Page 450

outpaced revenue growth and weakened NZX’s bottom-line performance. Over the past five years, the Group’s operating margin has more than halved, declining from 38% (FY2011) to 18% (FY2016). As a result, NZX ranks as the worst performing exchange when observing Revenue, EBITDA and NIAT generated per employee across a broad peer group (on an unadjusted basis). To put this in perspective, in 2016, NZX generated NZ$0.10M in EBITDA (unadjusted) per employee whereas ASX generated NZ$1.41M - some 14 times greater. In addition to the labour costs, several for loss-making ventures and wanting cyclical to IT adopt expenditures have compounded NZX’s NZX market – traditionally, one of major headwinds large complex markets centralised regulatory models has profitability problems. resource Going forward, reducing driving leverage and increasing efficiencies must be a primary focus been the overwhelming required to do so;costs, this is simplyoperating not the case for NZX. for Management. We are aware that 2016 marked a transitional year for the Company with substantial one-off costs being incurred. While the removal of these costs is expected to be a key driver for improved performance in 2017 (refer Appendix #1 for a breakdown COSTS UNDERMINE RETURNS of these costs), weinmaintain that for there remains significant further through a range ofhave productivity and The biggest failure our opinion NZX over the past fivescope years to hasreduce simplyexpenses been that increases in expenditure consistently efficiency initiatives in relation to their net worth. outpaced revenue growth and weakened NZX’s bottom-line performance. Over the past five years, the Group’s operating margin has

INVESTMENT SUMMARY CONTINUED

more than halved, declining from 38% (FY2011) to 18% (FY2016). As a result, NZX ranks as the worst performing exchange when observing Revenue, EBITDA and NIAT generated per employee across a broad peer group (on an unadjusted basis). To put this in EMPLOYEE EFFICIENCY perspective, in 2016, NZX generated NZ$0.10M in EBITDA (unadjusted) per employee whereas ASX generated NZ$1.41M - some 14 Market Revenue/ EBITDA/ NIAT/ EBITDA NIAT timesCompany greater. In addition to labour costs, severalRevenue loss-making ventures and cyclicalFTE IT expenditures haveFTE compounded NZX’s Cap FTE FTE (NZ$/m) (NZ$/m) (NZ$/m) profitability problems. Going forward,(NZ$/m) reducing costs, driving operating leverage and increasing(NZ$/m) efficiencies must be a primary focus (NZ$/m) (NZ$/m) for Management. We are aware that 2016 marked a transitional year with substantial costs being 0.39 incurred. 51,986 6,482 4,116for the Company 2,170 1.15 one-off0.73 Intercontinental Exchange 5,631 While the Kong removal of these is expected to be a key driver for 1,314 improved performance in 2017 (refer #1 for a breakdown 43,725 1,932 1,083 1.20 Appendix 0.82 0.67 Hong Exchanges & costs Clearing 1,610 of these costs), we maintain that there23,672 remains significant scope to reduce 1,251 expenses 5,116 further through a range of productivity 3,680 1,964 0.72 0.38 0.24 and Deutsche Boerse efficiency initiatives in relation to their net worth. 18,839 2,945 1,364 580 0.53 0.25 0.10 London Stock Exchange 5,551

17,063 5,338 1,622 951 1.23 0.38 Nasdaq 4,325 11,380 1,505 1,079 575 1.38 0.99 Japan Exchange Group 1,088 EMPLOYEE EFFICIENCY 10,752 948 767 445 1.74 1.41 ASX 546 Market Revenue/ EBITDA/ 9,431 946 494 268 1.71 0.89 CBOE Holdings 553 Revenue EBITDA NIAT Cap FTE FTE Company FTE 8,319 852 489 369 1.12 0.64 (NZ$/m) (NZ$/m) (NZ$/m) Singapore Exchange 762 (NZ$/m) (NZ$/m) (NZ$/m) 4,411 752 430 310 635 1.18 0.68 Euronext NV 51,986 6,482 4,116 2,170 1.15 0.73 Intercontinental Exchange 5,631 4,046 862 408 234 0.80 0.38 TMX Group 1,075 43,725 1,932 1,314 1,083 1.20 0.82 Hong Kong Exchanges & Clearing 1,610 3,829 485 328 240 0.64 0.43 Bolsas y Mercados Espanoles 762 23,672 3,680 1,964 1,251 0.72 0.38 Deutsche Boerse 5,116 287 78 23 10 0.33 0.10 NZX Limited 237 18,839 2,945 1,364 580 0.53 0.25 London Stock Exchange 5,551 Date Source: Thomson Reuters 17,063 5,338 1,622 951 1.23 0.38 Nasdaq 4,325 FTE: Full-Time Employee Date Source: Thomson Reuters 11,380 & Amortisation 1,505 1,079 575 1.38 0.99 Japan Exchange 1,088 EBITDA: EarningsGroup Before Interest, Tax, Depreciation FTE: Full-Time Employee NIAT: Net Income After Tax 10,752 948 767 445 1.74 1.41 ASX 546 Figures reported in Millions/NZD using FY16 data, where FY16 data is yet to be494 reported, consensus have been used. EBITDA: Earnings Before Interest, Tax, Depreciation & Amortisation 9,431 946 268 estimates553 1.71 0.89 CBOE Holdings NIAT: Net Income After Tax 8,319 852 489 369 1.12 0.64 Singapore Exchange 762 Figures reported data, where752 FY16 data is 430 yet to be reported, have been used. 4,411 310 consensus 635estimates1.18 0.68 Euronext NV in Millions/NZD using FY16 ANALYSIS234 4,046 862 MARGIN 408 0.80 0.38 TMX Group 1,075 Net0.64 Profit 485 328 EBITDA240 Operating 0.43 Bolsas y Mercados Espanoles Company3,829 762 Margin 10 Margin Margin 287 78 23 0.33 0.10 NZX Limited 237 ASX 80.9% 76.2% 47.0% Date Source: Thomson Reuters

0.22 0.53 0.82 NIAT/ 0.48 FTE 0.48 (NZ$/m) 0.49 0.39 0.22 0.67 0.32 0.24 0.04 0.10 0.22 0.53 0.82 0.48 0.48 0.49 0.22 0.32 0.04

FTE: Full-Time Employee Hong Kong Exchanges and Clearing 68.0% 66.3% 55.5% EBITDA: Earnings Before Interest, Tax, Depreciation & Amortisation NIAT: Net Income After Tax Bolsas y Mercados Espanoles Sociedad 67.5% 65.8% 50.0% Figures reported in Millions/NZD using FY16 data, where FY16 data is yet to be reported, consensus estimates have been used.

Japan Exchange Group

64.4%

55.0%

39.0%

63.5%

48.2%

31.6%

57.3% MARGIN ANALYSIS 57.2% EBITDA Margin 47.3%

49.3%

Intercontinental Exchange Singapore Exchange Euronext Company TMX Group ASX London Stock Exchange

Hong Kong Exchanges and Clearing Nasdaq Bolsas y Mercados Espanoles Sociedad NZX (Unadjusted) Japan Group NZX Exchange (Adjusted)* Intercontinental Exchange Mean

80.9% 46.3% 68.0% 30.4% 67.5% 30.0% 64.4% 37.9% 63.5% 58.3% 57.3% 60.4%

Singapore Median Exchange Data Source: Thomson Reuters reported FY16 data 57.2% Euronext

42.7%

52.1% Operating Margin 36.0% 76.2% 25.8%

Net39.7% Profit Margin 24.4% 47.0% 13.4%

55.0% 25.5% 48.2% 48.2%

39.0% 19.7% 31.6% 34.6%

66.3% 7.0% 65.8% 17.6%

49.3% 50.7% 52.1%

55.5% 2.9% 50.0% 11.8%

42.7% 39.3% 39.7%

* NZX Adjusted figures assume removal of NZ$6.1M in hard cost however we estimate total cost-out potential in FY17

TMX Group could be up to ~NZ$9.0M.

47.3%

36.0%

24.4%

** No other adjustments have been made to other exchanges from Thomson Reuters. London Stock Exchange 46.3% data sourced 25.8% 13.4%

Nasdaq

30.4%

7.0%

2.9%

NZX (Unadjusted)

30.0%

17.6%

11.8%

NZX (Adjusted)*

37.9%

25.5%

19.7%

Mean Median

58.3%

48.2%

34.6%

60.4%

50.7%

39.3%

Data Source: Thomson Reuters reported FY16 data * NZX Adjusted figures assume removal of NZ$6.1M in hard cost however we estimate total cost-out potential in FY17 Data Reuters reported FY16 data couldSource: be up toThomson ~NZ$9.0M. No other adjustments beenremoval made to other exchangesindata sourced from Thomson Reuters.total * ** NZX Adjusted figures have assume of NZ$6.1M hard cost however we estimate

cost-out potential in FY17 could be up to ~NZ$9.0M. ** No other adjustments have been made to other exchanges data sourced from Thomson Reuters.

450

3

3

Profile for Richard

Elevation Capital Research Annual 2018  

Elevation Capital Research Annual 2018