Computershare Goes For Gold

Background, by Eureka Report editor James Kirby: Chris Morris, the dynamic chief executive of shareholder services company Computershare, outlines an ambitious growth plan to Robert Gottliebsen* in today’s video interview.

He wants the company to achieve annual 20% growth in earnings per share (EPS); and he is confident his senior staff will deliver this goal because he has aligned Computershare’s long-term staff incentive scheme closely with this target.

The long-term strategy articulated by Morris is found all too rarely among leading Australian companies increasingly obsessed with short-term returns.

Computershare is an unlikely winner among Australian multinationals. The group rose to fame in the first wave of the IT bull market in the late 1990s and then fell from grace after the dot-com crash.

Today, Morris has manoeuvred the company back into the big league by building an operation that is a global leader in its field. Computershare consolidated its position as the biggest shareholder services group after acquiring two smaller companies: Georgeson Shareholder and EquiServe.

Moreover, it has no serious rival in the shareholder services business; it’s two main rivals in the US, the Bank of New York and Mellon, are much smaller.

As Australia’s big four banks '” ANZ, CBA, NAB and Westpac '” have largely retreated from global ambitions, and retreated entirely from the US market, making Computershare the “world’s first share services business”.

Computershare’s US international business and its pricing power have allowed its stock to reach a hefty premium to the rest of the Australian sharemarket. Trading at about $6.69 (down from a 12 month high of $7.28) the group enjoys a price/earnings multiple of about 30 '” about double the ASX average.

The market’s support of Morris and his company is also based on his ability to manage costs: Computershare’s long-term strategy also includes a target of reducing costs by 7% a year.

Eureka Report caught up with Morris one of his fleeting visits to Australia; he now spends the bulk of his time in the UK, where the group has struggled to succeed in the London market.

Robert Gottliebsen: You’ve started the world’s first share services business. In the next three or four years can you achieve 20% profit growth, as the sharemarket expects you to do?

Chris Morris: We obviously hope so and the senior management obviously believe that because we’ve got a very strong incentive program over the next five years, where their rewards will come if they actually manage to get 20% earnings per share growth accumulative over the five-year period.

Operationally, how will you achieve that 20% growth?

Operationally we have really had a focus in the past year to have standard operations globally. What we call transfer pricing within our operations group, which is the central services unit that provides operational support to registry plans, mutual funds, proxy '¦ whatever we do there’s an underlying goal in each of those businesses to reduce costs by 7% every year.

That’s probably a combination of mainly technology, work flow, document imaging, scanning '” things like that '” which will also allow us to actually move work around the globe, so if we’ve got a lot of work to do in the UK and we’ve got spare resources in Australia, then we’d actually automatically just divert that work straight to Australia and we could process it in Australia. It obviously will give us an excellent opportunity to compare the cost base in different countries around the world and a little bit of a competitive environment, too, for each of those countries to outperform the other.

How much do you invest in technology each year?

I think it’s about 11–12%.

Is that part of the reason you get technology gains?

Obviously, yeah, you have to and I’m a strong supporter always of continuing that sort of investment. If you’re going to be ahead of the rest of them, then you’ve really got to make that long-term investment and you spend it wisely. Most of the time we’re pretty good at it. Sometimes we have a few failures but if you do it wisely then you’ll get a very good return on your investment.

What percentage of the Computershare business is in share registries and where are you going to get your growth in the years ahead?

Actually, probably five years ago 95% of our revenues were in registry. Today, it’s less than 50%. I think it’s actually 49%. I would estimate that in probably three or four years’ time, it will be down to probably 30–35% and that’s where I see it going long term.

So the other real growth areas for us: as you’ve seen this year, the mutual fund solicitation and tabulation business in the US has grown dramatically. We also started up a fixed-income business in the US, which is showing very positive signs and expanding. The plans business, although probably about 10% of our revenues now as a whole '¦ we are the largest player in global plans as well, but probably of that industry sector probably only 20% is actually outsourced to third party providers so the rest of it is done in house

There’s huge potential growth within the plans business, so I see those areas expanding, which gives us a really nice cross-section of different revenue streams. When things are not going too well in one area then it helps us globally because we’re in different locations and different business sectors.

You’ve twice stumbled in the UK. Is that a warning to your total business?

That’s a question we are continually asking ourselves at the moment and obviously the board have asked it as well. I think all of the senior management group, and ultimately I, take responsibility for the UK; we are very conscious. I think the UK experience has really hit home to all of us. We are a lot more open company now; we will question each other a hell of a lot more. At the moment, Stuart Crosby, the CEO, and myself are jointly managing the UK. I can do my job as CEO just as easily from northern hemisphere in the UK or probably a lot easier than I can from Australia, so it’s a good question. We’re very focused on that and we’ve actually changed some of our internal procedures '” reporting, etc '” just to make sure that doesn’t happen again.

What’s it like to be an executive once again.

Great fun. Loving it.

Did you learn anything.

I’ve learnt more in the past four months, I think ,than I have in the past 10 years. It has really been a great experience and I think will be something that every CEO should do every now and again: just get down on the coal face.

I mean, when I first went to the UK I interviewed over 100 staff individually just to really try and get an understanding of what people were feeling. The over-riding thing then was a total lack of a sort of feeling good about the company they work for, and that’s probably one of the greatest things that I’ve been really trying to focus on over there '” getting staff feeling good about working for Computershare. Because unless you’ve got that you’ve got no hope.

In Australia Pacific Equity has acquired the old ASX Perpetual and says they’re going to be another Computershare. Can they do it?

Oh look good luck to them. I think it’s not a bad business really, as Computershare has proved. For us, if they were to expand globally and take over a Lloyd’s or Mellon or someone like that then obviously '¦ That’s one part of the equation: to actually to take over other companies. It would be impossible to get to the size we are, and in certain countries they couldn’t get into '” Hong Kong and South Africa and places like that '” but then you’ve got to do the technology side and it took us probably five years before we started making a profit in the US.

It’s pretty easy to buy something but then you’ve got to make it work and there’s a lot of work to do.

In the next three or four years are you going to acquire a lot more companies?

We’re finding that we get actually presented with a lot more opportunities than we ever did before, and probably better quality ones. We’re pretty strict about what we do. Of the 45 acquisitions we’ve made, there is probably two I’d say that we shouldn’t have done. I won’t mention who they were, but even Georgeson, which two years ago we knew we were going to have problems with was probably a lot worse than we thought it was, where EquiServe is a lot better than we thought it would be.

Georgeson '” now that’s what started off the mutual fund expansion proxy business, so it’s been a good acquisition. I think there’s a whole lot of value. There’s a lot of companies like the recent one we bought in the UK called Imell '” a very much a localised UK company, fantastic product where we can take it because our global presence and just increase the size of it dramatically.

Chris Computershare is producing a lot of cash. Are you likely to return some to shareholders.

Well it’s all [our opinion]. If we run out of things to buy where we don’t think we can get a better return on equity than somebody can in the bank then that’s what we’ll do, but I think that’s a fair way off at the moment.

* Robert Gottliebsen is a business commentator for The Australian.