JSE delivers resilient performance for the first half of 2017
3 August 2017, Johannesburg: The JSE's performance was resilient in the face of a tough operating environment during the first half of 2017. Despite good performances in some areas, revenue from most business units reduced following low volatility and declining sentiment about South Africa.
This resulted in operating revenue falling 8% to R1.1 billion (H1 2016: R1.2 billion). Against this background, the Group has worked hard to contain costs which grew by only 1% to R644m (H1 2016: R636m). Group earnings after tax decreased by 18% to R419 million (H1 2016: R513 million).
Nicky Newton-King, CEO of the JSE says, "The country is plagued by low economic growth, ratings downgrades and a loss of business confidence which has knocked financial market activity. We have continued to drive the use of our markets, with a slight rise in number of new Equity Market listings and new product launches across our markets. We also continue our investment in new technology aimed at enhancing convenience for our clients."
Although Primary Market revenue increased by 8% to R82 million (H1 2016: R76 million) largely owing to increased capital raising and new Equity Market listings in the first half of 2017 (H1 2017: 8; H1 2016: 6), revenue from most of the JSE's business units declined during the first half of 2017:
- In the Capital Markets, stand-out performances from the Currency and Interest Rate Derivatives Markets (26% increase to R24 million [H1 2016: R19 million] following a 36% increase in the number of contracts traded) were offset by the other markets, where trading revenue remained flat or declined:
- In the Equities Market, a 19% decline to R235 million (H1 2016: R289 million) following a 13% decrease in billable value traded;
- In the Equity Derivatives Market, a 7% drop to R84 million (H1 2016: R90 million) as value traded fell by 18%;
- In the Commodity Derivatives Market, a 9% decline to R32 million (H1 2016: R35 million) owing to a 20% decrease in the number of contracts traded in the context of a global grain oversupply and good local crop, as a result of which local clients hedging dropped until export parity was reached;
- In the Interest Rate Market, Bond Market revenue remained flat at R24 million with bond nominal value traded reducing by 12% but with Interest Rate Derivative revenue up 50% following a 23% increase in the number of contracts traded.
- In Post Trade Services, revenue was impacted by lower Equity Market trading volumes resulting in clearing and settlement revenue for the market falling by 12% to R186 million (H1 2016: R212 million). Revenue generated by BDA declined by 1% to R150 million (H1 2016: R152 million, including the impact of fee reductions of a further 8% in January 2017).
- Information Services revenue declined by 11% to R133 million (H1 2016: R150 million). Of this, R9 million is attributable to a forex impact on USD receipts.
In the difficult revenue environment described above, the Group has worked hard to contain costs which grew by only 1%.
Of the R644 million operating expenses, personnel expenses decreased by R1 million to R245 million (H1 2016: R246 million).
Technology costs declined by 3% to R129 million (H1 2016: R133 million) following a reduction in the number and cost of contractors as well as lower external project-related services.
Depreciation increased by 23% to R58 million (H1 2016: R47 million), largely owing to the impact of projects that have gone live.
General expenses have been well contained and rose by 1% to R212 million (H1 2016: R210 million).
During the period, the JSE announced major cost reductions including:
- Targeting annualised technology cost savings of approximately R70 million, to be fully realised from 2019 onwards following a change in the manner in which the Group is planning to source and utilise technology;
- Removing vacancies and reducing discretionary expenditure which will result in R65 million annualised savings, of which a portion is already reflected in H1 performance;
- A s189A retrenchment process which is now being completed will result in the retrenchment of approximately 60 people (14% of headcount) from the JSE's current full-time staff complement during 2017 and achieve savings of approximately R100 million reflecting from the 2018 financial year.
Strong Balance Sheet
The Group cash balance is strong at R2 billion after paying a dividend of R486 million during the period (H1 2016: R543 million). Group external capital expenditure on the JSE's various strategic initiatives was R97 million. This includes improved functionality on the project to integrate the JSE's trading and clearing systems. All currently planned investments and capital requirements for 2017 are able to be funded from the Group's own resources.
The JSE's focus for the second half of 2017 remains on projects that are designed to strengthen the delivery of the JSE's strategic vision. These include:
- Being well positioned for the competitive exchange landscape;
- Implementing the JSE's cost saving initiatives;
- Work on the initiative to move the trading and clearing operations for all markets onto integrated platforms, with significant benefits for clients – the JSE expects to complete work on the major phases of the project by end-2017 and to go live in the first quarter of 2018;
- The exchange-traded platform for government bonds which is progressing well;
- Navigating changes following the Twin Peaks regulatory implementation: the Group is ready to meet the known draft regulatory capital requirements;
- Working on implementing strategies for the key Post Trade Services and Information Services divisions; and
- Being a constructive participant in the SA Inc. dialogue.
"Despite the difficult macro and operating environment, we are clear on our 2017 priorities and hence the issues that we need to tackle to achieve our strategy and grow our business sustainably. Whilst we have experienced a tough start to the year, we remain focused on making the necessary capital investments in areas that will enhance the Group's sustainability, servicing our clients and driving enhanced capital markets. Evidencing our commitment to make it more efficient for our clients, we recently introduced improved margin methodologies in the Interest Rate Derivatives Market that resulted in nearly 30% reduction (approx R3.5bn) in margin calls for clients of that market. We look forward to bringing further innovation to our clients," concludes Newton-King.