Managing Director's report

The global securities industry is continuing to address the challenges of an ever-shrinking world and of rapid technological innovation.

Two years ago, your board put in place a set of strategic objectives which were aimed at creating a greater depth in the range of products and services we would offer and a greater international presence. In this way, we would be best positioned to meet our central aim of being the pre-eminent supplier of technology solutions to the international securities industry.

Our acquisition of Computershare Systems Pty Limited and the establishment of a joint office in London to service this important region, were two critical milestones in our strategy. Our latest purchases of Ernst & Young Registry Services Pty Limited, KPMG Registrars Pty Limited and Registry Managers (New Zealand) Limited serve to further complement this strategy.

These acquisitions have brought with them immense synergies and, as importantly, result in our ability to offer a full range of technology solutions and services to stock exchanges and their ancillary industries. We believe that in this respect, your Company is in a unique position in the international market place.

Our significant investment in the total re-write of the SCRIP bureau registry system (Computershare Cosmos), the planned launch of Computershare Cosmos Trust and our provision of innovative value-added products serves the equally important and critical strategy of continuing to support all our registry clients.

The audited operating profit before tax of the group increased to $7,883,971 whilst the after tax profit increased to $4,889,032. Operating revenues increased from $16,123,735 to $21,673,189.

The after tax result was affected by higher depreciation, amortisation and interest charges, a trend which will continue in future years as a result of the acquisitions.

With the improvement in the United Kingdom market, Computershare Systems continued successful market penetration overseas and with the consolidation of the acquisitions made during the last six months, we expect this growth to continue.

Registry System

Our bureau service has continued its upward trend with security holder numbers increasing this year following demutualisations and the conversion of BHP on to our system.

The re-write of our SCRIP system (Computershare Cosmos) which I foreshadowed in last year's report, is continuing on schedule and is progressing well toward its phased introduction into selected sites from January 1998.

During the year we have continued to develop and introduce value-added services to our clients. Amongst the most significant is the technology and software necessary to allow touch-phone enquiries by shareholders on a share register. This service was used by Colonial Limited during its recent float and throughout the period from the middle of May 1997 until the end of July, a total of 175,673 calls were logged of which only 43,585 (24.8%) were passed to an operator.

Stock Exchange and Broker Systems

During 1997, the product and business development efforts undertaken over the previous year began to yield results. The development of a significant new version of the Automated Securities Trading System (ASTS) - Version 3 - was completed.

Version 3 ensures that ASTS remains the leading product for exchange automation, world-wide. In 1997, we responded to many ASTS tenders, almost all of which were won. These include the Istanbul Stock Exchange, the Cyprus Stock Exchange, the Helsinki Stock Exchange, the Budapest Stock Exchange, the Oslo Stock Exchange and the new Malaysian Over-The-Counter exchange, MESDAQ.

Analysis and software development work is in full progress for most of these projects and, as a consequence, both the Australian and UK office staff numbers have grown.

The Cyprus project includes a Clearing, Settlement and Depository subsystem which will support the full clearing and settlement cycle in Cyprus. The Finnish Central Depository has already shown great interest in this system.

The Oslo and Budapest Stock Exchanges will be supplied with a combined bond and equity trading system. We are currently in final contract negotiations with both exchanges which are expected to be finalised by September 1997. With these wins, the London office will be supporting over five European exchanges within the next six to twelve months.

The work on the SUMMIT system for Australian brokers has continued at a steady pace. We are working closely with our development partner on this product and the system is expected to go live early in the new financial year.

The Russian Central Bank, the Moscow Interbank Currency Exchange and the Jakarta Stock Exchange have licensed the SMARTS surveillance system. These first sites provide a solid foundation to develop this business, for which there is little world-wide competition and a great deal of interest from a number of potential clients.

We attach importance to achieving our medium to long-term goal of becoming ISO 9000 certified. To this end, with the help of Price Waterhouse, we have already commenced the integration of the Quality Management System with the software development cycle being the key focus.

Share Registry Services

The registry businesses of KPMG Registrars Pty Limited and Ernst & Young Registry Services Pty Limited will operate under the name of Corporate Registry Services Pty Limited and, in the short term, we will retain the name of Registry Managers (New Zealand) Limited for our services in New Zealand.

These acquisitions are an important strategic step for your Company which will provide a distinctive environment for the continued improvement of registration services in Australia, New Zealand and, potentially, the United Kingdom.

Retirement of Michele O'Halloran

Your chairman has announced the resignation in January 1997, of Michele from Computershare and the board. Michele first joined the Company in 1979 but our professional association pre-dates even this time. I would not want the moment to pass without adding my own sincere thanks to her for the value she brought to our Company. As director and general manager, Michele gave total commitment to her role. She is admired by her fellow staff and, whilst we wish her well in her retirement, we will all miss her presence in the Melbourne office.

Strategy

Our results show that we have made significant progress in meeting our strategic objectives. Our Australian bureau registry service has sustained its growth and we continue to strive in the pursuit of excellence in our service to clients. Both our investment in the new businesses and the very real potential that exists through our UK operation have secured our strategic aim of expanding our product range and broadening our income base beyond the single market in Australia.

Outlook

We remain confident that our businesses will continue to provide a significant contribution to our earnings. The investment by The Royal Bank of Scotland of 9% of your Company represents, in their words, "a major milestone in Computershare's plans to expand into European markets. It also opens the way for both parties to explore potential opportunities to work together in the future in the UK and Europe by taking advantage of The Royal Bank's leading domestic presence in the securities market and Computershare's systems expertise."

We will continue to strive to meet out corporate goal of ensuring that Computershare is the pre-eminent supplier of world class technology to the securities industry and to provide the highest quality of service and systems to our worldwide client base.