I. Performance Summary and Announcement of Capital Policy
- EBITDA: 46% increase to $6.5 million versus $4.5 million in 2004.
- Operating revenue: $19.5 million, versus $16.4 million in 2004, an increase of 19%.
- Operating expenses: $12.2 million, versus $10.5 million in 2004, an increase of 16%.
- NPAT: 33% increase to $4.9 million versus $3.7 million in 2004.
- Implementation of dividend policy targeting a payout ratio of approximately 60%, an inaugural dividend of $.25 per share, a return of available subscribed capital of $16.2 million to shareholders, and a one for one share split.
New Zealand Exchange Limited (NZX) today announced a full year EBITDA result of $6.5 million for the year ending 31 December, 2005. This represents a 46% increase on the $4.5 million EBITDA result recorded in 2004. Net profit after tax reached $4.9 million, an increase of 33% compared to 2004. This result was achieved on operating revenue of $19.5 million, which increased 19%.
“The strength of this result, in the face of mixed markets demonstrates the intrinsic value of NZX as a business, its value to our shareholders, and its resilience to changes in market conditions,” said NZX Chairman Simon Allen.
“Throughout 2005 the business focused on creating operating leverage and generating quality cashflow from both the core markets business and its subsidiaries. NZX's investments in Smartshares and in LINK Market Services have matured and are at a point where their contribution will add materially to the value of NZX,” said Allen.
NZX's capital policy is evolving as certainty around financial performance and cashflow increases. Recognising this, NZX is adopting a dividend policy with a payout ratio targeting approximately 60% of NPAT. The dividend for the 2005 financial year will be $.25 per share, fully imputed.
NZX will also return approximately $16.2 million to shareholders by way of a return of its entire store of available subscribed capital, pro rata to all shareholders. Following this, NZX will undertake a 1:1 share split.
II. Key achievements across the NZX Group
Resilience. NZX's business performance in 2005 shows that its financial performance is largely independent of short term market sentiment. “Where previously NZX had been heavily reliant on new listings and index performance, we now have sustainable, independent and growing revenue streams delivering consistent and solid results. Our confidence in the long term prospects for New Zealand 's capital markets is well-placed,” said NZX CEO Mark Weldon.
Operating leverage. NZX's business model is now at a scale where new revenue grows faster than expenses and new, high quality revenue streams can be driven by an existing, and stable, cost base. Illustrating this, a 19% increase in revenue resulted in an increase in EBITDA of 46%. “This demonstrates that every extra dollar of revenue earned by NZX generates an increasing rate of return and expands margins. We intend to further leverage the existing cost base and investments made over the past three years,” said Weldon.
Smartshares and LINK Market Services now at scale. These two businesses have now reached break-even points in scale and, going forward, will contribute positively to the cashflow of the NZX Group. “Combined, Smartshares and LINK are now growing the intrinsic value of the NZX franchise, and we expect them to continue adding to our overall group financial and economic profile, and to the NZX result, going forward,” said Weldon.
Strong cashflow. Operating EBITDA reached $7.2 million in 2005, a 23% increase versus 2004, and more than double the $3.6 million result in 2003. Operating EBITDA excludes non-recurring expenditure and asset revaluations, and therefore provides the best indication of NZX Group's growth in operational cashflow.
“Quality cashflows have created real options in capital management for NZX. Before NZX became a listed company, the old NZSE had no consistent earnings. What we have now is a record of growing earnings and cashflow which gives us new flexibility to optimise our balance sheet and cash position,” said Weldon.
That flexibility and optimisation is evidenced by the capital and dividend policy discussed below.
III. Capital and Dividend Policy
NZX has conducted a review of its capital position and ongoing capital requirements. NZX has established a strong track record of cash generation since its demutualisation in 2002 and carries no debt.
The evolution of NZX's capital and dividend policy has two components. First, NZX is adopting a dividend policy with a payout ratio of approximately 60% of NPAT. The dividend for the 2005 financial year will be $.25 per share, fully imputed. Record date for the dividend will be 17 March, with a payment date of 7 April.
Second, NZX will distribute approximately $16.2 million of capital to shareholders by way of a return of its entire store of available subscribed capital to shareholders. The return of capital is planned to be implemented via a compulsory pro rata buy-back. NZX also plans a one-for-one share split post the share buy-back.
The dividend and return of capital together represent a total capital return of $19.4 million.
Together, these events reflect the healthy status of NZX's cashflow. In the meantime, NZX remains committed to growth, and opportunities for growth will be aggressively pursued.
“The NZX balance sheet, even after this evolution in approach to managing shareholder capital, will maintain significant capacity for investment. Furthermore, NZX will pursue all forms of financing for future investment and growth, including gearing, going forward,” said Simon Allen.
IV. Subsidiary Businesses
Smartshares
Funds under management (FUM) is the key valuation metric in this business. Smartshares added funds during a period where New Zealand 's equity retail managed fund sector saw net outflows. Smartshares finished the year with $195 million in retail funds under management and over $100 million in (non-listed) wholesale funds.
Smartshares received the mandate to run a passively-managed New Zealand equity sector of the New Zealand Superannuation Fund (NZSF) – a blue chip client.
Each of Smartshares' four listed funds now has a strong operational foundation supporting regular savings plans and a direct purchase facility. Smartshares will continue to leverage its cost efficient operational model looking forward.
- Smartshares has more than $195 million under management spread over 10,000 investors direct on register.
- Revenue increased 113% to $1.4 million.
- Smartshares broke even during the second half of 2005.
“The growth in FUM, on a stable cost base, continues to grow the leverage and value of this business,” said Mark Weldon.
LINK Market Services
Founded in December 2004, LINK finished 2005 with revenue of $3.1 million and EBITDA of $616,000. With both depreciation and interest expenses material in this business, EBITDA is the core performance and cash contribution metric for this business. LINK has delivered this result while undertaking business integration, technology investment, and client migrations related to the introduction of a new registry system to the New Zealand market. During this transition period, LINK had a busy second half of the year which included servicing the Westpac exchange event and two fourth quarter IPOs, including Goodman Fielder. LINK now has three of the top 20 NZX50 companies on its books, including two trans-Tasman issuers – indicating initial success in implementation of the original business strategy.
LINK Market Services' contribution to the NZX Group result is equity accounted and reflects the impact of depreciation and amortisation expenses.
“One year into our investment in LINK, we are very pleased with its progress and performance. Our confidence in its long term growth prospects is strong,” said Mark Weldon.
V. Future announcements and outlook
NZX will examine ways to add more value to New Zealand growth companies via the NZAX market, review our market supervision strategy, and look at the pricing of services to issuers. The results of these reviews will be presented during the first and second quarters. Furthermore, NZX is focused on ensuring New Zealand has a world class clearing and settlement infrastructure that will enable future growth and sustainability of the New Zealand capital markets.
NZX is constantly considering organic investment and acquisition opportunities and will actively commit resources to these efforts in 2006.
Additional information in regards to NZX's Full Year 2005 release can be found at http://www.nzx.com/aboutus/investor.
Download the NZX Statement of Financial Performance - three months to 31 December 2005
Download the latest Appendix 1 document
