Singapore Exchange net income down by 21% to $74.1 million in first quarter

Singapore Exchange (SGX) blames the lower trading value and subdued market activities to cause the 21% drop in net profit to $74.2 million in the first quarter of 2011 from $94.1 million during the same period a year ago.

In a statement, the bourse said amid the decrease, the underlying profitability reflects a strong operating performance quarter-on-quarter in line with 4Q FY2010.

Revenue of $159.0 million was down 8% from 1Q FY2010 primarily due to lower trading value in the securities market. This resulted in earnings per share of 7.0 cents. Directors have declared an interim dividend of 4.0 cents per share for 1Q FY2011.

Mr Magnus Bocker, CEO of Singapore Exchange said, “Our new organisation structure is taking shape and enabling SGX to better focus on its main priorities: increasing turnover velocity; attracting more listings; growing our membership and distribution capability; introducing more products and services; and reaping the economies of scale and efficiency that come from investment in technology. All this will strengthen SGX as the Asian Gateway.”

Mr Bocker said the 1Q FY2011 improved over the course of the quarter as securities daily average trading value (SDAV) increased from $1.4 billion in July to $1.8 billion in September 2010.

As the quarter progressed, investor risk appetite spurred the return of more trading activity in Asian equity markets, which resulted in a higher SDAV quarter-on-quarter ($1.6 billion in 1Q FY2011 versus $1.5 billion in 4Q FY2010.

Year-on-year revenue was 8% lower at $159.0 million from $173.3 million owing to lower trading value in the securities market. The volatility of STI was 9% compared to 20% a year ago. On the other hand, there was a pickup in derivatives market activities driven by our Nikkei 225 and Nifty contracts.

Year-on-year expenses were up $8.8 million to $68.1 million from $59.3 million. Technology expenditure pushed up system maintenance and depreciation expenses by $7.5 million, mainly due to new system launches (namely, derivatives clearing system and data engine) and the accelerated depreciation of $1.6 million stemming from the new Reach initiative.

The Reach initiative also contributed to the rise in technology expenses. The overall staff expense was down 1% to $28.2 million from $28.5 million. The 27% reduction in variable bonus provision and a higher staff cost capitalisation were offset by an increase in staff costs due to salary adjustments in a tighter labour market and cessation of the government Jobs Credit Scheme in June 2010. Headcount as at 30 September 2010 is 592 (595).

Processing and royalties costs increased on higher trading volumes of futures and options contracts.

SGX’s financial position shows a total equity of $853.9 million in 1Q FY2011 from $823.1 million during the same period last year. Cash generated from operations in 1Q FY2011 was $88.7 million from $104.3 million. The capital expenditure amounted to $4.6 million from $4.2 million. “We expect the capital expenditure for this financial year to remain within the range of $60 to $65 million. Our unrestricted cash reserve, including proposed FY2010 final dividend of $167.9 million and 1Q FY2011 interim dividend of $42.6 million, was $617.1 million ($553.6 million),” Bocker said.
SGX’s return on equity was 8.7% (11.4%) and the earnings per share was 7.0 cents (8.9 cents). In line with the dividend policy, the Board declared an interim dividend of 4.0 cents per share for 1Q FY2011.

“If the current market conditions prevail, SGX should benefit from a potential increase in capital market activities, both in higher trading activity and more companies seeking to raise capital on our equity and debt listing platforms,” Mr Bocker said.