. Firstly, Helen, just your broad thoughts on the ASX product suite. Do you see any opportunities to expand the product range of the ASX, just your early impressions?
Helen Lofthouse
Thanks, Andrei. So in terms of the product suite, I think the great thing about ASX is we have a really fantastic platform that actually gives us a lot of flexibility to do a number of things. And I’ve talked a bit today about the importance of staying close to our customers and really making sure that we understand their needs in order to do that.
So I guess a couple of recent examples of that are the work that we’re currently doing on gas futures. As I mentioned today, we’re starting to explore carbon futures, and I talked today about some of the data products that we’re adding as well. So I think there continues to be opportunities to leverage that platform into new things based on customer demand.
Andrei Stadnik
My second question, I just want to ask around the revenue line on futures. It looks like revenue for futures was down about 1% year-on-year, but volumes were down 5%. So can you talk a little bit why the revenue outcome was so much better? Is it just mix in terms of price in different products or rebates or something else?
Helen Lofthouse
It’s generally a mix in terms of the product scope. So what you’ll have seen is that the interest rate futures volumes were down more, and then some of the increase was in things like the commodity futures. So those have a different price point. And there can be a mixture of the impact of rebates on that as well.
Operator
Your next question comes from Andy Chuk with Macquarie.
Andy Chuk
My first question is a follow-on on Andrei’s question around the futures business. So the average trade fee in the second half increased, and you’ve highlighted that lower rebates from prop trader as a driver. As the short end of futures have recovered in the second half, which typically have a lower fee given the rebates, can I just clarify whether your comment is referring to the rebate rates for prop traders actually going down? Or is it just the volumes haven’t come back from the prop traders yet?
Helen Lofthouse
We haven’t made any changes to our rebate schedules. So it’s more just the changing mixture of activity that we see. Thanks for your question, Andy.
Andy Chuk
Great. And the second question relates to net interest income. So the investment spread remained at 10 basis points in the second half, the same as the first half. But the spread on the BBSW on the ASX treasury earnings rate has expanded in the second half. So could you just provide some color on why the widening spreads aren’t flowing through to your investments growth?
Helen Lofthouse
Do you want to?
Gillian Larkins
Yes. And hopefully, this answers your question. You were going in and out there. So I’m very sorry if it doesn’t, and you might want to ask it again. But I think there’s 2 ways to look at it. First of all is obviously, you’ve picked up on the right point. We made money on our participant balances. So we made money on the spread. So that’s short-term BBSW minus the cash rate times the participant balances. So that’s the first one.
But I think your next question was mixing drinks a bit because then you go to our haircuts. And you’ll note there that the average rate for the haircut has gone up by 2 bps. And that’s actually due to the fact back last year, we actually dropped our fee for a period. And that was because people were gearing up their systems for negative rates, and we decided just to reduce that haircut fee for a while. But it’s back in place for FY ’22. And at this stage, we don’t see any changes in haircut for FY ’23. Now I’m very sorry if I’ve missed your point.
Andy Chuk
Yes. So what I was saying was just the investment spread hasn’t moved, but the actual BBSW and ASX treasury earnings rate spread has actually expanded in the second half. So just trying to understand why it’s not following through to the investment spreads.
Helen Lofthouse
Well, I think it’s also — it does get impacted by the investment portfolio and the time of the investments. So sometimes that can be a lagging indicator as well.
Operator
Your next question comes from Kieren Chidgey with Jarden.
Kieren Chidgey
A couple of questions, if I can, and apologies if I missed this. I joined late. The expense growth that you’ve outlined for ’23, I think you’ve talked about the head count increases. Can you just give us a feel for the areas of the business sort of where that additional head count is coming and how material that is in terms of sort of employee growth across the organization?
Helen Lofthouse
So in terms of the areas of the business, the key areas that I’ve highlighted are really our ongoing investments in technology and also in risk management. In terms of quantum, that’s not something that we’re disclosing at this point. But obviously, we’ll be updating in future results so you’ll get a view of head count as we go.
Kieren Chidgey
Okay. And with that step-up sort of in the group cost base next year, does that sort of reset the organization in your mind for the next few years? Or is this sort of a feature that we could see sort of push out into — more into the medium term?
Helen Lofthouse
I think at this stage, I can only really comment on the FY ’23 outlook there, as we’ve indicated. But once we’re able to give further guidance on the outer years, obviously, we would.
Kieren Chidgey
Right. And a second question, just coming back to futures but sort of more on the volume side than the fees. We’ve seen a bit of a start-stop recovery in futures activity over the last 6 months despite obviously the yield curve control measures have been washed out and a significant change in interest rates. I’m just wondering if you can provide some additional color on the sort of participant activity that has returned and what hasn’t sort of returned at this point in time.
Helen Lofthouse
Sure. Look, I think it has been a challenging market for interest rate traders across bonds, swaps and futures. And there are a number of factors there. Yes, what we have seen is a really strong recovery in the short-end futures contracts. So as inflation expectations change and as the interest rate changes come through, that’s the part of the contract suite that you would expect to see those activities. And the good news is that we absolutely have seen clients come back in and very actively use the products there to manage their risks around that short end.
I think one of the areas where you’re seeing a difference from last year, and I did mention this in the presentation, but on the 10-year treasury bond futures contracts, we actually had record volumes in the 10-year last year. And partly that was driven by really high levels of government bond issuance. And we’ve seen that government bond issuance drop off a lot this year. And that’s not the only factor, but it is one of the significant factors for a bit of a drop in the 10-year futures volumes.
So I think the challenges that you’re seeing a couple of different trends in there, the 10-years came off a bit. But the bank bills and the cash rate futures are showing some good growth. So we’ll need to look month by month at how that evolves and whether that helps to then sort of restore liquidity broadly across the interest rate market for Australia, which obviously I’m hoping it will.
Kieren Chidgey
Okay. And just a third question, which is one of clarification. But just coming back to the spread conversation on the interest income, before, you sort of acknowledged — you said it can take time to sort of wash through. But wondering if you can perhaps give us a feeling for where that spread is sitting on a spot basis today relative to the…
Helen Lofthouse
Not sure I can on a spot basis.
Gillian Larkins
Yes. We do run with a floor. So there is a floor actually with how much we earn from our participant balances. And we might be at that floor, Kieren, if that helps. Really, where you’re going to see the uptick in interest income will be the interest on our own balances. So that’s an obvious one that people can calculate. But certainly, that top line has been a little bit sad the last 2 years. Certainly, as cash rates go up, you will see that increase as well.
Kieren Chidgey
Okay. But from what you’re saying, we shouldn’t be thinking that there’s an improvement in that 10 basis point spread on participant balances currently?
Gillian Larkins
Not for a while. And I think what you would look for there, it’s P times Q. And so it will be the Q participant balances which will actually be the key to that line over the next little while.
Operator
Your next question comes from Ed Henning with CLSA.
Ed Henning
Just the first one, do you believe ASX is investing enough to target future revenue growth? And of some of the stuff you’ve touched on today, do you think anything can be — show material growth, whether that’s in the near term and the medium term on the revenue side, is the first one?
And then just a follow-up on costs. Obviously, you’ve given us some good guidance today. Can I just double-check, do you think anything in the guidance for FY ’23 is a one-off so we can think about the future cost growth going forward, please?
Helen Lofthouse
Thanks, Ed. So on growth, I think your question was, are we investing enough in future growth? I think we have made a range of investments in future growth, and some of those have actually matured and have become part of our ongoing business that we’re reporting on. And obviously, I pointed to a few of the growth areas today like the new data products that we’re launching, the Synfini platform and our investment in Sympli. So I think there are a number of growth areas, and some of those may take time to come to fruition. But we’ve seen a number of investments in the past actually turn into well-established parts of our business.
And obviously, the ALC is one of those that we point to. But others include new futures products, the Centre Point products on our cash market, for example. So I think on growth, there are a number of areas which remain interesting.
In terms of FY ’23 costs, sorry, Ed, can you just run that question past me again?
Ed Henning
Yes. On that one, just is there any one-offs in this result that won’t reoccur next year so we can think about future cost growth beyond ’23?
Helen Lofthouse
Gill, do you want to take that one?
Gillian Larkins
Yes. I will. So I think when we look at that 10% to 12% guidance that we’ve given to market, we are thinking about 1/3 is due to inflation, 1/3 is due to people, and 1/3 is due to projects, for want of a better word. Now in those projects, there are ones that we are running that might come off in 2023 or might then go on into ’24. And what am I talking about? Maybe some process reengineering work or some delivery excellence work. And so that, over time, obviously, will come off.
I think the piece there that I think we’re all looking at is the inflation and what happens to that. So if that helps you understand how that guidance has come about, that might help you with the one-offs.
Helen Lofthouse
Yes. I might just add to that on the project side of things that one of the things to be aware of is — well, I think you’ll already be aware of a change in accounting standard. That means certain types of projects that we do actually are coming into that expense line. So things like software as a service-type activities would be treated as on that expense line rather than CapEx now as well. So that’s an impact to take into account going forward.
Ed Henning
Okay. And then just — sorry, just circling back to the question on revenue. You’ve called out a number of things you have invested in, and some of them will take time and some of them have generated revenue where your current business is now. But do you think you’re investing enough in the future to grow future revenue of your existing platform, is the question?
Helen Lofthouse
Yes. I think we are at the moment. But I think it’s fair to say, as an operator of critical market infrastructure, a big part of our focus at the moment is on our core businesses as well. Now what we do has such a wide-ranging impact on so many people, but I think it’s also very important that we continue to invest in the quality and continuity of those platforms. And I think just bear in mind that those platforms themselves offer us opportunity to add new product capabilities as well.
Operator
Your next question comes from Siddharth Parameswaran with JPMorgan.
Siddharth Parameswaran
Just a couple of questions, if I can. The first just relates to the CapEx and the increase that we’re seeing in guidance for ’23. I’m just wondering if that’s expected to continue just until the CHESS replacement project goes live. Or is this — is there anything else — that you’d see that level remaining — sorry, those figures remaining at the same level? I think you touched that some items may move from CapEx to expenses. I’m just wondering if you could give us some idea of what’s driven that increase and whether it will stay at these levels.
Helen Lofthouse
Sure. Well, I can only, at this stage, guide you on the FY ’23 CapEx. What I would say about that is, firstly, you can safely assume that, that includes our current expectations around our CHESS spend for FY ’23. Obviously, one of the things that we don’t know at this point is we don’t — we haven’t yet set a new time line for CHESS implementation. So as we get that pinned down, that will then feed into our planning process going forward.
One of the things to note about the increased CapEx for FY ’23 is that some of that was the delays we mentioned in some of the expenditure for CapEx for FY ’22. So you’ll remember that our CapEx for FY ’22 came in at the lower end of the forecasted range. And some of that was because of some of the supply delays around hardware, which, as you know, is affecting many companies around the world. So some of that’s the delayed expenditure from FY ’22, I think. Is that fair, Gill?
Gillian Larkins
Perfect.
Helen Lofthouse
Anything you’d like to add?
Gillian Larkins
No. Not at all. Hopefully, that helps.
Siddharth Parameswaran
That’s helpful. Just on the CHESS replacement then. So I mean, you gave us a helpful indication of how you see the project tracking. And in particular, I mean, you flagged that the application software is in the key area where you see risk. I mean, just to be clear, and I know you probably don’t want to pre-empt the review that you’re doing, but is there any risk that this project won’t be completed? Or as you see, given you’ve got a red flag against that, you don’t see — I mean, how big is that risk?
Helen Lofthouse
I really can’t comment on that until the review is completed. But I would emphasize, obviously, that we do have the distributed ledger technology and actually a really substantial amount of that software working in the test environment at the moment. And we do have customers and software vendors accessing that and using it and testing it. The challenges we’ve communicated has really been some specific areas in the application code where we’re having challenges meeting the scalability and resilience requirements for the Australian market for the future. And that’s really the specific areas that we’re drilling into in the review. Really beyond that, we’ll need to wait until the end of the review to figure out what that means in terms of new time line and where we get to.
Siddharth Parameswaran
Okay. And is there a plan B?
Helen Lofthouse
I think bear in mind that the CHESS replacement project is a huge priority. And the CHESS platform, it’s working well at the moment. It’s secure. It’s resilient, but it does need to be replaced. So we will absolutely be replacing it. This review is really just working through some of the details and the challenges we’re having with the project at the moment.
Siddharth Parameswaran
Just one last question. Just on the balances, they started — they’re lower than a year ago. Just maybe you can flag some of the factors that drove those participant balances and whether we should continue to see those drop as volatility is reducing.
Helen Lofthouse
Sorry, can you — was that the customer balances, did you say?
Siddharth Parameswaran
Yes. The customer balances, that’s right, yes.
Helen Lofthouse
Okay. So – and really, that’s a factor of open interest. So as you’ve seen, obviously, the interest rate futures product suite is the – is really the largest of those futures product suites. And as you’ve seen what we’ve reported this year, there’s a slightly lower level of futures activity. So I think that you can keep an eye on our monthly activity reporting there. And hopefully, we’ll see some of that open interest actually recover a bit with the increased interest rates and inflation potentially.
Operator
Your next question comes from Simon Fitzgerald with Jefferies.
Simon Fitzgerald
Sorry about that. I’ve just got 2 questions here, and I’ll keep them fairly short. Apologies if you’ve already mentioned this on the call. I came in a little bit late. But just in regards to the independent review, can you just sort of talk about the scope in regard to that review and essentially how much that might cost? And I’ve got a second question after that, please.
Helen Lofthouse
Sure. Simon, thanks for your question. So the review, and I assume you’re talking about the independent review of the CHESS application that we’ve started?
Simon Fitzgerald
Absolutely. Yes, correct.
Helen Lofthouse
So we won’t be disclosing the cost of the review. But in terms of what the review is looking at, I’ll just recap over some of the key points there. So it’s really looking at some specific areas in the application and those specific areas where we’re having some challenges in terms of the overall market scalability and resilience requirements. So we’re really digging into those areas, having a look at the potential solutions for those and also getting some input on what the time line would look like for reviewing those. So the review really forms a very important part, but not the only part, of our work to replan the overall time line for the CHESS project.
Simon Fitzgerald
So that sounds like volume and velocity capabilities. Would that be sort of correct?
Helen Lofthouse
That’s certainly part of it, yes, absolutely. Scalability is, can you deal with future projected capacity? And obviously, we’re putting in place a system that’s going to be in place for some time.
Simon Fitzgerald
Yes. Understood. And then the second question, can you please just remind us in terms of exactly how much investment has gone into this project that’s currently on the balance sheet? I’m trying to get a bit of a sense of how much will be amortized when it does go live. But if you could just remind us in terms of how much investment has already gone into it.
Gillian Larkins
Sure. We have disclosed that at $216.4 million year-to-date — sorry, not year-to-date, at the end of FY ’22.
Simon Fitzgerald
And then that obviously doesn’t include the investment in the actual company itself, as in the DTL.
Gillian Larkins
No. That’s separate. If you look at our investments, you’ll see that also in our note to the accounts. So that shows it quite clearly, just over 5% holding in DA.
Operator
Your next question comes from Nigel Pittaway with Citi.
Nigel Pittaway
Just wanted to come back to that sort of comment on the 10 basis point spread, which I think was given in answer to one of the earlier questions. I mean, when I did ask the question sort of 6 months ago, the sort of comment was made that there should only be a few months lag before that starts to move. So has that changed at all? Or is it still a few months and it’s just you’re saying that there’s another month or so to go? Is that what you’re saying? Or can I just understand that a bit more?
Helen Lofthouse
I think, typically, given the nature of the investments, a few months lag is probably fair.
Nigel Pittaway
Right. So although it stays at 10 for a little while, it’s only a few months is basically what we’re saying. Is that correct?
Helen Lofthouse
Well, we’ll see where it lands. And obviously, it depends on the exact nature of the investment portfolio and the specifics of that portfolio over time. But I think as an overall guide, a few months lag is — should be a reasonably fair rule of thumb.
Nigel Pittaway
Yes. Okay. Fair enough. And then I did miss it as you went through because I joined the call late. But it looks like you sort of made some comments about the growing demand for equities and futures market data. So I was just wondering if you could sort of flesh out where that’s coming from and how far through — sort of what the prospect for that sort of continuing to grow moving forward as you think at this stage.
Helen Lofthouse
Sure. Yes. So that’s some of what was reflected in the results for our Technology and Data business that we’ve just reported. So one of the drivers of that increase was new customers coming in or customers taking more lines or more capacity for — or new types of data. So I think the — we are still seeing a good pipeline of customer interest for the — both the cash market and the futures market. So I think that remains a reasonably healthy pipeline at the moment.
Although I note it’s always — there’s always some variability depending on how those markets are working and whether the particular market activity at times suits particular customers, but we see that as a reasonably healthy pipeline at the moment.
Nigel Pittaway
So is that seeing growth in DataSphere? Is that where it’s coming from? Or is that separate?
Helen Lofthouse
Most of the growth, when I’m talking about the interest in ASX and ASX 24 data, that’s generally the market data and connectivity services to those markets rather than the new DataSphere product.
Operator
Your next question comes from James Cordukes with Credit Suisse.
James Cordukes
Maybe a question for Helen first just on Sympli. It looks like Sympli lost around $25 million last year at 100% share. So just interested in how you assess whether this is a venture that you want to continue with and to the extent if you can provide some color maybe on how much one-off cost there was in that — in FY ’22 and what kind of market share you might need to get to breakeven, that would be useful. And then I’ve got a follow-up for Gill.
Helen Lofthouse
Sure. I might, in a moment, turn to Gill on the specific numbers. I guess what I would say about Sympli is that we continue to think that the opportunity is really substantial, and the potential revenue base in that market for property e-Settlements is significant. We think that it’s important that there is an effective competitor in that space. So it continues to be, I think, an interesting investment with a good investment story.
And of course, one of the things we’re working through at the moment, and it’s been really good to see good levels of both government and ACCC support, is looking at interoperability between the 2 property e-Settlements platforms, which will really help to transition that business to more growth. And Gill?
Gillian Larkins
And maybe — yes, I’ll just cover — I was just looking in my notes to the accounts for the exact amount we’ve spent this year. It is in the notes, and I’ll come back to you. But I think if you think about it, in FY ’18, we announced that we were going into this investment, and we were going to spend $30 million and become breakeven in FY ’21. For, dare I say, the issues and the things that we’ve had to uncover and go along with, it does appear — we did say last time that breakeven would now be around the end of FY ’25. We also said that we’ll be coming through the heightened part of the investment now and then it will come off as we were coming into the revenue streams into the end of FY ’25.
So look, the investment is definitely more. However, the market has actually increased in that time, too. And we’re now looking at the market being about $280 million. Now those of you who might cover our competitor there will probably know the market better than me, but it’s a very healthy market. So for the amount of money that we’re spending, I think we feel very comfortable about that investment.
James Cordukes
All righty. And just a second question, maybe for Gill. Look, you’ve changed your pricing structures on the issuer services fees. Can you talk about how significant a headwind they’re going to be for ’23?
Gillian Larkins
Sorry, I missed that. Would you be able to repeat that, the start of that?
James Cordukes
Just you changed your pricing on the issuer services. I think in the releases, you talked about the fee structures would lead to lower revenue in FY — yes, in the future versus in FY ’20 base. How significant are those changes going into ’23?
Gillian Larkins
Sure. So it’s our new issuer pricing model. And I think for that, yes, look, we’re very happy with how we’ve put that together. We think it’s a much fairer way of actually pricing our services. And so as you will be aware, it’s now a tiering structure from a subscription perspective and based on turnover of HIN.
And so what we’re looking at is when we’ve done the modeling, we actually expect about a 5% to 7% increase on revenue next year. Then we do expect that to grow again over time. And in about 3 years’ time, we’re probably back to where we were.
Operator
There are no further questions at this time. I’ll now hand back to Ms. Lofthouse for closing remarks.
Helen Lofthouse
Great. Well, thank you very much for joining us this morning. Really pleased to announce this really solid set of results for ASX and appreciate you making the time for our presentation today. So thank you and look forward to talking to a number of you individually.
Be the first to comment