NZX Governance Roadshow Presentation 2018

Governance
Roadshow 2018
James Miller & Jon Macdonald

Forward-looking
statement
This presentation contains forward-looking statements, which 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 the Board and managements’ 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. Any forward looking statements
contained in this presentation are relevant as at the date of this
presentation. Except as required by law, NZX assumes no obligation
to update or revise the content to reflect any changes in
circumstances.

Contents
Results highlights and achievements to date
Our refreshed strategy
•Areas of focus for the board
•Executing on the strategy
•Memorandum of Understandings with HKEX and SGX
•Executive KPIs and remuneration
Capital structure
Dividend
Board composition
2018 annual meeting of shareholders – resolutions
3

2017 results highlights
*Excluding impact of 2016 Agridisposals
**Operating earnings are before net finance expense, income tax, depreciation, amortisation and impairment, adjustment to
provision for earnout, gain and loss on disposal of business and property, plant and equipment
NPAT
$14.8
61.6%
million
Operating earnings**
$29.0
31.3%
*
million
Funds under management
$2.7
25.8 %
billion
Dairy derivatives
311,675
57.2%
Lots traded
Revenue
1.1%
*
Expenses
11.6%
*
Dividend
6.1
Cents per share
2018 guidance
$28 –$31
m
illion
4

Achievements to date
Technology projects
completed – life-cycle
upgrade to clearing
and settlement
system completed,
participants moved to
modern and robust
telecommunications
infrastructure,
implemented
changes to
application of
administrative trading
halts, upgraded
NZX.com
Policy projects
completed –
Corporate
Governance Code
published, Participant
Rule Review
delivered, stage one
of Listing Rules
Review completed
Record dairy
derivatives trading,
product suite
extended, announced
trading hours
extension
Trial of tailored
pricing structure in
secondary market
resulted in 32%
increase in average
daily on-market value
traded, compared to
prior period. NZX to
migrate to trading
and clearing model in
line with global
practice in the
second half of 2018
Progress being made
against strategy in
2018 –signed
Memorandum of
Understanding with
HKEX, SGX and
NZIER Report
released. Underpins
NZX’s commitment to
increase global
presence and
connection to the
market
Refreshed strategy
presented at Investor
Day
5

Our refreshed strategy
üIssuer Relationships
üSecondary Markets
üData & Insights
üDairy Derivatives
üDebt
üEnvironmental & Energy
üSuperLife
üSmartshares
üWealth Technologies
üCost Management
üCAPEX
üDividend
New Zealand’s Exchange
Refocus
CoreGrowth
Opportunities Maximise
Options
Get
Fit
6

Areas of focus for the board
•Maximising shareholder returns
•Reset capital structure
•Divest non-core businesses
•Achieve scale by creating strong partnerships with global
exchanges
•Deliver on strategy, including:
•Customer engagement (current and prospective)
•Increase on market liquidity – rules changes and
revised trading/clearing price structure
•Expand dairy derivatives global access – extended
trading hours and increased functionality (calendar
spreads)
•Maximise value of options businesses (Funds
Management and Wealth Technologies)
7

Improving the quality of our business
25%
30%
35%
40%
45%
50%
55%
60%
65%
200320042005200620072008200920102011201220132014201520162017
2018E2019E2020E2021E2022E
NZX EBITDA margin and peer comparison
NZX EBITDA Margin
NZX EBITDA Average (2006-2013)
Large Global Exchanges (Mean)
Regional Based Exchanges (Mean)
NZX EBITDA margin
NZX EBITDA average (2006-2013)
Large global exchanges (Mean)
Regional based exchanges (Mean)
8

Global exchange partnerships
•Create scale via global exchanges alliance model
•Major step change for NZX, shift focus away from regional stock exchange model to create partnerships with global exchanges who
are committed to promoting confidence and co-operation in their respective markets
•Already executing on this vision:
•Memorandum of Understanding signed with Hong Kong Exchanges and Clearing Limited (HKEX) in January
•Memorandum of Understanding signed with Singapore Exchanges Limited (SGX) in March
•Further Memorandum of Understandings to follow
•Under the terms, NZX will promote market development initiatives across a range of areas, share relevant information, and
partner on green finance and sustainability initiatives
•Customers will benefit from the increased international presence of our exchange, including access into new markets for issuers,
better connection points and capital flows for participants, and a broader product offering for investors
•Additionally, it provides NZX with opportunities to promote Smartshares exchange traded funds and the dairy derivatives market
•Next steps are a Stock Connect Agreement to operationalisethe strategy
Breaking away from the regional exchange model
9

Executive KPIs and remuneration
•Mark Peterson commenced his role as CEO in April 2017, having been acting CEO since January 2017
•Basic remuneration structure: Base salary $500,000
Short-term incentive (STI) of $250,000 for on-target performance, with $500,000
maximum
Long term incentive (LTI) contribution of $250,000 annually
•2017 STI payment: $289,000. Based on NZX's financial performance against target, and a small number of individual objectives
(including the development of the five year strategy, improving capital markets engagement, strengthening the senior team and
generating organisational efficiencies). Mark achieved ahead of target in both components.
•2018 STI structure: Based on NZX's financial performance against target, and a small number of individual objectives aligned to five-
year strategy (including improving listings pipeline, delivery of Wealth Technologies projects, derivatives growth and margin
improvement).
•LTI structure: utilises performance share rights. Hurdles on TSR relative to cost of equity, and ambitious EPS growth alignedwith the
five year strategy. Time span aligned with Mark’s five year tenure
•To create a shareholder culture within NZX the board will provide all staff with $1,000 (gross) of company shares
Aligned to execution of strategy
10

Capital Structure
•Board completed capital structure review
•Consultation on a
mutualiseddefault fund
underway to advance Clearing House’s risk model
to meet global standards. This is important to
ensure we have an appropriate Clearing House risk
structure to meet anticipated dairy derivatives
market growth
•The board will explore use of a
capital note
to
ensure NZX has a more robust balance sheet to
protect the business in the unlikely case of a major
market event
11

Dividend - policy, final 2017 payment
and reinvestment plan
•Current dividend policy is based on a target payoutratio of 80%
of free cash flow (defined as operating cash flow less purchase of
property, plant and equipment and intangible assets)
•New dividend policy will come into effect for the 2018 financial
year onwards. It is to pay between 80% to 110% of adjusted Net
Profit After Tax, subject to maintaining a prudent level of capital to
meet regulatory requirements
•The board considers that a policy based on Net Profit After Tax is
comparable with peers, and provides sufficient headroom to
manage the ongoing capital structure requirements of the
exchange, and pursue future relevant opportunities should they
arise
•Final fully imputed dividend of 3.1 cents per share for the 2017
financial year (2016: 3.0 cents per share) payable on 23 March
2018. Total fully imputed dividends for the 2017 financial year are
6.1 cents per share (2016: 6.0 cents per share)
•The board will offer a dividend reinvestment plan which will be in
place for the 2018 interim dividend in response to shareholder
feedback. Further details, including the full offer document will
follow in due course
12

Board composition
•Critical the board has attributes and skills needed to deliver the
governance expected for a business that operates at the centre of
New Zealand’s capital markets
•NZX has rigorous process in place for director appointments:
•Nominations committee established in February 2018 to
assist the board in identifying and recommending
individuals for nomination as directors and members of
committees
•Skills matrix developed in conjunction with Propero
Consulting, New Zealand’s leading experts on board
composition, in 2017
•Fit and proper assessment is undertaken for all new
directors
•This extensive process was used to identify:
•Nigel Babbage – a global expert in clearing and
derivatives; and
•Lindsay Wright –a global expert in passive funds
management.
13

2018 annual meeting of shareholders
Resolutions unanimously supported by the board
1.That the board be authorised to determine the auditor’s
fees and expenses for the 2018 financial year
2.To elect Nigel Babbage as a director of NZX
3.To elect Lindsay Wright as a director of NZX
4.To r e-elect Jon Macdonald as a director of NZX
Dame Therese Walsh is retiring as a director of NZX
and is not seeking re-election.
Resolutions
14

NZX Limited
Level 1 / NZX Centre
11 Cable Street
PO Box 2959
WELLINGTON
Tel: +64 4 472 7599
info@nzx.com
www.nzx.com