Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ASX Ltd (ASXFF) delivered record operating revenue for the first half, up 5.9% compared to the previous year.
• Underlying net profit after tax increased by 10.1%, driven by growth in net interest income.
• The company declared a fully franked interim dividend of $111.02 per share, reflecting a payout ratio of 85% of underlying impacts.
• ASX Ltd (ASXFF) made significant progress in its technology modernization program, with several project rollouts planned for the remainder of FY25.
• The company's balance sheet remains strong, with access to various funding sources, including a $300 million corporate debt facility and a $275 million corporate bond.

Negative Points

• Total expenses for the period were $220.3 million, reflecting a 0.2% decrease, but future expense growth is expected to be between 6% and 9%.
• The company incurred a significant item related to an onerous lease provision, impacting statutory net profit after tax.
• Electricity derivatives trading activity was down due to lower volatility in electricity prices, affecting revenue.
• ASX Ltd (ASXFF) faces regulatory challenges, including an ASIC investigation into a chess batch settlement incident.
• The company anticipates higher expenses in the second half of FY25 due to increased equipment costs and depreciation and amortization.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with ASXFF.

Q: Can you explain the discrepancy between the 20% increase in futures volumes and the 10.5% increase in revenues? A: Helen Lofthouse, CEO: The slower revenue growth is due to a change in product mix. The rates products, which have lower price points, saw strong growth. This affected the average fee due to product and cost mix, as well as rebates.

Q: How should shareholders evaluate cost growth given the significant increase in CapEx and other expenses? A: Andrew Tobin, CFO: The onerous lease provision is a one-off item due to early lease termination. Despite this, we maintained flat cost growth compared to last year, focusing on workforce optimization and strategic procurement.

Q: Is the decline in electricity derivatives revenue due to seasonality or other factors? A: Helen Lofthouse, CEO: The decline is primarily due to lower volatility in electricity prices, though there is some seasonality. We expect the electricity market to grow due to ongoing electrification.

Q: With the first half costs being lower, are you expecting to hit the top or bottom end of your guidance for the second half? A: Andrew Tobin, CFO: We are comfortable with our guidance range of 6-9% expense growth. Known factors like depreciation and technology investments will increase costs in the second half, but we are not refining guidance yet.

Q: Can you discuss the revenue opportunity for the new debt market activity services? A: Helen Lofthouse, CEO: While we have forecasts, we will share more as they become material. The service launches in the second half, but significant revenue impact is not expected immediately.

Q: Are there any headwinds from potential policy changes in clearing and settlement services? A: Helen Lofthouse, CEO: The pricing policy for cash equities clearing and settlement services is being formalized. We don't expect material revenue impact, but it will continue to constrain pricing flexibility.

Q: Can you elaborate on the spread increase from 10 to 15 basis points for participant balances? A: Andrew Tobin, CFO: The increase is due to emerging opportunities as interest rates and curves move. The spread is not locked in and depends on market conditions.

Q: How is ASX positioned in terms of funding for its capital profile? A: Andrew Tobin, CFO: We have significant funding flexibility with retained earnings, a $275 million corporate bond, a $300 million undrawn bank facility, and a $60 million equipment financing lease.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.