Pleasing progress on Strategic Initiatives, despite difficult first half for JSE Ltd

August 16, 2012


 

In a difficult first half in which a slowdown in equity trading volume growth limited revenue increases, the JSE Limited (JSE) focussed on achieving key elements of its five year growth strategy. Revenue grew by 2% to R682.8m during the first six months of this year (H1 2011: R667.9m). However, with the financial services industry facing upheaval worldwide, the JSE took strong steps in all business areas to position the exchange for growth in the future. Already in H1 2012 it has achieved a number of strategic successes.

The performance of JSE divisions was mixed. Equity Market revenue declined 7%. However, revenue from related services - Back-Office Services (BDA) and Equities risk management, clearing and settlement - each rose by 3%.

In other markets, trading volumes rose. Equity Derivatives revenue was slightly up owing to growth in index derivatives contracts traded. Interest Rate Products revenue grew by 8% prompted by nominal value growth (spot bond) and a rise in the number of contracts traded (derivative). Currency Derivatives revenue grew by 14% as value and contracts traded rose 27% in H1 2012. And Commodity Derivatives revenue rose 4% following an increase in the number of physical deliveries processed.

Data Sales revenue grew 16% as new professional clients subscribed to JSE data. Operating costs increased by 34% primarily as a result of a R72.6m impairment after a decision not to complete the Market Services Solution (MSS), part of the JSE’s Systems Replacement Project (SRP); and personnel expenses which increased 19%, mainly due to the deployment of staff following the review of MSS, resulting in these salary costs being expensed rather than capitalised. As a result of the MSS impairment, the JSE’s executives will forfeit the retained portion of their 2011 bonuses. The rest of the company will receive only a portion of the retained bonus, on a sliding scale. Net profit after tax (NPAT) for the period declined by 60%. Earnings per share (EPS) are 61% lower than H1 2011. Headline earnings per share (HEPS), which were impacted by the impact of impairing MSS and the resultant reduction of the value of personnel costs capitalized to projects, are 15% lower than H1 2011.

Operating revenue streams

 

RevenueH1'12 (R'm)               H1'11 (R'm)
Issuer Regulation       46.1                   48.8
Equity Market      161.2

                   172.6

Back-office services (BDA)
and Equity risk management
      204.6                   198.9
 Equity Derivatives      57.0                                55.9
 Interest Rate products      20.5                    19.0
 Currency Derivatives      8.3                    7.2
Commodity Derivatives      24.5                    23.6
Data Sales      70.8                    61.1
Funds management fees      29.4                     22.6

 

ACHIEVEMENTS
“We are pleased by the progress made in the first six months towards our strategic objectives,” says JSE CEO Nicky Newton-King. “In particular we have completed our data centre (built to tier 3 specifications) and disaster recovery site and implemented the new equity trading system and SENS upgrade on time and on budget and moved it to Johannesburg from London. These changes will enable us to provide enhanced speed and functionality to our clients. We also announced a number of fee waivers to thank equity market participants for the enormous effort they put into enabling us to go live with the new trading engine.”
Newton-King says that during the period, the JSE upgraded the commodities and derivatives market technology to handle the increased volumes. “We also relooked at the pricing of most of our products and changed (and in many cases reduced) the pricing mix in our interest rate and currency markets to encourage increased market participation,” she says.
During the first 6 months of 2012, the exchange made significant progress on ensuring that its clearing, settlement and risk management services will meet the CPSS-IOSCO standards and that its clients obtain maximum Basel III relief in 2013.
“In conjunction with National Treasury and market participants, we also found a way forward on securities transaction tax with which participants are comfortable and which should enable increased activity on our market,” she says.

PROSPECTS
The JSE is not able to make revenue projections for the Group, given the dependence on trading volumes in all the markets. That said the exchange retains a strong focus on controlling costs and in making the right strategic investments for long term growth. “In line with our global peers, it is a stressed market, but that isn’t stopping us from building a business that meets the needs of our stakeholders and a changing environment so that we remain a sustainable and robust business,” says Newton-King. “This has been a challenging period but we are seeing successes and will continue to invest in those areas of our business which will grow revenue and build long terms sustainability.”

JSE Limited
As South Africa’s only full service securities exchange, the JSE connects buyers and sellers in four different financial markets, namely equities, equity derivatives, commodities derivatives and interest rate instruments. The JSE Ltd offers the investor a first world trading environment, with world class technology, surveillance and settlement in an emerging market context. It is amongst the top 20 largest equities exchanges in terms of market capitalisation in the world.

For further information, please visit www.jse.co.za  

ISSUED BY:
Roz Thomas/Pheliswa Mayekiso
Corporate Communications Consultants
Tel: 00 27 11 463 2198
Mobile: 082 925 8806/ 084 486 0502

ON BEHALF OF:
Michelle Joubert
Head of Investor Relations
JSE Limited
Tel: 00 27 11 520 7080
Cell: 00 27 83 395 0350
Email: michellej@jse.co.za