Oh, good morning, everybody. Welcome to the 2024 full-year results call for the NZX. As most of you will know, my name's Mark Peterson, NZX Chief Executive, and I'm here with Graham Law, NZX's Chief Financial Officer. Sorry about the slight hiccup there. We had an issue with the way the presentation was being displayed on the call, but we should be back on track now. Graham and I will take you through the result. I'll lead off with the key elements of this result and some broader comments. Graham will step us through the financials, after which we'll be obviously happy to take questions.
As per normal with these calls, to ask a question, please raise your hand. There' s a button there on the panel on the right-hand side of the screen, and a moderator will send you a message request to unmute, at which time please state your name and then ask your question. Please go back on mute if you would not mind. Graham and I will then answer it. Now, before we start, please note the important notice on page two of the investor relations pack, as that statement applies to all content and comments made by us during the call. Just a few opening remarks, if I may. As we mentioned in our half-year results, we were starting to see activity levels lift in Q2 in 2024, and we were hopeful of this improvement continuing through the course of the year.
As the inflationary environment continued to be brought under control and interest rates stepped down further, I'm pleased to report that capital markets activity levels continued to lift, global asset prices performed well, and we had good client growth, particularly in Smartshares or Smart, as it's now known, as well as Wealth Technologies. This has meant NZX has posted a strong financial result for the year. Earnings, excluding integration and restructuring costs, were NZD 48.5 million, up 21% on the prior comparable period. This is close to the top of the revised guidance range of NZD 45 million-NZD 49 million. If we include the integration and restructuring costs, earnings were NZD 47.2 million, up 21.3%. Reported NPAT was NZD 25.5 million, up 88.1%.
The underlying NPAT, which excludes the accounting adjustments relating to the Quay Street Asset Management earnout and the partial energy goodwill write-down, was NZD 18.3 million, which was up 30.1%. We have declared a fully imputed final dividend of NZD 0.031 a share. Dropping into the component parts, revenues were NZD 120.8 million, up NZD 12.4 million or 11.4%. This was driven by a few components, and I'll run through these quickly. Capital markets revenues were up NZD 2 million or 3.3% off the back of that increased market activity, and particularly the recapitalisations and trading levels that lifted. Smart revenues were up NZD 7 million or 19.1%, reflecting the growing funds under management. NZX Wealth Tech revenues were up NZD 2.9 million or 42.7% on the back of new client transitions. I note that our annual recurring revenue as at 31st December 2024 totaled NZD 10.8 million, up 50%.
This means that Wealth Tech achieved one of our long-standing goals of being cash flow positive from external client activity at the end of the year. Expenses were NZD 72.2 million, up NZD 4 million or 5.8%. We continue to be disciplined with costs being controlled closely across the group. Most of the cost change has come through the Smart business, and it relates, as explained to you in the half-year, to seeing the full-year impact of the integrations of ASB Superannuation and the Quay Street acquisitions. Across the business, our technology platform continues to operate reliably. Our risk management function continues to advance in maturity. Our staff engagement scores hit another record, and the oversight review by the FMA released in the middle of the year was positive in its assessment.
We were pleased with our results, showing positive draws, with revenue lifting 11.4% and costs up 5.8%, which has translated to an improvement in operating margin from 37%- 40.2%. As I mentioned, Graham will take us through the financials in more detail shortly, and he has added some nice waterfall diagrams into the pack on slides 17 and 18 that break those movements down. Speaking to pages five to seven, many of you will recall us re-articulating NZX's growth strategy at our recent Investor Day in November last year. We reiterated our three businesses: capital markets, Smart, and Wealth Technologies, were all targeting greater scale and operating leverage. For capital markets, we were looking to round out our product range and scale up.
I'm pleased to say NZX Dark was delivered in 2024, and we continue to work towards relaunching our NZX 20 futures or index futures in mid-2025. As most of you know, we've been working with the government to ensure New Zealand's capital market settings are as competitive as possible. The focus of Smart was to continue the strong organic growth and deliver the operational efficiency program. For Wealth Technologies, our plan is simple: keep winning new clients to scale up the business. We talked about the benefits for the NZX group in having our businesses supporting one another, particularly Wealth Technologies powering Smart. We also discussed the fact that cash flow for the group will grow faster than EPS growth, given the amortization of the capital investment we have made into the Wealth Technologies business, and this will flow through the P&L over the next few years.
The following update from the various business areas should be viewed in the context of these key themes that we made at the Investor Day. The business highlights have been laid out on pages 9 through 14 of the pack, and starting on page nine, NZD 15.8 billion of capital was listed or raised over the course of the year. NZD 5.2 billion of it was secondary equity raisings. NZD 8.3 billion of it was debt issuance, and approximately NZD 1.9 billion was of funds. This was a complete reversal from the first half of 2024, which was down 11.5% compared to the prior comparable period, to now being up 11.6% for the year-on-year numbers. The changing environment has clearly played a major part in activity levels picking up, but the results prove the point that the market is there, particularly for large transactions.
If the economic environment continues to improve, we are cautiously optimistic when we look forward into 2025. The announcement from the New Zealand government prior to Christmas on the proposed changes to a number of regulatory settings this year has been well received by the market. Improving our settings to be more competitive and efficient against other markets without lowering market quality or negatively impacting being fair and transparent is important to New Zealand. This is a positive addition to the outlook. Moving to slide 10, it was a similar story for trading and clearing. The first half of 2024 was a continuation of the very soft levels in 2023, and it was down 8% on the prior comparable period. However, as the economic environment started to change, this flowed through to a pickup in activity across the second half, resulting in a full-year growth of 22.9% on 2023.
We are again cautiously optimistic going into 2025 that activity levels will continue to strengthen. NZX Dark, which launched in June 2024, is performing very well and better than expected, with 5.24% of the on-market traded activity going through NZX Dark. 2025 year to date, NZX Dark is traveling at 6.6% of all on-market activity. These stats are well up on our business case, which had 2% as the planned level. Assets in custody and our depository remained at NZD 7.8 billion, but we are working hard to attract more global custodians to our proposition, which is cost-effective and more market-efficient for those custodians. We are cautiously optimistic for 2025 in this area of our business. Our work on relaunching the NZX 20 index futures continues, and NZX is on track to be ready at the end of Q1.
Our efforts and attentions then focus on onboarding the trading and clearing firms and testing the connectivity and technology. Our view on timeline at this point is launching around the middle of the year, but it is dependent on the pace at which other parties can operate at. Our dairy derivatives market on slide 12 has seen volumes continue to lift, up 15.3% over the year, and that's actually with a slow start to the year. I'd also like to note we're off to a good start in 2025. Revenues in 2024 were impacted by a reduced interest margin fee level that we share with the SGX, and this was due to a change in the interest rate forward curve, which our fee level is set from. Unfortunately, the reduction in margin fees was not totally offset by the lift in trading volumes.
The partnership with SGX is strong, and we are now attracting more market makers into the product and with it, additional financial market flow providers. I would also, as I mentioned earlier, off to a good start in 2025. Global Dairy Trade's underlying profitability remains strong, and we continue to work with our shareholder partners, both Fonterra and the European Energy Exchange, to lift volumes. We remain positive as to what is possible for this business as it implements its strategic initiatives. Moving to Smart on slide 13, the business had another period of strong funds under management growth from NZD 11 billion at the end of December 2023. We took the business through to NZD 13.5 billion at the end of December 2024, which is up 22.6%. This has jumped further to NZD 13.8 billion at the end of January this year.
Outlined in the investor pack is the split between net new cash, which came in at NZD 800 million for 2024, and the market return growth, which totaled NZD 1.7 billion for the year. Investment performance in our diversified funds and our Quay Street suite of products has been excellent compared to the market. Key milestones achieved this year include the strategic lines that we now have with iShares. The products launched this year continue to see solid inflows, and we seem to have hit a sweet spot with the Bitcoin and Gold ETFs. We rebranded to Smart in October 2024 to reflect the business's growth ambitions and the broad range of products and services it now offers. It's about simplifying and streamlining the Smartshares and the SuperLife brands under one family, Smart.
The rebrand has initially focused on the ETF product range, but will roll out to Smart Kiwi and Smart Super in time. As we discussed at the half-year, we continue to see good growth momentum in the cash inflows to the Quay Street and Smart products from the Craigs Investment Partners network. Accounting standards require us to assess the progress towards these earnout targets. Notwithstanding the growing inflows, we need to be formulaic in our assessment, which has resulted in an accounting adjustment being made, which flowed through to the NPAT line. We remain confident the partnership with Craigs will deliver everything both parties saw at the time of acquisition. Momentum has just taken a little longer to build than we both initially thought. Behind-the-scenes work continues towards shifting the platform that sits behind the Quay Street and Smart KiwiSaver and Superannuation product range.
We are going to move that to Wealth Technologies, as you know. This will have a range of benefits, including reducing external costs to suppliers, leveraging the modern platform capability we have within the group, opening up new product opportunities, and lowering the technology risk profile in Smart, and obviously delivering further cost synergies once the current Smart platform is retired. We spoke about this at the half-year and mentioned this will not be a quick piece of work, but it will deliver significant benefits and further operating leverage, and we are making progress. Turning to Wealth Technologies, I am very pleased to be able to say that new client transitions continue through the second half of 2024. We have laid that out on page 14 of the investor pack and our client transitions that have been achieved through the year and the client activity that is in front of us.
We've also translated that into the ARR through the course of that period. Wealth Technologies is now cash flow positive from an external client perspective. We do have two sprint teams that are working on the Smart work. Wealth Technologies has had a standout year, and we're delighted with the business's progress. We set ourselves some challenging targets and have delivered. As previously mentioned, over the last couple of years, we have made ARR a higher priority than funds under administration or FUA. As not all FUA is worth the same to us. Notwithstanding, FUA reached NZD 16.2 billion at year-end, up 40.4%, and looking forward, the pipeline remains strong, which is a testament to the people, the product, and the client service that is being provided.
At the end of January, FUA reached NZD 16.4 billion, and there is a significant client transition onto the platform in late February, with a steady stream of transition planned through the course of 2025. We continue to manage our costs appropriately against these opportunities we have. However, if worthy opportunities arose and it makes sense to invest further to onboard them, then we would. Client transitions are always managed in conjunction with the client and their current supplier, and to some extent around annual cycles, tax being one of them. This sometimes impacts the planned timings that we have at a point in time. Our people in running the business in a responsible manner have always been two of the highest priority areas for NZX. Our staff engagement levels hit another record high across the group. Our staff turnover continues to operate below target.
Agenda pay gap compares well against other financial services businesses. However, we are focused on bringing greater gender and diversity balance to the more senior levels of the organization, and we are lifting the focus on staff development across the organization to help achieve these objectives. Our operations, technology, and risk teams continue to deliver accurately, safely, and within risk tolerance levels. We have set our operating responsibly vision as one which creates value while delivering a positive impact to society and the environment. We have this ethos integrated into the way we set strategy and operate the business. Thank you for that. I'll now pass over to Graham to take you through the financials in more detail, after which we're more than happy to take questions. Thanks.
Thanks, Mark. Before I start, I'd like to again draw everyone's attention to the disclaimer on slide 2, which contains important caveats relating to the information we're about to cover. The income statement for the year-end of December 2024 is summarised on slide 16, with further explanations on operating revenue, operating expenses, and non-operating expenses provided in slides 17- 20. Additionally, detailed analysis on our operating results by business unit is provided in appendix 1. I'm going to provide some detail on the slides that we have here. Moving to slide 17, our operating revenue increased NZD 12.4 million-NZD 120.8 million. I note that NZX's diverse revenue sources can be seen in note 8 of the financial statements. The main drivers for the increased revenue were first in Smart. There are several factors influencing Smart's revenue, including the impact of acquisitions, the unlocking of related synergies, and some one-off revenue changes.
I'll go into these in a bit more detail a bit later. Secondly, Wealth Technologies reflects the increased ARR from new clients. Finally, the markets business has seen improvement in the key metrics later in the year. Operating expenses, excluding acquisition integration restructuring costs, increased NZD 4 million- NZD 72.2 million. The main drivers for the increase being Smart. Again, there are several factors at play here, including the full-year impact from the Quay Street acquisition and the ASB integration impact that I noted in the full-year 2023 investor presentation. For other business units, our focus on cost control offset wage, IT, and general inflation increases. Overall, this results in operating earnings before acquisition integration and restructure costs increasing NZD 8.4 million- NZD 48.5 million. I'll now break down the operating earnings by business unit, which is summarized in slide 19, and a bit more detail.
Again, further details provided in appendix 1 to this presentation. Starting with the markets business, where operating earnings before restructuring costs increased by NZD 1.9 million. The main factor driving the increases in revenue were in the capital markets origination revenue. It increased due to higher levels of primary listing and secondary issuance for both equity and retail debt, remembering that equity has a relatively higher fee rate than retail debt, than wholesale debt, and finally than funds. That increase was offset by the annual listing fee, including the internal allocation to NZ RegCo, decreasing, which reflects the net impact of the contraction in the equity market capitalisation and a growth in the NZX debt market capitalisation. Remember, it's a market capitalisation at 31 May each year, which drives the annual listing fees for the period July to June each year.
In secondary markets, revenue increased driven by higher levels of trading and clearing value, partially offset by higher levels of uncharged value treated, i.e., where a trade exceeds the treated value exceeds the fee cap that we have in place. There were higher levels of registry transfers and OTC settlements. The secondary markets revenue decreased in dairy derivatives. It was adversely impacted by margin fees normalizing in line with global future interest rate curves, which outweighed the higher level of lots traded. In contractual and consulting revenues for the Electricity Authority, Fonterra, and the Ministry for the Environment, they decreased in line with contractual terms on the level of consulting activity. The information services revenue increased, which was a mix of lower levels of professional terminals, higher value licenses, more of those, and a significant backdated industry revenue. Market business expenses were relatively flat, only increasing NZD 0.1 million.
Net personnel costs were NZD 500,000 lower due to a combination of restructuring of several teams resulting in reduced headcount, offset by a transfer of a few roles from corporate services. There was a reduction in energy contractors in line with a reduced level of consulting and development revenue, and there was increased capitalization relating to the activities of NZX Dark and the S&P/NZX 20 Index Futures projects. IT costs were higher due to trading and clearing system inflation-related price increases and the NZX.com upgrade infrastructure running costs. Professional fees were lower at lower levels, particularly for audit fees relating to the backdated revenues. Moving to the Smart business. The headline operating earnings have increased by NZD 3.1 million. However, there are three key factors, all of which I've previously indicated, that are making the year-on-year comparison of Smart business complicated.
First, there were significant one-off revenues relating to the prior year financials. Secondly, there are the Quay Street revenue and expenses for only part period as the acquisition occurred in February 2023. Finally, there were synergies unlocked by the ASB Superannuation integration of transition services, i.e., investment management, investment administration, and registry services, which occurred in late August 2023, which resulted in a gross up of the P&L. For the revenue, the transition service costs were no longer incurred against the fund-based revenue, and it costs Smart having employed additional FTEs to perform those services within existing teams. Adjusting for these factors to get a like-for-like comparison shows the operating earnings, excluding acquisition integration and restructuring costs, are estimated to be about NZD 2.9 million or 15.6% higher than the comparable period.
The remaining increases in operating revenue beyond these factors reflects the fund-based revenue continuing to grow in line with increased average fund, which is a combination of positive market returns and positive net cash flows, as Mark has already discussed on slide 13. From a cost perspective, increased personnel costs for wage inflation and additional resources into compliance, middle office, and business analyst roles. Professional fees, including legal and tax advice, relate to Smart's new fund structure and new funds launched in 2024. Marketing costs include the marketing campaigns for those new funds that were launched during the year. Other costs include costs that increase the business growth, such as non-recoverable GST, statutory compliance costs, like, for example, the FMA levies, which increase fund levels increases.
Further operational efficiencies will be delivered in 2025 with the mature Smart operations, including the client portal and registry projects, as well as the fund structure simplification and fund rationalisation. Now moving to Wealth Technologies business. Our operating earnings increased by NZD 3 million. This was a combination of revenue increasing by just about over NZD 2.9 million and the expenses decreasing slightly. Wealth Technologies administration revenue, FUA-based revenue fees, increased in line with the increased average FUA, which is a combination of clients being migrated onto the platform through 2023 and 2024, positive market returns, and positive net cash flows, including those from new clients. Those were discussed earlier on slide 14. Development fees and deferred income reflects the levels of customisation specific to client requirements, some of which is paid in advance and for accounting purposes recognised over the life of the client contract.
Wealth Technologies' net personnel costs were lower, reflecting a combination of gross personnel costs being higher, as previously indicated, average headcount has been higher to accelerate the migration velocity of additional FUA from the current client, which was netted by capitalized labor and overheads being higher, reflecting both the continued product development and client migration activity and the fact that 2023 was at lower levels, reflecting the effort to migrate clients from the legacy platform, which was closed in the first half of 2023, onto the new platform. As indicated in slide 14, the remaining migration of Wealth Technologies' current contracted clients will add further to the annual recurring revenue, the timing being dependent on client strategic priorities relative to their timing and their migration resource commitments, as well as the client's current platform provider supplying data in a timely manner.
This timing, as well as winning further new clients, will also drive the CapEx profile and the timing of the amortisation bubble, which I explained further on slide 37 and will discuss a bit later on. For corporate functions, the operating expenses were held at the same level as 2023. This reflected increased personnel costs due to the transfer of market business and one new policy role, the impact of restructuring of some IT teams in late 2024, and the benefit of that would be gained more in 2025. They were offset by reduced professional fees and other cost savings relating to legal fees and some non-recurring cost savings. Finally, NZ RegCo, where operating earnings after internal revenue and expense allocations were NZD 0.4 million better than 2023.
This was driven by regulatory fee generating activity levels being slightly higher than 2023 and lower personnel costs due to lower average number of employees in the year. Operating expenses in slide 20. The acquisition integration and restructuring costs relate to, in the prior year, some component of acquisition costs related to the Quay Street acquisition. The integration costs relate to both Quay Street business and the maturing of Smartshares systems and operations. These costs represent the incremental one-off external cost net of capitalized internal costs. Maturing the Smart operations will be ongoing. Restructuring costs relate to the capital markets and corporate services teams' restructures in late 2025 to offset the impacts of changes in the Fonterra contract from early 2025. The financial benefit of these structures will largely be seen in the coming year.
Net finance costs, which are at a higher level due to the inclusion of full-year period of interest on the debt funding of the Quay Street acquisition, as well as their subordinated notes in interest rate being reset for five years in June 2023, full-year impact of that coming through. We have benefited from interest income on our various cash balances being positively impacted by higher average interest rates through 2024 relative to 2023. The depreciation amortisation is higher in line with our expectations, as outlined in previous investor presentations. That mainly reflects Wealth Technologies' increased amortisation relating to new clients migrated in both 2023 and 2024. We continue to expect further increases as migrations continue and new clients join Wealth Technologies' platform.
In previous investor presentations, I've referred to this pattern as an amortisation bubble, where the amortisation profile lags the CapEx profile by a few years, and results in future free cash flows initially rising faster than NPAT increases. I've provided more detail on this impact in appendix 1, including an indicative CapEx amortisation profile, and I specifically note the profile's timing will be later in occurring if Wealth Technologies continues to win new clients. Amortisation has also increased for a full-year amortisation of Quay Street management rights. The share of profit and losses of associates relates to our investment in Global Dairy Trade, GDT. As indicated previously, GDT's three-year expansionary strategic plan is expected to result in NZX's share of the profits of associate being low until GDT's strategic initiatives successfully mature.
Specifically, GDT has recently commenced an upgrade to the auction platform, with the upgrade OpEx being incurred through to 30 June 2025. This will impact NZX's share of profits of associates in the short term before delivering efficiency gains in the medium term. The accounting adjustments relate to two things. Firstly, the change in fair value of contingent consideration relates to the decrease in the fair value of the Quay Street earnout provision to recognize that the reassessment of the probability of achieving net fund inflow targets by November 2025 has reduced. The criteria for the three tranches of the earnout are detailed in the financial statements note six. The second tranche was finalized at $3.2 million and paid out in January 2025.
The third tranche has a high hurdle before any earnout is payable, and at this point, the historical inflows do not indicate that this hurdle will be achieved. We will again reassess the earnout probability at the half year. The second factor is a goodwill write-off relating to a partial write-down in the energy contracts and tangible assets to recognize the current year renewal pricing terms, the reduction in the number of energy contracts during the current term, and a prudent expectation on the terms of a successful re-tendering in 2027. The effective tax rate is lower than the statutory 28% due to the combination of non-taxable items, particularly the accounting adjustments, partially offset by accounting versus tax valuation differences and the share of associates being net of taxation.
Overall, this has resulted in net profit after tax being NZD 25.9 million, up NZD 11.9 million, which is 88.1% on 2023, and the operating margin is up too. Normalizing the net profit after tax for the accounting adjustments, the net profit after tax would be NZD 18.3 million, up NZD 4.2 million, which is 30.1% on 2023. As I noted earlier, further detailed analysis on the operating results by business unit is provided in appendix 1. The balance sheet is noted on slide 22. The key points to note here are, first of all, the cash balances include balances which are not available for general use, including the clearing house NZD 20 million of risk capital and approximately NZD 3.1 million of working capital requirements under the Financial Markets Infrastructure Act and the International Organisation of Security Commission's principles.
Also in the Smart funds management business, where there is NZD 3.2 million of working capital requirements under the FMA MIS license and the Asian Regional Funds Passport. The second point to note is that funds held on behalf of third parties, both assets and liabilities, offset, and hence the assets are not available for general use. These relate to issuer bond deposits, participants' collateral deposits, and deposited funds. The final point is on the disclosure of non-current and interest-bearing liabilities. The subordinated notes next election date is not until June 2028, and the acquisition loan facility has at year-end NZD 22.5 million drawn, and subsequent to year-end, the additional NZD 3.1 million will be funded through that facility. The bank facilities were renewed during the year and they now expire in February 2027.
Slide 23 summarises our capital expenditure in the four graphs, all with the same scale to show relativity, starting top left and working away clockwise. The trading and clearing and energy systems, the CapEx levels depend on the specific system's life cycle. At present, there are no large-scale upgrade projects underway, and we have enhanced our trading system for the S&P/NZX 20 Index Futures and automation of depository systems. For property, plant, and equipment, in 2024, CapEx was related to the refitted Wellington office to allow retrenchment to one floor. The other software relates to the normal life cycle replacement for IT equipment and software, as well as ongoing enhancements to NZX's technology architecture. For the growth businesses, Smart continues to enhance systems.
Maturing the Smart operations model will require further enhancements to the client portal, CRM digital tools, and registries, some of which will be capitalized, but most of which will be OpEx. Finally, Wealth Technologies is our largest area for CapEx, and as the business continues to migrate new clients and maintain its product offering, we continue to expect this level of CapEx for a few years as the contracted new clients and further prospects are migrated to the platform. Slide 24 summarizes the cash flows for the year. Operating activities increased cash flows reflect the increase in net profit after tax adjusted for non-cash items, such as the accounting adjustments, depreciation, amortization, and the GDT earnings, offset by working capital movements with higher levels of debtors, prepayments, and accrued income at year-end.
Investing activities reflect the capital expenditure that I've just noted in the previous slide, with the previous years relating to the settlement of the Quay Street acquisition. Finance activities mainly reflect the dividend paid, net of participation in the dividend reinvestment plan. The other financing activities relate to lease payments, and the previous year relates to the debt raised to pay for the Quay Street acquisition. Overall, in future years, after Wealth Technologies completes its migration of new clients and CapEx settles to a more normal level, we expect cash flows to rise faster than NPAT increases due to the Wealth Technologies amortisation bubble, which I have explained in the appendix. I do note that the exact timing of that amortisation bubble is impacted by future new client migrations. Specifically, if new clients are won, then the amortisation bubble is deferred until their migration is completed. Moving to slide 26.
Our full-year final fully imputed dividend is NZD 0.031 per share, which will be paid on the 2nd of April 2025. The normalised dividend payout ratio is within policy. The dividend reinvestment plan is suspended for the final dividend. All shareholders elected to participate in the DRP will receive a cash dividend. This leads me to our 2025 earnings guidance. NZX 2025 operating earnings before integration costs are expected to be in the range of NZD 49 million-NZD 54 million. As always, I note that the earning guidance is, of course, subject to the usual market caveats that are noted on the slide. Earlier, we laid out the 2025 strategic priorities, numerical targets, and expected dependencies that feed into this earning guidance table on slide six. I specifically note that these are not financial forecasts.
Progress towards achievement of those deliverables can be monitored within the shareholder matrix that are published monthly. That concludes our presentation, and I'll now open it up for questions.
Thanks, Graham. Happy to take questions now. Looks like we may have a question. Just making sure that we can get this coming through properly. Dave Storms, if you can answer your question. Dave, can you hear us?
Can you guys hear me? Hello.
Yes, we can. Yep, fire away, Dave.
Perfect, perfect. Just wanted to start with WealthTech. You have that chart on the WealthTech slide that breaks out near-term versus long-term migration dates. I'm just wondering if you could help us kind of.
That's slide 14. Yeah, sorry, Dave. Perfect. So Dave, just. Slide 13 is 14, I think it is, isn't it?
14, correct.
Yeah.
Just hoping you could kind of break out and maybe quantify what a typical near-term versus long-term migration looks like, and if there's anything more that could be done to shrink some of those lead times. I'm assuming it would just be a matter of headcount at this point, but if there's anything else, very curious there.
Yeah, we've got a mixture of clients in front of us, some large, some small, some medium, and in between. Through the course of the year, what we're seeing in terms of client transitions is a mixture of those. The key thing for the migration timing, there are a couple of key things, really. One is how complex or simple their business is. Two, it's how much data they want to take from their old systems and bring into our systems so they get the historical picture.
Three, sometimes you've got to work around annual cycles like tax, as I mentioned earlier. The landing of that timing is a mixture of all of those things. It's not so much sort of one thing that we can do to accelerate. It's really what ourselves and the client can do to suit sort of their business, and to some extent, making sure that we can get this data off the old providers. From our point of view, we're working very, very closely with these customers to make sure that they get onto our platform as soon as they practically can. There are some things that some clients are prepared to take a little bit more risk than others, but we just have to work with that.
I guess my point, Dave, is it's not all in our camp, and to some extent, it relies on sort of the goodwill of both clients and ourselves.
Just to extend that last comment, I'm more upset to be specific. We are dependent on the capacity of the client for end-user testing, and we are also dependent on the client's current supplier for provision of historical data and their timelines and capacity to provide that. There are some external dependencies there that we can't control.
Understood. That's very helpful. We should kind of expect to see a stabilisation in both WealthTech growth as well as WealthTech CapEx just with how much of it is out of your control.
Yeah. Certainly, what we see on the slate for this year is another very busy year and some progressive clients coming on right through the year. As I said, some modest size. When I talk about that, I'm talking a couple hundred million. The medium-sized clients are more in that 700-odd million range, and then there's obviously some very big ones as well.
Understood. Very helpful. Just a couple more for me, if you don't mind. I did have one on NZX Dark. It sounds like it's running really strong right now. Any sense of what the ability to maintain this current performance is? Is this just a newer product in the market for you guys, and has it drummed up a lot of excitement, or is there more to that story?
No, we see it. Dave, we see it being quite consistently used.
It's a feature of most other markets around the world where they'll have a lit venue, which is your standard trading venue, as well as an anonymous midpoint trading venue, which is what Dark is. It's a standard feature in other markets. We, I guess, when we built the business case on it, anticipated potentially a slower transition onto it, but the markets really embraced it, which is great. Whilst I talked about the averages, certainly this year being around that 6%-6.5%. Last year, we're sort of building, so it was more in the fives. We've had days there where on-market activity that's flown through Dark can be as much as 10%-12%. We're seeing good use. It's a feature that's here to stay.
We see it in time being liquidity-enhancing because it does give options for investors, especially larger investors, to leave larger orders in the market without that information leakage or the potential for information leakage. We are feeling very positive about it. The other thing, too, is when you look at the pricing structure for our trading fees, that has got a bespoke pricing fee on it. That is actually enhancing for us as well.
Understood. Very helpful. Thank you. Just maybe two more quick modeling questions, if you do not mind. It was another year of working capital growth. Is there any thoughts on uses or ability to put any of this to work, or just maybe just your thoughts there in the near future?
I think, as we see it in the invest today, we are starting to see the rise of sort of cash flows.
We'll obviously work very hard to continue that trend through the course of 2025. That really just gives us options. We haven't decided on what those options are, but certainly, we're starting to think about it through the course of this year. I wouldn't necessarily want to say any which way that we would use that cash just at this point, but we do have options.
Understood. Thank you. Just one more. Appreciate the guidance and laying that out. Just want to make sure there's no weird seasonality things we should be aware of for the year. Should it look like previous years breaking out between one-half and second half this year?
Yeah. Typically, second halves are usually more active than first halves. That's typical seasonality. Not as stark as what we saw in 2024, though.
2024 was quite the unusual year, given the fact, though, that we were coming off a very low base in 2023. We are probably going to normalize a little bit, but typically, second half is always a bit more active. I think it just comes down to coming holidays, number of holidays through the two halves. There are more working days in the second half. Generally, when you are coming back off a summer break in New Zealand, there is a bit of momentum that needs to be built. Financially, we would expect seeing patterns. The only thing that springs to mind is the one-off industry revenue that we got in the first half of last year. It is the first time we have ever got any one-off revenue in indices. I would really not expect that to be replicated.
Understood. That is all very helpful. Thank you for taking my questions, and good luck in the rest of the year.
Thank you.
Thanks, Dave. Appreciate it. Right. We're just going to take Grant Lowe. Just going to take you off mute, and then you can ask your question.
Hi, team. You can hear me okay?
Yep, loud and clear.
Great. Thank you for the presentation. Very comprehensive, as always. Just a couple for me around the guidance side of things. Normally, you guys are pretty conservative at the start of the year for good reason, given market uncertainty or whatever at the start of the year. The guidance is pretty strong. It's sort of 6% up at the midpoint. Can you give us a breakdown of where that uplift comes from? Obviously, there'll be some annualisation of WealthTech, annual recurring revenues, sort of as a December exit point, etc., etc.
If you could give us a rough breakdown, and then also what you've assumed for market cap and market returns.
Yeah. We've got a page on it, haven't we, that's fundamental assumptions.
If you could go on to slide, I think it's six.
Yeah. You've got those metrics there. I appreciate having a chance to sort of analyse those in my language at this stage.
That's totally fine.
At a really, really high level, Grant, markets, as a generalisation, slightly better volumes would be the assumption. Within value traded and cleared, there is an anomaly in the current year valued and traded around record rebalance days that may not occur in 2025, and the way the December AIA transaction was double-booked the way it was done. There's a few anomalies in the 2024 number. That just looks flat, but in reality, we think it'll be up.
Market continuing to come off the bottom at a relatively prudent rate. Smartshares has benefited late in the year from the markets increasing. There continues to be major growth out of Smart funds management revenue. WealthTech, we see a year where we're continuing the momentum of last year. Something similar would be ideal for us. In terms of our assumptions around market returns, we take a 10-year view of life, and when we set the guidance for the year, we tend to set it on long-run average return net of tax is our approach. We don't try and pick the market. I tend to tell people I wouldn't be in this job if I could. Yeah, we tend to look through the cycle, and some years it'll be better, some years it'll be worse. Yeah.
No, I appreciate the market return side of things. Just kind of the earlier part of that question, I guess, if I rephrase that slightly, you have done 48 point some in FY2024, and then midpoint of guidance is 51.5. It is sort of a $3 million uplift. In broad terms, which business segments do you expect it to come from? Assume a large chunk of that $3 million is Wealth
Tech. I mean, I think seeing patterns is 2024 is the expectation. The markets business does have a couple of headwinds. I have alluded to the industry one-off revenue. We have never had a one-off revenue in there. It was a surprise. It is unlikely to occur again. We see lower levels of audit revenue. We do have an impact from Fonterra changing to being on the main board, which we have offset by restructuring inside the capital markets business.
Maybe not as much of an uplift in capital markets as it could have been if those two factors were not there, but continued strong growth in Smart and something similar coming out of Wealth Technologies.
That is great. Thank you. Just around WealthTech, I appreciate the step away from the focus more on annual recurring revenues, which is good. Makes sense. Do you have an idea at this stage? I appreciate it depends on client timing, which you have discussed in detail. Do you have an idea of exit ARR for fiscal year 2024, 2025 now at this stage?
Yeah. On slide 14.
We have a table there.
We have a table, and there is one component that we are pretty comfortable that will occur in the current year.
I have one where migration dates are still to be determined, but some of that can occur in the current year. We just do not have it fully anchored yet.
Yeah. Okay. I did see that table. One way to read this would be the 10.8 at FY2024, most likely the 1.6 happens this financial year, and then some of the 1.8 happens at the financial year.
Correct. Just being me, I will caveat it with we are dependent on client capacity and their current suppliers providing data.
I think you are right, Grant, in the way you are thinking about it, though. That 1.6, we are treating with a high level of certainty. The 1.8, obviously, slightly less level of certainty, but we are trying to give you a feel for where the back of that.
That is useful. That is all for me. Thank you very much.
Thanks, Grant.
Okay. Kieran, I'm just taking you off mute. Kieran Carling, you can ask your question in just a moment. Go ahead. Hi, Kieran.
Morning, Mark. Morning, Graham. Thanks for the presentation. Grant's actually asked a couple of my questions. I just have the one. Just in terms of your required investment into the Smart platform, can you talk a little bit more to the scope of the improvements there and just give some guidance around what you expect it all to cost and sort of the timing of those costs?
Do you want to talk to the Wealth Technologies?
Yeah, sure. I suppose when you look at the CapEx graph, you can see that we haven't really been investing into that business. It's been focused predominantly on Wealth Technologies.
There is a little bit of catch-up, I feel, in this business, and it will take the guts of the next two years, if not slightly more. Primary thing, Kieran, is integration of the Quay Street business requires us to move off previous owners' transition services, which is largely driven by registry and client portal. It would be fair to say that the Smart business's portal is certainly not market-leading, would be polite way of putting it. We want to get to a point where we are standard, at least for the market, if not enhanced. The portal is important. It is also important for ensuring efficiencies of growth and user self-service going forward. Behind that then sits the registry. We have four registries. We had six a couple of years ago. We are down to four. Smart is not a registry provider per se.
The Wealth Technologies business can assist in providing the software for that business rather than the software being Smart's software. There is a move to move onto the Wealth Technologies platform where possible and enhance the offering in that way. That will take time because fundamentally, the Wealth Technologies business is in a period where external clients are grabbing a few of those at the moment. It is trying to balance out the new clients gained there with the Smart business moving over. In terms of quantum, look, it could be as we move in, it will go up. It will be higher level in total, maybe up to NZD 2 million in the 2025 year and possibly somewhere in the year after as we anchor where we go from there.
That will include at that type of level, that will include the full rebranding and more of a push in the marketing effort for the Smart business. We see significant opportunity. We've been relatively low in our marketing efforts. I'm sort of including everything that we might consider doing there, whether it's considered one-off or ends up being recurring as we spent more on marketing, and we haven't approached that discussion yet.
That's helpful. Thank you. Just, I guess, to summarize that then, with WealthTech CapEx holding fairly steady state for the next few years, would you expect CapEx to be up just a couple of million dollars in fiscal year 2025 for the company?
No, I actually expect it to be slightly lower. We won't have the Wellington refit in there, and everything else should be at roughly the same levels. It will be more through OpEx.
The incremental costs on Smart will be more OpEx-orientated. We obviously capitalize where we can, but fundamentally, if you're moving from an in-house system to external to Smart, then a lot of the Smart activity will be expense. Yes, there will be a component of WealthTech's activity that will be capitalized. It's currently capitalized. It will look the same. WealthTech will look to be at the same levels.
And that Smart OpEx will come through at a divisional level as opposed to falling into corporate?
Correct. Correct. Yeah. Yeah. Yeah. We sit because it's non-BAU, non-recurring, we will take the data out and show it separate.
I guess just one add-on question to that then. Is it fair to assume you're taking the same stance on growing that Smart book organically while this process is underway as opposed to looking to make more acquisitions?
Yeah. I mean, we've been consistent, or we still remain consistent in our views here on that. Yeah, the focus is organic. We've got good momentum. Net new cash is good, so we'll keep the hammer down on all of that. As Graham said, the operational improvements really give us the scalability and the automation that we need there. That's not to say you wouldn't look at an opportunity if it came along, but obviously, it's got some high hurdles that we'd need to meet, and it needs to be very consistent with our strategy.
Yeah. Kieran, I always look at everything. I'm not looking at anything at the moment, just so it's just complete clarity.
Great. That's very helpful. Thanks, guys.
No trouble. Anybody else?
No. I'm being told that there are no further questions. On that, I really appreciate people listening in this morning. Obviously, through Simon Beattie, our investor relations head, and Graham and I are very happy to take questions directly afterwards. Certainly appreciate everybody's time. Thank you for your contributions, and have a pleasant day.