Hong Kong Exchanges and Clearing Limited

Good afternoon, ladies and gentlemen. Welcome to HKEX 2022 Q1 Results Analysis Presentation. Today, we are delighted to have our Chief Executive Officer, Nicholas Aguzin, and our Group CFO, Vanessa Lau. We will first present our key highlights in 2022 Q1, Financial Performance Review, followed by Business and Strategic Update. Then, we are happy to take some of your questions. Those of you dialing in to this call may follow the instructions of the conference call moderator to ask questions later. Meanwhile, Those of you joining us through the webcast may send us written questions through the webcast portal as usual. With no further ado, over to you, Guqiu.

Thank you very much, Ricky, and good evening, everyone. Thank you for joining us today. It is my pleasure to be talking with all of you investors, analysts, both in Hong Kong and all around the world. Today I'm actually presenting from Wanzhou, which is part of a trip that I've done for the last month in mainland China to meet with some of our partners and stakeholders. It has been a very fruitful visit so far. I have been in Beijing, Shenzhen, As I'm introducing our new strategy to all of our friends, our colleagues in the mainland and sharing ideas on how to develop our capital markets and also how we can further enhance the connectivity. And today, on behalf of HKEX, I'm pleased to present our financial results for the first three months of 2022. I will let Vanessa go into more details on the numbers later, but let me share some key highlights. In the first quarter of 2022, HKEX continued to deliver robust results, despite the very challenging macro backdrop due to the ongoing market volatility and geopolitical fragility. Key financials held steady from the fourth quarter of 2021, But we're down from a very strong first quarter of 2021 and reflected a normalization of our long term growth trend. Revenues were 4.7 billion Hong Kong dollars down 1% against Q4 2021 and 21% lower year on year. In terms of profits, We remained broadly flat at HK$2.7 billion when compared with the fourth quarter of last year, but it was down 31% year-on-year when compared with the first quarter. Our cash and derivatives business and the Connect program showed resilience despite weak market sentiment impacted by the resurgence of COVID-19 in Hong Kong and mainland China. as well as geopolitical concerns. Our Connect programs continue to perform well against the volatile backdrop. Stock Connect ADT remained resilient with Southbound ADT rising 27% from the previous quarter. Bond Connect ADT reached a record quarterly high. So after receiving positive responses from a broad spectrum of market stakeholder Stakeholders, in January 2022, we published consultation conclusions for derivatives holiday trading, which will commence in May 2022. During the quarter, although Hong Kong's IPO market was impacted by the macro environment, our pipeline is still very healthy and strong with over 150 active applications. Following the introduction of the listing regime for special purpose acquisition companies, or SPACs, we welcomed the first SPAC listing in March of this year. And in the same month, I mean, we also, my management team and myself, we hosted the corporate day to update on group strategy, setting out a blueprint to build the marketplace of the future. I will expand on some of these areas shortly, but now, Let me hand over to Vanessa who will talk through our quarterly results in more detail. Vanessa, over to you.

Thank you, Guqiu. Good evening, everyone. Thank you for joining us. I'm Vanessa Lau and would now like to share with you our Q1 2022 financial results. In Q1 2022, we have a challenging year-on-year comparison against the record Q1 of last year. However, HKEX's businesses demonstrated its robustness and resiliency, despite the ongoing market volatility and global geopolitical fragility. Our core business revenue, excluding net investment income of corporate funds and HKEX Foundation donation income, was $4.8 billion, up 7% against Q4 and down 16% versus the record Q1 last year. Our results were impacted by the performance of the external portfolio, which had a loss of $189 million during Q1 in line with global market valuations. As a result, total revenue and other income in Q1 was $4.7 billion, roughly the same level as Q4 2021 and down 21% against last year's record Q1. Our EBITDA was $3.5 billion, profit after tax at $2.7 billion, and earnings per share at $2.11. They were broadly flat against Q4 and down by approximately 30% versus Q1 last year. Turning to the next page on our detailed financials. Compared with the exceptionally buoyant Q1 2021, Both headline ADT and Stock Connect volumes registered a drop, but this was partly offset by a solid growth in trading volumes on the Hong Kong Futures Exchange and the LME. We are particularly pleased to see our newer products, like Hang Seng Tech Index Futures, launched in November 2020, registering strong growth, with Q1 2022 ADV more than three times higher than the full year of 21. Similarly with MSCI China A50 Connect Index Futures, launched in October last year, with ADV in Q1 almost doubling that of Q4. Next, we look at OPEX. This was up 7% year-on-year, mainly driven by higher staff costs from annual payroll adjustments and lower staff costs capitalized and higher marketing expenses on new products. As mentioned earlier, the results were also affected by the losses of the external portfolio. EBITDA was down 28%, and profit after tax was down 31%. Moving on to the next page, where we look at our rolling quarter-on-quarter performance. Q1 2022 revenue was marginally lower than Q4 by 1%, as higher volumes in our cash and derivatives markets were more than offset by the losses of the external portfolio. OPEX in Q1 was down 2% against Q4 due to the seasonality increase in OPEX at the year end. Q1 net profit was therefore broadly flat against Q4. Moving on to look at the trend line. We continue to follow the general upward trend of the last five years on both revenue and profit, with Q1 results returning to long-term trend levels after the exceptionally buoyant volumes in Q1 last year and affected by investment loss due to market valuation. Despite the weaker market sentiment, HKEX continues to maintain an attractive EBITDA margin. Next, we take a look at our investment income. Net investment income comprises of internally managed corporate funds, margin and clearinghouse funds, and an actively managed external portfolio. As mentioned earlier, net investment income was affected by the fair value losses of the external portfolio in Q1 and therefore fell to $59 million in the quarter. Net investment income from internally managed funds has rebounded from Q4, up by $58 million, but was down against Q1 by $13 million. As the Federal Reserve started the interest rate hike cycle in March, Hong Kong dollar and US dollar interest rates increased in Q1 this year, but the increase in net investment income will only be fully reflected as the longer tenor deposits mature. Lastly, let's look at our operating expenses. OpEx was up 7%, reflecting our continued investments in talent, technology, infrastructures, and strategic initiatives, as well as incentives to attract new customer volumes. Overall, our core business continues to show resilience, built upon strong foundations and a clear strategy. Looking ahead, we believe Stock Connect will continue to be a key revenue driver, and the newly launched MSCI A-share derivative contracts will continue to gain popularity and encourage more fund flows. The IPO pipeline remains strong, supported by Chinese companies seeking homecoming listings and the positive market reception on the new listing regime for specs and overseas issuers. We will continue to invest in client, technology, talent, and risk management to deliver our vision of building the marketplace of the future. With that, I'll hand back to Guqiu for our business and strategic update.