JSE’s interim earnings slide on low volatility and declining investor sentiment

The JSE on Thursday reported an 18% drop in earnings after tax for the six months ended June 2017, to R419 million, citing a tough operating environment.

Operating revenue declined by 8% to R1.1 billion, while costs were contained at 1% with total expenses at R644 million.

Profit from operating activities declined to R452.9 million, from R567.4 million in the prior period, while diluted headline earnings per share declined 12.4% to 485.7 cents per share.

Group earnings before interest and tax (EBIT) dropped by 20% to R453 million.

“Revenue from most of our business units declined during the first half of 2017, as low volatility and declining investor sentiment translated into operating revenue decreasing by 8%,” it said.

“On a macroeconomic level, the country continues to be plagued by low economic growth, rating downgrades and a loss of business confidence. This has negatively impacted financial market activity in 2017,” the JSE said.

In addition, it noted that global securities exchanges and other players in the financial services industry are changing the way in which they operate in response to regulatory and technological developments.

“The fast pace of this change requires us to adjust the way in which we operate so that we are as nimble and as cost effective as possible. To do this, we have announced measures to significantly re-engineer our cost base, our operating model and the way we are structured as a business.”

Group revenue growth was negatively impacted by an R11 million forex loss (2016: R8 million forex gain) on foreign denominated assets. The JSE said it still holds $14 million on its balance sheet, from $10 million in 2016.

Technology costs declined by 3% to R129 million owing to a reduction in the number and cost of contractors and lower external project related services, which offset new cost items such as T+3 processing capacity and information security costs, the company said.

Depreciation increased by 23% to R58 million, largely owing to the impact of projects that have been brought into production. These projects include T+3 phase 3, ITaC project 1a as well spend on server refreshes and network equipment, it said.

General expenses were largely contained, rising to R212 million (H1 2016: R210 million). This includes a one-off expense of R10 million for the IT cost optimisation exercise.

The JSE said that the implementation of the cost optimisation initiatives will result in annualised technology cost savings of approximately R70 million, to be fully realised from 2019 onwards.

The IT cost optimisation study includes clear recommendations regarding best practice use of technology, it said.

“We have already implemented significant cost savings to date against our variable spend (approximately R65 million in annualised savings in the first half through a combination of removing vacancies and reducing discretionary expenditure) in advance of implementing the structural reduction of our fixed cost base,” the JSE said.

As part of its efforts to streamline the business, the company said that Riaan van Wamelen offered to step down from his role as CIO to facilitate the combination of the JSE’s IT and Trading & Market Services Divisions.

Tshwantsho Matsena has assumed the CIO role effective 1 July 2017 and heads the combined division.

Read: JSE announces job cuts amid recession

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JSE’s interim earnings slide on low volatility and declining investor sentiment