2017 Australian Registry & ESP Provider Survey Report

Transcription

1 Completed 06 Jul :20 PM AEST Disseminated 06 Jul :31 PM AEST 2017 Australian Registry & ESP Provider Survey Report An in-depth review of customers' views on the Australian registry and employee share plan market This report, on the the first annual J.P. Morgan Australian Employee Share Plan (ESP) Survey and the ninth annual J.P. Morgan Australian Registry Service Provider Survey, provides an overview of the current state of the Australian registry and ESP services industry, the future direction and competitive dynamics within the industry. This report collates data from our surveys of companies in the S&P/ASX200 conducted from December 2016 to January Key Survey Conclusions First annual J.P. Morgan Australian Employee Share Plan Survey: Survey results indicate that risk deferral was a key reason to outsource ESP services with potentially more outsourcing by internally managed plans going forward. Results also indicated that Link and Other providers (primarily Boardroom) appeared to have very competitive pricing. Similar to registry, most contracts were noted to be 3-5 years and appeared sticky, especially for larger companies. Duopoly structure remains for registry, but shortening of contract duration? Computershare and Link still command ~96% of market share with respect to the domestic registry market from a number of shareholders perspectives. About half of outstanding share registry contracts being negotiated are on three-year terms (refer Figure 8), however there appears to be a declining percentage of >5 year contracts and an increasing amount of 1-2 year contracts. We also note an increasing number of companies putting contracts to tender. Registry providers continue to add value and improve overall performance. ~64% of respondents of small and large corporates currently see registry providers offering value-adding services (refer Figure 6). The current overall performance is strong across all registry providers, with all providers receiving a high proportion of positive responses and with respect to overall performance over the last 12 months; the majority respondents noted no change. Service provider expertise remains the key reason for outsourcing registry services. As noted in our previous surveys, service provider expertise has fallen from highs over the prior two reports, however, this year s survey has it reverting back to the mean, with 83% of respondents selecting this reason (refer Figure 5). Service provider expertise has been and remains the key reason to outsource by a large margin. On a shareholder administered basis, CPU and Link remained flat. There has been an erosion in market share for market leader Computershare to the benefit of Link Market Services and smaller competitors such as Boardroom (refer Figure 2) when assessed on a contracts administered basis since Trends for Computershare on a number of contracts administered basis are not reflected when considered on a shareholder administered basis (better proxy for revenue) which has been more or less flat, from ~58% in 2009 to 57% at present (refer Figure 3). Table 1: Australia Registry Services Providers Market Share (No. of Shareholders Administered) Registry Service Provider S&P/ASX20* S&P/ASX100* S&P/ASX200* Computershare Investor services 62% 59% 57% Link Market Services 38% 37% 38% Boardroom 0% 3% 3% Other 0% 1% 1% Source: Bloomberg, ASX, Company reports. S&P/ASX Indices as at 13 th December 2016 Australia Insurance and Diversified Financials Siddharth Parameswaran AC Bloomberg JPMA PARAMESWARAN <GO> J.P. Morgan Securities Australia Limited Alvin Liu (61-2) alvin.liu@jpmorgan.com J.P. Morgan Securities Australia Limited Russell Gill (61-2) russell.j.gill@jpmorgan.com J.P. Morgan Securities Australia Limited Priyanshi Jain (91-22) priyanshi.jain@jpmorgan.com J.P. Morgan Securities Australia Limited/ J.P. Morgan India Private Limited Endorsed by Figure 1: Aust. Corporate market revenue as % of group revenue 1H17 Source: J.P. Morgan estimates, Company data. Note: CPU revenue includes registry, corporate actions, stakeholder mgt, ESP, communication services and assumes an average AUD/USD of 1.33 (as provided by CPU). Link revenue figures include Aust and NZ. See page 46 for analyst certification and important disclosures, including non-us analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Table of Contents Survey Description...3 Executive Summary Registry...4 Future Considerations Assessed Against Current Market Dynamics...5 Executive Summary ESP...6 Competitive Landscape...7 Reasons for Outsourcing Registry Services...9 Adding Value Function?...10 Contract Length & Pricing Structure...11 Movement in Shareholder Numbers...14 Overall Performance...17 Future Considerations Assessed Against Current Market Dynamics...23 ASX200 Contract Changes...24 All Ordinaries Contract Changes...25 All Ordinaries Demergers/Spin-Offs and Other Restructures...26 All Ordinaries Initial Public Offerings (IPOs)...27 All Ordinaries Secondary Raisings...28 Employee Share Plan Survey (ESP)...29 Survey description...29 Reasons for outsourcing employee share plan services...30 Contract length & contract negotiations...30 Overall Performance...32 Cost...34 Movement in Registry and ESP service providers...34 Appendix: Industry Overview...35 Competitor Profiles...36 Key Share Registry Providers Competition Analysis Major Markets...37 J.P. Morgan Australian Registry Services Survey 2016/

3 Survey Description This is the 9th annual J.P. Morgan Australian Registry and Employee Share Plan Service Provider Survey 2017 (the employee share plan section has been introduced in 2017). Our Australian Registry Service Provider Survey 2017 has historically provided an overview of the state of the Australian registry space. For the first time, we include analysis of the employee share plan services industry. We examine the future direction and competitive dynamics within the industries. The reasons these surveys were conducted were: Limited specific information released by listed players in the industry and limited specific research on Australian industry. Assist in analyzing the impact of current market events on shareholder numbers, a key driver of revenue for registry service providers. Provide an insight into the key issues that listed companies consider in determining which registry service and employee share plan provider to use. Provide an insight into the non-uniform approach to industry pricing and contract structure for both registry and employee share plans. Provide an insight into the development and implementation of technology platforms and cross-sell of products offered by registry service providers and the performance of employee share plan providers. Provide an update on activity in the registry service provider space in Australia including contract changes and IPOs and what registry providers and employee share plan service providers value. Source of information Outside of publicly available information, all the data in this report is sourced from our Australian Registry and Employee Share Plan Service Provider Survey 2017 of listed companies in the ASX200 (as at December 2016). The survey was conducted from December 2016 to January A copy of the survey appears in the Appendix to this report. We have not provided a list of the companies that participated in the survey as it was conducted on the basis that the participants individual details and responses remain anonymous. Table 2: ASX Listed Companies Surveyed for Registry services S&P/ASX20* S&P/ASX100* S&P/ASX200* Number of Shareholders 54% 51% 50% Market capitalisation 52% 48% 46% * S&P/ASX indices as at March 2017 # Based on number of registered shareholders at the time of publication of the company s last annual report where available. Table 3: ASX Listed Companies Surveyed for ESP services S&P/ASX20* S&P/ASX100* S&P/ASX200* Number of Shareholders 22% 25% 25% Market capitalisation 22% 23% 23% * S&P/ASX indices as at March 2017 # Based on number of registered shareholders at the time of publication of the company s last annual report where available. Note: An ASX200 company responded to our survey, but shareholder number was not available. 3

4 Executive Summary Registry The key findings from the J.P. Morgan Australian Registry Services Provider Survey 2017 are: Competitive landscape Duopoly remains strong Computershare and Link still command ~96% of market share with respect to the domestic registry market from a number of shareholders perspective. Whilst on a number of contracts administered basis for the ASX200, Computershare has lost market share to Link, trends on a number of shareholders administered basis (better proxy for revenue) have been broadly static for Computershare, Link and Other players indicating the losses on a contract basis by CPU may have been with smaller shareholders (refer Figure 2). Service provider expertise remains the key reason for outsourcing registry services As noted in our previous surveys, service provider expertise has fallen from highs over the prior two reports, however, this year s survey has it reverting back to the mean average of 83% (refer Figure 5). Service provider expertise has been and remains the key reason to outsource by a large margin. Majority of respondents still view registry providers to add value, with the market still remaining relatively sticky ~64% of respondents of small and large corporates currently see registry providers offering value-adding services (refer Figure 6). A further ~21%, up from ~14% from the prior year, do not see registry providers offering value-adding services; however they would not expect them to in any event. When considered alongside the ~64% of customers who are currently being provided value-add services, ~83% of the share registry market may potentially be considered relatively sticky (vs 76% last year). Three-year contracts continue to be the most common, but duration appears to be shortening About half of outstanding share registry contracts being negotiated are on three-year terms (refer Figure 8), however there appears to be a declining percentage of >5 year contracts and an increasing amount of 1-2 year contracts. For large corporates (ASX20), we have seen a significant increase from last year, increasing from ~50% to 86% this year to be on three-year contracts. Assessing this trend from 2009, we see that 3-5 year contracts have remained at >50% of all contracts surveyed, reinforcing the challenges that new entrants face in gaining market share. Increasing number of companies putting contracts to tender. We observe from our latest survey results that Link customers are more likely to be putting their contract out to tender vs Computershare, however, there seems to be an increasing trend for both Link and Computershare (Figure 17). Minimal movement in shareholder numbers in past the six months Assessing trends for the last six months, shareholder numbers have mainly remained flat for small and medium companies with the larger companies reporting an equal percentage of increasing and decreasing trends (~38% each). Analyzing trends from the last two years, we see a skew towards shareholder numbers increasing for all ASX20, ASX100 and ASX200. 4

5 Competitor analysis Current performance remains strong especially for larger players All providers received a high proportion of positive responses; especially Computershare and Link (refer Figure 25). Improvements generally seen across all providers over the past 12 months Responses were relatively consistent across the market for Computershare, Link, and Boardroom (Figure 26). The majority of respondents have indicated either an improved cost structure or no change to cost structure, reinforcing the theme that the competitive environment remains a constant barrier to material upward revisions in pricing (refer Figure 44, Figure 45 and Figure 46). Future considerations assessed against current market dynamics Importance of Quality of Product/Service and Account Management Relationship, continue to be most critical; importance of cost declining The quality of the product and service remains the most critical factor for all our surveyed companies, with ~58% of companies in the ASX200 classifying this as critical followed by account management relationship. For the ASX200, on a shareholder administered basis trend was flat. However, if we look at it for All Ordinaries perspective (Table 9), we saw that Link and Boardroom were winners at the expense of Computershare and other smaller providers. 5

6 Executive Summary ESP This is the first year we have conducted a survey for Employee Share Plans (ESP). The key findings from our Australian ESP survey are detailed below. We note we are cautious around our conclusions given the smaller sample size surveyed, as compared to our Registry Survey. Risk deferral the key reason to outsource ESP services (refer Figure 5). Link and other providers (primarily Boardroom) appear to be pricing more competitively than CPU. We also note that out of the respondents who internally manage, they all flagged that the reason for this was cost. 3-5 year duration contract most common. This is in line with registry contract duration this is unsurprising as Registry and ESP service providers are usually provided by the same provider (Figure 62). However, from our survey respondents, it appears that Link has the shortest contract duration (Figure 54). Similar to registry contracts ESP servicing contracts are sticky. ~75% of ASX200 survey respondents do not put their contract up for tender on expiry (Figure 55), with the larger players (CPU and Link) appearing to have more sticky clients. Potential increased outsourcing of ESP servicing going forward. ~ 33% of internally managed accounts indicated they were unhappy a potential indication that accounts could be outsourced. 6

7 Competitive Landscape Duopoly market still relatively strong The Australian share registry services industry has acted as a quasi duopoly for a number of years, particularly amongst the larger and hence more complex accounts. Specifically the two main providers (Computershare and Link) currently service ~ 96% of the companies listed in the S&P/ASX200 on number of shareholder administered basis and ~90% on a number of contract administered basis. Whilst on a number of contracts administered basis, Computershare has continued to lose market share to Link, (Figure 2) trends on a number of shareholders administered basis (better proxy for revenue) have been broadly static with few or negligible changes. The decline in market share for Computershare from a number of contracts administered basis is not replicated when considered on a shareholder administered basis (better proxy for revenue) which has been relatively flat, from ~58% in 2009 to 57% at present Contrasting trends depending on viewing from a contract vs shareholder lens There has been an erosion in market share for market leader Computershare to the benefit of Link Market Services and smaller competitors such as Boardroom (refer Figure 2) when assessed on a contract administered basis since Specifically, results from our latest Australian Registry Service Provider Survey suggests that Computershare s market share amongst the ASX200 entities has reduced from ~60% in 2009 to 49% at present. In the same timeframe, market share for Link Market Services has increased from ~33% to 41% and other providers such as Boardroom from 7% to 10% (growth in Boardroom offset by losses in share from other small providers). Whilst the above analysis is calculated on a number of contracts administered basis, the number of shareholders administered may be a better proxy for the revenue pool available to market participants. We justify this view on two key drivers: Shareholder skew There is a significant skew in registered shareholder numbers to specific companies (e.g. large blue chip companies); and Pricing structure A significant and increasing proportion (Figure 12) of contracts in the industry are based on a cost per shareholder or shareholder transactions basis. Figure 2: Australia Share Registry Providers ASX200 Market Share (No of Contracts) Figure 3: Australia Share Registry Providers ASX200 Market Share (No of Shareholders) Source: Bloomberg, ASX, Company data, J.P. Morgan estimates. We note within other, Boardroom has increased from 4% in 2012 to 8% in Source: Bloomberg, ASX, Company data, J.P. Morgan estimates. We note within others, Boardroom has increased from 1% in 2012 to 3% in

8 Applying a number of shareholders administered lens produces different results. First, when seen historically from 2009, the decline in market share for Computershare from a number of contracts administered basis is not reflected when considered on a shareholder administered basis (better proxy for revenue) which has been more or less flat, from ~58% in 2009 to 57% at present (refer Figure 3). Despite an increase in number of contracts administered, market share for Link Market Services has been largely stable from 41% in 2009 to 38% at present, indicating the gains highlighted above on a contract basis may have been with smaller shareholders. Boardroom (the bulk of the other category) has been relative flat in terms of share of shareholders (2% in 2013 vs 3% in 2017) reflecting gains in contracts with smaller shareholder numbers. 8

9 Service provider expertise remains the most important factor for choosing an outsourced registry service with quality of product once again as the second most important factor, although its importance appears to be increasing (27% in 2009 to 52% in 2017) Reasons for Outsourcing Registry Services Similar to our surveys in previous years, the majority of respondents (~84% for ASX200 respondents) indicated that the expertise of registry service providers was the primary reason for outsourcing the company s registry function, however this year the skew towards this reasoning stemmed from medium to small companies as opposed to the previous year s skew to ASX20 (refer Figure 4). Cost and quality of product were also noted by ~41% and ~52% respectively, of the ASX200 participants as other reasons for outsourcing registry services. As noted in our previous surveys, service provider expertise has fallen from highs over the prior two reports, however this year s survey has it reverting back to the mean average of 83% putting more weighting on next year s figures to solidify or break this trend (refer Figure 5). Cost, as a reason to outsource registry function was largely stable, at 44% in 2016 vs 41% in 2017, whilst on the other hand risk deferral has become a relatively more popular reason for outsourcing (15% in 2016 to 25% in 2017). We note the quality of product has become a rapidly increasingly determinant rising from ~27% in 2009 to ~52% at present overall. Figure 4: Reasons For Outsourcing Registry Services 2016/2017 Figure 5: Reasons For Outsourcing Registry Services (ASX200) Over Time Source: J.P. Morgan Australian Registry Services Provider Survey Note: Respondents can offer more than one reason. Source: J.P. Morgan Australian Registry Services Provider Survey. Note: Respondents can offer more than one reason. Why quality of product is becoming a more important consideration We had noted in our previous reports that the move to digital-based economies has opened the thematic of product differentiation in the traditionally vanilla share registry market segment. By way of example, electronic proxy material delivery and shareholder voting are now becoming a relatively more common thematic, although survey responses suggest that data quality and real-time access in this format still remain potential areas of improvement. In contrast, service provider expertise has become a less significant consideration as overall performance is strong across most registry providers (Figure 25). While industry feedback suggests that cost is still an important factor, we also highlight from a cost perspective, that following years of consolidation, the scale of the two main competitors in the industry means the gap between the cost of the services provided by the outsourcing companies and the cost for a company to perform the same tasks internally remains significant. 9

10 The majority (~65%) of companies continue to believe that registry service providers continue to add value to their business relatively stable trends since 2013 Adding value function? Much of the revenue growth opportunities available for registry services companies exists in their ability to cross-sell other products or services to their clients. Following on from the previous section on the increased importance of the quality of product to customers, one of the key methods in driving this cross-sell opportunity is through impressing on the client the value-add that the provider can offer to the client (e.g. understanding their shareholder base). To this extent, it is positive to note that ~64% of respondents of small and large corporates currently see registry providers offering value-adding services (refer Figure 6). However, ~17% also see registry providers currently providing no value-adding services but would like them to (vs 21% average since 2009). In our view, this figure may potentially be indicative of the share of the wallet available for smaller registry players with respect to gaining market share. Finally, a further ~21%, up from ~14% from the prior year, do not see registry providers offering value-adding services; however they would not expect them to in any event. When considered alongside the ~64% of customers who are currently being provided value-add services, ~83% of the share registry market may potentially be considered relatively sticky. Figure 6: Does Your Registry Service Provider Add Value to the Company? Figure 7: Yes Response To Provider Adding Value Through Time Source: J.P. Morgan Australian Registry Services Provider Survey Source: J.P. Morgan Australian Registry Services Provider Survey. Assessing the responses to the question, if your registry provider adds value to your business, provides some interesting insights (refer Figure 7): Computershare While we have seen a 6% increase in the percentage of respondents in 2017 having thought that Computershare has added value to their business, there has been a decline in positive responses from ~75% positive response in 2012 vs 64% in Link Market Services Has also reverted back to approximately its average historical levels of respondents indicating value added from 72% positive responses last year to only 64% this year (we note there is inherent volatility in the survey given we do not cover 100% of the market and responses are subject to the respondents subjective view with the respondent potentially changing year on year). Overall, Link appears to show largely stable trends. Other smaller providers (primarily Boardroom) We have seen further deterioration for small providers, which now tracks below that of Computershare and Link (we note there is inherently volatility in the data especially for this category given the smaller number of responses.) 10

11 In a market with limited potential for future growth in shareholder numbers, in our view it remains essential that registry service providers consider opening up opportunities to provide value-adding services rather than just being perceived as a necessary cost for companies. The majority of share registry services contracts continue to be negotiated every three years Contract length & pricing structure Three-year contracts continue to be the most common Our survey data indicates that approximately half of outstanding share registry contracts have been negotiated on three-year terms (refer Figure 8), an outcome broadly consistent across both small and medium corporates, however, for large corporates (ASX20) we have seen a significant increase from last year, increasing from ~50% to 86% this year. Assessing this trend from 2009, we see that 3-5 year contracts have remained at >50% of all contracts surveyed, reinforcing the challenges that new entrants face in gaining market share. Figure 8: How Often Are Registry Services Contracts Negotiated? Figure 9: How Often Are Registry Services Contracts Negotiated? Through Time Source: J.P. Morgan Australia Registry Services Provider Survey Source: J.P. Morgan Australia Registry Services Provider Survey. Large companies (ASX20) appear to have changed preference from the combination pricing structure (i.e. fixed fee + fee per shareholder) from last year to the fee per shareholder basis for basic registry maintenance Contracts are priced on a combination of fixed and per shareholder basis Respondent data indicates that the majority of contracts in the industry are negotiated on two levels: 1) Basic registry maintenance (includes annual processes including dividend disbursement), and, 2) Additional registry services (i.e. corporate actions). As highlighted in Figure 10 and Figure 11 below, only a small number of basic registry maintenance contracts and additional services (capital raisings and M&A) are done on a fixed price (i.e. an annual base fee). The majority is either on a fee per shareholder or a combination of fee per shareholder and fixed price. The same trend can be traced back through time for both the Basic and Additional Registry Maintenance Pricing structure which are weighted towards Fee per shareholder or a combination of fixed and Fee per shareholder (refer Figure 12 and Figure 13). Fee per shareholder remains the most popular pricing structure for basic registry maintenance (Figure 12). 11

12 Figure 10: Basic Registry Maintenance Pricing Structure Figure 11: Additional Registry Maintenance Pricing Structure Source: J.P. Morgan Australian Registry Services Provider Survey Source: J.P. Morgan Australian Registry Services Provider Survey Figure 12: Basic Registry Maintenance Pricing Structure-Though Time Figure 13: Additional Registry Maintenance Pricing Structure- Through Time Source: J.P. Morgan Australian Registry Services Provider Survey. Source: J.P. Morgan Australian Registry Services Provider Survey. Looking at historical trends, it appears there is an increasing percentage of companies putting their registry contract for negotiations causing the trend to move from No and never considered and No but have considered to Yes, however there remains significant incumbency Contract negotiations increasing number of contracts put to tender Respondent data indicates that only 43% of companies indicated that they intend to put their registry contracts out to a competitive tender upon the expiry of their contracts (refer Figure 14). By virtue, the majority of companies (57%) took a negotiated contract term and price with the incumbent registry service provider upon the expiry of their existing contract. Looking at historical trends (refer Figure 15) it appears there is an increasing percentage of companies putting their registry contract out for negotiations causing the trend to move from No but have considered to Yes. However, there remains significant incumbency with ~43% of the surveyed companies putting their registry contract out to tender. 12

13 Figure 14: Contact Negotiations Does Your Company Put the Registry Contract Out To Tender, upon the current contract's expiry? Figure 15: Contact Negotiations Does Your Company Put the Registry Contract Out To Tender (Over Time)? Source: J.P. Morgan Australian Registry Services Provider Survey Source: J.P. Morgan Australian Registry Services Provider Survey. We observe that on average Link customers (~39%) are more likely to be putting their contract out to tender vs Computershare (~24%), over the past 8 years Contract negotiations competitor analysis In Figure 17 below, we observe Link customers are more likely to be putting their contract out to tender vs Computer share. Furthermore, we did see a sharp increase for Link with the percentage of customers putting the registry contract out to tender increasing from 39% in 2016 to 52% in 2017 (average between is just 37%, Figure 17). Computershare has historically averaged at ~24% of respondents putting the contracts for negotiation over the last 8 years and other providers (primarily Boardroom) have ranged from ~60% in 2015 to falling as low as 17% in 2016, and reverting back to ~40% levels in 2017 the volatility is driven by the small sample size. Figure 16: Contact Negotiations Does Your Company Put the Registry Contract Out To Tender? Figure 17: Contact Negotiations? Yes-Through Time Source: J.P. Morgan Australian Registry Services Provider Survey Source: J.P. Morgan Australian Registry Services Provider Survey. We note that whilst the 2017 data point for Other refers to Boardroom only, prior data points includes other providers besides Boardroom. 13

14 Figure 18: Contract Negotiations? No But Considered-Though Time Figure 19: Contract Negotiations? No And Never Considered- Through Time Source: J.P. Morgan Australian Registry Services Provider Survey. We note that whilst the 2017 data point for Other refers to Boardroom only, prior data points includes other providers besides Boardroom. Source: J.P. Morgan Australian Registry Services Provider Survey. We note that whilst the 2017 data point for Other refers to Boardroom only, prior data points includes other providers besides Boardroom. Movement in shareholder numbers As highlighted earlier (refer Figure 10), the majority of registry services contracts are on a fee per shareholder or a combination of fee per shareholder and fixed price basis. Thus the change in company shareholder numbers in our view is a significant driver of revenue for service providers. The Australian market has shown positive returns over the past few periods, after being negative due to GFC and other macroeconomic factors in 2007/08. However, we have seen 5 consecutive quarters of positive shareholder returns (for the period ending 4Q16) which should provide some tailwind to shareholder numbers (strong markets are usually positive for shareholder numbers). Figure 20: S&P/ASX200 Accumulation Index-Quarterly Returns Source: Bloomberg (21/03/2017) 14

15 For the ASX200, in the current period, there has been a modest skew towards shareholder numbers increasing over the past two years How have shareholder numbers been trending? Assessing trends for the last 6 months, shareholder numbers have mainly remained flat for small and medium companies where as the larger companies reported an equal percentage of increasing and decreasing trends (~38% each). Analyzing the trends from the last two years, we see a skew towards shareholder numbers increasing for all ASX200, ASX100 and ASX200. The analysis of the historical trend (for the 2 year period) reveals that the shareholder numbers are following an increasing trend especially visible since the last 5 years (Figure 23 and Figure 24), Whilst analyzing the shareholder trends (of our survey respondents) through time for six-month period, we see that shareholder numbers have seen more muted shareholder increases. Figure 21: Change in Shareholder Numbers Over Previous 2 Years Figure 22: Change in Shareholder Numbers Over Previous 6 Months Source: J.P. Morgan Australian Registry Services Provider Survey Figure 23: Change in Shareholder Numbers Over Previous 2 Years (ASX200)-Through Time Source: J.P. Morgan Australian Registry Services Provider Survey Figure 24: Change in Shareholder Numbers Over Previous 6 Months (ASX200)-Through Time Source: J.P. Morgan Australian Registry Services Provider Survey Source: J.P. Morgan Australian Registry Services Provider Survey Assessing trends through time (across the ASX200), Table 4 below illustrates the number of shareholder accounts in the ASX200 as at each December year end since 2009 i.e. it includes net changes to the index compositions. The overall shareholder number has declined slightly from last year, with the only gainer in shareholder numbers being Link out of the three main share registry providers. The broadly flat change relating to the number of shareholders administered since 2009 provides a relatively more muted picture. We note the market has been very strong since the previous report and as prior results have indicated some correlation between shareholder numbers and market performance. It will be interesting from this standpoint whether a continued strong share market over the next ~12 months will result in further increases in number of shareholder accounts administered. 15

16 Table 4: Number of shareholder accounts administered ASX200 as at each year end (in Millions) Calendar Year S&P/ASX200 CPU Link Boardroom % change 2016 vs % -4.23% 3.52% -4.17% Source: J.P. Morgan estimates, Company data. For companies where shareholder numbers are unavailable for 2016 we have assumed the same shareholder count as in the prior year (i.e. no change)> 16

17 Competitor Analysis As highlighted in Table 5 below, the respondents to our survey provide a good representation of the make-up of the ASX200 index, with no overly strong bias in sample size to any particular competitor. Table 5: Australian Registry Service Providers S&P/ASX200 Registry Service Providers Market Share Survey Responses Computershare 49% 54% Link Market Services 41% 39% Boardroom 8% 6% Other 2% 0% Source: ASX, J.P. Morgan Australian Registry Services Provider Survey Computershare and Link showed strong overall performance, with Boardroom appearing to have slipped (80% positive responses this year vs 83% last year and 100% in 2015) although we note there is volatility for Boardroom, due to the low sample size Figure 25: Overall Performance Current Overall performance In assessing overall performance of registry providers, we retain a cautious stance with respect to providing relative conclusions, as our survey largely sees respondents providing a view from an absolute perspective. Furthermore, respondents do change year on year and Boardroom s results can be volatile due to the small sample size and exposure to smaller clients. Given this backdrop, we highlight the following key set of findings (refer Figure 25 and Figure 26): The current overall performance is strong across all registry providers, with all providers receiving a high proportion of positive (good or better) responses Computershare 98%, Link 96%, Boardroom 80%. Boardroom's performance appears to have deteriorated from 83% positive responses last year and 100% from With regards to the change in overall performance over the past 12 months, responses were relatively consistent across the market for Computershare, Link, and Boardroom with ~60% to 75% of respondents indicating that there has been no meaningful change in performance. Whilst ~60% of respondents viewed the performance of Boardroom as having not changed over the last 12 months, ~20% of respondents also indicated an improved performance with an equal percentage indicating a worsened performance. Figure 26: Overall Performance Over Previous 12 Months Source: J.P. Morgan Australian Registry Services Provider Survey Source: J.P. Morgan Australian Registry Services Provider Survey

18 In assessing the performance of Computershare, Link and Other (mainly Boardroom), not only over the last 12 months but historically since 2009/2010 (for Others ) we note the following (refer Figure 27, Figure 28, and Figure 29): Respondent data indicates a consistent grouping of overall performance being rated above my expectations or good for all registry providers. However, for Link, there is also a modest percentage, ~4% in 2017 (vs ~8% average from ) of respondents who have indicated performance below expectations vs average of ~2% for Computershare over For all providers, no respondents indicated poor performance since 2009 till date. Since 2012 there has been a shift in respondent feedback from Computershare from good to above expectations, potentially indicating an increase in standards. Whereas Link since 2012 has experienced material shift from Good and Below my expectations to outstanding and Above expectations. Historically, Other registry provider (primarily Boardroom) performances have been positive (we note results can be volatile due to sample size). Figure 27: Computershare Overall Performance Through Time Figure 28: Link Overall Performance Through Time Source: J.P. Morgan- Australian Registry Services Provider Survey Source: J.P. Morgan- Australian Registry Services Provider Survey Figure 29: Other Registry Overall Performance Through Time Source: J.P. Morgan- Australian Registry Services Provider Survey 18

19 We assess some underlying components driving overall performance including account management, quality of product, innovation and cost in further detail below: 1. Account management Looking at historical trends, we see an increasing trend of respondents voting for Improved account management performance continues in 2017 for Computershare From an account management perspective, ~64% and ~56% of Computershare and Link, respectively, showed respondents noted no change, while all Boardroom respondents noted no change in performance over the prior 12 months (refer Figure 30). Historically, we see an increasing trend of respondents voting for Improved performance for Computershare and Link. For Other (primarily Boardroom), all the respondents noted no change in performance in 2017 vs 50% noting no change and 50% noting worsened performance last year. This is the first time in last 5 years that no respondents voted worsened performance for Other registry providers. Figure 30: Account Management Performance Over Previous 12 Months Source: J.P. Morgan Australian Registry Services Provider Survey Figure 31: CPU Account Management Performance-Through Time Figure 32: Link Account Management Performance-Through Time Figure 33: Other (primarily Boardroom) Account Management Performance-Though Time Source: Source: J.P. Morgan- Australian Registry Services Provider Survey Source: Source: J.P. Morgan- Australian Registry Services Provider Survey Source: Source: J.P. Morgan- Australian Registry Services Provider Survey 2. Quality of product The majority of respondents have indicated no change in quality of product over the last 12 months As highlighted in the previous section, quality of product is becoming a more important consideration (refer Figure 5 earlier) for customers when identifying which registry provider to work with. Given this backdrop, it is interesting to note the majority of Computershare, Link and Boardroom respondents have indicated no change in quality of product over the last 12 months (refer Figure 34). 19

20 Figure 34: Quality of Product Over Previous 12 Months Source: J.P. Morgan Australian Registry Services Provider Survey Figure 35: CPU Quality of Product- Through Time Figure 36: Link Quality of Product- Through Time Figure 37: Other (primarily Boardroom) Quality of Product- Through Time Source: J.P. Morgan- Australian Registry Services Provider Survey Source: J.P. Morgan- Australian Registry Services Provider Survey Source: J.P. Morgan- Australian Registry Services Provider Survey 3. Innovation The majority of Computershare, Link and Boardroom respondents have also indicated no change in innovation with respect to services being offered over the last ~12 months although from the last 3 years of data, CPU appears to be on a positive trends In line with our quality of product findings noted above, the majority of Computershare, Link and Boardroom respondents have also indicated no change in innovation with respect to services being offered over the last ~12 months (refer Figure 38). However Computershare is the outperformer with ~33% of respondents indicating Improved innovation and 5% indicated Worsened performance. For Boardroom, the residual respondents all indicated Improved making up the remaining 20%. Link received 20% Improved and 76% No change with the remaining 4% indicated Worsened. Looking at past performance (note only three years of data), majority of the respondents indicated No change in performance (refer Figure 39, Figure 40, and Figure 41). 20

21 Figure 38: Innovation Over Previous 12 Months Source: J.P. Morgan Australian Registry Services Provider Survey Figure 39: CPU Innovation Performance- Though Time Figure 40: Link Innovation Performance- Through Time Figure 41: Other (primarily Boardroom) Innovation Performance-Through Time Source: J.P. Morgan- Australian Registry Services Provider Survey Source: J.P. Morgan- Australian Registry Services Provider Survey Source: J.P. Morgan- Australian Registry Services Provider Survey The majority of Computershare, Link and Boardroom related respondents (i.e. greater than 85% have rated good or above) have a favourable opinion on the cost of service being provided to them with Link continuing to have particularly favourable responses 4. Cost As global registry revenues continue to see margin compression and elevated levels of competition between the likes of Computershare, Link and Boardroom, the cost of service has maintained a key area of focus. We note the following set of findings relating to our survey data: Industry in 2017 The majority of Computershare, Link and Boardroom related respondents (i.e. greater than 85% have rated good or above) have a favourable opinion on the cost of service being provided to them (refer Figure 42). Market players in % respondents who are currently being serviced by Link Market Services are of the view there was no change in the cost performance over the previous 12 months. However, ~92% of respondents noted good or above ratings respectively, vs 86% of respondents for Computershare. Trends through time. Assessing trends over the last 12 months (refer Figure 43), it is important to note that the majority of respondents have indicated either an improved cost structure or no change to cost structure. The same trend is visible historically, where majority of the respondents indicated No change or Improved cost performance. This reinforces the theme that the competitive environment remains a constant barrier to material upward revisions in pricing (refer Figure 44, Figure 45 and Figure 46). 21

22 Figure 42: Cost Performance Current Figure 43: Cost Change Over Previous 12 Months Source: J.P. Morgan Australian Registry Services Provider Survey Source: J.P. Morgan Australian Registry Services Provider Survey Figure 44: CPU Change in Cost- Through Time Figure 45: Link Change in Cost-Through Time Figure 46: Other (primarily Boardroom) Change in Cost-Through Time Source: J.P. Morgan- Australian Registry Services Provider Survey Source: J.P. Morgan- Australian Registry Services Provider Survey Source: J.P. Morgan- Australian Registry Services Provider Survey Historically, the majority of the respondents indicated No change or Improved cost performance, reiterating the fact that due to increased competition it becomes important to concentrate on cost efficiency We think the reasons for the small proportion of overall responses which indicated that the cost of the service had worsened over the last year include: Increased competition Driven by emergence of a viable large-scale third player, Boardroom and increased competition from Link as seen in Figure 2 and which listed at the end of last year. Cost-out opportunities Declining revenue margins have been able to be offset by cost-out opportunities in recent times including, 1) increased scale, 2) the standardization of forms and processes, and 3) the rollout of IT platforms, reducing manual and costly processes. However, we reiterate that there is a limited buffer which this can provide going forward. Small overall cost of service The cost of the registry services function is relatively small in the overall cost of corporate overheads for most companies in the S&P/ASX200. As such, a ~5% increase in pricing is unlikely to make a significant impact on the company s costs or an impression on the survey respondent. 22

23 Future Considerations Assessed Against Current Market Dynamics Account management relationship and quality of product and service were both flagged as critical by ~71% of the ASX20 for the first time; further to this, cost has become less critical to large corporations over the past six years Our survey asked companies to rate how important certain factors would be if they were considering changing registry service providers in the future. Consistent with historical trends, quality of product and service was rated as the most critical consideration followed by account management relationship these two factors are consistently ranked as the two most critical. We note the following key trends both from an as is and historical perspective (refer Figure 47 and Figure 48): Quality of product/service The quality of the product and service remains the most critical factor for all surveyed companies, with ~58% of companies in the ASX200 classifying this as critical. When only assessing survey results from companies in the ASX20 this increased to ~71%, still highlighting the critical importance of this factor to large corporates. Whilst this figure has fallen from historical highs of 100%, it still remains of critical importance to these large corporate.. Account management relationship The relationship between the company and registry service provider was classified as critical for ~53% of companies surveyed in the ASX200. When assessing the ASX20, this figure increased to ~71% from 50% in last year's survey. Innovation 10% of ASX200 viewed innovation as critical declining from 12% in 2016 and 22% in The drop in importance of innovation could very well be because Registry Providers have largely undertaken steps to addressed innovation and are continuing to do so. Cost The cost of using a registry service provider was considered by ~32% of companies in the ASX200 to be critical. Additional services Only 11% of ASX200 companies saw additional services as an important future consideration in determining registry services. Figure 47: Future Considerations Considered Critical Figure 48: ASX20 Future Considerations Considered Critical Over Time Source: J. P. Morgan Australian Registry Services Provider Survey Source: J. P. Morgan Australian Registry Services Provider Survey. 23

24 ASX200 contract changes In assessing market share movements on a contract administered basis for registry providers servicing the ASX200, we consider several moving parts. Specifically, registry providers may lose or gain market share in the ASX200 simply if a company enters or falls out of the index. In addition, any large IPOs that have taken place during the year may push companies at the bottom end of the ASX200 out of the index as well. Lastly, we also take into consideration organic movements i.e. contract wins and losses in relation to positions held by competitors. Using this framework and the results in Table 6 below, we highlight the following contract-related market share movements during 2016: Computershare We estimate Computershare at the start of 2016 serviced 103 contracts in the ASX200 or ~52% of market share. This reduced to 98 by the close of 2016 or ~49% of market share when considering ASX200 exits (-11), ASX200 new entrants (+7), IPO wins (+2) and organic losses (-2). Considering organic losses in isolation results in a net -2 headwind or -1% adverse impact to market share. Link Market Services Link at the start of 2016 serviced 77 contracts in the ASX200 or ~39% of market share. This increased to 82 by the close of 2016 or 41% of market share when considering ASX200 exits (-11), ASX200 new entrants (+10), IPO wins (+2) and organic wins (+3). Considering organic wins in isolation results in a net +3 tailwind or +1.5% positive impact to market share. Others (Primarily Boardroom) Other providers (primarily Boardroom) at the start of 2016 serviced 20 accounts in the ASX200 or ~10% of market share. This remained constant at 20 by the close of 2016 or ~10% of market share when considering ASX200 exits (-2), ASX200 new entrants (+3), IPO wins (+0) and organic wins (-1). Table 6: Number of Registry Contracts Administered ASX200 Opening Balance 2016 ASX200 Exits ASX200 New Entrants IPO Organic Additions / Losses Closing Balance 2016 Computershare 103 (11) 7 2 (2) 98 Link Market Services 77 (11) Other 20 (2) 3 0 (1) 20 Total 200 (24) Source: Company data, Bloomberg, J.P. Morgan estimates However, as we have outlined earlier, a shareholders-administered lens may be a better proxy for revenue, and can produce differing results (refer Table 7). Whilst Computershare showed a ~5% loss in contracts above, from the perspective of shareholders administered their market share declined ~2%. Moreover while Link seemed to gain market share on contracts administered basis, up by 6% since previous period, on a number of shareholders administered basis, the market share increased by ~2%. 24

25 Table 7: Number of Shareholders Administered (millions) ASX200 Opening Balance 2016 ASX200 Exits ASX200 New Entrants IPO Shareholder Movements Organic Additions / Losses Closing Balance Computershare 8.2 (0.2) (0.2) 7.9 Link Market Services 5.1 (0.1) Other 0.6 (0.1) Total 13.9 (0.4) Source: Company data, Bloomberg, J.P. Morgan estimates Note: All data is rounded to one decimal place. Note: Shareholders movement represents DRP (positive) and consolidation of shareholders (negative).note APO,GPT, RMD 2016 shareholder numbers have assumed to be unchanged from 2015 levels due to unavailability of data. Shareholder numbers for CYB, VVR, MTR, NWS were not available. Computershare We estimate Computershare at the start of 2016 serviced 8.2m accounts in the ASX200 or ~59% of market share. This declined slightly to 7.9m by the close of 2016 or ~57% of market share when considering ASX200 exits (-0.2m), ASX200 new entrants (0.00m), IPO wins (+0.0m), and shareholder movements (0.0m) such as DRP alongside shareholder number consolidation and organic losses equating to (-0.2m). Link Market Services We estimate Link at the start of 2016 serviced 5.1m accounts in the ASX200 or ~37% of market share. This increased to 5.3m accounts by the close of 2016 or ~38% of market share when considering ASX200 exits (-0.1m), ASX200 new entrants (+0.1m), IPO wins (0.00m), movements such as DRP alongside shareholder number consolidation (+0.0m) and organic additions (+0.2m). Others (including Boardroom) We estimate other providers (including Boardroom) at the start of 2016 serviced 0.6m accounts in the ASX200 or ~4% of market share. This remained more or less flat at the end of 2016, with 0.6m accounts by the or ~4% of market share when considering ASX200 exits (-0.1m), ASX200 new entrants (0.0m), movements such as DRP alongside shareholder number consolidation (0.0m) and organic additions (0.0m) recorded a lower number of contract switches when compared to % of the market switched providers (as measured by number of contract switches) All Ordinaries contract changes The number of contract switches in 2016 was lower than those observed in A summary of contract changes in the Australian ASX listed market (outside of M&A activity, IPOs and company dissolution) appears below refer Table 8. Specifically, there were 55 contract switches in 2016 representing ~2.5% of the average ASX listed entities in 2016 (2,203). This is marginally lower than ~2.8% change we have observed in 2015 and the ~3.6% seen in Interestingly, Computershare and other registry providers including Boardroom lost a net of 9 contracts and 8 contracts respectively to Link that won a net of 17 contracts. Table 8: ASX Listed Share Registers Change in Listed Company Contracts Administered (All Ordinaries) No. of contracts CY Registry Services Provider New Lost Net New Lost Net New Lost Net New Lost Net Computershare 62 (30) (24) (13) 11 (20) (9) 84 (74) 10 Link Market Services 3 (8) (5) 13 (4) 9 19 (2) (14) 21 Boardroom 0 (13) (13) 6 (6) 0 7 (10) (3) 13 (29) (16) Others 13 (27) (14) 32 (28) 4 18 (23) (5) 63 (78) (15) Total 78 (78) 0 62 (62) 0 55 (55) (195) 0 Source: Company reports, morning star. Where active contracts have changed hands (excludes changes due to M&A, IPOs and company dissolution). 25

26 From a registry provider perspective, Computershare lost 189k and other providers (excluding Boardroom) lost 43k net shareholder accounts (refer Table 9) to the benefit of Link (123k) and Boardroom (109k). Table 9: ASX Listed Share Registers Change in Number of Shareholders Administered 000s of shareholders CY Registry Services Provider New Lost Net New Lost Net New Lost Net New Lost Net Computershare 292 (104) (571) (23) 27 (216) (189) 867 (892) (24) Link Market Services 5 (72) (67) 32 (10) (1) (83) 79 Boardroom 2 (44) (42) 9 (12) (3) 140 (31) (87) 63 Other 12 (91) (79) 58 (54) 4 18 (61) (43) 89 (206) (118) Source: Company reports, morning star. Note: some new and old shareholder numbers were not available and numbers in the table are rounded. Where active contracts have changed hands (excludes changes due to M&A, IPOs and company dissolution). # Number of shareholders is based on the last number of shareholders stated in the prior Annual Report where available. Table 10: Demergers/Spin-offs Parent Company NewCo Ticker NewCo Name All Ordinaries demergers/spin-offs and other restructures The much larger (and more uncertain) driver of market share change in shareholders numbers administered has historically been through corporate activity. In 2015, one of the key corporate activities was the demerger of South32 (Table 10). Besides that, in 2016 demerger and corporate restructuring activity was relatively high compared to last previous year, providing opportunity for the growth of registry administrators. Effective Date Current Market Cap (A$m) Registry Services Provider No. of New Sh holders 2016 National Australia Bank Ltd CYB AU Equity CYBG PLC 2/3/2016 3,987 Computershare Spirit Telecom Ltd DAV AU Equity Davenport Resources Ltd 2/23/ Security Transfers Registrars Pty Ltd 773 Magnis Resources Ltd D AU Equity Uranium Africa Ltd 4/7/ Paramount Mining Corp Ltd D SP Equity Paramindo Singapore Pte Ltd 5/23/ Taruga Gold Ltd D AU Equity Kodal Minerals plc 5/26/ Indiana Resources Ltd GPX AU Equity Graphex Mining Ltd 6/3/ Computershare 4,060 UraniumSA Ltd D AU Equity Samphire Uranium Ltd 6/24/ Link Market Services APN News & Media Ltd NZM AU Equity NZME Ltd 6/27/ Limited 6,870 BlackWall Property Trust D AU Equity Pelathon Pub Group 6/28/ Bulletin Resources Ltd PNR AU Equity Pantoro Ltd 7/18/ Eneabba Gas Ltd D AU UIL Energy Ltd 9/13/ Hannans Ltd D AU Equity Critical Metals Ltd 9/19/ Heron Resources Ltd ARL AU Equity Ardea Resources Ltd 10/5/ Security Transfers Registrars Pty Ltd 3249 Clime Investment Management Ltd D AU Equity Clime Pvt Ltd 11/2/ Broken Hill Prospecting Ltd COB AU Equity Cobalt Blue Holdings Ltd 11/18/ Next Registries 1440 Securities Transfer Australia Pty Ltd. 6,312 Metals X Ltd WGX AU Equity Westgold Resources Ltd 11/29/ World Titanium Resources Ltd D MP Equity World Titane Holdings Ltd 12/29/ Raffles Capital Ltd D AU Equity Raffles Co Ltd 3/3/ Hudson Investment Group Ltd HPG AU Equity Hudson Pacific Group Ltd 5/13/ BHP Billiton Ltd S32 AU Equity South32 Ltd 5/18/ ,694 Computershare 537,893 Strategic Energy Resources Ltd D AU Equity Ionic Industries Ltd 6/11/ Sirius Resources NL S2R AU Equity S2 Resources Ltd 9/10/ Computershare 4965 Transerv Energy Ltd D AU Equity TSV Montney 10/6/ Tamaska Oil & Gas Ltd D AU Equity TMK Montney Ltd 10/6/ Source: Company reports, BBG. Note: we show the latest completed transaction in Note: Number of shareholders is taken from distribution schedule published on listing or from the latest published annual report post transaction if distribution schedule is not available. Also data for some transactions was not available. 26

27 2016 saw a relatively weaker year for IPO, with ~$21bn raised in the year, down from $33bn in 2015 (boosted by South32). In 2014 ~$29bn was raised All Ordinaries initial public offerings (IPO) IPO activity in Australia was relatively strong in terms of number of new listings in Specifically, there were 133 newly listed entities in 2016, up ~6% from pcp (Figure 49, The top 10 IPOs resulted in at least ~25k shareholder accounts being created, with Link Market Services handling ~70% of the new accounts Table 11). However on a net listing basis, 2017 saw more entities delist giving a net listing number of -27 vs a positive net listings number of 30 in the previous year saw a relatively weaker year for IPOs, with ~$21bn raised in the year, down from $33bn in 2015 (boosted by South32). In 2014 ~$29bn was raised. Figure 49: ASX Listings & Delistings Source: ASX, Company reports. The top 10 IPOs resulted in at least ~25k shareholder accounts being created, with Link Market Services handling ~70% of the new accounts Table 11: ASX Listings and Delistings New Listings De-Listings (92) (127) (117) (103) (96) (96) (156) Net Listings 35 6 (34) (23) Total Listings 2,216 2,222 2,188 2,195 2,208 2,238 2,215 IPO Proceeds (A$m) 25,048 15,493 7,206 24,037 28,798 33,437 21,190 Source: ASX. Table 12: Top 10 IPOs in 2016 IPO Proceeds/No. of Shareholders Administered 2016 witnessed a number of IPO, which resulted in a material number of new shareholder accounts being generated. The 10 largest IPO generated at least ~25k accounts (note data for the number of shareholders for the IPO of Antipodes Global Investment Company Limited serviced by Boardroom was unavailable) with Link Market Services handling ~70% of the new accounts (based on information available). Name Ticker Date of Announcement IPO Proceeds (A$m) Registry Services Provider No. of Shareholders* Reliance Worldwide Corporation Limited RWC 04/11/ Computershare 6,225 Viva Energy REIT Trust VVR 07/11/ Link Market Services 3,552 Inghams Group Limited ING 10/12/ Link Market Services 10,659 Propertylink PLG 07/18/ Computershare 343 Antipodes Global Investment Company Limited APL 07/22/ Boardroom Unavailable Scottish Pacific Group Limited SCO 06/22/ Link Market Services 1,392 GTN Limited GTN 05/12/ Link Market Services 319 Wisetech Global Limited WTC 03/17/ Link Market Services 1,278 Autosports Group Limited ASG 10/25/ Link Market Services 1,117 Bravura Solutions Limited BVS 10/28/ Link Market Services 401 Total top 10 IPOs priced in ,196 25,286 Source: Company reports, Bloomberg. *Approx. number of shareholders at the time of the IPO as detailed by the company in initial listing documentation if available or else taken from annual report after IPO. 27

28 Similar to most regions around the world, profitability of IPOs in Australia can be hit or miss for the registry service provider We remind that similar to most regions around the world, profitability of IPO in Australia can be hit or miss for the registry service provider. Given most registry contracts are structured on a per shareholder basis, registry providers must try to forecast the number of shareholders upon the float of the company when pricing the initial contract. For larger transactions, the retail take-up of the offer can be difficult to forecast, leading to some variability in profitability in the IPO process for the registry service provider. Secondary raisings in 2016 were down 41% on 2015, with ~A$33.3bn in secondary equity capital raised (vs 2015: ~A$56.6bn, 2014: ~A$34.8bn) All Ordinaries secondary raisings In 2016 secondary raisings were lower than 2015 with $33.3bn of capital being raised, down 41% on 2015 (refer Table 13) as 2015 numbers were driven by capital raisings by the major Australian banks which is considered as a one-off. Table 13: ASX Secondary Capital Raised A$ in millions Secondary Capital Raised# 31,428 33,101 35,163 28,491 34,751 56,638 33,321 % Change on pcp -68.1% 5.3% 6.2% -19.0% 22.0% 63% -41% Source: ASX. # All secondary capital raised on the listed market in the year (incl. DRPs). 28

29 Employee Share Plan Survey (ESP) Survey description This year we conducted a survey on Employee Share Plan Service in addition to our Annual Registry Service Provider Survey. Source of information Outside of publicly available information, all the data in this report is sourced from our Australian Employee Share Plan (ESP) Survey of listed companies in the ASX200 (as at December 2016). The survey was conducted from December 2016 to January A copy of the survey appears in the Appendix to this report. We have not provided a list of the companies that participated in the survey as it was conducted on the basis that the participants individual details and responses remain anonymous. Table 14: ASX Listed Companies Surveyed S&P/ASX20* S&P/ASX100* S&P/ASX200* Number of Shareholders 22% 25% 25% Market capitalisation 22% 23% 23% * S&P/ASX indices as at March 2017 # Based on number of registered shareholders at the time of publication of the company s last annual report where available. Note: MTR responded to our survey, but shareholder number not available affects the ASX200 numbers above only. Figure 50: Breakdown of service provider based on our survey respondents Source: J. P. Morgan Australian Employee Share Plan Survey

30 Risk deferral emerged as the main reasons for outsourcing ESP amongst companies, followed by service provider expertise and cost Reasons for outsourcing employee share plan services Risk deferral emerged as the key reason for outsourcing ESP (Figure 51). It is interesting to note that risk deferral is the key reason for companies to outsource their ESP in contrast, risk deferral was the least cited reason for outsourcing registry. (refer Figure 5). Cost appears to be the reason for companies to manage internally, with Link and other smaller providers appearing to be more price competitive than CPU. Users of Computershare as their ESP service provider flagged risk deferral and service provider expertise as the top two reasons for outsourcing this function. In comparison users of Link and Other providers (primarily Boardroom) flagged risk deferral and cost as the two main reasons for outsourcing (Figure 52). Out of the respondents who internally manage, they all flagged that the reason for this was cost. Figure 51: Reasons for outsourcing ESP Services at your company? Figure 52: Reasons for outsourcing ESP Services-By ESP Provider Source: J. P. Morgan Australian Employee Share Plan Survey Source: J. P. Morgan Australian Employee Share Plan Survey Note: respondents can offer more than one reason. The majority of contract lengths are for 3-5 years for ASX100 and ASX200 companies, where as respondents of ASX20 companies are equally distributed between 3-5 years and 1-2 years (40% each) Contract length & contract negotiations 3-5 year contracts appear to be most for most companies Our survey data indicates that majority of the contract lengths are for 3-5 years for ASX100 and ASX200 companies, where as respondents of ASX20 companies are equally distributed between 3-5 years and 1-2 years (~40% each) as shown in Figure 53. This appears in line with the preferred contract duration for registry providers this is unsurprising as Registry and ESP service providers are usually the same for a company (Figure 62). Competitor analysis Link appears to have shortest contract duration Most of the competitors in the space appear to have a skew towards contracts of 3-5 years, except Link who appears to have an even distribution of contracts between 1-2 years and 3-5 years. However, we do note there is volatility in our data given we only survey ~25% of the market in this section of our survey. 30

31 Figure 53: How Often Are Registry Services Contracts Negotiated? Figure 54: How Often Are Registry Services Contracts Negotiated? By ESP Provider Source: J. P. Morgan Australian Employee Share Plan Survey Source: J. P. Morgan Australian Employee Share Plan Survey Contract negotiations 57% of companies responded that they do not put up their contracts to tender on expiry but have considered. 57% of ASX200 companies do not put up their contracts to tender but have considered, 25% do put up their contracts for tender and remaining do not even consider putting up their contracts for tender. Looking at the large companies that make up the ASX20, we see a slightly different trend as none of the respondents put up their contracts for tender, majority(~60%) do not put up their contracts for tender but have considered, and remaining 40% have never considered it reflecting the sticky nature of these contracts. Competitor analysis: CPU and Link have relatively more 'sticky clients than other smaller providers For respondents who use Computershare and Link as service providers, the majority of the respondents do not put up the contracts for tender but have considered doing so. For respondents using other providers (primarily Boardroom), 50% put up contracts for tender and remaining 50% do not but have considered doing so, and for those that manage ESP internally, all respondents noted they have considered outsourcing their ESP function. 31

32 Figure 55: Upon contract expiry do you put the contract out to a tender process? Figure 56: By ESP provider Upon contract expiry do you put the contract out to a tender process? Source: J. P. Morgan Australian Employee Share Plan Survey Source: J. P. Morgan Australian Employee Share Plan Survey Majority of the respondent companies viewed the performance of their providers to be unchanged Overall performance In assessing overall performance of ESP providers, we retain a cautious stance with respect to providing relative conclusions, as our survey largely sees respondents providing a view from an absolute perspective. Furthermore, respondents do change year on year and we note that the sample size for the ESP survey is smaller than that for the registry survey above. Given this backdrop, we highlight the following key set of findings (refer Figure 57 and Figure 58): Majority, ~72% of the ASX200 respondents believe that performance of their ESP providers has not changed, 23% believe that performance has improved and remainder 5% believe that performance has worsened. Similarly for ASX100 companies, 68% believe performance is unchanged, 25% believe it has improved and 7% believe performance has worsened. ASX20 respondents had slightly more favorable views of their service provider s performance with 60% voting as unchanged, and 40% voting as improved and no respondent thought that the performance worsened. This is comparable to the responses received for performance of Registry providers where most respondents believed the performance of their registry providers to be unchanged. From a competitor analysis perspective: Computershare fared better than others as 26% respondents noted improvement in the performance and 74% noted the performance to remain unchanged. This is followed by Link with 24% of respondents noting an improved performance. For Other service providers (primarily Boardroom), 25% respondents noted improved performance but also 25% noting worsened performance with the remainder 50% noting performance to be unchanged we note the sample size for this is small, hence there will inherently volatility in the result. When asked, whether our respondents were happy with their service provider's performance, we noted the following (Figure 59 and Figure 60): More than 81% of the respondents noted they were happy with their service provider s performance. 32

33 More than 81% of the respondents noted they were happy with their service provider s performance For Link, Computershare and Boardroom generally had >75% of the respondents happy with their over all performance. Majority of the disappointments came from accounts that were internally managed with ~ 33% indicating they were unhappy a potential indication of accounts they could be outsourced. Figure 57: How was the performance of your current ESP Provider? Figure 58: By ESP Provider How was the performance of your current ESP Provider? Source: J. P. Morgan Australian Employee Share Plan Survey Source: J. P. Morgan Australian Employee Share Plan Survey Figure 59: Are you happy with the overall performance of your ESP provider? Figure 60: By ESP Provider Are you happy with the overall performance of your ESP provider? Source: J. P. Morgan Australian Employee Share Plan Survey Source: J. P. Morgan Australian Employee Share Plan Survey

34 Cost A large proportion (~38%) of the ASX 200 companies spend around $10,000- $50,000 per year on ESP services. It is unsurprising that the larger the company the more they spend. However, we do not there are some outlier with some companies outside of the ASX20 spending above $1m in ESP servicing. Figure 61: How much does your company spend each year on outsourced Employee Share Plan services? Source: J. P. Morgan Australian Employee Share Plan Survey Movement in registry and ESP service providers Unsurprisingly registry and ESP service providers are usually the same. We will need a richer history of data before we can comment on the trends. Figure 62: Are you using the same ESP Provider and Registry Provider? Figure 63: By ESP Provider Are you using the same ESP Provider and Registry Provider? Source: J. P. Morgan Australian Employee Share Plan Survey 2017, Australian Registry Service Provider Survey, 2017 Source: J. P. Morgan Australian Employee Share Plan Survey 2017, Australian Registry Service Provider Survey,

35 Appendix: Industry Overview The Australian share registry industry has evolved significantly in the last two decades from an internally performed function to a fully outsourced model. Due to the scale advantages for outsourced models and specialised systems that the function requires, it was too costly for companies to continue to perform the function internally. Additionally, growth in share ownership as well as the listing of government and mutual organisations with large shareholder bases saw the outsourcing model evolve over time. While initially the outsourced function was provided by accounting firms which already had relationships with companies (mainly through the audit process), industry consolidation started to occur when specialised outsourcing companies (mainly with an IT focus) started to build scale. Notable industry consolidation in the last couple of decades in Australia includes: KPMG Registry (Jul-97) Computershare Ernst & Young Registry (Jul-97) Computershare Coopers & Lybrand Registry Services (Sep-98) Link Market Services BT Registries (Aug-01) Computershare Pitcher Partners Registry (Apr-04) Link Market Services Following years of consolidation, the registry services market has been reduced to two dominant players focused on companies listed in the ASX/S&P200. While a number of other registry service providers exist in the market, the scale of their operations limits these providers to only a few large companies and the small end of the market, which only requires a basic, and cheaper, service offering. In December 2009, Link Market Services made an offer to acquire Newreg Pty Ltd, the parent company of Registries Limited, the #3 player in the Australian registry service provider market. However, in March 2009, the ACCC announced that it would oppose the proposed transaction, having formed the view that the acquisition would be likely to have the effect of substantially lessening competition in the national market for the provision of securities registration and related services. Registries Limited was subsequently purchased by one of its major shareholders, and rebranded to the parent company s name, Boardroom Limited. 35

36 Competitor profiles Computershare Investor Services (CPU.AX) Computershare is a provider of registry and financial services to companies in Australia, Asia, North America, Europe and Africa. Computershare provides services to over 100 million security holders worldwide, and holds a dominant position in the Australian market. A/NZ contributes ~15% to overall group revenue. Link Market Services (LNK.AX) Link Market Services Limited is a provider of registry and financial services to companies in Australia, New Zealand, South Africa and India. The company was previously a JV between the Australian Stock Exchange Limited and Perpetual Limited before being acquired by Pacific Equity Partners in 2005 for A$132m. Boardroom Boardroom Limited is a provider of registry and financial services to companies in Australia and Asia. In Australia, Boardroom Limited (previously known as Registries Limited) has been operating since 1983 and has more recently increased its market share to ~5% of the market. In 2012, Boardroom Limited announced a collaboration with Capita Registrars Limited, a UK s registry provider. Other Security Transfer Registrars Security Transfer Registrars is a provider of share registry services to Australian companies with a small market capitalisation. Security Transfer Registrars has been operating in Australia since Advanced Share Registry Limited (ASW.AX) Advanced Share Registry Limited is a provider of share registry services to over 170 clients located throughout Australia and in a select number of overseas markets. Advanced Share Registry Limited has been operating since 1996 and primarily services small to medium sized resource companies. In July 2009, Washington H Soul Pattinson and Company Limited (SOL.AX) took a placement of two million shares in the company and purchased a further two million shares from the founder and major shareholder. SOL now holds 10.5% of share capital in the company. Link Market Services also has a 9.7% holding of ASW. 36

37 Key Share Registry Providers Competition Analysis Major Markets In 2004 NOW Source: Company reports, J.P. Morgan estimates. Note: GSA stands for Global Share Alliance 37

38 J.P. Morgan Australian Registry Services Survey 2016/

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