NZX Limited (NZX) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to NZX 2022 Full Year Results Call. I think I know most people probably on the call, but I'm Mark Peterson; and I'm here with Graham Law, our CFO. As our usual structure for these sorts of things, Graham and I will take you [Technical Difficulty] at our planned direction. They will continue to reshape NZX into an integrated financial markets infrastructure and services business. We also talked at our 2022 half-year results and again at the Investor Day, the challenges of the current macro environment that we have faced this year. Notwithstanding, NZX has delivered a really solid financial result for the year, earnings pre-acquisition costs of NZD 36.6 million, up 2.3%. And if we include the acquisition costs, earnings were NZD 35.1 million, up 1.9% on 2021. NPAT was down -- was down to NZD 14.2 million or down 5.7%, largely due to increased interest and amortization costs, and Graham will speak to this shortly. We've declared a final dividend for the year of [ NZD 0.031 ] per share, which takes the full-year dividend to NZD 0.061 fully imputed. Revenues lifted 8.8% to NZD 95.7 million. Graham will take us through the major movements here as we have had several lifts and the market environment has negatively impacted trading clearing fees and revenues linked to asset prices. Costs have lifted 13.3% to $59 million. Again, we'll unpack the major drivers of these in the pack, and Graham will talk you through it. But the key areas are the full-year impact of having extra staff delivering the growth in Smartshares and wealth technologies, along with our investments into risk management, IT resilience and security and our sustainability strategy and reporting plus the factor that all businesses are dealing with around the market at the moment on labor and salary pressures. Our earnings guidance for the 2023 year is NZD 36 million to NZD 40.5 million. And you'll see on Page 32 of the pack, the assumptions that we have made on the key earnings drivers for the year. We have kept this range a little wider again this year given the volatility in the macro environment that we see. Just moving to the business highlights, these have been laid out on Pages 8 through 15 of the pack. At NZD 20.9 billion, capital listed and raise had one of the strongest years we have seen since the mixed ownership model activity in 2015. Secondary equity listings, new retail debt, secondary debt raised and funds were all strong. New equity listings have been impacted by the environment, but businesses remain positive about coming to market when the environment is more conducive. You will note this is a factor for most markets globally at present. We feel confident in our equity pipeline subject to market conditions, and we also know we are in a very big year of retail debt reissuance. We are -- we are slightly up on the numbers of listed securities and unique issuers. The team continues to host and showcase issuer milestones with ring-the-bell events, podcasts, videos, all showcased over social media, and our virtual retail investor decisions are continuing to grow. Typically, we would see around 200 investors watching these events live. And depending on the issuer, we would see somewhere between 700 to 1,000 subsequent views of the event on our website. This medium is very much finding favor for retail investors to consume the stories and progress companies are making. The macro-environment has impacted trade value and volume, which has resulted in a decline of 29% to NZD 37.4 billion from 2021. We are seeing the mix between retail and institutional activity staying steady, which points to lower levels across all investor types, which does seem logical. With the uptick in interest rates, we have seen significantly more secondary trading in the debt market, which is up 23%. It's hard to forecast activity levels for 2023, but we instinctively feel that it should [Technical Difficulty] in 2022, but unlikely to reach 2020 or 2021 levels. Our midpoint order book initiative is back underway after the consultation with the [ market on its ceilings ]. Testing, and regulatory engagement will recur this year. Our depository business, despite asset price downward movements, has held a level of assets in custody at $6.3 billion, which we think is a good result. Noting that transaction settlement [Technical Difficulty] activity through the deposit rate was down for as mentioned above. Information Services or we previously called Data and Insights had a very strong year with revenues up 11% to NZD 19.4 million. Growth was across almost all areas, connectivity and audits. We still have record numbers of data connections with our international clients, which again speaks positively about how our market is viewed internationally. Our dairy market has gone from strength to strength as a result of our partnership with SGX. [indiscernible] traded was up 40% to NZD 428,000. And as we mentioned at the Investor Day, we feel very positive we have all the ingredients to capitalize on the truly global opportunity. Being at the seat of the GDT Board table now is also an important component to maximize our dairy derivatives market opportunity. The GDT strategy is about attracting more supplier flow and being the global benchmark on price. And it's -- in addition, it's about having more frequent price discovery, which assists the market, manage its price exposures. And in turn, it will drive more trading activity in the derivatives market. GDT is making good progress on delivering these initiatives with the weekly GDT Pulse options now up and running. Smartshares also continues to go from strength to strength. Net new cash inflows of around NZD 800 million largely offset the negative market movements over the year. FUM stood at the end of 2022 at NZD 8.26 billion, and we are well underway with the ASB Superannuation Master Trust integration, and we settled the QuayStreet transaction today. Both transactions will add further scale to the Smartshares business and the opportunity to achieve synergies and further cost benefits that having greater scale creates. Smartshares is closing in on AMP as the #1 corporate superannuation provider, just NZD 300 million behind at present, in our combined KiwiSaver business between SuperLife and QuayStreet, along with our default provider status gives us a great platform for future growth and KiwiSaver. We see real opportunities to work closely with Craigs Investment Partners to develop a wider range of products for them and the market, and this is exciting. Combining Smartshares and QuayStreet now takes total FUM for Smartshares well north of NZD 10 billion, and we have very nice growth momentum. Wealth Technologies funds under administration finished the year at NZD 10 billion. There are some movements in that number, which Graham will talk to, but net cash inflows were positive. And then obviously, we had the effect of negative market asset prices. The team has been very busy on client activity, and we are about to go live with a large client transition in the next couple of weeks. As we mentioned at the Investor Day, this is the transition that had been delayed from the original timeline for a very good reason as we want the client to be ready, the quality of their offer and the client service to be first rate. 2023 looks to be a promising year of growth for the business, both for follow-on existing customer transitions and new client growth. Labor markets have been challenging for all businesses in recent times, and we are no different. Our people have been fantastic through the year, and our staff engagement results continue to be strong and improved further in the most recent engagement survey. Our corporate services functions have been particularly busy. The risk management and technology teams continue to mature quickly. Some nice proof points coming through in the [ GLR findings ] earlier in the year and the fact that we did not have a single market technology outage through the course of 2022. Staff turnover across the group is still running at double our normal levels. Salary inflation is still higher than normal, although there are signs that the market is beginning to change. We have employed a greater number of graduate roles in recent times and have been excited about the caliber of talent we've been able to attract. We deliberately have them operating alongside more experienced staff, which has been fantastic for their development, efficient for the business, and breathes life into the culture around the office. When we think about diversity, we are looking to generate diversity of thought, and that is achieved through the makeup of our team in a number of ways. First, our gender diversity, which at the moment stands at 45% female, 55% male across the business. Secondly, the spread of age, which is evenly spread over the age bands of people in their 20s, 30s, 40s and 50s, and we even have a few in the advancing years as well. Third, NZX in more recent times has had staff from a wide range of ethnicities. And over the last year, has employed people from more than 15 different countries. We also continue to take the gender pay gap seriously. Currently, our gap is 14.7%, which has driven off structural differences. We have no gap at the role level. We have previously had our gender pay gap lower, which was circa 11%, but turnover in labor market shortages have made this difficult to hold at previous levels. Last but not least, NZX is starting to mature our approach to ESG. Our focus is to create value while delivering a positive impact on society and the environment. When it comes to ESG, the NZX Group [indiscernible]. We operate New Zealand's equity debt funds, derivatives, and energy markets. We're also a financial services provider and a market regulator. Public markets will continue to plan an important role in facilitating the flow of capital towards decarbonizing the New Zealand economy and empowering sustainable finance. Our ESG performance reporting for 2022 has been prepared in accordance with the Global Reporting Initiative standards. And as a business, NZX is committed to take incredible action on climate change and being transparent about our action and our impact. We are providing enhanced climate reporting in accordance with the Aotearoa New Zealand Climate Standards on a voluntary basis, ahead of reporting becoming mandatory next year. In 2022, NZX achieved a net carbon 0 certification from Toitu Envirocare with the 2021 year and has again received certification for the 2022 year. The work we are doing in governance to oversee the [ integrative ] of New Zealand's public markets, serving in our community and helping those in need. And as I've mentioned, working hard on divesting and inclusion in our workforce can all be found in our annual report. And while we're making steady progress in improving our ESG metrics, we have more work to do to make improvements across the board in the coming years. I'd now like to hand over to Graham, just to take you through the financials in more detail, after which we are happy to take questions.

Thanks, Mark. Before I start, I'd like to draw everyone's attention again to the disclaimer on Slide 2, which contains some important caveats though the information I'm going to cover. Starting on Slide 16, I'll provide an update on our 2022 acquisitions. Mark's already mentioned that from a strategic rationale perspective, both the Smartshares acquisitions drive scale in that business will lead to synergistic benefits and time. The QuayStreet acquisition will complement Smartshares existing systematic and passive managed product offering and includes a product support and distribution agreement with Craigs Investment Partners to develop new products. Focusing a little bit on the financial aspects. First of all, the acquisition of the management rights of the ASB Superannuation Master Trust, Smartshares is responsible for [Technical Difficulty] relationships. The transition and migration plan is well progressed for investment, administration, investment management and registry services to be completed in the third quarter. Those remaining integration costs in '23 are expected to be around NZD 1 million for external costs split across OpEx and CapEx activities. The financial contribution in 2022 was in line with our expectations with the operating earnings impact being roughly NZD 3.9 million and the NPAT impact at about NZD 1.6 million. The acquisition of the management rights and related assets of QuayStreet Asset Management is expected to meet today. From today, Smartshares will be responsible for all the QuayStreet products with the investment management team and client relationships, teams transferring over to Smartshare. Transition planning to migrate back office functions and then amalgamate the schemes, which drives efficiencies is underway with that transition expected to occur through 2023 and amalgamation in 2024. Our high-level estimates of the total integration costs, including OpEx and CapEx activities are based on both internal and external resources and is expected to be around the NZD 4 million mark across '23 and '24. The portion of the spend that's actually incremental external costs, OpEx and CapEx is dependent on the facing of both the QuayStreet and the ASB Superannuation Master Trust integrations. And as I said, planning for it is in progress. On Slide 18, I have summarized the strategic drivers of the acquisition for Global Dairy Trade Limited, and 33% interest. GDT's commenced its agreed expansionary plan over a 3-year period for global opportunities. NZX' share of the profits for the 6-month period that we've owned our stake in the business is about NZD 150,000. Our share of profits in the future is expected to remain relatively low log strategic initiatives mature effectively over a 3-year period. Moving to Slides 21 and 22. The table summarizes the income statement for the year ended December '22. Operating revenues increased to NZD 95.7 million, which is up by 0.8% on last year. This reflects NZX's diversified revenue sources, which are detailed in our November '22 investor presentation. I've quantified on the slide how the lower levels of market activity in '22 adversely impacted NZX and that includes the impact of value-cleared Smartshares [indiscernible]. However, those headwinds were more than offset by increased revenues from sources not exposed to market capitalization, including, for example, secondary listings and the phase associated, which relate to the level of capital raise and the mix between equity, [ retail and wholesale ] of funds. Dairy derivatives, which were in line with the increase in the dairy derivative [indiscernible] creative and assuring the success of the partnership with SGX [indiscernible] and data and insights revenue, which has seen increases in all lines of business. And additionally, despite the market activity impacts, there were increased funds under management and funds under administration revenues, which arose from a combination of strong cash flows and of course, the acquisition of the ASB Superannuation Master Trust. Operating expenses on the next slide. Excluding acquisition and integration costs, increased to NZD 59.1 million, which is up 13%. It reflects a full-year impact of our prior year investments for growth and the full-year impact of our improvements for IT resilience, which completed midway through 2021 as well as the inflationary cost pressures that Mark's already talked to. The majority of our cost base relates to personnel costs. In 2022, these were driven by firstly wage inflation. And as Mark said, we expect this to continue to decrease into '23. And second of all, of course, was the average headcount being slightly higher. Where our headcount rose was in Smartshares to resource the initial operations and integration of the ASB Superannuation Master Trust and Wealth Technologies, to migrate or to prepare for migration of new clients on their [indiscernible] to platform. Small increase in derivatives to support the SGX partnership, and the implementation of the NZX equity derivatives, which is in trim. And also in sustainability to enhance our ESG capabilities and then within corporate, we've had to support that growth across the businesses on the current level of project activity. Information technology costs reflect the completion of our IT capacity and resilience improvements program as well as strengthening of cybersecurity, including further enhancements to our security operations center capabilities. As I'm sure everybody appreciates this is an ongoing requirement and never ends. Our investments for growth in the current year have been focused on the smart shares acquisitions plus the Global Dairy Trade acquisition as well as progressing the relaunch of the S&P and ZX20 Index futures. This has resulted in the operating earnings before acquisition and integration costs being 36.6%, which is 2.3%, up from '21. Acquisition and integration costs, of course, are related to the acquisition and integration planning for the ASB Superannuation Master Trust and QuayStreet Asset Management. After the acquisition integration costs, our operating earnings were 35.1%, which is 1.9% higher than '21. Nonoperating expenses include net finance costs, which have been lower than in previous years as interest income on our various cash balances has been positively impacted by the increasing OCR and interest rates. Of course, our interest expense is based on our subordinated note, which is [Technical Difficulty] until June 23, at which point the interest rate will be reserved. The depreciation and amortization is higher. This is in line with our expectations and what we outlined in our 2021 investor presentation, reflecting a full year's depreciation and amortization and items capitalized in 2021, such as our wealth technologies, new client migrations, which we expect to increase further in '23 and IT improvements to improve the IT resilience as well as our Smartshare default -- [ KiwiSaver default ] scheme digital tools in supporting infrastructure and of course, the new capital markets office in Auckland. Additionally, the acquisition of Smartshare -- sorry, by Smartshare of the ASB Superannuation Master Trust does have the management right amortization associated with it, and it has increased amortization accordingly. The effective tax rate is lower than the statutory [Indiscernible] it's a combination of accounting versus tax valuation differences, for example, on the [ investing ] of long-term incentive schemes, non-deductible items such as the acquisition costs associated with the ASB Superannuation Master Trust, for example. The overall result then is the net profit at NZD 14.2 million, which is down 5.7% on '21 with an operating margin of 38.2%. On Slides 22 through 25, I'll provide further analysis in the operating results. And I'll touch on the main items relating to revenue and costs through that. But just really want to note that in Appendix 1, we've got more detail on each of the business units. I'll start on Slide 24, which then summarizes our market's business. I think I got the slide number there. It's one slide up down there. The overall operating earnings for the markets business were NZD 42.6 million on overall operating -- sorry, it was just 0.5% higher than 21%, with operating margin at 69%, roughly similar to the previous year. The main factors in the market's revenue for capital markets origination revenue increased with annual listing fees being positively impacted by the overall growth in market capitalization, remembering its market capitalization on 31 May each year that drives the annual listing fees for the year, July to June. And there was a positive impact from the differing levels of primary listings and secondary issuances. And again, remembering that equity has a relatively higher retail debt -- wholesale debt on final funds. The secondary markets revenue decreased with significantly lower levels of trading and clearing value as well as OTC settlements and registry messaging fees. And I've estimated the impact -- full year impact of that reduction at in sort of somewhere in the region of NZD 2.6 million to NZD 3 million. Also with lower consulting and development activity, 2022 didn't include the one-offs that 2021 had for the development of the carbon-managed auction service. Data & Insights revenue increased driven by higher levels of average terminal numbers and license revenue as well as record levels of audit in fact [ we had ] licensing revenue. Cost for the market business increased, personnel cost increase is driven by slightly higher average number of FTEs, wage inflation on a lower level of capitalization, bearing in mind that the upgrades to the trading system and energy system activity largely completed in 2021. Information technology costs remained relatively flat, which is a mix of IT cost inflation and the addition of NZX share of IT costs under the [ SGX ] Dairy Derivatives partnership. But they were offset by the non-inclusion of the one-off costs related to development of the carbon-managed auction service in '21. Professional fees reflect the level of nonrecurring items in '21, largely, including the setup cost for the development of the new carbon-managed auction service and also the [ SGX ] dairy derivative partnership. Moving to Smartshares. The operating earnings were NZD 12.7 million, excluding one-off acquisition and integration costs, which is 30.5% higher than 21%, with the operating margin up to 52%, again, excluding the acquisition and [ reaching ] costs. Largest impact is clearly from the acquisition of the management rights to the ASB Superannuation Master Trust with the contribution to those operating earnings being approximately NZD 3.9 million. Fund-based revenue continues to grow with average FUM having increased. There's a combination in there really, as I've alluded to, the ASB Superannuation Master Trust acquired FUM. Negative market returns of just under NZD 900 million were offset by positive net cash flows of around NZD 100 million more. And again, I've quantified the impact of that negative market returns. The full-year impact is around at NZD 2.5 million or plus or minus at average bids. Member-based revenues increased, reflecting the mix of the increased investment numbers, again, from the acquisition and the reduction of annual admin phase, which you may recall was effective from 1 April 2021. So it's a quarter of an impact on that. Smartshare increased personnel costs increases related to headcount to resource the initial operations, BAU activities that are recurring and also to resource the integration project activities, i.e., nonrecurring for the ASB Superannuation Master Trust transition. Resource requirements will increase further in 2023 when the investment management, investment administration, and registry services are migrated into Smartshares, likely the [ curve ] can advance the third quarter migration and also, of course, with the QuayStreet acquisition will increase for those. There's a full-year impact of the KiwiSaver default scheme resources, which commenced in the last quarter of 2021. Capitalized overhead -- capitalized labor and overhead is lower, reflecting the work that what's been done in 2021 on the KiwiSaver default scheme [Indiscernible] not being replicated in '22. Information technology costs increase reflects the Bloomberg front middle office operating systems, impacted to a degree by the U.S. dollar exchange rate, but new licenses as well for the KiwiSaver default scheme and licenses for their digital [ tools ]. Other expenses increases reflect nonrecoverable to GST, which as the business grows, the level of nonrecoverable GST increases, a combination of external audit fees, travel costs, which post-COVID there's more travel, statutory and compliance costs as well, for example, FMA levels increased correlation. Moving to Wealth Technologies on Slide 21. Overall, operating earnings of NZD 1.3 million is significantly higher than 2021 with the operating margin increasing as well at 22%. Funds under the administration-based phase increase reflecting the average being higher, which is a combination of full-year impact of 2021 plans coming on board, offset to a small degree by negative market returns and a positive cash flow. A lot of the contracts in here have [ flows in caps ], so they're not fully exposed to those market movements. The development phase and deferred income have increased to greater levels, reflecting greater customization requirements from customers during the current period. For wealth technology, the cost increases have been predominantly personnel costs, which is driven by higher level -- a higher average number of FTAs for [Technical Difficulty] requirement of new plans that are in the process of being migrated. And information technology costs, of course, increase with additional data hosting data fees and licensing costs, for corporate [Technical Difficulty] such as legal finances to all business units. And we also have then there, of course, the Board, the CEO, Investor Relations functions. And Corporate costs are not recharged to the business units with the exception of [indiscernible] regulation. Corporate costs were NZD 19.7 million, with personnel costs rising, driven by sort of the additional roles to support the growth across the business. HR resources to address higher vacancy levels, risk analysts to enhance our second line of defense and our risk function, legal resources to support Smartshares, project management, resources to support the project level across the business. As well as that, we have had 2 new sustainability roles to enhance our ESG reporting. From an information technology cost perspective, we have already alluded to the modification and strengthening of our security services, including the enhancement of our security operation center capability has been aimed at strengthening our cybersecurity and this is a never-ending process. And [ addition to add to IT ], we have to [ secure ] our communication [ screens ] in our New Auckland Capital Market Center, some of which you can probably see behind me. Other expenses related to the premises cost, the [ New York Premium ] office, insurance premiums, which continued to increase significantly, directive fees, which, of course, would increases approved at the AGM and travel in the post-COVID world. Finally, covering NZ RegCo, operating earnings this year was with a loss of NZD 0.4 million, noting that NZ RegCo is targeted cost-neutral basis over a period of time and does include internal allocations to reflect services expected to be provided to from RegCo by the rest of the business. And that's intended to achieve a breakeven position, as I say, over the medium term. Okay, moving to the balance sheet on Slide 27. There are probably 3 key points I want to bring out here. The first is our cash, like all years, I bring aside, our clearing house cash of NZD 20 million is the risk capital and not available for use. And then we have some sort of quasi-regulatory amounts that are also not generally available for usefully. And they're related to the clearing house working capital in compliance with IOSCO requirements. And then in the funds management business, more shares. There's quite a large amount that's needed to retain the FMAs and their license and the Asian Regional Passport at a positive MTA position. Second point to note the 2 acquisitions have had an impact on our balance sheet the ASB Superannuation Master Trust and tangible management rights are recognized in the other noncurrent assets category, you see it jumping in. And then Global Dairy Treats recognized as an investment associated [indiscernible]. The net assets increased as a result of these acquisitions is because of the funding through the equity raise. And the final point to note is on our sub-note. It's classified in interest-bearing liabilities. It's [indiscernible] is June 23, which technically means it's treated as a current liability for the year-end. Our intention is to refinance a sub-note through a -- either a rollover of the existing note, which effectively means a reset of the industry, noting that we have to communicate with noteholders and if they request redemptions, we would use our surplus cash and bank facilities that we currently have to redeem them and then would subsequently reissue those notes through [ effectively ] of the liquidity facility that we have in place. Or we could do it through effectively issuing new notes and the proceeds with pay down existing noteholders with existing noteholders on the option to roll over and then just exploring which of those 2 routes we take at the moment. Moving to Slide 28, CapEx has retained the 4 graphs that are presented during, I think, the last half year investor presentation, they're all at the same scale so can show relativity and make it easier to understand what's going on. The trading and clearing and energy system CapEx is dependent on the specific life cycle of the particular system. At present, there's no large upgrade projects underway, and we're only upgrading our strategic storage solutions and automating parts of our deposit system. In future years, we'd like to move to more regular updates rather than these big cyclical upgrades and yes, trying to do that. For property, plant, and equipment, you can see over the last 2 years, the spend related to the new office in Auckland. Normally, in here, we have normal life cycle replacements of IT equipment and so forth. In 2023, we will be erecting the new ticker on our Auckland Capital Markets Center. It's probably the biggest bet in there. For the growth businesses, Wealth Technologies, our largest area of CapEx and the business continues to migrate new clients and maintain its product offering. So we expect this level of CapEx to continue for a few years as those new clients are migrated onto the platform, but of course, less revenue that goes with that spend. And ultimately, that CapEx is amortized, which is why I say amortization should increase in '23. Smartshares, it delivered the digital tools for the new key. We see a very [ default ] scheme in '21 and a little bit in '22. I'd expect there will be further digital tools and automation as we integrate the acquisitions into that business. Cash flows on Slide 29. Operating activities decreased cash flows reflect lower NPAT adjusted for noncash items, such as depreciation and amortization, together with the working capital movements. Investing activities reflect the 2 acquisitions, ASB Superannuation Master Trust and Global Dairy Trade acquisition as well as the CapEx that I just talked on the previous slide. And then finally, the financing activities mainly reflect the equity reusing the pay-through acquisitions as well as the dividends paid net of the participation in the dividend reinvestment plan and plus and lease payments. Moving to Slide 31. Our final imputed dividend is NZD 0.031 per share, which will be paid on the 16th of March. The timing slightly earlier than normal to ensure the shares issued to settle the QuayStreet acquisition or [indiscernible]. The payout ratio is slightly higher than policy and the business is focused on future earnings to support those dividend levels. Dividend reinvestment plan will be active, available for the final dividend. The shares will be issued at a 1% discount, which leads me to our 2023 earnings guidance. Our operating earnings guidance, excluding acquisition integration costs expected to be in the range of NZD 36 million to NZD 40.5 million. As always, I note this earnings guidance is, of course, subject to the usual market caveats that I listed on the slide. On the following slide, I've listed out the 2022 targets that feed into that earnings guidance and specifically note that these are not financial forecasts. They're mainly guidance to help people track how we're going towards this earnings guidance and operating earnings, excluding acquisition and integration costs. That progress can be seen through the publication of our monthly metrics for those shareholders who want to track it. That concludes my part of the presentation. We'll now open it up for questions.

So we actually have a question already from Andrew [indiscernible] and he said, the ASX has had major problems with upgrading its computer systems. Are there any lessons for NZX from this? And am I correct to think the NZX systems are working well and not behind in terms of waiting to be upgraded?

Yes, happy to take that question. So NZX runs on -- from a trading perspective, we have our software from NASDAQ. And you will recall that last year, we completed a trading system upgrade. So we are very current with our systems there and are in constant communication with the NASDAQ around sort of the future strategies in that regard. So not at all, are we behind in that regard. The other key feature of the capital markets technology infrastructure is our clearing system. That's provided to us by Tata Consultancy Services out of India. It's a bank system, which is used in many, many markets around the world by many exchanges to settle and clear transactions. And again, only a few years ago, as Graham mentioned in the CapEx cycles did we upgrade that. So we feel very confident about that system. I guess the differences between ourselves and the ASX that when you look at [indiscernible] is probably a 20-year-old system. And to some extent, I think it was designed and built largely for the Aussie market, and they have obviously now a major challenge to upgrade that and they're thinking about how do they do that. So they got themselves in an unfortunate situation there. I don't see the situation as anything like us. I guess in terms of lessons here, there are a lot of lessons to be learned. Not -- lot of lessons to be learned in terms of how current you keep your technology, how regularly you keep your updates, is it an in-house or an externally provided platform. And then there's probably a range of lessons, and we're obviously well up to -- we're well read, if you like, on some of the activities that the ASX are facing through the regulators, on how projects are managed and delivered. And it appears that we would do projects slightly different to them, a lot of that becomes the focus of the business. As usual teams, we don't necessarily set up separate project groups to operate sort of outside business is usual activity. So we're watching it. We're looking at it. We feel well positioned in regard to this. We're obviously working with our technology providers is to give us the product roadmap in those regards. And obviously, we don't want to find ourselves in the same situation as our friends across the [indiscernible]. So just to remind people, if you raise your hand, you can either type the question into the box or I think we could unmute somebody if they so wish.

Yes. So [ Grad Louis ] I have unmuted you, so you can speak now.

Hi [ James ], can you hear me okay?

Yes. Yes, we can hear you, Grant, yes.

Great. Okay, just in terms of -- 2 questions really around the first one around [indiscernible] on the margins in the markets business. So I mean, the wealth, I appreciate there's an onboarding process and you need to invest ahead of revenue, etcetera. But in terms of -- the CapEx has ticked up again sort of NZD 8 million from NZD 7 million last year. I just want to get an update in a sense on how you see or the timing for cash flow breakeven. EBITDA was NZD 1.3 million, I believe, CapEx obviously, negative 8%. So with the various onboarding projects you've got, when do you see cash flow breakeven?

Yes. It's -- we would expect cash flow breakeven to be towards the end of 2024. It is very much dependent on how quickly we can get the large client that we're in the process of doing on-board plus additional smaller adviser groups. So we're very conscious of managing that. We have had the staff up to bring in a project of this size. The levers are twofold for the cash flow component of this business. You've got the headcount that is bringing the business on board. We would go to a steady state in due time if there were no additional migrations. And of course, the other labor is the revenue side of the equation. So we are cognizant of that cash burn of actual revenue in the long run is worth it at this point in time in the decision.

Yes. So at your Investor Day, you put out a slide which showed the onboarding project currently underway. Is that timing sort of roughly hold, in regards to that '22?

Yes, sorry. Just quickly on that. So that's the one that I mentioned in my sort of opening comments that we were hopeful of that going live pre-Christmas. And in that instance, both the client and ourselves for quality reasons says no, we will just take a few extra weeks. So that's the one that the first time it goes live in a couple of weeks. And then through the course of 2023, we expect more transition business from that customer. But I think the change that we're probably focusing on this year as well is in addition to working with that large client [Technical Difficulty] we've also seen and been responding to new business from smaller advisory firms, and they are much easier to bring on. And quite often, they don't need any customization. And in some instances, they don't actually need any migration of data as well or a very modest amount of migration of data. So we're feeling that the return that we can get versus the level, versus the increase in cash flows are well worth making sure that we can cater for a bit of both. We think the business will be better off, if we can do some of those smaller ones as well.

Yes, I get it. That's understood. I'll take a look through my numbers and raise some questions a bit later on. In terms of the core markets business, I know it's difficult with market movements the way that they are, but in terms of the margins in that business, online numbers including RegCo have gone from sort of 75% down to 65% in the last couple of years. Obviously, if the markets improved next year, that would be a positive. But where do you see that sort of settling medium-term relative to historic levels and what sort of levers do you have to fall to sort of get that back towards prior previous levels?

Yes. Graham might comment on this following just a few points for me. So firstly, we have been impacted, as you know, just with [indiscernible] 0:47:27 in trading and clearing activity, which is, as I think Graham quantified it to be around about NZD 3 million impact through the course of 2020. As I have mentioned in the opening remarks, we do probably see 2022 numbers as a bit of a floor or we'd like to think they are. We came off those highs of those 2 COVID years. And we probably feel like as the market has gone through 2020 that it's been quite benign, and we'd like to think we're going to lift a little bit. It's hard to know how much, but you can see we were pitching it in one of the slides of the pack that feeds into our assumptions around guidance. So we think it's going to lift a bit. That will obviously improve margins. I guess the other thing that we -- we know that [Technical Difficulty] again that I think we mentioned it quite a lot at the investment. We're going to round out our product offering in markets, which is really around that NZD X20 opportunity. And that will actually create a whole lot more stability for the earnings profile of that business because the derivatives activity in a normal sort of sense does offset cash market activity depending on sort of where markets go. So we'd like to think that margins will improve. We've obviously had taken some costs into that area off the back of the reset from the Financial Markets Authority report a couple of years ago. I don't -- I think we're sort of more at a steady state now, bearing in mind that cyber as Graham has mentioned a couple of times, you're nearer sort of done in that area, but that's probably the one that we continue to need to focus on. I don't think we see a whole lot of change in personnel numbers, for example, in the markets business. I think we've got the structures about right now. So I would like to think that margins will tick up a little bit, and certainly, will be helped if markets improve.

Yes. The only thing to add is -- I mean, Mark mentioned it there the market activity level is the key driver. When you compare the 2 periods, you're talking about, we have had the markets go down and our IT resilience activity being brought forward to a degree. As I said in my part of the presentation, it's an ongoing matter, should we call it, that you've got to keep up the deal with IT, particularly in the cyber area. So who knows where that goes in the future, but fundamentally, if the market binds us back, we'll have a positive impact coming through and we sort of feel as if the activity that we did in 2019 and 2020 to try and drive increased growth in the market has had a positive impact. The floor that Mark said there is at the same level as the high before we did that activity. So we'd be hopeful that it bounces back and that drives your margin [Technical Difficulty].

There are no more questions.

No more questions. Well, in that case, Graham and I'm more than happy to answer questions outside this forum. So please feel free to pick up the phone and we're happy to talk to you. But otherwise, if that's where we've landed today, thank you very much for your attendance, and we really appreciate your support, and we wish you a good day. Thank you.