NZXs results for the full year ended 31 December 2012 reflect continued growth in the core information, markets and infrastructure businesses offset by a year of low capital raising activity, a number of one-off expenses and the need to invest in the business to take advantage of revenue growth opportunities going forward.
Operating revenue grew to $56.0 million, 2.4% higher than the prior corresponding period (PCP).
Expenses rose from $29.5 million to $34.0 million. This includes $1.3 million of costs associated with the CEO transition, other one-off items, and the Ralec litigation. A further $1.0 million of one-off revenue and expense accruals also reduced reported earnings. As previously signalled to the market at the half-year result, EBITDAF was down 12.7% to $22.0 million.
A change in useful lives of intangible assets to reflect latest estimates resulted in an increase in amortisation expense of $0.7 million, while a one-off foreign exchange loss of $1.5 million on the realisation of the Markit investment was an additional factor in the reduction in net earnings. NPAT was down 31.7% to $9.9 million.
NZX CEO Tim Bennett commented: A number of one-off factors influenced this years result, which was set against a background of very low levels of capital raising by historic standards. Despite this, the year ended on a positive note, with two successful IPOs, the launch of the Fonterra Shareholders Market and a number of sell-downs by major shareholders. The resulting momentum in trading volumes carried into the new financial year
It is pleasing to note the growth of NZXs Derivatives and Clear Grain Exchange businesses, which, despite their relatively small scale, performed strongly.
NZX made significant investments in core operations during 2012. The successful launch of the Nasdaq X-stream trading platform was the result of an intensive, seven-month project involving stakeholders across the industry, to whom I would like to express our gratitude for the work programme involved.
Ultimately, the new trading platform will drive innovation in NZXs market offerings, while enhancing our global connectivity capabilities, making our local markets more accessible internationally in the long term.
Operational performance across all the business remains world-class. The trading, clearing and settlement functions had 100% uptime in 2012. The investment in the Clearing House in previous years benefited the market as clearing volume rose to record levels.
We also made strategic investments in our people, bringing staff numbers to appropriate levels to support and grow the business, and we are working hard to address staff turnover.
While impacting negatively on costs overall, this investment in resources is required to meet our obligations to stakeholders and position us to capture future growth opportunities.
The change in our structure in June, particularly the separation of our commercial and regulatory roles and the recruitment of three new members of the management team has further strengthened the organisation.
Positive feedback from our customers and stakeholders in response to our increased customer focus gives me confidence that this investment will provide the required payback to our shareholders.
Information
NZXs agricultural data and information businesses achieved continued steady growth during the year, with revenue up 3% on PCP to $12.3 million, on the back of continued solid performance by its market-leading publications.
NZX Agri delivered a number of achievements that will support future growth including the launch of New Zealands first Agri news website, Fwplus.co.nz, and the opening of an expanded headquarters for the NZX Agri business in Feilding.
NZXs securities information businesses were buffeted by a high exchange rate and reduction in capital markets spending globally, resulting in securities information revenue being down 1% on PCP to $9 million.
Markets
The Initial Public Offering of Moa Group and the listing of the Fonterra Shareholders Fund were notable events against a backdrop of an otherwise disappointing year for new capital raising. Primary issuance was $1.6 billion, well below the 10-year average of $2.1 billion.
Secondary capital raising was also at historically low levels, mainly due to strong corporate balance sheets. Total secondary capital raised in 2012 was $4.6 billion, the lowest annual capital raising figure since 2005.
Trading activity, however, saw significant growth during 2012 with the number of trades up 22% on PCP.
Commodity trading and dairy derivatives continued on strong growth trajectories during the year, and have considerable future growth potential.
Infrastructure
The successful launch of the Fonterra Shareholders Market and renewal of Electricity Authority contracts were important milestones for the Infrastructure business.
The launch of the Fonterra Shareholders Market was the result of valuable collaboration with industry, and is an example of how an organisation can retain control by one set of shareholders, while accessing the public equity markets and therefore providing the business with permanent capital.
Much of New Zealands future growth potential is in agriculture, especially dairy, and the launch of Trading Among Farmers is a major step in supporting that growth potential, said Tim Bennett.
NZX also recorded further growth in securities clearing revenue, boosted by the increase in trading volumes.
Expenses
Expenses increased by 15% to $34 million in 2013 as a result of a number of one-off items, a reduction in capitalisation and a reset of the cost base. One-off expense items during the year reduced EBITDAF by $2.0 million including the CEO transition, Ralec litigation costs and other one-off expenses and accruals. Additional provisioning for doubtful debts totalled $0.2 million. A reduction in capitalisation of labour costs of $1.0 million contributed to an increase in reported personnel costs, as did an increase in staff numbers. With the majority of the increase occurring in the last quarter of the financial year, the full impact of this will not be seen until 2013.
2013 Outlook
Agricultural and securities information, annual listing and participant fees, and market operations, provide steady, low to moderate growth revenue streams. NZX expects mid-single digit growth across these revenue lines in 2013.
Commodity trading and derivatives (dairy and equity which will be launched in 2013), while a small proportion of total revenues, are expected to continue to show strong growth.
Additional upside to 2013 revenues are dependent on primary and secondary capital raising activity and an associated increase in trading volumes and clearing activity. Possible listings include the proposed Government partial share offers and a range of other listings. While the IPO pipeline is stronger than it has been in many years, the extent to which this translates into actual listings is highly dependent on market conditions.
Trading in 2013 has started strongly with January value traded up 60% on PCP and the pattern of sell downs by major shareholders has continued into this year.
As highlighted earlier, the full year impact of resetting the cost base in 2012 is expected to be evident in 2013, particularly in respect of personnel costs. Overall costs are expected to increase by high single digits in 2013 with a sharp reduction in the rate of growth expected thereafter.
NZX also expects a reduction in capital expenditure from 2012 levels with no major projects currently contemplated.
2013 has some exciting possibilities for the development of New Zealands capital markets and for the continued evolution of NZX. We are working hard to capture these opportunities for the benefit of our shareholders and New Zealand, said Tim Bennett.
Dividend
The NZX Board has declared a final dividend of 1.25 cents per share, fully imputed. This is consistent with the Boards previously stated policy of an increase of at least 1 cent per share per year, adjusted to reflect the change in capital structure resulting from the share split in May 2012.
The dividend record date will be 8 March 2013, with a payment date of 22 March 2013.
Annual Meeting
As previously communicated, NZX will hold its Annual Meeting in Wellington on May 3rd.
After three years of service on the NZX Board, Rod Drury, the CEO of Xero, has indicated his intention to step down from the Board. Xeros rapid international expansion of its online accounting solution for small businesses is increasingly requiring all of Rods time. The NZX Board sincerely thanks Rod for his contribution and looks forward to his continued support in attracting new listings to NZX.
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