CEO assures stakeholders JSE is ‘not resting on its laurels’

25th February 2020

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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Self-regulatory multi-asset-class stock exchange, the JSE, had experienced a difficult operating environment, which CEO Dr Leila Fourie on Tuesday said had impacted on its performance for the year ended December 31.

Despite the constrained operating environment, the JSE was “not resting on its laurels” as it prepared for the upcoming year, she averred in a presentation of the JSE’s results.

Based on International Financial Reporting Standards for the financial year, the JSE on Tuesday reported a 22% year-on-year decrease in basic earnings a share to 820.5c and a 23% year-on-year decrease in headline earnings a share to 814.6c.

Despite the lower earnings, Fourie said the JSE continued to be “strongly cash generative”, with net cash from operations of R880-million, compared with R913-million in 2018.

The decrease in net cash, Fourie explained, was largely attributable to a planned increase in staff costs off an “abnormally low” base, the costs associated with the implementation of the new Integrated Trading and Clearing (ITaC) system, as well as other one-off costs.

The strong cash balance, however, enabled the JSE to grow its ordinary dividend. Accordingly, an ordinary dividend of 690c a share was declared, an increase of 5% over 2018’s 655c a share.

The JSE also declared a special dividend of 150c a share, thereby maintaining the total dividend payout of R730-million.

Fourie on Tuesday noted that the diversification of the JSE’s revenue streams had ensured that the decline in revenues was limited to 1%, at just under R2.2-billion, given the mixed performance across the group’s asset classes.

This was owing to a reduction in the level of activity in primary markets, with fewer new equity listings than in the comparative period. The Equity Market, Fourie added, had recorded net foreign outflows of R114-billion and muted local investor activity.

However, the JSE saw increased activity in the second half of 2019, with an uptick in value traded in the Equity Market.

Additionally, Fourie said the deep liquidity pools at the JSE, competitive and responsive relative pricing, robust technology and globally connected trading and post-trade services had “ensured that the [JSE] retained a 99.32% share of the equity market by value traded”.

During the course of 2019, the JSE also announced its intention to acquire 74.85% of Link Market Services South Africa (Link SA) in August, for a cash consideration of R224.5-million, in line with the group’s new inorganic growth strategy.

Expenses increased off a low base, by 14% to R1.5-billion, largely in technology costs and related depreciation; the recruitment of additional personnel to reach planned headcount levels; one-off expenditures of R37-million relating to the JSE’s executive leadership transition, as well as transaction expenses of R6-million related to the proposed acquisition of Link SA.

As a result of the increase in operating costs, the JSE’s earnings before interest and taxes decreased by 26% to R687-million and net profit after tax declined by 23% to R695-million.

REVENUE STREAMS

In the JSE’s primary markets, revenue decreased by 5% to R147-million owing to fewer initial public offerings (IPOs) for the year – five IPOs versus 12 IPOs in 2018.

However, Fourie explained that, globally, IPOs decreased by 19% in 2019.

“Although the number of listed entities declined, the market capitalisation of all entities listed on the JSE increased by 38% during 2019 and there was also a material increase in structured listings, such as warrants, as well as an uptick in the number of bond listings.”

In terms of capital markets, the JSE’s equity market revenue decreased by 13% to R433-million as a result of a decrease in billable value traded of 2% for the full-year, and the implementation of the tiered billing model in August 2019.

Revenue for the equity derivatives market was flat at R143-million, but the value traded increased by 2%.

The currency derivatives market, meanwhile, also saw a revenue decline of 2% to R47-million, where long-term global risk events contributed to market uncertainty, which resulted in increased hedging and reduced speculation, with an increase of 7% in open interest, the JSE reported.

Revenue in the bond and interest rate market increased by 21% to R68-million as nominal bond value grew by 16% on the back of global uncertainty and foreign sales of emerging market assets, as well as an increase in activity in the repo market.

In the commodity derivatives market, revenue increased by 5% to R82-million on the back of volatility in the local grains market created by weather uncertainty, as well as heightened activity in international grains products.

Company and information services revenue both increased by 16%, to R11.9-million and R310-million, respectively.

In conclusion, Fourie on Tuesday indicated that the JSE was “at an important inflection point”, adding that the JSE had “set a solid foundation by combining a lower cost base and competitive pricing with the recent implementation of the JSE’s multiyear ITaC programme”.

She said the JSE “remains confident” in its strategic plans to grow and diversify revenues, which are considered to be necessary to maintain long-term sustainability and competitiveness of the JSE as “a critical component of the South African financial markets ecosystem”.

Additionally, Fourie mentioned that the JSE would continue with its strong focus on supporting local small, medium-sized and microenterprises, and indicated that the JSE would soon announce its plan to promote growth in this market.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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