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NZX annual profit falls 62% on Ralec litigation costs; 2015 Link Market sale washes through

Tuesday 14th February 2017

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NZX annual profit dropped 62 percent as the stock market operator faced mounting costs from the protracted Ralec litigation and a new regulatory environment, and was compared against a 2015 result flattered by the gain on the sale of its Link Market Services division. 

Net profit fell to $9.2 million, or 3.4 cents per share, in calendar 2016 from $23.9 million, or 9 cents, a year earlier when the Wellington-based company's earnings were bolstered by an $11.8 million gain from the Link sale. Earnings before interest, tax, depreciation and amortisation fell 8.4 percent to $22.5 million, as operating expenses climbed 13 percent to $55 million, outpacing a 6 percent gain in revenue to $77.5 million. 

While revenue was a touch ahead of Forsyth Barr analyst James Bascand's forecast of $76.9 million, ebitda was just below his projection of $23.1 million and at the bottom end of its own guidance. 

"The past 12 months have been pivotal for NZX. A great deal of work was undertaken to ensure we have the right foundations in place to drive profitable growth across the group going forward and are effectively operating an increasingly integrated set of businesses that serve at the heart of New Zealand's capital markets," interim chief executive Mark Peterson said in a statement.

"The team at NZX are now clearly focused on driving earnings growth out of our markets, funds services and agri businesses to better serve our customers and deliver improved returns for our shareholders," he said. 

Last year saw the end of NZX's long-running dispute with the former owners of the Clear Grain Exchange, costing the stock market operator $3 million in calendar 2016 alone when the case hit the courts and resulted in what the judge described a "nil-all draw". At the same time, a downturn in the dairy sector prompted a review of the agri division and NZX sold the Clear exchange and the Country-Wide and Dairy Exporter magazines, while the final leg of the Financial Markets Conduct Act came into effect requiring increased resources. 

A final one-off cost borne by NZX in calendar 2016 was the $1.3 million of resignation benefits paid out with the exit of CEO Tim Bennett. He was also followed out the door by chief operating officer Mandy Simpson and corporate affairs head Kate McLaughlin. 

NZX is more optimistic about 2017, forecasting ebitda of between $27 million and $30 million, although that depends on the level of initial public offerings, secondary capital raisings, and trading and clearing volumes across its various markets. 

The board declared a final dividend of 3 cents per share, unchanged from a year earlier, payable on March 24 with a March 10 record date. That takes the annual payout to 6 cents per share, matching 2015's return. 

NZX's market operations delivered a 9.5 percent increase in earnings to $41.1 million on a 6 percent gain in revenue to $52.9 million as an increased appetite for debt listings offset a weak IPO pipeline, while trading volumes were bolstered by New Zealand's attractive dividend stocks luring overseas investors. 

The agri division earnings fell 18 percent to $855,000 on a 7.9 percent decline in revenue to $11.6 million on lower publishing and agri information sales. 

The funds management division posted a loss of $316,000, compared to a year-earlier profit of $1.7 million, while revenue climbed 21 percent to $13 million as NZX invested more heavily in expanding the business. The stock market operator expects it will pay a bigger earn-out to the former owners of SuperLife, however it anticipates a smaller payment will be due to the vendors of Apteryx, now NZX Wealth Technologies. 

The shares last traded at $1.14 and have gained 21 percent over the past 12 months.

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