JSE reports profit growth despite flurry of delistings

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JIMMY MOYAHA: I have the privilege now of speaking to the CEO of the largest exchange in Africa. That’s of course Dr Leila Fourie, who is the CEO of the Johannesburg Stock Exchange. They released their (annual) results today, a rather impressive set of results with profit after tax going up, with dividends being paid out, and return on equity increasing as well. But to give us a sense of those results we’re joined by Dr Leila Fourie now.

Good evening, Dr Fourie. Thanks so much for making the time. Before we kick into what the JSE has done over the last year and all the monumental achievements, what do you make of the performance of the company?

DR LEILA FOURIE: Jimmy, our results really show the strength, stability and sustainability in our earnings. An important standout feature is the diversified revenue. So while our impact and our headline earnings per share were up 4% and our interest income was up 40%, the stabilisation and the quality of earnings through the cycle is an important standout feature.

Our non-trading revenue is up 13%. Our overall revenue is up 5%, and our non-trading revenue now contributes 25% of revenue. One of our important acquisitions, which was Link Market Services, now JSE Investor Services, which contributes to 6% of our revenue, has grown at a compound annual growth rate of 49% since acquisition in 2020.

So these sorts of sources of revenue fortify us through the cycle, and stabilisation and the quality of earnings through the cycle is evident.

We’ve also delivered on high cash generation, an increase in the cash that we’re generating. And of course, we all know that cash generation is a crucial element in the downturn and during difficult times. So the JSE is in a healthy space. We have delivered on our strategic imperatives. Our systems availability is at an all-time high, and we have focused heavily on innovating and introducing new forms of revenue through a number of different initiatives.

JIMMY MOYAHA: Sticking with that diversification of revenue, we know that JSE Clear recently got its licence from the FSCA to act as a clearing broker. How significant is that going to be, one, from a diversification point of view but, two, from a service-offering point of view?

You touched on the innovation side of it and it’s important for an exchange, particularly one as large as the JSE on the continent, and as part of the global contributors we’re ranked in the top 20 in terms of global exchanges in size.

How important is it for the JSE to get a licence like the one that’s been afforded to the JSE Clear? What does it, does it mean for what you’ll be able to do?

DR LEILA FOURIE: Jim, our independent clearing house licence is a very important step. The reason it’s important is that the JSE Clear is really the risk-management environment and the systemic-risk shock absorber in the market. It ensures the integrity of the market, it ensures investors are protected when they trade on the market, and responsive and appropriate risk management is really important.

During the crisis of both 2008 and more recently the pandemic we saw zero failed trades, which is a very, very important and quite world-class statistic.

And the independent clearing house licence now uplifts and even improves the regulatory credibility in the market. What is important in the market is that when international investors want to trade on the JSE, they want certainty that their trades are going to settle and that they as investors are protected – and the JSE is genuinely a world-class clearing house in global terms.

JIMMY MOYAHA: Speaking of world-class offerings from the JSE, we know that there have been a couple of initiatives that the JSE rolled out throughout the year – actively managed ETFs [exchange-traded funds] and actively managed certificates are just [two] examples of some very innovative products and leading products, not only for the continent, but also for emerging markets to take note of. What else can we expect out of the JSE, going into 2023 and beyond from an innovation point of view?

DR LEILA FOURIE: Jim, innovation is a very central part of the JSE culture, and we are starting to demonstrate an agile and pretty responsive and rapid rollout of new innovations. So in a very short space of time we introduced private markets, which enable capital formation by small and medium enterprises and infrastructure.

We’ve also moved our data into the cloud, which means that traders and market participants can access data in a much more productive and easy-to-access manner.

And we have introduced an artificial intelligence social listening tool, which scans social media and provides early-warning indicators for potential issues in the market.

Now we are in the process of investigating a carbon market; we are looking to potentially introduce carbon futures and a couple of other detailed products.

But really our culture is about just being responsive and delivering value and delivering to the market what the market is demanding.

JIMMY MOYAHA: That sounds very exciting, particularly with the emergence of carbon emissions and the reduction in global footprints that we’re seeing, and everybody wanting to get carbon credits around the world. So I think that’ll definitely be something to add value, not only to the JSE, but also to other exchanges around the world.

Before I let you go, Leila, we obviously have to look at the impact of some macro conditions that are driving decision-making at not only the JSE, but at other companies and other corporates as well. Do you think that the current inflationary and high-interest environment has been to the detriment of the JSE, or has it helped the JSE weather some difficult storms?

We’ve seen an increased number of delistings of late, and not enough relistings or listings of new companies. But how has the overall macro picture around the world, and in particular South Africa, affected operations from a JSE perspective?

DR LEILA FOURIE: Jim, we are part of the global village and the global macroeconomic environment does affect us. There are three areas that that are really affecting sentiment towards emerging markets in South Africa, and then of course inbound flows into those markets.

Firstly, China and whether the opening up really generates growth in the short term. Secondly, the geopolitical crisis, and thirdly, the inflation crisis that you are describing, and particularly whether the US goes into a recession or has a soft landing.

These factors will work hand in hand with our local dynamics on the ground. That is to say how we address and deal with the power crisis, how that continues to affect [us], and how quickly we’re able to put some short measures in place to reduce the drag on economic growth, how other state-owned entities are managed, and then what the government does to encourage and stimulate growth.

These factors all work together to drive business sentiment and also drive flows.

On the upside, we are starting to see international investors showing an interest in South Africa relative to other emerging market competitors.

So I think there’s a mixed set of pressures and dynamics, and we certainly are globally in macroeconomic headwinds.

JIMMY MOYAHA: Well, I think the one thing we can be grateful for is that the JSE has [made] some serious efforts in terms of the investments it’s made into ensuring that we avoid those disruptions, [etc].

Something you mentioned earlier in our conversation was around there [being] virtually zero downtime on the JSE. I think the stats were some 99.9% operational efficiency of the exchange, which is impressive by any standards, but it also does provide that level of assurance and comfort towards investors both locally and internationally, as you rightly mentioned, that their funds are secure, that their investments are secure, and that the JSE is indeed a world-class exchange.

But thank you so much, Dr Fourie. Dr Leila Fourie is the CEO of the Johannesburg Stock Exchange and has been giving us a sense of the JSE’s results, as well as what their plans are for the future in order to stay competitive and ahead of other exchanges around the world.