Transcript Slide 1

2007 Annual Results Announcement
Records Posted, Set for Challenges
Paul Chow
Chief Executive, HKEx
&
Archie Tsim
Chief Financial Officer, HKEx
5 March 2008
Agenda
 2007 Annual Results Overview
 Financial Review
 Business Review
 Q&A
2
2007 Annual Results Overview - Business
 $20.7 trillion market capitalisation as of 31 Dec 2007 – up 55%
from 31 Dec 2006
 $88.1 billion average daily turnover – up 160% from 2006
 359,125 options & futures contracts traded daily on average – up
105% from 2006
 Open Interest of 5,780,898 contracts on 31 Dec 2007 – up 91%
from 31 Dec 2006
 Successful implementation of numerous initiatives under
Strategic Plan 2007-09:
 Mainland positioning
 Business expansion
 Service improvement
 100% up-time for all IT systems despite substantial increase in
volume
3
Hong Kong – A Leading International Financial Centre
 Among global exchanges…
 #1 in derivative warrants trading
 #1 in stock options trading market in Asia
 #2 in ETF volume in Asia after Japan
 #5 in capital funds raised
 #7 in market capitalisation
 #10 in equity turnover
Source: World Federation of Exchanges website (Dec 2007)
4
Awards and Recognition in 2007
 2007 HKMA Best Annual Reports Awards Gold Prize (General Category)
 HKMA Citation for Achievement in Corporate Governance Disclosure
(General Category)
 HKICPA Best Corporate Governance Disclosure Awards 2007 - Gold Award
in Hang Seng Index Category
 One of the best companies in Hong Kong in terms of corporate governance
by The Asset magazine
 Asia Risk’s Derivatives Exchange of the Year 2007
 Hong Kong ICT Awards 2007: Best Business Grand Award for HKEx’s
Electronic Disclosure System
5
Market Capitalisation and Turnover Ranking
Market Capitalisation Ranking and
Growth Rate of Major World Exchanges
Rank
Exchanges
1
NYSE Group
2
2007
(US$ bn)
CAGR
2002-2007
Equity Turnover Ranking and
Growth Rate of Major World Exchanges
Rank
Exchanges
2007
(US$ bn)
CAGR
2002-2007
15,651
12%
1
NYSE Group
29,210
23%
Tokyo SE Group
4,331
16%
2
Nasdaq
15,320
16%
3
Euronext
4,223
22%
3
London SE
10,324
21%
4
Tokyo SE Group
6,476
33%
4
Nasdaq
4,014
15%
5
Euronext
5,648
23%
5
London SE
3,852
16%
6
Deutsche Börse
4,324
29%
6
Shanghai SE
3,694
65%
7
Shanghai SE
4,070
81%
7
HKEx
2,654
42%
:
8
TSX Group
2,187
31%
10
HKEx
2,139
62%
9
Deutsche Börse
2,105
25%
11
Shenzhen SE
2,102
72%
15
TSX Group
1,649
32%
16
Australian SE
1,379
36%
382
43%
:
:
20
Shenzhen SE
785
38%
:
:
22
Singapore
Source: World Federation of Exchanges website
539
40%
23
Singapore
6
HKEx is Among the Fastest-Growing Derivatives Exchanges in
Asia Pacific
Derivatives Market Turnover
Ranking of Major Asia Pacific Exchanges 2006-07
Total Volume (Contracts in mn)
Rank
Exchanges in Asia Pacific
Jan-Dec 2006
Jan-Dec 2007
Change YoY
1
Korea Exchange
2,475
2,709
9%
2
National Stock Exchange of India
194
380
96%
3
Dalian Commodity Exchange
120
186
55%
4
Taiwan Futures Exchange
115
115
0%
5
Osaka Securities Exchange
61
109
79%
6
Zhengzhou Commodity Exchange
46
93
102%
7
Sydney Futures Exchange
78
91
17%
8
HKEx
43
88
105%
9
Shanghai Futures Exchange
58
86
48%
10
Multi Commodity Exchange of India
46
69
50%
Source: FIA Futures and Options Monthly Volume Results
7
2007 Annual Results Overview - Financial
Income
Operating
Expenses
Profit Before
Taxation
+17%
+143%
+106%
**
8,602
Profit attributable
to shareholders
+145%
Dividend
Per Share
Basic EPS
+144%
+144%
7,191
In $
In $mil
6,169
**
4,174
5.78
5.19
2,964
2,519
1,210
2006
2007
2006
2.37
1,411
2007
2006
2007
2006
2007
2006
2.13
2007
2006 2007
*Percentages are calculated based on actual results rounded to the nearest thousand dollars.
**Includes one-off gain on disposal of an associate of $206 million in 2007 and share of profits of associates in both years
Source: 2007 HKEx Annual Report
8
Results Since Merger
9,000
Income
8,000
Expenses
7,000
Profit attributable to shareholders
8,602
6,169
In $mil
6,000
4,174
5,000
4,000
2,312
1,998
3,000
1,813
2,029
2,000
1,331
1,179
1,165
1,224
589
693
2,712
2,407
2,519
1,156
1,411
1,340
1,000
883
0
2000
734
2001
2002
1,057
2003
1,145
2004
2005
1,210
2006
2007
In $mil
Year
2000
2001
2002
2003
2004
2005
2006
2007
Income (Note)
2,312
1,998
1,813
2,029
2,407
2,712
4,174
8,602
Expenses
1,331
1,179
1,165
1,224
1,156
1,145
1,210
1,411
883
734
589
693
1,057
1,340
2,519
6,169
Profit attributable to
shareholders
Note : Includes gain on disposal of an associate and share of profits of associates
Source: HKEx Annual Reports
9
Key Performance Indicators
Cost to income ratio
90%
71%
80%
Financial Ratio (in %)
84%
Return on equity
Pre-tax profit margin
64%
70%
58%
60%
59%
74%
58%
52%
60%
42%
50%
41%
42%
40%
36%
48%
40%
30%
18%
20%
31%
26%
14%
48%
29%
12%
11%
10%
16%
0%
2000
2001
2002
2003
2004
2005
2006
2007
In $mil
Year
2000
2001
2002
2003
2004
2005
2006
2007
Income (Note)
2,312
1,998
1,813
2,029
2,407
2,712
4,174
8,602
Expenses
1,331
1,179
1,165
1,224
1,156
1,145
1,210
1,411
Note : Includes gain on disposal of an associate and share of profits of associates
Source: HKEx Annual Reports
10
Agenda
 2007 Annual Results Overview
 Financial Review
 Business Review
 Q&A
11
Financial Highlights
2007
$ mil
2006
$ mil
Change
Results
Income
8,390
4,147
102%
Operating expenses
1,411
1,210
17%
Operating profit
6,979
2,937
138%
206
-
N/A
6
27
-79%
7,191
2,964
143%
Gain on disposal of an associate
Share of profits of associates
Profit before taxation
Taxation
(1,022)
(445)
130%
Profit attributable to shareholders
6,169
2,519
145%
Basic earnings per share
$5.78
$2.37
144%
Diluted earnings per share
$5.72
$2.34
144%
Interim dividend declared per share
Final dividend declared per share
$1.79
$3.40
$5.19
$0.94
$1.19
$2.13
90%
186%
144%
Dividend payout ratio
90%
90%
N/A
Note : Percentages are calculated based on actual results rounded to the nearest thousand dollars.
12
Breakdown of Income
2007
$ mil
2006
$ mil
Change
3,086
1,340
+130%
689
466
+48%
1,577
675
+134%
Depository, custody and nominee services fees
627
376
+67%
Income from sale of information
679
391
+74%
1,238
601
+106%
494
298
+66%
8,390
4,147
+102%
Trading fees and trading tariff
Stock Exchange listing fees
Clearing & settlement fees
Net investment income
Other income
Total
Note : Percentages are calculated based on actual results rounded to the nearest thousand dollars.
13
Net Investment Income
Corporate
Funds
Clearing
HKEx Group
Margin Funds House Funds
Total
2007
Gross investment income ($mil)
385
Interest expenses ($mil)
(12)
(675)
(25)
Net investment income ($mil)
373
798
67
1,238
Average amount of funds available for investment ($mil)
7,423
39,976
2,330
49,729
Gross return
5.19%
3.69%
3.94%
3.92%
Net return
5.03%
2.00%
2.88%
2.49%
78
1,044
Gross investment income ($mil)
Interest expenses ($mil)
310
2006
656
92
1,950
(712)
(409)
(30)
(443)
306
247
48
601
Average amount of funds available for investment ($mil)
4,760
18,772
2,037
25,569
Gross return
6.52%
3.49%
3.84%
4.08%
Net return
6.42%
1.31%
2.39%
2.35%
Net investment income ($mil)
(4)
1,473
Note : Percentages are calculated based on actual results rounded to the nearest thousand dollars.
14
Breakdown of Expenses
2007
$ mil
2006
$ mil
827
655
+26%
135
73
208
133
85
218
+1%
-15%
-5%
132
119
+11%
Product marketing and promotion expenses
14
11
+25%
Legal and professional fees
27
8
+240%
Depreciation
79
100
-21%
124
99
+26%
1,411
1,210
+17%
Staff costs and related expenses
Information technology and computer maintenance expenses
Costs consumed by the Group
Costs directly consumed by Participants
Premises expenses
Other operating expenses
Total
Change
Note : Percentages are calculated based on actual results rounded to the nearest thousand dollars.
15
Second & First Half-year Comparison
H2 2007
$ mil
H1 2007 Change
$ mil
Results
5,233
3,157
66%
745
666
12%
4,488
2,491
80%
Gain on disposal of an associate
-
206
-100%
Share of profit of an associate
-
6
-100%
4,488
2,703
66%
(649)
(373)
74%
3,839
2,330
65%
Income
Operating expenses
Operating profit
Profit before taxation
Taxation
Profit attributable to shareholders
Note : Percentages are calculated based on actual results rounded to the nearest thousand dollars.
16
Agenda
 2007 Annual Results Overview
 Financial Review
 Business Review
 Q&A
17
Mainland
Positioning
Business
Expansion
Service
Improvement
Focus of 2007/08
Strategic Theme 2007-09
HKEx Strategic Focus and Initiatives of 2007-08
Primary market development
 Attract Mainland and overseas issuers
 Review and enhance listing regimes
 Review and automate listing processes
Secondary market development
 Remove trading barriers
 Facilitate participation of intermediaries
 Support growth in market volume
Product development
 Facilitate product development infrastructure
 Develop new products in cash and derivatives markets
Service enhancement
 Streamline and automate operations
 Improve service quality and increase service offerings
Market quality enhancement
 Enhance market and issuer information transparency
 Improve corporate governance standard of issuers
System enhancement
18
Market Capitalisation and Funds Raised
 Rise in market capitalisation from increase in the number of listed companies,
and growth of their businesses
 1,241 companies were listed in Hong Kong as of 31 Dec 2007
 Total funds raised in 2007 exceeded 2006, even with 2006 mega-IPOs
IPO & Post-IPO Funds Raised (2003-07)
25,000
600.0
20,000
15,000
20,698
10,000
13,338
5,000
5,548
6,696
8,180
-
Funds Raised ($bn)
Market capitalisation ($bn)
Market Capitalisation (2003-07)
Source: HKEx statistics
2004
2005
2006
2007
558.5
190.7
290.6
333.9
267.9
500.0
400.0
300.0
281.8
213.7
200.0
100.0
-
2003
524.6
301.8
136.1
184.6
154.6
59.1
97.2
165.7
2003
2004
2005
2006
2007
IPO equity funds raised
Post-IPO funds raised
19
Cash Market Trading
 Average daily turnover in 2007 up 160% YoY
 Average daily turnover of derivative warrants (DWs) in 2007 up 164% YoY
 In 2007, Hong Kong ranked #1 among world exchanges in DW trading
 DW makes up over 21% of overall trading value
Average Daily Turnover (DW)
100.00
80.00
60.00
88.07
40.00
20.00
0.00
10.42
15.96
18.30
2003
2004
2005
Source: HKEx statistics
33.91
2006
2007
DW Avg. Daily Turnover ($bn).
Avg. Daily Turnover ($bn) .
Average Daily Turnover (Overall)
25.00
19.08
20.00
15.00
10.00
5.00
7.25
1.07
2.11
2003
2004
3.47
0.00
2005
2006
2007
20
Derivatives Market Trading
Period End Open Position
7.00
Contracts (In mn)
6.00
5.00
4.00
3.00
5.78
2.00
3.03
1.00
0.00
0.73
0.93
2003
2004
1.39
2005
2006
* Based on average daily number of contracts traded
Source: HKEx statistics, World Federation of Exchanges website
2007
Avg. daily no. of contracts traded (in '000)
 Derivatives market trading up 105% YoY
 Hong Kong surpassed Australia as the
most active stock options market in Asia
 Derivatives market turnover in Hong
Kong surpassed Singapore in 2006 and
2007
Avg. daily # of
contracts traded
('000):
Jan-Dec
2006
Jan-Dec
2007
Growth*
Options contracts
93
226
142%
Futures contracts
80
134
66%
Stock options
73
187
156%
HSI futures
51
70
37%
HHI futures
20
44
124%
Major derivative products
Average Daily Volume
400
358
350
300
250
226
174
200
150
100
59
50
26
33
0
79
31
48
103
93
49
54
134
80
2003
2004
2005
2006
2007
Futures contracts traded
Options contracts traded21
Major Achievements – Primary Market Development
 Issued joint policy statement with SFC regarding the listing of overseas
companies
 Published a second board model proposal for GEM
 Signed MOUs with Abu Dhabi Securities Market, Moscow Interbank
Currency Exchange, Hochiminh Stock Exchange and Mongolian Stock
Exchange
 Delivered over 140 presentations and training sessions; met with more than
580 potential listing applicants in the Mainland and overseas, including
Vietnam, Thailand, Malaysia, Kazakhstan, Russia, South Korea, India,
Singapore, Taiwan, Japan and Mongolia (in addition to participation in
roadshows in the US, UK and Europe)
22
Major Achievements – Secondary Market Development
 Revised market maker regime for futures and options
 Worked with SFC to relax position limits for HSI and H-shares Index futures
and options in Mar & Dec 2007
 Admitted 24 new SEHK participants and 7 new HKFE participants
 Introduced Third Party Clearing
23
Major Achievements – Product Development
 Launched additional stock option classes with Mainland-related stocks as
underlyings
 Rolled out a third calendar quarter expiry month in selected stock option
classes
 Introduced new Mainland-related products such as: Hang Seng China HFinancial Index Futures, WISE CSI 300 China Tracker ETF and HSBC
China Dragon Fund
 Reduced CBBC listing fees by 70%
 Facilitated listing of Market Access Products (MAPs) on foreign, regional
and global stocks and indices, and commodities
24
Major Achievements – Market Quality Enhancement
 Harmonised risk management measures
 Implemented Phases 1 and 2 of the Electronic Disclosure Project
 Conducted review of issuers’ effectiveness of the Code on Corporate
Governance Practices
 Published a Consultation Paper on Periodic Financial Reporting
 Launched pilot programme for publication of web proof information packs
(1 Jan 2008)
 Published a Combined Consultation Paper on Proposed Changes to the
Listing Rules (11 Jan 2008)
25
Major Achievements – Service Enhancement
 Introduced a tender service for trading rights
 Provided training and seminars on the Hong Kong securities market and its
products
 Enhanced the Stock Segregated Account with Statement Service
 Improved CCASS Nominee Services
 Increased immobilisation rate of CCASS holdings
 Reduced delay time of market data on HKEx website to 15 minutes
 Improved Issuer Information Feed Service (IIS) and fee reduction
 Enhanced news alert service of Investment Service Centre on HKEx website
 Launched designated website for issuer news www.hkexnews.hk (4 Feb 2008)
26
Major Achievements – System Development
 Fully consolidated all cash and derivatives systems communication network to
SDNet for higher efficiency and lower operational costs
 Upgraded AMS OG/MWS hardware and system software
 Upgraded AMS and MDF capacity to support 5 million daily trades (28 Jan
2008)
 Replaced and upgraded CCASS mainframe and middle-tier systems
 Upgraded HKATS and DCASS hardware and capacity
 Upgraded PRS to deliver 900 messages per second
 Rolled out the Electronic Disclosure System
27
2008 Major Initiatives – Primary Market Development
 Launch depositary receipts regime
3Q2008
 Launch enhanced GEM regime
3Q2008
 Coordinate activities with initiatives undertaken by the
Government, market practitioners, industry groups and trade
associations to promote the Hong Kong securities market
Ongoing
28
2008 Major Initiatives – Secondary Market Development
 Roll out 5-digit stock codes
 Introduce closing auction session
7 Apr 2008
26 May 2008
 Discuss with SFC on suspension of tick rule for short selling
2Q2008
 Discuss with interested parties to cooperate in establishing a
trading platform in emissions-related products
Ongoing
 Work with SFC on feasibility of admitting remote participants
Ongoing
 Discuss with HKSAR Government on abolition of stamp duty or
broadening exemption
Ongoing
29
2008 Major Initiatives – Product Development
 Launch Mini H-share index futures
31 Mar 2008
 Re-launch gold futures
3Q2008
 Enrich product offerings through listing of new MAPs on
underlying assets such as individual securities; single market,
regional, thematic, proprietary and Islamic indices; and
commodities and various financial derivatives
Ongoing
 Explore the listing of emissions-related and gold-related
structured products and ETFs
Ongoing
30
2008 Major Initiatives – Market Quality Enhancement
 Publish Consultation Conclusions on Periodic Financial
Reporting
2Q2008
 Publish second review of issuers’ compliance with Code on
Corporate Governance Practices
29 Feb 2008
 Implement changes to the suspension policy
10 Mar 2008
 Implement Phase 3 of Electronic Disclosure Project
25 Jun 2008
 Publish Consultation Conclusions on Combined Consultation
Paper on Proposed Changes to the Listing Rules
3Q2008
 Commence review of CG Code and corporate governance
disclosure requirements
3Q2008
 Enhance market making services
3Q2008
31
2008 Major Initiatives – Service Enhancement
 Start Project LISA, Listing Information Support System
1Q2008
 Develop information business in the Mainland
1Q2008
 Introduce shareholding disclosure service
2Q2008
 Streamline participants admission and registration function
2Q2008
 Improve two-way communication channel with participants
4Q2008
 Revamp HKEx website
4Q2008
32
2008 Major Initiatives – System Development
 Upgrade SMART system
 Upgrade HKATS/DCASS software to release 19.1
 Upgrade CCASS capacity to support 5 million daily trades
1Q2008
3 Mar 2008
22 Mar 2008
 Work with SFC to facilitate electronic submission of
Disclosure of Interest notices
2Q2008
 Upgrade PRS to deliver 2,200 messages per second
2Q2008
 Upgrade CCASS middle tier technology
Aug 2008
 Upgrade AMS and MDF to support 7.5 million daily trades
4Q2008
 Upgrade DCASS to support 2 million daily trades
4Q2008
 Upgrade capacity of HKEx website and Investment Service
Centre
4Q2008
 Conduct review of IT governance and core market systems
2008-09
33
2008 Major Initiatives – Corporate
 Identify external consultant to conduct green audit
1Q2008
 Consolidate offices and data centres
2008-09
 Ongoing fee review
2008-09
34
Agenda
 2007 Annual Results Overview
 Financial Review
 Business Review
 Q&A
35
Thank You