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Australian Securities Exchange (ASX) recently raised a query to NSX Limited (ASX: NSX) asking whether it has sufficient cash to continue funding its operations. NSX’s recently released cash flow figures were the primary reason behind ASX’s doubt.
NSX had recently reported negative net operating cash flows of $1.9 million for the December quarter and had estimated cash outflows of $1.4 million for the January 2020 quarter.
Three important questions which ASX asked NSX are as follows:
- Does NSX expect that it will continue to have negative operating cash flows for the time being and, if not, why not?
- Has NSX taken any steps, or does it propose to take any steps, to raise further cash to fund its operations and, if so, what are those steps and how likely does it believe that they will be successful?
- Does NSX expect to be able to continue its operations and to meet its business objectives and, if so, on what basis?
NSX Reply to ASX Query
In its reply to ASX questions, NSX has stated that it expects to continue to have negative operating cash flow while it continues to invest and build its business and explore new opportunities for growth. NSX has reminded that it is typically cash flow positive in the September quarter of each year as it receives the bulk of the receipts from its customers for the financial year during this period.
As per NSX, the reason behind NSX’s negative cashflow is mainly due to the timing of extra payments.
In order to raise further cash to fund its operations, NSX Board is investigating and negotiating a share issue by way of a placement. Once the various terms have been finalized, NSX will make an announcement to the market including an Appendix 3B – Proposed issue of securities as is required by ASX listing rules.
NSX is of the view that it will have the required support of investors as part of its current capital raising activities which will enable NSX to carry on its operations.
Business Activities Highlights for December Quarter includes:
- During the December quarter, the company received $0.3 million in cash receipts from customers, up 19% or $0.04 million when comparing to the previous corresponding period (pcp);
- Cash payments for administration and corporate costs for the period were up by $0.2 million on the last quarter and $0.5 million better than the pcp;
- Cash payments for staff, corporate and board costs for the period were $1 million and are higher than expected due to payouts for staff leaving and higher than the pcp by $0.2 million;
- In order to strengthen its balance sheet and operating capacity, the company is also investigating a capital raising by way a placement under the ASX listing rule 15% facility and if required, subject to shareholder approval;
- Michael Cox resigned as interim CEO;
- Tom Price was appointed interim CEO
NSX Limited Background
Ultimate parent company of the National Stock Exchange of Australia Limited, NSX Limited, is involved in providing a stock exchange facility for the listing of equity securities, corporate debt and investment scheme units.
FY19 Summary
During the last financial year, the National Stock Exchange (NSX) consolidated its position as a real alternative exchange by offering a faster, cheaper, and easier way to list. This approach is based on a transparent criteria and articulated principles that provides companies of all sizes a way to access the capital markets.
The transformation of NSX Limited’s distribution model remains the biggest driver to building connectivity for market participants and liquidity for NSX. Throughout 2019, the company saw the benefits of the integration of NSX trading on the IRESS platform. Primarily, it has shifted NSX away from the reliance on a single point of contact at brokers, enabling all advisors to trade. Further supporting the expansion of its distribution model, real-time full market data and news are now available on Bloomberg and Refinitive (formerly Thomson Reuters) services.
By the end of FY19, NSX had grown the number of Broker Participants by over 10 per cent to 19, and agreements with Nominated Advisers were up 14% to 42. The company plans to actively engage and grow these customer groups as they are strong advocates of NSX providing assistance in building its awareness and building liquidity.
Over the period, the company’s team has actively participated in a number of conferences and events during the period including, Australian Technologies Competition, RIU Explorers Conference in Fremantle, the Brisbane Resources forum, and the Stockbrokers and Financial Advisers Association Annual Conference in Sydney.
The company intends to engage and grow its support for sectors and industries that are aligned with its strategy. Last year, NSX had revenue of $2.3 million compared to the prior period of $2.6 million which was a result of reduced number of listing on the exchange during the year. This is a factor of uncertainty in the markets that saw IPO levels down and a result of our revised listing standards to ensure companies are suitable for listing.
Even with this reduced revenue number the net loss for the group after tax was $0.3 million in FY19 better than last year at $3.1 million. It is to be noted that loss includes non-recurring items of $0.7 million so accordingly the underlying loss for the group is $2.4 million.
Current Cashflow Position
NSX’s Cash at the end of the December quarter was $3.3 million. During the December quarter, the company raised $1.8 million in new capital net of costs by way a share placement. The cash receipts in the December quarter were down $1.2 million or 83% on the September quarter but higher than the previous corresponding period (pcp) by 19%. This is as a result of timing of receipts and a lower number of issuers. Cash payments for operations in the December quarter were higher than the previous quarter by $0.8 million due to timing of payments.
NSX Limited currently has a market cap of around $23.35 million. The stock of NSX last traded at a price of $0.120.
