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NZX posts 8.3% gain in full-year profit on securities data, listing fees, funds

NZX, which made its biggest-ever acquisition by buying funds manager SuperLife in 2014, posted annual profit growth of 8.3 percent after raising prices for securities data and benefiting from increased listing fees and funds management revenue.

Profit rose to $13.1 million in calendar 2014, from $12.1 million a year earlier, the Wellington-based company said in a statement. Sales rose 3.8 percent to $65.2 million. Profit missed First NZ Capital's forecast of $15.2 million. NZX shares fell 1.7 percent to $1.19 and have declined 5.6 percent in the past year, lagging behind the NZX 50 Index's 18 percent gain.

The stock market operator enjoyed an influx of listings in 2014, as 16 companies joined the bourse, adding $4.7 billion to the equity market capitalisation, which widened to the equivalent of 42 percent of New Zealand's gross domestic product from 37.8 percent in 2013. Costs rose 9.6 percent in 2014 to $40.6 million, led by a 62 jump in professional fees to $3.4 million, including $1 million for ongoing litigation with the vendors of the Clear Grain Exchange and $350,000 for the SuperLife acquisition.

NZX completed the purchase of SuperLife in January last year for $20 million upfront in cash and NZX shares, and a further $15 million provided SuperLife meets targets for growth in funds under management. SuperLife had $1.27 billion funds under management as at Jan. 31, giving NZX a total FUM of $1.7 billion once its existing Smartshares business is included.

NZX wants to use SuperLife as a platform to accelerate growth of its Smartshares exchange traded funds (ETFs) to benefit from growth in the New Zealand funds management sector seen at an annual 10 percent to 15 percent over the next 10 years, driven by KiwiSaver and increased household savings generally.

Chief executive Tim Bennett didn't give guidance for 2015. "While we will continue to make selective investments in 2015, our focus is on executing against the immediate opportunities we have in front of us."

That includes the launch of the new NXT market for start-ups and small-to-medium businesses, growth in its derivatives business and ETFs. Also on the cards for 2015 is the tender for the electricity market operator contracts that NZX holds for the Electricity Authority, which expire in 2016. NZX has held the contracts since 2008.

The company said its dispute with Clear's former owners through their Ralec companies is unlikely to be heard before 2016. NZX sued Ralec in the High Court for breach of warranty and associated claims under the 2009 sale and purchase agreement. The vendors subsequently counter-claimed for loss of earn-out payments. While NZX says the quantum of the counter-claim hasn't be detailed, earn-outs of some A$14 million were made because Clear failed to meet targets for grain tonnage and trading via an 'Agri-Portal.'

NZX said it has made a provision of $1.2 million related to settlement of an Inland Revenue Department tax audit relating to 2008 through 2010.

Operating cash flow in 2014 dropped to $16.1 million from $26 million a year earlier, and was the lowest bin the past five years. NZX said the decline partly reflected unusually high cash flow in 2013, which reflected the timing of high-value contracted revenue and favourable working capital movements.

The company's capital markets business remained the biggest generator of revenue in 2014, rising 6.2 percent to $37.2 million, on growth in securities information, listings and participant services. While trade volumes grew 9.8 percent, the total value of trading fell 17 percent, which it said was largely due to reduced portfolio rebalancing compared to 2013.

Total soft commodities revenue fell 3.2 percent to $1.5 million, reflecting a 14 percent from in commodities trading sales to $1.3 million, while dairy derivatives sales rose to $200,000 from $100,000.

Sales of agricultural information rose 2.1 percent to $12.2 million, funds management revenue climbed 11 percent to $2.7 million and market operations revenue fell 2 percent to $11.6 million.

NZX will pay a final dividend of 3 cents a share on March 27 with a record date of March 13.