Mar 22, 2012 - computer maintenance expenses. Premises expenses. Product marketing and promotion expenses. Legal and pro
The 15th Credit Suisse Asian Investment Conference –
HKEx Investor Presentation Charles Li Chief Executive
Vincent Kwong Deputy Chief Financial Officer 22 March 2012
Agenda
1
Business Review
2
Financial Review
3
Strategic Plan Update
4
Appendix
2
2011 – Key Achievements
IPOs – Globally # 1 for 3rd year in a row
Established RMB equities trading infrastructure
Upgraded cash trading system to AMS/3.8
Launched BRICS alliance
Completed important market consultations
3
2011 Annual Results Revenue and other income
Operating expenses
Profit attributable to shareholders
($ million)
Basic earnings per share
Dividend per share
($)
7,566
4.73
7,855
4.68
5,037
5,093
4.20
2010
2011
1,612
1,823
2010
2011
2010
2011
2010
2011
2010
4.25
2011
4
HKEx remains World’s Largest IPO Exchange for the 3rd Year in a Row IPO Funds Raised by Various Exchanges in 2011 (in US$bil) 36.2 31.4 26.2 19.4 16.3 10.7 7.6
HKEx
NYSE
SZSE
LSE
SHSE
NASDAQ
SGX
5.3
4.7
BME
BM&F
3.6
KRX
Source: Dealogic (figures include funds raised by REITs; full value of dual listing deals are allocated to the respective exchanges)
2012 pipeline remains robust – 79 applications under review or approved as of 29 Feb 2012 5
2011 Securities and Derivatives Trading Trading volume of shares growing, but value flat due to market decline
Derivatives turnover reached all time high
2009-2011 Securities ADT
2009-2011 Derivatives ADV
572 468 398 222
366 295
176
173
207
2009
2010
2011
(In ‘000 contracts)
ADT in billion $
ADT in billion shares
Futures contracts traded
Options contracts traded
Recent ADT momentum showing pick-up over Nov-Jan ADT Source: HKEx statistics
6
Agenda
1
Business Review
2
Financial Review
3
Strategic Plan Update
4
Appendix
7
Financial Highlights 2011
% of revenue & other income
2010
% of revenue & other income
Y-o-Y Change
7,855
100%
7,566
100%
+4%
(1,823)
(23%)
(1,612)
(21%)
+13%
Profit before taxation
6,032
77%
5,954
79%
+1%
Taxation
(939)
(12%)
(917)
(12%)
+2%
Profit attributable to shareholders
5,093
65%
5,037
67%
+1%
Basic earnings per share
$4.73
$4.68
+1%
Diluted earnings per share
$4.72
$4.67
+1%
Interim dividend per share
$2.16
$1.89
+14%
Final dividend per share
$2.09
$2.31
-10%
Total dividend per share
$4.25
$4.20
+1%
Dividend payout ratio
90%
90%
-
$69.7 bn
$69.1 bn
+1%
743
99
+6.5x
($ million, unless stated otherwise) Results Revenue and other income Operating expenses
Average daily turnover of Cash Market Capex
Revenue and PAT moved in tandem with ADT Capex and operating expenses rose due to implementation of various strategic initiatives 8
Revenue and Other Income Breakdown Trading fees and trading tariff
Stock Exchange listing fees
Clearing and settlement fees
Depository, custody and nominee services fees
Market data fees
Other revenue and other income
Net investment income
($ million)
2,843
2,936
1,569 945
1,663
949 612
2010
2011
2010
2011
2010
2011
2010
685
2011
670
2010
637
2011
455
2010
595
2011
472
390
2010
2011
Trading and clearing fees increased due to increase in market activities Market data revenue declined due to lower per-quote fees Other revenue and other income rose due to forfeiture of unclaimed dividends held by HKSCC Nominees Net investment income decreased due to lower fair value gains 9
Operating Expenses Breakdown Staff costs and related expenses
IT and computer maintenance expenses
Premises expenses
Product marketing and promotion expenses
Legal and professional fees
Depreciation
Other operating expenses
($ million)
1,030 892
265
2010
2011
2010
302 210
2011
2010
217
2011
15
16
16
35
2010
2011
2010
2011
107
90
107
133
2010
2011
2010
2011
Operating costs increased due to implementation of strategic initiatives
10
Results by Quarter ($ billion – ADT Only)
($ million)
Average daily turnover value on the Stock Exchange ($bn) Revenue and other income ($mil) Operating expenses ($mil) Profit attributable to shareholders ($mil)
120
2,500
2,275 2,065
100
1,714
1,740
1,837
1,907 75.9
62.9
61.8
1,131
71.1
1,500
59.3 1,238
1,220
2,000
72.6
1,559
60
1,127
1,938
86.5
80
64.8
1,945
1,346
1,237
1,272
1,000
40 500
20
385
391
402
434
442
474
467
440
0
0
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
11
Agenda
1
Business Review
2
Financial Review
3
Strategic Plan Update
4
Appendix
12
2012 – Key HKEx Strategies
Business Drivers
Chapter 1
Chapter 2
Chapter 3
RMB and Moving Beyond Equities
Essential Infrastructure Investment
Next Generation Data Center
Hosting Services
IT Upgrades
Critical Implementation Year
13
HKEx Strategic Vision China
CHAPTER 1
Issuers
International
HKD Equity
Investors Issuers with China Nexus
CHAPTER 2
Investors
CHAPTER 3
Financial Players and Corporates
RMB Equity
Fixed Income, Currency and Commodities
Issuers
Financial Players and Corporates
14
New Asset Classes
Market Cap × Turnover
Key Business Drives – Seizing the Opportunities
Chapter 1
China IPOs
International listings
China Add-on’s
Chapter 2
RMB products
Cross-border market access
Structural uplift in ADT
Chapter 3
OTC clearing
Financial derivatives
Commodities
Near-term visibility may be limited, but we must capitalise on our unique position 15
Chapter 1 – Key Business Drivers
China IPOs New Issues from China still strong… …but a mature growth story
International Listings Incremental growth leveraging on existing platform Great branding effect
Chapter 1
China Add-on’s Financial Institutions (FIs): strengthen capital adequacy Non-FIs: funding growth and overseas expansion
16
Robust Fund Raising Story Continues…
Chapter 1
($bil)
91%
86% 77%
859
91% 85%
83%
79%
77%
73%
642
591
409
525 191 282 214 111 64 39 26 2001
155
185
59 52
59
97
2002
2003
2004
IPO
298
427
50%
490
394 37%
302
230 361
136 334
292
450 260
248
166 66 2005
2006
Follow-on
2007
2008
2009
2010
2011
% of China IPOs
…but IPOs are mature growth story 17
International Listings Becoming A Key Driver 2011 IPO Funds Raised
Chapter 1
Selected International Listings
Hong Kong
12%
Mainland Enterprises
37%
International Listing
52%
Four overseas jurisdictions were recognised in 2011: Canada-Alberta, France, Guernsey and Italy
US$10.0bil Switzerland
US$2.5bil Italy
US$1.3bil Luxembourg
US$206mil Japan
By Introduction England & Wales
By Introduction USA
18
China Add-On’s – Potential for Substantial Future Sell-down
Chapter 1
Domestic Shares of H-share Companies – Public Free Float:
Controlled by Major Shareholders
HK$2 trn
HK Public Free Float:
HK$10 trn Domestic Shares of H-share Companies – Controlled by Major Shareholders:
HK$9 trn
HK Listed Shares Controlled by Major Shareholders:
HK$10 trn Public Free Float
Non Public Free Float
Total
Hong Kong and International Issuers
HK$6 trn (64%)
HK$3 trn (36%)
HK$9 trn
Red-Chip
HK$1 trn (31%)
HK$3 trn (69%)
HK$4 trn
Non-H Mainland Private Enterprises
HK$0.7 trn (35%)
HK$1 trn (65%)
HK$2 trn
H-Share – Hong Kong Listed Shares
HK$3 trn (53%)
HK$2 trn (47%)
HK$5 trn
H-Share – Domestic Shares
HK$2 trn (14%)
HK$9 trn (86%)
HK$11 trn
Source: Estimates only, from Thomson Reuters, ETNet and HKEx statistics
19
Chapter 2 – Key Business Drivers
RMB Products Critical to the sustainable growth of offshore RMB Prepare for the arrival of Mainland investors
Cross-border Market Access Huge need for Mainland investors to go offshore driven by domestic economic growth
Chapter 2
Structural Uplift in ADT Higher velocity from Mainland investors will drive ADT
20
Potential Impact of Mainland Investors
Chapter 2
LTM ADT & Velocity of Major Global Exchanges (in US$bil) 291%
113.7 125%
75.0
66%
129%
65%
13.4
14.7
108% 218%
11.5
3.7 NASDAQ
NYSE
BM&F
Source: WFE, as of 31 January 2012
LSE
SHSE
SZSE
55%
179%
17.3 8.1
6.0 HKEX *
TSE
KRX
84%
111%
44%
45%
5.5
3.5
2.3
1.1
ASX
TWSE
NSE
SGX
= LTM average velocity
* Excludes structured products
HKEx has the potential to substantially increase velocity as China opens capital account 21
RMB Products – Recent Developments
Chapter 2
Largely Completed
RMB Infrastructure
Readiness of brokers, service providers, systems, regulations About 90% of market is ready to trade RMB equity RMB Equities Trading Support Facility (TSF)
Launch slowed down by Market Conditions
RMB Products
Dual Tranche Dual Counter (DTDC) RMB Equity Model Potential issuance of RMB bonds and equity in Hong Kong by H-share companies BRICS Alliance
22
RMB Capability – Laying the Foundation Oct 2010 Listing of the first RMB bond – Asian Development Bank
Mar 2011 RMB Readiness Testing with participants – 365 EPs and 35 CPs are ready
Apr 2011 Listing of the first RMB REIT – Hui Xian REIT (RMB10.5 bil)
2010 Oct
Sep 2011 Introduced Dual Tranche Dual Counter (DTDC) - RMB equity listing model to the market
Full Year 2011 Listing of 9 RMB bonds by 7 companies
2011 Jan
Apr
Jan 2012 Launch of RMB Trading Support Facility (TSF)
2012 Jul
Oct
Jan
Chapter 2
Feb 2012 First RMB Gold ETF listed – Hang Seng RMB Gold ETF
...
RMB Bond RMB REIT RMB ETF RMB Equity Other RMB Products 23
Different Models & Facilities to Support the Listing & Trading of RMB Equities
STSC
IPO
Trading
RMB + HKD
RMB
RMB
RMB
HKD
HKD
Chapter 2
Supported by
DTDC
Will also be used for follow-on offerings STSC
DTDC
TSF
Single Tranche Single Counter
Dual Tranche Dual Counter
RMB Equities Trading Support Facility
Launch of RMB equities....awaiting market conditions to pick up 24
Cross-border Market Access – Why is it Important?
RQFII
Cross-border ETFs
Potential JV
Chapter 2
Expands CNH product suite
Gives Mainland investors access to Hong Kong underlying at index level
Increases familiarity with HKEx equity market
Landmark cooperation between three Chinese exchanges (HKEx, SHSE, SZSE)
Potentially gives HKEx access to futures on Mainland underlying
Enhances yield on CNH Facilitates RMB ETFs on A-Share underlying
HKEx-listed RMB ETFs on A-Share underlying provide currency neutrality
Benefits of aligned opening hours will begin to emerge as cross-market access increases 25
Offshore RMB – Progress on 3 Critical Steps
Chapter 2
Step 1 – RMB flows out of the Mainland ■ Size of CNH pool by 31 Jan 2012 was RMB 576 bil
Step 2 – RMB circulates offshore Step 3 – RMB flows back onshore ■ Product curve: Moving from
Deposits / Insurance / Bonds to ■ Streamlined approval Equity / Structured Products ■ 8.9% of trade procedures to send RMB settlement executed proceeds back to in RMB in 1H 2011 ■ RMB 234 bil of Dim Sum Bonds Mainland outstanding to date* ■ China’s ODI in nonfinancial sectors ■ The first batch of RQFII ■ Potential issuance of RMB reached US$60 bil in products in Hong Kong by Hquota to invest mainly in 2011 share companies fixed income ■ HKMA eases regulations to allow banks to expand CNH business
■ Expanded RQFII quota to facilitate RMB ETFs on Ashare underlying
Source: Chinese Government’s Official Web Portal; HKMA website * As of 27 Feb 2012
Substantial progress but still early days in a long march 26
BRICS Exchanges Alliance
Brazil
Russia
India
Chapter 2
China
South Africa
+
Cross-listing of key index futures
Development of cross-market products
Slow start expected, but a strategic partnership initiative 27
Hong Kong’s Financial Markets – Future Vision
Chapter 3
Hong Kong continues to rank as the world’s top financial center
HKEx has the opportunity to lead Hong Kong into new asset classes
Equities
Fixed Income & Currency
Commodities
28
Chapter 3 – Why Now?
Chapter 3
China’s influence and relevance in global market is larger China needs access to financial and commodity derivatives markets in RMB and Asian time zone
China is internationalizing fast
Extension of Hong Kong value proposition “China meets international” to new asset classes
But these are also globally competitive sectors
Incremental driver of CNH growth 29
Size of the Opportunity
IRS & FX
RMB FX Derivatives
Chapter 3
Sectors? Value Chain? Business Models?
Commodities OTC Clearing
Financial Derivatives
Offshore RMB will be the transformational driver 30
Infrastructure – 2012 is a Critical Implementation Year
Required Investment
Fiscal Regime
Essential Infrastructure
Essential infrastructure investment to preserve current revenue
Increased headcount and operating expenses
Building blocks for incremental revenue
Strengthened project management
Higher capex
Enhanced fiscal discipline
Potential change in margin structure
Internally funded
Reduced cash flow in interim
No planned changes to dividend policy
To preserve our franchise and grow, we have to invest 31
Market Structure
Platform
Infrastructure
Essential Infrastructure Investment – A Comprehensive Plan
SDNet2
AMS/3.8
New Trading Hours Part 1
Consolidated Data Center
Essential Infrastructure
Hosting Services
Market Data System
Market Access Gateway
Derivative Trading System Upgrade
T+2 Finality
After Hours Futures Trading
Clearing House Risk Management
New Trading Hours Part 2
32
2012 – Key HKEx Strategies
Chapter 1
Business Drivers
Globally leading IPO market
International listings continue
Essential Infrastructure Investment
China add-on’s expected to enhance float
Chapter 2
RMB infrastructure completed
Awaiting market improvement
…and crossborder flows
Chapter 3
Moving beyond equities
Potentially transforming Hong Kong’s market
…but globally competitive
Essential to preserve our franchise and grow business
2012 is a critical implementation year
Capital expenditure and headcount will have financial impact
33
Questions and Answers
34
4
Appendix – Additional Financial Information
35
Quarterly Trend - Revenue and Other Income ($ million)
Total
1,714
125 108 169 73 365
1,740
33 96 166 247 362
1,837
174 115 160 141 358
221
204
232
653
632
657
Q1 2010
Q2 2010
Q3 2010
Trading fees and trading tariff Clearing and settlement fees Market data fees Net investment income
2,275 140 136 175 151 484
1,907
111 127 168 72 418
288 246 901
Q4 2010
2,065 130 119 164 322
1,945 *
111 159 192 441
409 221
1,938
108 155 130 146 99 395
247 235
765
700
801
Q1 2011
Q2 2011
Q3 2011
670
Q4 2011
Stock Exchange listing fees Depository, custody and nominee services fees Other revenue^ Other income
* Including net investment loss of $6 million for the third quarter of 2011 ^ Other income represents the forfeiture of unclaimed cash dividends held by HKSCC Nominees Limited.
36
Quarterly Trend - Operating Expenses ($ million)
Total
385
391
32 27
37 26
53
52
64
64
402
434
32 26 53
209
212
Q1 2010
Q2 2010
Q3 2010
474
467
37 28
48
45 24
44 20
26
54
55
52
52
70
72
247
244
Q4 2010
Q1 2011
Staff costs and related expenses Premises expenses Other costs*
440 47 20 56
77
67
224
442
73 80
274
275
Q2 2011
Q3 2011
237
Q4 2011
IT and computer maintenance expenses Depreciation
* Other costs include product marketing and promotion expenses, legal and professional fees and other operating expenses. 37
Net Investment Income by Funds Average Amount of Funds Available For Investment ($ billion)
Net Investment Income ($ million) Total
472
390
Total
40.5
14
48.2 2.8
4
2.5
257 250
30.7 24.9
1 200
15 121
2010 Corporate Funds
2011 Cash Collateral
3.8
4.1
9.3
10.6
2010
2011
Margin Funds
Clearing House Funds
38
2011 Results - Net Investment Return by Funds Corporate Funds
Cash collateral
Margin Funds
Clearing House Funds
HKEx Group Total
2.16%
1.13%
1.17%
1.04% 0.81%
0.81% 0.54%
0.37% 0.15%
0.02% 2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
39