Nzx Open Magazine, Issue One 2006 - "jeerleading"

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Mark Weldon

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Chief Executive Officer, NZX

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EFFEHJKD?J?;IBEIJ Scott St John Chief Executive, First NZ Capital

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J>?DAFEI?J?L;"<;;B FEI?J?L;"8;>7L;FEI?J?L; Barbara Kendall World Beating Athlete

'& 9>;;HI"DEJ@;;HI Ann Sherry Chief Executive, Westpac New Zealand

'( ;D=7=;?DJ>;H;8KJJ7B Katherine Rich National Party Economic Development Spokeswoman

Cover Image: How often we disparage the self-congratulatory tendencies of other nations. To our minds their patriotic preening is almost indecent : a cheerleader’s inadequate underwear being revealed. Yet why are we content with being left in the locker room? NZX asks why?

') C7A?D=7:?<<;H;D9;"DEJ C7A?D=;N9KI;I Theresa Gattung Chief Executive, Telecom

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New Zealanders’ ability to celebrate, vocally and unashamedly, the success of their national sports teams is legendary. It can be argued that sporting prowess has done more to shape the national psyche than, for example, our propensity toward distinction on the battlefield or in trade, diplomacy, or any other arena where Kiwis measure themselves against potential competitors. By contrast, our celebration of business success tends to be restricted to the mutual, and invariably muted, congratulations that take place at commercial forums: businesspeople recognising other businesspeople, an award or two, a profile in the business pages, an almost embarrassed silence. And the Rich List. When we win at sport, we win with gusto. Our winners are national heroes. We fete them in the streets. We compose odes to their eyebrows. We dress like them. We aspire to be them. We don’t begrudge them a cent of the money they earn by their excellence. Sometimes they even plough a proportion of that back into the communities they represent. The unwitting result of this is demagogue status. Sport has had its fair share of cheats and chumps: the tries that shouldn’t have been awarded, the not-outs that should, the off-the-pitch antics, the ritual gut-spillings on network television. But the dents to our sense of collective pride that these falls from grace administer are very quickly forgotten. We have another win to look forward to; another generation of athletic overachievers on whom to pattern ourselves. What say we to business? Are the activities admirable? Is the notoriety deserved? Is inconsistent performance tolerable, or the odd professional foul forgiveable? Should business success be respected or rubbished? Of the people we canvassed, there were plenty willing to offer their views verbally, but only a handful were prepared to commit them to paper. As a consequence, this is a thin issue of OPEN. We believe that the matter is of sufficient importance to pose the questions anyway. Congratulations to our contributors on their bravery.

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8dcÒYZcXZ ^h ^ciVc\^WaZ! Wji! Vh dcZ l^hZ JH HjegZbZ 8djgi ?jY\Z dcXZ hV^Y VWdji dWhXZc^in Ændj `cdl ^i l]Zc ndj hZZ ^iÇ# L^i]XdcÒYZcXZ!cdidcanYdndj`cdl^il]ZcndjhZZ^i!Wji!bdhi ^bedgiVcian!^i^h!^cbnk^Zl!i]Zh^c\aZW^\\ZhiegZY^Xidgd[hjXXZhh ^c Vcn VgZcV Ä ^cXajY^c\ hedgi! Wjh^cZhh! VcY ZkZc eda^i^Xh# >iÉh ^bedgiVciViVcVi^dcVaaZkZa# To give a couple of examples of why confidence matters: • New Zealand triathletes now expect to win when they compete. What happens? Everywhere you turn now a new name pops up wining medals or world cup events. Why? Confidence bred from a long history of winning, which creates a real belief in winning, which - critically - creates winning. • Fletcher Building now has confidence in its ability to execute acquisitions. This continued confidence has spread, and the market and their shareholders now share that confidence. Yet in New Zealand, confidence is not something we invest in, nor that we have a history of. In December last year, just before a dinner in Auckland, a fellow approached me and asked if he could have a quick chat about listing. I said, “Sure”. His first question took me a little by surprise. He said, “Do you know anything about the Toronto Venture Exchange?” I said, “A little, why?” He responded that he had a company that he was thinking of listing and wanted to know if the Toronto Venture Exchange would be a good place to list his company. I asked what type of company

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he had. He responded that it was a technology company. I suggested that, as the Toronto Venture Exchange was designed for the minerals and exploration sectors, it would probably not be the best bet. He then said, “What about Nasdaq? Do you think that would be a good place to list my company?” I asked what size his company was. Like most New Zealand companies, it was smallish – about $10 million revenues. My response was this: “Since Nasdaq went to decimals, liquidity outside the top 500 stocks has really dried up. In practical terms, it means that unless you’re well over $500 million market capitalisation, nobody will cover or market make your stock. Also, Sarbanne Oxley will cost you at least $1.5 million US per year to merely remain compliant – and I’d guess more, as you won’t have any internal resource skilled in that area, so it’ll be more like $2.5 million. So I would say Nasdaq is not suitable for your company.” His response was then to ask about AIM. At this point I said, “Before we get to that, let me ask you, have you considered the New Zealand market?” His response was,

at that point in time, the most singularly revealing and depressing thing I have heard in my time in this job. The essence was, “No, but overseas markets have to be better than what we have here.”

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Why do we have this issue? In my view there are three main reasons: First, we do have an Apologist national mindset and it’s a major barrier to success. Second, the New Zealand media focus far more than they do overseas on the negative, and continue to believe - despite lack of evidence - that there are conspiracies everywhere in business. Third, many public figures are not exactly sending out positive, energyfilled messages about New Zealand. Finally, what do we do about it? In my view, it is time for business to lead the country. For this to occur, business leaders will have to start speaking out on issues, and the market will have to start rewarding risk takers and growth companies. (By the way, the start that Rakon and Delegat’s have had on the market this year should convince anyone that our market will value growth and export stories, and will reward risk takers.) There is a risk, of course, in being visible in New Zealand. Being vocal as well as visible can double the risk. However, it’s a risk worth taking for the future of this country, and for the confidence that will be derived from risks that pay off.

Well, bad luck, I’m not going to. And I would exhort anyone who reads this to STOP THIS ROT. We have nothing to apologise for, and a lot to be proud of. More important than that, however, is that we have huge opportunity here. But we won’t grab it, nor will we realise any value for it, unless we ramp up our confidence levels. What other indicators are there as to our level of national confidence? Here are some: • 680+ people per week emigrating to Australia. My view is that while you can’t ascribe the reasons why to any single item, the trend reflects a greater level of confidence in Australia’s future than ours. • Sale of assets at cheap prices. On a recent trip to Australia, two global players said to me, “When is your business sector going to stop hoisting the white flag? When anyone comes over and wants to buy a New Zealand business, there’s never any fight.” • Business confidence, as measured by NZIER, plummeted earlier this year. Not a lot had changed in the data, but sentiment swung south really quickly: I’m betting much more quickly than it ever heads north. *

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British MP Tony Blair remarked on a recent trip to New Zealand that sometimes we forget how we are viewed from outside our own country. He said that New Zealand was regarded as “exciting and dynamic”. And that is the essence of New Zealand - despite what some commentators would have you believe. New Zealand is renowned for its “number eight piece of wire” mentality; its “can do” attitude. This colloquialism for our entrepreneurial spirit lies at the heart of our creativity and innovation. It is part of our national identity. It also lies at the heart of investment and risk-taking. That is why I am excited by the work I am doing for the Labour-led government. We have workstreams in place that will make a major contribution to the economic transformation agenda and to seeing business thrive in New Zealand. I am committed to regulatory frameworks that are proportionate to the risks people face and that support confidence in our financial markets. Our international reputation depends on our rules providing the level of security that is offered in other countries, because if it looks too different busy fund managers don’t have time to find out the reason why. Risk taking shouldn’t mean “flying blind”. There are many types of investors, from the experienced players to the proverbial Kiwi Mums and Dads, and they all need to know they are on a level playing field. They need to know that everyone is given the same information and they need to know who is connected to whom. That’s why we have disclosure and that’s why we have rules against insider trading.

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We already rate number one in the World Bank survey for ease of doing business – that’s up against 155 countries. But we can do better. • Trusted and good for business – that’s how the World Bank sees us. • Delivering reliable high quality products and services – that’s how our markets see us. • Offering leading edge science and research – that’s how history already sees us. And that’s how we should see ourselves. Economic transformation is about confidence - the confidence to achieve great things and we can. Quality Regulatory Frameworks don’t sound as if they are part of that agenda but when you think about the fact that they are designed to protect our confidence in ourselves and our trusted brand internationally, it is clear that they are not only part of the economic transformation agenda, they underpin it. And with evidence like this, why would anyone ever think of packing up and going overseas? After all we have the best of everything - right here in New Zealand.

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When I started writing this piece, I was determined that the answer be no. However, on reflection I had to acknowledge that this bias does exist. I tested the proposition with two Australians who have recently lived and worked in New Zealand. One was a senior insurance industry executive, the other the owner of a private business. Both were unambiguously of the view that based on their experience in New Zealand, this was the case.

Does it really matter? If there are consequences; then possibly. If there is a bias, then the consequences are opportunities lost. A recent example is the purchase of Trade Me by Fairfax. No one knows whether this will prove to be a successful transaction for Fairfax or not. However, Fairfax stakeholders have, by and large, given the company the benefit of the doubt.

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The views represented in this article are the express views of the author, and do not necessarily reflect the views of NZX.

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The hypothesis we are examining, infers that if an NZX listed company had purchased Trade Me for $750 million, there would have been a different reaction. This example suggests to me that bias may exist. An opportunity lost - maybe. Another case study would be to consider the Goodman Fielder float. In this situation, you had a vendor that went out of their way to give New Zealand investors an opportunity to participate in the Initial Public Offering. All sorts of bias emerged during this process. Whilst many investors had the conviction to assess the investment on its merits, too many looked for validation of the investment case from overseas, or were distracted by what the vendor’s motives may have been. This also suggests to me that there is bias. An opportunity lost - definitely. As I write, a public company director called to discuss an acquisition (tragically, we were not advising them), and raised the question of “how should we approach the aversion of New Zealand investors to companies investing offshore”.

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M^WjYWdX[Zed["WdZm^e_ih[ifedi_Xb[\ehcWa_d] WZ_\\[h[dY[5 There is little point blaming, or groaning about any bias that may or may not exist. Businesses have to take responsibility for their own image, and that will ultimately be driven by their actions. This includes leading opinion, rather than reacting to it. New Zealand companies that create great outcomes for their stakeholders will be embraced, and increasingly, stakeholders will back our successful organisations. Those that spend their day criticising will continue to miss opportunities. Importantly, our company leaders cannot allow their decision making to be benchmarked, or influenced, by noise. As it stands, there are a large number of great New Zealand companies doing amazing things. Generally speaking, these companies are very rigorous about what they do. The consequence is that risks that others see are dealt with in a prudent and appropriate fashion. There are some stunning success stories. Fletcher Building is creating a material asset base in Australia. Infratil continues to prove that New Zealand companies can grow successfully beyond New Zealand. And Graeme Hart and his team continue to knock the ball out of the park on every level. Below the radar of the listed environment, many companies are finding wonderful niche markets. The list of great stories is a lot longer than this, and certainly eclipses the list of less successful excursions, some of which are from another era. I want investors to continue to get the opportunity to support our companies’ endeavours and I will continue to promote an open minded approach to the investment opportunities we see.

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We as people really struggle to applaud success and when people are down we tend to kick them further with the “told you so” attitude. I was incredibly upset when on one of my school visits the biggest obstacle in one particular school was “if you win you are a loser”!!! In one of the primary school swimming sports one little girl was told to slow down so she wouldn’t upset the other kids!!! What is this doing to our future if this is a mentality in schools? This attitude must then filter into business, as this generation gets older. Why can’t we celebrate people who work hard and earn good money, instead of looking for faults and concentrating on them to bring that person down? We should be finding the good points and learning from them.

A classic example was the Commonwealth Games results. The media looked for all the bad in the results not the good. On average the media coverage was very negative round the whole games. Yet there were some amazing success stories. We need to publicise BOTH. If I were a child watching the games unfold, my dream would have been shattered by the bad publicity the athletes got. Why would you aspire to be an athlete and dedicate your self to being the best you can be when you get this barrage of negative press?

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When you receive this negativity of course then you start to lack confidence and avoid risk-taking and we become underachievers, not wanting to stand out in the crowd. This is creating mediocrity in New Zealanders.

Another perspective is that this kind of bias can feed political agendas. Are we creating targets out of our leading companies by not celebrating their successes, and overemphasising weakness? One senses that companies spend more time than they would prefer defending their actions in this context.

The biggest influence on all of us as adults is the media.

There has to be a progression of change. Parenting, positive parenting. Caregivers have more influence as most parents work. School teachers - pay them more so we get the best.

Journalists tend not to find the facts any more - they just look for the drama. We need to control the media, companies need to set up communication specialists - people who handle the media and feed the media the facts and figures so we get accurate, unbiased coverage. Companies need to do the research for the media and stay in their faces feeding the right kind of stories. Building a positive attitude in New Zealanders. Whatever you think - will make you feel - then reflect your behaviour. Think positive, feel positive, and behave positive.

The views represented in this article are the express views of the author, and do not necessarily reflect the views of NZX. The views represented in this article are the express views of the author, and do not necessarily reflect the views of NZX.

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achievements. Their own achievements can therefore have a powerful demonstration effect for the rest of NZ Inc. Imagine ten more Sam Morgans in the years to come… • Developing a savings and equity culture, to encourage investment and facilitate economic development. Compared with the citizens of similar countries, New Zealanders have not shown a strong predilection for owning shares nor saving money.

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I’ve always preferred cheering to jeering, so it’s appropriate to start by considering the many things in New Zealand that are worth cheering about now. They would be the envy of most of our fellow human beings. A representative sample would include: • Universal access to education, and an educated and intelligent workforce. • A business environment that makes New Zealand an easy place to do business. • A clean and beautiful environment. • A solid platform of established primary industries alongside a clutch of newer resource-based industries; a burgeoning arts and culture sector and a manufacturing sector that has transformed itself in recent years. • A well-established entrepreneurial culture of innovation and entrepreneurship, with some standout examples. We can be world-beaters when we want to be. All of these factors provide a sound base for the sort of economic advancement that New Zealanders aspire to and which will be essential in the decades to come if we are to maintain the standard of living we think we’re entitled to - but which is being eroded as our relative economic performance has declined. Are these things enough? Based on my experience in business here, and my involvement with such initiatives as the Growth and Innovation Advisory Board, here are some additional factors things that, if harnessed in the right way, might give us even more to cheer about. • Conceiving of ourselves as “NZ Inc.”, a single enterprise of around four million people - with a diaspora of perhaps

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It’s therefore time to re-frame the debate and ask, Why can’t we have both? Why wouldn’t we want to give our children and grandchildren an incentive to stay and work in New Zealand by bequeathing both of these things? Connect these elements to the strong base already in place and there shouldn’t be any reason for jeerleading.

A deeper involvement in “equity culture” could bring myriad economic benefits, allowing our businesses greater access to capital, and potentially raising popular awareness, understanding of and support for what drives business success - and the policies and other factors required to sustain it. • Having and harnessing confidence - what Rosabeth Moss Kanter calls the “sweet spot between arrogance and despair. Arrogance involves the failure to see any faults or weaknesses, despair the failure to acknowledge any strengths”. I’ve noted elsewhere that on an emotional spectrum, New Zealand’s struggle is with despair, whereas Australia’s is with arrogance. The solid base outlined above demonstrates that we have much to be confident about, and yet New Zealanders as a group still tend to undersell themselves. There’s also a tendency on this side of the Tasman to solicit, and even crave, the approval of outsiders - a condition that Australians seem much less susceptible to! Confidence is not something that can simply be ordered up. Leadership - heroes, again - is crucial. And Kanter also notes that “leadership is not about the leader, it is about how he or she builds the confidence of everyone else”. In New Zealand I see a pressing need to build leaders in all sectors and recognise leadership at all levels. • Stop considering New Zealand’s future in terms of tradeoffs. Too often debate seems to come down to choice between maintaining what we imagine as a green and pleasant God’s Own country, or a go-ahead enterprise economy in which our well-established but “small” entrepreneurial mentality becomes something much bigger and more powerful.

The views represented in this article are the express views of the author, and do not necessarily reflect the views of NZX.

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?ij^[h[WX_WiW]W_dijD[mP[WbWdZXki_d[ii5 I don’t believe there’s an inherent bias against New Zealand business. If anything, the negativity that can sometimes surround our companies - particularly large ones - is not so much a result of “jeerleading” but a function of our size. When New Zealand has a population the size of Sydney, it doesn’t take much to become a noticeably big fish that attracts media and public attention. There is not so much bias, but an acute interest and that means high levels of scrutiny - especially if something goes wrong. The job of business journalists and analysts is to scrutinise companies on behalf of readers and shareholders. I don’t get a sense that the business media or analysts are any tougher on kiwi businesses than those which are overseas owned. When a significant number of firms are state-owned, this inevitably means a very high level of political interest and debate. Hence the different political and media interest in TVNZ versus the interest in the performance of Canwest, or the performance of Radio New Zealand versus the Radio Network. M^Wj Wh[ j^[ Yedi[gk[dY[i \eh _dl[ijc[dj WdZ Z[Y_i_ed#cWa_d]edWYehfehWj[eh_dZ_l_ZkWbb[l[b5 I am not so much concerned with “jeerleading” or negative commentary on business as the government’s fundamental distrust of business, and how that translates into new laws and regulations. There is a mismatch between the government’s words and its actions. The government will make positive cheerleading comments about business but then slowly turn up the regulatory heat. This is because Labour deep down believes business is bad and requires greater controls.

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When the purpose of negative commentary from the government is unclear, that has a major effect on decisionmaking and investment. Uncertainty for business means postponed decisions, under-investment or worst of all no investment at all. Ultimately the whole country pays for that. M^WjYWdX[Zed["WdZm^e_ih[ifedi_Xb[\ehcWa_d] WZ_\\[h[dY[5 New Zealand needs a cultural change so we develop more pride in business. That starts at home and in schools, but also requires business leaders to engage more in debate to rebut “jeerleading”. We need to challenge the government to match their talk with action. Take Trevor Mallard’s recent speeches on business. In a seemingly Road to Damascus conversion he called on New Zealanders to celebrate business and wealth, but this is from a minister in a government that has piled on regulatory burdens and costs on business over the past six years. Moving from business jeerleading to cheerleading should not be seen as just a change in language. We as a country need to deal with the raft of concerns that contribute to whether a company stays here or moves offshore. That means dealing with contentious issues such as tax, employment law, and other regulation. Words should be followed by actions.

The views represented in this article are the express views of the author, and do not necessarily reflect the views of NZX.

?i j^[h[ W X_Wi W]W_dij D[m P[WbWdZ Xki_d[ii _d fWhj_YkbWh5 It’s a cliché but still true that New Zealanders are great at celebrating sporting success but much less so when it comes to business. I think it really comes down to the fact that New Zealanders are suspicious of business itself. Rather than celebrating success, there’s a view that high achievers much have trampled on other people to get to the top. And while New Zealanders are actually a pretty entrepreneurial bunch, we are too hard on ourselves. It’s a mark of great character and commitment in some countries to have fallen over and picked yourself up one or twice; we’re not that generous in New Zealand.

And the reverse is also true. international.

Money and talent are

M^WjYWdX[Zed["WdZm^e_ih[ifedi_Xb[\ehcWa_d] WZ_\\[h[dY[5 We should celebrate success locally. New Zealand is a tough place to do business because from day one you are battling problems of scale and distance. We are all of us responsible for making the difference - rather than making excuses.

Maybe attitudes are changing though. New Zealanders are pretty happy with the successes of Peter Jackson and Sam Morgan. And The Warehouse is seen as a great example of a Kiwi company that’s been built from the ground up. They are examples of initiatives that are very much driven by key individuals. That’s a good sign because I think New Zealanders have had a strong tradition of both the tall poppy syndrome and the view that governments rather than individuals know best. That has always been one of the marked differences between Australia and New Zealand, but maybe it is changing. M^Wj Wh[ j^[ Yedi[gk[dY[i \eh _dl[ijc[dj WdZ Z[Y_i_edcWa_d]edWYehfehWj[eh_dZ_l_ZkWbb[l[b5 Success breeds success. If you see others in business doing well in the New Zealand environment then the attraction of doing business in New Zealand is evident.

The views represented in this article are the express views of the author, and do not necessarily reflect the views of NZX.

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?dYh[Wi[Z[nfeikh[ ETFs can serve as building blocks or a gap-filler to sectors that are under-represented in a portfolio. They also can offer a convenient path into specific countries or regions. M^[h[_iD[mP[WbWdZ_dWbbj^_i5 New Zealand is well advanced in terms of new initiatives for ETFs. Smartshares introduced the first ETF to New Zealand in 1996 and was one of the first fund managers in the world to allow individual investors to make regular investments into their ETF holdings. The cost of investing small amounts on a regular basis had previously been unattractive. Smartshares eliminated these barriers by allowing a direct deposit system to transfer funds from investors’ bank accounts – as little as $50 each month – and investing that money in the ETF or ETFs of the investor’s choice. That choice is expanding too. J^[edbofbWY[oekÊbbÓdZWicWhjEPPO Smartshares has just announced the addition of a fifth fund, SmartOZZY. It tracks the S&P/ASX 20 Index and contains some of Australia’s most prominent companies such as Westpac, Coles Myer and Woolworths, to name just a few. SmartOZZY, formerly the Tortis Ozzy Fund, has been purchased by Smartshares from TOWER Managed Funds Investments Limited to expand the range of products available to unitholders. Now SmartMOZY holders can extend their Australian investment to cover 70 stocks in the ASX and SmartOZZY can be another way for SmartFONZ, SmartMIDZ and SmartTENZ holders to add Australian stocks to their portfolios to create a diversified Australasian equity portfolio in a simple manner.

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Investment Statements can be downloaded from the Smartshares websites. Units in the funds have been accepted for quotation by NZX and will be quoted upon completion of allotment procedures. However the Special Division that regulates Smartshares Limited takes no responsibility for the offer.

ONE WAY TO GIVE BACK LAWRENCE GREEN

Every business leader, owner and entrepreneur says it at some stage in their working life: they want to “give something back to their community”. A new voluntary programme will give them the chance to do that. Future Vision’s Centre for Leadership Studies has been set up to offer training, research and development for leaders of non-profit organisations who normally couldn’t afford training. It needs sponsorship, donations and grants from the business community to operate. Future Vision has been set up by leadership and development specialist Lawrence Green, director of Wellington consultancy company Venture Education. Green is also an associate of the Centre for the Study of Leadership at Victoria University and co-author of “The Kiwi Effect”. Lawrence Green makes no apology for being idealistic. “When people are being entrepreneurial, they’re normally driven by self-interest. This is about taking on something for the good of the community and making it exciting. My greatest hope is that the centre plays a part in building a larger pool of outstanding leaders who can truly have an impact on the community.” Green believes that in the corporate world, most people who are involved in leadership development are not truly committed. “However, people working in voluntary organisations - by the fact they’re doing what they’re doing for nothing - means they have the passion, the drive and the commitment.” A small contribution from a company or entrepreneur can have far-reaching consequences, he believes. “It provides the opportunity for people to make a real impact. People who are at the coalface, people who have a huge desire to develop and make a contribution but who don’t have the resources.” Green’s strongly-held belief is that the state of a community’s voluntary organisations is a reflection of its overall health and well-being. He has been working on this project for two years but it’s been a plan that has haunted him for nearly two decades after a stint working in the voluntary sector in his twenties. “The work most organisations were doing was brilliant but they were unable to make the most of their people because they didn’t have the resources to invest in them.” The first Future Vision programme was launched in Wellington in June and is intended to be offered nationally next year. n

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Consistent with the new treatment we introduced at half year 2005, NZX’s results are divided into four discrete sections. These comprise the consolidated result for the NZX Group, followed by the core NZX Markets business, then the two existing subsidiary businesses: Smartshares and Link Market Services. DPN=hekf There are four key measures for the NZX Group performance. These are revenue, expenditure, EBITDA and NPAT. Group operating revenue is up 21% over the same period last year and expenses are up 13% overall. Operating EBITDA is up 27% year on year and NPAT is up 47%. I will outline now where each of the NZX businesses has contributed to the overall Group result, and how the results reflect NZX’s ongoing drive to deliver certainty and value for all our stakeholders. DPNCWha[ji The primary measure for the Markets business performance is operating EBITDA, driven by consistent revenue growth. Operating EBITDA is up 24%, driven by a 19% increase in revenue and a 16% increase in operating expenditure. The three key areas of this business from a revenue perspective are market information, listings and transactions. Market information revenue increased by 68%, listings revenue is up 20%, and trading revenue increased 5%. The fifteen new listings in the period, raising a total of $2 billion across all our markets, is evidence of a high level of successful capital raising for New Zealand companies behind the most obvious IPO and secondary market capital raising activity.

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The stand-out in this area is the absolute confidence expressed in our markets by Rakon and Delegat’s. Together these companies proved that New Zealand investors have an appetite for growth stocks as well as yield, and that you don’t have to submit to the cost and angst of listing on overseas markets to raise capital, or to gain access to overseas markets or gain strong valuations. The performance of these two stocks since listing has been nothing short of outstanding. I want to congratulate Delegat’s and Rakon for their foresight and their mettle. We know there are plenty more New Zealand companies that share these characteristics. Our markets want them. Our investors want them. Its performance like these that will eventually break down the ‘overseas is better’ mindset. The other star performer in this area is market data. It’s a fact that markets depend on timely and accurate information for their operation. Packaging and marketing of this information by NZX means that more and more potential investors can access the right set information about New Zealand listed companies. This is not only good for visibility, it’s good for liquidity. The breadth of products has also grown, for example iSearch and indices revenue will be approximately $400,000 for the year. These are ‘organic additions’ to the business and are now contributing meaningfully. We have also seen an 18% increase in the number of data terminals in the past year, there are now over 8,000 terminals receiving NZX information around the globe. Also slotting into the data area is our newest business Agri-Fax. This business specialises in preparation and sale of agricultural and horticultural data, to a large range of client groups. The business is solid and well-run, and the sector it serves is promising and tremendously important from a national perspective. That sector responded to the news of NZX’s acquisition very positively, and the

ongoing developments with the Agri-Fax founders are more positive still. We are very positive that growth will occur out of this business. Returning to liquidity now: inclusion in an index is good for liquidity, and NZX now has one dedicated to our high growth science and technology innovators. The profile and coverage afforded by index membership proves highly lucrative for listed companies, and NZX is doing its bit to promote this vital growth sector. There will be more in both the technology and index space as the year progresses. DPNIkXi_Z_Who8ki_d[ii[i Smartshares is the first in this category. Smartshares offers what we believe is the strongest and best positioned funds manufacture and distribution business in New Zealand. Smartshares are increasingly well placed to capture increasing flows to savings products that have a New Zealand and Australian focus from a wide range of distributors. NZX believes that funds in New Zealand and Australia are very well positioned for the upcoming tax changes. The acquisition of the smartOZZY Fund, with minimal impact on the bottom line, is proof both of the robustness of NZX’s core revenues and the sound pursuit of growth opportunities to broaden investment choices for New Zealanders. Since its acquisition from Tower Managed Investments last month, the smartOZZY offering has been enhanced by the extension of the cash application facility, the Regular Savings Plan and Dividend Reinvestment Plan, all features of our other four Smartshares funds. These provide continuous month on month inflow of new FUM. Notwithstanding an ongoing decline in retail equity funds over the last three years, Smartshares funds under management have continued to climb. Smartshares promise of low fees, transparency, and simplicity continues to attract investors.

Operating revenue reached $893,000 in this half, a 42% increase over the same period last year. Operating EBITDA was $159,000 compared with a loss of $160,000 in 2005. LINK Market Services, a joint venture with LINK Australia, is equity accounted and produced a $309,000 loss for the first half of 2006. As outlined in our release to the market, the LINK result reflects the impact of three non-recurring costs. These are: contractor costs from the migration from the RML system to the New Zealand Oscar system; project management and IT costs in implementing Telecom links; backups to the new system; and the migration, development, and legal costs associated with the purchase of the ANZ National Bank debt register. On a positive side, net target of 50% of IPOs was achieved, but the size of those IPOs was not large in terms of new holders. Revenue from those holders, as well as the ANZ National Bank register and a meaningful decrease in the cost base, will flow through in the second half. IkccWho To summarise, across the NZX Group, performance in the early stages of the second half year indicates a healthy outlook. In addition, I am pleased to welcome to our senior team some highly talented individuals in Finance, Strategy, and Clearing and Settlement. I am confident that they, alongside our existing highly skilled team, will deliver what our shareholders and our markets need. And for the future, our strategy remains clear and consistent. NZX will continue to invest in areas of the business – and the markets – that enable us to bring positive change to New Zealand markets, and to capture value from the evolution of those markets.

Smartshares finished the half with $460 million in FUM, $330 million in listed Exchange Traded Funds (ETFs) and approximately $130 million in non-listed wholesale funds operated on behalf of the New Zealand Superannuation Fund. &,

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DPN7H; First NZ Securities tops the list for both value and number of trades for the first half of 2006. First NZ Securities has 23.8% market share in terms of value traded and 19.2% in terms of the number traded, a 2% increase in market share for both categories from the first half of 2005. Goldman Sachs JBWere held out ABN AMRO Craigs for second place in the market share for number of trades, and is second for the amount of value traded too. Macquarie Securities has made a solid debut, winning 5.4% of the market share for the value traded. Macquarie Securities conducts the institutional business side of the Macquarie Equities NZ Limited.

DPINC7HA;JÅD;MB?IJ?D=I The NZSX Market has had two very successful Initial Public Offerings, IPO’s, this year; Delegat’s Group and Rakon. Delegat’s Group is a leading producer of super premium branded New Zealand wines for export and domestic markets. The IPO raised $45 million and 32 million new shares were issued. Rakon Limited is a world leader in the development of high performance frequency control technology based on quartz crystals, which lie at the heart of electronic products such as Global Positioning Satellite (GPS), Wireless, Networks, Cellular, CDMA, GSM, Telecom, Radio, and Microwave. Its IPO raised over $66 million. Witan Investment Trust plc listed as an overseas company and ABN AMRO Equity Derivatives NZ issued a further 9 new third party instalment warrants.

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DP7NC7HA;JD;MB?IJ?D=I The NZAX market has seen three new additions this year; it brings the total of NZAX Issuers to 27.

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To advertise here, contact [email protected]

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In March NZX announced the purchase of NorthCanterbury based rural data company, Agri-Fax.

New Zealand Exchange Limited (NZX) has developed a new index to recognise and promote the breadth of science and technology companies currently listed in New Zealand. The NZX SciTech Index is the first in a series of special interest indices to be developed by NZX. It includes our top information, biotechnology and industrial technology NZX Listed Issuers, all of whom have a significant business interest in the development and commercialisation of new technologies.

NZX CEO Mark Weldon was keen on the rural investment from the start. “One of NZX’s core values is Advancing New Zealand. We recognise how critical the rural sector is to this country. The Agri-Fax business is a key way for us to contribute to Advancing New Zealand,” said Weldon. Established in 1987, Agri-Fax produces three main data types to media and other rural customers: farm gate pricing; overseas market information; and Market monitoring. AgriFax will continue to be based in North Canterbury and be supported by NZX operations in Wellington. Agri-Fax founders Rod McKenzie and Dave Meares have agreed to stay on with Agri-Fax for at least three years to transition existing operations and carry out development work. Ed[e\j^[edboFbWY[ioekÊbbÓdZWicWhjEPPO Now you can really diversify your portfolio with Smartshares. We have extended our product range to include the SmartOZZY Fund, the fund that tracks the top 20 companies Listed on the Australia Stock Exchange (ASX). SmartOZZY is the fifth addition to the Smartshares family; it tracks the S&P/ASX 20 Index and contains some of Australia’s most prominent brands such as Westpac, Coles Myer, Woolworths and Foster’s. SmartOZZY, formerly the Tortis Ozzy Fund, has been purchased from TOWER Limited. Smartshares assumed management rights from 30 June 2006 and will continue to outsource the underlying investment management to Passive Funds Management Limited. The acquisition of smartOZZY brings the total Smartshares funds under management to over $450 million. Units in smartOZZY will continue to be quoted on the NZSX Market under the security code OZY. The Cash Application and Regular Savings Scheme have been extended to include this new fund.

“NZX has identified this sector as an important one to New Zealand and NZX Market investors,” said Geoff Brown, NZX Head of Products. “Until now the sector has been something of a quiet achiever. Many of the companies have gained international recognition in their specialised fields and have many more exciting growth opportunities; NZX wants to help raise awareness of their success.” NZX hosted seminars in August whereby the constituent companies presented their stories to the investment community. 9h[Wj_d]LWbk[\ehDPNB_ij[Z?iik[hi NZX’s business is founded on the belief that a healthy capital market infrastructure is essential for the economic well-being of this country. We are passionate about markets and business, and about ensuring we serve our Listed Issuers and New Zealand investors, to achieve economic wealth and well-being. As part if our drive to deliver better service to our customers we have introduced a new Client and Market Services Group, combining the Listed Company Relations (LCR) team from Market Supervision with the Participant Relations and IT Operations teams of Market Operations. This creates a single, consolidated client and service focused area for NZX’s professional clients. The team is jointly headed by Adrienne Quinn and James Winskill, who joined NZX from First NZ Capital Securities (FNZC).

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BEST PRACTICE IN

I_d]b[Fe_dje\7YY[ii CMS’s primary goals is to create of value for NZX professional clients through single point of access for service and product support. We endeavour to provide an improved scale and ability to deal with peak flows by:

INVESTOR RELATIONS

• Increasing the speed and efficiency for service provision.

As a medium that promotes fair and equal disclosure of information to market, webcasting has become an established tool for promoting best practice in Investor Relations. It provides a valuable channel of communication for retail and institutional shareholders as well as analysts, media and staff.

• Providing a single point of ownership for service delivery, relationship management and issue resolution. • Focus on core market systems and external impact on external parties. • Reliable and consistent customer focus, application and communication to external parties.

Quick and easy to implement, webcasting allows your audience worldwide to watch company events, both live and on-demand; financial results presentations, corporate announcements, AGMs, capital market/ analysts days, roadshows and press events - all can be delivered to anyone with a PC.

NZX, Proud to be NZX Listed and Proud to be Advancing New Zealand.

Increased globalisation of financial markets and demand for timely disclosure of financial information has prompted a growing trend in the use of webcasting by IR departments. 82% of the ASX top 100 currently use webcasting with 90% of the FTSE 100 and 95% of the NYSE 100 following suit. Another significant reason for the use of webcasting is that it provides measurable returns. There is no more guesswork over how many and who you have reached. Online technology used in a presentation can tell you exactly who logged in and for how long. Webcasting comes in various forms from the very simple audio stream with synchronised slides through to multicamera video presentations. However, all webcasts provide the option for interactivity; viewers can participate online by submitting questions, filling in questionnaires or taking part in instant polling.

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Units in the Smartshares funds have been accepted for quotation by NZX and will be quoted upon completion of allotment procedures. However the Special Division which regulates Smartshares Limted takes no responsibility for this offer. Copies of investment statements can be found at www.smartshares.co.nz.

If you want to find out more about how webcasting can save you money and strengthen your relationships with investors and to receive information on the NZX listed company webcast offer, please contact Ali Boswijk on [email protected]. n

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