Slide 1: Market Announcement: Investor and Analyst Briefing 2016
Computershare Limited ABN 71 005 485 825 Yarra Falls, 452 Johnston Street Abbotsford Victoria 3067 Australia PO Box 103 Abbotsford Victoria 3067 Australia Telephone 61 3 9415 5000 Facsimile 61 3 9473 2500 MARKET ANNOUNCEMENT For personal use only www.computershare.com Date: 28 April 2016 To: Austral
Slide 2: Investor Day
For personal use only Investor Day Stuart Irving CEO and President Computershare Limited
Slide 3: Welcome: Format for today
Welcome Format for today For personal use only 10.00 – 10.15 CEO Welcome 10.15 – 11.30 Loan Services session 11.40 – 12.20 Stream sessions Presentation and Q&A - Employee Share Plans and Innovation - Investor Services and Technology 12.25 – 12.55 Lunch 1.00 – 1.40 Stream sessions Presentation and Q&
Slide 4: FY16 Guidance
FY16 Guidance For personal use only › In February 2016 we said that we expected the Group’s Management EPS would be around 7.5% lower than FY15 and that we were seeing some softening in the operating environment. › We now have greater clarity on FY16 and reiterate our guidance that Management EPS is
Slide 5: Company overview
Company overview A leading global provider of administration services in our selected markets For personal use only Who we are › Global market leader in transfer agency and share registration, employee equity plan administration, proxy solicitation and stakeholder communications › Also specialise in
Slide 6: Computershare core principles
Computershare core principles For personal use only We are creating a Executing multi year simpler, more strategies to drive transparent and growth, address disciplined challenges and Computershare with improve productivity. greater disclosure. Continuing to focus on building and protecting scale in
Slide 7: Update on current initiatives
Update on current initiatives For personal use only Capital Markets Cooperative › The Capital Markets Cooperative acquisition that we announced in January 2016 is expected to close imminently as we complete the regulatory approval process. UKAR › We continue to work through the contract process with
Slide 8: Key messages for today
Key messages for today For personal use only US Loan Services › Attractive industry that we know well where we can leverage our core strengths and existing platform. We have a growth strategy that over the medium term is expected to deliver profitable growth, strong free cash flow and enhanced retur
Slide 9: Key messages for today
Key messages for today For personal use only Employee Share Plans › Equity based compensation continues to be a key element of global remuneration. While there are some short term challenges, long term structural growth remains intact. We bring scale and deep expertise to this market and we are tran
Slide 10: US Loan Services
For personal use only US LOAN SERVICES APRIL 2016
Slide 11: US Mortgage Servicing Market
US Mortgage Servicing Market For personal use only $10 trillion in New Business mortgage debt outstanding, with more than $1 trillion in new originations each year Corporate Branding $30 billion + in annual Client Retention, servicing Satisfaction & Improving revenues Less than 1% Margins of overall
Slide 12: U.S. Mortgage Servicing Recap
U.S. Mortgage Servicing Recap The management and administration of mortgage Agency Servicing (Govt Sponsored Agencies) - For personal use only loans and adherence with loan documents and various Generally higher credit quality and regulatory requirements. It includes: conventional/conforming loans.
Slide 13: Mortgage Servicing Key Terms
Mortgage Servicing Key Terms › Servicing of a mortgage which is less than 30 days delinquent. Typically loans that Performing Servicing For personal use only meet the criteria of the Government Sponsored Entities. › Servicing of a mortgage that is over 30 days delinquent up to management of the Non-
Slide 14: Addressing our strategic challenges
Addressing our strategic challenges Why we need to Strategic Challenge Impact of CMC For personal use only address 1. We need to acquire MSR in › Drive scale › Co-issue program provides volume at the best possible › Manage run-off steady flow and avoids bulk price › Enhance RoIC auction pricing › Pr
Slide 15: US Mortgage Servicing Strategy
US Mortgage Servicing Strategy Our objective is to build a capital light servicing business able to support all parts of the mortgage cycle. For personal use only We are investing in building We do not nor do we intend to our fulfillment capabilities. originate loans however Originate Fulfill This c
Slide 16: Why does CPU believe it can be successful in this industry?
Why does CPU believe it can be successful in this industry? Mortgage servicing is a market we know well. The core competencies and market requirements align extremely well with our strengths, capabilities and For personal use only service suite. Requirement for Range of Strong technology stakeholder
Slide 17: Our Current Business
Our Current Business For personal use only Fully-Owned Part-Owned Sub-servicing MSRs MSRs Servicing performed on a CPU has sold part of the What we mean CPU owns the MSR outright MSR to a third party investor contractual basis for another MSR owner Balance sheet $67M value on BS impact $86M advance
Slide 18: Revenue Drivers
Revenue Drivers For personal use only Fully-Owned MSRs Part-Owned MSRs Sub-servicing Typically 20-30 bps Typically 10-15 bps Negotiated fee per loan Performing of UPB of UPB subject to contract Typically a negotiated fee Ranges between 25-50 bps Negotiated price per loan Non-performing of UPB per lo
Slide 19: Cost Drivers
Cost Drivers For personal use only Fully-Owned Part-Owned Sub-servicing MSRs MSRs Low touch, low cost but Low touch, low cost. Varies Performing according to loan type. Same as if owned MSR client oversight costs in addition. High touch, higher cost High touch, higher cost. Non-performing Varies acc
Slide 20: CPU capital deployment in this business - MSRs
CPU capital deployment in this business - MSRs Our balance sheet position at 31 Dec 2015 $M MSR asset $177 For personal use only MSR liability (arises due to association with capital partners) ($79) Net MSR asset $98 FAQ Answer What are they? Intangible asset giving right to service loan for a fee f
Slide 21: Managing non-performing MSR capital requirements
How does CPU manage its non-performing MSR capital requirements? For personal use only Deal type Capital partner SPV Benefits & Outcomes Structure MSR rights and associated advances sold to an SPV, in which CPU typically takes a 20% ownership interest Reduced Balance sheet MSR and advances replaced
Slide 22: Managing performing MSR capital requirements
How does CPU manage its performing MSR capital requirements? For personal use only Deal type Excess strip Benefits & Outcomes Structure 50% ownership interest in MSR revenue stream sold to a financial investor Balance sheet MSR carrying value typically reduced impact by over 60% being proportionate
Slide 23: CPU capital deployment in this business - advances
CPU capital deployment in this business - advances Servicing Advances at 31 Dec 2015 $M Servicing Advance Receivables $363 For personal use only Advance Financing Facility ($277) Net Advance Asset $86 FAQ Answer What are they? Payments to the owner of the loan by the servicer on behalf of the borrow
Slide 24: Surplus capital once optimal size attained
Surplus capital once optimal size attained We’re expecting to deploy additional capital in the coming years. Upon reaching optimal scale, our after-tax cash flows will be able to replace our For personal use only run-off AND deliver strong excess free cash flow. FOR ILLUSTRATION ONLY KEY VALUE $M CA
Slide 25: The competitive landscape – Why we differ
The competitive landscape – Why we differ A lower risk business model aligned to more conservative capital management and ability to leverage core competencies. For personal use only Conservative leverage Gearing MSR transfers in small and manageable proportions Higher concentration of third-party s
Slide 26: Management of Risks
Management of Risks New mortgage › MSR volumes drive financial › Higher prepayment rates could For personal use only outcomes. Market for bulk purchase Prepayment impact financial outcomes. origination and of performing MSRs remains very Increasing interest rates mitigate active. CMC provides strong
Slide 27: Key Execution Priorities
Key Execution Priorities For personal use only Boarding of existing MSR portfolio CMC Integrated loan boarding process for CMC-generated loans, both MSR and sub-servicing Integration Further develop sub-servicing relationships Clients & Execute on new business pipeline Opportunities Implementation o
Slide 28: Investor Day – Employee Share Plans
For personal use only INVESTOR DAY – EMPLOYEE SHARE PLANS
Slide 29: Employee Share Plans: State of play
Employee Share Plans State of play For personal use only › The Employee Share Plans business remains a strong global franchise with opportunities to grow › Large and diversified regional business with major centres in Europe, North America, Australia and Asia › Growth in client mandates despite comp
Slide 30: Employee Share Plans: Strong global position
Employee Share Plans Strong global position For personal use only Global participant ~1500 numbers clients growing - globally currently 24% Dow ~4.8 million Jones 30 50% FTSE 100 Trade and 40% ASX 200 settle on more 59% TSX Plan than 20 Settling in participants in Exchanges over 120 over 190 currenc
Slide 31: Employee Share Plans: Competitor landscape
Employee Share Plans Competitor landscape Global View For personal use only We are the only comprehensive full service provider Europe View › Registrars › Platform providers – part/full outsource › Bespoke, niche providers North America View › Legacy, in-country financial services › 401k providers c
Slide 32: Comprehensive service suite across the world
Employee Share Plans Comprehensive service suite across the world For personal use only All-employee plans Discretionary plans Post vest services Voluntary plans offered to Plans awarded to targeted Accounts to trade/hold all eligible employees individuals e.g. executives shares after vest All-emplo
Slide 33: Local knowledge supporting complex global requirements
Employee Share Plans Local knowledge supporting complex global requirements For personal use only Europe View › UK SAYE & SIP and country-specific plans › EU regulation on executive pay › Regional tax requirements North America View › Strong local qualifying plans China/HK View › Shift from options
Slide 34: Multiple revenue sources across the value chain
Employee Share Plans Multiple revenue sources across the value chain For personal use only Fee revenue Fee revenue 8% 9% 16% Transactions revenue 14% Transactions revenue 45% 50% Margin income Margin income 31% 27% Other revenue* Other revenue* 1H15 Actual Revenue $121.6m 1H16 @ Constant Currency $1
Slide 35: Opportunities and challenges
Employee Share Plans Opportunities and challenges For personal use only Cost reduction New clients New products Market factors and Services › Redefining our › Further targeting of › Financial reporting › Increased competitive operational model to global clients where development with environment inc
Slide 36: Investor Day – Global Registry
For personal use only INVESTOR DAY – GLOBAL REGISTRY
Slide 37: Global Registry: Strong global position
Global Registry Strong global position 15,000+ For personal use only clients 100m+ globally shareholders globally Over $500 billion in dividend Service payments Largest global 14 countries registry & transact in 179 currencies Billions Handled over of shareholder 1,900 interactions corporate annuall
Slide 38: Registry maintenance revenue
Global Registry Registry maintenance revenue For personal use only Registry maintenance revenue in constant currency* 450 400 397.2 405.3 411.6 350 377.5 385.2 387.3 367.1 300 250 USD M 200 150 100 50 0 1H13 2H13 1H14 2H14 1H15 2H15 1H16 *FY15 FX rates applied Registry maintenance revenue split in c
Slide 39: The registry market
Global Registry The registry market Global view For personal use only We are the largest global registry Global capability is important for global issuers trading on multiple exchanges Europe View › 1,300 issuers › Key competitors – Capita, Equiniti, Link, CSD › Key trends – Depositary Interests wit
Slide 40: Global Registry: Our services
Global Registry Our services For personal use only Pre-IPO IPO Maintain Report Transact Supporting Communicating with Managing Supporting clients Corporate actions companies as they shareholders shareholder records, and shareholders (raisings, demergers, publicly list events (e.g. AGM), with transac
Slide 41: Global Registry regional strengths
High Strong Global Registry The only truly global recurring cash generative player revenue Regional strengths Leading Diverse business market customer For personal use only positions base Europe View › Unique service model: Depositary Interest service and links into the London market have been the g
Slide 42: Opportunities and challenges
Global Registry Opportunities and challenges For personal use only Cost reduction New clients New products Market factors › Improvement in › Targeting private › Focused upselling › Interest rates operating efficiency companies to build a and cross-selling through further pipeline of IPO and initiati
Slide 43: Registry: Our priorities
Registry Our priorities For personal use only Continue to Maintain provide ‘best of appropriate breed’ servicing remuneration – will always be for our the best premium retention tool offering Drive revenue uplift through product development Renewed focus Demonstrate on cost control the value we thro
Slide 44: Technology
For personal use only TECHNOLOGY
Slide 45: Technology Mandate
Technology Mandate For personal use only Technology partners with the Business Demand businesses around the globe to prioritise competing investment demands and ensure there is a balance of innovation, risk management and market needs › Assist in growing revenues › Improve margins › Maintain a leade
Slide 46: Global economies of scale across the registry technology stack
Global economies of scale across the registry technology stack For personal use only # Web Chat IVR Paper Mobile email Call Centre SMS Online Reporting Inbound Transaction Processing Processing Outbound Processing Company Index Call Centre Operations Business Analytics Payments Investor Processing I
Slide 47: Investor Services technology ecosystem
Investor Services technology ecosystem Customer Channels For personal use only # Web Chat IVR Paper Mobile email Call Centre SMS Online Reporting Inbound Processing Transaction Processing Outbound Processing Company Index Call Centre Operations Business Analytics Payments Processing Investor Index S
Slide 48: Customer Channels – Investors
Customer Channels – Investors For personal use only The primary self-service channel, Investor Centre, provides convenient access for investors to access their share portfolio › Registration, portfolio and enquiry › Transactions, statements and alerts Integrated online knowledge base and web chat ›
Slide 49: Customer Channels – Issuers
Customer Channels – Issuers For personal use only A number of products are available for issuers such as Issuer Online for shareholder management and Boardworks for board meeting management Issuer Online › A personalised dashboard that can be configured to client needs › Advanced Holder Search › Key
Slide 50: Operations – Investor Servicing
Operations – Investor Servicing For personal use only Developed on the same technology frameworks as the web platforms, our operations technology is used by thousands of internal staff, processing millions of shareholder requests › Integrated interactive voice response (IVR) and skills-based routing
Slide 51: Operations – Communications
Operations – Communications For personal use only Despite living in the digital age, Computershare still processes tens of millions of inbound pieces of mail as well as sending even more outbound on behalf of our issuers › Intelligent form design combined with form recognition technology delivers hi
Slide 52: Data and Insight
Data and Insight For personal use only Investor data that is processed and analysed to deliver internal improvements and client insights › A range of key management reports for issuers delivered online through Issuer Online, e.g. Significant Movements, Top Holders, Issued Capital etc. › Data analyti
Slide 53: Recordkeeping
Recordkeeping For personal use only The core recordkeeping system for the management of company shareholder accounts, the SCRIP system is now used for processing millions of transactions worldwide on a daily basis › Three deployments around the globe that service the EMEA, Americas and Oceania regio
Slide 54: Investor Services technology landscape – what lies beneath
Investor Services technology landscape – what lies beneath The Gartner research IT Market clock for programming languages (2015) represents For personal use only the progress through the market lifecycle for old and new technologies. The technologies that underpin the Investor Services ecosystem lie
Slide 55: Business Transformation – Operations Automation
Business Transformation – Operations Automation For personal use only Computershare is currently performing Automated business process an innovation pilot to trial the value of Intelligent Process Automation through the use of software robotics › The software robot mimics human actions and is provid
Slide 56: Product Innovation - Innovation Garage
Product Innovation - Innovation Garage For personal use only 21 Computershare Distribution Only
Slide 57: Investor Day – Blockchain
INVESTOR DAY – For personal use only BLOCKCHAIN What are the implications for Computershare? 28 April 2016
Slide 58: Blockchain: Introduction
Blockchain Introduction For personal use only Stuart Irving, CEO, Computershare said: “There are evangelists who say it will change everything and sceptics who say it will change nothing. The answer will surely be somewhere in between, but to which of these two extremes the outcome skews towards and
Slide 59: Blockchain: Introduction
Blockchain Introduction For personal use only › Pre-trade order-routing and electronic trading of financial assets is now virtually frictionless and low cost. Various technologies have been applied to push trading responsiveness to millisecond levels. › In contrast clearing, settlement and custody p
Slide 60: Blockchain: Introduction & Perspective
Blockchain Introduction & Perspective For personal use only › We believe the commentary that blockchain is automatically “bad for Computershare” is ill informed and reflects incomplete analysis or competing vested interests. › The focus should be on payments and trade settlement; not registry. This
Slide 61: Overview: So what is a Blockchain?
Overview: So what is a Blockchain? For personal use only "At its most basic, the blockchain is a global spreadsheet, an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value and importance to human kin
Slide 62: What some key market participants said
What some key market participants said “There are basically three groups – there are the large banks, there are the exchanges, and there is the settlement system. And what's going to happen is For personal use only one of those three are going to use this technology to disrupt the other two. I think
Slide 63: Blockchain: Risk & Opportunities
Blockchain: Risk & Opportunities Implications for Computershare For personal use only › Our global presence makes us an attractive partner to blockchain solution providers. It also gives us access to a wide range of commercial blockchain ‘use case’ opportunities. › If blockchain technology delivers
Slide 64: Market Structure: Centralised vs. Distributed Ledgers
Market Structure: Centralised vs. Distributed Ledgers A distributed ledger is a network that records ownership through a shared ledger, not through a centralised institution For personal use only Current State Future State Clearing House Centralised Ledger Distributed Ledger (simplified) 8
Slide 65: Market structure: future state
Market structure: future state More granular analysis: Distributed Ledgers versus Share Register For personal use only Distributed Ledger The blockchain must be “permissioned” to reflect the different roles and responsibilities of the key actors in the market place, e.g. the exchange for trading pur
Slide 66: Risk or opportunity? Our current focus
Risk or opportunity? Our current focus For personal use only › We are focusing our deep markets and technology expertise on understanding the implications for: - Existing, liquid and deeply established post-trade market infrastructure (e.g., CHESS or DTC) › Computershare can “collaborate” with exist
Slide 67: Risk or opportunity?
Risk or opportunity? So which infrastructure functions logically become redundant, if blockchain technology is widely adopted? For personal use only › Some market speculation about how ASX will leverage blockchain technology to move downstream into “issuer agent” services role. The rationale cited i
Slide 68: Risk or opportunity?
Risk or opportunity? So which infrastructure functions logically become redundant, if blockchain technology is widely adopted? For personal use only › Little to no attention has been given to the idea that new channels for post-trade settlement activities may become feasible. - Connecting a registry
Slide 69: Market structure: four level architecture
Current state Market structure: four level architecture For personal use only Trade Exchanges Trade (Listing, Trading, Market Data, Order Book and Algorithms) CCP* Clearing (Risk Management) Clearing Investors Brokers Brokers Investors CSD** (Settlement Asset Settlement Servicing) Settlement Registr
Slide 70: Potential future state
Potential future state New market model? ~ a potential business opportunity Compressed market structure: 4 to 2 level architecture? For personal use only Exchange Listing, Trading, Market Data, Order Book and Algorithms CCP Risk Management Settlement Asset CSD Servicing Note: This existing model tod
Slide 71: Potential future state
Potential future state New market model? ~ a potential business opportunity Compressed market structure: 4 to 2 level architecture? For personal use only Exchange Listing, Trading, Market Risk management may be embedded within the ledger. Data, Order Book and Transactions may only occur if securitie
Slide 72: Interaction between a Distributed Ledger and the Share Register
Risks and opportunities Interaction between a Distributed Ledger and the Share Register For personal use only › In our view, the share register and the ledger are highly complementary but serve different purposes. › We do not believe a distributed ledger will be the “share register” for corporate la
Slide 73: Share Registry implications
Share Registry implications Registry responsibility continues For personal use only › Registers, share management and reporting › Transfer processing, including for restricted securities › Dividends and other Corporate Actions, e.g., splits, acquisitions & spin-offs › Shareholder Communications and
Slide 74: Risks and opportunities: Specific Use Cases
Risks and opportunities: Specific Use Cases So where’s the opportunity for CPU? For personal use only We’re developing a range of Use Cases for commercial consideration, including: 1. Registry management for US market, but globally applicable. - Private Market Registry (Transfer Agency) for US marke
Slide 75: SETL
>< SET i0 simple | unified immediate 19
Slide 76: Brief History of FinTech 1970s > 2016
For personal use only Brief History of FinTech 1970s > 2016 Every decade a new technology changes financial services - 1970s SWIFT - 1980s Dematerialisation / CSDs - 1990s Real Time Gross Settlement Systems [RTGS] / Central Banks - 2000s C21st technology to front office, Chi-X, Algorithmic Trading,
Slide 77: Strategic rationale for SETL
For personal use only Strategic rationale for SETL ● We aim to do to the post-trade space what Chi-X did to front office trading ● Blockchain technology has the potential to completely transform settlement and post trade administration ● Three key elements to understand about our plan ○ The benefits
Slide 78: Benefits of SETL
For personal use only Benefits of SETL ? ● A simple, unified, t-instant, multi-currency settlement system using central bank money to ○ Transfer Cash ○ Settle FX ○ Settle Securities and Derivatives Transactions ● A ‘Golden Record’ of financial asset ownership designed to replace multiple complex and
Slide 79: Proposition
For personal use only Proposition ● SETL is putting a proposition to the market which has a significant probability of success ○ There is a track record in executing disruptive technology - a very particular skill in financial markets ○ SETL has an understanding of financial markets borne of decades
Slide 80: SETL
For personal use only SETL • Founded in 2015 after 24 months of pre-incorporation technical development • Key Executives all previously worked together at Flemings / JPMorgan • Board – Chairman Sir David Walker, Dame Rachel Lomax, Antony Jenkins, Ed Richards • Regulatory engagement: BoE, ECB, BIS, I
Slide 81: Technology
For personal use only Technology ● To achieve these goals we needed permissioned technology that can work in the real-world of finance. In contrast to other blockchains, institutional finance needs: ○ The ability for participants to be ultimately identified ○ The ability to SETL real world currency
Slide 82: Simplified Equity Process
For personal use only Simplified Equity Process Market Investors Broker GCM Clearing Central Securities Custodians Sub-Custody Investors Registrar Issuer Depositary Post trade environment is over-crowded with intermediaries 26
Slide 83: Phased Implementation
For personal use only Phased Implementation Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 1b Generalised Single sided REPO Double sided Non CSD Full CSD, settlement of all central bank central bank securities DvP Registrar service major security cash transfer cash (FX) with DvP types 27
Slide 84: SETL / Computershare
SETL / Computershare For personal use only • Computershare brings: neutrality, trust, client base, issuers, regulators, financial infrastructure, geographic coverage and ‘Final Mile’ contact • SETL brings: experience of delivering financial market disruption, robust financial grade Distributed Ledge
Slide 85: Victor Hugo quote
For personal use only “All the forces in the world are not so powerful as an idea whose time has come” Victor Hugo 29
Slide 86: Summary
Summary For personal use only › If blockchain technology is widely adopted across our markets: - The share registry function will endure - Computershare is well positioned for market evolution › We are actively engaged in various blockchain initiatives. - We see opportunities, locally and globally 3
Slide 87: Important notice
Important notice Forward-looking statements For personal use only › This announcement may include 'forward-looking statements'. Such statements can generally be identified by the use of words such as 'may', 'will', 'expect', 'intend', 'plan', 'estimate', 'anticipate', 'believe', 'continue', 'objecti