Q1FY2013 Singapore Exchange Reports $74 Million Profit
Mr Magnus Bocker, SGX CEO, said, “We reported a net profit of $74 million in a market with declining volatility and cautious investors. Our Securities and Derivatives1 volumes have held up well relative to other markets. Open interest for Derivatives contracts achieved a new record high in September, reflecting SGX’s stature as a clearing house of choice in Asia. We are also pleased to see increased capital raising activities with 10 new IPOs2 and 111 bond issues this quarter.”
* Securities: Securities daily average traded value (SDAV) was $1.3 billion compared to $1.6 billion a year ago and $1.1 billion the previous quarter. A record $5.4 billion was transacted on 14 August as a result of M&A activities in Singapore. We launched the ASEAN Link with Bursa Malaysia on 18 September, and the Stock Exchange of Thailand joined on 15 October. SGX now offers Direct Market Access for Malaysia and Thailand. We also signed an MoU with the London Stock Exchange (LSE) on 11 July to enable cross-border trading of the most actively traded stocks on both exchanges.
* Derivatives: Derivatives daily average traded volume (DAV) was 306,811 contracts compared to 322,152 contracts from a year ago. This is also lower than the previous quarter of 319,377 contracts. However, open interest achieved a new record high of 2,292,409 contracts on 26 September. We expanded access into India with the launch of Nifty Options on 13 July. On 6 August, we acquired 49% of Energy Market Company, marking SGX’s entry into the electricity market.
* Issuer Services: We had 10 new IPOs (6), with a total market capitalisation of $11.6 billion ($1.0 billion), raising $3.3 billion ($0.2 billion). Among the new IPOs was IHH Healthcare Berhad, the first concurrent dual listing in Malaysia and Singapore. Secondary funds raised totalled $448 million ($1.1 billion). In addition, $52.5 billion ($25.2 billion) of debt capital was raised through 111 (66) new bond issues.
Market Development, Risk Management & Regulations
SGX maintains a robust risk management framework aligned with international standards. Following the 2008 crisis, the financial industry has focused on strengthening risk management practices. New standards have been introduced in line with the CPSS-IOSCO’s3 Principles for Financial Market Infrastructure published in April 2012. SGX is committed to be an early adopter and expects to be in conformance with these Principles at the end of 2012.
In July, we proposed rules to introduce margining for securities cleared by the Central Depository (CDP) in alignment with the new international standards. The proposed margin framework will reinforce CDP’s position as a leading venue for clearing and settlement.
We raised Mainboard admission requirements from 10 August. This will build upon our efforts to improve the Singapore securities market and foster more interest among investors. In addition, we are establishing a working committee with market practitioners to perform a comprehensive review of the SGX-Listing Manual.
We are positioned to deliver creditable results in this challenging global environment. Our IPO and bond issuance pipelines remain healthy. We will continue to invest our resources in developing new products and services, and strengthening our regulatory and risk management capabilities. Expenses for FY2013 are expected to be between $295 million and $305 million. Capital expenditure is expected to be between $30 million and $35 million, as previously announced.
SGX’s net profit was $74.3 million ($87.5 million) and EBITDA was $97.2 million ($115.1 million). Earnings per share (EPS) was 7.0 cents (8.2 cents).
Revenue was $160.5 million ($178.4 million). Securities and Issuer Services revenues were $73.9 million ($87.7 million). Revenues from Derivatives, Member Services and Connectivity, Market Data and Depository, at $86.0 million ($90.4 million), now account for 54% (51%) of total revenue.
Expenses declined 3% to $72.6 million ($74.5 million), primarily due to a drop in Technology expenses. Technology expenses were down 6% to $25.6 million ($27.2 million), mainly due to the decommissioning of the QUEST-ST trading engine last year.
Staff expenses were flat at $29.0 million ($28.6 million). Headcount was 599 (595) on 30 September 2012. Cashflow generated from operations was $89.5 million ($105.2 million). Capital expenditure was $4.6 million ($14.7 million).
SGX’s total equity was lower at $706.7 million ($868.4 million) on 30 September 2012, following the approval of the final dividend for FY2012. The unrestricted cash reserves were $610.1 million ($623.2 million), before payment of the FY2012 final dividend of $160.2 million on 12 October and the 1Q FY2013 interim dividend of $42.7 million ($42.7 million) on 5 November.
Securities, 36% (40%) of SGX’s revenue
Securities revenue declined 19% to $58.1 million ($72.0 million). The average clearing fee was 2.7 basis points (2.8 basis points).
SDAV fell 15% to $1.33 billion, compared to SDAV of $1.57 billion in 1Q FY2012 on the back of a spike in market activities in August 2011 with an SDAV of $2.0 billion for the month. Our SDAV held up well relative to peers.
Derivatives, 28% (24%) of SGX’s revenue
Derivatives revenue grew 5% to $45.1 million ($43.0 million).
Futures & Options revenue declined 7% to $27.5 million ($29.4 million) due primarily to a 5% drop in futures and options trading volume and foreign exchange hedging costs.
Derivatives volume declined 5% to 19.4 million (20.5 million) contracts or DAV of 306,811 contracts (322,152 contracts). Our DAV held up well relative to peers5. Our newer contracts – Indian Nifty futures and options, China A50 futures, Nikkei225 options and MSCI Indonesia futures – continued to grow, accounting for 38% of DAV (28%).
Structured Warrants revenue declined 41% to $0.78 million ($1.32 million). Traded value declined 46% to $1.2 billion ($2.2 billion), with a corresponding 24% drop in traded volume to 12.0 billion units (15.8 billion units).
Collateral management income, license revenue and other revenue increased by 37% to $16.8 million ($12.3 million), mainly due to better management of collateral balances and revenue from OTC clearing.
SGX and Bursa Malaysia were the first two to connect on the ASEAN Trading Link on 18 September. The Stock Exchange of Thailand joined on 15 October. All securities of these 3 exchanges (with the exception of extended settlement contracts on SGX) have been included on the link. Through cross border trading, the link will promote and enhance the accessibility of ASEAN stocks and reduce costs for brokers.
We signed an MoU with LSE on 11 July to enable cross-trading of the most actively traded stocks from both exchanges. Under the agreement, trading of FTSE100 securities on SGX is to commence next year while 36 SGX securities that make up our leading indices is expected to trade on LSE by December 2012.
We expanded the suite of OTC Commodities products with the successful launch of Options on Iron Ore swaps and freight (FFA) swaps in September. As of quarter end, we have captured close to 30% of the global Iron Ore Options market. SGX cleared a record 117,182 lots of OTC Commodities this quarter, up 95% from the same quarter last year and 62% higher than the previous record high achieved in 3Q FY2012.
We are also in the process of applying to the US and European regulatory bodies for recognition under the regulatory requirements for OTC clearing activities. Obtaining the recognition will make it easier for us to continue doing business with customers in those markets.
Market Data, 5% (5%) of SGX’s revenue
Market data revenue declined 6% to $8.4 million ($8.9 million). The average number of securities and derivatives terminals was 40,345 (45,811) and 23,189 (24,956) respectively.
Member Services and Connectivity, 8% (7%) of SGX’s revenue
Member Services and Connectivity revenue was $11.8 million ($12.3 million), with Membership revenue and Connectivity revenue at $1.9 million ($2.0 million) and $9.9 million ($10.3 million) respectively.
From September we commenced hosting of the Australian Securities Exchange (ASX) hub, providing direct connectivity to the ASX 24 futures market. Our data centre now hosts markets from Australia, Germany and the USA.
Depository Services, 13% (15%) of SGX’s revenue
Depository revenue declined 21% to $20.8 million ($26.2 million).
Securities settlement revenue was down 22% to $15.1 million ($19.5 million) due to a decline in institutional trades with settlement transfer instructions down 15% to 1.23 million (1.46 million).
Contract processing revenue was down 18% to $4.2 million ($5.1 million) as the number of contracts processed declined 19% to 2.2 million (2.7 million).
Issuer Services, 10% (9%) of SGX’s revenue
Issuer Services revenue was flat at $15.8 million ($15.7 million), with Listing revenue and Corporate Action revenue at $8.8 million ($8.8 million) and $6.9 million ($7.0 million) respectively.