At 30 June 2015, equity of the Group totalled $3,759.7 million (2014: $3,670.9 million). The Group’s capital supports a range of activities with require- ments subject to change from time to time. Some factors that may impact the amount of capital the Group requires to support its business include:
•regulatory standards, both domestic and international, which may impact on the level of capital supporting the clearing and settle- ment activities or other licensed activities. Regulatory standards applying to many financial market participants have increased in recent years and there is an expectation that these may increase further over time. There may also be uncertainty over the application of new regulatory standards
•the competitive environment in which ASX operates may lead to higher levels of capital in order to provide competitive services, noting that customers may be able to access compet- ing services internationally
•the level of activity undertaken in markets and clearing and settlement facilities operated by ASX. Generally the higher level of activity may result in higher capital requirements, however the relationship is not necessarily linear •the general economic or credit conditions
that may impact on capital requirements as the level of risk generally increases as credit conditions deteriorate. The level of operational risk capital held by the Group can be impacted by any revision to future loss assessments and regulatory requirements
•the level of investments made, their market value and the potential movement in their market values. Capital requirements may also be impacted by ASX’s level of investment in existing or new services.
(a) Movements in ordinary share capital
2015
$m 2014$m
Opening balance at 1 July 3,027.2 2,746.4
Rights issue - 285.9
Less: transaction costs
relating to the rights issue - (7.2)
Deferred tax credit recog-
nised directly in equity - 2.1
Closing balance at 30 June 3,027.2 3,027.2 2015 No. of shares 2014 No. of shares Opening balance at 1 July 193,595,162 184,066,764
Rights issue - 9,528,398
Closing balance at 30 June 193,595,162 193,595,162
In the prior financial year, the Group completed the retail component of its pro rata accelerated renounceable entitlement offer. This resulted in the issue of 9,528,398 ordinary shares for gross proceeds of $285.9 million.
Fully paid ordinary shares carry the right to participate in dividends. Ordinary shares also entitle the holder to the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. Ordinary shares have no par value and ASX does not have a limited amount of authorised capital. At 30 June 2015, all ordinary shares issued were fully paid. On a show of hands, every holder of ordinary shares present in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax.
Dividend reinvestment plan shares allotted to ASX shareholders as part of the dividend rein- vestment plan (DRP) at the DRP allocation price are classified as fully paid ordinary shares.
(b) Treasury shares 2015 No. of shares 2014 No. of shares Number of shares as at 1 July (181,269) (181,269) Issue of deferred shares under
the LTI plan - -
Number of shares as at 30 June (181,269) (181,269)
The cost of treasury shares at 30 June 2015 was $8.0 million (2014: $8.0 million).
The LTIP holds treasury shares for the benefit of employees under the ASX LTI plan as described in the remuneration report. The shares, net of any tax effect, are deducted from the equity compensation reserve in equity.
The Board’s policy is to maintain an appropriate level of capital within the Group and relevant subsidiaries with the objectives of:
• meeting its compliance obligations with respect to the Financial Stability Standards, and other regulations, including international, as required by the various licences held • sustaining prudential stability through
maintaining an adequate level of equity at the Group level, cognisant of the fact that a signifi- cant allocation of capital supports the activi- ties of the two licensed central counterparty (CCP) clearing subsidiaries as discussed in note B1 and the two licensed settlement facilities • facilitating growth of the Group’s exchange- traded and OTC markets, and provide appro- priate risk adjusted returns to shareholders. In accordance with the Group’s objectives and policies, capital represented by cash is invested at an appropriate liquidity profile, taking into consideration the potential claims on that equity that may arise from the Group’s activities, predominantly central counterparty clearing.
ASX Annual Report 2015 | Performance of the Group 47
A4 Earnings per share
2015 2014
Basic and diluted earnings
per share (cents) 205.7 198.5
The following reflects the share data used in the calculation of basic and diluted earnings per share: Weighted average number
of ordinary shares used in calculating basic and diluted earnings per share
193,413,893 193,022,315
The basic and diluted earnings per share (EPS) amounts have been calculated on the basis of net profit after tax of $397.8 million (2014: $383.2 million).
Basic earnings per share is calculated by divid- ing the consolidated profit attributable to the owners of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.
Diluted earnings per share adjusts the figures used in the determination of basic EPS to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordi- nary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
A5 Taxation
The movements during the year in the following components of deferred tax asset and liability were recognised in profit or loss with the exception of revaluations of investments, available-for-sale financial assets and cash flow hedges, which were recognised in other comprehensive income.
2015
$m 2014$m
(a) Income tax expense
Profit before income tax expense 566.2 541.6
Prima facie income tax expense calculated at 30% (2014: 30%) on the profit before tax (169.9) (162.5)
Movement in income tax expense due to:
Non-deductible items (0.3) (0.2)
Non-assessable items 0.1 -
Franking credit offset 1.5 2.7
Research and development tax offset - 0.6
Adjustments to current tax for prior periods 0.2 1.0
Total income tax expense (168.4) (158.4)
(b) Major components of income tax expense
Current tax expense (168.4) (155.6)
Movement in deferred tax liability 0.6 (3.4)
Movement in deferred tax asset (0.8) (0.4)
Adjustments for current tax of prior periods 0.2 1.0
Total income tax expense (168.4) (158.4)
(c) Deferred income tax on items recognised directly in equity
Rights issue - 2.1
Total - 2.1
(d) Income tax on items recognised directly in other comprehensive income
Revaluation of investments in listed entities (17.8) (6.8)
Revaluation of available-for-sale financial assets (0.3) -
Revaluation of cash flow hedges (0.3) 0.6
Total (18.4) (6.2)
(e) Deferred tax asset/(liability)
Deferred tax asset comprises the estimated future benefit at an income tax rate of 30% (2014: 30%) of the below items:
Provisions for:
Doubtful debts 0.5 0.4
Employee entitlements 9.9 9.5
Premises provisions 3.1 3.5
Accrued expenses 2.6 3.9
Revenue received in advance 4.0 3.6
Revaluation of cash flow hedges - 0.1
Deferred tax asset 20.1 21.0
Deferred tax liability comprises the estimated future expense at an income tax rate of 30% (2014: 30%) of the following items:
Fixed assets (10.4) (11.0)
Revaluation of investments in listed entities (52.9) (35.1)
Revaluation of available-for-sale financial assets (0.6) (0.3)
Revaluation of cash flow hedges (0.2) -
Long-term incentive plan (0.3) (0.3)
Deferred tax liability (64.4) (46.7)
Net deferred tax liability (44.3) (25.7)
Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively. Income tax expense recognised in profit or loss comprises current and deferred income tax.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Current tax assets and tax liabilities are offset if there is a legally enforceable right to offset and the Group intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
Deferred income tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes. Deferred income tax is not recognised for certain temporary differences such as the initial recognition of goodwill. The amount of deferred income tax is deter- mined using tax rates enacted or substantively enacted at the balance sheet date and expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
A deferred tax asset is recognised only to the extent that it is probable that future taxable amounts will be available against which the asset can be utilised, and is reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and when the deferred tax balances relate to income taxes levied by the same tax authority.
48 ASX Annual Report 2015 | Risk management
Risk
management
Some of the risks the Group is exposed to include clearing and settlement risk and operational risk. ASX settles equity (on average $4.3 billion per day) and debt instrument (on average $62.6 billion per day) transactions on a ‘delivery-versus-pay- ment’ basis. Settlement errors expose the Group to potenital financial and reputational losses. Operational incidents or errors can impact on the financial performance of the Group and adversely affect its reputation.