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ETR`s Chairman`s Letter to Shareholders

Document date:  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                                                        

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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.