nzx 2011 full year results presentation - amazon s3 · nzx 2011 full year results presentation 2...

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


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


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


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


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


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


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


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


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


24

Infrastructure: Clearing House

Annual Fees14%

Depository25%

Clearing48%

Settlement10%

Stock Lending3%

$0M

$1M

$2M

$3M

$4M

$3.5M

$2.0M


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


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


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


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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