NZX today announced operating earnings from continuing activities of $34.4 million for the financial year ended 31 December 2020, up 9.7% on FY2019.
NZX Chair, James Miller, said that – while 2020 presented challenges for many sectors of the economy – the extraordinary year provided the opportunity for New Zealand’s capital markets to provide essential capital funding for businesses in need.
“Never before has the value of having access to capital been so evident for New Zealand businesses. We have also seen the most significant re-engagement with equities as an investment class in the past 30 years.”
The S&P/NZX 50 (Gross) finished the year at 13,092 – up a further 14% on the substantial lift the previous year. The total market capitalisation of all NZX listed securities across equity, fixed income and fund asset classes now exceeds $233 billion and sits at 76.6% of New Zealand’s GDP (Gross Domestic Product).
Mr Miller said: “This has been a year of record activity in our market, and the environment has supported the growth in NZX’s operating earnings to a new high, slightly above our guidance range”.
The NZX Board has declared a final dividend of 3.1 cents per share to be paid on 26 March 2021, contributing to a FY2020 dividend of 6.1 cents per share, fully imputed. Together with the strong appreciation in NZX’s share price, the total shareholder return (TSR) for the year ended 31 December 2020 was 50.3%.
YEAR OF MARKET RECORDS
Chief Executive, Mark Peterson, said global volatility, a low interest rate environment and greater interest in investing helped push trading volumes to record levels.
The health and vitality of our markets in 2020 is reflected in the 149% increase in the volume traded, and 42% increase in the value traded for the full year to $53.7 billion compared with $37.8 billion the previous year.
Mr Peterson said there was clear evidence of ongoing strategic progress from removing the fixed-fee elements of trade fees, improving rules to support price transparency and attracting new Participants and investors to the NZX.
“This has opened up access to a broader range of investors, lifted on-market activity and delivered improved liquidity to our exchange. Alongside the increase in value traded across the NZX, we continue to observe growth in on-market liquidity levels which have now normalised above 60%.”
Revenue growth came from across Capital Markets, Smartshares and NZX Wealth Technologies.
Securities trading and clearing revenues were up strongly, with listing and data revenues also showing good growth. Higher costs in 2020 were driven by increased spend in technology, alongside investing in people and capability to support the growth and sales opportunities that are being created.
Net profit after tax for the period (NPAT) was $17.6 million, up 20.1%.
Mr Miller said the year had been “incredibly challenging for the entire capital markets ecosystem. 2020 has also given us pause for thought in how we can improve the way we manage risk and embed the learnings for the future”.
In particular, NZX has acknowledged the issues that have affected its technology platforms and market participants in 2020 and recognised the need for further investment in technology to enhance platform stability and resilience, and deliver other improvements, confirming additional spend on people and systems in 2021.
Following the release at the end of January of the Market Operator Obligations Targeted Review – NZX from the Financial Markets Authority (FMA), NZX will work constructively with the FMA to agree an action plan to address the findings of its review. The plan will include establishment of an industry-wide ecosystem technology forum to improve engagement and communications on market technology matters.
NZX capital expenditure continues to be focused on NZX Wealth Technologies’ core platform and NZX’s trading system upgrade, together with strengthening our cybersecurity protection.
FOCUS ON CUSTOMERS
Mr Peterson said that while NZX had a strong tail-wind during the year, the results in 2020 had come from the strategic platform established over the past three years.
He said capital requirements in the wake of COVID-19, and the greater attractiveness of equity funding, had seen the value of capital raised for the year total $17.6 billion.
The price volatility created by COVID-19 did impact new debt market issuance materially from March through to July. However, the market came back strongly from August through to December with 12 new debt securities totalling $2.7 billion issued; $825 million of this was in green bonds.
Mr Peterson said NZX’s sales and marketing focus had been on promoting the market to companies who may benefit from having access capital or to owners who may want to release capital for other purposes.
The listings from Radius Healthcare, Rua Bioscience, Harmoney, Auckland Real Estate and Rural Land Company in 2020 highlighted the breadth of businesses seeking capital for growth and the different pathways to listing. He said NZX would be continuing to intensify the focus around attracting new listings and supporting current listed companies accessing New Zealand’s equity, debt and funds markets.
Another positive was the proportion of on-market trading, which lifted to 62% of all value traded for the year. Mr Peterson said: “Greater on-market liquidity assists market efficiency and price discovery and has provided price improvement for small investors.”
NZX’s Trading System upgrade in 2021 is expected to further assist on-market liquidity with the delivery of NZX’s mid-point order book pricing.
NZX maintained impetus in 2020 on a global strategy to secure partnerships that offer complementary capabilities and strengths.
Mr Miller said the formation of a potential global partnership with Singapore Exchange (SGX) to grow NZX’s dairy derivatives market has the potential to be “an important development for NZX and the wider dairy sector”. Under the current non-binding Heads of Agreement both exchanges are exploring the listing of NZX’s suite of dairy derivatives contracts on SGX’s trading and clearing platforms.
As reported at the half year, BNP Paribas is expected to become a General Clearing Participant during the first half of 2021. “This is a positive signal about the potential in our markets, to have another high- quality global bank, with a strong regional clearing footprint, strengthening its commitment to assist in growing New Zealand’s capital markets,” Mr Peterson said.
NZX is also continuing to work in partnership with the European Energy Exchange to develop the managed auction service for the New Zealand Emissions Trading Scheme (NZ ETS) – one of the Government’s main tools for meeting domestic and international climate policy targets.
NZX’s Data & Insights business had another year of strong growth with revenue up 8%, coming from both retail and professional terminal users. Subscription and licence revenue also grew from increased client data usage. NZX has also had a positive response to the research solution implemented, in partnership with Smartkarma, specifically to support coverage of small caps.
Mr Peterson said NZX’s Smartshares business had continued to demonstrate robust growth, with Funds Under Management increasing to more than $5 billion at year-end – up 28% and exceeding the 2023 strategic goal. Net cash inflows topped $800 million.
“As the market leader in Exchange Traded Funds (ETF), it has been encouraging to see some institutional investors starting to move into passive investment products through Smartshares ETFs and unlisted passive products – mirroring global trends.” Key initiatives included the launch of Smartshares Core Series, with New Zealand’s lowest cost fund tracking the S&P/NZX 50, and Select KiwiSaver our first third-party hosted scheme.
Funds Under Administration with NZX Wealth Technologies (NZXWT) jumped more than 210%, reaching more than $7 billion.
The successful onboarding of Hobson Wealth Partners, completed in November, added $3 billion and a total of more than 28,000 portfolios are now being managed through NZXWT’s wealth management platform. NZX Wealth Technologies is currently engaged with a number of new prospects for project activity, and expects to see continued growth in 2021.
Mr Peterson said costs were carefully managed during FY2020 and remain a key focus, although the business continues to invest for growth in target areas – including funds management and NZX Wealth Technologies businesses to continue to take advantage of new customer opportunities.
SEPARATE REGULATORY MODEL
The new regulatory model for NZX’s listed markets (NZ RegCo) was launched in early December, completing the structural separation of the Exchange’s commercial and regulatory roles.
Mr Miller said the establishment of NZ RegCo similar to models used by other international exchanges, was ground-breaking in the 150-year history of New Zealand’s capital markets – in terms of the structure, governance and the operating model.
FY2021 EARNINGS GUIDANCE
NZX expects full year 2021 operating earnings to be in the range of $31.5 million to $35.5 million, with guidance subject to market outcomes, particularly with respect to market capitalisation, total capital raised, secondary market value and derivatives volumes traded, funds under management and administration growth and technology costs.
Additionally, this guidance assumes no material adverse events, significant one-off expenses, major accounting adjustments, other unforeseeable circumstances, or future acquisitions or divestments.