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.

Thank you, Giorgio. As you can see, the first quarter of 2023 marks a very strong start to a very important year in the future of EUR-NEXT. We were able to reinforce our position as the leading venue for equity listing in Europe and in debt listing worldwide. The successful migration of Italian cash markets onto OPTIC has paved the way to the future expansion of EUR-NEXT clearing, to fold your next markets. And combined with the successful migration to our new core data center completed in June last year, and the recent internalizations of technologies for MTS and your next securities, we are now more than ever on the right path to build the only fully integrated trading value chain across Europe. So this combined with our innovation capabilities as the one we announced today in trading, will further unlock opportunities for growth in the near future. So thank you for your attention. We are now ready to take your questions together with Giorgio Antoniattia, Global Head of Primary Markets and Post-Trade, and Simon Gallagher, Head of Cash and Derivatives Trading.

If you would like to ask a question, please press star 1 on your telephone keypad. Please ensure your line is unmuted locally, as you'll be advised when to ask your question And the first question, it comes from the line of Mike Werner from UBS. Please go ahead.

Thank you, guys. A question on this fully integrated trading value chain, which you guys highlighted at the beginning of the presentation and towards the end. Once you bring clearing on, you can offer in theory kind of a full bundled product for both issuers as well as investors. Where do you see the opportunities in terms of being able to grow your revenue base out of this value chain? If possible, is that something that you're willing to quantify? Thank you.

Good morning. This is Anthony Attia. Thank you for your question. It's very important to give some perspective on this. So first of all, the investments in the clearinghouse that has been mentioned earlier with the migration that will take place this year for cash equity and next year for listed derivatives will position the clearinghouse as one of the key CCPs in Europe across asset classes. So there are some opportunities for further growth in the CCP in the future, supporting Euronext but also other markets. The value chain today that Euronext has covers, as you rightly said, from the issuer side, so this is the primary market and the CSD. to the investor side and we already have some synergies between our primary market, so the listing business and the CSD business as for issuers services and corporate services. We won't share with you numerical numbers and I will let Giorgio comment on that. but the synergies between the different parts of our value chain has already started with the growth of Euronext securities on one hand and corporate services on the other hand.

Maybe to complement what Anthony said, the objective is to provide clients with the best-in-class services and to expand the offering to the Euronext market but outside of the Euronext market covering to the extent possible new asset classes and new product development. When it comes to the quantification and if we focus specifically on the clearing side we confirm that two elements the total synergies of 115 million for the end of 2024 and the fact that clearing is going to be a key component of that and the major contributor that allow us to increase synergies from 100 million to 115 million.

And if I can add a more general comment, the objective of the internalization of carrying operations within the Yonex group is not only to replace the current provider of clearing services and to migrate the carrying of cash equity the clearing of listed derivatives to an internalized solution within Euronext Clearing. The fundamental underlying ambition is to take to the next level the derivatives product offering of Euronext because the capabilities of the group when we have the current positions in cash equity trading and in derivatives trading combined with an internalized platform will allow us, will enable us to take to the next level our derivatives products ambitions.

Thank you. Can I just have a quick follow-up? Again, with this value chain, in France and I believe the Netherlands, you currently are not the owner of the CSD in those respective countries. Do you see that as a potential opportunity to win revenue or wallet share of the investor and of the issuer? Thank you.

Look, we have a footprint in terms of CSD as you know in Norway, Denmark, Italy and Portugal. But we are reaching out to the different ecosystems where we have our exchanges as well. So indeed, in France, Belgium, and the Netherlands, as well as Ireland, we don't have CSE licenses. Nevertheless, we work in collaboration with the incumbent, and that doesn't prevent us to work very closely with our issuers and their custodians on developing services. That's what I mentioned with the corporate services growth. Thank you.

The next question comes from the line of Kyle Voigt from KBW. Please go ahead.

Hi, good morning. In my first question, just on the all funds situation, I was wondering, can you give a bit more detail behind the bid process and what attracted you to that asset? in any color regarding why the talks were ended with all funds board, how much of that was price versus other factors. Um, my second question is, is a related question, I guess, but a bit broader, you know, Stefan, since you stepped into your CEO role, I think there was always kind of a preference for transformational MNA eventually, but there was a near term need to scale the business in order to kind of compete for some of those transformational assets in the market. I think all funds certainly would have been the most transformational deal that Euronext pursued to date. I guess my question is, looking forward, given the scale that Euronext has achieved today, should investors simply now kind of expect more transformational type deals ahead? And if so, is there any way to kind of help frame where the most interesting opportunities are, whether that's in the fund space or data or other segments?

Okay. The Euronext ambition has always been to grow, first in profitability, then in diversification. And M&A is a tool. It's not an objective. We looked at the old funds because it was an asset that was going to bring potentially some form of diversification to the top line of Euronext in a field which is adjacent to what Euronext does. in a similar way as fund distribution is adjacent to what Deutsche Börse does with their own strategy in this field. We look at the company for all sorts of reasons and in particular because it could have been a contributor to diversification and to potentially some growth to the group. We looked at the first public available numbers after conversation started which were the full year numbers of 22 with the revised guidance of the company for 23. We had due diligence discussions with the management and we decided to discontinue conversations because we felt that the company was not going to match at the price that was considered the sort of return on capital employed expectations of your next period. That being said, We remain committed to explore two avenues. The first ones are more of the same but bigger, i.e. deals that are synergetic to what we do today. And the second avenue is diversification. So we will continue exploring situation targets where we can, through inorganic growth, increase the growth profile of the company and diversify the revenue profile of the company. Within a very strict discipline that is a very strong limitation to that ambition, but which is what we have done so far, that we will not deploy capital of Euronext shoulders unless the return on capital employed is above what, between Euro 4 and 5 post synergies. and if we don't have an accretive deal in year two. And that's what I can tell you. So you should expect Euronext to continue generating strong free cash flows, exploring opportunities to grow and to diversify, and to do it only when we can find targets and situations that meet our M&A discipline.

Very clear. Thank you.

The next question, it comes from the line of Arnaud Giblet from BNP Paribas. Please go ahead.

Yeah. Good morning. If I could just follow up on the previous question, you mentioned you want to do a deal on investor royalties greater than WAC in year four or five. If I remember well, that used to be year three. So is this a case of doing deals that are slightly diversifying, therefore have less cost synergies. And if so, I mean, cost synergies is really where you've excelled in the past. So what sort of change has there been here? If you could just go through that, please. And secondly, I'm just also thinking about what you said earlier on clearing. You mentioned that there's an ambition to take derivatives offering and clearing to the next level. What do you mean by taking it to the next level? Is this offering new products, doing a more comprehensive service? If you could just explain that a bit more, I'd be quite interested in hearing that. And finally, just a quick numbers question. some strong price growth in data. Is that linked to repricing of data? Thank you.

Okay. I'll let Giorgio comment on the data and pricing issue. And Giorgio will comment also on the return on work clarification. I just want to answer your questions on the synergies and derivatives. On the On the synergies, thank you very much for appreciating the performance of Euronext in extracting cost synergies, but we do extract also significant revenue synergies. Out of the synergies in relation to the acquisition of Borsa Italiana, there are significant cost synergies, but also significant revenue synergies, by the way, as demonstrated this quarter with the harmonizations of the free grid in Italy for global participants, and as demonstrated with the revenue generated by co-location services extracted by the migration of the core at the center from Basildon near London to Ponte San Pietro near Bergamo, and so on and so forth. So you should look at your next as a group that is as an outstanding TARC record in managing its own home course discipline in translating that into strong post-marger integration in terms of cost management in the assets revived, but also in generating revenue synergies as really demonstrated by the past few quarters. On derivatives, I don't want to give you a number, but what I want to say is that there is a fundamental difference between having derivatives ambitions when you are a client of a clinic house, as we are today when we are clients of LCHSA, and where your capability to create derivatives, to develop derivatives, depend on your provider willingness, capabilities to facilitate and enable the development of your derivatives process. And the other model, which is a situation that exists with, for example, the largest derivative producers in Europe, when you have a sort of intimacy within the same group between the derivative houses that has, by the way, the same brand name as the clearing houses. And that's what we are about to be in a position to deliver. And that's what I mean in terms of taking all derivatives ambition to the next level. We are not going to create expectations in terms of number, but anyone who is familiar with this industry can appreciate that it is a game changer in terms of capability to come to the market with integrated solutions. Now over to you, Giorgio, on the clarification of the expectations we have created on return on capital employed for acquisitions, and I think it's a misunderstanding, and on market data.

Absolutely. So let me start with market data. These results, which is positive this quarter, is the consequence of two key elements. The first one is the number of clients are increasing. I mean, the secular decrease of a number of terminals, this is a process that, to a certain extent, stopped and reversed with the new practice of working from home. So what we are seeing is, and this is the same in the last quarter, is an increase of the number of clients. So this is one driver. And this trend might stop or reverse. But as these mix work from home, work from the office environment proceeds, we are still benefiting from the increase of number of clients and number of terminals. So this is one driver. And the second driver, as you pointed out, as you know, we increase price of market data. And this is the same thing we did in the past in line with the inflation of the previous year. So for 2023, the inflation applied is the one of 2021 as pricing is usually communicated to client in the mid of the year. So we communicated the price of 23 in mid 22 based on the inflation of the previous year. So to conclude, there is a combination of price increase and increase of number of clients. Those are the key two drivers. When it comes to maybe a side note on what Stefan just said, The growth of the derivative franchise is not included in the 150 million 15 million of targeted synergies for 24 So this represents something we believe but an upside with respect to that number and finally on the horizon to deliver the internal invested capital the the four to five year is something that we've communicated at the investor day in November 21 and It's true that in the previous cycle that was three years, but as the market condition has become more competitive, usually this is the type of range that investors give themselves to reach that target result. And the other element is that when you need to execute diversification deals, that by definition ad cost synergies, which are lower than integrating other similar business, then clearly the time to deliver the full potential is slightly longer than a simple integration of platforms. So I hope I've covered your questions.

Yeah, thank you. Just if I could quickly follow up. So 2023 pricing is based on 2021 inflation. Does that mean next year you've got a huge price increase coming in data?

I mean, we will go through the process, but we will follow the same idea. When the cost increase, the pricing mechanism are such that we reflect the increase of our cost into the pricing. So when the inflation was 1%, 2%, that was the increase of pricing. Going forward, we will incorporate inflation in the pricing of market data.

Thank you.

Next question comes from the line of Bruce Hamilton from Morgan Stanley. Please go ahead.

Hi, good morning. Thank you for taking my questions. Just looking at the cash equities business, in terms of the fee margin, obviously, I think I'm right in saying you indicated that the migration of Bolsa Italiana and a slight change in pricing that makes it less sensitive to trade size, will benefit, and that's why you're confident in the 0.52 bips. But could you give us an indication of what Q1 would have looked like had Borsa been on that new pricing schedule? And then secondly, on the market, Chelsea, that's drifted again Q on Q, so you're 63.8 from 65. I think you indicated a bit of a tick up in April, although CBO's data suggests that you're more flat, and I think things have deteriorated again in May. So Can you just give us your level of confidence on those numbers? And do we expect that there might be more need to shift pricing to address market share? And then secondly, just on the sizing the opportunities from your new trading, the dark execution and the new retail trading, could you give us any sense of how to think about how significant those might be as we look forward? Thank you.

So, Giorgio will come and you will answer your question on the feed. And Simon Gallagher will answer your question on market share, volume dynamic, and the new offerings that we have announced this morning.

Yeah. So covering your question on fees, so the Borsi Italiana fee scheme was mainly upper trade type of fee scheme and therefore very sensitive to sizes. Whereas, as you know, we are mainly a basis point type of fee scheme. There is a per trade component, but it is more marginal with respect to the one of Borsi Italiana. Unfortunately, I cannot give to you the pro forma for the first quarter. However, clearly, I have an indication in mind. The only thing I can share with you is that we are very confident on our ability to deliver the 0.52. So this is the message that I can share at this stage.

Thank you. Good morning. So I'll answer first the question on market share dynamics. So as you noted over the first quarter, we saw a positive dynamic month by month, 63%, 64%, 65% market share in March. We were particularly pleased with the market share in March because it demonstrated that when markets are volatile and more in crisis mode, investors tend to fly to the liquidity of regulated markets. In April, we're down slightly to 60%, 60%, 64%. And as Giorgio said, we're confident of maintaining our guidance of above The main moves we've made recently in defense of market share have been twofold. The first was a change in November to our flagship liquidity schemes to support market share. There will be further changes to this liquidity scheme before the summer, which we won't go into now, but which will be non-yield dilutive and which will involve pegging requirements of market makers to a more pan-European benchmark. So we're pretty confident about market share going forward. With respect to sizing the two new initiatives, I'll just give you some flavor to help you have an order of magnitude. And so the dark offering is mainly targeting small dark trading, which occurs under the reference price waiver under European regulation. This pool of liquidity represents around 6% of the overall pie, so 6% of lit trading. So this is the addressable pool we're looking at here, 6% of Euronext trading volumes. And once this is off the ground, this will have a small single digit but material impact on the market share we report. The second component involves the retail business. Euronext is in the position where we still have retail brokers connected to all of our markets and all of our locations, and in particular in the Italian market where retail represents 20% of the flow. And so the aim here is to give those domestic customers facilitated access to their non-domestic activity, so the stocks which are traded beyond Euronext markets. Typically for those firms, this represents around 10% of their trading activity relative to their domestic Euronext activity. So hopefully those two numbers will give you an idea of the order of magnitude for this initial range of initiatives we're rolling out. Thanks, very helpful.

The next question comes from the line of Enrico Boldoni from JP Morgan. Please go ahead.

Hi, good morning. Thanks for taking my questions. One, again, going back to M&A. Does the fact that the market didn't seem to like either the potential acquisition or funds, but also looking at some of the deals done by some of your competitors that were kind of rather big deals, the markets be a big concern. I just wanted to ask you if anything is changing the way you think about M&A and potentially if there is an opportunity for doing actually fewer transformational deals. and more both on deals, I'm thinking in data, in technology solutions, and maybe leveraging your database, or anything else that can be done in that space, as I presume there is a vast amount of companies that are rather small, but maybe fast growing, and could diversify your business, but more gradually, in a way. So that's my first question. And then my second question, again, going back to the dark pool proposition, I would just like to have some comment from you in terms of how you see the evolution. So is this an answer to the fact that you see more and more volumes maybe going to dark pools versus LEET? And is there any risk at all that having a very successful dark pool at some point might cannibalize some of the LEET business? Thank you.

Okay, so I answered your M&A question, and Simon Gallagher with Clarify said, and we'll address your question on that one. On the M&A side, let me reiterate what I've said. We have been relatively successful in our M&A development since 2017 because we had a very clear and strict framework. We are good at buying assets that deliver significant synergies and we are good at extracting post manager integration synergies on time actually quicker than expected on budget actually more synergies than expected and therefore we want to continue acquiring assets that deliver synergies within a framework which is our return of capital which gives us a strong guidance not to overpay assets because we are in the business of creating capital. We are not in the business of destroying capital. In addition to that, in addition to growing the company in terms of profitability, in terms of growth, we need to acquire assets that accelerate the sort of standalone growth profile of the group. And that's called diversification. Now, fundamentally, the more you diversify, the less synergies you have. The less you diversify, the more synergies you have. So any deal that is a diversification deal and that achieves diversification objectives does not deliver the same amount of synergies as more of the same type of acquisitions. That's the nature of things. Now, the only guide that is useful to make sure that you manage the compromises attached between growth, profitability, is discipline and returns. And that's why we have these strict standards that Giorgio has clarified. What it means is that there are good deals that other people do that we don't do because we are not willing to pay what they pay. It is as simple as that. So you mentioned data. One of the reasons we have not done significant data acquisition so far is that the price of data assets up to now is extremely high and doesn't meet the discipline of return on capital employed that we are imposing to ourselves. So there is no conclusion to draw from the old fund experience except that we like the diversification it would have provided for the group. We like the initial growth profile of the company. We didn't like the revised guidance, and we didn't like the risk profiles that emerged from the due diligence. And therefore, we decided to move on. But we will continue to explore deals as long as they meet those objectives that I've just described, growth contributions, diversification to our business, and meet or satisfaction of our return on capital and accretion objectives. That being said, I want to highlight something that maybe was not enough, something we very often clear in the mind of maybe investors. Euronext is much, much more diversified than many people think. As of today, the core historical cash equity trading business represents less than 20% of the top line of the group. So I understand why it captures so much attention, and we are going to preserve, defend, and grow this business with our commitment on the market share, which we will meet, our commitment on the yield post-migration of the Borsa Italiana platform at 0.52 bps. We will do that, but we are talking about a part of a business which is less than 20% of the top line, and as of today, 58% of the top line of the group is absolutely non-volume related. So over to you, Simon, on the dark pool and what it means in terms of interactions with the rest of our core trading business.

Thank you, Stephan. So the first question was about the evolution of dark volumes. So the types of dark business we're targeting here are mainly small dark sizes, so reference price waiver sizes. At the moment, This amount of business that can be transacted on this type of platform in Europe is capped around 8%. So it's de facto capped by regulation. This cap may or not remain in place after the termination of the current market review. It is also targeting large in scale transactions, which are not capped. And this is where we see some potential upside. So this is a space where we think we need to be present and where we need to be innovative. So this is the very first step of moving into this area. Your second question was about cannibalization. So in the short to mid term, Dark and lit workflows tend to be very separate workflows within the investment banks. So we see the short-term potential for cannibalization as limited. But obviously things evolve over time and there may be some small shift between dark and lit platforms over the scale of five years or so. If this does occur, we'd like to reassure you that the pricing that will be applied to this dark venue will be identical to the pricing of the lit venue. So in terms of revenue and yield capture, it will be a simple pass-through for us from lit to dark.

Yeah. This is Giorgio Modica speaking. Just to take the opportunity and complement what Stefan said, what I wanted to highlight is that clearly we have a very strict and pragmatic approach to capital allocation in general. Market condition has changed, will change, so we're looking at what is the best use of capital. M&A is one, but there are others as well. So the message here is that we will pragmatically look at the market conditions going forward, and we will make sure that we will use our available resources in the best way possible in a very pragmatic and disciplined fashion.

Thank you.

The next question comes from the line of Hayley Tam from Credit Suisse. Please go ahead.

Morning. Thank you very much for taking my questions. Two for me, if I can. Firstly, on clearing, just understand from the end of 2023 when that migration for equity clearing happens, How quickly should we expect the revenue synergy benefits to materialize? Because I think my understanding is if Euronext is the preferred clearinghouse, then the market participants would have to elect not to use Euronext clearing for that not to be an immediate revenue benefit for you. So I guess what I'm really trying to ask is we should be able to see by the end of Q1 exactly what your run rate of revenue synergies is and whether you are running ahead of your estimates, I suppose is the question. And then the second question, just in terms of consolidated tape, which I appreciate is old news as well as being something that's been picked up again more recently in commentary. Can you remind us, please, of what your thoughts are on the likelihood of firstly a bond consolidated tape and what impact that might have on your business? And then I guess maybe more importantly, from an equity perspective, whether we think a pre-trade tape might actually ever be possible. Thank you.

So maybe on the clearing issue, I mean, I'll give the floor to Anthony to clarify the operations of clearing and the behavior of clients because there might be some room here for clarification. What I can tell you is that in terms of revenue and cost synergies in relation to the internalization of our clearing operations, the only guidance is the $115 million all in incremental run rate synergies EBITDA expansion by the end of 2024. So you should consider that the impact on costs and on revenues is at least encapsulated in that number. Clearly, as I said earlier, the ambition is to take to the next level beyond 24, and maybe earlier, I don't know, and I don't want to create expectations, maybe earlier, the development of clearing operations. So I'll leave the floor to Anthony to clarify in a minute what it means in terms of clients' behaviors, and clearly there is a difference between the way they will make decisions in terms of cash clearing and derivatives clearing the year after. When it comes to the consolidated TIP, for the equity consolidated TIP, which has been the most debated issue, we have made clear that we welcome the creation of a post-trade consolidated TIP with the snapshot of pre-trade. As long as it is a way to create efficiency for all the market participants in access to consolidated high quality information contributed in an imaginative manner by all the places, all the participants, all the players who do create data that are relevant for price information. However, we believe that a pre-trade consolidated tape is a wrong idea because it will create fragmentation of price formation. It will create arbitrage opportunities between the ones who have access to low latency, because real time does not exist. Real time exists for happy few only. And we believe that it will not address the use case that had been identified by the Commission back in 21. Therefore, we support the consolidated TAPE as it was agreed and decided by the Council of the European Union under the Czech Presidency in December last year. And we believe that this would be the right consolidated TAPE to be implemented.

Thank you, Stéphane. To go back on the question about clearing, as Stéphane said, we have both cost and revenue synergies linked to the clearing expansion. The situation is different for cash equity, which will migrate in Q4 2023, compared to derivatives, which will migrate in Q3 2024. I will zoom in on both asset classes, but before that, what I want to emphasize is that we have a value proposition at the level of the clearinghouse, which is complete, including clearing fees, efficient margin approach, a new risk framework with efficient default contribution, very efficient and competitive settlement fees, and modern technologies that provide transparency on data and predictability on capital allocation. This value proposition spans across cash, equity clearing, listed derivative commodities, fixed income, repos, etc. Now, focusing on the cash equity migration that will take place at the end of this year, you remember today we do not capture value on cash equity clearing, right? We don't have these revenues. Post-migration, we will switch the link, what we call the CCP by default link from LCHSA to Euronext clearing, and the open access implementation for cash equity clearing will be one CCP per default, which will be Euronext clearing, and other third-party clearinghouses which will be labeled preferred CCP. For derivatives, it's a different approach. We will migrate the clearinghouse for a derivative market from LCHSA to Euronext clearing next year. and capture the entirety of the value of the clearing business.

The next question comes from the line of Julian Dobrowolski from ABN AMRO OWHF. Please go ahead.

Hi, good morning, gentlemen, and thanks for taking my questions. I have two, if I may. So the first one is on the synergy guidance. I was wondering if you could actually split the 70 million in synergies you expect to realize at the end of 2023 into the revenue, but also cost component. And also just to kind of follow up on that, if you just basically look at the 70 million in synergies expected to be realized by the end of this year, that basically implies that there is a delta of 45 million left to kind of make the bridge to the 150 million in total synergies by the end of 2024. And I think that about 35 million from that will be kind of, let's say, coming from the phasing out of costs related to the LCH clearing at the end of 2024, which basically means that we have left 15 million for other revenue, but also cost synergy potential, which I think is kind of modest. I was just wondering if you think that there is capacity for another uplift of synergy guidance there, or do you actually feel comfortable with the current guidance of 115 million? And then I have a follow-up as well, please.

So I will try to be as precise as possible with respect to what I can say. So the first element is that we confirmed the 70 million and the 115 million. The second element I can share with you is that when it comes to the 70 million of synergies expected for the end of the year. We are going to have as well a component linked to revenue, but this is going to be, to a certain extent, minor and mainly linked to activities. One is the one of the data center, and the one is linked to the one of equity clearing. But again, the contribution is rather limited, And we would not provide the breakdown, but at least you have the elements there. And then when I look into the synergies for 2024, then what I can share with you is that there is going to be a significant component coming from revenue synergies. And this is mostly linked to... to the migration of clearing and the ability to incorporate the part of the value chain that is not currently with us, but is with our current provider. And clearly we're aiming to do better than the targets, but at this very stage, we confirmed the 115 million in terms of target for 24.

Got it, thank you so much. And maybe a follow-up on the post-trade. So I've seen that the US, for example, they voted and it looks to be transitioning to T plus one settlement cycle as of the next year. I was just wondering, what is your view on such a move within Europe? And if you think that it's actually possible that Europe is going to follow up on the US steps quite soon, and if that actually would be the case, can you please talk about what are the positives and what are the negatives for the business in your view from such a move?

Thank you for your good question. Indeed there is a debate in Europe about following on the T plus one settlement effort led by the market in the US and by DTCC. What I want to say first is that most of our European post-trade chains are already technically ready to move from T plus 2 to T plus 1, so there's no technical challenge. Nevertheless, the industry is actually debating about the benefits and the pros and cons. I believe eventually we will follow, but the you have different population of market participants who have different impact. If I think about the custodians for instance, you have some dis-synergies associated to the move to T plus one and so they need to understand the extent of the dis-synergies and adjust their business model. So as for the position of Euronext, we will support where the industry is going and will be ready if any change occurs.

Got it. Thank you so much and good luck for the current quarter.

The next question comes from the line of Ian White from Autonomous Research. Please go ahead.

Morning. Thanks for taking my questions. Just two short follow-ups from me, please. First, upon the listed derivatives, Can you just help me? Does the integration of the value chain there and the in-house CCP provide any competitive support for you in the trading layer when it comes to listed derivatives? You obviously got equity index derivatives products now, for example, but my understanding is that you're a challenger in that market in Europe and the main barrier is liquidity in the trading layer. So how might internalization of that? the value chain help with that, please, if at all? And just secondly, can you just clarify, please, why is 63% considered a flaw for cash equity market share? Is there something in the underlying market mix or dynamic that makes it near impossible for market share to fall below that level? That's question two, please. Thank you.

Simon will answer your question on derivatives and on cash. Thank you for the question. Good morning, sir. I think, as Anthony and Stefan said earlier, economic control and managerial control over a clearinghouse is absolutely fundamental to developing any derivatives franchise in Europe. Where we see the growth for us in Europe after the integration of the clearinghouse, I think it's threefold. First, it's in the variety of derivative products we can develop. Over the last two or three years, we've developed a material business in the more complex equity derivatives world, especially in total return futures and a dividend complex around dividend payments. These are priced significantly higher than the sort of more plain vanilla business. To develop these products, you need massive, massive cooperation from the clearinghouse. So that's the first thing. There will be a joined-up approach to developing these new products for the first time at Euronext, which one or two of our competitors already enjoy. The second area of expansion is geographical. So today, the equity derivatives footprint at Euronext is based on the domestic markets, the seven domestic markets of Euronext. And obviously, as with the cash equity announcement we made for retail earlier this morning, there will be ambitions to expand this franchise to a more pan-European level, and the market is asking for more competition in this space against the big incumbent in Europe. And the third one is just the power of the central order book and the variety of customers we can bring to bear on these two development axes. So that's where we think control over a clearinghouse will help power that strategy. With respect to the second question on the 63%, it's a very difficult question to answer, but you have to put a line in the sand somewhere. This is, you know, in the past, the sort of mid-2015s, a lot of exchanges were below 60%, somewhere around 55%. But this is, below this area is where we really want to avoid getting into that space. So avoid getting out of that space. We're not reducing prices. We're simply tweaking the market-making schemes we have already and putting more requirements in place. But we think that is a pragmatic line in the sand. We can manage and commit to the market. That's great. Thank you.

There are no further questions. So I'll now hand the call back over to your hosts to conclude today's call.

Thank you very much for your time and I wish you a very good day.

Thank you for joining today's call. You may now disconnect your lines.