NZX’s Q3 revenue report released today shows revenue growth of 12.9% on Q3 2014, largely driven by the expansion of NZX’s fund management business and strong trading activity during the quarter.
Revenue from NZX’s funds management business increased by $1.7 million to $2.4 million compared to Q3 2014. Of this growth, $1.6 million was attributable to acquisition of SuperLife, which saw growth of 19.8% in Funds Under Management (FUM) in its KiwiSaver business, and 7.9% growth in total FUM compared to Q3 2014.
NZX’s Exchange Traded Funds (ETFs) business, Smartshares, also experienced steady growth in FUM, up 9.5% on Q3 2014. During the September quarter Smartshares launched an additional nine international ETFs, which allow investors to invest in a broad range of international securities through one simple NZD purchase. Smartshares will launch a further four ETFs (fixed interest and property) in November, bringing the total suite of ETFs offered to 23, covering all major asset classes.
In NZX’s capital markets business, trading volumes and values both saw strong growth over the period, up 26.0% and 51.2% respectively on Q3 2014. This growth translated into increased securities trading and clearing revenue, up 25.1% and 27.1% respectively.
With the exception of the ETFs launched by Smartshares, there were no IPOs during the quarter. However, secondary capital raisings were up 958.0% on Q3 2014 due to significant secondary capital raising activity by dual listed Australian banks. As a result, listing fees grew by 5.7% to $3.5 million.
Effective 1 June 2015, NZX acquired 100% of Apteryx, a provider of rich online functionality that enables New Zealand investment advisors and providers to efficiently manage, trade and administer their clients’ portfolios. Apteryx contributed additional revenue of $0.3 million in the quarter.
NZX’s New Zealand agri business saw little improvement in market conditions during the quarter, with the low dairy prices impacting farmer confidence and advertising spend. Total paid advertising page equivalents were down 9.5% on the prior comparable period, driving the 5.5% drop in Q3 2015 revenues to $2.9 million.
Dairy derivatives had a stellar quarter, with record volumes of 35,761 lots traded achieved in August. Total lots traded for the period were up 125.1% on Q3 2014, and revenues up 232.1%.
NZX also announced today that contract negotiations with the Electricity Authority (the Authority) for the provision of the four market operator service provider roles for which NZX had been selected as preferred tenderer are complete. NZX has entered into eight year agreements with the Authority to continue NZX’s service provision within these roles, with an option for the EA to extend these roles for a further three years. The total value of these contracts over the initial eight year period is approximately $41 million.
Revenue by business line
Capital markets – Capital markets revenue was up 9.9% on Q3 2014 to $10.4 million, with growth driven by increased trading volumes and values and strong secondary listing activity. NZX’s newly acquired business Apteryx contributed an additional $0.3 million during the quarter. Securities information revenue declined 6.0% relative to Q3 2014 as a result of audit revenues included in the prior period.
Soft commodities – Dairy derivatives continued to experience strong growth in lots traded, up 125.1% on Q3 2014, driving revenue growth of 232.1%. The Clear Grain Exchange also saw an uptick in trading volumes, up 44.2%, albeit off a low base as Q3 is traditionally the weakest quarter for grain trades as the market gears up for the new season (commencing October). Total soft commodities revenue was up 163.4% to $0.4 million.
Agricultural information – Agri information revenue saw little improvement on the first half of 2015, with revenues down 5.5% on Q3 2014 to $2.9 million. This resulted from lower publication revenues in New Zealand. Total paid advertising pages were down 9.5% as a result of current adverse market conditions impacting the dairy sector. This was partly offset by growth in agri data revenue.
Funds management – Funds management revenue was up 249.4% to $2.9 million due to the acquisition of SuperLife and steady growth in FUM. SuperLife’s KiwiSaver business experienced a 19.8% increase in FUM compared to Q3 2014. The Smartshares ETFs business also experienced a 9.5% increase in FUM.
Market operations – Market operations revenue was down 8.2% on Q3 2014, a result of reduced consulting activity for the Authority during the period. As noted earlier, NZX and the Authority today signed renewed eight year agreements for the four market operator roles tendered this year by the Authority. The total contracted revenue over the initial eight year period of $41 million is made up of $32 million for the base service provider contracts, $5.5 million for system upgrades and $3.5 million committed consulting activity for annual system and rule changes. The fees will be subject to annual CPI adjustment.
Costs
Costs associated with the Ralec litigation have increased as a result of additional court activity. A court hearing was held in October to consider additional applications and preliminary matters associated with the main trial scheduled for 2016. As a result of the additional hearing and the preparatory work required, NZX now expects that its 2015 Ralec legal expenditure will be between $2.5 million and $3.0 million (an increase from previous guidance).
NZX Regulation Metrics & general commentary
NZX also released its Q3 2015 regulation metrics today. These show NZX Regulation commenced 35 investigations during the quarter in relation to Issuers, with 6 six investigations remaining ongoing at the end of the quarter.
There were 18 investigations in relation to participants that commenced during this quarter, with 12 remaining ongoing at quarter end.
In July, various amendments to NZX’s market rules came into effect. The amendments were in response to legislative changes affecting New Zealand’s financial markets (including implementation of the Financial Markets Conduct Act 2013).
The NZ Markets Disciplinary Tribunal issued three determinations during the quarter. Details can be viewed at: https://www.nzx.com/NZMDT/tribunal-decisions
In October, David Flacks was appointed as an independent non-director member of NZX’s Conflicts Committee. The role of the committee is to review and consider the effectiveness of NZX’s policies and procedures for ensuring that any perceived or actual conflicts of interest within the NZX group are appropriately managed, including as between NZX’s regulatory responsibilities and its commercial interests.
David is currently chair of the NZ Markets Disciplinary Tribunal, a member of the Takeovers Panel and a director of a number of companies, including boutique specialist law firm Flacks & Wong.
For further information please contact:
Kate McLaughlin
Corporate Communications
T: 09 309 3654
M: 027 533 4529
E: kate.mclaughlin@nzx.com
About NZX Limited
NZX builds and operates capital, risk and commodity markets and the infrastructure required to support them. We provide high quality information, data and tools to support business decision making. We aim to make a meaningful difference to wealth creation for our shareholders and the individuals, businesses and economies in which we operate. To learn more about NZX, please visit: www.nzxgroup.com
