Johannesburg, 5 August 2020: The Johannesburg Stock Exchange (JSE) delivered pleasing financial results for the first half of 2020 amidst a challenging operating environment.
“Financial markets have been turbulent and volatile in the first half of the year with record trading volumes amplified by the sovereign credit ratings downgrade, South Africa’s exit from the World Government Bond Index, and rand volatility. We recognise the substantial impact of the COVID-19 pandemic on our clients, the financial services sector, and communities in our society. Our response has been squarely focused on ensuring the health and safety of our employees, support for our clients and safeguarding the operational resilience of our trading platforms and infrastructure,” says, Leila Fourie, JSE Group CEO.
Group earnings before interest and tax (EBIT) increased by 26% to R523 million (2019: R414 million) and net profit after tax (NPAT) increased by 22% to R485 million (2019: R398 million). Total basic earnings per share (EPS) rose by 22% to 569.1 cents (2019: 466.3 cents) and total headline earnings per share (HEPS) rose by 22% to 569 cents (2019: 466.1).
The Group continues to generate quality earnings as it maintains its strongly cash generative position, with net cash from operations up 18% to R525 million (2019: R444 million). Cash and cash equivalents on hand at 30 June 2020 amounted to R2.2 billion (2019: R2.2 billion).
Total revenue increased by 22% to R1.32 billion (2019: R1.08 billion) largely as a result of increased trading activity in the key markets as well as large foreign flows and growth in other income driven by foreign exchange gains.
Expenses increased by 20% to R801 million (2019: R670 million). The increase in expenses is largely attributed to non-recurring costs as well as the planned, annualised impact of ITaC system depreciation.
Throughout the pandemic and national lockdown, the JSE has remained open for business with a smooth transition to remote working. The JSE maintained uninterrupted trading, clearing and settlement with effective management of short positions and appropriate and responsive margin adjustments.
Record trading days and increased volatility led to a significant increase in the number of circuit breakers being triggered without any systems downtime. The resilience of our systems during this period reflects the benefit of investing in robust technology platforms over the years.
Primary market revenue increased by 2% to R75 million (2019: R73 million) owing to higher annual listing fees and a recent increase in activity in corporate actions. New IPOs have come under pressure in H1 2020 owing to volatile market conditions. Capital raised in the secondary market is, however, on the increase.
Fourie highlighted that “during the pandemic, we were responsive to our clients’ need to raise capital and resolve unique governance challenges brought about by the pandemic. We launched our virtual AGMS and our regulatory team worked with our regulators to enable expedited capital raising by introducing written resolutions for the issue of shares for cash.”
“On the sustainability front, the JSE has seen a growing demand for green bonds in emerging markets, driven by private borrowers looking for investments in sustainable energy, cleaner water, transport and smart buildings. In line with our vision to lead on the sustainability agenda, the JSE introduced a new sustainability segment, enabling the raising of debt for social and sustainability bonds” said Fourie.
- Equity Market: Revenue increased by 26% to R260 million (2019: R206 million) owing to a 17% increase in billable value traded and increased central order book activity. An event-driven Q1 led to a number of new record trading days. Colocation activity contributed 48% (H1 2019: 39%) of overall value traded.
- Equity Derivatives Market: Revenue increased marginally to R71 million (2019: R70 million) owing to an uptick in bespoke products, offset by a decrease in value traded of 3% with open interest down 4%. With an about-turn on dividends already declared, as listed corporates began to flag liquidity concerns, activity in the first half of the year began to skew towards hedge trades and total-return products.
- Currency Derivatives Market: Revenue increased by 4% to R27 million (2019: R26 million) largely owing to an increase in activity in volatile markets.
- Bond and Interest Rate Market: Revenue increased by 15% to R38 million (2019: R33 million), with nominal bond value ending flat after a Q1 surge and a Q2 fall-off, accompanied by lower liquidity and lower price volatility. The JSE saw significant outflows from foreign investors, primarily due to the pandemic-related flight to safe-haven markets, interest rate cuts and South Africa exit from the World Government Bond Index in April 2020. The JSE has also seen an increase in the trading of interest rate derivative contracts, which were up 27%.
- Commodity Derivatives Market: Revenue increased by 3% to R41 million (2019: R40 million) on the back of good weather, which improved the outlook in the local grains market. This outlook is tempered by potential supply chain complications. Nonetheless, the grains market is expecting its second-largest harvest on record.
Post Trade Services
- Back office Services (BDA) revenue increased by 26% to R198 million (2019: R158 million) following a 37% increase in the number of transactions and smaller transaction sizes.
- Clearing and settlement revenue increased by 31% to R240 million (2019: R183 million) driven by increased billable value traded and central order book activity in the Equity Market.
- Revenue increased by 18% to R183 million (2019: R156 million), largely due to annual price increases, foreign exchange gains on USD-denominated revenue, and new business.
- Other income increased to R58 million (2019: R19 million), largely as a result of realised and unrealised foreign exchange gains.
The JSE’s focus for the second half of 2020 will continue to be on driving organic and inorganic growth whilst managing its cost base. The integration of Link SA into the JSE, subject to a successful conclusion of the Competition Tribunal hearings will be a key focus together with delivering new products and services in its Capital Markets and Information Services divisions. The JSE will also be investigating a solution for clearing and surveillance of over-the-counter (OTC) derivatives, upgrading our equities trading engine and entrenching our position as a technology empowered innovator.
During April the JSE launched the #Trade4Solidarity campaign. This campaign saw the JSE join together with 38 market participants to donate trading revenues earned over two days across all asset classes to the Solidarity Fund. This initiative raised a total of R34.4 million, of which the JSE contributed R13 million.
The Board pledged a portion of their director emoluments, and were joined by the staff in contributing a portion of their salaries in a united show of JSE support for the Solidarity Fund. The JSE also partnered with Business Leadership South Africa (BLSA) to provide hygiene hampers and food parcels to disadvantaged communities in Gauteng.
The JSE provided other relief measures including fee reductions in some market segments and flexible payment arrangements for distressed clients. We also reduced trading fees for small caps to encourage trading in lower liquidity stocks.
“Our revenue performance largely reflects the near-term impact of market volatility in response to the COVID-19 pandemic. This revenue performance and volatility masks the structural impediment of the South African economy, which has been dealt an even tougher hand as a result of the pandemic.”
“The JSE is committed to playing its part in raising the profile of South Africa as an attractive investment destination. The cooperation between public and private institutions will continue to lay the groundwork for increased growth and a sustainable economic recovery” concludes Fourie, JSE Group CEO.