Euronext Nv Unsp/Adr

Hello and welcome to the Euronext Third Quarter 2023 results. My name is Caroline and I'll be a coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be on listen-only mode. However, you'll have an opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over the call to your host, Stefan Bojna, Euronext CEO and Chairman, Managing Board, Giorgio Modica, Euronext CFO, to begin today's conference. Thank you.

Good morning, everyone, and thank you for joining us this morning for the Euronext Third Quarter 2023 Results Conference Call and Webcast. I am Stefan Bojna, CEO and Chairman of the Managing Board of Euronext. And I will start with the highlights of the third quarter. Giorgio Modica, Euronext CFO, will then further develop the main business and financial highlights of the quarter. Starting with the slide number four, Euronext reported a strong quarter driven by organic growth in non-volume related businesses and continued cost discipline. Underlying revenue and income reached 360.2 million up plus 2.8% compared to Q3 2022, and up plus 4.1% at current currency rates. On a reported basis, revenue was up plus 19.5%, reflecting the positive comparison base linked to the non-underlying loss reported in net treasury income last year in Q3. This robust performance this quarter was notably enabled by continuing organic growth from all non volume related businesses. And these non volume related businesses represent now 60% of our total revenue. And obviously the other contributor has been the double digit growth in fixed income and in power trading. This more than offset the negative currency impacts from the depreciation of the Norwegian quarter against the euro, as well as lower equity and derivative-related activities. Our revenue was also negatively impacted by the recognition of a small credit note that was not predictable, and that explains most of the small delta with market expectations this quarter. Our underlying operating expenses, excluding DNA this quarter, were at $146.5 million, down minus 2.6%, compared to Q3 2022. This strong cost performance, despite inflation, results from continued cost discipline and positive foreign exchange rate impact. Considering the current foreign exchange rate of the Norwegian kroner, we expect a full year positive impact in 2023 of 12 million from the Norwegian kroner depreciation on all cost base. We therefore expect underlying costs excluding DNA for the full year to be lower than the original guidance of $630 million given in February 2023. So the Norwegian quarter remained depreciated compared to last year. In this context, adjusted EBITDA in Q3 2023 reached $213.7 million, up plus 6.9% compared to the adjusted EBITDA of Q3 2022. Our adjusted EBITDA margin reached 59.3%, up plus 2.3 points compared to Q3 2022. I would like to highlight that the high interest rates environment enabled us for the first time to generate positive finance income, meaning we earn more from all cash deposits than we pay as interest for our debt. Reported net income was at $166.5 million, more than doubling year-on-year. This achievement reflects our good operating performance, together with the $41.6 million capital gain you received this quarter following disposal of your next 11.1% stake in LCHSA, as well as the positive comparison base linked to the one-off loss reported on the net Treasury income last year in Q3. Adjusted to these Two one-off impacts, negative one last year, positive one this year. Euronext's profit grew by plus 13.2% to 146.5 million. This translated into an adjusted earning per share at 1.38 euro, up plus 13.7%. On a reported basis, the EPS more than doubled year-on-year to €1.57. Lastly, net debt to adjusted EBITDA reached two times at the end of Q3 2023, and our cash flow conversion reached 100.7%. As you can see, our financial health, our balance sheet position, our liquidity position, our cash generation are very good. From a business perspective, this quarter, we strengthened our position as the leading cash trading and listing venue in Europe. Cash trading market share grew to 66.5% on average, and revenue capture reached 0.54 bps, well above the two floors we committed to deliver at the beginning of the year on those two metrics. On the listing side, we attracted on our market 72% of new European listings this quarter, with 23 new listings in Q3. bringing the total number of year-to-date to 51 listings, well ahead of all peers in Europe. Notably, the U.S. beauty company Couture, you're listed on your own experience to expand its exposure to European investors. On the ESG front, we also continue to innovate with the launch of My ESG Profile, We are the first exchange that makes individual ESG data of our issuers available on our Euronext website in a standardized format, uniting more than 60,000 ESG data points from 1,900 listed companies. We also confirm our global leadership in bond listing and in ESG bond listings in Europe. Moving now to slide five. Over the past weeks, we successfully delivered several key milestones of our growth for impact 2024 strategic plan. And we are now well on track to deliver at the end of 2023, our intermediate target of 70 million of cumulative run rate synergies in relation to the acquisition of the Bursa Eterna Group. This is already more than the initial targeted amount of 60 million of synergies that we contemplated in April 21 or the end of 24. We were initially contemplated 60 million by the end of 24, and we are going to deliver 70 million by the end of 23. At the end of Q3 2023, we have delivered 47.6 million of cumulative run rate annual EBITDA synergies, and we have incurred 95.1 million of cumulative implementation costs since the acquisition of the Borset and Ayr Group in line with our plan. September, all Euronext cash markets are operated on a single technology trading platform optic. The completion of these migrations allowed for the decommissioning of the third-party provider that was supplying the technology for Port Sighted NR and will generate related cost synergies as from Q4 2023. The third and final phase of the trading platform migration is for derivative instruments, and is planned for the first quarter of 2022. We have also marked the first step in the expansion of Euronext Clearing to all Euronext markets. Since Monday this week, Euronext Clearing is positioned as the default CCP for Euronext Brussels cash markets. And the other Euronext markets will follow later this month as planned, delivering additional revenue synergies this year. We paved the way for the expansion of Euronext clearing for the clearing of derivatives on all Euronext markets, which will be completed in Q3 2024. And this migration will contribute meaningfully to the targeted 115 million of cumulative run rate EBITDA synergies that we committed to deliver by the end of 2024. All in all, We are very well on track for the delivery of the $115 million of community run rate annual synergies by the end of 2024. A large part of the remaining synergies will be delivered through the expansion of Euronext clearing for derivative markets in Q3 2024. I'm glad to announce that the European Union has appointed MTS as a recognized inter-dealer platform for the implementation of electronic market making on EU-issued debt instruments. You may know that the European Union NextGen program is issuing approximately 750 billion of new sovereign debt instruments. So the fact that MTS is now a recognized inter-dealer platform for the implementation of electronic market making for these instruments is a successful result of our cross-selling efforts since the integration of MTS within Euronext two years ago. This is another very tangible evidence of the revenue generation created by the integration of MTS within the European project of Euronext. Early November, we have launched very successfully this new market, where traded volumes and dealer participation have been very dynamic. And already, these EU programs represent the third largest volumes and on MTS after Italy and Spain. I now hand over to Giorgio Modica for the review of our third quarter 2023 performance.

Thank you, Stefan, and good morning, everyone. Let's now have a look at the performance of this third quarter of 2023. I'm now on slide seven. As already mentioned, total revenue this quarter reached 360.2 million euros. This is up 19.5% compared to last year reported revenue, plus 2.8% compared to last year's underlying revenue, and plus 4.1% like-for-like. 60% of our revenue is non-volume-related, highlighting the success of our diversification strategy. Our diversified business model delivered a solid quarter driven by organic growth in our non-volume-related businesses and by double-digit trading revenue growth in fixed income and power trading. will come back to that in a minute in addition transitional revenue was negatively impacted by a recurring credit note speaking to the next slide slide eight i will now start with the financial review of our non-volume related activities which continue to drive growth also this quarter technology solutions reported 27.4 million of revenues, up 5.5%, thanks to the continued benefit from the internalization of our colocation services. Advanced data services reached 55.5 million euros of revenue, up 4.7%, driven by the growth in our market data as well as the continuous strong performance of the data solution business. As a reminder, Q3 always sees a seasonal softer summer period for non-professional users. Investor services reported $3 million in revenue in the third quarter of 2023, representing a 20.4% increase compared to the same quarter last year. These results from the continued commercial expansion of the franchise across the largest global investment managers. Slide nine, listing revenue was 54.6 million euros, up 3.4%, like for like, reflecting a resilient quarter for listing and full-on activity, and the continuous strong growth of our corporate service SAS offering. Reported revenue was up 1.1%, reflecting the impact of the weak NOC in our Norwegian activities. Euronext demonstrated once again its leadership position in listing in Europe, recording 72% of the new European equity listing this quarter, with 23 listing in the third quarter, and this brings the total year-to-date listing at 54. On the left side, we reach for the first time over 54,000 bonds listed on our market, while we also strengthen our leadership position in ESG bond listing, as well as our global position for that listing. Euronext corporate services continue to deliver a solid performance, with revenue growing to 10.6 million euros this quarter, up 12.5% compared to the third quarter of 2022, resulting from a strong performance of the SAS offering. Lastly, we continue to innovate with the launch of my ESG profile, as Stefan highlighted earlier, and we are the first exchange to provide such data. Moving now to trading on slide 10. As I mentioned earlier, Euronext's trading revenue was 118.3 million, benefiting from Euronext's diversified trading activity. Cash trading revenue was 64.4 million euros, down 4.4% year-on-year, reflecting a low volatility environment for equity trading. In this challenging environment, we confirm a strong value proposition and competitive position in cash trading. Cash revenue capture average 0.54 basis point, despite the average order size is still at a very high level. This is above the targeted floor of 0.52 basis point, and demonstrates the benefits from the integration of Borsa Italiana cash equity markets to Optic. Cash equity market share averaged 66.5% this quarter, yet again above the floor of 63%. Derivative trading revenue decreased 3.9% to 13.4 million euros this quarter due to lower financial derivatives volumes with ADV down 2%. partially upset by the stronger performance of commodity derivatives with volumes up 14.7% versus last year. Average revenue capture on derivative trading was 0.34 euro per lot. Lastly, FX trading reported 6.4 million of revenue this quarter, down 11.4% despite higher traded volumes and this is the result as well of the U.S. depreciation and an unfavorable mix of volumes. Continuing with our trading activity on slide 11, fixed income trading revenue grew 18.7% to 25.4 million euros this quarter, reflecting the strong performance of MTS Cash, MTS Repo, and the increased traction of Euronext fixed income retail franchise. Our fixed income franchise continues to be supported by the favorable interest rate environment and good market volatility. For the third quarter of 2023, MTS cash recorded 21.3 billion of average daily volume. This is plus 38.1%. And MTS repo recorded 410.2 billion euro of time-adjusted ADV. As Stefan has highlighted, MTS has been nominated by the EU as a recognized inter-delay platform for the implementation of electronic market making on EU issue debt instruments. And we launched that market on the 1st November this year. Our trading revenue grew to 8.6 million euros this quarter. This is up 10% compared to the same quarter last year driven by the very strong intraday volumes and improved revenue capture, partially upset by lower day ahead volumes and also impacted by the NOC depreciation as we discussed. I would like to conclude the business review on slide 12 with our post-trade activities. Clearing revenue was up 1.6% to 29.5 million euros this quarter, benefiting from the stronger bond and commodity cleaning activity compensating the software equity clearing environment. Non-volume related clearing revenue accounted for 8 million of the total clearing revenue this quarter. The net treasury income reached 13.7 million this quarter compared to a negative 38.1 million last year. I remind you that last year in the third quarter 2022, we proceeded with a partial disposal of Euronext Clearing investment portfolio, which led to a non-underlying loss of 49 million euros recorded in NTI. As Stefan announced, at the end of October, Euronext Clearing introduced the new VAR-based margin methodology for equity, ETF, and financial derivative markets, which creates efficiency for our clearing members. This mechanically decreases the default fund contribution. Consequently, during the next three quarters until the expansion of our CCP to Euronext listed derivative, we expect NTI to be for a short period of time slightly lower than the current level at circa 12 million per quarter should the market condition remain the same. For the... completion of the existing expansion of Euronext clearing in the third quarter of 2024 onwards, the NTI is expected to increase back again thanks to the addition of the listed derivative flows. Just to be clear, we expect that in the fiscal year 2024, the NTI will be higher And the NTI in the fiscal year 2023, again, should everything remain the same. So the drop is expected to be temporary. Lastly, revenue from custody settlement and other post-trade activity was 58.9 million euros. This is a 6.5% increase like for like, reflecting the increased revenue capture, new services, and higher assets under custody, partially offset by slightly lower settlement activity As a reminder, Q3 is usually impacted by seasonality in a negative fashion. On a reported basis, revenue increased 3.1%, again impacted by the NOC. Moving on, and I'm now on slide 14, with the financial review for the quarter, starting with the EBITDA bridge. Euronext adjusted EBITDA for the quarter was up 6.9% to 213.7 million resulting from higher revenue in our non-volume related activities combined with the continued cost discipline and the positive foreign exchange rate impact on expenses. This translated into an adjusted EBITDA margin of 59.3%. Considering the current foreign exchange rate of the NOC, we also expect a full year positive impact of 12 million on our cost base from the NOC depreciation. Consequently, Euronext expects its underlying cost excluding DNA to be lower than its current 2023 cost guidance at 630 million euros. Non-underlying costs for the quarter were 7.1 million euros, primarily in relation to the ongoing work related to the clearing expansion the optic migration, and in general, the Port Italiana integration. Moving now to net income on slide 15, adjusted net income this quarter is strongly up at 146.5 million euros, resulting notably from the higher net financing income, resulting for the higher interest rate income from cash and cash equivalents. As Stefan highlighted, this is the first time we are earning more from our cash deposits when we pay interest for our debt. Then we have a materially higher result from equity investment, and this reflects the 41.6 million Euro capital gain arising from the disposal of our stake in LCHSA and the dividend receipt from Euroclear. Lastly, income tax for the third quarter 2023 was 48.4 million, This translated into an effective tax rate of 22% for the quarter. As a result, reported net income more than doubled, as Stefan again highlighted earlier, to 166.5 million. The adjusted EPS basic was up 13.7% at 1.38 euro per share. To conclude with cash flow generation and leverage, as you can see, our balance sheet position is very solid. as well as our cash flow generation. In the third quarter this year, Euronext reported a net cash flow from operation activity of 174.5 million euros compared to 318.1 million euros the same quarter last year, reflecting lower change in working capital. Excluding the impact on working capital from Euronext's clearing and North Pool CCP activities, net cash flow from operation accounted for 100.7% of EBITDA in the third quarter this year. Net debt to adjusted EBITDA was adjusted two times at the end of the quarter and 2.2 times on reported EBITDA. With this, this concludes my presentation, and I would like to give back the floor to Stefan.