Summary for NZX Group
New Zealand Exchange Limited (NZX) today announced that the first half operating EBITDA increased 9.4% versus the first half of 2004. This result was achieved on operating revenue of $8.65 million, representing an increase of 14.1% on the 2004 first half revenue.
- Operating EBITDA (excluding non-recurring expenditure): $2.81 million versus $2.56 million for the first half of 2004, an increase of 9.4%.
- Operating revenue (excluding interest income): $8.65 million versus $7.58 million for the first half of 2004, an increase of 14.1%.
- Operating expenses (excluding non-recurring items): $5.82 million versus $5.02 million for the first half of 2004, an increase of 15.9% largely due to an increase in expenditure relating to NZX's 100% owned subsidiary, Smartshares.
- EBIT: $1.65 million versus $2.32 million for the first half of 2004, a decrease of 28.9%. The decline is attributable to non-recurring expenditure relating to the collapse of Access Brokerage ($344,000), and a write-down of the NZX asset relating to its agreement with the SFE ($360,000).
- Link Market Services, a 50/50 joint venture with ASX Perpetual, contributed positive operating profit for its first full period of ownership, but amortisation and deprecation led to an after tax loss of $25,000 for the NZX Group for the first half of 2005.
“NZX's investment across its capital markets related business units is driving top line revenue growth and diversifying NZX's exposure to the markets business. NZX is confident that New Zealand 's capital markets will continue to mature and evolve and that NZX's investments are well place to capture value from that evolution,” said Chairman Simon Allen.
The results of each business unit are described below.
NZX Markets Business
A slow first half for new equity listings, combined with lower growth in transaction activity in the second quarter, has contributed to slower growth in NZX's core markets business than has been seen in prior results.
“The NZX Markets business is driven by transaction activity and listings,” said NZX CEO Mark Weldon. “Strong first quarter transaction numbers were offset in the second quarter, particularly during May when the main indices were down sharply. While there are a number of listings in the planning stages which have been publicly discussed for the second half of 2005, the first half was much slower than the comparable period in 2004,” said Weldon.
Revenue:
- Total revenue for the Markets business reached $8.06 million, an increase of 8.6% versus the first half of 2004.
- Transaction revenue increased 17% to $2.28 million, with average daily transactions reaching 2,629, an increase of 11% versus the first half of 2004.
- Overall listing revenue was 2.68 million, a decrease of 1% compared with the first half of 2004. Initial listing fee revenue (charged to new issuers of securities) declined from $653,000 for the first half of 2004, to $86,000 for the first half of 2005. Annual listing fees are up 27% to $2.14 million versus $1.68 million for the first half 2004. The increase in annual fees is driven by having more listed companies than in the same period of 2004, by an overall increase in market capitalisation, and by pricing increases.
Expenses:
NZX has not added significant expenditure to the markets business. “As highlighted in the 2004 full year release, total expenditure is at about the right level to manage the current scale of the Markets business,” said Weldon.
- Expenditure for the Markets business reached $5.07 million, an increase of just 3% from the first half of 2004.
- Information Technology expenditure is up 31%. This increase highlights the increased operating costs of NZX's new telecommunications network linking Market Participants and NZX's data centres in Auckland and Wellington . The new network provides more security and redundancy than the previous solution, and is a critical component of market infrastructure. NZX implemented this network in the second half of 2004.
- Employee and Related Costs increased 10%, an increase largely attributable to growth in staff during the second half of 2004.
- Non-recurring expenditure relating to the collapse of Access Brokerage was $344,000.
- NZX incurs ongoing expenditure relating to its disciplinary and regulatory function that is not captured in the amount attributable to Access Brokerage. Part of this operating expenditure is captured in “Legal” expenses, however, staff costs related to this effort are not shown separately and are 100% accounted for in Employee and Related Expenditure.
- NZX written down of the carrying value of its agreement with the SFE to provide a trading and clearing platform for futures and options. The delayed launch of these products and revised revenue projections resulted in a write-down of $360,000, in addition to $82,000 in amortisation for the half year period. The remaining value, $350,000, is expected to be amortised on a straight line basis for the remaining four years of the contract.
Smartshares Limited
Smartshares' operations resulted in an operating EBITDA loss of $126,000 despite significantly higher revenue. Revenue was $630,000 for the first half 2005, an increase of 287% resulting from the launch of new funds in the second half of 2004.
Smartshares' operating expenditure was $756,000 for the first half of 2005, an increase over the $120,000 of expenditure in 2004. This expenditure is in part driven by the costs of servicing more unit holders and funds under management, but more directly by the fixed costs of employing staff to operate, develop and grow the Smartshares business further. A full time team of four, with deep international and domestic funds management experience, is now dedicated to developing this business.
Total funds under management at 30 June 2005 were $192 million. Smartshares has 10,467 investors direct on register.
“Smartshares is increasingly well placed to capture value from the changing landscape of savings and savings product regulations. Smartshares' low cost, investor friendly and transparent pricing model will continue to attract growth and savings flow. We are also confident that proposed changes announced in the recent Budget will drive funds towards Smartshares,” said Mark Weldon.
Link Market Services Limited
Link Market Services, a 50/50 JV with ASX Perpetual Registries Limited of Australia , is reporting its first audited result. The results reflect just five months' contribution from 100% owned BK Registries.
Link's Operating EBITDA profit was $86,000. This was driven by operating revenue (excluding interest) of $1.04 million. Operating expenditure was $953,000 and includes the set-up of a fully staffed Auckland office. The revenue impact of this expenditure has yet to be reflected.
Link recorded a post tax loss of $50,000 due to net interest costs related to the debt-funded purchase of BK Registries, and amortisation of goodwill from the same purchase. Consequently, NZX Group will show a $25,000 loss resulting from its equity investment in Link Market Services.
Link's investment in adopting ASX Perpetual's OSCAR registry system for use in New Zealand has progressed according to plan. The new system began serving its first client in New Zealand, Westpac Banking Corporation (approximately 25,000 holders) from 11 July 2005 . Link expects to add more clients to this system during the second half of 2005.
“Our investment in Link Market Services is again tied to further evolution of New Zealand markets and the increasing demands from shareholders and issuers of financial securities. Link has passed the toughest development test by proving the adaptability of ASX Perpetual's system for use in New Zealand within our projected costs. We are now ready to begin growing the business,” said Chairman Simon Allen.
The Statement of Financial Performance can be found on the NZX website at www.nzx.com/aboutus/investor/financial.
