ASX Ltd
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ASX Ltd
ASX is ardently working on addressing critical areas such as risk associated with legacy technology and enhancing stakeholder engagement as they progress on major projects like the CHESS replacement. The company has emphasized improving delivery capabilities and investing in standardization and technology modernization. Progress is being made in the CHESS replacement project, with intentions to announce a solution design by the end of the current calendar year. This decision will be informed by industry input and the formation of an industry Advisory Group that will provide strategic oversight and consensus. ASX is committed to providing pathways for stakeholder input in the design process and beyond, recognizing the ongoing need for industry collaboration in future phases of the project.
The resilience of ASX’s diversified business model was tested in a volatile economic environment, leading to a 3.4% decline in underlying profit from the previous year to $491.1 million. Statutory profit saw a steeper fall of 37.6%, attributed to significant item loss, notably from the CHESS replacement project charges. While revenues slightly declined, expenses increased by 12.3% mainly due to investment in technology and risk management. Despite the increase in operating costs, ASX achieved a strong 72.4% rise in net interest income, bolstered by the Reserve Bank of Australia's rate hikes. ASX's Board has approved a dividend payout ratio of 90% of the underlying profit, showcasing their commitment to delivering shareholder value amid the economic headwinds.
ASX underscores customer satisfaction as a key metric, indicative of potential revenue growth. Through direct communication with key customers and broader community engagement, ASX has seen a rise in the number of investors holding on-exchange products, particularly in ETFs. Young Australians, especially female investors, are increasingly participating in the market. ASX is responding to customer demand with new product launches and is adapting its offerings in line with regulatory expectations and changing market conditions. The introduction of options over international ETFs and consultations on product adjustments showcase ASX's responsiveness to customer needs. Also, a focus on environmental sustainability and technology indicates ASX's alignment with contemporary market trends and customer requirements.
The company is implementing a series of expense management initiatives aimed at reducing growth in operating expenses by FY'25. This includes revising the workforce mix, simplifying organizational processes, and exploring strategic procurement options. These measures, along with investment portfolio reviews, are strategic steps to ensure alignment with ASX’s long-term goals and shareholder value creation. Updated guidance on these initiatives will be communicated in subsequent financial disclosures.
Regarding capital expenditures, particularly related to the CHESS replacement and technology modernization, the majority of costs are expected to be incurred in the first half of FY'24. Further guidance on capital expenditures and their impact on the depreciation schedule will be provided as project timelines progress, with increased costs anticipated in the medium term as the new systems become operational and require gradual depreciation.
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Good morning and welcome to ASX's Financial Results briefing for the financial year ending 30th of June 2023. 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 and I am the Managing Director and CEO of ASX. I am delighted to be presenting these results, and joining me today is ASX's Chief Financial Officer, Andrew Tobin.
I'd like to acknowledge the Gadigal People of the Eora Nation, who are the traditional custodians of the country where I am 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 any First Nations people with us today.
Today's presentation will cover four topics, and Andrew and I will take your questions at the end. I'll begin with an overview of the FY'23 results and our near-term focus areas. Andrew will then provide a detailed view of our FY'23 financial performance, including a view of each line of business. Following that, I will update you on how we are tracking on our strategic pillars, and I'll provide some observations on the market outlook and its implications for ASX. We will finish with Q&A.
You will hear about three key themes at the start of today's presentation. I will provide some commentary and highlights of our FY'23 results and also give an update on our two near-term focus areas of regulatory commitments and technology modernization. You will recall from our Investor Day in June that these two focus areas sit under our strategic pillar of Great Fundamentals and we will need to get these right to ensure that we continue to rebuild confidence with our stakeholders.
Turning now to our financial highlights. ASX demonstrated a solid underlying performance in FY'23 with operating revenue over $1 billion for the second period in a row, down just 1.2% compared to last year. This was achieved against a backdrop of challenging market conditions. And this result again showed the strength of our diversified business model with revenue growth in Listings and Technology and Data offset by a decline in our Markets and Securities and Payments businesses.
Total expenses were up 12.3%. This was primarily driven by increased investment in risk management and technology activities, including assurance and solution design activities related to CHESS.
EBIT was down by 7.8%, but our net interest income had a significant boost from higher interest income on ASX Group cash balances. Underlying net profit after tax decreased by 3.4% while statutory NPAT had a much steeper fall of 37.6% mostly due to the derecognition of capitalized software assets when we paused CHESS replacement last November.
ASX maintained its dividend payout ratio this year of 90% of underlying NPAT taking total dividends for the year to 228.3 cents per share. You'll recall from our Investor Day in June that we are increasing our focus on underlying return on equity as a key performance metric and have medium-term guidance ranging between 13% and 14.5%. In FY'23, underlying ROE was 13.4%.
This year marked a period of reset and change for ASX. We launched our purpose, defined a new vision, developed a five-year strategy, and refreshed our values. I'll be speaking more about these later in today's presentation. This demonstrates the considerable amount of work and thought that has taken place to reframe ASX and set out the right framework for delivering value to our stakeholders.
We're privileged to have leading positions in a number of markets and structural tailwinds to support our businesses going forward. And many of you have heard Andrew and I speak about the new capital management settings that will give us the flexibility to make the right investments to drive long-term sustainability and growth.
This month marks one year since I became CEO of ASX and a focus for me has been ensuring that we continue to bring the capabilities and skills to deliver against our new strategy. There have been a number of Executive Team changes over the course of the year, and just a couple of weeks ago I appointed Diona Rae into the position of Chief Operating Officer. Our new Group Executive for Securities and Payments, Clive Triance, started his role a few days ago after relocating from London.
With these, there have been eight new appointments in my Executive Team, reflecting a valuable balance of experience from within ASX moving to new roles and leaders from outside the organization. And having the support of this thoughtful, talented and experienced team of people is gratifying and I know their leadership is already having a positive impact across ASX.
And we continue to make progress against our sustainability goals. This year we met our commitment to reach at least 85% reduction in Scope 1 and Scope 2 emissions. With a 99% reduction achieved, we are well progressed on the journey towards our target of net zero emissions in FY'25. And work is underway to identify our next set of priorities for sustainability.
The next series of slides will provide an update on the two near-term focus areas for ASX of regulatory commitments and technology modernization. Since taking the difficult but necessary decision to pause CHESS replacement last November, we acknowledge that confidence in ASX has been tested. It's a key priority for me and my Executive Team to ensure we're taking action that will restore trust amongst our stakeholders, including our regulatory agencies.
Part of this has been publishing important reports that provide additional transparency on our existing arrangements and how we are changing and improving. We've been very focused on increasing engagement with our stakeholders, particularly in relation to CHESS replacement.
During the year, we've put in place the CHESS replacement Technical Committee and we also launched the CHESS replacement Partnership Program. Both initiatives demonstrate our desire to collaborate with the industry more closely to progress the successful completion of the project.
In early June, we published a special report which details our arrangements on the supportability and maintenance of CHESS, and this includes a forward work plan for ongoing investment in CHESS. This comprehensive document clearly articulated a roadmap that showed how we will support and maintain this critical system for a number of years to come.
Since I last spoke at our Investor Day, we have published two further reports. The first of these was an expert report prepared by law firm Herbert Smith Freehills or HSF on ASX's arrangements to identify and manage conflicts between the commercial interests of ASX Group and the license obligations of ASX Clear and ASX Settlement.
The report, which focused on governance of current CHESS and CHESS replacement, found that the current framework for conflict identification and management within ASX Group is sophisticated and consistent with what would be expected of an organization with the complexity and scope of ASX.
Of course, continuous improvement in this area is a given and we expect to complete the majority of the report's recommendations for further enhancements in the coming months. Our public release of this document underscores our ongoing commitment to transparency and these important findings should provide further confidence that ASX has appropriate conflict management arrangements in place.
The other special report is in response to the external review into aspects of CHESS replacement which was published last November. ASX confirmed at the time that it would implement all 45 recommendations from this review and would extend many of these to apply on an enterprise-wide basis. The special report, which ASX published today, outlines our plan and progress on implementing the recommendations and we expect to reach completion of this work by June next year.
ASX had already been undertaking work to uplift delivery capability across the organization and these actions will lead to further improvement in de-risking project delivery and enhancing arrangements for predictable change, high-quality delivery and better alignment between ASX and its vendors.
The special report was subject to an independent audit by EY which found it had satisfied the requirements of ASIC's notice. The actions to address the 45 recommendations will also be independently reviewed on completion to ensure ASX meets all the requirements.
The other key milestone on engagement that we have recently announced is the development of a new Cash Equities Clearing and Settlement Advisory Group. This Group will provide input to the Boards of ASX Clear and ASX Settlement on strategic clearing and settlement matters. Two weeks ago, we announced the appointment of governance expert and former ASIC Chair, Alan Cameron, to the role of Independent Chair for the Advisory Group.
ASX will also release its CHESS Governance Statement later this year. It is intended to help stakeholders understand the role and responsibilities of the different ASX governance forums relevant to CHESS, including the delivery of the CHESS Roadmap and CHESS replacement.
The next two slides outline the work we're doing on technology modernization, including a deeper look at engagement for CHESS replacement. Our enterprise technology roadmap operates at three concurrent levels, delivery of our major projects, investment into technology platforms and uplifting our delivery capability.
At our Investor Day, our Chief Information Officer, Tim Whiteley, spoke about our technology delivery strategy, and how we are shifting our approach to ensure that we're not just concentrating capabilities within individual projects, but taking an enterprise view by investing in technology platforms.
By investing in platforms such as digital, data and cloud, we can significantly increase automation and reuse between business lines, improving the speed of implementation and ultimately managing our underlying risks more effectively.
I'll take the work we're doing on Cloud as an example. Our strategy here aims to harness the transformative potential of cloud technologies and modern engineering practices. By adopting an expanded role for cloud services, ASX aims to more effectively address present and emerging challenges such as the need to deliver scaled infrastructure and rapid software development for ongoing technology programs. The benefits from our technology platforms and improved delivery capability will accrue to many of our projects.
In our Derivatives Clearing project, the key initial focus will be the upgrade of our OTC clearing platform, and preparing for the futures clearing platform replacement. We will also undertake a program of stakeholder engagement as we progress these milestones.
As you'll be aware, we published a comprehensive special report on the maintenance and support of CHESS in May and we continue to progress well against our published roadmap. And CHESS replacement is, of course, a major project within our enterprise technology roadmap and I'll speak more about that in a moment.
We've done a lot of work over the last year on improving our delivery capabilities with uplifts such as quality engineering and testing, delivery approaches, staff training and integrated planning. There is more work to do and we continue to focus on these capabilities, which will help us to simplify and standardize our technology. Our technology modernization approach shows that we continue to have a strong focus on addressing risks associated with legacy technology assets.
ASX conducts operational risk assessments across key systems and we are prioritizing efforts to mitigate risk in areas such as software currency and aging hardware. We also continue to invest to support consistency, reusability, and standardization. We understand the responsibility of operating critical market infrastructure and, while we are undertaking remediation activity in some areas, we continue to perform strongly in terms of system resilience.
ASX continues to deliver an increasing number of system changes while we have seen a pattern of decreasing material technology incidents. We remain committed to continuing to deliver resilient, secure and operationally reliable services that can meet market and regulator expectations.
Turning now to CHESS replacement. We continue to work towards announcing the solution design in the final quarter of this calendar year. This will be subject to the formation of the industry Advisory Group, industry input and regulator expectations. We have previously spoken about how we are assessing four solution archetypes. We are now refining those against a solution decision framework and gathering further industry input on items such as scope and implementation approaches.
As you can see from the information on the left of the slide, we have lifted our engagement across this year and are committed to providing several pathways for stakeholders to provide input to the new solution design. For example, the new Advisory Group that is being established will contemplate matters from a high-level, strategic perspective, aiming to provide a consensus view on the best interests of the market as a whole.
Meanwhile, the CHESS replacement Technical Committee is more focused on industry impact and detailed scoping and design and has helped with this through several scope workshops with participants and relevant CHESS users. These forums work alongside the Business Committee which has broad industry representation on market matters.
Importantly, it's worth repeating that even once the solution design is determined, there will be a continued requirement for industry input in the next phase of the project, and that will be a key focus for 2024. This will include refining and finalizing the scope of releases, agreeing the implementation approach and industry-wide project planning.
So as you can see, ASX continues to take action on our strategic priorities. We are focused on executing well and addressing risk areas while engaging effectively with our stakeholders to restore confidence and trust.
I'll now hand over to Andrew to talk through the detailed financials for our FY'23 results.
Thanks, Helen, and good morning, everyone. As Helen has already mentioned, our 2023 operating result demonstrates the resilience of ASX's diversified business model, in what has been a volatile and uncertain macro environment over the past year. Underlying profit for 2023 was $491.1 million and is 3.4% lower than last year's result.
However, ASX's statutory profit was $317.3 million, down 37.6% compared to the prior year, after recognizing the significant item loss of $173.8 million. The significant item loss included the CHESS replacement project derecognition charge of $176.3 million after-tax that was included in the first half result as well as second half costs incurred for the CHESS replacement Partnership Program of $23 million after-tax offset by the impairment charge reversal on the sale of our minority shareholding in Yieldbroker of $25.5 million.
Operating revenue for 2023 of $1.01 billion was down marginally by 1.2% on last year with increased revenue from Listings and Technology and Data being offset by the declines in the Markets and Securities and Payments business lines.
Expenses for the year were $374.6 million, up 12.3%, mainly reflecting increased staff and administration costs as further resources were added to our technology and risk management activities. We saw a strong rebound in net interest income in the year, up 72.4% to $70.8 million, supported by RBA cash rate increases on ASX's cash balances.
The increase in expenses, relative to the revenue outcome, resulted in our EBIT margin falling from 67.4% in 2022 to 62.9% this year. And the 3.4% decline in earnings per share to 253.7 cents is consistent with the trend in underlying net profit after tax. Reflecting this underlying earnings result, the Board has determined a dividend of 228.3 cents per share for the full year including a final dividend of 112.1 cents per share, representing a payout ratio of 90% of underlying profit.
While statutory return on equity was impacted by the significant item loss, the underlying return on equity was 13.4% for the year compared to 13.7% in 2022. Now turning to the business line revenue outcomes. Total Listings revenue was 2.2% higher than last year at $218.6 million. The annual listing fees, which are set based on each listed Company's market capitalization, declined by 0.4% to $108.3 million and this makes up nearly half of the total Listings revenue.
As noted earlier, the uncertain macro environment has contributed to lower initial and secondary capital-raising activity. There were 57 new listings, raising $2.5 billion in 2023 compared to 217 new listings, raising $58.9 billion, in 2022. Secondary market capital fell by 75% with $49.2 billion raised this year compared to $196.5 billion last year which included $95.9 billion in relation to the BHP unification event.
As you may be aware, we recognize the revenue derived from initial and secondary listings over five years and three years respectively, and so, despite the lower capital raised in the current period, the revenue outcomes reported mainly reflect prior period activity. This is shown in the bar charts on the slide. Overall then, initial listing revenue recognized in 2023 was $23 million, up 0.8%, and secondary revenue was $78.3 million, up 7%.
Moving now to the Markets business. The Markets business generated revenue of $292.4 million, down 2.1% compared to last year. Futures and OTC revenue of $211.8 million was flat compared to last year. However, we saw a 4.2% increase in total futures volumes driven by interest rate volatility in the year.
Shorter-dated contract volumes increased significantly, particularly the 30-day and 90-day bank bills in response to a number of macroeconomic events during the year, such as the US regional banking collapses in March and this was partially offset by declines in the five and 10-year contracts. The decline in longer-duration volumes was linked to reduced issues in the physical bond market.
Elevated electricity prices over the year also saw a drop in the electricity contract volumes as higher margin requirements saw a number of traders reduce their exposures. Cash market trading revenue was $63.3 million, down 11.3% on last year, impacted by overall ASX traded on-market value of $1.42 trillion in the year compared to $1.68 trillion in the prior year.
As outlined in the chart on the lower right-hand side, we did see falls in both the Open Trading and Auctions volumes offset by a small increase in Centre Point volumes traded in the year. With increased equity market volatility, we also saw higher index option volumes leading to an 11.9% increase in equity options revenue to $17.3 million.
Now, looking at the Technology and Data business. This business had another strong year with total revenue of $240.8 million, increasing by 8.5%. Information services generated revenue of $144.8 million, up 10.9%, supported by strong growth in demand for equities and futures data as well as benchmark and index volumes.
Technical services was also up, with revenue coming in at $96 million, 5.1% more than last year. Growth in customer infrastructure and connections at ASX's data center, known as the Australian Liquidity Centre, drove this revenue increase with the number of customer cabinets increasing from 386 in 2022 to 390 at the end of 2023. The number of service connections between ALC customers also increased, up 4.6% to 1,346 connections by the end of the year.
And finally, moving on to our fourth business segment, Securities and Payments. The Securities and Payments business generated revenue of $258.4 million, down 10.4% compared to last year. Issuer services revenue was $61.1 million, down 22.2%, impacted by a significant decline in CHESS statements issued and lower primary market facilitation activities in the year.
The new subscription-based pricing model introduced this year also had a modest impact on revenue but is designed to remove pricing complexity for our customers and also encourage the take up of electronic statements. The average number of Issuer Holder Identification Numbers increased by 3.6% but the decline in revenue reflected lower overall listing and market activity.
Equity post-trade services includes cash market clearing and settlement activities. Revenue from these services declined by 11.9% to $134.8 million compared to 2022. The total on-market value cleared for the half was just under $1.5 trillion compared to nearly $1.8 trillion last year, and total settlement messages, driven by the movement and settlement of securities, fell by 11.2% in the period.
Austraclear generated revenue of $62.5 million, up 10.2% compared to the prior year. Austraclear saw a 5.2% growth in holding balances to just over $3 billion at 30 June and a 15.6% increase in transaction volume reflecting the elevated interest rate environment in the year.
The Austraclear revenue outcome also includes the net operating contribution from Sympli, ASX's property settlement joint venture. Sympli continued to meet significant development and operational milestones in the year and ASX's share of Sympli's operating loss was $14.8 million compared to a loss of $12.4 million in 2022.
Now turning to expenses. Total expenses for the year were $374.6 million, representing a growth of $41.1 million or 12.3% compared to 2022. The FY'23 expenses included $13.3 million, representing 4% of the expense growth in relation to CHESS. These costs were incurred in the second half of the year and included the costs of the special report on CHESS and associated assurance and legal fees as well as solution design costs for the next phase of the CHESS replacement project.
The largest growth in expenses was in relation to staff which was up by $26.9 million or 15.7% with permanent and contractor headcount increasing from 925 last year to 1,050 in 2023. Resources were added to key areas of the business, including technology and risk management with the cost growth also reflecting salary increases in the year.
Other key areas of expense growth included equipment and administration activities reflecting annual license fee increases, project-related consulting and assurance activities, higher insurance premiums, and a rebound in travel and entertainment costs since the end of COVID restrictions.
Capital expenditure for the year was $98.7 million down from $105.2 million in 2022 and I will make further comments on the operating and capital expenditure guidance for FY'24 in the upcoming slides.
Net interest income consists of interest earned on ASX's cash balances less working capital facility and lease financing costs and net interest earned from the collateral balances lodged by participants. Total net interest income for the year was $70.8 million, representing an increase of $29.7 million or 72.4% compared to the prior year.
The Group net interest income of $30 million was driven from the increase in the RBA cash rate over the year. Net interest earned on the collateral balances was $40.8 million, down 8.4% on the prior year. The average collateral balances increased marginally from $11.8 billion in 2022 to $11.9 billion in 2023 and the investment spread on the total collateral balances remained consistent at 10 basis points given the significant levels of excess cash in the financial system.
However, the average participant balances subject to risk management or interest haircuts declined during the year from $8.7 billion to $8.1 billion, and this was the key driver of the overall fall in net interest earned on the collateral balances.
The excess cash in the financial system is expected to persist leading to investment spreads on collateral balances remaining at this current level of 10 basis points over the next 12 months.
ASX's balance sheet is strong and positioned conservatively with the S&P long-term rating of AA- reconfirmed during the year, and a nominal amount of drawn debt for working capital purposes. Of note, amounts owing to participants fell by approximately $1 billion over the past year, reflecting a decrease in excess cash lodged by participants.
This decline also drives the level of cash and other financial assets held at balance date. Also of note, has been the reduction in the software balance, which mainly reflects the derecognition of CHESS capitalized software, as discussed earlier.
From a shareholder return perspective, underlying return on equity in the year was 13.4%, down 0.3% compared to 2022, mainly reflecting lower reported underlying profit in the year. And, as I mentioned earlier, the Board has determined a final, fully franked dividend of 112.1 cents per share in line with the current year-end dividend policy of paying out 90% of underlying NPAT.
As noted at our Investor Day on 6 June, the go-forward dividend policy has been modified to a range of 80% to 90% of underlying NPAT. The dividend reinvestment plan will not be available for the final 2023 dividend but may be considered for future dividends.
We also announced further changes to our capital management settings on Investor Day aimed to balance the medium-term investment needs of ASX with appropriate returns for our shareholders.
These capital management settings include the proposed issue of a corporate bond to raise between $200 million and $300 million to support the medium-term CapEx program that underpins our technology modernization plans. And we plan to issue this bond in the first quarter of FY'24, subject to market conditions.
I would also like to reiterate the expense and capital expenditure guidance that we provided on Investor Day. Firstly looking at total expense guidance. This slide outlines the recent actual expense profile over the past two years and the FY'24 forecast noting expected growth of 12% to 15% for FY'24.
This forecast reflects resource allocation to regulatory, risk, technology and delivery activities to support the first year of our strategy reset. The growth also includes an element of costs in relation to the CHESS solution design and assurance costs.
Cost control is a key focus over the medium term and we recognize that the FY'24 growth rate is not sustainable into the future. In order to mitigate the expense growth beyond FY'24, we are undertaking a review of our workforce mix across consultant, contractor and permanent resources, leveraging processes, process simplification and automation and pursuing strategic procurement opportunities.
We will also review our equity investment portfolio to confirm the strategic alignment and value proposition of these investments. Tactical actions have begun in this area with a recent decision to reduce the FY'24 expense base of Sympli. I expect that these initiatives will lead to a reduction in the total expense growth rate in FY'25 compared to our FY'24 guidance. Our CapEx for 2023 was $98.7 million compared to total CapEx of $105.2 million last year.
Given our strategic focus on technology modernization and the ongoing need to replace the CHESS system alongside other major projects, we are reiterating guidance of a step up in expected CapEx for FY'24 to a range of $110 million to $140 million. Increased project governance and delivery capability will be made available to support this heightened level of activity.
The medium-term CapEx profile is also expected to be similar to the FY'24 level. This investment is vital for the long-term sustainability of ASX and is expected to support opportunities for emerging growth.
In summary, the 2023 result reflects the strength of ASX's diversified business. ASX has delivered a resilient financial performance against a backdrop of an uncertain and volatile macro environment.
And with that, I will hand back to Helen. Thank you.
Thanks, Andrew. We announced our new five-year strategy at our Investor Day in June. This strategy is key in guiding our path forward and ensuring that we reach our full potential. We are focused on the first Horizon of our strategy, which is delivering on our regulatory commitments and technology modernization under the Great Fundamentals pillar.
We are also making progress against our other strategic pillars, including our people-focused One ASX pillar and I'll also provide some highlights of our customer-driven activities. It's the capable and committed people in this organization that live our purpose and deliver on our vision and strategy.
One ASX is all about building a vibrant culture where our people are empowered with clear accountability to deliver great outcomes for our markets. I'm proud of our diverse workforce with people from 25 cultural backgrounds, including 36% from non-English speaking backgrounds. They are being led by a refreshed and committed Executive Team who are instrumental in driving cultural change.
Part of this is a renewed accountability framework for our most senior leaders which has been in place for a year and adds further clarity around ownership and responsibility in our organization. This is part of a broader capability uplift.
We are investing in our people to align our key skills with our capability framework. And this will ensure that we have the right skills in place to allow our people to respond swiftly to our organization and customers' needs. Our values are a vital part of our culture as our people live them every day. We have refreshed our values which are closely linked to our purpose and we are in the process of sharing and embedding them across ASX.
Our values have been developed in close consultation with our people and you have heard me talk about these concepts before as they reflect what we are passionate about as an organization. Putting the market first reflects our commitment to be a proactive partner, listening carefully and ensuring that we understand what matters to a broad range of market participants.
Standing up for what's right is about acting decisively, and having the courage to speak honestly. It's about protecting market integrity and supporting financial system stability. Achieving more together reflects our desire to harness the power of the ecosystem to ensure robust outcomes come from a diverse range of views. It's about empowering and supporting others around our shared purpose and common goals.
Drive positive change recognizes the changes that we together with the industry need to make and our commitment to look to the future while continuously improving and achieving new standards. As part of the new era ASX, our values will shape our ways of working to create a consistent, aligned culture to deliver our strategy, achieve our vision and fulfill our purpose.
The market is our primary customer and we want to work effectively with multiple groups of customers, solving challenges and delivering outcomes to improve market quality. Success here will be measured by consistently high levels of customer satisfaction which should in turn drive revenue growth. We are making progress, but still have more work to do to increase and deepen our customer engagement.
And to that end, I personally met with many of our key customers throughout the year to discuss ways that we can further enhance our partnerships. This type of two-way communication with our customers is vital for effective ASX operations and their feedback was an important contribution to the development of our purpose and strategy.
As part of our broader community engagement, we recently announced the results of our 2023 Australian Investor Study which surveyed over 5,500 people regarding their investment goals. We saw an increase in the number of investments who hold -- investors who hold on-exchange products from 6.6 million to 7.7 million people, which is the highest number in over a decade with ETFs making up a significant portion of this growth.
Another key finding was an increase in the participation of young Australians starting to invest for the first time with 55% of them being female. Although it was a particularly quiet period for corporate listings, ETFs had a record year in terms of assets under management. We also saw record new product launches with 47 new ETFs admitted in the financial year.
ESG-related funds continued to be a key driver, accounting for nearly a third of those with new listings and demonstrating ASX's key role in supporting sustainability efforts of our economy.
In Markets, we launched our options over international ETFs in April this year. And this is in response to growing customer demand for trading products in international markets and we have seen activity across all contracts with over 20,000 traded to-date.
In response to the planned reduction in the frequency of RBA meetings from 11 per year to eight, the Markets team is considering what new products or adjustments to existing products may be needed at the short end of the rates curve. As part of this process, the team has recently published a consultation paper to get feedback on market needs.
This has been a very active part of the market in FY'23, given the sharp rise in interest rates, and we want to ensure that we continue to provide the right products to meet customer needs. Our engagement with customers is wide-ranging. For example, we have been working with our institutional equity market participants in response to ASIC's Report 708, which outlines the regulator's expectations for the industry in managing any future market outage.
And for the retail market, we recently launched our Equity Options trading game to increase engagement and education on these products, alongside the popular ASX share market game. ASX is a data-rich environment and we are successfully responding to the growing demand for data from our customers.
In FY'23, our Technology and Data business supplied data for an increasing range of financial markets use cases. Machine-based consumption of ASX data is growing rapidly as new applications emerge across financial markets workflows.
For many years, we have supplied machine-readable data to support customer trading functions. And today, we support a broad range of pre-trade and post-trade functions with machine-readable data as our customers increasingly seek to automate the entire trading lifecycle.
ASX data continues to be a fundamental input into the way our customers analyze the Australian markets to derive insights and generate better returns. This includes the way ASX data powers the major Australian market indices as well as an array of tailored indices and benchmarks used by our customers to support their investment strategies. We are also seeing increased use of ASX reference data and market activity data within third-party applications to help market participants carry out risk and compliance activities.
Securities and Payments launched a simplified Issuer Services pricing model at the start of FY '23. This was developed in consultation with customers to better reflect the value that they receive and provide a more stable revenue stream for ASX.
Also in response to customer demand, we have announced that we intend to offer a subscription model for Holder Identification Numbers or HINs. This new structure will provide increased incentive to encourage broad use of e-statements. This also will provide cost efficiency and environmental benefits for our customers and the market as a whole.
And we have been making changes to Austraclear to improve our customers' experience. We have made a series of enhancements to the repo service to improve efficiency and customer usability. And we have supported the move towards the latest ISO 20022 standard for payments, which is important to our customers, given Austraclear's role as a key payments platform.
We showed you a version of this slide at our Investor Day. As you can see, we have continued momentum in the actions that we are taking to support great fundamentals in our business. And we have a series of actions to complete in the remainder of the calendar year. We talk about these near-term focus areas as this is where we are exposed to a heightened level of risk, particularly regulatory risk, operational risk, including our focus on modernizing our technology and reputational risk.
We are taking these actions as we aim to manage and reduce these risks throughout the remainder of 2023. We are investing in our organization to build long-term sustainable value for our shareholders. We are also undertaking a review of our investment portfolio to verify the strategic alignment and value proposition of these investments. And, as Andrew mentioned earlier, we are looking at a series of operating expense management initiatives aimed at reducing our expense growth rate in FY'25.
Turning to outlook. Recent market conditions have impacted cash market trading activity. And this is consistent with what we are seeing across exchanges in other parts of the world. The rapidly rising interest rate environment and geopolitical uncertainty has seen investors redirect some activity away from cash equities into other asset classes which have become more attractive on a relative basis.
And this effect is also impacting retail investors, who made up 13% of trading activity in FY'23 compared to 17% in FY'21 during the peak of the pandemic. Most of these elements are cyclical. So easing inflation and growing confidence around where interest rates will peak should see some growth in cash market volumes again, although this could be impacted by further geopolitical tension.
It's also important to note that FY'23 average daily volume is still broadly in line with pre-pandemic levels, despite the decline compared to recent years, which benefited from a low-interest rate environment and pandemic-related stimulus. An improvement in these market elements would be expected to drive a recovery in the IPO market as well.
Despite a particularly quiet FY'23, there remains a solid pipeline of corporates looking to list on ASX as conditions improve. Our futures business has been a beneficiary of these recent market conditions with the sharp rise in interest rates driving a solid recovery in rate products particularly at the short end.
Pleasingly, we are continuing to see ASX products remain a key hedging tool for our customers and we are focused on market quality to ensure that this continues to be the case. In the long-term, we expect that our structural tailwinds, including the growing Australian capital base, increasing demand for technology and data, and decarbonization of the economy, will continue to provide ASX with growth opportunities.
In terms of guidance, we reiterate the key metrics provided at our Investor Day. FY'24 total expense growth is expected to be between 12% and 15% with an operating expense review underway which is expected to bring this growth figure down in FY'25. Our capital expenditure for FY'24 will be between $110 million and $140 million to support our regulatory commitments and technology modernization programs that I updated you on today.
We have the capital management flexibility in place to support this investment, including the proposed launch of a corporate bond of between $200 million and $300 million in the first quarter of FY'24. And finally we remain focused on return on equity as the performance metric driving the organization.
To conclude, FY'23 has been a year of reset for ASX. During this, we have delivered a solid underlying performance in challenging markets. And we are making good progress against our two near-term focus areas of regulatory commitments and technology modernization to continue to rebuild confidence with our stakeholders.
Thank you and I will now invite questions.
Thank you. [Operator Instructions] Your first question comes from Ed Henning from CLSA. Please go ahead.
Thanks for taking my questions. I just have a first one on costs and then a follow-up one. Look, while I understand you've got elevated cost growth in '24, '25 guidance seems to imply costs are going to stay rather elevated. Why can't they be around inflation? Is it just the cost of the CHESS replacement there? And just to give us some confidence in the business going forward, can ASX from at around inflation in the medium-term? And if so, when could cost growth fall to that level?
Thanks very much for the question, Ed. So I'll maybe start briefly and then I'll pass over to Andrew. But I'd say there have been a number of areas that have driven our cost growth. And really it comes back to the key near-term focus areas that we've talked about. So it's about our regulatory commitments and, of course, in technology modernization. And it's a really significant focus for us on making sure that we're investing to ensure long-term sustainable value. Well, I'll pass over to Andrew to talk a little bit more in detail about how we see the profile.
Yeah. Thanks, Helen. And thanks, Ed, for the question. I suppose just to reiterate that the call-out on the call earlier today. Effectively, we do understand that the growth rates are elevated into next year. We've also called out some expense management, I suppose initiatives, including sort of looking at our workforce. We spoke about the mix of our workforce around permanent contractor and consultants, for example, looking at sort of simplification of processes and opportunities for the organization and also looking at strategic procurement sort of optionality and options for us going forward over the course of the next 12 months. We think all of those initiatives will lead to a lower-growth rate going into FY'25, but we need to get through FY'24, first of all, and then reassess where we are. But to reiterate Helen's comments as well, we need to deal with sort of the immediate priorities in front of us, including a regulatory sort of regulatory remediation issues in front of us as well as sort of the technology uplift that's facing us as well.
And over the medium term, do you think once you get past this hump, do you think you can run at around inflation?
Yeah. Ed, we sort of don't provide guidance, as you know, beyond sort of the next year or so. Today, hopefully, gives us some comfort and again reinforcing the messages that we put out at Investor Day that we're taking these initiatives during the course of this year to bring the growth rate down. And we'll provide further updates as we progress throughout this year.
And then just a second one, looking at your equity stakes. You talked about pulling costs back for Sympli. When do you think that's going to make revenue or even break even? And have you discussed about pulling the pin on that or are you happy to continue invest money towards this endeavour? And then further on equity stakes, you're going to continue to make these kinds of investments, you look back at Yieldbroker, Sympli is still loss-making. Are you just going to be more cautious when you do make these investments going forward?
So I think maybe I'll start sort of philosophically with how we think about those equity investments. I think when I reflect on the investments that we've made and maybe Sympli is a slightly different type. But one of the areas where I've seen us do really successful investments is actually when we've bought stakes in things and actually being able to integrate them properly with ASX. And we've seen a number of areas where that's been really successful. So I think that's definitely been a good model for us of how to add scope into the organization, but actually realize the value of an investment by being able to integrate and get the benefit from being part of the broader ASX. So we'll certainly still be interested in those types of opportunities, not necessarily a near-term focus for us. But as a model for what's been effective in terms of growth and investments, that certainly worked well. Now that's not to say that other models can. And maybe I'll pass it over to Andrew to talk a bit more about how we're thinking about Sympli at the moment.
Yeah. Thanks, Helen. So Sympli, we're pleased recently, the regulator passed effectively expectations around interoperability dates, and that is December 2025. We're still waiting for the regulation to be formally passed to enforce that regulation. We expect that to happen over the course of the next couple of months. But that really gave us some pause to think about sort of the expense profile of Sympli over that period of time. So we took the prudent action at Sympli to effectively reduce the cost base in the short-term. But noting that those interoperability dates are the really critical dates that we're thinking about and we expect those to come into force on December 25 at the latest.
And what about the -- are you hoping to get revenue in the first half after December 25 and is breakeven soon thereafter? Or is it years after? How should we think about the profile?
Yeah. It's a bit early to call that at this point in time. There are different, I suppose, opportunities within that business to generate revenue, but we haven't given guidance at this point in time around a breakeven point.
Okay. Thank you.
Thanks very much, Ed.
Thank you. Your next question comes from Nigel Pittaway from Citi. Please go ahead.
Good morning. First question relates to the average fee per contract on futures and options. That looks to have been pretty flat second half versus first half, but the electricity volumes, as you pointed out, did come off a fair bit in the second half. So prima facie out of expected that to lower the fee. So I was wondering if you just unpack some of the other moving parts in there in terms of why the fee has been flat despite obviously some of that lower margin, sorry, higher margin stuff dropping off?
Sure. Thanks very much, and good morning, Nigel. So there are a few moving parts in there as you say because there are different products that have different fee levels. You're right. Australian electricity is a high one. It has dropped off. So there would be some impact from that. There has been other things that have changed the mix a bit would be quite a strong performance in equity futures, which had a slightly high price point than rates and the other thing that can move that around is the type of trading activity and the level of volume rebates. So if you see more diversification of participants then the mix will probably be slightly less as you'd have slightly less in terms of volume rebates. So and certainly on the rates market side, we've definitely seen broad-based participation is that product sites have been used very widely with the rising interest rate environment. But yeah, I think, that the Australian electricity coming off would have had some downward impact. I'd say the equity futures piece is probably pushed back the other way.
And just faster on electricity. I mean, the higher margin requirements there. Is that just simply working at the higher prices? Or is there -- are there other factors at play in respect to that?
Yeah. The big thing is certainly high prices and -- but also volatility in those prices. So you've seen both margin levels reflect obviously potential losses. But what you've also seen that I know it's been challenging for the market is there as you've got prices, high -- very high prices, but also prices moving around significantly, then you see significant variation margin calls as those prices move as well. So it's certainly been a challenging year for the electricity market this year for the market participants.
Okay. And then maybe just on the upgrade, the OTC clearing platform. I mean, do you think that will drive greater volume? Because prima facie, it does seem as if you're spending quite a lot of money on the business, but it's not giving you a massive return.
Thanks, Nigel. Yeah, we -- look, we have -- we certainly have evaluated that carefully. I'd say the derivatives clearing platforms broadly, our assets are platforms where we're certainly focusing on some significant investment and it's across multiple platforms to really refresh the technology there and that's something that's really necessary. The OTC business, actually, we're seeing growth in that business again. Obviously, it's been challenging for the last couple of years with the interest-rate environment, but we're certainly seeing some activity come back in there and we think there is potential for future growth in terms of both additional users and potentially further products in the OTC space as well. So certainly an area where at this stage, we think that that's an appropriate investment both from the point of view of running critical market infrastructure and making sure that we're operating at the right level, but also the opportunities for future growth too.
Okay. Thank you.
Thanks, Nigel.
Thank you. Your next question comes from Siddharth from JPMorgan. Please go ahead.
Good morning. A couple of questions, if I can. Just coming on the theme of expenses. I was hoping and you might be able to just provide us a bit of color around just the catch-up profile of the D&A to CapEx. I think it was about a $60 odd million gap at the moment. And obviously, a significant increase in guidance on CapEx into FY'24. I was just wondering if you could help us understand just how that D&A profile, your latest thinking around that when it should actually catch up to what you're guiding to as sort of medium-term levels on CapEx?
Yes. Sid, happy to take that one. Initially, sort of in next year, some guidance to 12% to 15%, the depreciation number is probably very similar to this year's number. Maybe a little elevated, but not significantly elevated from the current number that we've reported this year. Over the medium term, of course, we don't guide to that level. But I would expect that depreciation charge to increase a little bit and you point out correctly that as we've gotten an increased CapEx level, that depreciation will come through eventually. But it will be into the distant sort of over the medium-term is my expectation because of the build time for this particular system. So if you think about CHESS or the trading system, et cetera, there'll be a build process and then there'll be sort of a deployment. And when that system is in use from that time onwards that will be the point where it starts to get depreciated. So it will be over the medium term that you'd see to start -- see that sort of increase come through.
Okay, great. Thank you. And just my second question is just on the revenue side, you did flag that with the move to pure RBA meetings, you're looking at new contracts that might meet investor demand. I'm just wondering just with your existing contracts, whether it is likely to be a reduction in volumes, just with the pure RBA meetings, and whether we should be thinking about that in how we should look at volumes into next year?
Well, I think it's really primarily the cash rate contracts that's impacted there. And at the moment, we have monthly cash rate contracts that go out to 18 months. So there are already some particular characteristics with how those trade post in RBA meeting. So I think having a look at that set of contracts and figuring out what the users really need from that and how do we make it work really well with the fewer meetings is important and I think one of the things we'll certainly look at is once the decisions made in the RBA meetings wrapped up, how do we make sure that we've got the next product that a customer wants to use for hedging is kind of there and ready and available. So I don't immediately think that it's necessarily decreasing volumes, but I do think that it's very worthwhile is having a careful look at how people are trading the product anyway and how they're likely to want to use it in future and we'll be looking forward to hearing the feedback from the consultation that's out there at the moment on that.
Okay. Thank you.
Thank you. Your next question comes from Andrei Stadnik from Morgan Stanley. Please go ahead.
Good morning. Can I ask specifically around the new subscription model on -- that should drive the electronic sort of take up electronic statements in CHESS? What kind of revenue and what kind of profit impacts should we expect from that?
Thanks very much, Andrei. So the model that we're looking at on a like-for-like basis would be revenue neutral. But what it will be enabling is for customers who take up that model to really be more in different to the number of HINs and to really make sure that very incentivized to setup each e-statement, which I know is something that both our customers really want to see and our issuers really want to see. So helping to provide an incentive for the brokers to do that. I think it's going to be really helpful. So on a like-for-like basis, I'd say neutral. But it will help our customers to do some of the things that they want to do in more scale.
Thank you. Your next question comes from Kieren Chidgey from Jarden. Please go ahead.
Morning, guys. Maybe just starting with a follow-up question on costs. The $13.3 million of CHESS replacement costs highlighted this period in second half, which contributed about 4% of your cost growth this year. Can you just discuss how long you expect those to remain sort of in the cost line in the OpEx line? Is that sort of largely first half '24? And then once the CHESS solution is decided on those costs drop out from second half '24 or is there an element of those that sort of remain?
Hi, Kieren. That's the best way to think about that. That's probably the expectation. It's within our 12% to 15% guidance for next year. But I'd expect to see the majority of that incurred around the CHESS specific component of that incurred in the first half of FY'24. That's correct.
At a similar level, Andrew?
We don't know for certain, Kieren, and I suppose that goes into the guidance range at this point in time. So we haven't got down to that level of, I suppose, accuracy around the guidance there. But you can see what it was in the sort of second half this year. It's within our guidance range and we'll give you an update in the first half, of course. And I can't really sort of guide with any more precision than that at this point in time.
Okay. And when you talk about sort of '25 cost growth moderating ex those costs this year, you would have been at 8.3%.
Yes.
Are you, I mean, does that comment on '25 adjust for these temporary costs? Or are you talking relative to the total 12% to 15% that will be lower than that?
Again, it's a couple of years away, and we'll sort of refine that guidance as we progress throughout the financial year. There's a number of things to consider. CHESS, the CHESS costs that you referred to is one element of those. But as you can see, there is also, I suppose, elevated costs in relation to other assurance activities that we are incurring at the moment, our special report activity, et cetera. And so, hopefully, we can get through the majority of that in this current year and we'll provide further sort of guidance as we progress throughout the year.
And when -- just on that, when will you be able to come out and sort of comment on the outcomes of the expense review? Is that something we should expect in the first half of '24 result? Or is that at the end of '24?
Yeah. So I'd expect to give you an update at the first half result and then refine that even further for guidance statements as we progress through the end of the financial year and thinking about FY'25 at that point in time.
Okay. Just a second question on the net interest income. On the commentary around the spread outlook there remaining or expected to remain fairly stagnant at sort of around 10 basis points through '24. It just seems like a more cautious comment to what you were hoping for six months ago around excess system liquidity starting to reduce through the course of '24. I guess what has changed in your mind and why the more cautious outlook there?
And Kieren, maybe I'll touch on that. So it's -- there is certainly -- there is definitely uncertainty about the timing and impact of some of that excess cash in the system unwinding and obviously with term funding facility is coming to a close this year. Some of the access will be coming out. But based on how we're seeing investment profile and kind of what we're hearing from our counterparts at the moment, we think that that's a reasonable outlook for the 12 months. We'll obviously be very pleased if that changes, but we think that that's a reasonable reflection of what we're expecting at this stage.
Got it. Thank you.
Kieren, maybe just one other thing I was going to add on your question of cost because obviously you asked the question about the CHESS specific costs. I guess I would just flag in terms of that cost increase that we're seeing, there is also the technology modernization component in there because some of the technology investment is obviously capitalized. But some of the investments we've talked about like the cloud investment on software-as-a-service type investment not capitalized technology costs. So those are just an impact to bear in mind on the cost line too.
All right. That's great. Thank you.
Thanks.
Thank you. Your next question comes from Simon Fitzgerald from Jefferies. Please go ahead.
Hi there. My first question relates to the interest income component, basically related to those collateral balances. And Andrew, you mentioned that the main driver was the decline in the collateral balances. In the past, I understand that's been an area that's been a little bit difficult to perform at the moment, just given the complexities that are in the market at the moment in terms of surplus and so forth. I want a little bit of comment maybe about how the portfolio performed and maybe some of the other drivers for you on the collateral balances?
Do you want to take that?
Yeah, happy to. Sort of it's a very short-dated portfolio, Simon. So the performance was as expected, I suppose. And you can see that in our own cash balances that 295 basis points on average driving sort of the increased interest income on ASX's cash balances. I suppose the participant balances more generally, effectively, you can see the numbers on the slide that we've published today. The 10 basis points is one key component. But the risk here kind of is the other component and that's been pretty constant over the last couple of years. I think it has come down slightly by about one basis point in the current period. We also produce that number and sort of publish that number on a monthly basis in our monthly activity report. And so you can actually follow that through in terms of where that's sitting on a monthly basis.
Got you. And then second question just relates to the technology and data revenue, which was up 8.5%. I'm just looking at some of the other drivers there, the ALC cabinets up 1% and connections up 4.6%. So it probably looks more like price drivers there, but wondering about your capacity for next year to introduce further price increases, if I'm reading that right?
So I think it's a mixture of just the regular price review, but also sales of new connections and cabinets. So a combination of things in there. We do, do a regular pricing review on the technology and data services. So -- and usually that takes place from January each year. So we'll be going into that process of reviewing what the appropriate pricing is in due course, but nothing to share and announce on that at this stage.
Thank you.
Thanks, Simon.
Thank you. The next question is a follow-up from Andrei Stadnik from Morgan Stanley. Please go ahead.
Good morning. Thank you. Apologies, juggling three calls, and disconnected accidentally. I can ask a second question around your data asset. So you mentioned increased demand for your reference pricing. But it seems to note CBOE also has access to strain reference pricing and they can bundle that with global pricing. So how do you think about your asset -- your data asset going forward given broader competition from CBOE?
Look, I can't really comment, Andrei, on what CBOE are doing. But what I would say is that I think we have really high-quality data assets at ASX. And our focus is really on how do we make sure that we are making the key data that we have here available in appropriate ways and in a flexible way so that customers can actually plug that data in and use it in different ways. And that's where we've seen quite a bit of change this year as throughout the end-to-end trading life cycle. We're seeing customers more and more wanting to automate their processes, have ways that they can capture machine-readable data from different parts of the value chain. And look I expect that to be a continuing trend. And so focusing on how can we really harness more and more of this great data that we have in ways that are entirely appropriate, but also actually give customers the flexibility to use it in the way they want to. I think that, that's still a significant opportunity for us.
Thank you so much.
Thanks, Andrei.
Thank you. There are no further questions at this time. I'll now hand back to Helen Lofthouse for any closing remarks.
Great. Well, thank you so much for all your questions today. Today, we announced a solid underlying financial performance for FY'23. And that demonstrates the strength of ASX's core businesses during what's been a period of volatility and uncertainty. We're continuing to invest to ensure the long-term sustainability of ASX and we remain excited about the opportunities ahead. So thank you so much for joining us today.
Thank you.