NZX Limited · NZX:NZX

NZX — Investor Day (September 2016)

46 slides from NZX's investor day presentation, Sep 7, 2016

  1. Slide 1: NZX Investor Day 2016

    NZX Investor Day 2016 7 September 2016 1

  2. Slide 2: Forward-looking statements

    Forward-looking statements • This presentation may contain forward-looking statements. Forward-looking statements often include words such as expects, anticipates, believes, intends, plan, continue or other similar words in discussion of future operating or financial performance. • These forward-loo

  3. Slide 3: Agenda

    Agenda • Overview – Tim Bennett – CEO 3:00 pm • Capital Markets 3:20 pm - Mark Peterson – Head of Markets - Kathryn Jaggard – Head of Derivatives ▪ Underlying growth ▪ Competitive challenges ▪ Growth from new products and services • Funds Services 3:40 pm ▪ Wealth Technologies – Paul Baldwin – Head

  4. Slide 4: Overview

    Overview Tim Bennett 4 © Copyright NZX Ltd. 2016

  5. Slide 5: Key Themes

    Key Themes • The portfolio of businesses has been successfully repositioned - Increased exposure to higher growth fund management sector - Continuing to reduce exposure to Agri businesses • Our core markets business will continue to provide a strong foundation for future growth - Upgraded, scalable

  6. Slide 6: Reshaping the Portfolio

    Reshaping the Portfolio • Historically, like most exchange groups, NZX has diversified away from the core capital markets franchise: - Reduce exposure to capital markets cyclicality - Offset sharp declines in trading revenues – a trend that has not yet impacted NZX • We are reducing exposure to the

  7. Slide 7: Reducing exposure to the Agri businesses

    Reducing exposure to the Agri businesses Good progress being made Data Farmers Weekly Other Agri data and analytics ($3.8M) Farmers Weekly ($5.4M) NZ Magazines ($2.6M) • Dairy, red meat (NZ), Grain (Au) • Broad reach to the rural sector • Specialist audience • Relatively high margin, strong • Cyclic

  8. Slide 8: Funds Services has and will grow faster than NZX's Markets business

    Funds Services has and will grow faster than NZX’s Markets business At attractive margins Index Comment 450 • KiwiSaver FuM expected to grow from $35B to NZX Markets Revenues $70B by 2020 KiwiSaver FuM 400 - Only ~10% invested in NZ equities – FuM (NZ Market exc KiwiSaver) 350 proportion likely to d

  9. Slide 9: Markets remains the core of the NZX Group

    Markets remains the core of the NZX Group Markets 70% of revenues in 2016 $M 80 60% 70 Other 50% Agri Information 60 Funds Management Soft Commodities 40% 50 Markets - Trading and Clearing Markets - Data Markets - Listings 40 30% Market Operations EBITDA Margin (excl Ralec costs) 30 20% 20 10% 10 0

  10. Slide 10: Continued growth potential in capital markets

    Continued growth potential in capital markets The Twenty Year Journey 11% Super FuMCap 20% 4% CAGR Index 12% (Au. NZ) 800 Au Super Assets 700 Au Market Capitalisation NZ KiwiSaver & Super Assets NZ Market Capitalisation 600 500 400 300 200 100 0 5 10 15 Years Source: NZX Data, WFE, AVA, RBA 10 © Cop

  11. Slide 11: Markets: strong foundation for future growth

    Markets: strong foundation for future growth What has been achieved Area Comments • Upgrade of trading systems completed 2012, upgrade of clearing system well Technology underway • 99.99% uptime for core systems in 2015 • Operational error rates down by up to 50% Operations • Automation / outsourcin

  12. Slide 12: Markets: strong foundation for future growth - the benefits

    Markets: strong foundation for future growth The benefits • Increased operational efficiency - Number of listed securities up 15% over past 3 years - Number of trades grown 183% in past 3 years - Markets, Technology, Operations and Market Supervision team size unchanged for past 2 years • Faster tim

  13. Slide 13: Capital Markets

    Capital Markets Mark Peterson 13 © Copyright NZX Ltd. 2016

  14. Slide 14: Markets Summary

    Markets Summary • Our markets are in good health - Step-up in activity can be sustained beyond the current cycle - Excluding capital raising, expect underlying growth of ~5% through the cycle • NZX’s position in an integrated Australian market is sustainable - More compelling for equity capital rais

  15. Slide 15: NZX markets are in good health

    NZX markets are in good health Step change evident beyond the current cycle New Capital Listed Trade Activity (Index, Moving Average) $11.0B 400 FF Cap $10.0B Equity On Market Value $ Debt 350 On # Trades $9.0B 300 $8.0B $7.0B 250 $6.0B 200 $5.0B $4.0B 150 $3.0B 100 $2.0B 50 $1.0B $0.0B 0 '03 '04 '0

  16. Slide 16: Core Markets business will continue to deliver moderate revenue growth

    Core Markets business will continue to deliver moderate revenue growth Historical Revenues Markets Revenues ($M) CAGR Est. Comment Market Operations 60 Data (‘11-’15) through Annual Fees - Listing the cycle Annual Fees - Other growth Trading and Clearing 50 Cyclical Capital -5% NM Initial and Second

  17. Slide 17: ASX-only listing is not a silver bullet

    Position versus ASX not about listings ASX-only listing is not a “silver bullet” For small companies, the ASX is a very Company Listing Listing Close Price TSR Date Price 31 Aug 2016 overwhelming market Volpara 27 Apr $0.50 $0.47 -6.0% • Coverage, company story awareness (VHT) 16 and air time are mo

  18. Slide 18: Ensuring price discovery remains in New Zealand

    … but rather ensuring price discovery remains in New Zealand NZ share of value-traded remains stable Average Trade Value Traded Value Traded Size ($k) $50 100% $B $45 90% 3 $40 80% $35 70% $30 60% $25 50% 204 $20 40% $15 30% $10 20% $5 10% 12 $0 0% NZX On-Mkt Val (m) NZX Off-Mkt Val (m) ASX Val (m)

  19. Slide 19: Developing a tailored equity market offering

    Developing a tailored equity market offering Mid-market funding ecosystem Public NZX NXT Crowd Crowd Project Equity Private Stage Venture Equity Capital Seed Angel Private Focus on the mid-market Still more work to be done Regulation delivery a differentiator • Underpenetrated, requirement • Prove N

  20. Slide 20: Potential to further develop the debt market

    Potential to further develop the debt market $B $M • Comments $25 $250 - Repriced debt listing fees 1 July to reflect Debt Market Capitalisation Monthly Debt Value Traded (RHS) the instrument risk – est. annual fees up $20 $200 30% - 9 new issues in the pipeline – mix of new $15 $150 issuers and new

  21. Slide 21: Testing introduction of batch settlement with the market

    Testing introduction of batch settlement with the market Alternative to NZClear - $3-5M revenue opportunity Current Fragmented Proposed batched STP Settlement Model Settlement Model Trades NZClear Sell Buy Registries Lodge / Uplift NZX Batch Batch Clearing Process Sell Process Buy Industry benefits:

  22. Slide 22: Dairy Derivatives

    Dairy Derivatives Global demand for risk management continues to grow Global Global milk Intervention Intervention milk demand policies stock Physical supply Price Price Dairy Volatility EU activity Farmer Risk demand Derivatives 22 © Copyright NZX Ltd. 2016

  23. Slide 23: NZX Dairy Derivatives most successful dairy futures launch ever

    NZX Dairy Derivatives most successful dairy futures launch ever 2016 a period of consolidation – successful launch of milk price futures NZX Dairy Derivatives Volume NZX Derivatives Active Participants 40,000 200 35,000 180 160 30,000 140 Est. Number of Active Participants 25,000 120 20,000 100 80 A

  24. Slide 24: Market Potential

    Market Potential Goal 50% of underlying physical NZX growth as % of the Underlying 100% Notional trade as a percentage of underlying 90% Launched (renamed) in 2000 Class III Milk now trades 80% Launched in 1996 Milling Wheat reached 50% approximately 100% of the underlying 70% of underlying in its 1

  25. Slide 25: Markets Priorities for 2017

    Markets Priorities for 2017 • Continue to deepen the NZ Capital Markets - Increase products on offer - Continue to focus on mid-market capital raising ecosystem - Create further “points of difference” – tailored markets • Increase further the operating leverage of NZX - Growth in debt, commodities d

  26. Slide 26: Funds Services

    Funds Services Paul Baldwin and Aaron Jenkins 26 © Copyright NZX Ltd. 2016

  27. Slide 27: NZX Wealth Technologies Product offering

    NZX Wealth Technologies Product offering • Wealth Technologies offers a fully integrated, flexible, and easy to use range of NZ- centric wealth management services that are accessible via the web - Comprehensive range of services that are easy to use, manage and integrate with other financial system

  28. Slide 28: Market positioning

    Market positioning The NZX Wealth Technologies platform is, in effect, a financial services hub that supports and empowers Banks different business models. The wealth management Brokers Financial platform can offer the key Advisors participants in the wealth sector a flexible and efficient way to al

  29. Slide 29: Market Structure and Competitive Environment

    Market Structure and Competitive Environment Targeting larger customised platforms and mid tier financial services groups Advisors ($5B) Target Banks ($50B) Customer Base Brokers ($40B) Directly Held Unit Life Equities Trusts Cash KiwiSaver Other Ins $130B • Platforms: Aegis and FNZ $20-$25B Competi

  30. Slide 30: Funds Management

    Funds Management Aaron Jenkins 30 © Copyright NZX Ltd. 2016

  31. Slide 31: SuperLife acquisition exceeding expectations

    SuperLife acquisition exceeding expectations Overview SuperLife FuM Comments ($M) • Ahead of earn out targets: 7%-11% 1,800 CAGR over 3 years 1,600 Earnout TOTAL • Both employer superannuation and Range 1,400 KiwiSaver FuM growing faster than 1,200 -1% Market Growth market 1,000 7% SLSS Growth1 Empl

  32. Slide 32: SuperLife KiwiSaver

    SuperLife KiwiSaver Highly competitive product offering • 42 different investment options, plus the Age Steps product that automatically increases allocation to lower risk products as you age • Access to Smartshares’ full range of 23 ETFs • NZ's first balanced ethical investment option, Ethica • Low

  33. Slide 33: SuperLife KiwiSaver Distribution

    SuperLife KiwiSaver Distribution • Current focus on direct distribution - Default KiwiSaver provider for ~80 companies - 19 SuperLife seminars around NZ in 2016 - Direct to retail marketing campaign launched July 2016 with encouraging results 33 © Copyright NZX Ltd. 2016

  34. Slide 34: Smartshares Digital Marketing

    Smartshares Digital Marketing 34 © Copyright NZX Ltd. 2016

  35. Slide 35: Smartshares: Launch of new funds has shifted the growth trajectory

    Smartshares Launch of new funds has shifted the growth trajectory Online Applications Liquidity • $175m in market trades in 2016 450 Retail Applications • Main broker firms now trading on a monthly 400 2015 Average basis Macquarie, FNZC, Craigs, Forsyth Barr 350 • Spreads narrowed by 50%-75% 300 Ret

  36. Slide 36: Smartshares: Investments made in a highly scalable model

    Smartshares Investments made in a highly scalable model FuM 250 Millions Category # Funds Comment 200 • Average 22 bps At Scale 11 margin1 • Majority launched 150 November 2015 Approaching • Additional $3-$5M 9 Breakeven required per fund 100 • At scale margin 10-20 bps • Required for advisor Portfo

  37. Slide 37: Funds Services Priorities for 2017

    Funds Services Priorities for 2017 Funds Services • On-boarding of new major customers • Increase sales efforts of ‘turn key’ product for smaller advisor groups Funds Management • Expand digital distribution • Launch initial iteration of robo-advice • Increased efforts to include ETFs in model portf

  38. Slide 38: Economics

    Economics Bevan Miller 38 © Copyright NZX Ltd. 2016

  39. Slide 39: Group positioned to deliver operating leverage

    Group positioned to deliver operating leverage • Two phases to cost growth - Rebuilding organisational capability, focused on the Markets business, plus launch of FSM 2011 to 2014 - Strategic investment in funds services businesses 2014 to 2016 ▪ One time step up in costs following acquisitions of S

  40. Slide 40: Investment in the business

    Investment in the business Expense growth (2011-2016) CAGR CAGR 60,000 2011- 2014- Markets & corporate 2014 2016 Agri Smartshares Ralec Costs -2% 75% 50,000 SuperLife NZX WT NM NM Wealth technologies Ralec costs SuperLife NM NM 40,000 Smartshares 17% 54% 30,000 Agri 3% -2% 20,000 Markets 12% -2% 10,

  41. Slide 41: Markets: Stable cost base primarily staff and IT costs

    Markets Stable cost base primarily comprising staff costs and IT costs Markets Revenues and EBITDA (inc Corporate Costs) Markets + Corporate Cost Composition $ 000’s $60,000 58% 100% Markets revenue Markets + Corporate EBITDA margin 90% 56% $50,000 80% 54% 70% $40,000 52% 60% $30,000 50% 50% 40% 48%

  42. Slide 42: Funds Services Underlying economics

    Funds Services Underlying economics Funds Services component margins 2015 Composition of cost base 100% 90% NZX Wealth Technologies 80% 70% 60% Smartshares 50% 40% 30% 20% SuperLife 10% 0% -60% -40% -20% 0% 20% 40% 60% SuperLife Smartshares NZX Wealth Technologies Target Payroll costs Funds costs Ma

  43. Slide 43: Capital position

    Capital position BAU capex increased by NZX Wealth Capital structure to be Technologies & SuperLife reviewed in 2H 20 • Currently annual distribution 6.0cps (M) 18 • Clearing House system upgrade to 16 complete in 2017 14 • EA system upgrades run through to 12 2018 10 • No net debt following the dis

  44. Slide 44: Summary

    Summary Tim Bennett 44 © Copyright NZX Ltd. 2016

  45. Slide 45: Summary

    Summary Markets Funds Services Agri • 90%+ of revenues have • Significant investments made in • Planned changes, if progressed, limited exposure to market SuperLife, Smartshares and NZX will further reduce exposure to cycles Wealth Technologies the sector • Past 3 years have signalled a - All provid

  46. Slide 46: Investor Information

    Investor Information Tim Bennett Bevan Miller Kate McLaughlin CEO CFO Head of Corporate Affairs tim.bennett@nzx.com bevan.miller@nzx.com kate.mclaughlin@nzx.com +64 27 518 5526 +64 21 276 7359 +64 27 533 4529 www.nzx.com www.nzxgroup.com 46 © Copyright NZX Ltd. 2016

NZX — Investor Day (September 2016) on 6ix