jpm registry provider survey report march 2012

7/30/2019 JPM Registry Provider Survey Report March 2012

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Australia Equity Research05 March 2012

Australian Registry ServiceProvider Survey 2012

A Value Adding Proposition?

Diversified Financials

Russell GillAC

(61-2) 9220-1525

[email protected]

Ismar Tuzovic

(612) 9220-1375

[email protected]

J.P. Morgan Securities Australia Limited

See page 31 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 ththe firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singfactor in making their investment decision.

The J.P. Morgan and Chartered Secretaries AustraliaAustralian RegistryService Provider Survey 2012provides an overview of the current stateof the Australian registry services industry, the future direction andcompetitive dynamics within the industry.

The report collates data from surveys of companies in the S&P/ASX200conducted from December 2011 to February 2012.

The key findings from the survey were:

The expertise of the registry service provider remains the most

important factor in the decision to outsource the registry systemmaintenance. Significantly, fewer respondents indicated cost as areason for outsourcing, which now ranks third below quality ofproduct as one of the reasons for outsourcing. Further, 70% ofrespondents believe that share registry providers add value to theirbusiness, up from 55% in last years survey.

Movement in shareholder numbers has been stagnant in the past 6months, with two-thirds of companies reporting flat or decreasingshareholder numbers, and only ~2% of new shareholders addedthrough IPOs and demergers.

The customer base remains extremely sticky with only 24% of

respondents putting the registry contract out to a competitive tenderupon expiry. Additionally, only ~2% of the net Australian market haschanged hands over the last 3 years due to direct competition.

Computershare received a higher percentage of positive responses foroverall performance than Link (100% vs 85%). In addition, Linkreceived 2 responses indicating its performance had declined over thelast 2 years compared to zero for Computershare.

Computershare, the largest listed registry service provider, generates~20% of group revenue in Australia.

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 55% 57% 59%Link Market Services 45% 42% 39%Other 0% 1% 2%

Source: Bloomberg, ASX, Company reports.

* S&P/ASX Indices as at January 2012.

Shareholders based on number of registered shareholders at the time of publication of the companys last annual report where available.

# Included as registry when white-labeled or provided on a bureau basis.

Chartered Secretaries Australia

Judith Fox

(61-2) 9223-5744

[email protected]


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Russell Gill(61-2) [email protected]

Survey Description...................................................................3Executive Summary .................................................................4

Industry Overview ....................................................................5

Competitors ............................................................................................................6

Reasons for Outsourcing Registry Services..............................................................7

Adding Value Function?..........................................................................................8

Contract Length & Pricing Structure........................................................................9

Contract Negotiations............................................................................................11

Movement in Shareholder Numbers.......................................................................13

Competitor Analysis...............................................................15

Overall Performance .............................................................................................15Cost ......................................................................................................................18

Future Considerations ...........................................................20

Appendix .................................................................................21

Competitor Profiles ............. ............. ............. ............. ............. .............. ............. ...21

Contract Changes..................................................................................................22

Initial Public Offerings (IPOs)...............................................................................24

Secondary Raisings...............................................................................................26

Share Registry Providers Competition Analysis - Major Markets ............. ............. .28

J.P. Morgan Australian Registry Services Survey 2012 ............ .............. ............. ...29


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Survey Description

The J.P. Morgan and Chartered Secretaries AustraliaAustralian Registry Service

Provider Survey 2012provides an overview of the current state of the Australian

registry services industry, the future direction and competitive dynamics within the

industry.

The reasons this survey was conducted:

Limited specific information released by listed players in the industry and

currently no specific registry services survey existing for the Australian industry.

Assist in analysing 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 indetermining which registry service provider to use.

Provide an insight into the non-uniform approach to industry pricing and contract

structure.

Provide an insight into the development and implementation of technology

platforms and cross-sell of products offered by registry service providers.

Provide an update on activity in the registry service provider space in Australia in

2011 including contract changes and IPOs.

This report also contains commentary from J.P. Morgan on the findings from the

survey and J.P. Morgans forecasts for future company and industry developments.

Source of Information

Outside of publicly available information, all the data in this report is sourced from a

survey of listed companies in the S&P/ASX200. The surveys were conducted from

December 2011 to January 2012. 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

S&P/ASX20* S&P/ASX100* S&P/ASX200*

Responses received 18 57 87Responses representationNo. companies 90% 57% 44%No, shareholders 91% 78% 72%Market capitalisation 81% 69% 63%

* S&P/ASX indices as at January 2012

# Based on number of registered shareholders at the time of publication of the companys last annual report where available.


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Executive Summary

The key findings from the J.P. Morgan and Chartered Secretaries Australia

Australian Registry Services Provider Survey 2012 are:

Stable duopoly structure to remain. With the two main competitors contracted

to ~88% of the companies in the S&P/ASX200 (and more importantly

representing ~98% of shareholders), the scale and cost advantages over a smaller

competitor or company internalising the registry function are too significant.

Market share stable and unlikely to change. With only 24% of registry service

provider contracts put out to a competitive tender process, and only ~2% of the

net market changing hands in the last 3 years due to direct competition,

incumbency is extremely important to market structure. Consequently, large

IPOs and demergers/spinoffs are important source of potential net growth.However, the frequency and size can vary significantly year on year, with only

less than 2% of new shareholder accounts created in 2011.

Computershare vs Link. Computershare received a higher percentage of

positive responses for overall performance than Link (100% vs 85%). Link

received 3 responses indicating average overall performance and 1 response

indicating overall poor performance compared to Computershare where indicated

performance was rated good or better. Link received 2 responses indicating its

performance had declined over the last 2 years compared to zero for

Computershare. Both companies received similar number of responses indicating

improved overall performance (Computershare 4, Link 5).

Shareholder numbers remain stagnant. Movement in shareholder numbers

has been stagnant in the past 6 months with 45% of respondents having seen nochange in shareholder numbers and only 33% respondents witnessing an increase

in shareholder numbers. This is in line with the results in the 2011 Survey.

A tougher year for registry service providers. Secondary raisings in 2011

were much more subdued with only ~A$33bn in secondary equity capital raised

(2010: ~A$31m 2009: ~A$99bn, 2008: ~A$60bn). Additionally, only 8

companies in the S&P/ASX200 raised capital in 2011 through rights issues or

share purchase plans, well down on the prior years (2010: 6, 2009: 20, 2008: 19).

Additionally, the IPO activity in 2011 was subdued, with the activity mainly

focused in the smaller resources space with a generally limited number of new

shareholder accounts (we estimate a total only ~5,000 in the largest 6 IPOs in

2012).


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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 decade 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 theiroperations limits these providers to only a few large companies and the small end of

the market which only require 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 2010, 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 companys name, Boardroom Limited.


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Competitors

Following a decade of industry consolidation, the Australian registry services

industry now acts as a basic duopoly with the services of 89% of the companieslisted in the S&P/ASX200 contracted to either Computershare Limited (CPU.ASX)

or Link Market Services Limited (previously ASX Perpetual Registrars Limited,

unlisted).

Table 3: Australia Registry Services Providers - Market Share (No. of Contracts Administered

Company S&P/ASX20 S&P/ASX100 S&P/ASX200Computershare Investor Services 60 60% 61%Link Market Services 40 34% 29%Other 0 5% 11%

Boardroom 0 4% 4%Security Transfer Registrars 0 0% 3%Advanced Share Registry 0 1% 5%


* S&PASX Indices as at January 2012.

However, looking solely at the number of contracts in determining market share is

not a true representation of the market structure given the significant skew in

registered shareholder numbers to specific companies (eg. larger companies,

particularly demutualised businesses). Additionally, with most contracts in the

industry based on a cost per shareholder or shareholder transactions basis, the

number of shareholders administered is a better proxy for the revenue pool available

to market participants.

As the table below suggests, on a shareholders administered basis, the two major

competitors provide registry services for ~98% of the shareholders in the

S&P/ASX200.

Table 4: Australia Registry Services Providers - Market Share (No. of Shareholders Administered)

Company S&P/ASX20* S&P/ASX100* S&P/ASX200*

Computershare Investor Services 55% 57 59%Link Market Services 45% 42 39%Other 0% 1 2%

Boardroom 0% 1 1%Security Transfer Registrars 0% 0 0%Advanced Share Registry 0% 0 1%


* S&P/ASX Indices as at January 2012.

Shareholders based on number of registered shareholders at the time of publication of the companys last annual report in 2011 where

available.

A brief summary of the key competitors within the Australian industry appears in the

Appendix at the back of this report.

Figure 1: Australia Registry

Services Providers - S&P/ASX200Market Share (No. of Contracts)

Source: ASX, Company reports.

Figure 2: Australia RegistryServices Providers - S&P/ASX200Market Share (No. of Shareholders)


CPU60%

Link29%

Other11%

CPU59%

Link39%

Other2%


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Reasons for Outsourcing Registry Services

Similarly to the previous years, the majority of respondents (~84%) indicated that the

expertise of registry service providers was the primary reason for outsourcing thecompanys registry function.

Figure 3: Reasons for Outsourcing Registry Services

Source: J.P. Morgan and Chartered Secretaries Australia Australian Registry Services Provider Survey 2012.

Similar to previous years, the responses indicate that the use of an external company

to manage their registry improved efficiency, with fewer responses indicating cost as

the reason for outsourcing registry services (34% vs 49% in 2011 Survey).

The fact that the cost associated with outsourced services is not the key consideration

in choosing to outsource the registry services function is not a surprise given:

The cost of outsourcing registry services to the company is small compared to the

companys total corporate overhead costs. Additionally, the cost of the service

provided appears to become less of an issue as the size of the company declines

(presumably in line with the number of shareholders on the register).

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.

Interestingly, a number of respondents commented that the global coverage of the

registry service provider was also a key reason for outsourcing. This has been a

significant advantage for Computershare over a number of years given its dominant

presence in other major markets [see Appendix].

0%

20%

40%

60%

80%

100%

Cost Quality of Product Service Provider Expertise Risk Deferral

S&P/ASX20 S&P/ASX100 S&P/ASX200

Registry service provider

expertise remains the keyreason why the function isoutsourced


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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. One ofthe key methods in driving this cross-sell opportunity is through impressing on the

client the value add that the provider can contribute to the client in understanding

their shareholder base.

Figure 4: Does Your Registry Service Provider "Add Value" to the Company?


With regards to the chart above, we note the following:

In comparison with the 2011 Survey, the number of companies surveyed that

indicated the registry service provider added value to their business increased

from 55% to 70%.

A meaningful number of companies (14% of respondents in the S&P/ASX200)do not expect the registry service provider to add value to their business, with

similar response across small and large companies.

This is a positive result for registry providers, who are faced with a market with

limited potential for future growth in shareholder numbers. By shifting the company

perception of being seen as a necessary cost to a value adding service provider, the

registry service provider may open up opportunities to provide additional services,

particularly given the captive client base.

0%

20%

40%

60%

80%

Yes No N/A - Not Expected

S&P/ ASX20 S&P/ASX100 S&P/ ASX200

Overall, 70% of respondents

indicated the registry serviceprovider added value to theirbusiness


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Contract Length & Pricing Structure

Contract Length

The length of registry contracts across the industry varies significantly, particularly

when based on the size of the company and the registry services provider.

Figure 5: How Often Are Registry Services Contracts Negotiated?

Source: J.P. Morgan and Chartered Secretaries Australian Australia Registry Services Provider Survey 2012.

The vast majority of contracts (62%) in the industry are negotiated every 3-5 years,

with the remainder of contracts following similar trends to the findings of surveys in

previous years.

Overall, the general industry feedback suggests a 3 year contract as the most

common.

Contract Pricing Structure

As with the length of contracts across the industry, the pricing structure of contracts

varies greatly between companies.

Most 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 the chart below suggests, only a small number of basic registry maintenance

contracts in the industry are fixed price contracts (i.e. an annual base fee). The

majority of contracts are either on a fee per shareholder or a combination of fee per

shareholder and fixed price, with no discernible trend by company size.

0%

20%

40%

60%

80%

100%

Annual 1-2 years 3-5 years >5 years


Most registry services contractsare negotiated every 3-5 years

Contract pricing across the

industry remains varied,

however, pricing continues toremain mainly linked to

shareholder numbers for the

base registry services product


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Figure 6: Basic Registry Maintenance Pricing Structure


It is important to note that one of the key difficulties in comparing service offerings

across the market is that almost every registry service contract is different given 1)

number of shareholders, 2) length and terms of contract, 3) types of services

required/employed, and 4) service level requirements.

In comparison to the base registry service fee, for additional registry services there is

a noticeable shift from fee per shareholder towards the use of a combination of

pricing methodologies compared to responses received in previous years.

Figure 7: Additional Registry Services Pricing Structure


0%

20%

40%

60%

80%

Annual Fee Fee Per Shareholder Combination


0%

20%

40%

60%

80%

Annual Fee Fee Per Shareholder Combination



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Contract Negotiations

The key measures used to assess the competitiveness of any industry are pricing and

market share changes. As we found in last years survey, market share changes haveremained relatively stagnant (see Appendix) and respondents have indicated minimal

changes to pricing (see Cost section).

Similar to the previous year, the majority of companies (68%) took a negotiated

contract term and price with the incumbent registry service provider upon the expiry

of their existing contract with only 24% of companies indicating their contracts are to

be put out to competitive tender (down on the 31% of response in the survey last

year).

Figure 8: Contact Negotiations - Does Your Company Put the Registry Contract Out To Tender?


Competitor Comparison

Given the surprisingly low number of respondents that put the registry service

contract out to a competitive tender process, the chart below aggregates the same

data on a registry service provider basis.

Figure 9: Contact Negotiations - Does Your Company Put the Registry Contract Out To Tender?


While the results are similar to last year, however, we note the following:

Only 14% of respondents with Computershare as the share registry provider

indicated that the contract is put out to a competitive tender process. While this is

0%

20%

40%

60%

80%

Yes No, But Considered No, Never Considered


0%

20%

40%

60%

80%

Yes No, But Considered No, Never Considered

Computershare Link Market Serv ices Other

Incumbency is extremely

important to market structure,with only 24% of registry serviceprovider contracts in the market

put out to a competitive tender

process


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only 4% below the 2011 Survey figure, it is almost half the number compared to

major competitor Link (31%).

A meaningful number of companies indicated that they have never consideredputting the contract out to a competitive tender process (Computershare 14%,

Link 15%).


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Movement in Shareholder Numbers

The majority of registry services contracts have a fee per shareholder transaction

component, and so the change in company shareholder numbers is a significantdriver of revenue for the service providers.

Given the significant decline in returns in the Australian equity market for a number

of quarters, we expected that overall, shareholder numbers would have declined, or at

most, remained relatively flat.

Figure 10: S&P/ASX200 Accumulation Index - Average Quarterly Returns

Source: Bloomberg.

Over the Last 2 Years

The majority of companies surveyed have seen an increase in the number of

shareholders on the register over the last 2 years. However, this year sees a greater

polarisation among companies, with only 12% of companies having flat shareholdernumbers over the previous two years.

Figure 11: Change in Shareholder Numbers Over Previous 2 Years


-20%

-15%

-10%

-5%

0%

5%

10%

15%

4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

0%

20%

40%

60%

80%

Increasing Flat Decreasing Not sure


Most companies have seen an

increase in the number of

shareholders on the register in

the last 2 years


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Over The Last 6 Months

Figure 12: Change in Shareholder Numbers Over Previous 6 Months


Overall only 33% of respondents witnessed an increase in shareholder numbers,

similar to the level seen in the survey last year but well below the 48% of

respondents from 2010 survey. However, surprisingly 47% (24% in 2011) of the top

S&P/ASX20 companies experienced an increase in shareholder numbers, while only

18% (29% in 2011) experienced a decrease.

We add the caveat to this analysis that shareholder numbers is not a specific metric

that respondents to the survey may be analysing on a constant basis, and as such, the

data set may not be completely accurate.

0%

10%

20%

30%

40%

50%



Results suggest that companies

have seen a noticeable decrease

or at most stagnant shareholder

numbers over the past 6 months.

This is in line with our

expectations, given the relatively

anaemic returns from the equity

market over the same time

period


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Competitor Analysis

As the table below indicates, the respondents to our survey provide a good

representation of the make-up of the S&P/ASX200 index, with no significant 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 61% 54%Link Market Services 29% 37%Other 11% 9%

Source: ASX, J.P. Morgan and Chartered Secretaries Australia Australian Registry Services Provider Survey 2012.

Overall Performance

While it is difficult to compare registry service providers in terms of performancegiven the survey is not relative and does not produce results that could make this

possible, we note the following:

The current overall performance is strong across all registry providers, with

Computershare receiving higher percentage (100%) of positive responses than

Link (85%).

No respondent indicated that overall performance was outstanding, despite this

being one of the options, while 20% of Computershare customers indicated above

expectations performance compared to 12% of Link customers.

Figure 13: Overall Performance - Current


0%

20%

40%

60%

80%

100%

Computershare Link Market Services Other

Above Expecta tions Good Average Poor

While it is difficult to directlycompare the performance ofregistry service providers given

the structure of the survey,

Computershare received a

marginally higher percentage of

positive responses than Link,

with Link receiving 3 average

responses and 1 poor

response


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With regards to the change in overall performance over the past 2 years,

responses were relatively consistent across the market, with the majority of

respondents indicating that there has been no meaningful change in performance. However, 2 respondents indicated that Links overall performance had declined

over the last year, while Computershare received no negative responses regarding

the change in its performance over the last 2 years.

Figure 14: Overall Performance - Over Previous 2 Years


It is important to highlight that the strong performance of the smaller competitors

should be taken in the context of the relatively small sample size. Additionally, the

expectations of clients of these service providers are usually more limited, with only

the basic registry maintenance function required.

Value Add?

As we detailed earlier, one of the key revenue opportunities for incumbent registryservice providers is to sell additional products and services into the client base. The

chart below compares responses across registry service providers.

Figure 15: Does Your Registry Service Provider "Add Value" to the Company?


When analysing the responses based on registry service provider, we note the

following:

Computershare received better response with 75% of clients indicating that the

share registry added value to their business, compared to 62% of Link clients.

0%

20%

40%

60%

80%


I mproved N o Change Worsened

0%

20%

40%

60%

80%

100%

Yes No N/A - Not Expected



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This is an improvement for both Computershare and Link compared to the

previous survey (53% and 54% respectively).

Both Computershare and Link had less respondents than in previous yearsindicating that they dont expect their share registry services to add value.

All responses from clients of Other registry providers was that they expected their

registry service providers to add value to their business, however, we note the

small sample size (only 5 respondents).


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Cost

The majority of surveyed respondents had not seen any material change to contract

prices over the last two years, however, this is not surprising given the averagecontract length is ~3 years.

The most significant change relative to the 2011 survey is the reduction in the

number of responses indicating that the cost of Computershares and Link's services

had improved over the last two years (reduced from 20% and 17% to 9% and 8% of

respondents respectively). As such, we note that the response profiles are now more

consistent across the different registry providers as seen below.

Figure 16: Cost - Change Over Previous 2 Years


Note - This data should be assessed with the caveat that the cost for the company may be a factor of a change in shareholder

numbers given that the majority of contracts are priced on a fee per transaction basis. As such, the above chart may not be indicative

of the actual price changes negotiated by the registry service provider.

While it may be surprising that only a small percentage (8%) of overall responses

indicated that the cost of the service had increased over the last 2 years, we believe

there may be a couple of reasons why the survey did not produce more negative

responses:

Decreasing shareholder numbers & low company activities. Most companies

are experiencing decreasing shareholder numbers due to the poor performance of

the share market. Also with less corporate actions in the second half of 2011, a

number of companies may be facing lower overall costs for shareholder registry

maintenance.

Small overall cost of service. The cost of the registry services function is

relatively small in the overall cost of corporate overhead for most of the

companies in the S&P/ASX200. As such, a ~5% increase in pricing is unlikely to

make a significant impact on the companys costs or an impression on the survey

respondent.

Cost out opportunities. Much of the profitability for registry services providers

over the last decade has been through 1) increased scale, 2) the standardisation of

forms and processes, and 3) the rollout of IT platforms, reducing manual and

costly processes. As such, there is less pressure of the registry service provider to

push through increased prices to increase underlying profitability.

Given the structure of the industry and the limited change in contracts through

competition (only ~2% of the net market has changed hands in 3 years - see

0%

20%

40%

60%

80%


Improved No Change W ors ened

The survey indicates a

consistent trend in pricingacross the market, with 72% ofrespondents indicating they had

not seen any material change to

contract prices over the last twoyears


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Appendix), we believe it is unlikely the cost of registry functions for listed

companies in Australia will decline over the coming years.


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Future Considerations

The survey asked companies to rate how important certain factors would be if they

were considering changing registry service providers in the future.

Figure 17: Future Considerations Considered Critical

Source: J. P. Morgan AustraliaAustralian Registry Services Provider Survey 2011.

Quality of product/service. The quality of the product and service was the most

critical factor for all surveyed companies, with 61% of companies classifying this as

critical. Not surprisingly, this was a critical factor for 71% of respondents from

larger organisations.

Account management relationship. The relationship between the company and

registry service provider was classified as critical for 48% of all companies surveyed.

Interestingly, there is a skew towards large cap companies with a number ofrespondents also commenting that cultural fit and customer service are important

future considerations.

Cost. The cost of using a registry service provider was not considered as important

as other factors, but was seen as more important for smaller companies.

Additional Services. An overwhelming number of companies did not see this as an

important future consideration in determining registry service providers.

0%

20%

40%

60%

80%

Quality of Product/Service Account MangementRelationship

Cost Additional Services


The quality of product/service

remains the most important

factor in choosing a registry

service provider, well ahead of

the cost of the service


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Appendix

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. Australia contributes ~20% to overall group

revenue.

Link Market Services

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 PerpetualLimited before being acquired by Pacific Equity Partners in 2005 for A$132m.

Other

Boardroom

Boardroom Limited is a provider of securities management and voting services to

Australian companies. Boardroom has over 20 years experience providing registry

services, and primarily services small to medium sized firms.

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 1983.

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 2010, 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 10.1% of share capital in the company.


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Contract Changes

As we detailed earlier in this report, companies very infrequently switch registry

service providers. The main reasons for the high level of retention are two-fold:

Perceived risk and difficulty. A number of companies (particularly larger

companies) are under the impression that changing registry service providers is

difficult, costly and may lend to data loss.

However, in most other major markets, while it is still not commonplace,

switching of registry service providers at companies with large and complex

shareholder bases does still occur.

Cost. The overall cost of the registry service provider generally pales in

significance when compared to overall corporate costs and overhead, particularly

for larger oganisations and as such, any lower cost from a competing registry

service provider is not perceived to necessarily have a significant financialbenefit.

Generally speaking, changes in registry service providers at larger companies

(>10k registered shareholders) has mainly been driven by a breakdown in the

relationship between the company and the registry service provider (eg. poor

service etc.) rather than through reduction of overall costs to the firm.

A summary of contract changes in the Australian ASX listed market (outside of

M&A activity, IPOs and company dissolution) appears below:

Table 6: ASX Listed Share Registers - Change in Listed Company Contracts Administered (All Ordinaries)

No. of contracts

2009 2010 2011 CY2009-11Registry Services Provider New Lost Net New Lost Net New Lost Net New Lost NetComputershare 8 (32) (24) 18 (34) (16) 14 (23) (9) 40 (89) (49)Link Market Services 11 (7) 4 18 (3) 15 19 (2) 17 48 (12) 36Others 32 (12) 20 28 (27) 1 21 (29) (8) 81 (68) 13

Source: Company reports.

Where active contracts have changed hands (excludes changes due to M&A, IPOs and company dissolution).

As the table above suggests, particularly in the last couple of years, there has been a

large move of contracts away from Computershare to Link and other registry

service providers, with Computershare losing a net 49 contracts over the last 3 years.

Additionally, as the table below suggests, these have not just been small accounts,

with Computershare losing a ~238k shareholder accounts.

Table 7: ASX Listed Share Registers - Change in Number of Shareholders Administered#000s of shareholders

2009 2010 2011 CY2009-11Registry Services Provider New Lost Net New Lost Net New Lost Net New Lost NetComputershare 79 (157) (78) 110 (230) (120) 31 (70) (40) 219 (458) (238)Link Market Services 123 (102) 20 176 (28) 148 90 (4) 86 389 (134) 254Other 91 (33) 58 94 (121) (27) 49 (96) (47) 234 (250) (16)


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.

However, given the All Ordinaries has more than 14 million registered shareholders

the change in registry service providers over the last 3 years has only led to ~2% of

There has been very little

change in market structure,particularly with respect tolarger clients, with only ~2% of

the net market changing hands

through direct competition overthe last 3 years


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the net market changing hands. As such, the transfer of registry service providers by

companies has not been a significant driver of change in market share or in the

current structure of the market.

Demergers/Spin-Offs

The much larger (and more uncertain) driver of market share change in shareholders

numbers administered has historically been through corporate activity.

As the table below indicates, 2011 saw a number of demerger/spin-offs from listed

entities, essentially creating additional contracts (and more shareholders to

administer.

Table 8: Demergers/Spin-offs in 2011

Parent Company NewCoTicker

NewCo Name Listing Date Market Cap (A$m) Registry Services Provider No. of New Shareholders

Telecom NZ CNU Chorus Limited 21/11/2011 963 Computershare 37,269Tabcorp EGP Echo Entertainment Group Ltd 6/06/2011 2,958 Link 137,503Fosters TWE Treasury Wine Estates Ltd 10/05/2011 2,537 Computershare 104,836


Through demergers and the creation of new listed entities in 2011, Computershare

witnessed an increase in shareholder accounts to administer of ~142k, largely

offsetting the decline in the companys shareholder account base seen through direct

competition over the last 3 years (~238k). Link secured the EGP share registry

contract, the biggest spinoff in 2011 with ~137k new shareholders.


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Initial Public Offerings (IPOs)

Ongoing volatility and uncertainty regarding the economic situation in Europe saw

IPO activity in Australia remain relatively subdued for most of 2011. Activityhowever did pick up towards the end of the year, with a number of smaller mining

companies listing on the ASX.

Figure 18: ASX Listings & Delistings

Source: ASX.

Table 9: ASX - Listings and Delistings

2006 2007 2008 2009 2010 2011New Listings 245 314 93 62 127 133De-Listings (104) (119) (79) (104) (92) (127)Net Listings 141 195 14 (42) 35 6Total Listings 2,014 2,209 2,223 2,181 2,216 2,222

IPO Proceeds (A$m) 17,023 19,897 2,458 7,509 25,048 15,493

Source: ASX.

With opportunities limited, the largest IPO of the year was the ~A$202m listing of

Collins Foods. However, the total number of new shareholders in the top 5 IPOs was

only 5,105, compared to 82,634 last year largely drive by the QR National listing.

Table 10: Top 5 IPOs in 2011 - IPO Proceeds/No. of Shareholders Administered

Name Ticker Listing Date IPO Proceeds (A$m) Registry Services Provider No. of Shareholders*Collins Foods Ltd CKF 4/08/2011 201.8 Link Market Services 567Royal Wolf Holdings Limited RWH 31/05/2011 91.5 Link Market Services 647GI Dynamics Inc GID 8/03/2011 80.0 Link Market Services 522Alliance Aviation Services Limited AQZ 2/12/2011 74.4 Link Market Services 443

Onthehouse Holdings Limited OTH 6/05/2011 53.5 Link Market Services 2,306Source: Company reports, Bloomberg.

* Approx. number of shareholders at the time of the IPO as detailed by the company in initial listing documentation.

However, it is important to note that similar to most regions around the world,

profitability of IPOs 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 shareholder upon the float of the

company when pricing the initial contract.

-60

-30

0

30

60

90

120

-60

-30

0

30

60

90

120

4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11

New L istings De-Listings Net L istings

2011 was a quiet year for IPOs,

with no large listings in terms ofIPO proceeds or number ofshareholders


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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.


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26



Secondary Raisings

Following an unprecedented year for secondary raisings in 2009 and the majority of

corporate balance sheets being repaired, raisings in 2011 were much more subduedwith only ~A$33bn in secondary equity capital raised, similar to the level raised in

2010.

Table 11: ASX - Secondary Capital Raised

A$ i n mi llions

2006 2007 2008 2009 2010 2011

Secondary Capital Raised 44,444 62,528 60,019 98,629 31,428 33,101% Change on pcp 101.7% 40.7% -4.0% 64.3% -68.1 5.3%

Source: ASX.

# All secondary capital raised on the listed market in the year (incl. DRPs).

Only 2 companies in the S&P/ASX50, Origin Energy and Leighton Holdings, raised

capital in 2011 through rights issues or share purchase plans which is well down onthe prior years (2010: 6, 2009: 20, 2008: 19).

Table 12: Rights Offerings and Share Purchase Plans in 2011 - S&P/ASX100

Ticker Company Name Offering Type Entitlement Date Registry Service Provider TSE Transfield Services Rights 17/01/2011 ComputershareDOW Downer EDI Rights 2/03/2011 ComputershareORG Origin Energy Rights 17/03/2011 Link Market ServicesLYC Lynas Corp Share Purchase Plan 27/03/2011 Registries LimitedLEI Leighton Holdings Rights 12/04/2011 ComputershareDUE Duet Group Rights 7/08/2011 ComputershareGFF Goodman Fielder Rights 30/09/2011 Link Market ServicesBSL Bluescope Steel Rights 24/11/2011 Link Market Services

Source: ASX.

In 2011, 57% of the S&P/ASX200 companies had an active dividend reinvestmentplan, down from 62% in 2010.

Dividend Re-Investment Plans (DRPs)

Figure 19: S&P/ASX200 - Dividend Reinvestment Plan Status (No. of Companies)


0%

20%

40%

60%

80%

Active Suspended None


Secondary raisings in 2011

remained subdued, with only~A$33bn in secondary equitycapital raised (2010: ~A$31bn,

2009: ~A$99bn). Additionally,

only 2 companies in theS&P/ASX50 raised capital in

2011 through rights issues or

share purchase plans, well downon the prior years (2010: 6, 2009:

20)


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Table 13: S&P/ASX200 - DRP Breakdown (No. of Shareholders Administered)

Active

Discount No Discount Suspended NoneS&P/ASX200 26 32% 19% 24%

Computershare 18 18% 6% 17%Link Market Services 7 13% 12% 6%Other 0 0% 0% 1%

Source: ASX, Company Reports.


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Share Registry Providers Competition Analysis - Major Markets

Source: Company reports, J.P. Morgan estimates.

10 YEARS AGO

Australia Hong Kong United Kingdom United States Canada

Computershare HKEx Lloy ds Bank of New York Montreal Trust Stock Transfer

Perpetual Computershare Computershare Mellon CIBC Mellon

BT Registries Tricor Serv ices Capita Computershare Pacific Corporate Trust

Pitcher Partners Registry IRG Equiserv e National Bank Trust

Ex change Registrars Wells Fargo

Northern Registrars American Stock Transfer

Sun Trust

Fifth Third Bancorp

National City

NOW

Australia Hong Kong United Kingdom United States Canada

Computershare Computershare Equiniti Computershare Computershare

Link/PEP Tricor Serv ices Computershare Wells Fargo CST/PEP

Capita AST/PEP


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J.P. Morgan Australian Registry Services Survey 2012

Your company's name: Your name:

Phone number (optional):

Registry service provider:

Computershare

Link Market Services

Other, please specity:

Part 1: Shareholder Breakdown

1. Approximate number of shareholders on your register?

2. What has been the trend in thenumber of shareholders in your company:

Last 2 Years?


Last 6 months


3. Approximate shareholder register breakdown % (shares on issue, not number of shareholders):

i) Retail ii) Domestic

Institutional International

Corporate/Other Corporate/Other

Not sure or N/A Not sure or N/A

Part 2: Current Registry Provider

1. What are the key reasons why registry services are outsourced at your company (mark as many as apply)?

Cost Quality of product/service Expertise of service provider

Risk deferral Other, please specify :

2) How often is your registry service contract negotiated?

Every year 2 years 3 years

4 years 5+ years Not sure

3) Upon contract expiry, do you put the registry contract out to a tender process?

Yes No - but have considered No - and never considered

4) What is your contract pricing structure Annual fee $ Fee per shareholder Combination

a) Standard registry maintenance?

b) One-off transactions (eg. rights issues)?

c) Additional comments:

5) How much does your company spend each year on outsourced registry services?

$5m Not sure/Prefer not to disclose


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6. How do you rate the performance of your current registry service provider?

Outstanding Above Expectations Good Below Expectations Poor

i) Account Management relationship?

ii) Quality of product/service?

iii) Cost?

iv) Additional services offered?

v) Overall?

7. How has the performance of your current registry provider changed in the last 12 months (mark as many as apply)?

Improved No change Worsened N/A



iii) Cost?

iv) Additional services offered?

v) Overall?

8. Do you think your registry service provider "adds value" to your business?

Yes No - but we would them to add value No - and we don't expect them to add value

Part 3: Future Considerations1. If you were to change registry providers in the future, how important would the following be in the decision process?

Critical Important Not important at all



iii) Cost?

iv) Provision of additional services?

v) Other (please specify)?

Part 4: Additional Comments

1. Please provide any additonal comments/feedback

Considered,

but not important


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jpm registry provider survey report march 2012

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