JSE delivers robust performance for the first half of 2016

15 August 2016 Nicky Newton-King, JSE
Nicky Newton-King, CEO of the JSE.

Nicky Newton-King, CEO of the JSE.

The JSE delivered robust performance for the first half of 2016, driven by strong growth from almost all divisions.

Group earnings after tax increased by 19% to R513 million (H1 2015: R430 million), with operating revenue growing by 17% (H1 2015: 16%) to R1.2 billion (H1 2015: R1 billion).

Nicky Newton-King, CEO of the JSE says, “This growth is net of nearly R50 million fee cuts in Equity Market report-only trading fees and Broker Dealer Accounting (BDA) fees, part of a consistent focus on transaction fee reductions to drive use of our markets and taking client needs into account.”

Group earnings before interest and tax (EBIT) are up by 17% to R567 million (H1 2015: R484 million). The earnings per share (EPS) increased by 19% to 599.7c (H1 2015: 503.9c) and headline earnings per share (HEPS) increased by 19% to 585.1c (H1 2015: 490.3c).

The following areas made strong contributions to revenue during 2016’s first half:

• Capital markets: Markets were volatile during H1 2016 following local concerns and global economic uncertainty. This impacted:

o The Cash Equities and Equity Derivatives Markets, which grew R55 million and R8 million respectively due to an increase in billable value traded of 31% and 11% respectively. Cash Equities revenue growth is net of the impact of a reduction of report-only trade fees amounting to R11 million;
o The Currency Derivatives Market, which grew R3 million due to the 12% increase in number of contracts traded; and
o The Interest Rate Market, which grew R6 million due to growth in bond value traded of 38%.

• Trading and Market Services: BDA contributed R151 million on the back of an 18% increase in the number of trades. This growth (R1 million) is net of fee cuts amounting to R39 million.

• Post Trade and Information Services:

o Post Trade Services revenue rose to R212 million as a result of the 29% growth in value traded in the Equity Market; and
o Market Data revenue including Colocation rose by 32% to R150 million. Colocation revenue rose 26% to R10 million. Market Data revenue was also boosted by forex gains (R23 million) and pricing impact (R7 million).

• Funds under Management increased revenue to R46 million due to an increase in margin deposits.

The Group’s Primary Markets division bore the brunt of the uncertain economy with a decline in initial and additional listings fees, resulting in a 2% decrease in revenue. There were six new Equity Market listings in the first half (H1 2015: 9) – including the very significant listing of AB InBev which had a positive impact on the Equity Market in secondary trading activity.

A highlight of the first half was the achievement of readiness to move to a three-day settlement (T+3) for the Equity Market. This project went live on 11 July 2016, following extensive collaboration between the JSE, market participants and regulators. The South African market is now aligned to global standards, helping to make South Africa more attractive to foreign investors.

Stringent cost control

The JSE continues to maintain positive operating leverage with total expenses growing 12% (H1 2015: 12%) to R636 million (H1 2015: R567 million). Included in the cost growth is 8% or R42 million (H1 2015: 10% or R52 million) growth of business as usual costs with the remainder of the cost growth of R35 million (H1 2015: R8 million) representing project operating expenses.

Personnel expenses rose by 17% or R36 million (H1 2015: 8% or R16 million) to R246 million (H1 2015: R210 million), mostly owing to an increased number of senior hires and a rise in average headcount from 470 to 498.

Technology costs rose by 20% or R22 million (H1 2015: 19% or R18 million) to R133m (H1 2015: R111 million) in line with increased technology development, which rose R13 million to R29 million (H1 2015: R16 million), contributing 12 percentage points to the growth.

Depreciation declined by R4 million to R47 million (H1 2015: rose R2 million to R51 million).

General expenses rose by 8% to R210 million (H1 2015: R196 million) largely due to

• The JSE’s Black Broker enterprise development programme, aimed at encouraging the growth of these members. We disbursed R3 million (H1 2015: Rnil) to the black brokers in enterprise development contributions;
• Membership fees rose R3 million (H1 2015: rose R1 million) due to timing differences and forex impact; and
• Strate expenses rose R7 million or 11% from R64 million to R71 million on the back of higher volumes.

Strong balance sheet

The Group cash balance is strong at R1.8 billion after paying a dividend of R534 million during the period (H1 2015: R417 million).

Group external capital expenditure was R61 million on our various strategic initiatives and R16 million on business as usual. All currently planned investments and capital requirements for 2016 can be funded from the Group’s own resources.

Strategic and operating performance

The JSE’s focus for the second half of 2016 remains on projects that are designed to strengthen the delivery of the JSE’s strategic vision. These include:

• Progressing the integration of the JSE’s trading and clearing systems for all JSE products (ITaC), which will enable a central point of risk management, margin offset and cross-collateralisation. Currently in its first phase, includes significant enhancements to the equity market functionality which will be delivered in late Q3 of 2016.
• Investigating alternative Equity Market risk and settlement models to bring the JSE’s Equity Market closer to global equity market standards;
• Developing an exchange-traded platform (ETP) for government bonds with National Treasury and market participants;
• Monitoring the implementation of the Twin Peaks model of financial sector regulation for South Africa, given its impact on the JSE and JSE Clear in terms of the Financial Market Act (FMA);
• Increased focus on selling JSE products and services outside of South Africa;
• Improving client service;
• Reviewing our approach to all areas of transformation.

“We continue to focus on strengthening the foundational elements of our business which include people, technology and regulation, diversifying revenues, and driving enhanced capital and cost efficiencies. We are particularly focused on driving high-growth areas and on 1 July 2016 we restructured the business to enable enhanced focus on two such divisions: Post Trade Services and Information Services,” concludes Newton-King.

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