Euronext Nv Unsp/Adr

Good day and welcome to Euronext's full year 2023 results call hosted by Stéphane Bougenat, CEO and Chairman of the Managing Dark Board of Euronext, joined by Giorgio Modica, CFO. Throughout today's presentation, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. You may press star 1 on your telephone keypad at any time to signal for questions. This meeting is being recorded at this time. I'd like to hand the call over to Stéphane Boujna. Please go ahead, sir.

Good morning, everybody, and thank you for joining us this morning for the Euronext fourth quarter and full year 2023 results conference call and webcast. I am Stéphane Boujna, CEO and Chairman of the Managing Board of Euronext, and I will start with the highlights of the fourth quarter 2023, followed by the full year 2023 performance. Giorgio Modica, the Euronext CFO, will then develop the main business and financial highlights of the fourth quarter of 2023. As an introduction, I would like to highlight four important points. First, Euronext is today stronger than ever. Thanks to our diversification efforts over the past few years, In 2023, we have delivered revenue growth close to 4% and even close to 8% in Q4. We have also significantly reinforced Euronext's leadership position in listing and trading in Europe. Second, we meet all 2023 cost guidance. Thanks to cost discipline, thanks to synergies and some positive one-offs, we continue to deliver ahead of schedule. And despite an inflationary environment that everyone knows, we continue to do better on cost. Third, we deliver a strong end of the year. With Q4 2023, adjusted EPS growing by plus 27.9% from last year. Fourth, We are now present on the entire trading value chain, thanks to the expansion of Euronext clearing to European equities. This clearing strategic milestone was a critical contribution to the 74 million of cumulative run rate synergies delivered at the end of 2023. achievement is above our interim objective of $70 million targeted for the end of 2023. It is also significantly more than the initial objective of run rate synergies of $60 million that was targeted at the end of 2024, as announced in October 2020 and in April 2021 when we closed the acquisition of the Borsa Italiana Group. So we are perfectly on track to complete the integration of the Borsight and Enel Group and to achieve the upgraded target of 115 million of annual run-right synergies by the end of 2024. Lastly, in 2023, we continue our innovation path. Following the successful opening of the test environment at the end of January 2024, Euronext confirms today the launch of dark midpoint and sweep functionalities in Q1 2024 hosted in our core data center in Bergamo. Let me start with the Q4 performance on slide 4. Euronext reported a strong fourth quarter of 2023, posting plus 7.8% revenue growth year-on-year to 374.1 million euros. The quarter was marked by strong dynamism of post-trade and non-volume driven activities, together with record performance of fixed income and power trading. First, post-trade revenues grew significantly, driven by the first positive contribution of the Euronext clearing expansion to cash instruments, and also by a solid growth in our CSD business, together with growth in related net treasury income. or trading revenue posted strong growth, supported by the record quarter for fixed income and power trading. This is the proof of the group's successful diversification. Despite the decreasing equity and derivatives volumes, our total trading revenues across asset classes grew by more than 7%. Third, non-volume-related revenue posted a strong performance overall, notably in lifting advanced data services and technology. And this translated into non-volume-related revenue accounting to 60% of the total Q4 revenue and covering 141% of underlying operating expenses, excluding DNA. we continued our disciplined approach to cost control that upset inflationary pressures. And we recorded a positive one-off actual release of 6.3 million. As a consequence, Q4 2023 underlying operational expenses, excluding DNA, slightly decreased to 157.8 million euros, down minus 0.9% compared to the cost base of Q4 2022. Overall, we reported a strong growth in adjusted EBITDA of plus 15.2% to 216.3 million, and an adjusted EBITDA margin that increased by 3.7 points to 57.8%. This strong performance, combined with a positive interest rate environment for cash in the bank, led to a 27.9% increase in adjusted EPS at 1.42 euro per share and to an adjusted net income of €148.2 million. On the reported basis, EPS for this fourth quarter also benefited from a capital gain and increased by plus 34.2% to €1.25. That brings me to our yearly 2023 performance on slide five. First, thanks to our diversified business model, we achieved plus 3.9% increase in revenue and income to reach close to 1.5 billion euros. This performance was notably supported by all non-volume rated activities that accounting for 60% of total revenue last year. I would like to highlight the strong performance of our fixed income trading business and of our forward trading business that both grew by plus 15% this year. Second, we obviously maintain or trademark cost discipline and reported better than expected cost at 610 million, less than 1% over the cost base of last year. This also compares to the revised guidance of 618 million that compared to the initial cost guidance for 2023 provided a year ago, which was 630 million. This good performance and cost despite inflationary pressures, resulted from strong cost control and also from positive FX impact and a one-off accruals release. Consequently, our 2023 adjusted EBITDA grew by $864.7 million, and we delivered an adjusted EBITDA margin at 58.6%. Thanks to the positive interest rate environment, our strong cash position enabled us to fully offset the cost of our debt compared to last year. As a result, and supported by a $53 million capital gain, reported net income increased by 17.3% in 2023 to $513.6 million. Adjusted for non-underlying items, net income was up plus 5.3% to 584.7 million, representing an adjusted EPS of 5.51. Consequently, a dividend of 2.48 per share will be proposed at our upcoming annual general meeting in May. The dividend represents a payout ratio of 50% of reported net income as set up in our dividend policy. That's 26%. since more than the 22 dividend per share means an increase in the dividend of plus 12%. As a reminder, we finalized the announced 200 million share repurchase program in January 24. Let me now share the key takeaways of our businesses in 2023. First, as I said, our non-volume related activities delivered strong growth in 2023 and accounted for 60% of total revenues. Following the successful migration of our core data venture in Bergamo in 2022, we continued to bear the fruit of this migration, notably with our co-location services. In 2023, we further scaled up our technology solution activity that grew close to 10% in 2023. Our advanced data services business also reported strong performance with revenue up plus 6%. This results from good performance across the data products offering and also solid demand for data activity products. Our post-trade franchise delivered a robust year. First, our custody and settlement business grew plus 5.5%, like-to-like at constant currency. This was driven by growing assets under custody, improved revenue capture, and continued expansion of the services business. On a reported basis, this activity was impacted by negative correct impact from the Norwegian corner. Second, all clearing revenue were stable. Despite declining equity and derivatives, this results from two factors. First and foremost, all clearing flows are diversified. As a result, the strong fixed income clearing and commodities clearing activities partially upset the lower equity and financial derivatives clearing. Then, and what is to me probably the most important, we managed to capture additional business at Euronext Clearing following its expansion to all Euronext cash markets. Since 27 November, Euronext Clearing is the preferred CCP for six European cash markets. Last, net treasury income increased by plus 6% compared to 2022, underlying net treasury income, primarily reflecting higher collateral health. As you would have understood, we are now a European top-ranking post-trade infrastructure operator. Once again, we remain also the leading listing venue in Europe for equity, attracting 64 new equity listings in 2023. We also consolidated our position as the leading lifting venue for debt worldwide, now being the home of over 55,000 bonds. Our corporate services franchise continued to post double-digit growth, demonstrating the successful expansion of our software-as-a-service offering. Lastly, our trading franchise was resilient, despite the lower volatility environment for equities. Indeed, while cash trading and derivatives trading volumes were down by over minus 10%, Total trading revenues only decreased by minus 4.7%. This is, again, the demonstration of a more diversified business model. In 2023, all fixed-income trading business reported a record year with double-digit growth in all asset classes, resulting in revenue up plus 15.6%. In addition, our power trading business also posted a record year with a revenue of plus 14.5%, primarily supported by intraday power market, where volumes doubled compared to 2022. As I said, 2023 demonstrates a critical result of UNX diversification. We delivered solid growth, even in an environment not favorable to equity. Clearly, 2023 saw the continuation of the Euronext transformation, and we made good progress in our integration process and synergy delivery. In 2023, we delivered on several strategic milestones that were absolutely critical for us to achieve our transformation in 2024. First, on the trading side. We successfully completed for the fourth time since our IPO in 2014 the migration of cash equity markets to a single technology trading platform, Optic. The migration of Italian cash markets to Optic did create benefits for trading members with the material improvement of the Italian market quality. This milestone paved the way for the migration of Italian derivatives trading to Optic in the coming weeks. Second, we made very good progress to further strengthen our post-trade business. In 2023, we took an important step towards the European expansion of Euronext Clearing, expanding its offering on schedule to the cash markets in France, Ireland, the Netherlands, and Portugal. Euronext Clearing now clears equity, ETFs, structured products, warrants, and bonds across six Euronext markets, including Italy. This migration materially contributed to the synergies delivered over 2023, but also paved the way for the migration of listed financial and commodities derivatives in Q3 2024. Such good progress on integration means we were able to reach 74 million of run rate cumulative EBITDA synergy at the end of 2023. This is above the 7 million target expected for the end of 2023, and already more and much more than the 60 million targeted for the end of 2024, initially announced in October 2020 and in April 2021, when we closed the acquisition of the Borsa Italena Group. Looking forward, the migration of Borsa Italiana's derivatives to Optic and the expansion of Euronext Clearing to Euronext's listed derivatives by Q3 2024 will complete our presence on the entire trading value chain. It will position Euronext ideally to capture future growth opportunities across Europe. The completion of these two critical projects will materially contribute to reaching a revised objective of 150 million of run rate cumulative EBITDA synergies by the end of 2024. I now give the floor to Giorgio Modica for the review of our fourth quarter of 2024.

Thank you, Stefan, and good morning, everyone. Let us now have a look at the strong performance of these four quarters of 2023. I'm now on slide nine. As mentioned already, total revenue this quarter reached 374.1 million euros, up 7.8% compared to last year, and 9.1% at constant currency. 60% of our revenue is non-volume related, highlighting the success of our diversification path. Those strong results were notably driven by the record performance in fixed income and power trading, the solid contribution of our non-volume related businesses, and the incremental equity cleaning business captured by Euronext since the widening of its offering across the Euronext markets on 27 November 2023. In addition, Q4 2023 revenue and income reflects an increase in net treasury income year on year, as the NPI in the fourth quarter of last year was still impacted by the runoff of the investment portfolio at Euronext clearing. I will now start the business review, and I'm now on slide 10. Listing revenue was €56.2 million, up 6.9% like for like, and at constant currencies, reflecting the good quarter of the listing and follow-on activities and the continuing strong growth of our corporate service SaaS offering. Reported revenue was up 5% reflecting the negative impact of the knock on the results of our Norwegian activities when reported in Euros. Euronext demonstrated once again its leadership in equity listing in Europe with 64 total listings in 2023. On the debt side, we reinforced our global leadership in listing with over 55,000 bonds listed on our markets. And we also strengthened our leading position in ESG bond listing. Euronext Corporate Services, as mentioned, continue to deliver a solid performance with revenue growing to 12.3 million euros this quarter, up 28.8% compared to the fourth quarter of 2022, resulting from the strong progression of our SaaS offering. I'm now on slide 11. Other non-volume related activity continue to grow this quarter. Advanced data services reached €56.1 million of revenue, up 3%, driven by the strong performance across the data product offering and the solid demand for analytic products. Technology Solutions reported €27.6 million of revenue, up 2.6% thanks to the continued benefit from the internalization of our co-location services and the good performance of market connectivity services. Investor services reported 3 million euros revenue in the fourth quarter of 2023, representing a 15.7% increase compared to the same quarter last year, thanks to the continued commercial expansion of our franchise across the largest global investment managers. Moving now to trading on slide 12. As I mentioned earlier, Euronext's solid trading revenues at 124.5 million euros clearly benefits from the diversification of our trading activities. Cash trading volumes were down 4.1% in the fourth quarter of 2023 compared to the same quarter last year. However, due to Euronext's strong management of cash trading fees and market share, revenue was only down 1.6%. Revenue capture averaged 0.53 basis point over the quarter, above the floor indicated for 2023, post-migration of BOSTO-Italiana markets to OPTIC, and despite the average size of orders, remains elevated. Cash equity market share averaged 65.2%, here again well above the floor of at least 63% set for 2023. Derivative trading revenue decreased by 4.4%, to 12.8 million due to lower financial derivative volume with ADV down 8%, partially upset by the strong performance of the commodity derivatives with volumes up 27.2% versus last year. Average revenue capture on derivative trading reached 0.34 euro per lot. Lastly, an uptick in volatility drove FX trading volume up 18.8% this quarter Like for like, and at constant currencies, FX trading revenue was up 4.8%. Revenue remained stable on a reported basis at 6.7 million euros this quarter, as the growing volumes were offset by the depreciation of the US dollar and an unfavorable volume mix with more disclosed activity. Continued with our trading activities on slide 13. Fixed income trading reported another record quarter. Revenue grew 38% to 30.6 million euros. In detail, MTS cash ADV reached 27.7 billion, up close to 80% year-on-year. This reflects continued market volatility as well as the contribution of MTS EU. The market launched in November 2023 contributed around 1 billion of daily trading volumes. MTS repo, term adjusted ADV, was 469.1 billion euros, up 18.2% compared to the fourth quarter of 2022. Euronext fixed income retail franchise also continued to perform extremely well with volumes up 27.9% to 1.5 billion euros. Despite the FX headwind from the NOC depreciation, power trading revenue grew to a new record of 10.4 million euros, up 16.9% compared to the fourth quarter of 2022. This performance reflects all-time high intraday volumes and solid day ahead volumes. On a like-for-like basis and at constant currencies, revenue was up 30.8%. I would like now to conclude this business review with our post-trade activity. I'm now on slide 14. Q4 2023 clearing revenue grew by 11.5% to 32.3 million euros. As mentioned earlier, we have expanded Euronext clearing offering to Euronext Brussels on November 6, 2023 and to Euronext Cash Markets in France Ireland, the Netherlands, and Portugal on 27 November 2023. This quarter, we have generated for the first time revenues for the clearing of cash instruments on those markets through our CCP. In addition, bond clearing activity continues to be dynamic. This more than offset lower revenue received from LCHSA for the clearing of our derivative products. Non-volume-related clearing revenue accounted for €9.2 million of the total clearing revenues in the fourth quarter of 2023. Net treasury income amounted to €11.7 million. It is close to three times the amount it was in the fourth quarter of 2022. That was, as I explained, negatively impacted by the runoff of the investment portfolio of Euronext Clearing, And it is in line with what I've communicated last quarter as a new level of NTI until the delivery migration of clearing is going to be delivered. As a reminder, following the introduction of the VAR-based margin methodology in October 2023, which creates efficiency for our clearing members, we expect around 12 million NTI per quarter should the collateral level remain stable for the first two quarters at the level similar to the one we had in the fourth quarter of 2023. From the completion of the expansion of Euronext Clearing in Q3 2024 onwards, the NPI is expected to increase due to the addition of listed derivative flows. Lastly, revenue from commodity settlement and other post-trend activity was 62.3 million euros this quarter. These represent 8.9% increase compared to Q4 2022 at current constant currencies. These results are underpinning by growing assets under custody, which last quarter were at about 6.7 trillion, higher settlement activity and a strong performance of the services offering. On a reported basis, revenue increased 4.6%, once again impacted by the weak NOC. I'm now on slide 16 on the cost guidance for next year. In 2023, we had a positive impact, as Stefan highlighted, of 11.4 million euros from the NOC depreciation on our cost base. In addition, underlying expenses were positively impacted by a one-off accrual release of 6.3 million euros. In 2023, Euronext reported 610 million of underlying expenses, extruding DNA, compared to initial guidance of 630 million euros. For next year, for this year in 2024, Euronext will continue to be very disciplined on cost. We expect that savings and synergies will offset inflation. And 2023, costs ramp up. As a result, Euronext expects its 2024 underlying expenses, including DNA, to be around 625 million euros below the initial guidance for last year, including around 10 million euros to finance growth projects and excluding potential impact from effects over the year. I'm now on slide 17. Adjusted EBITDA for the quarter was up 15.2% to $216.3 million, resulting from higher revenues and the positive impact of the one-off releases. This translated into an adjusted EBITDA margin of 57.8% in the fourth quarter of 2023. Non-underlying costs for the quarter were 15.5 million, primarily linked to the delivery of cost synergies in Q4 and to the ongoing work related to the clearing expansion and the last phase of the Borsi-Italiana derivative markets migration to OPTIC. Moving to net income on slide 18, adjusted net income last quarter was strongly up 25.3% to 148.2 million, resulting notably from, as we discussed, high EBITDA, thanks to the strong performance of our businesses and well-contained cost base, higher net financing income, resulting from higher interest income from our cash and cash equivalents. This is the second quarter we were earning more cash from our deposit than we paid as interest on our debt. High results from equity investment reflecting the €11.4 million capital gain arising from the disposal of our stake in Tokeni and the dividend received from Sikovam. Lastly, income tax for the fourth quarter of 2023 was €40 million. This translated into an effective tax rate of 22.6% for the quarter positively impacted by tax-exempted gains, like the capital gain I just mentioned. As a result, reported net income increased 31.5% to 130.6 million, and adjusted EPS basic was up 27.9% at 1.42 euro per share. To conclude with cash flow generation and leverage, As you can see from the slide, our balance sheet position is very solid, as well as our cash flow generation. In the fourth quarter of 2023, Euronext reported a net cash flow from operating activities of 194.5 million compared to a negative cash flow of 147.1 in the fourth quarter of 2022, reflecting the movement in working capital related to Norpool and Euronext clearing CCP activity. Excluding the impact on working capital, net cash flow from operating activities accounted for 87.4% of EBITDA in the fourth quarter of 2023. We continued to deliver this quarter despite the buyback that we just concluded. Net debt to adjusted EBITDA was at 1.9 times at the end of the quarter and two times on a reported EBITDA basis. This concludes my presentation, and with this, I would like now to give the floor back to Stéphane.