ETR`s Chairman`s Letter to Shareholders
Mon 06 Mar 2000
Published: Mon 06 Mar 2000 14:03:17
Document No: 203216
Document part: B
Market Flag: N
Classification: Chairman's Address to Shareholders
ETRADE AUSTRALIA LIMITED 2000-03-06 ASX-SIGNAL-G HOMEX - Sydney +++++++++++++++++++++++++ LETTER TO SHAREHOLDERS I am delighted to have the opportunity to tell you just how well E*TRADE Australia is performing as a business, as evidenced by the company's half-year results. E*TRADE Australia has consolidated its strong position in the online broking industry by reporting operating revenues of $7.4 million for the half year ended 31 December 1999. This continues an exceptional period of growth for the company, which saw revenues increase 90% from $3.9 million for the six months ended 30 June 1999. As we enter the year 2000, we call expect to see a significant change in our business as many of the benefits of our major alliances with the ANZ and Computershare are realised. In its recently lodged half-year report, the company reported a consolidated operating loss before abnormal items for the six-month period ended 31 December 1999 of $6.12 million. As previously reported, the company posted an abnormal non-cash expense of $42,180,000, representing the book value of the 6 million shares issued to ANZ under the alliance with the bank, approved by shareholders in August 1999. With cash reserves at 31 December 1999 of $29.6 million, the company is in a particularly strong financial position. The Directors and management remain committed to rapidly growing E*TRADE Australia through strong marketing. There is no doubt this approach is proving highly effective in building the customer base, market share and revenue. Up-to-date performance indicators reveal: * February trading volume up 33% on January; * February gross brokerage up 30% on January; * Customer numbers increase by 26% since December 1999 to more than 43,000 accounts; * ANZ E*TRADE account opening rate accelerates to more than 48% of new accounts in February 2000; * ANZ ramps up its marketing campaign, targeting ANZ customers, staff and shareholders; and * E*TRADE Australia is the second largest online broker in Australia and is fast closing on # 1. In Australia, we estimate that online trading has moved from approximately 7% of all trades at the start of the current financial year to over 12% at the end of February 2000. In the same period, we estimate that E*TRADE Australia's share of this segment has increased from about 20% to 30%, despite the increasing competition. Today we see 10 online competitors, with E*TRADE Australia and one other being the only ones of significance. Over the past months, I am pleased to say E*TRADE Australia has gained market share at the expense of these competitors. E*TRADE Australia is the only broker with a business strategy based upon 100% online delivery. This differs to our closest online competitor who still accepts at least 30% of their trades over the telephone. E*TRADE Australia has grown rapidly since its inception, but what is particularly pleasing is the fact that our growth rate has accelerated over the last few months. This is clearly testimony to the strength of our alliances, the efficacy of our marketing, the strong word of mouth endorsement we receive from our many highly satisfied customers and our ongoing commitment to product innovation and service excellence. To give you some sense of this increased business momentum, December quarter trading volume was 80% up on the September quarter on whilst brokerage revenue was up 50%. January 2000 trading volume was up 36% on the previous month (December 1999) and February 2000 trading volume and brokerage was up more than 30% on January. The current value of registered customer assets (cash and securities) is $1.42 billion and annualised gross brokerage revenue for January and February 2000 combined, exceeds $30 million. KEY DEVELOPMENTS: JULY - DECEMBER 1999 ALLIANCES WITH THE ANZ BANKING GROUP AND COMPUTERSHARE Both ANZ and Computershare are substantial shareholders in E*TRADE Australia. On 25 August 1999, shareholders voted overwhelmingly to approve a strategic alliance with the ANZ which would provide ANZ E*TRADE with access to the ANZ's four million strong customer base in Australia and New Zealand. ANZ received an initial placement of shares representing 10% of the company's capital in return for marketing the ANZ E*TRADE co-branded service to its customers. The ANZ has the right to be issued up to 40% of shares in E*TRADE Australia, provided customer trades through the co-branded site reach certain specified performance levels over the three-year period. The ANZ E*TRADE co-branded web site was launched in early October 1999 and is currently being marketed directly to: * ANZ online banking customers; * ANZ staff; * ANZ shareholders; * ANZ private banking accounts; and * ANZ account and cardholders. This marketing activity is certainly paying off and the co-branded customer base is now growing rapidly. Co-branded customers at the end of February 2000 accounted for more than 10% of total customers and more than 7% of total trades. Computershare, as our back office service provider through the Summit system, works closely with E*TRADE Australia. Computershare provided a strong foundation for our revised commission rates announced in September last year. In addition, its technical team is facilitating our entry to the institutional market as well as broadening our access to investors' holdings through the CHESS system. Computershare is also working with E*TRADE Australia and E*TRADE Group in the US to deliver our fully automated cross border trading system. Each of these initiatives is crucial if E*TRADE Australia is to maintain its cost competitive advantage. In this New Zealand market, Computershare is the provider of the NZSE automated trading platform. They are currently working on integrating E*TRADE Australia's system with this platform. PRODUCT DEVELOPMENT In September 1999, E*TRADE Australia launched its new interactive charting package in partnership with BigCharts, a wholly owned subsidiary of MarketWatch.com, Inc. Available free of charge to all E*TRADE customers, this charting tool enables investors to use technical trend analysis to track the behaviour of Australian and US stocks. E*TRADE Australia is the only online broker in Australia to give its customers free access to such an advanced analysis tool via the Internet. In November 1999, the company launched E*TRADE Australia pro, a new service for active investors which offers direct and dynamic connection to the market, thereby providing real time market information and faster order placement. E*TRADE Australia pro is available free to E*TRADE Australia customers trading a minimum of 60 times a quarter. Offering a very fast market connection, E*TRADE Australia pro allows investors to literally watch their order hit the market. In addition, the service provides dynamic market information such as market depth, live ticker, smart alerts, company notices and watchlist updates as the market moves. The combination of E*TRADE Australia pro, the E*TRADE Australia website and our straight-through order processing technology provides investors with the speed to react to market changes that no other online broker in Australia can match today. A demonstration of this outstanding product can be viewed by clicking through to our website at http://www.etaus.etrade.com.au/uau/etrpro/demo.html. We remain the only stockbroker in Australia to offer active investors access to their accounts over the web and via PC-based software using the Internet. Very active traders and financial planners have enthusiastically adopted this dynamic service. We are now offering private client advisers an outstanding opportunity to service their clients online through E*TRADE Australia, from their own desk. This places E*TRADE Australia squarely in the private client stockbroking business. REDUCTION IN BROKERAGE RATES On 22 September 1999, we announced a reduction in brokerage rates in anticipation of the launch of the ANZ E*TRADE co-branded investing service. This decision was made to enhance the attractiveness of this service and to ensure E*TRADE Australia maximised its competitive advantage. The standard commission rate was reduced to $39.50 per trade for all trades up to $40,000 in value and 0.1% for trades above $40,000 in value. A rebate of an additional $10 per trade for active investors reduced the effective brokerage rate to as low as $29.50. PUBLIC TRADING ROOM E*TRADE Australia established a public trading room during this period. The facility is available in our offices at Level 1, 10 Bridge Street, Sydney, next door to the ASX. It is offered free of charge to our customers and provides them with a secure and comfortable environment to enable access to their equity investments as well as ANZ Internet banking. If this facility proves successful, the concept will be expanded. INVESTOR WEB SITE Our new investor web site was launched in November 1999 to provide a top-level service to existing and prospective shareholders in E*TRADE Australia. The site offers access to our key financial information, twelve-month price charts and volume data, the most recent Annual Report, share capital details, up-to-date media releases analyst coverage, company history and milestones. It can be viewed at www.etrade.com.au. Y2K The company was well prepared for the Year 2000 rollover and, as a result, the event passed without incident. The E*TRADE Australia site continues to be one of the most robust online trading platforms in Australia. NEW APPOINTMENTS We are pleased to welcome Michael Deleray to the company as Chief Operating Officer. Michael joined us in January 2000 from E*TRADE Group in the US where he was responsible for the successful rollout of several E*TRADE operations internationally, most recently in Japan. He brings to the company a great deal of experience in online trading and online financial services. On 14 February 2000, E*TRADE Australia announced Ms Judy Balint's resignation as a Director along with Mr Arthur Havel's as her Alternate. Mr Jarrett Lilien was appointed to the Board in Ms Balint's place, representing E*TRADE Group Inc, along with Mr Mathias Helleu as his Alternate. FUTURE DEVELOPMENTS A number of exciting new initiatives will be introduced over the next few months which will further enhance E*TRADE Australia's already strong position in the marketplace. New services will include Margin Lending, Managed Funds, Cross-Border Trading and Institutional Trading. The E*TRADE Australia ANZ co-branded investment service will be launched in New Zealand as a joint venture with the ANZ. And the web site, currently located in the US with E*TRADE Group Inc, will be re-located to Sydney to provide an even faster service to our customers. A WORD ON INCREASED COMPETITION Shareholders will not have failed to notice recent announcements from various financial institutions that they intend to establish online broking services in Australia. This increased competition over the coming few months will not unduly affect E*TRADE Australia's continued expansion. It will broaden E*TRADE Australia's growth opportunities by accelerating the expansion of the online trading market. E*TRADE Australia is already the leading brand name in online broking. We enjoy a large customer base and a very strong market share position. We have a superior web site and trading platform and we are committed to rolling out a range of new services designed to keep us at the leading edge of this segment. We believe our strong marketing campaign, in conjunction with the ANZ's marketing program, will ensure E*TRADE Australia is best placed to capitalise on the growth in online broking that is expected to continue over the next several years. E*TRADE AUSTRALIA'S SYSTEMS AND SCALABILITY In the eight months to February 2000, E*TRADE Australia executed just over 450,000 trades as compared with 137,000 trades for the entire prior financial year. This represents an increase of 228%, with four months remaining in the current financial year. The value of these trades was approximately $2.7 billion, representing a 150% increase. During this period of sustained growth and new product implementations, our online systems have proven to be reliable and scalable. This would not have been possible if large numbers of orders were to be taken over the telephone and processed manually. It is this scalability and reliability that substantiates E*TRADE Australia's number one brand position in the online investing space. A WORD ABOUT THE E*TRADE AUSTRALIA TEAM At the last Annual General Meeting, I expressed the Board's appreciation to Kerry Roxburgh, Group Chief Executive Officer, and his exceptional team for their outstanding performance in making E*TRADE Australia a major player in the online investment field in such a short space of time. I again make this acknowledgement to the entire E*TRADE Australia team, who have worked relentlessly to continue to grow the business. Their success is amply demonstrated by the outstanding results I have presented in this letter. CONCLUSION In recent months, the company has been profitable, before expensing marketing expenditure. Part of this success is due to our rapid growth and also, very importantly, the fact that our fixed costs do not increase in proportion to growth. Each new trade takes the company towards ever increasing contribution to profitability. Forgoing profitability to build the brand has resulted in E*TRADE Australia being the most recognised online trading brand in the Australian market. This brand strength, coupled with our creative marketing strategy, technological leadership, innovative products and services, operational efficiencies, significant cash reserves and the leverage we have with the ANZ and Computershare alliances, will propel E*TRADE Australia to our goal of becoming the # 1 player in the online investing and financial services market.