Euronext Nv Unsp/Adr

Hello and welcome to the Euronext first quarter 2023 results. My name is Jess and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you'll be connected to an operator. I will now hand over to your hosts, Stéphane Boujna, Euronext CEO and Chairman of the Managing Board, joined by Giorgio Modica, Euronext CFO, to begin today's call. Thank you.

Good morning, everyone, and thank you for joining us this morning for Euronext's first quarter 2023 results conference call and webcast. I am Stéphane Boujna, CEO and Chairman of the Managing Board of Euronext, And we'll start with the highlights of the first quarter. Giorgio Vodica, the Euronext CFO, will then further develop the main business and financial highlights of the quarter. I'll take you through three key dimensions of this quarter. First, Euronext reported a solid first quarter of 2023 driven by organic growth for more non-volume-related businesses. Second, we achieved another significant milestone in the Bursa Itinerary Group integration with the successful migration in March of the Italian cash markets to Optic or proprietary state-of-the-art trading platform. And this achievement enabled us to reach 43.7 million of cumulative run rate synergies in relation to the acquisition of the Bursa Itinerary Group at the end of the quarter. Third, we continued to innovate and to strengthen our business across the value chain to build only fully integrated trading value chain in Europe. So let's move to slide four. And as I said, Euronext reported a solid performance for the first quarter of 2023. Total revenue income amounted to €272.3 million, in line with expectations. And this performance was down clearly minus 5.9% compared to Q1 2022, because as you certainly remember it, Q1 2022 was a period of absolutely unprecedented volatility due to the geopolitical situation in Ukraine, the invasion of Ukraine in February in particular last year. In Q1 2023, our non-volume-related business posted strong organic growth, now accounting for a substantial 58% of all total revenue, and I should underline the importance of this continuous trend. Technology solutions grew by plus 19.4%, driven by the growth of co-location revenues in our new core data center in Bergamo. Advanced data services also reported organic growth, in this case of plus 7%, thanks to the strong performance of our data services and our data solutions. From a cost perspective, we reported 153.8 million of operating expenses excluding DNA this quarter. This is up plus 7.1% compared to last year, but this is in line with our cost guidance for 2023 that remains totally unchanged. This cost performance demonstrates our continued cost discipline despite inflationary pressure. As you might remember, in Q1 2022, our cost base, which is the benchmark for this comparison, benefited from a positive one-off, whereas this quarter, in Q1 2023, we incurred some costs for growth projects. Consequently, adjusted EBITDA was 218.5 million euros, which represents a 58.7% adjusted EBITDA margin for the first quarter of 2023. Overall, this performance resulted in Euronext reporting its second-best quarter ever in terms of adjusted net income of €147.1 million and in an adjusted EPS of €1.33 per share. Also, and that's extremely important, we continued a solid, consistent, robust deleveraging path and reached 2.1 times net debt to adjusted EBITDA at the end of 2021-2023. Moving to slide five, the second highlight of the quarter, as I mentioned it earlier, is the achievement of the major milestone in the Borsa Italiana Group integration. Our teams migrated successfully on 27 of March, 2023. On time and on budget, the Borsa Italiana Cash Markets moved into a proprietary trading platform of PTIC. As a result of this migration, and the adjustment of the Borsa Italiana trading pre-grid, we delivered an additional €9.7 million of run rate synergies this quarter, reaching €43.7 million of annual pre-tax run rate synergies at the end of Q1 2023. The completion of this first phase of the Borsa Italiana markets migration into OPTIC does pave the way for the migration of the fixed income, warranted certificates markets, in the third quarter of 2023, and this migration will be followed by the migration of listed derivatives and commodities in the fourth quarter of 2024. As a consequence, the third-party trading platform we are using today will be decommissioned at the end of this year, and this will generate cost synergies. With the expected expansion of your next hearing to all markets in Q4 2023, and Q3 24, we are making significant steps to deliver, as expected, the $115 million of community-run rate annual synergies by the end of 24. Let me focus on page six on the migration of the Italian cash markets onto OPTIC, completing in March 23. The benefits of these major migrations are very significant, both for the legacy Euronext market participants, but also for Italian market participants, because this migration significantly increases the size and the depth of Europe's largest single liquidity pool operated by Euronext, today accounting for 25% of European equity trading. In addition, the quality of Italian cash markets was immediately improved. Euronext recorded a 20 percent increase in EVVO setting daily average following the migration. This KPI is very important because it defines where the best price is from across venues, and this is the true indicator of Euronext's superior market quality. Lastly, as part of this migration, Italian cash markets participants were seamlessly transitioned to the Euronext harmonized free grid, and therefore to new price extremes that are effective from March 27. These new pricing schemes are less sensitive to the average order size, and these fee adjustments directly contributed to the run rate annual synergies delivered this first quarter. As you know it, moving to slide seven, innovation and client satisfaction are at the core of our strategy, and we are glad to announce today two new innovative trading services to enable clients to leverage the particular Euronext trends. First for institutional clients, we'll launch a best-in-class dark execution facility for Euronext listed stocks in Q4 2023. This new service will enable market participants to benefit from the full suite of on-exchange execution models for the leading pan-European venue with the largest and deepest liquidity pool. This dark execution venue will notably include sweep mechanism between the midpoint and central limit of the book. Thanks to our state-of-the-art technology, this new facility will enable lower latency between dark and light execution. Second, for retail investors, we will soon propose a simplified access to trading of a wide range of pan-European and U.S. securities. Leveraging on our existing MTF in Italy, the global equity market, we will simplify, broaden, access to trading of non-domestic securities. Through this new innovative offer, we will offer retail investors a true one-stop shop experience for equity traders. Moving to slide eight, let me end with a few words on the expansion of Euronext Clearing to all Euronext markets and recent developments on this I would like to focus on the future value proposition this unique clearing project would provide to the European ecosystem. Euronext Clearing represents the final steps for us to deliver the largest European integrated trading value chain. And this expansion of Euronext Clearing to all Euronext markets will strengthen and enlarge a single resilient and multi-asset clearinghouse for all Euronext markets and thus cover 25% of the equity traded in Europe. We will be the only player in Europe with such a size and asset coverage present on the entire training value chain, able to offer the best solutions, innovations, and services to our clients. This clearing migration project is progressing very well, according to plan. And the test platform is now available for clients. The clearing expansion will be a game changer for Eurex. It will be, for sure, a win-win situation for both Eurex and our clients. not only for clearing, but for the whole post-trade framework. First, Euronext Clearing will offer a strong value proposition to clients because the Euronext Clearing services will include optimized cost of capital for clients thanks to the new value-added framework. Euronext Clearing will also provide clients with the opportunity to clear a large range of products and markets, allowing competitive prices and economies of scale. Furthermore, a post-trade offering with our CLDs will allow clients to reduce frictional costs, and to access to cost-efficient settlement chain. Second, from an operating perspective, the expansion of Euronext Clearing will support innovation and business expansion. As I said earlier, Euronext Clearing will offer a unique scalable platform to clear all products and support a set of modern and versatile user face and APIs. Going forward, Euronext Clearing will support further innovation to improve post-trade operational efficiencies, with further data transparency and automation. I would like to emphasize that by 2024, we will offer a unique post-trade platform in the European landscape. Across all your next venues, market participants will benefit from a simplified and common trading and clearing setup, combined with a direct T2S access and shorter settlement chain. We are working intensively to secure this migration. As of today, client readiness is increasing, and we confirm the expansion to clearing of equities for markets in Q4 2023 and for derivatives in Q3 2024, unlocking the last synergies targeted in relation to the acquisition of the Boss Itinerary Group in a Growth for Impact 2024 strategic plan. I now hand over to Giorgio Modica for the review of our first quarter 2023 performance.

Thank you, Stefano, and good morning, everyone. Let us now have a look at the performance of this first quarter of 2023. I'm now on slide 10. In the first quarter of 2023, Euronext's diversified business model delivered a solid quarter driven by the organic growth of our non-volume-related businesses, that partially upset the lower trading activity against the first quarter 2022 marked by unprecedented level of volatility in market activity. As we've already mentioned, total revenues this quarter reached 372.3 million euros, down 5.9% compared to last year. Technology solution revenue was up 19.4%, resulting from the internalization of our co-location services following the migration of the core data center of Euronext to Italy. Advanced data services revenue was up 7%, driven by an increased number of clients and improved revenue capture, as well as a strong performance of the data solution business. Listing revenue was slightly down 1.2%, impacted by the depreciation of the NOC against Europe. In the first quarter of 2023, Euronext confirmed its leadership position for equity listing in Europe. Post-trade revenue was also slightly down 1.9%, reflecting lower clearing revenue and NTI, while custody and settlement reported its best quarter ever. Lastly, trading revenue was down 14.5%, reflecting a normalization of the market condition against The record volatility level reached in the first quarter of 2022. In particular, the strong performance of fixed income and power trading activity was offset by lower cash and derivative revenues. I will start now the financial review with our non-volume related activities which strongly performed this quarter. Technology solution reached record revenues at 27.6 million euro up This performance primarily reflects the contribution of our new co-location services following the internalization of this activity in our new core data center and the strong performance of technology solution business of Norfolk and MTS. Advanced data services also reach record revenues at 56.3 million, up 7%, from last year. These results from a strong performance of the core data business will continue positive momentum for client development, as well as for our quant research product from our data solution business. Investor services reported revenues of 2.6 million euros up 16.7%, as continued successful commercial expansion of the franchise is positioning ComSize as the research evaluation platform of choice for the investment community. Moving on to listing business on slide 12. Listing revenue were 54.7 million euros this quarter. This decline, as I already highlighted, of 1.2% is solely due to the unfavorable exchange rate movement of the Norwegian krona impacting our listing business in Norway. On a like-for-like basis, revenues from listing increased 0.6%. Excluding this impact, the business reported a solid quarter with 12 new equity listings, of which 25% was from international companies, confirming our leading position as the venue of choice for equity listings in Europe. We attracted two of the three largest European listings this quarter. On the debt side, we also performed and confirmed our leadership position, reaching for the first time 1 trillion in sustainable bond listed on the Euronext market. Lastly, corporate service revenue were up 2.2%, primarily driven by the good performance of our software as a service offering. Now I'm starting with trading on slide 13. Cash trading revenue was down 23.7% to 71.1 million euros. This primary result from the negative comparison basis versus the first quarter of 2022 impacted by unprecedented level of volatility following the outbreak of the war in Ukraine. As a result, cash trading volume dropped 26.2% compared to the same quarter last year. Cash trading revenue capture averaged 0.48 basis point over the quarter. the revenue capture was negatively impacted by larger order size. This impact was further emphasized on the Italian market that was, for the last quarter, on a standalone Borsa Italiana Figrid, much more sensitive to order size than the Euronext one. As a reminder, we successfully migrated the Italian cash market to OPTIC on the 27 March 2023. Therefore, the benefit on revenue capture will be immediately visible from the second quarter of this year. And we reiterate and confirm our floor of 0.52 basis point post-migration. Lastly, our cash equity trading market share averaged 63.8% over the quarter in line with our guidance of at least 63%. Derivative trading revenue was down 7.5%. to 14.9 million euros. As for cash trading, this primarily reflects the lower level of volatility, with total derivative volumes down 18.3% compared to last year. Yet, that was partially upset by a strong performance of our commodity franchise, despite a record quarter last year, and by increased revenue capture at 0.34 euro per lot. Lastly, FX trading revenue reported 6.3 million in revenue, down 11.7%, again, due to lower volatility. However, this decline in trading volumes was partially upset by the growth of our business in Asia. Continuing on slide 14, with our other trading activities, fixed income trading recorded a record quarter, with revenues reaching 26.2%. 2 million euros or an increase of 7.4%. The franchise recorded strong volumes dynamic across all the asset classes and companies of the group. Increasing interest rate had a positive impact across the franchise, not only MTS, but also the MOT in Italy and the other fixed income markets of Euronext. Both cash and repo performed extremely well, supported by increasing demand from both institutional and retail, as well as the increased traction of MTS across Europe. Power trading also delivered a record quarter with volume up 8.4% to 9.8 million euros. Both intraday and day ahead volumes reported record traded volumes this quarter as a result of increased market share across all key markets, the growth of the intraday trading thanks to the increasing share of renewable energy into the mix and improved revenue capture. I conclude this business review with our post-trade activity, slide 15. Clearing revenue, excluding NTI, was down 6% to €30 million. This reflects lower equity and derivative clear at Euronext clearing only partially upset by an uplift in bond clearing as well as the lower contribution from LCHSA. Net treasury income was at 7.5 million euros, better than anticipated due to higher cash held. As a reminder, we have completed the planned disposal of the investment portfolio of Euronext Clearing. From the second quarter of 2023, we will reach the targeted run rate NTI of approximately 20 BIPs on a cash attempt. Lastly, custody and settlement posted its best quarter ever despite an already strong first quarter last year. Revenue reached 64 million euros reflecting the rollout of the new fee scheme combined with the continued recovery in value of assets under custody. To the financial highlights of the quarter, I will start with the EBITDA bridge on slide 17. Euronext adjusted EBITDA for the quarter was down 13.3% to 218.5 million euros resulting from lower trading revenues, partially offset by non-volume revenue growth and continued cost discipline. With regards to the underlying expenses excluding NDA, I would like To remind you that the first quarter of 2022 was positively impacted by some one-off items, including bonus release of around 5 million euros. Adjusted EBITDA margin was as a consequence reduced to 58.7% this quarter. From a non-underlying cost perspective, the main impact is, as you can see, on the slide related to the provision for the termination fee in relation to the derivative clearing agreement with LCHSA. This provision accounts for 36 million euros, and I remind you that for the time being, this is a non-cash item. The payment will be due in 2024. Moving to net income on slide 18, adjusted net income this quarter was down 10.6% to 147.1 million, resulting from lower EBITDA, partially offset by the following elements. On the one side, we have lower net financing expenses resulting from higher interest from cash and cash equivalents. Higher results from equity investment representing the contribution from LCHSA and a dividend received from SICOVA. As a reminder, in 2022, we did not receive any dividend payment from SICOVA. I would like to highlight that non-underlying costs in this bridge are mainly related to the provision for the termination fee of the derivative clearing agreement and PPA amortization of our acquisition. Finally, the income tax for the first quarter of 2023 was 33.1 million euros. This translated into an effective tax rate of 24.5 million euros for the quarter, positively impacted by exempted tax items such as the dividend from SICOVAM. Reported net income was 96.5 million euros, and adjusted EPS basic was down 10.7% this quarter at 1.38 euro per share, compared to the adjusted basic EPS the same quarter last year of 1.54 euro per share. To conclude with the cash flow generation and leverage, the net operating cash flow post-tax amounted to 318.2 million euros this quarter. This was positively impacted by 138.4 million of positive changes in working capital related to North Pool and Euronext clearing CCP activity. Excluding this impact and adjusted for the $36 million termination fee provision as this is non-cash item in EBITDA, net operating cash flow post-tax accounted for 86.5% of EBITDA. Net debt to adjusted EBITDA was at 2.1 times at the end of the quarter and 2.4 times on a reported basis. And with this, I would like to conclude, and I will give back the floor to Stéphane.