QUARTER: NZX: NZX Financial Result Commentary Q1/2010

17 May 2010 9:06 am

NZX 17/05/2010 QUARTER

REL: 0906 HRS NZX Limited

QUARTER: NZX: NZX Financial Result Commentary Q1/2010

NZX Q1 Financial Result 2010: EBITDAF up 60% on previous quarter 17 May 2010 - NZX has released its Group Q1 financial result showing EBITDAF up 60% on the previous quarter.

This release contains five sections:

I. Summary II. NZX Group Financial Result Q1 2010: Summary Tables III. NZX Group Q1 2010: Performance Summary IV. NZX Group 2010: Strategic and Financial Outlook V. Capital Management

As an introductory explanatory note, throughout this financial summary comparison is made to both Q1 2009 and Q4 2009. In most cases Q4 2009 is the most relevant comparable period, as in Q1 2010 NZX did not have either the energy or agri-business portfolios it does today.

I. SUMMARY

There are three main areas to highlight in the summary of NZX's Q1 2010 financial results.

First, there is a significant improvement in NZX's operating profitability as against the prior period. NZX has seen, over Q1, both its operating EBITDAF and operating margin strongly rebound from Q4 2009. NZX expects to see earnings and margin steadily improve over the remainder of 2010. EBITDAF has increased by 60% against Q4 2009. This improved EBITDAF result is largely a consequence of active cost management.

Second, operating expenses have materially reduced, reflecting active integration of the acquired businesses foreshadowed in the 2009 full year result. As against Q4 2009, operating expenses have fallen by 18%. The bulk of these cost improvements have been achieved through active integration of activities and the cost base. NZX expects this cost reduction trend to continue throughout 2010.

Third, overall revenue was up 1%, with some positive signs regarding the remainder of 2010.

There are strong indications in the market data business that the bottom has been reached, and the upswing initiated - with market data terminal numbers rebounding for the first time in over 15 months. In addition, both the post trade systems and trading areas delivered double digit revenue growth. Gains in these areas were countered by the low seasonal period in the agri- business area, where revenue fell 4%. On aggregate, NZX expects that Q1 will be the weakest revenue quarter over each given calendar year.

II. NZX GROUP FINANCIAL RESULT Q1 2010: SUMMARY TABLES

The acquisition of energy and agri-businesses during the second half of 2009 reshaped the NZX business. Given these acquisitions were made after Q1 2009, NZX's Q1 2010 results are shown in this release against both Q1 2009 and Q4 2009. In the commentary in this release, where the relevant business line is fundamentally unchanged from Q1 2009 (e.g., listings), that will be the first choice of comparator. Where the business is fundamentally different than Q1 2009 (e.g., post trade) the comparator chosen for discussion will be Q4 2009.

The main line items for the NZX Group Q1 2010 Financial performance are shown in Tables 1 and 2 below against Q1 2009 and Q4 2009 respectively.

Table 1: Financial Results Summary- against Q1 2009

Q1 2010 Q1 2009 $ change % change Operating Revenue $11.85 m $8.14 m $3.71 m 46% Operating Expenditure $7.25 m $3.41 m $3.84 m 113% EBITDAF $4.60 m $4.73 m ($0.13 m) (3%) EBITDA $5.22 m $4.41 m $0.81 m 18% NPAT $2.94 m $3.04 m ($0.10 m) (3%) EBITDAF Margin 38.80% 58.09%

Table 2: Financial Results Summary - against Q4 2009

Q1 2010 Q4 2009 $ change % change Operating Revenue $11.85 m $11.68 m $0.17 m 1% Operating Expenditure $7.25 m $8.80 m ($1.55 m) (18%) EBITDAF $4.60 m $2.88 m $1.72 m 60% EBITDA $5.22 m ($18.03 m) $23.25 m 129% NPAT $2.94 m ($19.68 m) $22.62 m 115% EBITDAF Margin 38.80% 24.67%

III. NZX GROUP Q1 2010: PERFORMANCE SUMMARY

A. Operating Revenue The outlook is increasingly positive on the revenue side. A strong performance in the March month indicates real upside potential over the rest of 2010 has already commenced.

Operating revenue for Q1 2010 was $11.85 million, a 1% increase over the previous quarter and a 46% increase over Q1 2009. Both the trading and post trade systems areas experienced double digit revenue growth versus the prior period, while energy markets revenue was 8% up.

Tempering this, agri-business fell 4% - in line with management expectations given Q1 is the seasonal low for this business.

Listings revenue increased 15% versus the relevant Q1 2009 period to $2.44 million.

A comparative breakdown of each of the listings revenue categories is given in Chart 1 below.

Chart 1: Listings Revenue

Trading revenue of $1.5 million was 28% higher than Q1 2009, and 17% higher than Q4 2009.

Trading on the Clear Grain Exchange grew to $0.23 million for the quarter.

Market data revenue increased by 1% compared to Q4. Encouragingly, data terminal numbers grew by 33 in March and 99 in April 2010, indicating a reversal of a 15-month decline in these key operating metric figures.

Post trade systems and services revenue was up 23% against Q4 2009, growing from $1.55 million to $1.90 million. This growth primarily relates to increased services NZX is providing to customers in the technology area.

Agri-business revenue fell 4% as against Q4 2009. This decrease is in line with expectations, reflecting the seasonality in this area of the business. January is the lowest revenue month of the year by some distance. Revenues in March were materially higher than the January/February revenue average. This uplift is expected to be sustained through to the October period, as a consequence of both seasonality and the improved fundamental conditions in the New Zealand agricultural sector.

Smartshares revenue was relatively stable, with a standard Q1 fall in interest received due to the timing of distributions and the levels of cash held.

Energy markets revenue, at $0.63 million for Q1, was up 8% on Q4 and continues to deliver consistent revenue growth.

B. Operating Expenditure Operating expenditure dropped significantly this quarter, down 18% from $8.80 million in Q4 2009 to $7.25 million. This decrease was driven by savings in employee and related costs, the effect of one-off costs in Q4 2009 and good expenditure management. The active integration of recently acquired businesses and the efficiencies flowing from this are now starting to be realised, as shown in the reduced cost figure.

Employee and related costs were $3.95 million in Q1, a drop of 21%, or $1.05 million versus Q4 2009. This reflects the initial impact of integration of functions across the acquired businesses, as signalled in the 2009 full year results, and some increase in capitalisation in the IT area as investment is initiated in new platforms and applications in the data area.

Information technology expenditure was $0.83 million in Q1 compared with $0.61 million in Q4 2009. This reflects increased licence fees for the securities trading system.

Professional fees were slightly up on Q4 2009 at $0.45 million, relating mostly to derivatives market development.

Marketing, printing and distribution costs fell 14% on Q4 2009, from $1.17 million to $1.0 million.

This reflects some cost improvement measures, and also the lower variable cost of production at lower pagination levels in NZX Agri over January and February.

Fund expenditure fell 36% from $0.30 million in Q4 2009 to $0.19 million in Q1, a sustainable decrease driven by the recent consolidation of services providers and changes in key supply contracts.

General administration costs were $0.85 million, a reduction of 35% in Q1 compared to Q4 2009. This reflects the realisation of cost efficiencies across the larger footprint business.

NZX has, and will continue in Q2, to incur one-off costs as the various acquisitions and new business units are established. The benefit of these costs will be realised throughout 2010 into the first half of 2011. If this cost rises above $250k in any quarter, it will be so disclosed in this commentary.

C. Below the EBITDAF Line The unrealised exchange rate movement on NZX's investment in shares Markit was a $0.50 million unrealised gain for Q1. This compares to an unrealised exchange loss in Q4 of $0.49 million.

Depreciation and amortisation in Q1 was $1.10 million compared to $0.97 million in Q4 2009.

The bulk of this increase is related to seeing grain trading software acquired in Q4 amortised for a full three months in Q1 2010.

D. Strategic Investments

Link Market Services, of which NZX owns 50%, continues to do well, albeit with January and February traditionally the quiet months of the year. March results were strong and Q1 EBITDA for this business was $0.26 million. Link has paid $0.20 million in cash to NZX to date in 2010, compared to redemption of $0.15 million of preference shares to NZX in Q1 2009. Appello remained on an unchanged footing over Q1 2010 as compared to Q4 2009, but signs of new revenue will ensure that Appello moves to an EBITDA positive level in Q2 or Q3 this year.

IV. NZX GROUP 2010: STRATEGIC AND FINANCIAL OUTLOOK

A. Strategic Outlook Two key drivers of NZX's financial performance will be the move to manage all post-trade activity in the securities area via a regulated CCP and Clearing House, and the initiation of a derivatives market. Both are addressed below.

Clearing House The Clearing House will be capitalised with $10 million of risk capital. In addition there will be a $2.5 million working capital facility provided - although actual working capital needs are expected to be significantly below this level. Both risk and capital will be funded from NZX's own cash reserves. The capitalised asset for the Clearing House is expected to be approximately $11 million.

In Q1, a total of $1.2 million was capitalised for the Clearing House. Of this quantum, 55 to 60% is project-specific expenditure that will cease at or around go-live. The remainder is staff costs.

The pricing structure of the Clearing House will be designed to encourage liquidity in the market.

Increased revenue is initially expected from new participants, and will grow as a consequence of volume growth and new products.

Derivatives NZX's headline product will be dairy derivatives. As is typical for new derivative products, trading volumes are expected to be modest in the short term. Therefore in 2010 and 2011, a significant part of NZX's derivatives revenue will derive from participant fees. Interest in trading NZX dairy derivatives continues to build, particularly from offshore. The diverse nature of the firms indicating their interest in trading NZX dairy derivatives is particularly encouraging.

B. Financial Outlook

2010 Operating Revenue Outlook NZX expects total listings revenue to increase in 2010, with increases driven by a combination of issuance activity and recent pricing structure changes to secondary listing fees introduced at the last year end.

The most significant near term revenue impact of the Clearing House is expected to come from new participants. A new trading participant will generate accreditation revenue and ongoing membership revenue.

Market data revenues bottomed in Q4 2009, and are expected to increase steadily over 2010.

Terminal numbers at the end of April were 7,281, up 99 from the end of Q1, and this trend is expected to continue. Additional revenue growth is also expected from new indices products. Agri-business revenues are expected to be at least 10% higher than Q1. A major focus for the business going forward will be on subscription revenues, which have less variable cost associated with them. Over the next 12 months NZX expects an additional 5% revenue impact from this focus, with positive margin implications.

Energy markets are expected to continue to deliver consistent high single digit revenue growth throughout 2010.

On 1 April 2010, Smartshares implemented a new unit pricing structure designed to make the funds more attractive to institutional investors. With the new system now live, the focus for the remainder of 2010 is increasing funds under management and the associated revenue.

2010 Operating Expenditure Outlook

Overall, NZX expects aggregate operating costs to decline steadily over 2010.

Costs in the employee and general and administration areas are expected to continue to reduce going forward, as synergies post recent acquisitions are realised. These cost reductions are expected to outweigh information technology cost increases in the back half of the year as the Clearing House goes live.

C. Below the EBITDAF Line The increased asset base resulting from the Clearing House will increase the level of depreciation in the second half of 2010 from current levels by approximately $0.25 million per quarter.

D. 2010 Strategic Investments Outlook Link's EBITDA and NPAT are both expected to grow in the low double digits in 2010. Link is also expected to return a minimum of $600,000 to NZX during 2010 in redeemable preference shares (RPS). NZX has $1.81 million in RPS remaining in Link. V. CAPITAL MANAGEMENT

NZX completed a profit distribution plan for the 2009 annual dividend, with 44% of shareholders electing to receive cash, which totalled $3.5 million. Share issuance was 2.4 million new shares issued, taking the total number of shares on issue to 125.4 million shares.

ENDS

Download NZX Statements of Financial Performance and Operating Metrics for Q1 2010 here: http://www.nzx.com/about_nzx/investor_relations

For more information please contact: Rowan Macrae Direct Line: +64 4 496 2874 Mobile: +64 27 472 7599 www.nzx.com End CA:00194947 For:NZX Type:QUARTER Time:2010-05-17:09:06:16

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