Good morning, everybody. Welcome to the 2025 Half-Year Results Call for NZX Limited. I'm Mark Peterson, NZX's Chief Executive, and I'm here with Graham Law, NZX's Chief Financial Officer. Graham and I will take you through the result, and I'll lead off with some key elements, a lot of comments, and Graham will step us through the financials, after which we're more than happy to take questions. Just a note: to ask a question, please use the Raise Your Hand button on the panel on the top right of your screen, and our moderator will send you a message request to unmute, at which time please state your name and then ask your question, and then go back on mute if you wouldn't mind. Graham and I will then answer the question.
Before we start, please note the important notice on page two of the IR pack is that the statement applies to all content and comments made by us during the call. Just a few opening remarks. When we spoke in February this year, we talked of the increasing activity we saw through the 2024 year. We spoke of cautious optimism about New Zealand's economic environment in 2025 and how NZX Limited was well-positioned to take advantage of that. Through the first quarter of this year, that was the case. Overall, market activity was maintained, capital raising activity was active, trading activity levels carried on at the elevated levels, and asset prices were stable to rising. However, Liberation Day in early April created uncertainty and caused asset prices globally to adjust down for a period.
For the businesses that we operate, this impacted all three to some extent and probably cost us around NZD 1 million in revenue. Capital raising activity was pushed out, trading levels dropped away before slowly recovering, and asset prices took approximately six to eight weeks to recover from the down. Notwithstanding the macro-economic environment impacts, NZX Limited has posted a solid set of results for the first half of 2025. Earnings, excluding integration and restructuring costs, were NZD 25.1 million, up 7.5% on the prior year, or the same period from the prior year. If we include integration and restructuring costs, earnings were NZD 24.1 million, and that was up 5.4%. Revenues were NZD 61.7 million, up 6%. Expenses were NZD 36.7 million, up NZD 1.7 million, or 5%. Operating margin improved further to 40.6%, and reported impact was NZD 8.3 million, down 46.4%.
However, you do have to remember if we exclude the non-cash accounting adjustments for the Keystrate earnout in the first half last year, the impact of NZD 8.3 million would have lifted just under 1% over the same period. We've declared a fully imputed final dividend of NZD 0.03 per share. As I mentioned, Graham will take us through the financials in more detail shortly. Speaking to pages five and six of our investor pack, many of you will recall us rearticulating NZX's growth strategy at our investor day in November last year and at our full year 2024 results presentation in February this year. We continue to reiterate our three businesses: Capital Markets, Smart , and NZX Wealth Technologies are all targeting greater scale and greater operating leverage. For Capital Markets, we continue to enhance our product range and scale up.
The focus of Smart is to continue the strong organic growth and deliver the operational efficiency program. For NZX Wealth Technologies, our plan is simple: keep winning new clients and to scale up the business. None of that has changed. In recent investor and results presentations, we have talked about the benefits of NZX Group and having our businesses supporting one another, particularly NZX Wealth Technologies powering Smart . We have also discussed that cash flow for the group will grow faster than EPS growth, given the NZX Wealth Technologies amortization bubble and the reduction in corporate CapEx from recent levels. We continue to reiterate these messages. The business highlights have been laid out on pages 8 through 13, as we do normally. If I start on page 8, capital listed and raised has been solid.
However, we have been impacted by some macro factors which have created uncertainty in markets, as we mentioned. This included the effects of the tariff announcements on Liberation Day, and the international bond markets have been nervous since earlier in the year. Alongside that, the New Zealand economy has continued to be challenging for a number of sectors. The uncertainty created has, in some instances, pushed out corporate plans. Challenging bond market conditions did widen spreads, which meant debt issuance was challenged for the early part of the period. This half has been effectively a tale of two quarters, and this has been highlighted in the capital listed and raised numbers. Fonterra Cooperative Group's move from a private market to the main board resulted in NZD 7.4 billion of capital listed.
Of the remaining capital listed and raised, 61%, or just under NZD 3 billion of the NZD 4.8 billion in total, was completed in the first quarter. The recent uncertainty has also, in some instances, delayed plans for companies, but we are now seeing signs of change. Debt issuance has started to pick up, and generally, we are seeing a more positive second half, clearly on the assumption that we see a smoother macro-economic environment for the remainder of the year. We continue to work constructively with government and policymakers to ensure New Zealand's capital market settings are as competitive as possible. Prospective financial information contained in IPO disclosure documentation is now in law and much more flexible for prospective issuers. Potential changes to the climate-related disclosures are with the Minister. General disclosure and directors' duties work is currently being researched by policymakers.
We are keen to see further changes enacted by the government this year, as New Zealand can't afford to get left behind in making moves that support investment. Largely, we are also working hard to encourage the government to further align tax settings to eliminate distortions and encourage growth of capital markets, and this work is ongoing. Moving to slide nine, if you recall, the first quarter of 2024 was soft for trading and clearing values, and then activity levels built quarter on quarter through the remainder of 2024. For 2025, we have broadly carried on how we finished last year. No question, the recent market uncertainty did soften activity for a period of time in the second quarter. At the end of March in 2025, we're up 52% on the prior comparable period, and at the end of June, levels were up 31.4% on the same period last year.
We continue the pipeline of work that aims to build liquidity levels. NZX Dark is performing ahead of expectations with more than 6% of on-market activity going through that venue. We continue to work towards relaunching our S&P/NZX 20 Index Futures. Our plan is to work towards market-wide testing with the cornerstone group of general clearers, liquidity providers, and end users in early November 2025. We are pleased with the commitment and efforts of everybody in the group, and all going well, it will result in a go live at the end of the first quarter, or really the second quarter in 2026. We will also see two new global bank participants back in our market as part of this. As most of you can see, these initiatives are all focused on assisting in increasing liquidity in the market and providing end users with risk management products.
Building liquidity further will continue to be a theme for us. Assets in custody in our depository remained at NZD 7.7 billion, but we continue to work hard to attract more global custodians to our proposition, which is cost-effective and more efficient for custodians. We remain cautiously optimistic for 2025 in this area of our business. Our dairy derivatives market on slide 11 has seen volumes continue to lift, up 20% on the comparable period, with revenues up a similar amount. The partnership with Singapore Exchange is strong, and we are now attracting more market makers into the product, and with it, additional financial market flow providers. As flagged in our investor presentation, Global Dairy Trade did in-house their technology platform, which was expensed over the half.
This did impact the share of profit of Associate Line and the P&L, and we expect this to normalize back to previous profitability levels in the second half. The in-housing has two key business benefits: more agility to be able to service the market, and second, alongside GDT, can operate the technology at a lower cost than that was being charged by the previous outsourced provider. Moving to Smart on slide 12, the business had another period of good fund growth, noting the impacts from Liberation Day. From NZD 13.5 billion at the end of 2024, we took the business through to NZD 14 billion at the end of June 2025, up 3.8% since the end of last year. Outlined in the investor pack is a split between net new cash of NZD 400 million and market return of NZD 100 million.
Better than expected net cash flows have occurred into our ETF and keystrate products. We are behind target on our net new cash and our KiwiSaver products and are in the process of lifting our customer communications and marketing efforts. Our superannuation products have marginally higher outflows than planned, off the back of our corporate and government clients reducing staff numbers. Investment performance of our diversified funds and the keystrate suite of products has been very solid once again, and it is important to note that we stack up well against the market when comparing performance returns near to fees. It should be noted that our diversified funds have an active asset allocation on top of the passive fund building blocks. Other notable milestones achieved include opening up the keystrate products to the market beyond the Craigs Investment Partners Advisor Network.
This is the first stage of utilizing our NZX Wealth Technologies platform to greater effect. We now move into transitioning our KiwiSaver products onto the NZX Wealth Technologies platform, which is also likely to include a brand shift to Smart KiwiSaver in mid-2026. Each of these shifts creates a step change in our client service proposition. Turning to NZX Wealth Technologies, we are continuing the strong momentum in this business that has been built particularly over the last year. We've once again laid out on page 13 of the investor pack our client transitions that have been achieved through the year and client activity that is in front of us. We've also translated that into ARR, which was at NZD 14.2 million and is now, we're reporting NZD 13.9 million.
It's down slightly due to the market volatility and also the FUA levels that have actually come across with client transitions, being marginally lower than what we might have thought. In this presentation, we've added a split of FUA between new client migrations, net cash flows from existing clients, and the market return movements. We continue to have two sprint teams that are working on the Smart work, which has now opened up the keystrate opportunity to clients outside Craigs, and this was the first deliverable, as I mentioned before. The second, as we've also mentioned previously, is assisting Smart move its KiwiSaver business onto the platform. In doing so, that will improve further the client experience. Looking forward for the NZX Wealth Technologies business, the prospect list remains very strong, with a number of ongoing discussions nearing completion.
This is a testament to the people, the state-of-the-art technology, and the client service that is provided, and we continue to see a pathway for this business to create at least NZD 10 million of free cash flow for the group each year. We also continue to manage costs appropriately against the opportunities we have. 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 this point in time. However, if where the opportunities arose, that made sense to invest further to onboard these, then we would. Finally, we have included a slide in the appendices section of the pack that covers our efforts on people and culture.
Our staff engagement levels hit another record high across the group in the most recent engagement survey, and staff turnover continues to operate below our target. Our gender pay gap has reduced to 13.4% across the business, and at the Senior Leadership Team, it is 2.5%. These metrics compare well against other financial services businesses. We also remain focused on bringing both gender and diversity balance at the more senior levels of the organization, and we are lifting the focus on staff development across the organization to help achieve this objective. Our operations, technology, and risk teams continue to deliver accurately, safely, and within risk tolerance levels, and we continue to operate our operating responsibly vision, which is a vision that creates value for shareholders while delivering a positive impact to society and the environment.
We have this ethos integrated in the way we see its strategy and operate our business. With those comments, I'd now like to hand over to Graham, who will take you through the financials in more detail.
Thanks, Mark. Before I start, I'd again like to draw everybody's attention to the disclaimer on slide two, which contains certain caveats that are important for the information I'm about to cover. Starting with the financial performance, the income statement for the six-month period ended June 2025 is summarized in slide 15, with further explanations on the operating revenue, operating expenses, and non-operating expenses provided on slides 16 to 19. Additionally, detailed analysis of the operating result by business unit is provided in appendix one. I'm going to go into some detail across all these slides now. Starting with operating revenue, it increased year on year by NZD 3.5 million to NZD 61.7 million. I note that NZX's diverse revenue sources can be seen in note six to the interim financial statements. The waterfall on slide 16 highlights the drivers for the increased operating revenue.
In Smart , the fund-based revenue has grown in line with the 17.7% year on year increase in fund. In NZX Wealth Technologies, it reflects the increased ARR for new clients. In the market business, we have seen growth in most major revenue lines, such as trading and clearing fees. However, these have been more than offset by two factors. Firstly, as previously indicated, contractual revenue decreased for the Fonterra Cooperative Group's contract ceasing on their move to the main board from the beginning of this year. Secondly, there have been no audit or backdated license revenues in H1 2025. Operating expenses, excluding the integration and restructuring costs, increased year on year by NZD 1.7 million to NZD 36.7 million. The waterfall on slide 17 highlights that the year on year increase was across all business units.
I do note that those costs were down NZD 0.6 million or 1.6% on H2 2024, and we continue to maintain cost control across the group. Overall, this resulted in the operating earnings before integration and restructuring costs increasing NZD 1.7 million to NZD 25.1 million. I'll now break down the operating earnings before integration and restructuring costs by business unit, which is summarized in slide 18, with the detailed segmental analysis provided in appendix one to this presentation. Starting in the markets business, the operating earnings before restructuring costs decreased NZD 1 million. The market business revenue decreased NZD 0.7 million. As I noted earlier, there were the two main factors causing the decrease. Firstly, the contractual revenue decreased for the Fonterra Cooperative Group's contract ceasing on their move to the main board, partially replaced by related annual listing fees and trading and clearing fees.
Secondly, there was no audit or backdated license revenue in H1 2025. Removing those two items, the remaining markets business revenues increased by over 5%. The main factors being in the capital markets origination, revenue decreased due to lower annual listing fees after internal allocation to the reg co-business, which reflected the net impact of a contraction in the equity market capitalization in H1 2024 and the growth in NZX net market capitalization. Remember, it's the market capitalization on 31 May each year, which drives the annual listing fee revenue from July to June. Lower levels of primary listing and secondary issuance for both equity, excluding the Fonterra transfer and retail debt. Remember that equity has relatively higher fee rates than retail debt, than wholesale debt, and finally than funds. For completeness, I note the change in accounting policy, which is outlined in note five to the interim financial statements.
Initial and subsequent listing fees are now recognized evenly over five and three years, respectively. Previously, initial and subsequent listing fees were recognized when the listing or subsequent capital raising event took place. Under the previous policy for both FY 2024 and FY 2025, the revenues would have been NZD 0.4 million and NZD 0.9 million lower, respectively. The secondary markets revenue increased by, firstly, trading and clearing value was higher at higher levels, though this was partially offset by higher levels of uncharged value traded, i.e., where a trade exceeds the fee cap. There were also higher levels of depository uplifts and registry transfers. Dairy derivatives revenue increased in line with the higher level of lots traded. There were some favorable FX movements, but these were largely netted off against some further margin normalization.
Consulting revenues for the electricity authority were near record levels, and we don't expect that to be fully repeated in H2 2025. These increases were all offset by decreases in contractual revenue. I've already noted the Fonterra impact. In addition, the electricity authority's contractual three-year extension from 1 July 2024 was at the contractually preset lower levels. For information services, aside from the lack of audit or backdated license revenue that I noted earlier, the revenue increased 7.7% on H1 2024 due to increased license and retail license numbers and retail terminal numbers, higher industry revenue, and some price increases, partially offset by lower levels of professional terminals. In H2 2025, there is limited potential for audit and backdated license revenue than we have previously seen. The markets business expenses increased by NZD 0.3 million.
Net personnel costs were NZD 0.4 million lower due to a combination of the restructuring of several teams in late 2024, resulting in reduced headcounts, partially offset by lower levels of capitalizable projects. Information technology costs increased NZD 0.4 million due to trading and clearing system inflation, being New Zealand and Indian inflation, related price increases, and connectivity upgrades and infrastructure running costs. Marketing costs increased NZD 0.1 million, reflecting a greater level of direct marketing campaigns for primary listings and secondary issuance and for the dairy derivatives market. Other expenses increased NZD 0.2 million, included audit fees, travel, statutory compliance costs, and non-recoverable GST.
Moving to the Smart business, the headline operating earnings, excluding integration and restructuring costs, have increased by 23.3% to NZD 13.7 million, which primarily reflects fund-based revenue continued to grow in line with the increased average fund, which is shown on slide 12 as a combination of positive net cash flows and positive market returns, though the monthly phasing profile in H2 2025 did have an impact. Average BEPS remains consistent with H2 2024, though slightly down in H1 2024, reflecting the distribution channels that are driving the cash flows rather than any fee compression. Cost base increased 3.6%, the main factors being gross personnel costs increased by only 2.2%, which is less than wage inflation, as resources focused on integration and activities to mature Smart 's operation are recognized within the integration cost flow. Information technology costs have increased due to inflation and additional Bloomberg functionality obtained in mid-2024.
Marketing costs have been very low in the first half, and we do expect these to rise in the second half of the year. Now moving to NZX Wealth Technologies, where operating earnings increased 64.6% to NZD 2.5 million. Operating revenue increased 32.2%, driven by NZX Wealth Technologies administration for a fixed fees increased in line with the increased average FUA, which is shown on slide 13. That's a combination of new clients being migrated onto the platform in both 2024 and 2025, plus market returns, positive market returns, and positive cash flows, including those from new clients. Though similar to Smart , the monthly phasing profile in H2 2025 did have an impact. Additionally, the revenue has been slightly dampened by the deferral of revenue from a partially migrated client. It's an accounting recognition requirement due to the client taking slightly longer than expected.
Aside from this impact, average BEPS are higher than H1 2024 in line with new clients being migrated onto the platform, receiving operational services rather than SaaS services. Development fees and deferred income reflect the level of customization specific to client requirements, some of which is paid in advance and for accounting purposes recognized over the life of the contract. The operating cost base increased 14%, the main factors being in gross personnel costs. These were higher. The headcount includes, as previously indicated, contractors to migrate Smart onto the platform, and bonus accrual levels have been reset for the next stage of NZX Wealth Technologies growth. Capitalized labor and overhead were at proportionately lower levels. We expect that as the business grows, the portion of gross salaries capitalized decreases, reflecting more operational activity than migration activity.
Other costs are driven by non-recoverable GST and platform transaction fees, which increase as the business grows. As indicated in slide 13, the remaining migration of NZX Wealth Technologies currently contracted clients will add further to the annual recurring revenue, the timing being dependent on both the client's strategic prioritization, i.e., timing relative to tax year, and migration resources committed by them, as well as the client's current platform provider supplying data in a timely manner. Additional to our prospect list, we remain in very strong conversations with a number of ongoing discussions nearing completion. Overall, the timing of migrations for currently contracted clients and future potential clients will drive the CapEx profile and the profile, i.e., peak and duration of the amortization bubble that I've talked to at previous investor days.
For the corporate functions, the operating expenses increased 5.1%, which is after seeing 2024 hold at the same levels as 2023. For personnel costs, the late 2024 restructuring of some IT teams was more than absorbed by wage inflation. The H1 2024 personnel costs had benefited from a one-off bonus accrual reversal. Professional fees had higher levels of legal advice, financial, and other consulting, which was offset by other costs which were generally lower, as well as the benefit of one-off non-recoverable GST savings. Finally, NZ Red Co, where operating earnings after internal revenue and expense allocations were a loss of NZD 0.2 million, which was driven by regulatory fee-generating activity levels being lower than 2024 and a higher level of corporate service costs allocated to NZ Red Co.
Moving to the non-operating expenses in slide 19, the integration and restructuring costs relate to the integration costs representing incremental one-off external costs, net of capitalized internal costs, and relate to the integration of the Keystrate business, which was successfully completed early this month and will now allow the distribution of Keystrate funds through several new distribution channels and the maturing of the Smart systems and operations, which will be ongoing for a few years. The restructuring costs relate in part to the late 2024 corporate service teams restructure to offset the impacts from changes to the Fonterra Cooperative Group contract, as noted earlier. Finance costs reflect the lower average interest rates net impact on particularly interest income on cash and regulatory risk capital health being negatively impacted and interest expense on the acquisition facility being positively impacted.
Moving to depreciation and amortization, it's higher in line with our expectations as outlined in previous investor presentations and mainly reflects NZX Wealth Technologies' increased amortization relating to new client migrations in both 2024 and 2025. We continue to expect further increases as migrations continue and new clients join NZX Wealth Technologies' platform. Specifically, the amortization profile lags the CapEx profile by a few years, which I refer to as the amortization bubble, and I explain this in detail in our full-year 2024 investor presentation on slide 37. The share of profits and loss in associates relates to our investment in global dairy trade. In line with previous indicated expectations, GDT's three-year expansionary strategic plan has resulted in NZX's share of profit of associate being NZD -1.0 million in H2 2025.
Specifically, GDT undertook and successfully completed an upgrade of the auction platform, with the upgrade being OpEx incurred largely in the first half of the year. GDT's underlying profitability remains comparable to previous periods. We expect our share of the associate profit and loss to revert to historical levels when the post-upgrade support diminishes through H2 2025 and the gains from the auction platform upgrade are realized. For completeness, I note that there is some seasonality in the GDT business revenue streams with the majority of GDT's earnings occurring in the second half of each year. Just for completeness, last year's accounting adjustments related to firstly the change in the fair value of the contingent consideration at NZD 10.9 million. That was related to the keystrate earnout provision.
At June 2025, there is no change in the assessment of the probability of achieving the net cash fund inflows target by November 2025 for the final earnout payment. Secondly, the goodwill write-off of NZD 3.7 million related to the partial write-down of the energy contracts intangibles. At June 2025, there's no change to the assessment, and we await the contract re-tendering in 2027. The effective tax rate is comparable to the statutory rate of 28%, differences being non-taxable items including the share of GDT's loss and the amortization of management rights, accounting versus tax valuation differences, and R&D credits, tax credits, all balancing out. Overall, this resulted in net profit after tax being NZD 8.3 million, down at NZD 7.2 million on June 2024. Normalizing the net profit after tax for accounting adjustments, the net profit after tax increased by NZD 0.1 million or 0.9% year on year.
Operating margin is slightly improved to 40.6%. As I noted earlier, further details of all this analysis of operating results by business units can be found in appendix one. The balance sheet is noted in slide 21. The key points to note are, first, the cash includes balances that are not available for general use, including the clearing house, NZD 20 million of risk capital, and approximately NZD 3 million of working capital requirements under the Financial Markets Infrastructure Act and International Organization of Security Commissions principles. The funds management business, which is about NZD 1.7 million of working capital requirements under the FMA's MIS license and the Asian Regional Passport requirements. 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-upon deposits, participant collateral deposits, and deposited funds.
The third point is the interest-bearing liabilities, which includes the subordinated note, the next election date being June 2028, and the acquisition loan facilities, which are NZD 22.5 million drawn, and the facilities now expire on February 27. The final point is the impact on other current and non-current liabilities from the accounting policy change relating to the primary listing fees and secondary issuance fees. This has had an impact of increasing the income in advance, which will now be recognized in the income statement over the next three to five years. Refer to the interest financial statements note file for details on that. Slide 22 summarizes the CapEx expenditure in four graphs, all of which are on the same scale to show relativity. Starting top left and working round clockwise, trading, clearing, and energy systems, the CapEx levels depend on the specific system's life cycle.
At present, there's no large upgrade projects underway, and we have enhanced our trading systems for the S&P/NZX 20 Index Futures and automation of the depository systems. Looking out to the medium-term horizon, the trading system may come to the end of life from the supplier and require an upgrade. For property, plant, and equipment, the 2025 CapEx has reverted to more normal levels after several years of office fit-outs. The other office software relates to the normal life cycle replacement of IT equipment and software, as well as ongoing enhancements of NZX's technology architecture. For the growth businesses, Smart continues to enhance systems. Maturing the Smart operating model will require further enhancements to the client portal, CRM, digital tools, and registries, some of which will be capitalized. Where the spend relates to the SaaS, as software as a service, then these costs will be expensed.
Wealth Technologies is our largest area for CapEx, and the business continues to migrate new clients and maintain its product offering. We continue to expect the level of CapEx to be at similar levels for the next few years as contracted new clients and further prospects are migrated to the platform. Slide 23 summarizes the cash flows for the year. In H1 2025, cash flows reflect our cash flow seasonality. Specifically, the annual listing fee and participant fee collection profile is at the beginning of quarter three each year. For operating activities, as expected, the net profit after tax adjusted for non-cash items such as amortization and the associated earnings from global dairy trade has increased. However, the current period has been more than offset by the working capital movements due to higher levels of provisional tax and employee benefit payments.
Investing activities reflect the CapEx expenditure that I've just noted in the previous slide, which is lower than expected than previous year, with the current year also including the settlement of the Keystrate earnout, which is funded from cash balances rather than additional debt. Finance activities mainly reflect the dividends paid, which in 2024 was net of participation in the dividend reinvestment plan. The other finance activities relate to lease payments. Overall, net cash flows in H1 2025 are largely in line with expectations, with the opportunity to reverse some of the working capital movements in H2 2025. As noted in previous investor presentations, in future years after Wealth Technologies completes its migration of new clients and CapEx settles to normal levels, we expect cash flows to rise faster than NPAT increases due to the Wealth Technologies' amortization bubble.
I do note that the exact timing of the amortization bubble impact is dependent on future new client migrations within Wealth Technologies. Specifically, if future new clients are won, then the amortization bubble is deferred until those new client migrations are completed. Moving to slide 25, our fully imputed interim dividend is NZD 0.03 per share, which will be paid on the 2nd of October to all shareholders at the record date of the 18th of September, 2025. The dividend reinvestment plan is not available for the interim dividend. All shareholders who have elected to participate in the DRP will receive a cash dividend, which leads me to our 2025 earnings guidance. NZX Limited is maintaining our full year 2025 operating earnings in the range of NZD 49 million - NZD 54 million. The half-year results indicate that NZX Limited is tracking towards the middle of the 2025 full year guidance range.
Progress towards achievement can be tracked within our shareholder matrix that we publish monthly. As always, I note that this earnings guidance is, of course, subject to our usual market caveats that are listed on the slide. That concludes your presentation, and we'll now open it up for questions. I have a question from Grant Lowe. Grant, I'm just taking you off mute. Go ahead and ask your question.
Hi Tim. You can hear me okay?
We're just trying to turn you up, Grant. Hang on a minute. Go ahead, Grant.
Yeah, so my impression of the result is pretty much sort of in line with the expectations, so not too much from me, but just a couple of things. Just around the OpEx side of things, like you mentioned that OpEx down, I think it was 1.6% on the second half last year, which is obviously a good result. Is there anything sort of key differences you'd call out there, I guess, where I'm going? This question is sort of expectations for the second half when you see things relative to...
Okay, just to summarize broadly, Grant, you're questioning, I guess, OpEx levels against first half last year, second half last year, and thinking about the track going forward?
Just good momentum coming out of it.
Yeah. So just to chunk it down into maybe different cost categories, our wage inflation hits us on January as the yearly pay increase. Wages, we would expect to be consistent first half to second half. Market for specialists aside, where you might have to pay out a different inflation rate, but we've had our wage inflation across the whole business for the year already. Where inflation hits us more normally in the second half of the year is around the IT costs. Our contractual arrangements usually have CPI adjustments from July 2025, and some of the suppliers for particularly the trading and clearing system are U.S. or Indian-based. Inflation components are driven by New Zealand and Indian inflation for those two contracts, but we are exposed to USD as well. The potential for inflation is more in the IT area than in the wages area.
In certain areas of the business, we have been light in the marketing spend for the first half of the year, and I think it's proven to be detrimental to certain aspects of the business, and I do expect those costs to increase in the second half of the year. I tried to flag where they were on the way through when I was talking there, but appreciate it's a lot of words. The only other thing I'd say, Grant, is from a staffing number perspective, we don't necessarily see too much change. No, sort of from half on half, we're shaped about right at the moment. I guess the caveat might be if we run a significant new client in NZX Wealth Technologies, then clearly you would staff up to accommodate that. Certainly, we don't see a large change in staffing numbers in front of us.
Yeah, okay. It's a bit for a little bit for inflation potentially in the second half out of the business. I spend a little bit more on marketing.
Yeah, and maybe a bit of marketing in FM's business.
Okay. Just around the CapEx output for the remainder of the year, like you mentioned, expect the CapEx at NZX Wealth Technologies to continue at similar levels over the next few years. It's sort of roughly NZD 5 million chart last year. Might expect a similar sort of level in the second half, I guess. Is it reasonable to sort of double the first half?
I mean, crudely, yes. Maybe marginally more, but the first half's way down on comparatives. I think it's when you look at the first half of 2024, it was about NZD 8 million, and we're down to NZD 5.4 million. The second half of 2024 was around the same number as the first half. It wouldn't, if it's higher, it's only marginally higher. Grant, it's like it's not going to be mass. There's no, you're not being a millionaire. I wouldn't have thought, particularly in that amount.
Yeah, yeah.
There was nothing that would surprise you, Grant, on the CapEx front.
Yeah, yeah. Just around the Wealth Tech, I could imagine you're going to tell me as soon as you'll have clients who sign up and everything else. Just around the, you mentioned in the Wealth Tech free cash flow, NZD 10 million sort of, you know, aspiration. Do you have a thinking around the timing of that, like based on what you can see at the moment, or is it kind of, you're going to tell me it's intentional?
Yeah, there's two factors there, Grant. I mean, we need to bring on more than just the contracted clients that we have at the moment. Until we sign up certain new clients, we won't really have a timeline for their migration. The second factor is that we currently have resources for migration activity that we would ease back on when there's a lack of migration activity. That feels like a how long to piece of string comment because we sort of have a pathway in front of us of migrations at the moment for the next while. We know that when we hit a steady state, we will want to maintain the currency of the platform, that it's up to date and modern, but we won't need the same levels of CapEx that we have at the moment.
It's almost to that amortization bubble graph that I drew in the presentation November last year. If we have more and more migrations of clients, that date gets pushed out, that I sort of have a moving target and can't give you a definitive answer to that.
That's why I understand the CapEx there. Okay, just last one for me, just looking at the dairy derivatives again, there was a 20% growth on the first half of last year. I think the aspirations are obviously, the potential for this is a lot higher. What do you think is required to sort of unlock that and then drive that forward?
It's mostly underlying physical price volatility. That's a big driver of the sort of the desire to manage risk, if you like. To the extent that you've got volatility, then it's the ability for the hedge, the speculators, if you like, to come into the market and increase that activity off the back of them having a view that they can make money by trading that market. We need that level of consistent lots traded each day. As I said at the outset, we're starting to see some of these liquidity providers get really interested in the market. We're at the cusp of potentially the change in the shape of that hockey stick. We've introduced, I think Mark alluded to it when he talked about slide 11, we have introduced multiple market maker and liquidity provision scheme providers in the current period.
We're actively trying to get market makers to accelerate that speculative flow. I think you'll know as well as anybody, Grant, just that underlying physical prices have been fairly flat, if not slightly rising in recent times. I guess that sort of profile just means the need for risk management products is not quite as great potentially.
Thanks for that.
Got a question from Dave Storms. Dave, I'm just taking you off mute. Go ahead and ask your question.
Hey, good morning. Appreciate you taking the time to answer a couple of questions here. I did want to start by circling back to NZX Wealth Technologies. Maybe you could just spend a little more time talking about the texture of the pipeline there and maybe some near-term goals, the size of some of the next to be converted, anything like that would be very helpful.
Certainly, I think we outline on page 13 just what we see in front of us at the moment, Dave. As you can see there, 32 clients on the NZX Wealth Technologies platform at the start of the year, migrated three. Obviously, we've got 35 now. We've won another four, and we expect another seven to be migrated on. That gives you sort of what we can see right now. For a little bit more color on what's in front of us that we obviously haven't stated in here, we do continue to take calls from financial intermediary groups and others that are interested in the platform. They are at various stages of discussions. Some are very preliminary, some are more advanced. We will share with the market as those come to fruition and we feel confident, if you like, around those.
As a general comment, it is still proving to be a very popular system. The people and the product and the transitions that have occurred have gone well, and that reputational aspect is still very positive. I can't give you too much more insight into those discussions that we're having with those others that aren't necessarily talked about on the page. Nevertheless, the sentiment is still very strong, as we've seen in the commentary.
Understood. Very helpful. Thank you. Just thinking about, you know, Smart and how driven it is by the macro, given some of the uncertainties that we're, you know, hopefully coming out of here on the macro side of things, how would you maybe characterize the velocity of any rebound going into the second half of the year? Do you think it's kind of a V-shaped recovery there, or is there a trickle? Is it, you know, maybe gaining momentum above and beyond what you had expected? Anything there would be great.
I think, again, as we sort of say on page 12, we obviously incurred a drop in April. All of that drop that we incurred in April has been recovered. Our market returns are now above where we were when we started the year. I guess how long is a piece of string with respect to what the macro environment looks like for the second half. If we said it's going to be more stable than what it is at the moment, then our average fund levels are starting the second half at a more elevated rate than what we were before. We are hoping that the dip is over for us. Just to maybe answer it graphically, looking at the slide there, the graph of funds under management is a monthly metric. It's a summary of our monthly metrics.
If you added in July and what we know we're at in August, you would see a continuation of that V that you see on the top right there. It's gone up again in July and has been good in August, assisted by very good cash flows in August actually as well. I think it is more V in nature as you can sort of see graphically there. I think if you look at where we got to in June, which is around that NZD 14 billion level, if you look at the stats that we published for the end of July, I think it's closer to NZD 14.5 billion. That's a mixture of market returns and cash flows, but that's the sort of the trajectory that we're talking about.
Understood. That's very helpful. Thank you. Maybe just one more, we'd love to spend a little bit of time talking about some of the liquidity focuses on the capital market side. You had the NZX Dark rollout last year. You have futures on the horizon. I guess, how do you see that interplay between all of that and maybe where you see that going on the capital market side?
Yeah, sure. I guess we've had a focus on trying to build liquidity for a while. When we go right back a number of years ago, we talked about pricing changes, regulatory changes, connectivity into our market. International flow providers could connect easily, efficiently, and cheaply. We've launched NZX Dark. We're launching S&P/NZX 20 Index Futures. Futures has a two-prong effect. It obviously provides risk management tools to the equity investors. At the same time, as those are hedged out, it does have a positive shadow effect of liquidity into the cash market. We see a positive interplay there. The question for us is once we launch, what are the next products that we can create for the market? What does the market need? The other element is we think about what other global markets have versus what we have.
The next real step that we're starting to think about is what colocation type services look like. There is still more to go on the liquidity growth curve. With liquidity growing, that hopefully helps the selling of the public market product. Who knows what might happen then to the origination side of the business and the data side of the business. They are all connected. Any other questions? If you've got a question, please click the hand icon on the screen. No other questions. Certainly appreciate everybody's time this morning. As we always say, if there are a few, when you're going through your analysis and you want to ask something directly of us, feel free to drop us a note.
There was one further question. Sorry, I just found out from Andrew, when might the next round of CapEx for the trading platforms commence?
Great question. I think as we've said to investors previously, we're moving away or we're trying very hard to move away from those sort of annual seven-year cycles for trading and clearing. We've gone to more sort of annual cycles around that to keep the systems up to date. We are on the latest versions, if you like, of trading and clearing systems. I guess the one caveat around that would be whether one of our providers, and it's probably if it was to be anybody, it would be more NASDAQ than TCS Banks. They might require us to jump a version.
Given the fact that we are on a NASDAQ platform and we would be, unless we went to an RFP, moving to a NASDAQ platform, we would try and obviously arrange a sort of a program of work and a cost profile that would be more incremental than anything else. It is a little hard to know, but we are trying to adjust our strategy around that so we don't end up with big lumpy CapEx profiles.
If we had to make a guess, it's not in the short term.
No.
It's at the short term.
Worst in the medium term, but we don't foresee it at the moment in the next two to three years. We're just flagging that there are discussions with NASDAQ that they may change from what's called me to something different.
No further questions.
No further questions. Excellent. Thank you very much, everybody. As I said, if you do have any further questions, let us know. Happy to answer them. Thanks for your time.