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Current as of 27/03/17 09:19AM NZST

NZX first-half profit plunges, hurt by litigation costs

By Sophie Boot

Net profit fell to $3.58 million in the six months ended June from $17.9 million a year earlier.
Net profit fell to $3.58 million in the six months ended June from $17.9 million a year earlier.

NZX's first-half profit dropped 80 per cent as costs related to the ongoing Ralec litigation offset gains in operating revenue.

Net profit fell to $3.58 million in the six months ended June 30 from $17.9 million a year earlier, which was bolstered by a one-off gain on an asset sale, the market operator said in a statement. Stripping out that gain and other one-off adjustments, underlying profit fell to $4 million from $6.2 million.

Operating costs climbed 19.7 percent to $27 million in the first half, outpacing a 10 percent increase in revenue to $37.9 million, with costs related to the protracted litigation with the sellers of the Clear Grain Exchange increasing by $1.6 million.

NZX spent $2.9 million on the trial in the first half of 2016, more than twice what it spent in the same period a year earlier, and said the increased cost reflected the flurry of activity leading up to and during the trial which began in May and lasted until July.

NZX said it doesn't expect to incur any more significant costs on the Ralec case after July, and anticipates a judgment before the end of the year.

NZX's effective tax rate was 43 per cent in the first half, higher than the statutory rate of 28 per cent, due to the Ralec expenditure not being tax-deductible, it said.

"We are pleased the Ralec trial and associated costs, which weighed on our result, are behind us now," chief executive Tim Bennett said.

"We continue to deliver against our strategic objectives to grow the business and the markets for the long term. We are continuing to see a good pipeline of small to medium sized listing candidates, while debt raising activity is expected to continue at levels above historical averages."

NZX reiterated its expectation for annual earnings before interest, tax, depreciation and amortisation to be in the range of $22.5 million to $26.5 million, a forecast it gave in February, subject to market outcomes.

Revenue gains came from increased funds under management, the launch of new exchange-traded funds (ETFs) and NZX's acquisition of investment platform Apteryx, now called NZX Wealth Technologies, in the second half of 2015, it said.

We are pleased the Ralec trial and associated costs, which weighed on our result, are behind us now.

Market earnings grew 10 per cent to $19 million in the first half, while fund services earnings dropped 78 percent to $358,000 and agri dropped 37 percent to $291,000. Fund services earnings fell because NZX Wealth Technologies and some of the ETFS are losing money in an effort to build critical mass, NZX said. The agri decline was due to 11 percent lower advertiser spending in the dairy downturn.

Overall listing fees rose 6 percent to $4.5 million, while initial listing fees jumped 382 percent to $960,000, which NZX said was "consistent with a four-fold increase in the value of new equity listed coupled with a significant increase in new debt listings."

The board declared an interim dividend of 3 cents per share, with a September 2 record date, payable on September 16.

The shares last traded at $1.04, having declined 2.8 per cent so far this year.

See a full results presentation here:

- BusinessDesk

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