I. Performance Summary
- Operating EBITDA: 27% increase to $3.56 million versus $2.81 million in the first half of 2005.
- Operating revenue: $10.44 million, versus $8.65 million in the first half of 2005, an increase of 21%.
- Operating Expenses: $6.56 million, versus $5.82 million in the first half of 2005, an increase of 13%.
- NPAT: 47% increase to $2.18 million versus $1.48 million in the first half of 2005.
New Zealand Exchange Limited (NZX) today announced a first half 2006 operating EBITDA result of $3.56 million. This represents a 27% increase on the $2.81 million operating EBITDA result recorded for the same half of 2005. Net profit after tax reached $2.18 million, an increase of 47% over the same period in 2005. This result was achieved on a solid operating margin performance.
“We are further establishing a position whereby new business revenue grows faster than expenses and new, high quality revenue streams can be driven by an existing, and stable, cost base,” said NZX CEO Mark Weldon. “We acquired the agricultural data company Agri-fax in April and added the exchange traded fund smartOZZY to the Smartshares group of funds in June, with minimal change expected in NZX operating costs.”
“As signalled at our 2005 full year results and announced earlier this week, NZX has made some strategic appointments to help drive and implement business goals, with local and international expertise in Finance, Strategy and Clearing and Settlement systems. I am confident that NZX is well placed to meet the challenges of an increasingly global exchange landscape,” said NZX Chairman Simon Allen.
II. Markets Business – Strong growth in Listings and Market Information
As demonstrated by the first quarter results, NZX's business performance remains robust and independent of short term market sentiments.
Revenue earned from Market Information has grown substantially; $2.3 million revenue compared to $1.4 million last year. “Market Information has been a stand-out performer this half,” said Weldon. “The underlying rate of growth we are experiencing in the market information space is a direct result of investments made in 2004 and 2005 dedicated to improving the product set for our domestic and international clients.”
On the listings side, a combination of this half year's IPO activity, strong issuance on the NZDX Market and a significant amount of secondary capital-raising has led to listings revenue reaching $3.2 million, a 20% increase to the same period in 2005. Over the first half of 2006, 15 new listings raised a total of $2 billion across all three NZX markets this half year. This augurs well for the general investment climate.
Trading, clearing and settlement revenue grew to $2.4 million, from $2.3 million in the equivalent period last year.
III. Subsidiary Businesses
Smartshares
Funds under management (FUM) is the key valuation metric in this business. Smartshares finished the half with $460 million in FUM. This comprises approximately $300 million in listed Exchange Traded Funds (ETFs) and $130 million in (non-listed) wholesale funds.
Operating revenue reached $893,000 in this half, a 42% increase over the same period last year. Operating EBITDA was $159,000 compared with a loss of $160,000 in 2005.
“The positive Smartshares operating surplus is a result of continually growing FUM on a stable cost base,” said Mark Weldon. “We have added a fifth fund, smartOZZY, and we do not expect a concurrent increase in operating costs. Thus we expect the margins in the Smartshares business to grow whilst delivering genuinely low cost and efficient savings and investment tools for investors.”
The management rights to smartOZZY, which tracks the ASX/S&P 20 Index, were acquired from Tower Managed Investments.
LINK Market Services
LINK Market Services, a joint venture, is equity accounted and produced a $309,000 loss for the first half of 2006. The LINK result reflects the impact of three non-recurring costs. These are: contractor costs from the migration from the RML system to the New Zealand Oscar system; project management and IT costs in implementing Telecom links and system, backups and the migration, development, and legal cost associated with the purchase of the ANZ National Bank debt register. Over the first six months, LINK won 50% of the IPOs that occurred, none of which were large in terms of holder numbers.
“These costs represent an investment in the client service capability of LINK and are now complete. Without such costs in the second half, we expect a significantly better performance in the second half of 2006 and full year 2007,” said Weldon.
IV. Capital Management
NZX confirms its dividend policy at 60% of NPAT. The share split and capital return approved at the annual meeting has been successfully executed. NZX also confirms that, going forward, NZX will, if appropriate, consider a range of financing options, including raising debt.
Additional information in regards to NZX's Half Year 2006 release can be found at http://www.nzx.com/aboutus/news.
A conference call for analysts and media on the NZX Group interim financial results will be held at 11am on Thursday 27 July. Please email sarah.tan@nzx.com for conference call details. A transcript of the conference call will be posted shortly after completion.