JPM Registry Provider Survey Report March 2012

Australia Equity Research
05 March 2012
Australian Registry Service Provider Survey 2012

A Value Adding Proposition?
The J.P. Morgan and Chartered Secretaries Australia Australian Registry Service Provider Survey 2012 provides an overview of the current state of the Australian registry services industry, the future direction and competitive dynamics within the industry. The report collates data from surveys of companies in the S&P/ASX200 conducted 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 system maintenance. Significantly, fewer respondents indicated cost as a reason for outsourcing, which now ranks third below quality of product as one of the reasons for outsourcing. Further, 70% of respondents believe that share registry providers add value to their business, up from 55% in last years survey. Movement in shareholder numbers has been stagnant in the past 6 months, with two-thirds of companies reporting flat or decreasing shareholder numbers, and only ~2% of new shareholders added through IPOs and demergers. The customer base remains extremely sticky with only 24% of respondents putting the registry contract out to a competitive tender upon expiry. Additionally, only ~2% of the net Australian market has changed hands over the last 3 years due to direct competition. Computershare received a higher percentage of positive responses for overall performance than Link (100% vs 85%). In addition, Link received 2 responses indicating its performance had declined over the last 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 Computershare Investor Services Link Market Services Other S&P/ASX20* 55% 45% 0% S&P/ASX100* 57% 42% 1% S&P/ASX200* 59% 39% 2%
Diversified Financials Russell Gill

AC
(61-2) 9220-1525 russell.j.gill@jpmorgan.com
Ismar Tuzovic
(612) 9220-1375 ismar.tuzovic@jpmorgan.com J.P. Morgan Securities Australia Limited
Chartered Secretaries Australia Judith Fox

(61-2) 9223-5744 judith.fox@CSAust.com
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.
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 that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com
Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com
Australia Equity Research 05 March 2012
Survey Description...................................................................3 Executive 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 .............................................................................................15 Cost ......................................................................................................................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
Survey Description
The J.P. Morgan and Chartered Secretaries Australia Australian Registry Service Provider Survey 2012 provides 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 in determining 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
Responses received Responses representation No. companies No, shareholders# Market capitalisation S&P/ASX20* 18 90% 91% 81% S&P/ASX100* 57 57% 78% 69% S&P/ASX200* 87 44% 72% 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.
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 no change 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).
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 their operations 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.
Competitors
Figure 1: Australia Registry Services Providers - S&P/ASX200 Market Share (No. of Contracts)
Other 11% CPU 60%
Following a decade of industry consolidation, the Australian registry services industry now acts as a basic duopoly with the services of 89% of the companies listed 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 Computershare Investor Services Link Market Services Other Boardroom Security Transfer Registrars Advanced Share Registry
Source: Bloomberg, ASX, Company reports. * S&PASX Indices as at January 2012.
Link 29%
Source: ASX, Company reports.
S&P/ASX20 60% 40% 0% 0% 0% 0%
S&P/ASX100 60% 34% 5% 4% 0% 1%
S&P/ASX200 61% 29% 11% 4% 3% 5%
Figure 2: Australia Registry Services Providers - S&P/ASX200 Market Share (No. of Shareholders)
Other 2% Link 39% CPU 59%
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 Computershare Investor Services Link Market Services Other Boardroom Security Transfer Registrars Advanced Share Registry
S&P/ASX20* 55% 45% 0% 0% 0% 0%
S&P/ASX100* 57% 42% 1% 1% 0% 0%
S&P/ASX200* 59% 39% 2% 1% 0% 1%
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 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.
Reasons for Outsourcing Registry Services

Registry service provider expertise remains the key reason why the function is outsourced
Similarly to the previous years, the majority of respondents (~84%) indicated that the expertise of registry service providers was the primary reason for outsourcing the companys registry function.
Figure 3: Reasons for Outsourcing Registry Services
100% 80% 60% 40% 20% 0% Cost Quality of Product S&P/ASX20 Service Provider Expertise S&P/ASX200 Risk Deferral
S&P/ASX100
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].
Adding Value Function?

Overall, 70% of respondents indicated the registry service provider added value to their business
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 of the 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?
80% 60% 40% 20% 0%
Yes S&P/ASX20
No S&P/ASX100
N/A - Not Expected S&P/ASX200
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.
Contract Length & Pricing Structure

Most registry services contracts are negotiated every 3-5 years
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?
100% 80% 60% 40% 20% 0% Annual 1-2 years S&P/ASX20 3-5 years S&P/ASX100 S&P/ASX200 >5 years
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.
Contract pricing across the industry remains varied, however, pricing continues to remain mainly linked to shareholder numbers for the base registry services product
Figure 6: Basic Registry Maintenance Pricing Structure

80% 60% 40% 20% 0% Annual Fee S&P/ASX20 Fee Per Shareholder S&P/ASX100 S&P/ASX200 Combination
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
80% 60% 40% 20% 0% Annual Fee S&P/ASX20 Fee Per Shareholder S&P/ASX100 S&P/ASX200 Combination
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Contract Negotiations
Incumbency is extremely important to market structure, with only 24% of registry service provider contracts in the market put out to a competitive tender process
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 have remained 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?
80% 60% 40% 20% 0% Yes S&P/ASX20 No, But Considered S&P/ASX100 S&P/ASX200 No, Never Considered
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?
80% 60% 40% 20% 0% Yes Computershare No, But Considered Link Market Services No, Never Considered Other
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
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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 considered putting 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 significant driver 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
15% 10% 5% 0% -5% -10% -15% -20% 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Source: Bloomberg.
Most companies have seen an increase in the number of shareholders on the register in the last 2 years
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 shareholder numbers over the previous two years.
Figure 11: Change in Shareholder Numbers Over Previous 2 Years
80% 60% 40% 20% 0% Increasing Flat S&P/ASX20 S&P/ASX100 Decreasing S&P/ASX200 Not sure
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Over The Last 6 Months

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
Figure 12: Change in Shareholder Numbers Over Previous 6 Months

50% 40% 30% 20% 10% 0% Increasing Flat S&P/ASX20 S&P/ASX100 Decreasing S&P/ASX200 Not sure
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.
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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 Computershare Link Market Services Other Market Share 61% 29% 11% Survey Responses 54% 37% 9%
Source: ASX, J.P. Morgan and Chartered Secretaries Australia Australian Registry Services Provider Survey 2012.
Overall Performance
While it is difficult to directly compare the performance of registry 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
While it is difficult to compare registry service providers in terms of performance given 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
100% 80% 60% 40% 20% 0% Computershare Above Expectations Link Market Services Good Average Other Poor
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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
80% 60% 40% 20% 0% Computershare Link Market Services Improved No Change Worsened Other
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 registry service 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?
100% 80% 60% 40% 20% 0% Yes Computershare No Link Market Services N/A - Not Expected Other
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.
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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 years indicating 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 survey indicates a consistent trend in pricing across the market, with 72% of respondents indicating they had not seen any material change to contract prices over the last two years
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 average contract 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
80% 60% 40% 20% 0% Computershare Improved Link Market Services No Change Worsened Other
Source: J.P. Morgan and Chartered Secretaries Australia Australian Registry Services Provider Survey 2012. 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
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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 quality of product/service remains the most important factor in choosing a registry service provider, well ahead of the cost of the service
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
80% 60% 40% 20% 0% Quality of Product/Service Account Mangement Relationship S&P/ASX20 S&P/ASX100 Cost S&P/ASX200 Additional Services
Source: J. P. Morgan Australia Australian 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 of respondents 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.
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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 Perpetual Limited 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
There has been very little change in market structure, particularly with respect to larger clients, with only ~2% of the net market changing hands through direct competition over the last 3 years
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 financial benefit. 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 Registry Services Provider Computershare Link Market Services Others New 8 11 32 2009 Lost (32) (7) (12) Net (24) 4 20 New 18 18 28 2010 Lost (34) (3) (27) Net (16) 15 1 New 14 19 21 2011 Lost (23) (2) (29) Net (9) 17 (8) New 40 48 81 CY2009-11 Lost (89) (12) (68) Net (49) 36 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 Registry Services Provider Computershare Link Market Services Other New 79 123 91 2009 Lost (157) (102) (33) Net (78) 20 58 New 110 176 94 2010 Lost (230) (28) (121) Net (120) 148 (27) New 31 90 49 2011 Lost (70) (4) (96) Net (40) 86 (47) New 219 389 234 CY2009-11 Lost (458) (134) (250) Net (238) 254 (16)
Source: Company reports. 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
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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 Telecom NZ Tabcorp Fosters NewCo Ticker CNU EGP TWE NewCo Name Chorus Limited Echo Entertainment Group Ltd Treasury Wine Estates Ltd Listing Date 21/11/2011 6/06/2011 10/05/2011 Market Cap (A$m) 963 2,958 2,537 Registry Services Provider Computershare Link Computershare No. of New Shareholders 37,269 137,503 104,836
Source: Company reports.
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)

2011 was a quiet year for IPOs, with no large listings in terms of IPO proceeds or number of shareholders
Ongoing volatility and uncertainty regarding the economic situation in Europe saw IPO activity in Australia remain relatively subdued for most of 2011. Activity however 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
120 90 60 30 0 -30 -60 4Q07 2Q08 4Q08 2Q09 4Q09 De-Listings 2Q10 4Q10 2Q11 4Q11 New Listings
Source: ASX.
120 90 60 30 0 -30 -60 Net Listings
Table 9: ASX - Listings and Delistings

New Listings De-Listings Net Listings Total Listings IPO Proceeds (A$m)
Source: ASX.
2006 245 (104) 141 2,014 17,023
2007 314 (119) 195 2,209 19,897
2008 93 (79) 14 2,223 2,458
2009 62 (104) (42) 2,181 7,509
2010 127 (92) 35 2,216 25,048
2011 133 (127) 6 2,222 15,493
With opportunities limited, the largest IPO of the year was the ~A$202m listing of Collins Foods. However, the total number of new shareholders in the top 5 IPOs was only 5,105, compared to 82,634 last year largely drive by the QR National listing.
Table 10: Top 5 IPOs in 2011 - IPO Proceeds/No. of Shareholders Administered
Name Collins Foods Ltd Royal Wolf Holdings Limited GI Dynamics Inc Alliance Aviation Services Limited Onthehouse Holdings Limited Ticker CKF RWH GID AQZ OTH Listing Date 4/08/2011 31/05/2011 8/03/2011 2/12/2011 6/05/2011 IPO Proceeds (A$m) 201.8 91.5 80.0 74.4 53.5 Registry Services Provider Link Market Services Link Market Services Link Market Services Link Market Services Link Market Services No. of Shareholders* 567 647 522 443 2,306
Source: 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.
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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.
25
Secondary Raisings
Secondary raisings in 2011 remained subdued, with only ~A$33bn in secondary equity capital raised (2010: ~A$31bn, 2009: ~A$99bn). Additionally, only 2 companies in the S&P/ASX50 raised capital in 2011 through rights issues or share purchase plans, well down on the prior years (2010: 6, 2009: 20)
Following an unprecedented year for secondary raisings in 2009 and the majority of corporate balance sheets being repaired, raisings in 2011 were much more subdued with only ~A$33bn in secondary equity capital raised, similar to the level raised in 2010.
Table 11: ASX - Secondary Capital Raised
A$ in millions Secondary Capital Raised# % Change on pcp 2006 44,444 101.7% 2007 62,528 40.7% 2008 60,019 -4.0% 2009 98,629 64.3% 2010 31,428 -68.1% 2011 33,101 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 on the prior years (2010: 6, 2009: 20, 2008: 19).
Table 12: Rights Offerings and Share Purchase Plans in 2011 - S&P/ASX100
Ticker TSE DOW ORG LYC LEI DUE GFF BSL Company Name Transfield Services Downer EDI Origin Energy Lynas Corp Leighton Holdings Duet Group Goodman Fielder Bluescope Steel Offering Type Rights Rights Rights Share Purchase Plan Rights Rights Rights Rights Entitlement Date 17/01/2011 2/03/2011 17/03/2011 27/03/2011 12/04/2011 7/08/2011 30/09/2011 24/11/2011 Registry Service Provider Computershare Computershare Link Market Services Registries Limited Computershare Computershare Link Market Services Link Market Services
Source: ASX.
In 2011, 57% of the S&P/ASX200 companies had an active dividend reinvestment plan, down from 62% in 2010. Dividend Re-Investment Plans (DRPs)
Figure 19: S&P/ASX200 - Dividend Reinvestment Plan Status (No. of Companies)
80% 60% 40% 20% 0% Active S&P/ASX20
Suspended S&P/ASX100 S&P/ASX200
None
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Table 13: S&P/ASX200 - DRP Breakdown (No. of Shareholders Administered)

Active Discount No Discount 26% 32% 18% 7% 0% 18% 13% 0% Suspended 19% 6% 12% 0% None 24% 17% 6% 1%
S&P/ASX200 Computershare Link Market Services Other

Source: ASX, Company Reports.
27
Share Registry Providers Competition Analysis - Major Markets

10 YEARS AGO Australia Computershare Perpetual BT Registries Pitcher Partners Registry Hong Kong HKEx Computershare Tricor Serv ices United Kingdom Lloy ds Computershare Capita IRG Ex change Registrars Northern Registrars United States Bank of New York Mellon Computershare Equiserv e Wells Fargo American Stock Transfer Sun Trust Fifth Third Bancorp National City Canada Montreal Trust Stock Transfer CIBC Mellon Pacific Corporate Trust National Bank Trust
NOW Australia Computershare Link/PEP Hong Kong Computershare Tricor Serv ices United Kingdom Equiniti Computershare Capita United States Computershare Wells Fargo AST/PEP Canada Computershare CST/PEP
Source: Company reports, J.P. Morgan estimates.
28
J.P. Morgan Australian Registry Services Survey 2012

Your company's name: Phone number (optional): Registry service provider: Computershare Link Market Services Other, please specity: Your name:
Part 1: Shareholder Breakdown 1. Approximate number of shareholders on your register? 2. What has been the trend in the number of shareholders in your company: Last 2 Years? Increasing Last 6 months Increasing Flat Decreasing Not sure Flat Decreasing Not sure
3. Approximate shareholder register breakdown % ( shares on issue, not number of shareholders):

i)
Retail Institutional Corporate/Other Not sure or N/A
ii)
Domestic International Corporate/Other 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 Risk deferral Quality of product/service Other, please specify: Expertise of service provider
2) How often is your registry service contract negotiated? Every year 4 years 2 years 5+ years 3 years Not sure
3) Upon contract expiry, do you put the registry contract out to a tender process? Yes No - but have considered Annual fee No - and never considered $ Fee per shareholder Combination
4) What is your contract pricing structure a) Standard registry maintenance?
b) One-off transactions (eg. rights issues)? c) Additional comments: 5) How much does your company spend each year on out sourced registry services? <$100k $1m - $3m $100k - $500k $3m - $5m $500k - $1m >$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 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 i) Account Management relationship? ii) Quality of product/service? 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 No change Worsened N/A Above Expectations Good Below Expectations Poor
Part 3: Future Considerations 1. If you were to change registry providers in the future, how important would the following be in the decision process? Critical i) Account Management relationship? ii) Quality of product/service? iii) Cost? iv) Provision of additional services? v) Other (please specify)? Important Considered, but not important Not important at all
Part 4: Additional Comments 1. Please provide any additonal comments/feedback
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33

JPM Registry Provider Survey Report March 2012

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Australia Equity Research

Australian Registry Service Provider Survey 2012

Diversified Financials Russell Gill

(61-2) 9220-1525 russell.j.gill@jpmorgan.com

Chartered Secretaries Australia Judith Fox

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Survey Description...................................................................3 Executive Summary .................................................................4 Industry Overview ....................................................................5

Future Considerations ...........................................................20 Appendix .................................................................................21

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Source: ASX, Company reports.

S&P/ASX20 60% 40% 0% 0% 0% 0%

S&P/ASX100 60% 34% 5% 4% 0% 1%

S&P/ASX200 61% 29% 11% 4% 3% 5%

Source: ASX, Company reports.

S&P/ASX20* 55% 45% 0% 0% 0% 0%

S&P/ASX100* 57% 42% 1% 1% 0% 0%

S&P/ASX200* 59% 39% 2% 1% 0% 1%

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Reasons for Outsourcing Registry Services

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Adding Value Function?

N/A - Not Expected S&P/ASX200

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Contract Length & Pricing Structure

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Figure 6: Basic Registry Maintenance Pricing Structure

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Movement in Shareholder Numbers

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Over The Last 6 Months

Figure 12: Change in Shareholder Numbers Over Previous 6 Months

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012

Source: J. P. Morgan Australia Australian Registry Services Provider Survey 2011.

Russell Gill (61-2) 9220-1525 russell.j.gill@jpmorgan.com

Australia Equity Research 05 March 2012