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NZX 2011 Full Year Results Presentation
2
Contents
NZX Business Model and Performance
FY 2011 Summary
Outlook
Business Review
- Revenue
- Expenses
- Capital Structure and Investments
3
NZX is an integrated Information, Markets, and Infrastructure business.
Information - High quality securities and commodity information
Markets - Cash equities, bonds, derivatives, and spot commodities
Infrastructure - Design, build and operate clearing and settlement platforms (securities
and energy), and operate other contracted technology platforms
These three business areas are operated on an increasingly integrated basis:
Fixed cost base, centers of excellence and integrated business processes
Business areas mutually support growth (e.g. dairy analytics and indices support dairy
futures market and participation growth)
Additional revenue results in margin expansion and free cash flow growth
High proportion of annuity and subscription revenue results in strong high quality cash
flows
NZX Group Business Model
4
Business Model Impact on Total Return to ShareholdersNZX vs Sector *
-100%
0%
100%
200%
300%
400%
500%
600%
700%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
NZX ASX NDAQ LSE
*Performance data for ASX, NDAQ and LSE based on publicly available sources
661% (NZX)
319% (NASDAQ)
171% (LSE)
Strong performance against the sector
Divergence of performance through and post GFC
278% (ASX)
5
Total Return to Shareholders - NZX vs ASX *
0%
100%
200%
300%
400%
500%
600%
700%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
NZX ASX
*Performance data for ASX based on Bloomberg adjusted price series including dividends and capital changes
661%
278%
Since listing in 2003 NZX has delivered a total return to shareholders of 661.1% or 26.3% per annum
Implementation of the IMI Strategy has reshaped NZX’s business model, resulting in resilience to a
variety of market conditions
The business model shows sharp divergence in performance compared to NZX closest benchmark,
the more traditional model of ASX (TRS of 278% over the same period)
6
FY 2011 Summary
7
Highlights
Overall
NPAT increase of 56% on pcp
Very strong full year operating performance with EBITDAF growth of 21% on pcp
Revenue growth of 11% with consistent cost discipline keeping cost growth at 4%
Strong operating leverage evident with EBITDAF margin expanding from 41% to 45% over the period
Fully diluted earnings per share growth of 57%
Revenue
Balanced double digit revenue growth with delivery from multiple areas
Highlights include:
- Markets - Up 16% on pcp, driven by strong growth across each of cash, derivatives and commodities markets
- Infrastructure - Up 17% on pcp driven by clearing house and other technology contracts
- Typical 2H effect saw 2H revenue of $29.0M vs 1H revenue $26.6M, up 9%
8
Highlights
Expenses
Only area of major cost growth was information technology, up 20% on pcp, reflecting clearing house licence fees (only 3 months in 2010)
Marketing, printing and distribution costs down by 6% as a result of ongoing process improvements
Other
Link Market Services - Strong profit growth in FY11, with EBITDA up 34% on pcp to $2.5M
No acquisitions during FY11, as per management indication
100% uptime availability of securities market platforms (6th year running)
Capital Return
FY11 dividend of 11 cps declared, final payment of 2.75 cps paid March 23, record date March 9
$32.5M to $35M pro-rata compulsory share cancellation announced, with no tax to NZX’s ASC level of $21.7M, and remainder of cancelled shares accompanied by imputation credits
Capital return amount to be circa 10% of market cap as of notice date, in the week of February 20
Stock split on 7 for 3 basis to be effected on completion of the 10% pro-rata compulsory buyback
Guidance on 2012 dividend to be announced at April 30, 2012 Annual Meeting
9
FY 2011 Result - The Numbers (FY11 vs FY10)
FY11 ($M) FY10 ($M) change ($M) change (%)
Operating Revenue $55.6 $50.2 $5.4 11%
Operating Expenditure $30.4 $29.3 $1.1 4%
EBITDAF $25.2 $20.9 $4.3 21%
EBITDAF Margin 45.3% 41.6% 3.7% 9%
NPAT $14.5 $9.3 $5.2 56%
Fully Diluted EPS 11.8c 7.5c 4.3c 57%
Ordinary shares on issue of 121,346,054 as at 31 December 2011
With exit of Markit position NPAT increase of 56% an accurate reflection of profit growth
Fully diluted EPS growth of 57%, greater than NPAT growth due to slightly reduced share count
10
FY 2011 Revenue - The Numbers (FY11 vs FY10)
FY11 ($M) FY10 ($M) Change %
Information
Agri Information $11.9 $11.1 7%
Securities Information $9.1 $9.4 (3%)
Total Information $21.0 $20.5 2%
Markets
Listings & Issuer Services $12.2 $10.5 16%
Securities Trading & Participant Services $6.2 $5.2 19%
Fund Services $2.3 $2.3 2%
Commodities Trading $1.3 $1.0 33%
Total Markets $22.0 $19.0 16%
Infrastructure
Energy* $6.8 $7.1 (6%)
Securities Clearing $3.5 $2.0 79%
Tech & Custom Services $2.3 $1.6 50%
Total Infrastructure $12.6 $10.7 17%
Total Revenue $55.6 $50.2 11%
Includes amount that was previously under “Energy Trading”
11
Full Year Operating Result Comparison (HY Trends)
Predictable 2H revenue effect evident (as highlighted at 1H), with 2H contributing 52% of FY revenue
Strong performance across all areas in 2H11 versus a strong 2H10
2H10 1H11 2H11
Operating Revenue
2H10 1H11 2H11
Operating Expenditure
2H10 1H11 2H11
EBITDAF
2H10 1H11 2H11
EBITDAF Margin
$26.2M$26.6M
$29.0M
$12.3M
$11.7M
$13.5M
$13.9M$14.9M $15.5M
46.9%
44.0%
46.5%
12
Outlook
13
2012 Outlook
Overall
Low capital intensity growth to continue, with free cash flow growth the key focus
EBITDA margin growth expected at similar rate to FY11, due to new products on scalable infrastructure
Revenue
Liquidity and revenue growth expected in each of cash equities, derivatives and commodities
Rebound expected in Securities Market Data area
Commodities strategy continues - Fonterra Shareholders Market + Fonterra Shareholders Fund listing
Expenses
Overall cost growth kept at similar levels
Reduced Australian business cost base versus 2010 and 2011
Capital Management
Circa $32.5M to $35M capital to be returned late May, subject to shareholder, court and IRD approvals
Stock split of 7 for 3 to be effected in late May with the capital return
NZX has no bank debt, high quality revenue streams and a cost effective funding line (circa 3%)
14
Value Driver
Information sales Overall revenue growth of 7% to 9% expected
Market data terminals price adjustment of 7.7% effective January 1Listings outlook Mighty River Power listing a major market event in 2H
Fonterra Shareholders Fund expected to list in Q4
Securities trading Cash volumes expected to grow
SOE listing and index rebalancing both expected to increase value traded
Derivatives Continued growth in Dairy Futures, with 120K lots traded targeted for FY12
New product launches, including NZX 20 Futures and equity optionsCommodities (Grain) Met 2H11 forecast; FY12 target of 750K tonnes traded
Participation in key customer segments increased
Clearing House Revenue growth as both liquidity and assets under custody grow
Stock lending growth of circa 45% expectedEnergy Revenue growth of 8% to 10% expected
Technology & Other Contracts Expect to be appointed as operator of the Fonterra Shareholders Market; including provision of full service market infrastructure operator for annual licence fee
Expenses Cost discipline in organisational DNA; low growth expected
Key 2012 Value Drivers
2012 Outlook
15
Free Cash Flow
Strong net operating cash flow growth expected in 2012
Depreciation shield results in higher cash earnings
No bank debt on balance sheet
Cost effective funding facility
Quality, predictable cash flow
$0M
$5M
$10M
$15M
$20M
$25M
2009 2010 2011
$20.6M
$17.1M$15.6M
Free Cash Flow from Operations
16
Business Review - Revenue
17
Information: Agri Data
$0M
$4M
$8M
$12M$11.9M
$11.1M
Revenue FY10 vs FY11 ($M)
FY10 FY11
2011 Commentary
Revenue of $11.9M in FY11 vs $11.1M in FY10, an increase of
7.0%
Deliberate revenue quality focus evidenced by total paid
subscriptions up 35.9% to 20,960 from 15,423 in FY10
Profarmer grain subscriptions up 14.6% to 1,930 in Q411
from 1,684 in Q410 (annualised revenue increased by A$263K)
2012 Outlook and Value Drivers
Top line revenue growth of 9% to 11% expected
Recent growth in farm-gate returns already reflected in
increased advertising and subscription revenue
Subscription growth focus on electronic data products
Direct variable cost reduction of 3% to 5% taking costs down
circa 150K to $3.1M in printing and distribution
Subscription Revenue Trend ($M)
$0.43M
$0.86M
$1.29M
$1.72M
$2.15M
2H09 1H10 2H10 1H11 2H11
$2.2M$2.0M$1.9M
$1.8M$1.6M
18
Information: Securities - Market Data
$0M
$0.6M
$1.2M
$1.8M
$2.4M
$3.0M
USD NZD
$2.5M$2.9M
$2.5M$2.8M
Royalty Revenue FY10 vs FY11 ($M)
0
18
36
54
72
90
2H10 1H11 2H11
888573
Data Licenses*
FY10 FY11
2011 Commentary
Revenue of $9.1M in FY11 vs $9.4M in FY10, down 3.2%
Circa 60% of royalty revenue derived in USD, average NZD/
USD rate of 0.79 in FY11 vs 0.72 in FY10
Annualised 4Q data licence revenue run rate of $1.1M up
8.1% on Q1 run rate
2012 Outlook and Value Drivers
Market data terminals price adjustment of 7.7% effective
1 January
NZD/USD cross rate remains a key variable
Focussed sales efforts in direct products subscriptions, by
dedicated sales team, expected to drive growth
*Real time (primary) and delayed (other) data licenses
19
Markets: Listings
$0M
$2.6M
$5.2M
$7.8M
$10.4M
$13.0M
FY10 FY11
$3.5M$2.7M
$6.7M$6.1M
Revenue Breakdown FY10 vs FY11 ($M)
Annual SecondaryInitial Other Issuer Services
$1.2M
$0.8M$1.1M$0.6M
2011 Commentary
Revenue up strongly to $12.2M in FY11 vs $10.5M in FY10, an
increase of 16.2%
Total new equity listed for the full year of $3.8B
$1.4B in new equity listed in 2H IPOs
2012 Outlook and Value Drivers
Higher confidence level in FY12 pipeline, including first SOE
float scheduled for second half
Fonterra Shareholders Fund listing expected in 4Q
Annual review of issuer fees scheduled with changes taking
effect on July 1
Total Capital Raised FY10 vs FY11 ($B)
$0B
$1B
$2B
$3B
$4B
FY10 FY11
$1.0B
$1.8B
$2.9B
$1.4B
Equity Debt
20
Average Daily Value FY10 vs FY11
$50M
$70M
$90M
$110M
$130M
Q1 Q2 Q3 Q4
Markets: Cash Markets Trading
2011 Commentary
Trading revenue across cash markets of $2.8M up 27.3% vs
FY10 on significantly stronger equity trading volumes
Average daily trades (ADT) for FY11 of 2,939 up 37.6% on pcp
Cash market average daily value (ADV) traded up 25.3% at
$113M for FY11
Aggregate Trade Fee Cap rebate programme ended as of
July 1
2012 Outlook and Value Drivers
Strong start to the year with Jan/Feb ADT up 45.0% on pcp
Launch of equity index futures expected to result in long-
term additional activity in underlying cash market
SOE listing expected to also boost trading
Index rule changes expected to result in high ADV over the
relevant period
Annual review of participant fees scheduled with changes
taking effect on July 1FY10 FY11
$0M
$1M
$2M
$3M$2.8M
$2.2M
Revenue FY10 vs FY11 ($M)
FY10 FY11
21
Markets: Derivative Markets Trading
Dairy Futures Lots Traded 2011 Commentary
NZX Global Dairy Futures monthly lots traded volume CAGR
of 23.3%, to final 11,139 lots for FY11
4Q lots traded of 7,118
Established as the most liquid dairy futures contract globally
Average revenue per lot per side of $2.05 across all variable
fees (trading, clearing house)
Several new participants in the market
2012 Outlook and Value Drivers
Connecting new institutions to NZX Participants, circa 20
major institutions expected
Continuing dairy price volatility and increasing use of NZX
Dairy Futures as a benchmark price curve
Increased number of sellers and buyers on Global Dairy
Trade; extended trading hours being investigated to attract
further trading from EU based participants
New product launches incl NZX 20 Futures and equity options
Exchange Contracts Date Listed Lots Traded
CME SMP 10 May 10 1
Eurex SMP 10 Jun 10 32
NYSE Liffe SMP 10 Oct 10 19
NZX WMP, SMP, AMF 10 Oct 10 12,896
Competitor Dairy Futures Performance*
* As at 27/01/2012
0
2400
4800
7200
9600
12000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct NovDecMonth Cumulative
22
Markets: Spot Commodities (Grain)
2011 Commentary
Solid growth in volumes with tonnes traded of 496k in FY11
up 63.7% on pcp
Growing brand recognition and market presence for NZX
Clear has resulted in continuing growth in market
participants
6,881 “activated” grower accounts on NZX Clear at end of this
harvest vs 3,510 at end of last harvest
2012 Outlook and Value Drivers
Volume target of circa 750K tonnes traded
Less susceptible to “low price” volume divots due to a larger
set, and better mix of participants
Integration with Profarmer grain in soon to be launched
consolidated Clear + OTC market data view
Sales and customer focus to continue
Tonnes Traded Per Month
30,000
60,000
90,000
120,000
150,000
Jan Feb Mar Apr May Jun Jul Aug Sep OctNovDec
2010 2011 2012
Harvest commences 1 October.
$0M
$0.4M
$0.8M
$1.2M
$1.6M
$1.3M
$1.0M
Revenue FY10 vs FY11 ($M)
FY10 FY11
23
Markets: Smartshares
2011 Commentary
Revenue up 2% at $2.31M in FY11 vs $2.28M in FY10
Positive benefits of Smartshares stock lent via CHO; revenue
and liquidity benefits for NZX
Strong trading activity in SmartTENZ and growth in activity in
SmartFONZ
2012 Outlook and Value Drivers
DRP and savings plans expected to result in unit growth of 4%
to 6%
Margin expansion of 5% to 7% expected through continued
cost management
Units on Issue - ETFs
40M
80M
120M
160M
200M
1H10 2H10 1H11 2H11
171M191M183M174M
$0M
$0.5M
$1.0M
$1.5M
$2.0M
$2.5M$2.3M$2.3M
FY10 FY11
Revenue FY10 vs FY11 ($M)
24
Infrastructure: Clearing House
Annual Fees14%
Depository25%
Clearing48%
Settlement10%
Stock Lending3%
$0M
$1M
$2M
$3M
$4M
$3.5M
$2.0M
Revenue FY10 vs FY11 ($M)
FY10 FY11
Clearing House Revenue Split FY11
Commentary
CHO total revenue strong at $3.5M
4Q11 revenue of $895K up 14.9% vs $779K in 4Q10
$28.5B cleared in cash equities
Derivatives open interest of $23.6M as at December 31
(important to margin fee interest revenue stream)
Outlook and Value Drivers
Focused sales efforts to acquire new depository participants,
first new participant expected 1Q
Continued growth in derivative market volumes
Stock lending growth of circa 45% expected
Open interest a driver of margin revenue
Annual review of clearing fees scheduled with changes taking
effect on July 1
First eight months of 2010 revenue is attributable to FASTER
25
Infrastructure: Energy and Other Technology Platforms
Energy Revenue FY10 vs FY11 ($M)* Commentary
Energy revenue of $6.8M in FY11 vs $6.3M in FY10, an
increase of 7.9% net ex expiry of pass-through third party
contract (noted at 1Q11 Investor Day)
Energy stable revenue growth with revenue being largely
contracted and consistent
Other technology contracts revenue increased by circa $780K
to $2.3M up 49.9% on pcp
100% systems availability in securities markets
Outlook and Value Drivers
Fonterra Shareholders Market launch expected in 4Q; NZX to
provide a full set of trading, clearing, settlement and
regulation platforms for licence fee arrangement
Energy revenue growth of 8% to 10% expected
Other technology contracts and infrastructure development
revenue growth of circa 20% expected
Operational focus to continue
$0M
$0.48M
$0.96M
$1.44M
$1.92M
$2.40M$2.3M
$1.6M
Other Technology Contracts Revenue FY10 vs FY11 ($M)
FY10 FY11
$0M
$1.7M
$3.4M
$5.1M
$6.8M$6.8M
$6.3M
FY10 FY11
*Normalised for expiry of pass-through third party contract (noted at 1Q11 Investor Day)
26
Business Review - Expenses
27
Costs Review
Employee, Contractor & Related
$15.15 $15.41 -1.69% Decrease reflects end of large projects in 2010Still some unusual / non-repeating items in 2011
Marketing, Printing & Distribution
$3.79 $4.03 -5.96% Decrease driven by business improvement using centre of excellence across Agri and Corporate
Information Technology $4.15 $3.45 20.29% Increase reflects full year of Clearing House licence fees (only 3 months in 2010)
General & Administration $3.15 $3.31 -4.83% Decrease driven by cost discipline
Professional Fees $2.39 $2.09 14.35% Increase driven by legal ($629K), reduction of 16% across remainder of cost categories
Rebates & Incentives $0.93 $0.22 322.73% Increase reflects impact of cash market Aggregate Trade Fee Cap (circa $300K)
Fund Expenditure $0.84 $0.82 2.44% Increase reflects one off charges
Cost FY11 ($M) 2011 CommentaryFY10 ($M) Change %
28
Costs Outlook
Employee, Contractor & Related
$15.15 Expected to increase by circa 2% to 5%One time CEO recruitment fees in 1H
Marketing, Printing & Distribution
$3.79 Reduction by circa 4% expected
Information Technology $4.15 Expected to increase by circa 5 to 7%, reflecting a 2012 set of systems, security and DR projects
General & Administration $3.15 Reduction by circa 4% to 5% expected
Professional Fees $2.39 Some uncertainty due to litigationDecrease expected of circa $130K in rest of this line
Rebates & Incentives $0.93 Circa 30% reduction expected as some rebate programmes end
Fund Expenditure $0.84 Reduction of circa 14% to 16% expected as a result of reduced fees
Cost FY11 ($M) 2012 Outlook
29
Business Review - Capital Structure and Investments
30
Balance Sheet and Capital
30 Dec 2011 ($M)
30 Dec 2010($M)
Assets
Cash and equivalents $31.9 $28.2
Investment in Markit $27.8 $27.8
Goodwill $13.6 $13.3
Other intangible assets $34.6 $36.6
Other assets $14.2 $14.9
Total Assets $122.1 $120.8
Liabilities and Equity
Trade and other payables $30.9 $21.5
Bank loan $0.0 $7.0
Other liabilities $3.4 $1.5
Total Liabilities $34.3 $30.0
Equity $87.8 $90.8
Total Liabilities and Equity $122.1 $120.8
2011 Commentary
Increased cash paid in dividends, with $17.6M paid to
shareholders for FY11
Depreciation of $5.3M
No debt on balance sheet
Funding facility at effective cost (circa 3% interest rate) to
$15M
Capital expenditure in 2011 of $3.0M
2012 Outlook and Value Drivers
Circa 10% of market capitalisation returned to shareholders
via a compulsory pro-rata share cancellation, subject to
shareholder, court and IRD approval
Stock split of 7 for 3 to be effected with the capital return
Depreciation and amortisation unchanged at circa $5.3M
Consistent capital expenditure versus 2011, including
potential trading platform change
31
Share Capital
31 December 2010 31 December 2011 Change (%) 20 Feb 2012
Total fully paid ordinary shares 121,278,396 121,346,054 0.06% 120,836,530
Total restricted & employee shares 1,574,320 1,264,015 -19.71% 1,128,932
Total Issued Capital 122,852,716 122,610,069 -0.20% 121,965,462
As at release date 120,836,530 ordinary shares on issue
Fully diluted number of shares at release date 121,965,462
32
Dividends and Capital Return
Full year 2011 final dividend of 11 cps declared
Final payment of 2.75 cps to be paid on March 23; Record date March 9
Circa $32.5M to $35M pro-rata compulsory share cancellation
- $21.7M in ASC
- Remainder of cancelled shares accompanied by imputation credits
- Stock split of 7 for 3
- Subject to IRD and court approval, and annual meeting vote on April 30
- Capital return expected circa May 25
Guidance on 2012 dividend to be announced at April 30, 2012 Annual Meeting
33
Link Market Services
Link NZ FY11 FY10 % change
Operating Revenue
$6.8 m $5.9 m 15%
Operating Expenditure $4.3 m $4.0 m 5%
EBITDA $2.5 m $1.9 m 34%
EBITDA Margin 36.8% 32.2%
NPAT $1.1 m $0.7 m 57%
EBITDA ($M)
0.4M
0.8M
1.2M
1.6M
2.0M
1H09 1H10 1H11 2H11
1.7M
0.8M0.6M0.5M
Commentary
Continued strong profit growth in FY11, with EBITDA up
34.3% and NPAT up 57.1% on FY10
Net cash paid to NZX in FY11 of $750K
Free cash flow approximately corresponds with EBITDA
Gained market share, securing the mandate to operate the
registry for all new IPO issuers coming to market
Outlook and Value Drivers
Revenue growth expected to continue
Continued success in winning IPO mandates
Participating in RFP’s for SOE listings programme
Potential new product development
Link Australia IPO? Or exit event?
34
Investor Information
NZX Full Financial Reports available for download from:
http://www.nzxgroup.com/documents
For more information please contact:
Rowan MacraeDirect Line: +64 4 4962874Mobile: +64 27 4727599www.nzx.com
35
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