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NZX’s financial results for the six months to 30 June 2015 released today highlight the progression of NZX’s funds management strategy. Total revenues increased $3.2 million or 10.4% on the previous corresponding period to $34.4 million, due to the acquisition of SuperLife Limited, which in turn enabled a significant expansion of the portfolio of Exchange Traded Funds (ETF) offered by NZX’s Smartshares business.
EBITDAF was down 3.6% to $11.7 million as increased professional fees associated with the Ralec litigation and the launch of the new ETFs reduced earnings. Reported NPAT was up 157.9% to $18.0 million. Reported NPAT includes an $11.8 million gain from the sale of NZX’s 50% shareholding in Link Market Services NZ (Link NZ). Excluding this gain, NPAT was down 11.5%.
NZX CEO Tim Bennett commented: “This result demonstrates the strong progress we have made in 2015 to expand NZX’s funds management business, along with the resilience of our capital markets revenues, despite an absence of any significant IPO activity during the period. We saw a significant milestone in the first half of 2015, with total equity market capitalisation topping $100 billion for the first time and continued growth in trading activity. The continued rapid growth of our dairy derivatives market is another notable feature of the result.”
Reported results are summarised in the table in the announcement PDF attached.
Effective 30 June, NZX sold its 50% shareholding in Link NZ to Link Market Services Australia. The sale price was an initial payment of NZ$13.8 million with an additional NZ$0.45 million to be paid to NZX 12 months following the sale, depending on Link NZ’s financial performance over that period. A resulting gain on sale of $11.8 million is recognised in NZX’s half year financial statements.
The sale of NZX’s Link NZ stake ensures NZX is well positioned to take advantage of other opportunities to invest in the development of New Zealand’s markets infrastructure. This potentially includes NZClear, which is currently being divested by the Reserve Bank of New Zealand, and the purchase of wealth management platform Apteryx (see below).
Business Highlights
Capital markets: Revenues in NZX’s capital markets business, which includes capital raising, trading and clearing, listings, participant services and securities data, were up 0.2% on 1H 2014 to $17.8 million.
In June, NZX welcomed the listing of G3 Group Limited on NXT, which marked the launch of NZX’s new market designed for small and mid-sized businesses. In addition, Fliway Group listed on the Main Board in April. However, compared to the first half of 2014, which included the $1.8 billion listing of Genesis Energy, there was no significant IPO activity in the first half of 2015. As a result, total listing revenue was down 11.7% to $5.5 million.
There was solid trading activity in the six months, with trading volumes and value up 5.5% and 1.9% respectively over 1H 2014. This contributed to a 4.9% increase in securities trading revenue and a 9.5% increase in securities clearing revenue. Securities data revenues were up 10.2% to $5.4 million as a result of a $450k increase in audit revenue.
NZX continues to work with a range of companies looking to list on the Main Board and on NXT and depending on market conditions expects more listing activity in the second half of 2015 than has been the case in the first half.
Soft commodities: NZX’s Dairy Derivatives business continues to gain strong traction, with lots traded in the first half of 2015 up 142.7% on 1H 2014 to 78,612. Dairy Derivatives volumes have grown faster than other new soft commodity derivatives markets and continue to have strong growth potential. Trading momentum has continued into the second half of the year with the record number of contracts traded in July already surpassed in August (including a record trading day of 5,994 lots traded in August).
The Clear Grain Exchange saw a small lift in tonnes traded during Q2 2015. Despite this, total trades over the half year of 241,806 were down 23.8% on 1H 2014, a result of the majority of the 2014/15 harvest being sold in Q4 2014. Operationally, the Clear business continues its focus on geographic and product expansion.
NZX Agri: NZX’s agri publications and data business revenues were impacted by adverse market conditions in the rural sector, with a rapid decline in dairy prices and drought conditions in some regions. Consequently, print advertising revenues were down 9.9% over 1H 2014. While the decline in advertising stabilised somewhat in Q2 2015, the sector outlook remains challenging.
NZ Agri data revenue was up 20.8% due to an increased uptake of data products, and growth from the acquisition of leading livestock market information business iFarm, which NZX announced it had acquired in May, strengthening NZX Agri’s position as a leading provider of information and data products.
Funds management: Revenues in NZX’s funds management business were up $3.6 million largely due to the acquisition in January of leading New Zealand superannuation and passive funds manager SuperLife. During the six months, SuperLife’s KiwiSaver funds under management (FUM) grew by 15.7%, while total SuperLife FUM increased by 10.5%.
The SuperLife acquisition provided the catalyst for NZX to accelerate the growth of ETFs in New Zealand, providing a much broader range of simple, transparent and low cost listed products for investors. Since December 2014, Smartshares has launched 14 new ETFs, bringing to 19 the portfolio of ETFs now offered by Smartshares. NZX expects to launch an additional 2-3 ETFs before year end.
Smartshares funds under management grew by 16.8% on the same period last year, excluding SuperLife funds
Market Operations: Revenues in NZX’s market operations business were stable. This business includes the Electricity Authority contracts NZX operates on the Authority’s behalf and the operation of the Fonterra Shareholders’ Market,
Consulting activity in the six months was higher than previously expected due to the new Extended Reserves Manager contract which the Authority selected NZX as preferred supplier for in March.
In May, NZX’s Energy team submitted a comprehensive proposal to the Electricity Authority for the Market Operations Service Provider roles which are currently up for tender. These roles are currently operated by NZX on behalf of the Authority and the industry. NZX is committed to the sector and focused on continuing to provide a robust and reliable service to industry participants. An outcome from the tender process is expected shortly.
Costs
Growth in operating expenses of $3.7 million over 1H 14 reflected $1.9 million of SuperLife expenses; a $1.1 million increase in professional fees due to the Ralec litigation and the launch of new Smartshares ETFs; an increase in fund expenditure resulting from the new ETFs; and a small increase in underlying personnel costs. Gross employee related costs in 1H 2015, excluding costs related to SuperLife, were however down compared to the second half of 2014.
Acquisition of Apteryx
In June, NZX announced it was in negotiations to acquire 100% of Apteryx, a provider of rich online functionality that enables New Zealand investment advisers and providers to efficiently manage, trade and administer their clients’ portfolios. NZX has entering into a binding Sale and Purchase Agreement for Apteryx and currently expects that this acquisition will be completed by the end of August. NZX does not expect the business will have a material impact on earnings in 2015 or 2016. The Apteryx platform has the potential to be developed into a core industry utility with a goal of improving effectiveness and efficiency within the New Zealand market, while at the same time providing medium-term growth potential for our shareholders.
NZX Regulation
NZX continues to focus on maintaining a high quality regulatory environment. In May, NZX welcomed the Financial Markets Authority’s (FMA) fourth annual General Obligations Review that assesses and reports on NZX’s compliance with its statutory obligations. The report concluded that during the 2014 review period NZX complied with all of its statutory obligations. There were no specific actions agreed between the FMA and NZX following the review.
Also in May, NZX signed a Memorandum of Understanding (MoU) with the Takeovers Panel. The MoU sets out a framework for engagement and cooperation between the two regulators, taking into account their respective roles.
Dividend
NZX’s Board has declared an interim dividend of 3.0 cents, fully imputed. The record date for the dividend will be 2 September 2015 with a payment date of 16 September. This is unchanged from the dividend declared in respect of 1H 2014.
