Today JSE Limited released a set of results that reflect the resilience of the exchange despite unprecedented tests facing all stock markets in 2008 which included increased volatility, declining investor sentiment and increased volumes.
Revenues at the JSE rose by 22% to R1 072 million compared to R877 million in 2007 while net cash flow from operating activities climbed by 49% to R489 million (2007: R329 million). “The JSE is a fixed cost business, keeping a firm hand on our expenses was a factor behind a 37% increase in pre-tax profit to R544 million compared to R405 million in 2007,” comments Russell Loubser, CEO of the JSE. “Volatility has a positive impact on the JSE, prompting a rise in both spot and derivative trade, and hence on these results.”
2008 Overview
Listings
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As is to be expected in turbulent markets, the number of listings on the JSE declined in 2008 over the previous year; 23 companies joined the boards (2007: 63). However some of the new listings are substantial and one, British American Tobacco (BAT), is now the largest JSE-listed company in terms of market capitalisation.
Equities Trading
In 2008, the average daily number of equity market trades increased by approximately 50% to just over 69 000 over 2007. The JSE’s equity trading revenues are primarily a function of volumes traded. The exchange cut equity market trading fees by 7,5% as of 30 June 2008. A focus on client service prompted the replacement of the JSE trading engine with the latest version used by the London Stock Exchange (LSE) which offers more functionality.
Derivatives
Equity derivative
contract volumes climbed by 45% in 2008 (off a high base; volumes shot up by 219% in 2007). The JSE remained the biggest global player in Single Stock Futures (SSFs), by volumes traded.
Currency futures also traded well in 2008.
Volumes of commodity derivative contracts traded climbed 10% during the year (2008: 2,63 million contracts; 2007: 2,40 million contracts). In January 2009, the JSE started trading foreign-referenced corn futures under license from the CBOT Group, the world’s largest and most diverse derivatives exchange.
Information Sales
In 2008, the number of terminals receiving JSE information packages grew by 15% from 2007 (2008: 49 225; 2007: 42 923).
Strategic Initiatives
During 2008, the JSE embarked on various promising strategic initiatives.
The Africa strategy is a long-term strategy to promote the growth of capital markets on the African continent. It aims to attract foreign capital to the African market, by allowing investors access to the opportunities that exist in Africa. The JSE’s Africa strategy entails
- Creating an Africa Board, providing opportunities for primary and secondary listing: The JSE’s Africa Board is a listing venue for companies domiciled in Africa or with assets on the continent. Companies listed on the Africa Board may well be listed elsewhere in Africa also and will have a listing on the JSE. Infrastructure for the new board, which is not extensive and uses existing equity trading systems, was completed by end-2008. The Africa Board was launched in early 2009, welcoming Trustco of Namibia as its first listing;
- Creating indices reflecting issuers listed in countries across the continent;
- Creating a hub and spoke interconnecting model to connect SADC stock exchanges;
- Closer relationships with exchanges to help develop new business and markets.
For a decade, the JSE has worked towards developing a closer relationship with the Bond Exchange of South Africa (BESA), with the aim of integrating BESA and Yield-X. In December 2008 the directors of the JSE and BESA together proposed a scheme of arrangement in terms of section 311 of the Companies Act, 1973, should regulatory approval be received. This would entail BESA and the JSE integrating their fixed income operations to devise a growth strategy in the best interests of the South African markets. BESA shareholders have approved the scheme. The JSE is awaiting the decision of the Financial Services Board, the South African Reserve Bank and the Competition Commission. “The Boards of both exchanges are excited by the opportunities presented by integration,” adds Loubser.
Prospects
A significant portion of revenue being dependent on the level of trades on the Exchange, the JSE is not able to predict future profits.
The JSE has no long-term borrowings and R946 million in cash reserves (2007: R765 million). The exchange analyses its capital requirements in three categories: to ensure a smoothly operating stock exchange; to be able to guarantee all on-market equities trades; and to maintain infrastructure and meet capital needs for expansion.
“We will also continue to investigate the possibility of other strategic acquisitions in our industry and in this regard are in discussions regarding the acquisition of a strategic stake in the Stock Exchange of Mauritius. These discussions have not yet been finalised. Should they be, the impact on the JSE’s financial results will not be material,” says Loubser.
The directors of JSE are proposing to declare ordinary dividend number 5 of 192 cents per share to be approved at the Annual General Meeting. This equates to 2.5 times cover.
“As we have stated previously, the JSE is committed to delivering value to issuers and investors. We remain focused on continual improvement to build a sustainable business model and grow the exchange’s markets and revenue streams,” concludes Loubser.
