Despite macroeconomic challenges both globally and locally in 2018, the JSE Limited (JSE) has delivered resilient results. Today, the biggest, multi-asset class stock exchange in Africa reported group earnings growth of 8% to R904 million (compared to a 9% decline in 2017 to R836 million) for the year ending 31 December 2018. This follows a 1% increase in revenue to R2.28 billion (compared to a 5% decline in 2017 to R2.27 billion) and a 1% contraction in operating costs to R1.35 billion (compared to a 4% contraction in 2017 to R1.36 billion).
Although 2018 was characterised by inter-quarter disparity in market activity which impacted most of the JSE’s asset classes, the revenue performance of the JSE’s various markets and segments was as follows:
• Primary Markets revenue declined by 15% to R155 million (2017: R181 million) due to significantly lower additional capital raising activity. Although the number of IPOs for the year was lower (with 12 IPOs versus the 21 IPOs in 2017) the listings were on average larger than in 2017;
• Equity Market revenue was 2% lower at R499 million (2017: R507 million). This follows flat billable value traded for the full year. It is noteworthy that central order book activity improved in the last quarter following an increase in colocation activity which now contributes 37% of value traded. The implementation of the tiered billing model in 2018 resulted in an aggregate discount to clients of approximately R21 million or 12% since its implementation;
• Equity Derivatives value traded declined by 3% as the main index continued to lose appeal as an effective hedge in current market conditions. Coupled with the 11% decline in the value of the main index, Equity Derivatives revenue declined by 16% to R143 million (2017: R170 million);
• Currency Derivatives Market revenue was flat at R48 million (2017: R48 million) and can be attributed to a 9% increase in the number of contracts traded, offset by a dilution in the effective price of those contracts;
• Commodity Derivatives saw a 15% increase in revenue to R78 million following record physical deliveries;
• Interest Rate Market revenue grew 12% to R56 million (2017: R50 million) as bond nominal value reached a record high, up 11% on the back of global uncertainty and foreign sales of emerging market assets. However, with the expectation of lower volatility in the local interest rate market, trading of Interest Rate Derivative contracts has decreased, with total contracts traded flat year-on-year. Revenue from the Bond ETP contributed R3 million;
• BDA revenue increased by 3% to R303 million (R293 million) following a similar increase in the number of Equity Market transactions. This reflects smaller average transaction sizes;
• Clearing and Settlement revenue increased by 5% to R404 million (2017: R384 million), benefiting from increased central order book activity and smaller transaction sizes;
• Information Services revenue remained almost flat at R267 million (2017: R272 million). Normalised for a prior year overstatement, revenue increased in Market Data and Indices 5% and 8%, respectively;
• Other income increased to R82 million (2017: R52 million). Revenue growth here was positively impacted by a forex gain of R26 million (2017: R9 million forex loss) on foreign denominated assets. The JSE holds USD12 million in cash (2017: USD8 million).
The JSE continued its focused control of costs during the past year. Operating costs decreased for the second consecutive year to R1.35 billion (2017: R1.36 billion) with personnel cost 7% lower at R506 million (2017: R544 million) due to reduced headcount. Furthermore, cost optimisation initiatives on software licences, hardware maintenance and support resulted in technology costs reducing by 5% to R241 million (2017: R253 million).
General expenses increased 9% to R492 million (2017: R452 million) as corporate resources were prioritised towards strengthening operational resilience and revenue enhancing initiatives.
The JSE aims to grow the nominal value of the ordinary dividend it declares. Now that the quantum of the capital requirements per the Financial Markets Act have been established and are in effect, surplus cash can be released. Accordingly, the board has declared an ordinary and special dividend for the year ended 31 December 2018 of 655 cents per share (2017: 605 cents) and 185 cents per share (2017: nil), respectively.
Looking ahead
“Operating as a market place for the trading of financial products for over a hundred years has uniquely positioned the JSE as a critical product and service provider to South Africa’s financial market. We recognise the responsibility this brings to ensure that we build better markets for our stakeholders. As we tackle 2019, we are very clear on our tactical and strategic choices for this year. We look forward to the delivery of our Integrated Trading and Clearing (ITaC) platform in April 2019 and are most grateful to our clients for working with us to this end. We also now have the opportunity to lift our heads and direct more of our corporate resources to new and innovative initiatives that both strengthen our operating platform to deliver better to our clients and allow us to grow across the value chain.” concludes Nicky Newton-King, CEO of the JSE.
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