NZX Investor Day 2016 7 September 2016
1
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-looking statements are based on NZX’s present expectations, estimates
and assumptions regarding its business, performance and the current state of the
markets in which it operates. As with any forecast or projection, forward-looking
statements are inherently subject to risks, uncertainties and changes in circumstances.
• NZX’s actual results may vary materially from what is expressed or implied in its forward-
looking statements.
© Copyright NZX Ltd. 2016 2
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 of Wealth Technologies
▪ Funds Management – Aaron Jenkins – Head of Funds Management
• Economics – Bevan Miller – CFO 4:20 pm
▪ Cost structure
▪ Balance sheet
• Summary and Conclusions – Tim Bennett 4:40 pm
• Q&As
© Copyright NZX Ltd. 2016 3
Overview
Tim Bennett
4 © Copyright NZX Ltd. 2016
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 technology and operations, high quality regulation, highly capable
team
- Defendable competitive position
- Capacity and capability to launch new products and services
• Post-investment phase, all businesses have moderate to strong growth prospects and
inherent operating leverage
© Copyright NZX Ltd. 2016 5
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 agricultural sector where the linkages to the Markets
business are weak or the economics are unattractive
• We have made substantial investment in funds services: SuperLife, Smartshares and
NZX Wealth Technologies (formerly Apteryx):
- Gain exposure to a higher growth sector of the industry than NZX’s capital markets
business
- Broaden the traded product offering – launched 18 new Exchange Traded Funds
- Provide industry infrastructure to lower costs for advisors and fund managers –
announced 1 new major client to the platform, 1 in pipeline
© Copyright NZX Ltd. 2016 6
Farmers Weekly
Farmers Weekly ($5.4M)
• Broad reach to the rural sector
• Cyclical, not structural decline
• Largely variable cost base
© Copyright NZX Ltd. 2016 7
Other
NZ Magazines ($2.6M)
• Specialist audience
• Magazines in structural decline
globally
• Terms agreed to sell effective 1
November (subject to final
approvals)
• Not expected to have material
impact on earnings
Clear Grain Exchange ($0.9M)
• Volume growth plateaued
• Partners required for further
volume growth
• Review of options nearing
completion
2015 Revenues $3.5M
2015 EBITDA ($1.0M)
Reducing exposure to the Agri businesses
Good progress being made
Data
Agri data and analytics ($3.8M)
• Dairy, red meat (NZ), Grain (Au)
• Relatively high margin, strong
competitive position
• Moderate growth prospects
• Close linkages to Markets
business e.g. launch of milk
price futures
• Currently being reorganised as one business
2015 Revenues $9.2M
2015 EBITDA $2.0M
Note: EBITDA estimates include overhead allocation across these businesses
Funds Services has and will grow faster than NZX’s Markets business
Comment
• KiwiSaver FuM expected to grow from $35B to
$70B by 2020
- Only ~10% invested in NZ equities –
proportion likely to decline given the supply
of IPOs
- Remainder of assets invested in other asset
classes and offshore
• Funds Services businesses have attractive
margins and similar scalability to the Markets
business. Comparable margins
- Aegis (NZXWT competitor) – 65%
- Wisdom Tree (US ETF provider) – ~45%
- Historical Smartshares margins – ~40%
© Copyright NZX Ltd. 2016 8
At attractive margins
-
50
100
150
200
250
300
350
400
450
2010 2011 2012 2013 2014 2015
Index
NZX Markets Revenues
KiwiSaver FuM
FuM (NZ Market exc KiwiSaver)
Source: NZX Data, RBNZ, Treasury
Markets remains the core of the NZX Group
© Copyright NZX Ltd. 2016 9
Markets 70% of revenues in 2016
$M
0%
10%
20%
30%
40%
50%
60%
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013 2014 2015
Other
Agri Information
Funds Management
Soft Commodities
Markets - Trading and Clearing
Markets - Data
Markets - Listings
Market Operations
EBITDA Margin (excl Ralec costs)
Continued growth potential in capital markets
© Copyright NZX Ltd. 2016 10
The Twenty Year Journey
0
100
200
300
400
500
600
700
800
Index
Years
Au Super Assets
Au Market Capitalisation
NZ KiwiSaver & Super Assets
NZ Market Capitalisation
5 15 10
11%
12% 20% 4%
Super FuMCap
CAGR
(Au. NZ)
Source: NZX Data, WFE, AVA, RBA
© Copyright NZX Ltd. 2016 11
Markets: strong foundation for future growth
What has been achieved
Area Comments
Technology • Upgrade of trading systems completed 2012, upgrade of clearing system well
underway
• 99.99% uptime for core systems in 2015
Operations • Operational error rates down by up to 50%
• Automation / outsourcing of high risk functions
Clearing • Capital base increased, $50M liquidity facility in place
• 4 new derivatives clearing participants
Market
Supervision
• Positive – no action required from FMA General Obligations Review 2014, 2015
• Good progress on rule and guidance modernisation
Markets
Team • Small team actively engaged with the market
Markets: strong foundation for future growth
• 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 time to market
- Equity futures 24 months (launched 2014)
- Milk price futures 6 months (launched 2016)
• A receptiveness to listing
“5 years ago I would not recommend anyone to list on NZX.
Now, I actively encourage it as an option.” Leading corporate lawyer
© Copyright NZX Ltd. 2016 12
The benefits
Capital Markets
Mark Peterson
13 © Copyright NZX Ltd. 2016
Markets
• 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 raising
- Price discovery remains in NZ
• There is also additional medium-term upside in the core markets business
- Debt
- Derivatives
- Settlement
- … and some longer-term ‘new market’ opportunities; funds, energy, carbon
© Copyright NZX Ltd. 2016 14
Summary
NZX markets are in good health
15
Step change evident beyond the current cycle
Source: NZX Data
$0.0B
$1.0B
$2.0B
$3.0B
$4.0B
$5.0B
$6.0B
$7.0B
$8.0B
$9.0B
$10.0B
$11.0B
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 1H 16
New Capital Listed
6 9 3 6 7 1 1 10 2 1 2 IPOs
Equity
Debt
16 5 4
0
50
100
150
200
250
300
350
400
2011 2012 2013 2014 2015
FF Cap On Market Value $ On # Trades
Trade Activity (Index, Moving Average)
© Copyright NZX Ltd. 2016
© Copyright NZX Ltd. 2016 16
-
10
20
30
40
50
60
2011 2012 2013 2014 2015
Markets Revenues ($M)
Market Operations
Data
Annual Fees - Listing
Annual Fees - Other
Trading and Clearing
Initial and Secondary Fees
Core Markets business will continue to deliver moderate revenue growth
Historical Revenues
CAGR
(‘11-’15)
Est.
through
the cycle
growth
Comment
Cyclical Capital
Raising
-5% NM
Semi-
Cyclical
Trading and
Clearing
11% 6%-8% Driven by free-float
market cap, trade size
Annual
Listing Fees
6% 4%-6% Driven by number of
issuers, market cap
Other
Annual fees
0% 2% CPI growth
Data 2% 1%-3% Driven by offshore
trading volumes
Stable Market
Operations
0% 0-2% Long-term contracts
TOTAL (exc Capital
Raising)
5% ~5%
© Copyright NZX Ltd. 2016 17
For small companies, the ASX is a very
overwhelming market
• Coverage, company story awareness
and air time are more difficult to
achieve
• Capital raising costs are high
• ASX is reviewing its minimum listing
requirements
• NZX offer, NXT, competitive for the
right companies
For dual-listed companies
• Foreign-exempt issuers regulatory
relationship remains with NZX
• Challenge to maintain price discovery
/ liquidity in NZ
Position versus ASX not about listings
ASX-only listing is not a “silver bullet”
Company Listing
Date
Listing
Price
Close Price
31 Aug 2016
TSR
Volpara
(VHT)
27 Apr
16
$0.50 $0.47 -6.0%
9 Spokes
(9SP)
9 Jun
16
$0.20 $0.16 -22.5%
Martin
Aircraft
(MJP)
24 Feb
15
$0.40 $0.46 15.0%
Adherium
(ADR)
26 Aug
15
$0.50 $0.48 -4.0%
© Copyright NZX Ltd. 2016 18
… but rather ensuring price discovery remains in New Zealand
NZ share of value-traded remains stable
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
$B
Value Traded
NZX On-Mkt Val (m) NZX Off-Mkt Val (m) ASX Val (m)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Value Traded
NZX On-Mkt Val (m) NZX Off-Mkt Val (m) ASX Val (m)
Segmented pricing of algo-activity to bring new liquidity to the market
Average
Trade
Size
($k)
204
3
12
Developing a tailored equity market offering
© Copyright NZX Ltd. 2016 19
Focus on the mid-market
• Underpenetrated, requirement
for capital
• A tailored set of markets – NXT,
Main Board
• NXT meeting objectives –
interest, advisors, liquidity
Seed Angel
Crowd
Equity
Stage
Public
Private
Venture
Capital
Private
Equity
NXT
NZX
Crowd
Project
Still more work to be done
• Prove NXT capital raising model
• Increase distribution – linkage to
crowdfunding
• Access through advisors and
funds esp. KiwiSaver
• Issuer services
Regulation delivery a differentiator
• Engagement with issuers
• Increased clarity around
obligations
• Changes to guidance and rules
Mid-market funding ecosystem
© Copyright NZX Ltd. 2016 20
• Comments
- Repriced debt listing fees 1 July to reflect
the instrument risk – est. annual fees up
30%
- 9 new issues in the pipeline – mix of new
issuers and new issuance
- Explore ways to improve on market
liquidity and price discovery
• Revenue growth potential
- 2015 Annual Listing Revenues $1M
- 2015 Initial and Secondary Raising Fees
$0.25M
Potential to further develop the debt market
$0
$50
$100
$150
$200
$250
$0
$5
$10
$15
$20
$25
2010 2011 2012 2013 2014 2015 2016
Debt Market Capitalisation
Monthly Debt Value Traded (RHS)
$B $M
Testing introduction of batch settlement with the market
© Copyright NZX Ltd. 2016 21
Alternative to NZClear - $3-5M revenue opportunity
Proposed batched STP
Settlement Model
Current Fragmented
Settlement Model
Buy Sell Batch
Process
Lodge /
Uplift
NZClear
Registries
NZX
Clearing
Industry benefits: reduced operational risk, lower capital
requirements, lower transaction costs
Batch
Process
Buy Sell Trades
Dairy Derivatives
© Copyright NZX Ltd. 2016 22
Global demand for risk management continues to grow
Global
milk
supply
Global milk
demand
Intervention
policies
Farmer
demand
Dairy
Derivatives
Volatility
EU activity
Intervention
stock
Physical
Risk
Price
Price
© Copyright NZX Ltd. 2016 23
NZX Dairy Derivatives most successful dairy futures launch ever
2016 a period of consolidation – successful launch of milk price futures
0
20
40
60
80
100
120
140
160
180
200
2010 2011 2012 2013 2014 2015 2016
Num
ber
of A
ctive P
art
icip
ants
NZX Derivatives Active Participants
Actual
Est.
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2012 2013 2014 2015 2016
NZX Dairy Derivatives Volume
TOTAL NOTIONAL TONNES TOTAL LOTS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
No
tio
nal tr
ad
e a
s a
perc
en
tag
e o
f u
nd
erl
yin
g
Age of contract in years
NZX growth as % of the Underlying
Launched in 1996 Milling Wheat reached 50%
of underlying in its 11th year
Launched in 1980 Crude Palm Oil reached 50% of
underlying in its 22nd year
Launched (renamed) in 2000 Class III Milk now trades
approximately 100% of the underlying
Market Potential
© Copyright NZX Ltd. 2016 24
Goal 50% of underlying physical
50% of 2.2m tonnes underlying = 4,400 lots average daily volume = $4.6m annual revenue
Markets
• 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 derivatives
- Potential introduction of batch settlement
• Monitor and respond to changes in market structure
- Trading trends and economics
© Copyright NZX Ltd. 2016 25
Priorities for 2017
Funds Services
Paul Baldwin and Aaron Jenkins
26 © Copyright NZX Ltd. 2016
NZX Wealth Technologies
27
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 systems
- Multi service offering from the one wealth platform
- Client centric view of all wealth products and service
- Flexible connectivity to counterparties including brokers, custodians and banks
- Service innovation to develop new products and ways to deliver them
- Customised ‘build and operate’ solutions the next generation of wealth platforms for
larger organisations
▪ NZAM
▪ Craigs Investment Partners; KiwiSaver, Superannuation and IMA
- Turn-key solution for small to medium organisations
© Copyright NZX Ltd. 2016
Market positioning
28
The NZX Wealth Technologies
platform is, in effect, a
financial services hub that
supports and empowers
different business models.
The wealth management
platform can offer the key
participants in the wealth
sector a flexible and efficient
way to align and integrate
at both the advisor and client
level.
Leverage off NZX Group
capability and support.
With its open architecture the
platform presents innovation
opportunities for participants
individually and collaboratively.
Core Wealth Platform
Banks
Financial Advisors
Infrastructure Providers
Trustees
Issuers
Brokers
© Copyright NZX Ltd. 2016
Market Structure and Competitive Environment
© Copyright NZX Ltd. 2016 29
Targeting larger customised platforms and mid tier financial services
groups
$130B Directly Held
Equities
Unit
Trusts Other Cash KiwiSaver
Life
Ins
Brokers ($40B)
Banks ($50B)
Advisors ($5B)
Target
Customer Base
• Platforms: Aegis and FNZ $20-$25B
• In-house: Brokers $15B
• In-house: Banks: $5B
• Other: $5-10B
Competitors
• Aegis, FNZ
• In-house
platforms
Fees range from 10 to 20 bps depending on services provided
Funds Management
30 © Copyright NZX Ltd. 2016
Aaron Jenkins
© Copyright NZX Ltd. 2016 31
Comments
• Ahead of earn out targets: 7%-11%
CAGR over 3 years
• Both employer superannuation and
KiwiSaver FuM growing faster than
market
• Businesses fully integrated
- Combined Smartshares and
SuperLife teams
- Relocated to Zurich House
• FMCA licence awarded, transition to
new regime in Sep/Oct
- Substantial management effort
- ~$500k in one-off costs in 2016
SuperLife acquisition exceeding expectations
Overview
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Feb
-14
Ma
y-1
4
Au
g-1
4
Nov-1
4
Fe
b-1
5
Ma
y-1
5
Au
g-1
5
Nov-1
5
Feb
-16
Ma
y-1
6
SuperLife FuM ($M)
KiwiSaver Employer Superannuation TOTAL
TOTAL
16% KS Market Growth
26% SLKS Growth1
Note
1. 12 months through June 2016. Source NZX, RBNZ
-1% Market Growth
7% SLSS Growth1
Earnout
Range
Employer
Super (SS)
KiwiSaver
(KS)
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
• Lowest fees for KiwiSaver on Aggressive
(top 8 lowest fund options), 2nd lowest
Growth, 3rd lowest Balanced
• Daily, online, fee free changes between
investment options
• The Investment Statement for the
SuperLife KiwiSaver products is
available on the SuperLife website
© Copyright NZX Ltd. 2016 32
SuperLife KiwiSaver
© Copyright NZX Ltd. 2016 33
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
SuperLife KiwiSaver
© Copyright NZX Ltd. 2016 34
Smartshares Digital Marketing
© Copyright NZX Ltd. 2016 35
0
50
100
150
200
250
300
350
400
450 Retail Applications
2015 Average
Smartshares
Launch of new funds has shifted the growth trajectory
Liquidity
• $175m in market trades in 2016
• Main broker firms now trading on a monthly
basis Macquarie, FNZC, Craigs, Forsyth Barr
• Spreads narrowed by 50%-75%
Retail distribution
• ~$30m annualised in new funds in July, 65%
elect the regular savings plan
Advisor engagement
• ETF Masterclass participation up 50% in 2016
• Addition of ETFs into model portfolios. NZ
Property ETF into a recent model portfolio added
1.2m units
• Brokers becoming more sophisticated with some
indicating the use of the ETFs as an equitising
tool for client cash
Online Applications
24% increase in unit holders YoY in the 12 months to July
© Copyright NZX Ltd. 2016 36
0
50
100
150
200
250
FN
Z
US
F
MZ
Y
EU
F
OZ
Y
TN
Z
MD
Z
AS
D
NP
F
AS
P
EM
F
DIV
AP
A
US
G
US
V
TW
F
AS
F
US
M
AS
R
US
S
GB
F
NZ
B
NZ
C
Mill
ion
s
FuM
Smartshares
Investments made in a highly scalable model
Portfolio At Scale Approaching
Breakeven
Category # Funds Comment
At Scale 11 • Average 22 bps
margin1
Approaching
Breakeven 9
• Majority launched
November 2015
• Additional $3-$5M
required per fund
• At scale margin 10-20
bps
Portfolio 3 • Required for advisor
portfolio construction
1. Margin after direct fund costs
Funds Services
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 portfolios for smaller adviser groups
Both businesses
• Leverage the technology and back-office infrastructure of both businesses
© Copyright NZX Ltd. 2016 37
Priorities for 2017
Economics
Bevan Miller
38 © Copyright NZX Ltd. 2016
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 SuperLife and NZX Wealth
Technologies
▪ Significant cost investment from launch of 18 new ETFs, part year incurred in 2015,
full year cost impact in 2016
• Going forward
- Ralec litigation: trial completed, no significant further costs expected
- Markets and corporate cost base stable
- Only significant area of cost growth in 2017 expected to be from growth in NZX Wealth
Technologies staff to service new clients (with commensurate growth in revenues)
- Costs in Agri business to reduce as this business is reshaped
© Copyright NZX Ltd. 2016 39
Investment in the business
40
Expense growth (2011-2016)
-
10,000
20,000
30,000
40,000
50,000
60,000 Markets & corporate
Agri
Smartshares
SuperLife
Wealth technologies
Ralec costs
CAGR
2011-
2014
CAGR
2014-
2016
Ralec Costs -2% 75%
NZX WT NM NM
SuperLife NM NM
Smartshares 17% 54%
Agri
3% -2%
Markets 12% -2%
© Copyright NZX Ltd. 2016
© Copyright NZX Ltd. 2016 41
Markets
Stable cost base primarily comprising staff costs and IT costs
42%
44%
46%
48%
50%
52%
54%
56%
58%
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000 Markets revenue
Markets + Corporate EBITDA margin
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Contractors Staff costs
Technology Other expenses
$ 000’s
Markets Revenues and EBITDA (inc Corporate Costs) Markets + Corporate Cost Composition
© Copyright NZX Ltd. 2016 42
Funds Services
Underlying economics
Funds Services component margins 2015
-60% -40% -20% 0% 20% 40% 60%
SuperLife
Smartshares
NZX Wealth Technologies
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
SuperLife Smartshares NZX Wealth Technologies
Composition of cost base
Payroll costs Funds costs
Professional fees IT costs
Other expenses
Target
Margins
© Copyright NZX Ltd. 2016 43
• Currently annual distribution 6.0cps
• Clearing House system upgrade to
complete in 2017
• EA system upgrades run through to
2018
• No net debt following the disposal of
Link in 2015
• Capital structure to be reviewed in 2H
2016
Capital position
BAU capex increased by NZX Wealth
Technologies & SuperLife
0
2
4
6
8
10
12
14
16
18
20
(M)
PP&E Other software Trading system
Clearing House Clear Grain M-co/EA systems
SuperLife NZX Wealth Tech
Capital structure to be
reviewed in 2H
Summary
Tim Bennett
44 © Copyright NZX Ltd. 2016
Markets • 90%+ of revenues have
limited exposure to market
cycles
• Past 3 years have signalled a
step-function change in
activity through the cycle
• Est. ~5% growth through the
cycle, plus additional growth
from debt, derivatives,
settlement and potentially
new markets
• Demonstrated operating
leverage in the business
© Copyright NZX Ltd. 2016 45
Funds Services • Significant investments made in
SuperLife, Smartshares and NZX
Wealth Technologies
- All provide exposure to the NZ
funds management market
which is expected to grow by
between 10%-20% annually
over next 5 years
• All three businesses are in a
position to grow above market
- Low market shares
- Unique offerings in the market
• Once investment completed, all
businesses have inherent
operating leverage
Summary
Agri • Planned changes, if progressed,
will further reduce exposure to
the sector
• Retain businesses that have
strong linkages to the Markets
business (data) or broad linkages
to the sector (Farmers Weekly)
• Organisation being restructured,
largely variable cost base
Investor Information
46
www.nzx.com
www.nzxgroup.com
© Copyright NZX Ltd. 2016
Tim Bennett Bevan Miller Kate McLaughlin
CEO CFO Head of Corporate Affairs
[email protected] [email protected] [email protected]
+64 27 518 5526
+64 21 276 7359
+64 27 533 4529