NZX first half earnings decline

See also: Mixed bag first half for NZX

[NZX], the stock market operator, reported a decline in first-half operating earnings as costs outpaced sales growth, fewer companies listed and agri publications suffered in a tighter rural sector. The sale of Link Market Services boosted net profit.

Profit rose to $18 million in the six months ended June 30, from $7 million a year earlier, reflecting an $11.8 million gain from the sale of its 50% stake in the Link shareholding registry, the Wellington-based exchange said. Stripping out the proceeds of the sale, profit fell 12% to $6.2 million. Sales rose 10% to $34.4 million, while operating expenses rose 19% to $22.7 million.

In June, NZX sold its stake in Link NZ for up to $14.3 million to its Australian counterpart, earning an initial payment of $13.8 million. At the time it signalled interest in buying the Reserve Bank's NZClear settlement system and has also flagged plans to acquire 100% of Apteryx, which allows investment advisers and providers to manage, trade and administer client funds, and generated annual revenue of $1.2 million in the year ended March 31.

NZX has been diversifying away from its capital markets core business by expanding its footprint in funds management, buying SuperLife in December as part of a plan to roll out new exchange traded funds, which it could then offer as a low-cost KiwiSaver option.

The company put the increase in its costs down to $1.9 million of SuperLife expenses and a $1.1 million increase in professional fees due to the Ralec litigation as well as the launch of new Smartshare ETFs.

NZX is in a long running dispute with the former owners of the Clear Grain Exchange, claiming Ralec misled it with "wildly inaccurate" forecasts when the stock market operator purchased the grain exchange in 2009 for $A6.9 million upfront and potential earn-outs of $A7 million. It had earlier flagged that it expected to spend a minimum $1 million on legal fees related to the dispute this calendar year.

Sales in the company's capital markets business rose 0.2% to $17.8 million, although its listing revenue was down 12% to $5.5 million. Listings on the main board have dropped off, with only one company, Fliway Group, listing on the exchange, after a flurry of activity of last year, fuelled in part by the government's selldown of its utility companies. NZX also launched its new market, NXT, which targets small-to-medium sized business, with the debut of G3 Group.

The soft commodities unit, which includes its dairy derivatives business, reported a 13% decline in sales to $664,000. The agri publications and data business revenues declined 5.7% to $5.7 million, as print advertising sales dropped due to "adverse market conditions in the rural sector, with a rapid decline in dairy prices and drought conditions in some regions".

Sales in the funds management business jumped 297% to $4.8 million, reflecting proceeds from the SuperLife acquisition.

Market operations, which includes the Electricity Authority contracts and the Fonterra Shareholders' Market, were little changed at $5.3 million.

The board declared a 3cps interim dividend, unchanged from a year earlier.

NZX shares last traded at $1.06, and have declined 11% since the start of the year.

(BusinessDesk)