JSE reports fall in earnings on fewer volumes traded
2017 was a challenging year for the Johannesburg Stock Exchange (JSE) against a backdrop of tough market conditions which saw a decline in values and volumes traded in most of the JSE’s key markets, the group said on Wednesday.
This environment impacted operating revenue for the year ended December 2017, which declined by 5% to R2.2 billion (2016: R2.3 billion). The group said that management took steps to sustainably reduce the JSE’s cost base which was down 1% to R1.40 billion.
However, it still reported a 9% decline in earnings to R836 million (2016: R920 million).
Earnings per share (EPS) and headline earnings per share (HEPS) were 977.4 cents (down 9%) and 996.6 cents (down 6%) respectively.
Given the group’s strong cash generation (R977 million; 2016: R976 million) and robust balance sheet (R2.4 billion; 2016: R2 billion), the Board declared an ordinary dividend for the year ended December 2017 of 605 cents per ordinary share (2016: 560 cents) – an increase of 8%.
“2017 was a challenging year for both the JSE and its clients and we are pleased that, in this environment, we were able to grow the ordinary dividend to shareholders and continue to make year-on-year reductions in certain of our fees in order to find ways to make it more affordable for our clients to do business with us,” said JSE CEO Nicky Newton-King.
The following contributions to operating revenue are noteworthy:
- The Primary Market recorded a 10% increase in revenue to R181 million (2016: R164 million) as a result of increased additional capital raising activity. There were 21 new listings in 2017 (2016: 18);
- The Equity Market billable value traded declined by 4% and there was a dilution in the effective price. This contributed to a 11% decrease in cash equities trading revenue to R507 million (2016: R569 million);
- BDA revenue decreased by 7% to R293 million (2016: R316 million) owing to a decreased number of transactions (declined by 5%) and a further fee reduction of 8%;
- The Equity Derivatives Market value traded declined by 11%, resulting in a 4% decrease in revenue to R170 million (2016: R177 million);
- Currency Derivatives Market revenue increased by 28% to R48 million (2016: R38 million) owing to the increase in the number of contracts traded (up 45%). This was driven by currency volatility off the back of political developments, improved emerging market sentiment and US dollar weakness;
- Interest Rate Market revenue increased by 5% to R63 million (2016: R60 million) with flat growth in bond nominal value traded and an increase in contracts traded of 30% in the Interest Rate Derivatives Market;
- Commodity Derivatives Market revenue declined by 2% to R68 million (2016: R70 million) owing to a 12% drop in commodity derivatives contracts. An easing of drought conditions resulted in lower volatility;
- Clearing and Settlement revenue declined by 7% to R384 million (2016: R413 million) following the decrease in equity billable value traded; and
- Information Services, which includes Market Data, decreased by 6% to R272 million (2016: R288 million), largely owing to the impact of forex losses.
The most significant contributors to the reduction in total operating expenses are personnel costs which decreased by 3% to R549 million (2016: R565 million) and technology costs which decreased by 9% to R257 million (2016: R283 million).
The JSE said it is progressing well towards its commitment to reduce its cost base by R170 million by end 2019.
The group also invested R187 million in capex as the JSE moves towards the end of the delivery of Phase 1 of its Integrated Clearing and Settlement platform and the Exchange Traded Platform for Government Bonds, both of which are targeted for H1 2018 delivery, subject to client readiness.
“We are excited by the change in local sentiment. We are clear about our 2018 priorities and hence the issues that we need to tackle to improve our operational resilience and to achieve our strategy. We look forward to being a constructive part of the renewal of our battered country as we build momentum towards inclusive growth,” said Newton-King.
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