| Tue 14 Aug 2007, 15:26 | | JSE - JSE Limited - Reviewed interim financial sta |
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JSE
JSE
JSE - JSE Limited - Reviewed interim financial statements for the six months
ended 30 June 2007
JSE Limited
(Registration number 2005/022939/06)
Incorporated in the Republic of South Africa
Share Code: JSE & ISIN Code: ZAE000079711
("JSE")
REVIEWED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2007
Revenue up 31%
COMMENTARY
Highlights
South African and indeed global markets continued their strong performance
during the first six months of 2007. The JSE`s All Share Index rose to a record
high, reaching 28 337 by 30 June 2007 (31 December 2006: 24 915). Against this
backdrop - and supported by a continued focus on innovation and providing world-
class trading, clearing and settlement facilities - the JSE Limited (JSE)
experienced buoyant trading conditions across its three main markets resulting
in a 31% increase in revenue. Despite this increase, attributable profit was
lower, primarily as a result of certain share-based expenses, which have little
or no effect on cash flow, the details of which are dealt with under the heading
"Overview of results".
Business highlights for the period included:
- The average daily number of cash equity trades rising to 39 365 during the
period (2006 financial year: 32 000) with a high of 78 676 on the June 2007
futures close-out day;
- The daily average number of equity derivatives contracts traded rose 200%
during the same period;
- The listing of fifteen new companies during the period, eight on the Main
Board and seven on AltX, the JSE`s exchange for small and medium size
companies;
- Launching currency futures, trading on Yield-X;
- Launching of the SAVI Index, the first index monitoring volatility of JSE
equities (based on the Top 40 Stocks);
- Becoming the largest Single Stock Futures Market in the world in the first
quarter of 2007, overtaking the National Stock Exchange of India; and
- Issuing the final tranche of JSE shares to The JSE Empowerment Fund which
now holds 2% of the JSE shares and boosts the direct black shareholding on
the JSE to 9,62%.
Overview of results
Financials
In the six months to 30 June 2007:
* Group revenue grew by 31% to R411,5 million (2006: R313,0 million);
* Group operating revenue is not directly comparable to that of the previous
period due to a change in the agreement between Strate and the JSE. With
effect from March 2006, Strate has charged the JSE for the services it
provides to JSE member firms. The JSE then recovers these amounts. Though
no net income accrues to the JSE from this process, the amounts concerned,
being R39,2 million in 2007 and R24,6 million in 2006 are reflected in both
revenue and expenses to comply with International Financial Reporting
Standards (IFRS);
* Other income decreased by 68% to R13,2 million (2006: R41,7 million) mainly
as a result of a performance bonus of R26 million received by the JSE
Guarantee Fund Trust from its insurance underwriters during 2006 not being
repeated this year;
* Group operating expenses were 48% higher than the corresponding period last
year at R387,0 million (2006: R261,4 million). A significant portion of
this increase is due to share-based costs, namely, the JSE`s Broad-Based
Black Economic Empowerment (Broad-Based BEE) Transaction and the Long-Term
Staff Incentive Scheme (the Staff Scheme), which are discussed below.
Share-based costs can be excluded from the results for a meaningful
assessment of the JSE`s performance:
* Personnel costs (excluding the Staff Scheme) increased 7% on the previous
period (see Note 8); and
* Other operating costs (excluding the impact of the new agreement with
Strate and the Broad-Based BEE costs) rose 9% on the previous period (see
Note 9).
* Share-based costs also did not affect cash flow. Cash generated from
operations rose to R157,8 million (2006: R94,7 million);
* Net financing income of R37,8 million (2006: R22,5 million) rose by 68%;
* The JSE`s share of profit from the equity accounting of certain investees
and in particular Strate, added R12,1 million to the results (2006: R19,0
million). Though Strate`s revenue rose to R110 million during the period
(2006: R100 million), its cost base increased to accommodate greater
volumes in the market, accounting for the drop in the JSE`s equity
accounted portion;
* A tax charge of R47,0 million. The JSE`s effective tax rate for the period
was 54% due mainly to the costs of the Broad-Based BEE initiatives not
being deductible for tax purposes. The first tax assessment received by the
JSE as a tax-paying entity was higher than anticipated, as a consequence of
the interpretation of the nature of the JSE`s first contract with the
London Stock Exchange. This is being contested.
The resultant attributable profit for the period, after accounting for all
expenses, was R40,5 million, 56% lower than that for the equivalent period last
year. The cost: income ratio rose to 96% including share-based costs. The
exclusion of these share based costs - in order to calculate a benchmark of the
JSE`s performance - results in a cost: income ratio of 61% (2006: 64%).
The growth in group operating revenue is driven by the increased use of all the
services the JSE provides rather than by increased prices.
The biggest contributor to group revenue remains equities trading at R84,3
million (21% of total). Revenue from equities trading rose by 29% during the
period. In the interim period, revenue from equity derivatives rose by 34% to
R53,7 million; that is 13% of total first half revenue. The rapid growth of
trades in Single Stock Futures continues to be a major factor behind growth in
the equity derivatives market.
During the period, thirty-one companies delisted. Most of these have been
suspended for a number of years and left the boards during the JSE`s clean-up
operation of companies which don`t trade or no longer qualify to be listed. This
clean-up operation is largely complete. However two companies were delisted as a
result of private equity activity.
The JSE is continuing to focus on innovating its product lines. In response to
market demand, and with strong support from the Minister of Finance and National
Treasury, currency futures were launched in June 2007 with a rand/ dollar future
specifically aimed at retail investors. The first month of trade met the
expectations of management.
In line with our objective of continually reducing the cost to trade on our
markets, the JSE lowered the fees it charges for the administration of the funds
it manages on behalf of investors by 20%.
Share-based expenses: Broad-Based BEE Transaction and the Staff Incentive Scheme
Two share-based expenses continued into the interim period.
The JSE`s Broad-Based BEE Transaction consists of two elements: The JSE
Empowerment Fund (JEF) and the Black Shareholders` Retention Scheme (BSR
Scheme).
JEF is designed to fund the education of black students working towards a
tertiary level qualification in the financial markets. During the period, 434
387 shares were issued to JEF. This resulted in a charge to the Income Statement
of R30,4 million. This completes the issue of the 1,7 million JSE shares that
were set aside to be issued to JEF at par for cash and there will be no further
charges in this regard.
The BSR Scheme is aimed at incentivising the JSE`s black shareholders to retain
their JSE shareholding at least until 2011. In terms of the BSR Scheme, holders
of JSE shares who are Black and who acquired JSE shares on or before 28 March
2006 are considered to be Qualifying Black Shareholders. Qualifying Black
Shareholders were issued the first tranche of 579 183 options in June 2006 at a
strike price of R4,81 an option and the second tranche of 733 395 options in
June 2007 at a strike price of R15,17 an option. The resultant charge to the
Income Statement was R11,7 million in 2006 and R52,6 million in 2007. The final
tranche of options is only due to be issued during June 2008 and there will be
no further expenses in this regard during 2007.
The Staff Scheme is designed to attract, retain and incentivise the JSE`s senior
management over the long term. It is a non-dilutive cash bonus scheme based on
the growth shown in the share price. The Staff Scheme was introduced on 1
January 2006. Personnel expenses increased by R46,6 million during the interim
period as a result of the valuation of the Staff Scheme as required by IFRS.
The JSE is investigating improving its incentive scheme to make it more cost
effective to the JSE while still serving to retain and incentivise senior
management.
Annual increase in emoluments: non-executive directors
At the JSE AGM on 24 April 2007, shareholders approved an 8% increase in certain
categories of non-executive directors` remuneration. However the base used to
calculate the Rand increase of these fees was incorrect: the calculation was
based on the calendar year 1 January 2006 to 31 December 2006 instead of the
period of May 2006 to 30 April 2007. The Board implemented the 8% increase from
1 May 2007 on the correct basis. In addition, the Board implemented an 8%
increase on the retainer portion of the non-executive directors` remuneration.
The difference in total cost to the JSE is not material.
Balance Sheet
The JSE`s balance sheet structure is conservative due to the nature of the
business and the fact that the JSE guarantees trades on the cash equities
market. The Board is currently evaluating the group`s capital requirements given
current market conditions and the JSE`s short and medium term strategic
imperatives.
Technology
The JSE is party to agreements for the development of software totaling
approximately R215,2 million (2006: R210,6 million) over the next 18 months, of
which R154,9 million (2006: R147,3 million) has been settled. Project Orion, the
IT transformation project, is a fixed cost contract. It is currently running
behind schedule and the JSE is in discussions with the service provider
regarding payment of further amounts towards the fixed fee for resolution of
scope items. The next phase of Project Orion is expected to be launched in
November 2007.
The JSE moved onto the London Stock Exchange`s new equity trading system,
TradElect, on 2 April 2007. TradeElect brings increased levels of performance,
enhanced functionality and new services to the market whilst maintaining the
JSE`s record of reliability. It allows JSE customers to trade in one of the
fastest, most reliable and technologically advanced equity markets in the world.
JSE Guarantee Fund Trust and JSE Derivatives Fidelity Fund Trust
The JSE Guarantee Fund Trust and JSE Derivatives Fidelity Fund Trust are
consolidated in terms of IFRS. The trusts are legally separate from the JSE and
shareholders do not have any right to the net assets of such trusts.
Prospects
The JSE will continue to focus on providing world-class trading, clearing and
settlement systems with the aim of attracting increasing issuer and investor
activity. The group will also continue its strategy of adding to the services
provided by the JSE so as to diversify its revenue stream and reduce the group`s
exposure to any particular market segment. In particular, the JSE:
- Is investigating moving to a shorter settlement cycle;
- Is placing much attention on attracting new companies to our markets,
including inward listings;
- Will list a number of new Exchange Traded Funds which now have Financial
Services Board approval;
- Is evaluating the prospects for further new and innovative products to be
launched on the equities, equity derivatives and Yield-X markets;
- Is working on new ways in which to provide our clients with greater access
to African and International capital markets and issuers; and
- Is continuing to work on implementing our planned technology upgrades.
While the group`s prospects are still largely dependent on market conditions,
the Board is optimistic that positive trading conditions will continue in the
second half of 2007.
These results have been reviewed but not audited by the auditors.
For and on behalf of the Board
H J Borkum R M Loubser
Chairman Chief Executive Officer
15 August 2007
Condensed consolidated interim income statement
for the six months ended 30 June 2007
JSE Group
six months ended year ended
30 June 31 December
2007 2006 2006
Note (reviewed) (unaudited) (audited)
R`000 R`000 R`000
Revenue 6 411 457 313 025 640 377
Other income 7 13 219 41 745 65 370
Personnel expenses 8 (104 978) (60 311) (162 986)
Other expenses 9 (282 032) (201 131) (413 561)
Profit before net financing 37 666 93 328 129 200
income
Interest received 536 676 254 521 676 190
Interest paid (498 917) (231 999) (621 450)
Net financing income 37 759 22 522 54 740
Share of profit of equity 12 069 18 966 27 364
accounted investees
Profit before taxation 87 494 134 816 211 304
Income tax 10 (46 961) (42 591) (70 254)
Profit for the period 40 533 92 225 141 050
Earnings per share
Basic earnings per share 11.1 47,7 110,4 168,0
(cents)
Diluted earnings per share 11.2 47,5 110,4 167,5
(cents)
Condensed consolidated interim income statement (continued)
for the six months ended 30 June 2007
Investor Protection Funds*
six months ended year ended
30 June 31 December
2007 2006 2006
(reviewed) (unaudited) (audited)
R`000 R`000 R`000
Revenue - - -
Other income 10 236 34 924 41 743
Personnel expenses - - -
Other expenses (6 762) (3 840) (10 412)
Profit before net financing income 3 474 31 084 31 331
Interest received 2 086 1 892 3 249
Interest paid - - -
Net financing income 2 086 1 892 3 249
Share of profit of equity accounted - - -
investees
Profit before taxation 5 560 32 976 34 580
Income tax - - -
Profit for the period 5 560 32 976 34 580
Earnings per share
Basic earnings per share (cents) 6,5 39,5 41,2
Diluted earnings per share (cents) 6,5 39,5 41,1
* The JSE maintains the JSE Guarantee Fund Trust and the JSE Derivatives
Fidelity Fund Trust for investor protection purposes as required under the
Securities Services Act 36 of 2004. The JSE is required to consolidate
them into the results of the Group in terms of International Financial
Reporting Standards ("IFRS"). However, as these Trusts are legally
separate from the JSE, neither the JSE nor its shareholders have any right
to the net assets of such Trusts.
For enhanced understanding, the investor protection funds have been shown
separately, although, for compliance with IFRS, these results form part of
the Group financial statements.
Condensed consolidated interim balance sheet
as at 30 June 2007
JSE Group
as at as at
30 June 31 December
2007 2006 2006
Note (reviewed) (unaudited) (audited)
R`000 R`000 R`000
Assets
Non-current assets 575 869 466 886 517 316
Property and equipment 206 949 218 286 213 198
Investments in equity 12 72 646 63 308 54 119
accounted investees
Other investments 244 481 160 107 213 923
Deferred taxation 51 793 25 185 36 076
Current assets 14 090 319 9 059 015 10 151 448
Trade and other receivables 183 854 145 049 115 694
Government grant 4 285 1 256 4 285
Due from joint venture - 135 -
Derivative financial 502 3 712 1 407
instruments
Margin and collateral 13 309 016 8 433 709 9 525 198
deposits
Cash and cash equivalents 592 662 475 154 504 864
Total assets 14 666 188 9 525 901 10 668 764
Equity and liabilities
Share capital and reserves 964 565 797 870 833 540
Non-current liabilities 157 113 87 889 107 833
Provisions 96 969 24 530 47 981
Deferred taxation 11 288 11 235 11 749
Operating lease liability 48 053 46 123 47 333
Due to SAFEX members 803 6 001 770
Current liabilities 13 544 510 8 640 142 9 727 391
Trade and other payables 205 266 151 758 148 872
Income tax payable 1 042 28 381 25 606
Operating lease liability 29 186 26 294 27 715
Margin and collateral 13 309 016 8 433 709 9 525 198
deposits
Total liabilities 13 701 623 8 728 031 9 835 224
Total equity and liabilities 14 666 188 9 525 901 10 668 764
Condensed consolidated interim balance sheet (continued)
as at 30 June 2007
Investor Protection Funds
as at as at
30 June
31 December
2007 2006 2006
(reviewed) (unaudited) (audited)
R`000 R`000 R`000
Assets
Non-current assets 244 477 160 103 213 919
Property and equipment - - -
Investments in equity accounted - - -
investees
Other investments 244 477 160 103 213 919
Deferred taxation - - -
Current assets 21 769 54 224 26 020
Trade and other receivables 722 27 382 6 468
Government grant - - -
Due from joint venture - - -
Derivative financial instruments - - -
Margin and collateral deposits - - -
Cash and cash equivalents 21 047 26 842 19 552
Total assets 266 246 214 327 239 939
Equity and liabilities
Share capital and reserves 266 065 214 158 239 742
Non-current liabilities - - -
Provisions - - -
Deferred taxation - - -
Operating lease liability - - -
Due to SAFEX members - - -
Current liabilities 181 169 197
Trade and other payables 181 169 197
Income tax payable - - -
Operating lease liability - - -
Margin and collateral deposits - - -
Total liabilities 181 169 197
Total equity and liabilities 266 246 214 327 239 939
Condensed consolidated interim CASH FLOW STATEMENT
for the six months ended 30 June 2007
JSE Group
six months ended year ended
30 June 31 December
2007 2006 2006
(reviewed) (unaudited) (audited)
R`000 R`000 R`000
Cash generated/(utilised) from 157 759 94 681 223 710
operations
Interest received 514 916 245 399 652 361
Interest paid (474 322) (219 186) (584 259)
Dividends received 2 563 - 4 402
Taxation paid (80 483) - (64 016)
Net cash inflow from operating 120 433 120 894 232 198
activities
Cash flows from investing
activities
Proceeds on redemption of - 35 000 65 000
preference shares
Investment to maintain operations (211) (204) (623)
Replacement of property and (211) (204) (623)
equipment
Investment to expand operations (19 184) (37 098) (79 087)
Proceeds on maturity of other 31 857 21 364 45 168
investments
Additions to other investments (33 936) (54 794) (102 948)
Purchase of shares in Strate Ltd, (6 459) - (12 413)
net of dividends received
Proceeds on sale of ITRIX Holdings - - 1 500
(Pty) Ltd
Leasehold improvements (363) (162) (741)
Additions to property and equipment (10 283) (3 506) (9 653)
Net cash outflow from investing (19 395) (2 302) (14 710)
activities
Cash flows from financing
activities
Proceeds from issue of share 43 87 131
capital
Dividends paid (13 283) - (69 230)
Net cash (outflow)/inflow from (13 240) 87 (69 099)
financing activities
Net increase/(decrease) in cash and 87 798 118 679 148 389
cash equivalents
Cash and cash equivalents at 504 864 356 475 356 475
beginning of period
Cash and cash equivalents at end of 592 662 475 154 504 864
period
Condensed consolidated interim CASH FLOW STATEMENT (continued)
for the six months ended 30 June 2007
Investor Protection Funds
six months ended year ended
30 June 31 December
2007 2006 2006
(reviewed) (unaudited) (audited)
R`000 R`000 R`000
Cash generated/(utilised) from (1 075) (418) 10 882
operations
Interest received 2 086 1 891 3 249
Interest paid - - -
Dividends received 2 563 - 4 402
Taxation paid - - -
Net cash inflow from operating 3 574 1 473 18 533
activities
Cash flows from investing
activities
Proceeds on redemption of - - -
preference shares
Investment to maintain operations - - -
Replacement of property and - - -
equipment
Investment to expand operations (2 079) (33 430) (57 780)
Proceeds on maturity of other 31 857 21 364 45 168
investments
Additions to other investments (33 936) (54 794) (102 948)
Purchase of shares in Strate Ltd, - - -
net of dividends received
Proceeds on sale of ITRIX Holdings - - -
(Pty) Ltd
Leasehold improvements - - -
Additions to property and equipment - - -
Net cash outflow from investing (2 079) (33 430) (57 780)
activities
Cash flows from financing
activities
Proceeds from issue of share - - -
capital
Dividends paid - - -
Net cash (outflow)/inflow from - - -
financing activities
Net increase/(decrease) in cash and 1 495 (31 957) (39 247)
cash equivalents
Cash and cash equivalents at 19 552 58 799 58 799
beginning of period
Cash and cash equivalents at end of 21 047 26 842 19 552
period
Condensed consolidated interim STATEMENT of changes in equity
for the six months ended 30 June 2007
Non-
Share Share Distribut- BBBEE
able
Capital Premium Reserve Reserve
R`000 R`000 R`000 R`000
Group
Balance at 31 December 2005 8 340 162 779 10 058 -
(audited)
BBBEE reserve - - - 29 727
New issue of shares - The JSE 87 - - -
Empowerment Fund
Income and expenses recognised - - - -
directly in equity
Fair value gain on available- - - - -
for-sale instruments
Profit for the period - - - -
Dividends paid - - - -
Balance at 30 June 2006 8 427 162 779 10 058 29 727
(unaudited)
Balance at 31 December 2005 8 340 162 779 10 058 -
(audited)
BBBEE reserve - - - 50 317
New issue of shares - The JSE 131 - - -
Empowerment Fund
Income and expenses recognised - - - -
directly in equity
Fair value gain on available- - - - -
for-sale instruments
Profit for the period - - - -
Dividends paid - - - -
Balance at 31 December 2006 8 471 162 779 10 058 50 317
(audited)
BBBEE reserve - - - 79 864
Shares issued - The JSE - - - 30 364
Empowerment Fund
Options issued - Black - - - 41 542
Shareholders
Options lapsed - transfer to - - - (3 105)
retained earnings
Replacement options issued to The - - - 11 063
JSE Empowerment Fund
New issue of shares - The JSE 43 - - -
Empowerment Fund
Income and expenses recognised - - - -
directly in equity
Fair value gain on available- - - - -
for-sale instruments
Profit for the period - - - -
Dividends paid - - - -
Balance at 30 June 2007 (reviewed) 8 514 162 779 10 058 130 181
Condensed consolidated interim STATEMENT of changes in equity (continued)
for the six months ended 30 June 2007
Total
Exchange Investor
Retained and Protection Total
Earnings Subsidiaries Funds Group
R`000 R`000 R`000 R`000
Group
Balance at 31 December 2005 324 933 506 110 176 494 682 604
(audited)
BBBEE reserve - 29 727 - 29 727
New issue of shares - The JSE - 87 - 87
Empowerment Fund
Income and expenses recognised - - 4 688 4 688
directly in equity
Fair value gain on - - 4 688 4 688
available-for-sale instruments
Profit for the period 59 249 59 249 32 976 92 225
Dividends paid (11 461) (11 461) - (11 461)
Balance at 30 June 2006 372 721 583 712 214 158 797 870
(unaudited)
Balance at 31 December 2005 324 933 506 110 176 494 682 604
(audited)
BBBEE reserve - 50 317 - 50 317
New issue of shares - The JSE - 131 - 131
Empowerment Fund
Income and expenses recognised - - 28 668 28 668
directly in equity
Fair value gain on - - 28 668 28 668
available-for-sale instruments
Profit for the period 106 470 106 470 34 580 141 050
Dividends paid (69 230) (69 230) - (69 230)
Balance at 31 December 2006 362 173 593 798 239 742 833 540
(audited)
BBBEE reserve 3 105 82 969 - 82 969
Shares issued - The JSE - 30 364 - 30 364
Empowerment Fund
Options issued - Black - 41 542 - 41 542
Shareholders
Options lapsed - transfer 3 105 - - -
to retained earnings
Replacement options issued to - 11 063 - 11 063
The JSE Empowerment Fund
New issue of shares - The JSE - 43 - 43
Empowerment Fund
Income and expenses recognised - - 20 763 20 763
directly in equity
Fair value gain on - - 20 763 20 763
available-for-sale instruments
Profit for the period 34 973 34 973 5 560 40 533
Dividends paid (13 283) (13 283) - (13 283)
Balance at 30 June 2007 386 968 698 500 266 065 964 565
(reviewed)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
for the six months ended 30 June 2007
six months ended year ended
30 June 31 December
2007 2006 2006
(reviewed) (unaudited) (audited)
R`000 R`000 R`000
1 Reporting entity
JSE Limited is a company domiciled in the Republic of South Africa. The
condensed consolidated interim financial statements of the Company as at and
for the six months ended 30 June 2007 comprise the company and its
subsidiaries, consolidated investor protection funds and the Group`s interest
in associates (together referred to as the "Group").
The consolidated financial statements of the Group as at and for the year
ended 31 December 2006 are available for inspection at the Company`s
registered office or at www.jse.co.za.
2 Statement of compliance
These condensed consolidated interim financial statements have been prepared
in accordance with International Financial Reporting Standard IAS 34, Interim
Financial Reporting. They do not include all the information required for full
annual financial statements and should be read in conjunction with the
consolidated financial statements of the Group as at and for the year ended 31
December 2006.
These condensed consolidated interim financial statements were approved by the
Board of Directors on 14 August 2007.
3 Significant accounting policies
The accounting policies applied by the Group in these condensed consolidated
interim financial statements are the same as those applied by the Group in its
annual financial statements as at and for the year ended 31 December 2006.
4 Key estimates and areas of judgement
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expenses. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgements made by management in applying the Group`s accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the consolidated financial statements as at and for the year
ended 31 December 2006.
5 Segmental information
The JSE provides exchange and auxiliary services in South Africa. The revenue
streams derived from the services are described in Note 6 to the interim
results. The services provided by the JSE are not subject to materially
different operational risks and are regarded as a single business and
geographical segment.
6 Revenue
Equity derivatives fees
53 698 40 235 80 148
Agricultural derivatives fees 21 832 16 112 37 376
Equities trading fees 84 298 65 610 125 036
Yield-X trading fees 150 139 276
Risk management, clearing and 53 675 40 668 82 300
settlement fees
Information sales 38 915 28 280 61 945
Membership fees 3 328 2 967 6 008
Listing fees 44 044 34 574 68 265
Broker Deal Accounting services 51 926 42 457 86 057
Funds management and other 20 363 17 385 36 453
Total revenue before Strate ad 372 229 288 427 583 864
valorem fees
Strate ad valorem fees 39 228 24 598 56 513
Total revenue 411 457 313 025 640 377
13 219 41 745 65 370
7 Other income
The decrease in other income is as a result of a non-recurring performance
bonus of R26,0 million received by the JSE Guarantee Fund Trust from its
insurance underwriters during the period ended 30 June 2006.
8 Personnel expenses (104 978) (60 311) (162 986)
Personnel expenses have increased primarily as a result of the valuation of
the long-term incentive and retention scheme ("Employee Scheme") which was
introduced with effect from 1 January 2006. This valuation is linked to the
JSE share price which has increased by 207.3% since the granting of the
participation interests. The terms and conditions of the Employee Scheme are
disclosed in the consolidated financial statements as at and for the year
ended 31 December 2006. The expense recognised in the income statement is
R46,6 million (2006: R6,0 million) for the six months ended 30 June 2007,
resulting in a total liability of R78,0 million (2006: R6,0 million). Based
on Black-Scholes valuation methodology, the following assumptions were used to
calculate the income statement impact:
Base price for 30 days prior to 22 R8,31
November 2005
30 calendar day VWAP at 30 June R81,84
2007
Total number of Participation 2 500 000
Interests in issue
Vesting dates:
50% of Participation Interests vest 1 250 000
on 31 December 2008
25% of Participation Interests vest 625 000
on 31 December 2009
25% of Participation Interests vest 625 000
on 31 December 2010
Volatility 31,51%
Dividend yield 0,2193%
Risk-free rate 9,28%
(282 032) (201 131) (413 561)
9 Other expenses
Other operating expenses increased mainly as a result of the following:
- the Strate ad valorem fee of R39,2 million (2006: R24,6 million) which
was accounted for from March 2006.
- 434 387 shares were issued to The JSE Empowerment Fund (JEF) at a cost
of R30,4 million. This represents the final issue of the 1 737 550 JSE
shares that were set aside to be issued to JEF at par for cash.
- on 1 June 2007, 579 132 options, amounting to R41,5 million, were issued
to Qualifying Black Shareholders as per the Black Shareholders` Retention
Scheme ("the BBBEE Scheme"). The terms and conditions of the BBBEE Scheme
are disclosed in the consolidated financial statements as at and for the
year ended 31 December 2006. During the period, 154 263 options granted
during 2006 lapsed and were re-issued to JEF at a cost of R11,1 million.
Based on the Black-Scholes valuation methodology, the following assumptions
were used to calculate the impact to the income statement for the six months
ended 30 June 2007:
Strike price R15,168
Exercise date 15 June 2011
Dividend yield 0,21%
Volatility 31,51%
Risk-free rate 9,359%
As this transaction is equity settled, the cost of R52,6 million (2006: R11,7
million) has been credited to the BBBEE reserve.
10 Income tax expense
10.1
Taxation
- Current tax expense 61 480 42 978 73 287
- Secondary tax on companies 1 660 1 433 8 654
- Deferred tax income movement (15 717) (254) (10 637)
- Deferred tax expense movement (462) (1 566) (1 050)
Income tax expense at end of period 46 961 42 591 70 254
10.2 Reconciliation of effective
tax rate
Current tax rate 29,00% 29,00% 29,00%
Adjusted for:
- Non-taxable income (11,05%) (4,15%) (6,97%)
- Non-deductible expenses 39,18% 10,52% 10,88%
- Secondary tax on companies 0,55% 0,31% 4,10%
- Share of profit of equity (4,00%) (4,08%) (3,76%)
accounted investees
Effective tax rate 53,68% 31,60% 33,25%
The first tax assessment of the JSE as a tax paying entity has been received
and is substantially higher than our estimate.
This is as a result of SARS having a different interpretation of the treatment
of our agreement with the London Stock Exchange. The resolution of this
difference in interpretation is being pursued.
11 Earnings and headline earnings per share
11.1 Basic earnings per share
The calculation of basic earnings per share at 30 June 2007 of 47,7 (2006:
110,4) cents per share was based on the profit attributable to ordinary
shareholders of R40,5 million (2006: R92,2 million) and a weighted average
number of ordinary shares of 84 933 538 (2006: 83 521 510) during the period
as calculated in Note 11.4.
40 533 92 225 141 050
Profit after taxation
Basic earnings per share (cents) 47,7 110,4 168,0
11.2 Diluted earnings per share
The calculation of diluted earnings per share at 30 June 2007 of 47,5 (2006:
110,4) cents per share was based on the profit attributable to ordinary
shareholders of R40,5 million (2006: R92,2 million) and a weighted average
number of diluted ordinary shares of 85 348 834 (2006: 83 536 720) during the
period as calculated below.
40 533 92 225 141 050
Profit attributable to ordinary
shareholders (basic and diluted)
Diluted earnings per share (cents) 47,5 110,4 167,5
Weighted average number of ordinary
shares (diluted):
Weighted average number of ordinary 84 933 538 83 521 510 83 934 476
shares as at end of period
Dilutive effect of share options 415 296 15 210 276 270
Weighted average number of ordinary 85 348 834 83 536 720 84 210 746
shares (diluted)
11.3 Headline earnings per share
The calculation of headline earnings per share at 30 June 2007 of 38,7 (2006:
104,0) cents per share was based on headline earnings of R32,9 million (2006:
R86,9 million) and a weighted average number of 84 933 538 (2006: 83 521 510)
ordinary shares in issue during the period as calculated in Note 11.4.
Reconciliation of headline earnings:
Profit after taxation 40 533 92 225 141 050
Adjustments are made to the
following:
Loss on sale of property and - - 4
equipment
Impairment loss on property and - - 3 803
equipment
Profit on sale of joint venture - - (1 283)
Profit on realisation of available (7 673) (5 336) (10 707)
for-sale instruments
Headline earnings 32 860 86 889 132 867
Headline earnings per share (cents) 38,7 104,0 158,3
11.4 Weighted average number of
ordinary shares:
Issued ordinary shares at 1 January 84 705 663 8 340 250 8 340 250
Subdivision of shares on 5 June - 83 402 500 83 402 500
2006: 10 for 1
Issue of 868 775 shares - The JSE - 119 010 492 703
Empowerment Fund - 7 June 2006
Issue of 434 388 shares - The JSE - - 39 273
Empowerment Fund - 28 November 2006
Issue of 434 387 shares - The JSE 227 875 - -
Empowerment Fund - 27 March 2007
Weighted average number of ordinary 84 933 538 83 521 510 83 934 476
shares
11.5 Effect of earnings and net asset value per share of Investor Protection
Funds
The JSE maintains the JSE Guarantee Fund Trust and the JSE Derivatives
Fidelity Fund Trust for investor protection purposes as required under the
Securities Services Act. The JSE is required to consolidate these funds into
the results of the Group in terms of International Financial Reporting
Standards. However, as these Trusts are legally separate from the JSE,
neither the JSE nor its shareholders have any right to the net assets of such
Trusts.
The contribution these funds make to the headline earnings and
the net asset value of the Group are as follows:
Headline (loss)/earnings per share (2,5) 33,1 28,4
(cents)
Diluted earnings per share (cents) 6,5 39,5 41,1
Net asset value per share (cents) 312,5 254,1 283,0
12 Investment in equity accounted investees
With effect from 31 January 2007, 173 additional shares were purchased in
Strate Limited resulting in an increase in shareholding from 42,77% to 44,55%.
The cost of the acquisition was R12,4 million. A dividend of R6,0 million was
received from Strate Limited on 29 June 2007.
13 Share capital
Shares in issue
Shares in issue at 1 January 84 705 663 8 340 250 8 340 250
10 for 1 share subdivision - 83 402 500 83 402 500
New shares - The JSE Empowerment - 868 775 868 775
Fund first tranche
New shares - The JSE Empowerment - - 434 388
Fund second tranche
New shares - The JSE Empowerment 434 387 - -
Fund third tranche
Shares in issue - fully paid, after 85 140 050 84 271 275 84 705 663
subdivision
14 BBBEE reserve
The reserve comprises:
- The JSE Empowerment Fund 69 025 18 071 38 661
- Black Shareholders` Retention 61 156 11 656 11 656
Scheme
130 181 29 727 50 317
Refer to Note 9 for details
15 Dividends
A dividend of 15,6 cents per share was approved by shareholders at the Annual
General Meeting held on 9 May 2007, which dividend was paid on 14 May 2007.
The total dividend paid was R13,3 million.
16 Contingent liabilities and Commitments
16.1 Contingent liabilities
16.1.1 The JSE has a contingent liability as a result of the JSE guaranteeing
the settlement of central order book equity market trades in the event that
one member fails to settle. This risk is mitigated through various
mechanisms, being the member firms` deposits and bank guarantees, the JSE
Guarantee Fund Trust and the JSE`s own trade monitoring system. The JSE
retains cash reserves to meet these contingent liabilities.
16.1.2 The JSE is currently engaged in arbitration with a former supplier for
alleged breach of contract by the JSE. The case was split between merits and
quantum. The JSE lost on merits and the quantum has not yet been established.
The JSE expects the quantum to fall in the range Rnil to R25,0 million.
16.1.3 The JSE is one of 25 defendants who have been served with a summons
relating to losses realised by a pension fund in the amount of approximately
R1,4 billion. This is in the early stages of the legal process and an
exception has been filed by the JSE. Senior Counsel opinion on this matter is
that the claim is unfounded. The JSE is defending the claim.
16.2 Commitments
16.2.1 The JSE leases a building and accounts for the lease as an operating
lease. The lease commenced on 1 September 2000 for a period of 15 years. On
termination of the lease, should the landlord wish to sell the building, the
JSE has the first right of refusal to buy the building at a price yet to be
determined. The operating lease payments escalate at 11% per annum.
Total future minimum lease payments under non-cancellable operating lease:
Not later than one year 29 186 26 294 27 715
Between one and five years 144 836 134 106 139 381
Later than five years 157 327 197 242 177 620
331 349 357 642 344 716
16.2.2 The JSE is party to agreements for the development of software
totalling approximately R215,2 million (2006: R210,6 million) over the next
year, of which R154,9 million (2006: R147,3 million) has been settled.
17 Related parties
17.1 Identity of related parties
The JSE is the main provider of risk management, clearing and settlement, and
accounting systems to equity member firms (many of whom are shareholders).
Revenue earned from this source, and from providing trading and market data to
member firms, amounted to R232,3 million (2006: R204,6 million) for the
period. These transactions are conducted on an arm`s length basis.
Provision for doubtful debts in respect of related parties as at 30 June 2007
was Rnil (2006: Rnil).
The associated companies, subsidiaries and joint ventures of the Group are
identified as follows:
Amounts due from/(due to)
- Associated companies:
Strate Limited1 (8 590) - -
Satrix Managers (Pty) Limited 665 181 52
- Subsidiaries:
SAFEX Clearing Company (Pty) 3 135 1 695 2 339
Limited
JSE Trustees (Pty) Limited 3 904 3 581 2 995
JSE Guarantee Fund Trust - (230) (1)
- Joint Venture
ITRIX Holdings (Pty) Limited - 135 -
Strate Limited invoices the JSE for a service fee in respect of settlement
which the JSE recovers from the members.
Normal trading terms apply to the amounts due to the JSE.
Executive directors` and other key executives` remuneration of R5,5 million
(2006: R5,3 million) and R7,9 million (2006: R7,6 million) respectively was
paid during the period.
17.2 Material related party transactions
Strate ad valorem fees - see Note 6
Amounts due to and from related parties - see Note 17.1
Directors` emoluments and other key personnel - see Note 17.1
The JSE provides secretarial services to the Group entities for no
consideration.
KPMG Inc., the company`s independent auditor, has reviewed the interim
financial statements contained in this interim report and has expressed an
unmodified conclusion on the interim financial statements. Their review
report is available for inspection at the company`s registered office.
Executive directors:
RM Loubser (CEO), NF Newton-King, LV Parsons, JH Burke, G Rothschild
Non-executive directors:
HJ Borkum (Chairman), AD Botha, MR Johnston, ST Koseff, W Luhabe, A Mazwai, SN
Nematswerani, N Payne, GT Serobe
Alternate directors:
DM Lawrence
Company secretary:
GC Clarke
These results are available on our website on:
www.jse.co.za
14 August 2007
Date: 14/08/2007 15:26:02 Produced by the JSE SENS Department.
