March 25, 2014
The JSE posted strong results for 2013 – the best since our listing in 2006. Group earnings after tax increased by 68% to a record high of R507 million (2012 R302 million). Headline earnings per share were up 36% to 645 cents. Most pleasing to me was that this performance enabled us to declare a dividend of 350 cents per share (2012 250 cents) and a special dividend of 50 cents per share.
The JSE has eight diversified revenue streams and though most divisions performed well we saw substantial growth from our Equity Market, Post Trade Services, and Market Data divisions.
Our equity market remains our biggest revenue generator at 26% but Post Trade Services is becoming increasingly important for the JSE because its responsibilities include risk management and the clearing and settlement assurance of our equity and derivative transactions.
The global financial crisis in 2008 revived the role that risk plays in the financial markets. We have seen tremendous growth in our markets over the past year and with growth comes an increase in risk. The JSE has therefore made significant investment into our post trade operations. We, together with others, have created a mutualised default fund to which the JSE contributes R100 million and put in place liquidity lines to protect our market against sudden liquidity squeezes. We have introduced a new margin methodology for the derivatives market, stress testing and back testing – tools designed to assure settlement and to reduce the risk to investors of failed trades. In our equities market we are also in the process of reducing our settlement cycle from five to three days. This will reduce the amount of unsettled trades at any point in time.
Our Market Data division promotes, markets and sells live, statistical, historical and end-of-day data from all JSE markets. It is also responsible for the licensing of all products tracking all indices. In 2013 its revenue increased 20% due to increasing demand from international clients, increased demand for licensing of products tracking indices as well as algorithmic players subscribing to JSE data. During the year 54 new clients (24 local and 30 international) signed up for our data services. In 2014 the division will continue to focus on expanding its international client footprint as well as launching new indices and other market data products.
Mining shares have always been an important part of the JSE’s DNA and we had a strong presence at the recent Mining Indaba. South Africa can be justifiably proud of annually hosting one of the largest mining investor conferences of its kind in the world. There can be no doubt that over the years the Mining Indaba has been the catalyst for billions of dollars of foreign investment flowing into the African continent. Among the 8000 delegates there will always be entrepreneurs on the lookout for long term capital for mining ventures on the continent and we believe that the JSE, a world class African stock exchange, offers a good value proposition for them.
Ivan Glasenberg, the CEO of Glencore Xstrata, highlighted his group’s confidence in Africa as a place to invest and the JSE as a listing venue during his speech at Glencore Xstrata’s listing last year. As the JSE’s CEO Nicky Newton-King says “A multinational company of Glencore Xstrata’s size and stature, selecting the JSE for its secondary listing, amounts to a major accolade for the exchange. The listing reflects well on South African financial markets and sends a positive message to potential issuers both locally and internationally.” The recent secondary listing on the JSE of Camac, the Houston-based oil and gas exploration company, confirms the JSE’s ability to draw top international resource investors.
Our mining sector remains vital for the economic well being of our country. Firstly it is the largest generator of foreign capital and secondly it directly employs about half a million people. It is estimated that each one of these wage earners has 10 dependants. With the mining industry moving inexorably towards mechanisation and less labour intensive methods of production, it is in everyone’s interest that the strikes on our mines are resolved quickly by the collective leadership so as to sustain the continued employment of a high number of people.
The African growth story was still a strong topic of conversation at the Mining Indaba so it does not surprise me how many JSE listed companies are now looking for growth and expansion in other countries in Africa. I can think of over 20 off the top of my head. The JSE is also a listed company and we are continually exploring avenues in Africa for new opportunities. We have been playing our part by annually hosting seminars for African stock exchanges on ‘Building African Financial Markets’ and we will host our third of these seminars once again in September this year. However as a colleague pointed out, investing in Africa is not a quick T20 game of cricket – it is more like a five day test which requires patience and can often end in a draw.
It is interesting to note that the JSE was established in 1887 to service the gold mining industry and in the 1888/89 gold rush there were 300 gold mining companies on the JSE with 750 stockbrokers in attendance. However over the past decade Consumer Goods has overtaken Resources as the biggest sector on the JSE with 26% of the JSE’s market capitalisation of R10.5 trillion. Resources are second with 23% and Financials third with 18%. Today mining companies comprise 18% of the 165 companies that make up the FTSE/ JSE All Share Index with Glencore and Billiton accounting for 33% and 31% respectively of the market capitalisation of the overall mining sector.
In my last column in the middle of November I mentioned that the JSE building was in the midst of being made more user-friendly. I added that we were enlarging our main electronic board to profile the whole market not just equities and building two television studios and a radio studio on the first floor. We have also been upgrading the technology in our various events venues. I can confirm that these renovations are now complete with two international business TV channels, Bloomberg and CNBC Africa, broadcasting from the TV studios and PowerFM and BIZNEWS.com occupying the radio and online space. This means that the JSE will be able to increase our investor relations services to all our listed companies.
I believe the need for investor relations for not only listed companies but businesses of all sizes can be best summarised by these words I heard at an investor relations presentation:
I don’t know who you are
I don’t know your company
I don’t know your company’s product
I don’t know what your company stands for
I don’t know your company’s record
I don’t know your company’s reputation
Now – what was it you wanted to sell me?
In 2012 the JSE surveyed its listed companies to find out if they had the skills needed to identify local and international investors, talk to the market, build their company profiles, fulfil their listing obligations and enhance their corporate governance. The survey also asked issuers about the areas they most needed the JSE’s help to bridge the divide between themselves and investors. Altogether 119 companies responded to this survey.
As a result of the feedback from this survey the JSE is working towards becoming a one-stop shop for issuers wanting to attract investors, communicate with the market and manage the risks and requirements of being listed. We also wish to assist issuers to achieve their listing aims and to improve their experience of being listed. We are planning to expand our invitation to companies to hold their results presentations and meetings at the JSE as well as hosting events to inform employees of listed companies of what it means to be working for a listed entity. For further information please contact Carol Crozier at our Issuer Services division - CarolC@jse.co.za.
Celebrating Nelson Mandela
As 2013 drew to a close, we mourned former South African President Nelson Mandela, who passed away on 5 December 2013. As a sign of respect, all JSE markets were paused five minutes at 11:00am on 6 December. This reminded me of the impact that he made with his visit to the old open outcry floor. All trading activity simply came to a halt.
Madiba’s passing drew South Africans from all walks of life together. Our country needs to find new ways to cherish his ideals as we move forward.
Welcome to our new Chairman
My retirement after the JSE’s 2014 annual general meeting in May gives me the opportunity to welcome Nku Nyembezi-Heita, whom the Board has unanimously proposed as the JSE’s new independent non-executive Chairman from the day after the AGM. I’m delighted to welcome Nku on behalf of the Board. She joined the JSE’s Board in June 2009 as a non-executive Director, having been Chairman of the Bond Exchange of South Africa, which the JSE acquired that year.
As Chairman of the JSE, Nku will bring to the table a sharp, analytical mind and rigorous attention to the value of potential new projects, as well as the ability to ask the tough questions. I am certain that she is the right person for the job.
This article first appeared in Business Report