JSE Limited (JSE) Earnings Call Transcript & Summary

Thank you all so much for attending. A warm welcome to the interim results presentation for the JSE for the first half of 2023. I'll kick us off with some highlights for the first half of the year before delving into the group performance, and then after that Fawzia, our CFO will provide a detailed overview of our financials, and I'll close with a review of progress across our key strategic initiatives. And after that, we will open for Q&A. I'm going to move now to Slide 4. Where you can see the JSE delivered a very solid set of results for the first 6 months of the year with a 10% increase in net profit after tax, and this resulted in a 12% increase in headline earnings per share. The performance comes within a challenging operating environment, which saw our largest contributor to revenue, equity trading and clearing lower than the prior year. Despite this, we achieved an overall revenue growth of 5% year-on-year and an important feature of this revenue performance is the contribution of non-trading revenue, which has grown from 34% in financial year 2022 at year-end to 36% of operating revenue, which includes margin income. The growing contribution of revenue that is not driven by trading activity is really designed as a cushioning effect during softer markets and we'll show a little bit more of this detail in the next slide. But standing back, we have 2 different dynamics at play. We delivered a 5% revenue growth on a high base set last year of 11% and an 8% OpEx growth off a very low base in the prior year of 3%. The prevailing high interest rate environment resulted in a 53% increase net finance income. And cash generated from operations remains healthy, albeit slightly down at ZAR 488 million. Finally, operational resilience has always been a very important priority for us. And I'm very pleased that the market uptime of 99.98% is well ahead of our long-run historic performance. And this performance really demonstrates our unwavering commitment to provide reliable and secure trading platforms for all of our investors and our clients despite challenging market conditions. On Slide 5, we wanted to move on to illustrate the evolution of our diversification strategy and the impact that it's had on our revenue profile. I've just spoken to you about resilience in our operating environment. And I'm now moving on to the financial resilience that we are starting to demonstrate. The graph that you see on this slide demonstrates average daily value traded in the cash equity market, which is the green bar. Total operating revenue growth, which is the light blue bar and revenue growth, including margin income, which is for the first half of 2019 to 2023. In the past periods, when you've seen reduced trading activity, it's typically resulted in a decline in total operating revenue and revenue, including margin income. As you can see on the extreme right hand side of the graph. And as the contribution of non-trading revenue, including margin income increases, and we've seen it increase in 2019 from ZAR 316 million nominally to ZAR 536 million in the first half of 2023. We can see this has grown the contribution from 29%, the yellow dotted line, to 36%. And as this grows, it's able to reduce the impact of the low trading environment and it supports greater financial resilience of the business. So in the first half of this year, for the first time, you can see a reversal of the relationship between the green and the blue between average daily value traded and revenue growth. Average daily value traded in the past half of the year was down 6%, and total revenue and income was up 4% and 5%, respectively, in each of those graphs. So if we break this down into the nontrading line items, on a full year basis, nontrading income has grown at a rate of 10% CAGR over the past 10 years to 2022 and the contributions have largely been from co-location, market data and information services amongst a couple of other smaller lines. That trend has continued through the first half of the year. So our success to date in delivering on our diversification strategy has improve the overall quality of our earnings profile, and it's also an important indicator for future performance. Moving on to Slide 6 now. It's essential to acknowledge the macroeconomic challenges and uncertainties that have persisted and, in some cases, even worsened during the period. Global markets were influenced by geopolitical tensions, tighter monetary policy, supply chain pressures. We're all very familiar with all of these dynamics. And looking down to South Africa, we faced additional and sometimes compounding pressures that require resilience, adaptability and responsiveness in our own operations and our strategy. South Africa's weak economic growth, along with higher inflation and interest rates continue to impact investment decisions and borrowing costs. Escalating power disruptions have had a tangible impact on various sectors affecting productivity and profitability. And in addition, recent events such as South Africa's FATF Grey Listing, strange diplomatic relations, have all worked together to negatively impact investor sentiment. And these have resulted in net investment outflows. So we continue to stay abreast of these changes to ensure that we respond appropriately and effectively. So moving down to Slide 7, we translate those more macro pictures into some of the key metrics that are defining markets, both locally and abroad. As we're all aware, recessionary fears and uncertainty around China's reopening together with the SVB bank collapse and the U.S. debt ceiling concerns have all culminated to impact global market performance in the first half of the year. The JSE All Share Index ended the first half of the year in positive territory and remains in positive territory, but still below the S&P and MSCI index off a low base, of course. And that's really thanks to a long run -- a strong run in resources and industrials. On this slide, we can also see an increasing trend in interest rates, which has had an obvious positive uplift on our net finance income, as I mentioned earlier, and sentiment towards South Africa continues to be fragile. On the bottom right side of the scale, you can see the FTSE Emerging Market Index year-to-date. And since the beginning of the 2022, South Africa's weighting has declined from 4.2% to 3.57% at midyear and has shrunk slightly more even since the end of June. So if we turn now to Slide 8, I want to translate those factors into what's happening in our local markets and focus our attention really on volatility, foreign investments and then the third graph, which is trade activity. All indicators that I've covered here are really important indicators for our core business. We saw a notable decrease in volatility compared to the prior year, although all of the levels remained higher pleasingly than the pre-pandemic times. Sentiment has significantly impacted our foreign participation both in the equity and the bond market during the first half of the year. And foreign investors have continued to be net sellers in the equity market, resulting in a net outflow at the end of June of ZAR 56.7 billion. Foreign selling in the first half of the year reached a 5-year high and particularly in the month of June, we saw ZAR 20.2 billion in net flows moving out for that month alone. In the bond market, a slightly different picture. We recorded net foreign inflows in the bond market of ZAR 8.1 million, which was significantly lower than the inflows of ZAR 32 billion. Equity market trading, which was measured by value and volume traded was lower due to a high base effect in the same period, really off the back of the Russia-Ukraine crisis, but nonetheless, again, higher than pre-pandemic levels. And in the last graph, you can see the average daily value traded reached ZAR 24 billion in the first half on an average level per day. And this represents a 6% decline compared to the ZAR 25 billion, which we saw in the same period. And of course, fortunately and pleasingly, these -- while they were lower, still higher than our pre-pandemic levels. So before we move into the financial presentation, I want to spend a little bit of time unpacking the drivers of the revenue in our business. Fawzia is going to unpack the revenue performance shortly, and I'll go through the drivers. So we recorded flat to positive performance across all of our business units, and this resulted in a 4% growth in total operating revenue. So starting with capital markets in the green. Revenue increased by 1% year-on-year. And we really start to get a sense to the operating environment in these numbers. While we recorded growth across most of our asset classes, our largest driver of revenue in this division, as we all know, the equity market value traded was down 6% of a high rate in the prior year, more than double that and really caused by market volatility on the back of Russia-Ukraine conflict and also by negative sentiment in the current year. In the equity derivatives space, similar to the equity market, cash equities market, we saw a decrease in activity in index futures as well as single stock futures. Local and international clients interestingly were of the view that fundings become a lot more expensive with an increase in interest rates that was seen as we all know, both locally and internationally. We noted an increase in bond nominal value traded of 16%. And this was largely attributed to volatile rand, which was caused by local pressures, and of course, a rising interest rate market, making the SA bonds attractive from a yield perspective. The number of contracts traded in the currency derivatives, pleasingly, was up 58% of a very soft base. Thanks to volatility in the rand, particularly in the months of February and May this year and after the SARB announced rate hikes. Commodity derivative contracts traded had a subdued first half of the year relative to the previous years, Russia-Ukraine war and COVID recovery that we saw post 2021. And the post-trade environment had a flat year-on-year impacted largely by lower equity trading activity. On the other hand, funds under management increased by 18%, largely as a result of higher JSE trustees cash balances and JSE Clear now reporting as a separate segment, and they reported a growth of 15%. Previously, trading and clearing fees had been bundled together under the capital markets environment under the different derivatives lines. But now with the license of the JSE independent clearing house, JSE Clear, we've unbundled the trading and clearing fees, and we'll be reporting separately on those. So Fawzia will go into a little bit more detail on how the independent clearing house model is going to impact reporting. Information Services is a space that we are very pleased about and excited as we look ahead. It delivered double-digit growth of 13% year-on-year, and this was underpinned by favorable FX environment and a stable performance in both the indices and the derivatives markets. JC Investor Services or JIS delivered another very strong performance with revenue up 23%. We welcome in this business 6 new transfer secretary clients. And this brings the total new number of clients, since acquisition to 35. I'm now going to hand over to Fawzia, and she'll take us through the financials in a little bit more detail. Fawzia, over to you.

Thank you, Leila, and good afternoon to all of those that have dialed in today. So I'm going to start with the key financial highlights, and I will then unpack some of the details in later slides. So let's start with profitability. Operating revenue was up 4% year-on-year. And this was driven by the double-digit growth in Information Services as well as JSE Investor Services. We also saw an uptick in trading activity across our derivatives markets with the except equity derivatives. And as Leila mentioned earlier, the proportion of our operating income derived from nontrading activity has increased to 36%, really demonstrating the progress we're making in our diversification strategy. OpEx was up 8% year-on-year, and this was mostly driven by personnel costs, reflecting annual inflationary increases. We also had an increase in the long-term incentive scheme expense, and that was against the prior year low base. In addition, as inflation keeps trading upwards, our cost base does continue to be affected and this has impacted our EBITDA, which was down 4% year-on-year. We all recorded an EBITDA margin of 42%. We saw strong growth in net finance income, which was up [ 53% ] supported by the interest rates, while our net profit after tax grew by 10% with an end margin of 34%, reflecting strong profitability for the period. To sound profit growth, together with an immense income growth, an increase of 12% for our reported headline earnings per share for the period. Moving on to the capital allocation highlights. As Leila indicated earlier on, we do continue to report healthy cash generation. So ZAR 488 million was generated from operations during the period. We spent ZAR 33 million on CapEx, which remains just on protect the core as well as investing in new business case. Our capital expenditure will pick up in the second half of the year. We continue to maintain a robust balance and our cash balance at the end of June was ZAR 2.08 billion, and that does include ZAR 195 million, which was allocated on [ volume ] during the period. If we look at our regulatory capital, we see that ring-fenced and nondistributable cash amounts to ZAR 1.5 billion at the end of the period and the ZAR 1.5 billion includes ZAR 132 million being [Technical Difficult]. And then we've got ZAR 558 million being in respect of the [Technical Difficulty] protection and other funds, and this effectively leaves us ZAR 593 million in available cash. Slide 5. This is where we break down the revenue performance and in fact, the impact of the revenue drivers that Leila discussed earlier on our financial performance. As she mentioned, equity markets were under pressure throughout the first half of the year. And as a result, all revenue base and trading value volumes was affected. These equity markets trading revenue, which is the largest segment in capital markets was down by 5%. And this is of a [Technical Difficult] in the prior year as well as subdued performance in [Technical Difficulty] in primary markets revenue mostly stable, both 49% increase year-on-year. The uptick in primary markets revenue reflected the higher market capitalization of the listed [Technical Difficult]. Bonds and financial derivatives delivered a strong [Technical Difficulty] although a small contributor to total revenue [ inked ] by a healthy 8%. Overall, our capital market was up 1% year-on-year. We continue to be pleased with the growth coming out of JIS, which [Technical Difficulty], and this was achieved by growing market challenge the service offering. The Post-Trade segment [Technical Difficulty] year-on-year with clearing and central revenues down 4%, in line with the lower market value, while BDA was slightly [Technical Difficulty] reporting [Technical Difficulty] 15%. As Leila indicated, this is a new [indiscernible] segment for us, and we as such, we started operating as an independent ICH in January this year. So what we've done for a [Technical Difficulty] bundle the derivatives revenue and excluded it from [Technical Difficulty] and include JSE comparative purposes. Finally, this segment also [Technical Difficulty] growth, increasing its distribution from 16% at the end of [Technical Difficulty] to 7% to upper [Technical Difficulty]. If we look at the [ next slide ], we have [Technical Difficulty] our net finance income in relation to the average interest rates half year period, which is [Technical Difficulty] both in our finance income is linked to interest rate. And we in the interest rate move from [ 0.2% ] in first half of 2022 to 7.6% for the first half of 2023. Over the past few [Technical Difficulty] favorable is in interest rates, and which significantly contributed to the growth in our net finance income. We've in this slide, giving you a breakdown of it between the interest that we earn on our own funds, the margin [Technical Difficulty] so that's depicted on this slide. [Technical Difficulty] growth, the current [Technical Difficulty] as well as the drop of cost base [Technical Difficulty] that Leila spoke about earlier. We see our now related up 15% of [indiscernible] rand and the salary adjustment can be [Technical Difficulty] that each increased. We've also had some [Technical Difficulty] for the business. Depreciation and amortization is down [Technical Difficulty] and this is due to the estimate of the user lives of some of our software systems. Regulatory compliance and other fees is up [Technical Difficulty] related costs, which was [Technical Difficulty] April '23. Important to know all of these costs is recovered [Technical Difficulty] and recoveries are reflected in line items, including the operating income and net finance income. [Technical Difficulty] see the impact of [Technical Difficulty] environment [Technical Difficulty] diesel as example [Technical Difficulty] has increased. But we've also had some investments [Technical Difficulty] that's our core [Technical Difficulty] our capabilities for future. The next slide [Technical Difficulty] in the appendix. [Technical Difficulty] is to just show there's been a change of depreciation for the current year. [Technical Difficulty]. So the annual depreciation charge has reduced by [Technical Difficulty] ZAR 57 million. And this is as a result of [Technical Difficulty] earlier. [Technical Difficulty] On the next slide, just going to speak about how we've invested our CapEx. So we do see that we spent ZAR 51 million of CapEx in the first half of last year versus ZAR 33 million [Technical Difficulty] of the current year spend towards. And these include [Technical Difficulty] maintain the business initiative [Technical Difficulty] completed 3 operating systems, platform operation of infrastructure and upgrades as well as the system systems, which is migration. We are also upgrading the plants for commodities here. Later enhancement related to the management of insider trading system was also completed during the period. The remaining ZAR 4 million, the first half of the year was spent in growth initiatives largely relating to our information services growth strategy as we continue to move our master data to the cloud. We will accelerate spend in the second half of the year, and this will be an increase in asset investment as well as project Delivery. Spend in the second half of the year will include spend on Information Services and the completion of the master data to the cloud as well as data marketplace and self-service BI. We'll also spend on the Bond CCP, and we'll have further upgrades of our infrastructure and systems. Our full year guidance remains unchanged at ZAR 130 million to ZAR 150 million. On the next slide, we look at the movement in our cash balance, and we see that the JSE continues to reflect the sound cash position with a closing cash and bonds balance of ZAR 2.08 billion. We did generate ZAR 488 million for the year from operations. And our investing activities encompass a range of initiatives, including the acquisition of intangible assets and leasehold improvements. We also received dividends from our associate, and we acquired some AltX shares. Moving on to the next slide. We break down our cash position for the half year. So as you know, the group holds 2 levels of non-distributable cash, investor protection and other funds and then regulatory capital, and these collectively amount to ZAR 1.5 billion. So ZAR 1.5 billion of the group's total cash is thus categorized as non-distributable leaving an available cash balance of ZAR 593 million at the end of June 2023. This cash is available for CapEx spend, shareholders' returns, other investments and working capital and all our currently planned investments can be funded from the group's cash resources. Moving on to the last slide. I'm just going to touch on the guidance that we've provided for 2023 as it relates to OpEx growth, CapEx as well as dividends. From an OpEx perspective, we expect cost growth at the higher end of the 5% to 8% guidance. And the drivers for this includes spend on new initiatives as well as an increase in spend linked to higher inflation and a weaker rand. Some of our new initiatives include, amongst others, the bond CCP, the IS strategy and cybersecurity systems spend. For CapEx, we provided a guidance of ZAR 130 million to ZAR 150 million, as I indicated earlier. And lastly, we provided a guidance of 67% to 100% in terms of the dividend payout ratio. And this is in line with the dividend policy to maintain a dividend cover ratio of 1 to 1.5x earnings. And on that note, I'll hand back to Leila.

Thanks very much, Fawzia. And I'm moving on to Slide 21. As we conclude the earnings presentation, we just wanted to provide you with an update on our strategic focus. One of the key objectives right at the top left-hand side under our strategy is to protect and grow the core of the business. I mentioned at the beginning of this presentation that operational resilience continues to be a very important focus area for us. And performance in this regard remains well ahead of our long-run average historic rate. Supporting the growth of sustainable finance remains a very important and key priority for us. And to this end, we are pleased to see notable growth in the sustainable products, which are up 50% on the prior year. We have also, in addition to that, launched actively managed ETFs and certificates, and these are gaining momentum. So we've published or had 11 actively managed certificates launched, and this brings the total to 30 for the year-to-date. Furthermore, we've also remained on track to deliver one of our -- well, our biggest systems project this year, the pretty high profile STT or securities trading technology upgrade. We're pleased to announce that we are ahead of schedule and below budget. And this project is really crucial for the operational stability and resilience in our market infrastructure. In addition to this, we'll also be launching a security's collateral, and we continue to enhance and update our listings requirements in order to provide a really robust trading environment for issuers and investors. For some time now, I have been speaking about the importance of growing nontrading revenue. We continue to pursue this outcome to enhance the quality and the resilience of our earnings, and we've seen JIS has seen good growth in attracting 35 clients since inception. And with JIS really firmly on track and starting to gain scale, we'll focus our attention in the coming months on growing our information services business. We're actively transitioning market data to the cloud and we've successfully launched big xyt ecosystems, and this is paving the way to enhanced data offerings. I'll cover this in a little bit more detail in the next slide. Moreover, we are very pleased to see a growth in the number of deals and funds being raised by JSE private placements or JPP and this is strengthening our position as a preferred destination for capital raising. Our co-location service offerings have also expanded and these are providing clients with improved cloud-based access. Lastly, on structural changes and new market developments, there were 3 elements. Firstly, the transition to the independent clearing house, which was a really major multiyear project. JSE Clear Is now operating smoothly under its new license since 2023. In addition, we are developing central clearing for the bond ETP market, and this will be through JSE Clear, our derivatives and bond CCP. We're actively also working towards a voluntary carbon market, and I'll cover a little bit more about this in the next slide. And then finally, we've also been exploring a digital assets marketplace. And this is really representing the recognition of potential opportunities which are starting to emerge in this place -- in this space. So next, I just wanted to spend a little bit of time looking at how innovation is starting to shake our strategy. I've got 3 topics that I introduced just at the back of the last slide. Just a few days ago, we announced the latest partnership with big xyt, which is a global independent provider of smart data and analytics solutions to the financial community. Together, we are launching a new business, which is called big xyt ecosystems, and this will deliver this data analytics and it includes the innovative solution, which we recently announced as Trade Explorer. We launched that a year ago and we will be launching this overall system to our global stock exchanges and to the ecosystems. We're very pleased with this solution because it is a world first in terms of what exchanges are offering in this space. And this solution will largely contribute to the revenue of the Information Services business in the medium term. And this is really just one of many steps that we've taken aimed at responding to the evolving needs of our clients. Then on the second block, you'll see on the sustainability front. We're exploring the development of the South African voluntary carbon markets or VCM and renewable energy certificates business, which is a [indiscernible] business. And this will accelerate the potential funding solutions for carbon markets and the renewable energy certificate projects and introduce carbon credit futures to enable forward pricing. It's a very exciting development for our markets, and it supports the objective overall in the sustainability space. We're also investigating the feasibility finally of an alternative digital offering. We've developed a proof-of-concept solution with the SARB, South African Reserve Bank for a tokenized securities platform that explores the benefits and the risks of trading and settling tokenized securities in the SA Capital Markets. The solution, which was called Project Khokha is a very important milestone in our journey as a country towards co-creating digital asset solutions with various regulators and market participants. The project has provided us with a more efficient way of identifying potential gaps. And it also allows us to really improve our knowledge and gain a common understanding of the evolving digital asset ecosystem. And then finally, before we turn to Q&A, I just want to conclude with the priorities for the remainder of the year. We remain focused on investing in the core business to maintain a solid track record of robust operations. We remain focused on growing the proportion of non-trading revenue which will provide us with continued -- and we'll continue to focus on inorganic growth. We'll progress our information services growth strategy with an acceleration in the CapEx spend in the second half of the year. We'll focus on growing new business lines related to the initiatives that I've just mentioned on the previous slide. And then finally, we'll continue to practice a disciplined approach to our cost management to maintain our OpEx growth within the guided range. So we remain confident in executing our priorities to really deliver value to our stakeholders through operational resilience, innovation and positive and increasing contributions from our nontrading revenue, whilst maintaining our capital allocation optionality. And I'll close with just saying that the JSE has a very solid foundation and we are making steady progress in a very challenging macro and political backdrop. And I'd like to thank you now and open for any questions which you and Fawzia -- you may have for Fawzia and I. If you have any questions, if you can just raise your hands, we'll unmute you or you can note your questions in the chat box and Romy and Fatima will facilitate the questions. Thank you.

We've got 2 questions in the chat. I'll ask the first one, is from Charles Bowles. He says, please can you provide some clarity on the competition, especially to A2X. And he said there is a perception that they have lower costs to execute and more modern technology. And he asked if you could please talk about the market share changes for the JSE over time? And how competitive this rate is?

Great. Thanks for that question. So on A2X, they have been in operation for I think it's over 5 years now. The JSE still processes more than 98% in value traded, and we remain competitive on a pricing level. The scale of our operations is very different. So it's very difficult to compare costs of an operation that's processing 2% of the market relative to the costs and the complexity of processing volume such as we are processing, as we mentioned earlier, ZAR 24 billion a day. So we remain very focused on ensuring that any services that we provide are competitive. The important feature of our market is that we provide debt to market. Bid-ask spreads enable traders to move large blocks of trade. Given that we're in an institutional market, that's a very important feature. And our pricing remains competitive as you've seen with some of the solutions that we've offered. The technology that we are offering provides innovative and new technology, although some of our systems are large and legacy and we are working on that. But so far, we feel comfortable with the performance that we're delivering in that regard. And we'll continue to focusing -- to focus on making sure that we remain competitive in every possible way.

We have another question in the chat. It's from Alistair Lee. He asked if you can explain the margin income that is included in your net finance income.

Sure. Thank you, Romy. So the margin income is the income that we earn largely in our JSEC business, and that's the income that we earn on the margin deposits that our clients place with us. So we take a 1/3 and that is essentially the revenue that we earn from that service that we provide to our clients.

We can see 2 hands are raised, but they're not connected to the audio. So we're just waiting for them to type their questions into the chat. So give us one minute. Thank you.

No Problem.

We've got another question in the chat. It says from A. From a strategic standpoint, what can be done to scale up revenue contribution from a derivatives market segment? And how big is foreign participation in these derivative markets?

So the derivative market is an important market for us. And I think we -- there's a lot of work to do. If you look at South Africa's performance, particularly in the interest rate derivative market, there is opportunity for growth and development. We believe that it's -- we've been engaging market participants. And the importance of margin costs, risk costs and a couple of other operational issues are a key focus for us. And we are engaging international providers to provide on screen trading, but it's certainly a big area of focus for us. And we agree that an important priority needs to be placed on that market. There's been a lot of friction in the market. And particularly one of the areas for attracting international investment is around the fact that they have to post rand margin or rand collateral. We have been engaging policymakers to encourage an openness to accepting hard currency or dollar-based collateral. Many of -- given the volatility of the rand having to place around collateral just adds to the volatility and the risk. So that's an important initiative, we have been engaging and we'll continue to engage to try and expedite that.

We've got another question in the chat and it's from [indiscernible]. He says, well done on the revenue diversification initiatives. He said, although you don't provide revenue guidance, do you think group operating revenue can continue to grow ahead of the cash equity ADV growth for the next year or 2?

Look, as you very appropriately noted, we don't provide -- we can't provide forward-looking guidance. What I can give you is a bit of a sense of how our revenue ADV has looked over the past number of years. So in 2019, we were doing ZAR 19.9 billion a day. Of course, with the hyper volatility that we saw in the pandemic, we went up to ZAR 25 billion in 2020. 2021, we went down to ZAR 22.7 billion per day, which was down 7% and then back up to just over ZAR 25 billion last year, and that was up 10.8%. This year, half year-to-date, we're at just under ZAR 24 billion per day. What I can say is that the dynamics affecting trade on our market at a global level, the risk on appetite, which has driven all fears of recession, the inflationary environment, the Russia-Ukraine situation. In the local dynamics, we have had a number of concerning elements that have driven flows. Firstly, the FATF grey listing, the risk of that being adopted by U.K. We have already seen that the EU has put South Africa on to the high risk list, and that has obvious implications. Of course, the increase of the Reg 28 limit has seen an immediate jump and created a liquidity vacuum of between 10% and 12%, an increase of 32% around 42% and that waivers depending on the rand. And all of these factors create a drag and friction on the inbound flows into South Africa. That said, what we have seen is a much shorter cycle of response rates. So the response of the Russia-Ukraine diplomatic situation had a very immediate impact, but we've seen that impact starting to reverse over the last sort of month to 6 weeks. And so South Africa is seen as a proxy for emerging markets globally. And we certainly see that, that's been the case of the event-driven markets over the past sort of 4 years or 3.5 years. And really what needs to happen in the year ahead is that there is policy certainty. One of the biggest drivers that investors internationally are citing is the policy certainty around the elections next year. And so whether that translates into subdued flows between now and election period is yet to be seen. But all of these factors are playing heavily. And of course, the strength of the dollar and therefore, the weakness of the rand has a very important role to play, both for and against for those rand hedges, large exporters who stand to gain. So it's a very complex and very difficult environment. And I do believe South Africa is in a vulnerable position in our investor confidence cycle. And as much needs to be done to put forward a reasonable and pragmatic narrative about South Africa as an investment opportunity.

We've got 3 questions in the chat from [ Konik Venzal ]. She asked a CapEx question. What was CapEx in H1 '23? And to get to ZAR 130 million to ZAR 150 million for full year '23, what acceleration is expected? And on what will it be spent? Then I'm going to go to the second question. Were there any changes to derivative pricing, in particular currencies and commodity derivatives? And then the third question is, what is the outlook for the equity derivatives and the volumes look to remain low?

Thanks, Romy. So I'll handle the first question. Just as it relates to CapEx. So the CapEx for the first half of 2023 was ZAR 33 million. We do intend to meet the target or will be within guidance in terms of the spend for the full year. And so that's going to come from 2 places, really. We'll be accelerating our project delivery but we'll also have some spend in terms of asset investments. So we are fairly certain that we will meet the target of probably at the lower end of the ZAR 130 million to ZAR 150 million. I think the second question was just related to pricing in commodities?

It was. What is derivative pricing? And in particular, were there any changes to the currency and the commodity [indiscernible] pricing?

So the pricing -- the new pricing obviously became effective at the beginning of this year. And last year, we looked at CPI within the JSE, and we determined that the CPI was 5.5%. So we applied that CPI to all of the price points within capital markets, including commodities and derivatives. There's been no change in that since the beginning of the year. Price increases became effective on January. What did happen though was in the beginning of April this year with some of the new costs coming through from the regulators, those were passed on to our customers through small price increases to recover that.

And then the question on the outlook for equity derivatives. Of course, hedging activity is tied to our cash equity market. And all of the drivers that I mentioned earlier, will be important to consider. And ultimately, of course, the rand and our positioning in both Europe and the U.K. will be affected -- it will affect foreign flows. The placement of South Africa on the high-risk list of the EU and the potential impact that, that has on our derivatives market is yet unknown but that will result if we lose our status as a qualifying CCP in the derivatives market that will, of course, have an impact on those companies, those traders who are established in the EU, who will have to hold higher capital costs.

We've got another 3 questions here from [ Keenan Geener]. He asked, will you consider any interest rate hedges for the interest earned on owned funds? And the second one is what proportion of total expenses come from load shedding costs, for example, diesel? And then the third question is, what is the longer-term growth rate in the JSE's operating expenses? Is it roughly in line with professionals for salary inflation and plus CPI, 2 or 2? He is saying thank you.

So Romy, what was the first question?

First question is, will you consider any interest rate hedges for the interest earned on owned funds?

So in terms of the interest earned on owned funds, I think the primary mandate that we've got in terms of managing those funds is preservation of the funds. A large portion of that is regulatory capital. Obviously, within those mandates, we do look to maximize returns in as much as we possibly can. We haven't looked at hedging at the interest rates to date. And -- I mean, we would consider it. It's just not something that's been on our radar up to date up to now. And then in terms of the diesel cost, so the increase for the first half of the year relating to diesel cost was ZAR 5 million per annum. I think last year, we did indicate to the market that we see an increase of approximately ZAR 3.8 million per annum for every additional level of load shedding. I think those numbers do still hold true. We can't give you an exact increase in the number of levels that we've had. But based on the increased load shedding we've had, we've seen that increase by ZAR 5 million for the 6 months. In terms of long-term growth on our OpEx, that's not a number that we disclose. We obviously continue to manage cost and we manage costs within the current operating environment as well as taking into account the extra -- any additional spend that we need to do in order to deliver on our strategic initiatives.

Another question here from [indiscernible]. He said, can you explain the decline in depreciation? And what changed the methodology?

So the [ D20 ] depreciation was as a result of the change in our estimated useful life. There was no change in policy. There was no change in methodology. But what we have to do annually is we have to look at the estimated useful life of our assets. So in doing the most recent exercise, we took into consideration the fact that we've had increased licensing periods for some of our assets. And looking at the assets, we're confident that the assets related to those licenses can be used for the term of the license. And based on that, we increased the useful life of those assets. So it was really just a change in estimate rather than any change in accounting policy.

We've got 2 more questions here. We've got again from Charles Bowles. He says, how does management and the Board weigh up the dividend policy of a high dividend payout relative to a share buyback?

So dividend policy -- dividend payout ratios as well as share buybacks is looked at within the context of our capital allocation framework. We've had a number of discussions with our shareholders. And I think, as you can imagine, the views are always divergent in terms of a preference for share buybacks versus a preference for dividends. From a JSE perspective, we do look at it annually, but we look at the usage of our cash on a continuous basis. We look at the cash that we've got available and we look at it in the context of what do we require from a regulatory perspective as well as what we need for investment in the business for potential organic and inorganic growth as well as our obligation from a dividend perspective. So we take all of that into account. And in addition, we also look at where investor sentiment is, where the JSE price is. We look at market dynamics. We look at the conditions in the market. And we take all of that into account, and we'll weigh all of that up each time we look at whether we go with a share buyback versus a dividend payout.

One more question from Charles Bowles. He said, from a long-term perspective, can you give us a sense what you would think what the impact would be if there was a removal of exchange controls? Thank you.

So ultimately, it's a highly speculative view on how that would impact. And I suppose one would have to consider the timing in the market, the graduation we have shifted quite dramatically over the past sort of decade or so to what is now a 45% offshore limit. What we have seen changing in the regulations is that if any of the companies regulated by Reg 28 go above the 45% limit, they have to immediately rectify that, whereas previously, there was a year to do that. I think it all depends on global dynamics, country dynamics, and of course, the health and situation within our local financial markets. Of course, there may be a short-term impact and that might be moderated by a medium- to long-term impact. So it's very difficult for us given the number of factors that are at play to indicate where that might land. There are no indications from government that this is likely to -- we haven't heard anything that this is likely to shift dramatically in the short term. But of course, the health of the markets in South Africa, given a very healthy profile of dual listed companies and the proxy for emerging markets, together with the ARB that exists between those dual listed companies do give us a very high level of liquidity within the country.

No more questions. Thank you very much.

Thank you so much. We'll take that opportunity then to thank you all for your time. Romy will be available if anybody has any additional questions. And we look forward to meeting some of you one-on-one in the next couple of days.

Thank you.