Singapore Exchange Limited

Good evening, ladies and gentlemen. Welcome to the SGX Group first half FY 2022 results briefing. Our agenda for today will be as follows. First, a presentation of our financial highlights and performance by Ng Yau Lung, our CFO, followed by a business update by our CEO, Lo Bun Chai. We will then end off with a question and answer session with a panel of senior executives from SGX. For those of you who are viewing this briefing through webcast, you may change the resolution of the broadcast to a higher setting if the images are not clear. The settings can be found at the bottom right of your webcast window. So without further delay, let me now invite Yaolung to deliver our financial highlights. Yaolung, please.

Good evening and a very happy Lunar New Year. And so thanks for taking the time to join our first half FY22 results briefing. SGX has made good progress in executing our multi-asset strategy. We continue to invest, grow and scale our business. Group revenue in the first half was comparable against a year ago at $522 million. But if we exclude treasury income or TI, our underlying business revenue was up 6%, driven by a strong performance in currencies, commodities, and equity derivatives business. Group total expenses increased 6% to 262 million. If we exclude the two subsidiaries, Scientific Beta and BitFX, our underlying expenses increased 5%. So even as we invest with growth, we continue to exercise prudence in managing our costs. Group impact or earnings down 9% to 219 million. On an adjusted basis, earnings was lower by 3% to 222 million. As I've mentioned before, the adjusted metrics exclude certain non-cash and non-recurring items that have less bearing on SGX's operating performance. Hence, they better reflect the group's underlying performance. So now let me run through the details of our performance. Revenue. Currencies, commodities, and equity derivatives were the main revenue growth drivers. FICC revenue increased $15 million, led by higher commodities and currency volumes. As a result, FICC is now a much larger contributor to our group revenue at 22%, which is three percentage points higher than a year ago. Volume in INR futures was up 17%, We continue to broaden our customer base by bringing on board financial institutions. Screen trading contributed 28% of iron ore volumes compared to 19% a year ago, reflecting the increasing financialization of the product. Beyond iron ore, freight volume was up 90%. Notwithstanding the volatility in underlying freight prices, our market share was up 12 percentage points to more than 70% as our customers choose our platform to hedge against the volatility. FX revenue performance also came in strong. Our combined OTC and FX futures average daily value, ADV, increased 46% to $57 billion. Volumes in exchange-traded currency futures increased 6%. We increased our market share for our key rupee and CNH contracts, thereby solidifying our position as the largest and fastest growing currency futures exchange in Asia. OGC FX is now a key driver of our FX pillar, and this is reflected in BitFX revenue growth. Continue to see more active trading users on BitFX compared to a year ago. Continuing on the derivatives theme, Our equity derivatives business continued to demonstrate resilience with a 19% revenue increase to $132 million. While DAB declined 4% to 716K contracts, we were able to better manage fees for our key contracts as well. And we see a higher proportion of full fee paying clients using our risk management solutions as they see value in our multi-asset platform. As such, overall average clearing fee for equity, currency, and commodity derivatives increased 19% to 150. Revenue for cash equities was lower, mainly due to weaker trading activity. SDAV declined 7% to just under $1.2 billion, as volumes normalized from elevated levels a year ago. The decline was driven by lower equities in the index and smaller mid-cap segments. Average clearing fee was lowered by 4% to 2.6 basis points due to a higher proportion of SDAB contributed by market makers. As for DCI, revenue grew 3% to $73 million, mainly from higher contribution from scientific beta. The low interest rate environment has continued to affect our TI or treasury income in the first half of FY22, but the rate of decline has slowed, And I'll elaborate further in a later slide. Moving on to expenses, which on a headline basis increased 6% year on year. As mentioned earlier, if we exclude the cost relating to scientific beta and beta effects, expenses would have increased 5% to $227 million. The staff cost increased 8%. to $119 million, mainly due to the following. We saw a 1% increase in group headcount. There was a merit increment for our staff and the absence of COVID-19-related support schemes granted last year. Technology expenses increased 7% to $37 million, mainly due to higher Betafax-related expenses. Processing and royalties rose 6% to $32 million. Due to higher royalties incurred for certain key products, including our FTSE China A50 and I&O contracts. On an adjusted basis, the year-on-year increase in expenses was two percentage points lower at 4%. Again, adjustments were made for the amortization of things like purchase intangibles, acquisition-related expenses, and more, of course. These adjustments will allow you to better assess our underlying expense growth. In terms of margins, Group EBITDA margins declined three percentage points due to two key reasons. First, a greater contribution from our faster growing subs, Scientific Beta and BitFX. Their margins on a combined basis have improved from 37% to 38% on a standalone basis. While improving, this is still lower than SGX's underlying EBITDA margin. And second, TI or treasury income has a direct drop through to the bottom line, which means it has a disproportionately high impact on the margins. And if we exclude TI, scientific data and bid effects, you will see that the underlying EBITDA margins decline one percentage point to 59%. This can be attributed to the lower revenue contribution from cash equities in the first half of FY22. While we have pointed out the impact of declining TI in our revenue and margins, The rate of decline, as you can see from the chart, has slowed and has slightly flattened. The chart shows the half-on-half declines. We do expect TI to recover as interest rates increase. Well, already the market is expecting interest rate hikes this year. Just as the low interest rates have had a lag effect on our TI, similarly, there will be a time lag between the actual rate increases and the impact on our TI. As such, We expect TI to remain around current levels in the coming months, even with the March anticipated rate hike taking place in March, before the uptick in TI happens several months later. We previously guided FY22's total expenses to be between $565 to $575 million, excluding max trader. This is because there was still uncertainty in the completion date of the acquisition. But we also indicated the expenses for MaxTrader is expected to be about $25 million on an annualized basis. We have completed the MaxTrader acquisition in January 2022. And so now we are in a position to provide a revised expense guidance for this FY, which incorporates MaxTrader expenses. We will maintain our expense guidance range at between 565 to 575 million. And let me repeat, this revised guidance or unchanged guidance includes max trader's expenses of about half a year. You can see this in the middle chart. So what this means is that our revised guidance on the like for like basis, if we exclude max trader, is $13 million lower than the one which I gave six months ago. You can see this in the left chart. The underlying chart on the right shows that we have been able to manage expenses of our underlying core businesses even as we invest for growth. Looking at our FY22 underlying expenses, which exclude scientific data, bid effects, and max trader, we expect it to be comparable or just marginally higher to FY2020 levels at between $475 to $480 million, despite the cost inflationary environment. we have been able to pace our hiring and exercise cost discipline in corporate projects and discretionary spending. As for CapEx guidance, it remains unchanged at between $60 to $65 million. We've included this slide to better illustrate the underlying performance of business. We mentioned that the reported earnings of MPAT declined 9%, But this set of numbers includes non-operating one-off expenses relating to BitFX, namely a re-measurement gain of about $17 million in the first half of FY21. And we have a $5 million right back of the contingent consideration in the first half of FY22. You can see that in the left chart. And so if we exclude this non-operating one-off expenses relating to BitFX and other items, Adjusted earnings decline at 3% from $228 million to $222 million. This is a better reflection of the underlying performance of our business. The 3% of $6 million earnings decline can be explained by the decline in our TI. As presented earlier, TI declined by a much larger number, a pretext $28 million. So the earnings, if we exclude TI, actually would grow given the revenue performance from our broader derivatives franchise across commodities, currencies, and equities. And back to the topic of the BitFX related adjustments, even with the right back of 5 million in the first half of FY22, the total earn up is estimated at around $15 million, given the revenue outperformance of BitFX relative to the expectations at the point of acquisition. This reflects the strong execution focus by BetaFX, which has given us a strong platform to grow in the OTC FX space. In the last two years, we have made acquisitions and investments of about a billion dollars. This is also why our leverage levels have gone up. We invested, and our debt levels have increased to 1.4 times EBITDA. It's still prudent. Given our strong operating cash flows, our interest coverage ratio remains very healthy at more than 100 times. No major refinancing in the near term. Our weighted debt duration is about three years. Our recent acquisitions of the subsidiaries Scientific Beta, BetaFX and MaxTrader have allowed us to expand our addressable market and customer base in the areas of FX and Index and enable technology and knowledge transfer. Our minority of growth investments are also important. They help SGX stay abreast of emerging technology trends and identify opportunities, often in partnerships that can support our business priorities. BuildFX is one example. We first invested 20% in March 2019 to build FX as a core pillar of growth. We then decided to acquire the remaining 80% a year later as they scale and improve their offering amongst institutional investors. And recently, we also invested in the Climate Impact Exchange, CIX, the DBS digital exchange and market node. These are emerging and partnership opportunities that help us stay abreast of key trends such as ESG and digitalization. Excluding the subsidiaries, the gross carrying value of our portfolio of growth investments is about $600 million. If we translate that, it means about $0.55 per share. A significant proportion of value is from our minority stake in Trumit, a US fixing pump electronic trading platform. and a private equity fund managed by 7Rich that has invested in trading technologies. On a portfolio basis, the carrying value is significantly above the cost of our investments. The Board of Directors has declared a quarterly dividend of $0.08 per share. This brings our first sub FY22 total dividends to $0.16 per share, unchanged from a year ago. Our operating cash flow and adjusted earnings per share more than cover the dividend per share. Mentioned at our FY21 results briefing that we plan to put in place a script dividend scheme. We do not plan to introduce script dividends in FY22, even though we have completed the groundwork for the scheme. We will reassess the feasibility of doing so sometime in the future. With this, let me now hand over to Boon Chai, who will deliver our business updates.

Good evening, everyone. Likewise, wishing everyone a prosperous and healthy, successful Year of the Tiger. Thank you again for joining our first half FY22 results briefing. Excited to report that in the first half of FY22, our listing platform helped companies and REITs raise a total of SING dollars $1.3 billion. That is 90% higher year on year and also exceeding FY21. In that included one of the largest REIT listings globally by funds raised. We're seeing clear interest from potential issuers on the back of our new special purpose acquisition companies or SPACs framework and the joint interagency funding initiatives for high growth companies. Last month, we welcomed our inaugural batch of three SPACs listings, which raised a total of more than SING dollars 500 million. The SPACs launched by high-quality sponsors received positive reception. We look forward to the subsequent business combinations, which will introduce more businesses in the new economy sectors and provide investors with wider choices. Together with the rest of the capital markets initiatives and secular trends that we're seeing, Indeed, we're well poised to provide wide-ranging solutions to support global enterprises at different stages of growth. Besides company listings, we are also broadening our product shell so that investors can participate in Asia's growth. In our ETF market, we saw strong growth with the combined AUM increasing almost 50% to more than SING dollars, $12 billion. We saw and launched new thematic such as green REITs, sustainability, electric vehicles, and also future mobility as well as leverage and invest products. This clearly expanded investment possibilities for investors and effective of these ETFs were launched in partnership with SGX using indices developed by SGX Index H or IH. Our comprehensive derivatives platform coupled with round-the-clock liquidity enable investors to navigate amongst others as we all have seen in the last few months and more recently, the evolving COVID-19 pandemic, the sell-off in technology stocks, and also the future direction of Fed interest rate policy. In equity derivatives, our product suite provides unparalleled liquid access to the market and the largest economies in Asia. In the first half of FY22, on average, US$20 billion of notional value was transacted daily. With the mixed economic environment across various economies and uncertain outlook. This really will provide opportunities for investors, for risk managers. And in that, we saw dampened volatility in FTSE Taiwan, the Nikkei 225, which led to slightly lower trading activity. However, market activity increased in A50, the FTSE SGX A50, NIFTY, and SIMSKI, a combination of various reasons, regulatory changes in China, a return of foreign portfolio investments in India, and concerns about Omicron leading to greater institutional demand for risk management solutions. FX, we are now clearly the largest globally for listed Asian FX futures. And this essentially is the venue for price discovery and liquid access to the largest and fastest growing economies in Asia. Trading in the key contracts remain very robust in the face of major macroeconomic developments. In commodities, our suite of commodity derivatives registered strong volumes and both physical and financial participants hatched and traded more. You heard from my colleague Yao Lung that talks about financialization of iron ore. And this is amidst market opportunities in the ongoing disruption and the trade-off in the supply chain. In China, it clearly remains a key driver of emerging market and global growth. Our very comprehensive suite of multi-asset excess products allow investors to participate in this important market. So let me share some of the business update around that. In the SGX FTSE China A50 that remains super hyper liquid, that remains the leading international US dollar denominated China-Asia futures, it indeed had a strong first half of FY22. We started last year to introduce tighter spreads, change the tick size. Today, it is one basis point across both the Asian and US hours. That really means price formation across all time zones. In the offshore market, it remains the most liquid China futures contract. And importantly, open interest rates grew at more than 10% between October and December of 2021. And you all know why we mentioned October. And we expect trading activity and open interest of FTSE China A50 contract to continue to grow as the offshore A share market expands. In FX, We are the most liquid international dollar CNH futures. On 9th of December, that particular contract, CNH futures reached a new single-day volume record of more than 100,000 contracts being traded. In notional terms, that is U.S. $11 billion. Commodities, we are indeed now the leading global market for seaborn iron ore. As you are aware, iron ore is a major global commodity and it is the second largest traded by tonnage and value. It has a key role in steel production and that really means a proxy to the Chinese economy. And as a reference, the SGX R&R contract is highly correlated to key measures of the Chinese economy, such as the growth rate of industrial value added and PMI, Perseverance Managers Index. In fixed income, we had the largest pure Chinese government bond ETF, and now the assets have doubled since it was launched to US $1.4 billion. That's important because it is an ETF that provides ease of access with the most competitive beta spreads. And currently, foreign investors only own 3.5% of China's onshore bonds, the lowest among major markets. And with monetary easing and also following inclusion in major global bond indices, we think this ETF is expected to receive good amount or significant inflows from international investors over the coming months. So you have equity access via our A50. You have currency access via our CNH contract. Iron ore for commodities and obviously fixed income. This really shows the strength of what a multi-asset platform means. Our customers did increase their activity on these key China access products in the first half of FY22. And we're not stopping there. We've widened our product offering further across such asset classes. And in addition, collaborating very closely with onshore Chinese exchanges to build closer mutual market connectivity. You have seen our announcement on the ETF product link. Also discussions with China Foreign Exchange Trade System, CFETS, to establish connectivity between bond trading platforms. And indeed, with economies reopening, Asia will continue to offer investment opportunities and our growing multi-asset and comprehensive platform will be in a good position to benefit from such flows. Now let me talk about our SGX commodity asset class. Clearly has seen strong growth over the years with a number of market leading contracts enabling investors to manage risk, but also to trade and gain exposure to global trade. And obviously that comes to the fore in the last two years with the destruction to the supply chain. We are very, very focused in growing this asset class. Just in comparison of the half-year performance over the previous half-year, you heard from Yalung, but let me reiterate, the total commodity volume was up 17% year over year. Iron ore itself, volume was up 15%. In freight, our FFA volume was up 90%. And even in our petrochemical suite, there's gained good traction and volumes was up 28% year on year. So indeed, our suite of Seaborn products is also underpinned by our strong position in freight. This truly enables market participants to manage bulk cargo products Together with Freight Risk and importantly on a single liquid capital efficient platform. And happy to share with you that more than 60% of our freight volumes come from customers who take advantage of the synergies in our iron ore and freight contracts. We are the largest dry bulk freight and ferrous exchange. And that really means deep liquidity for our customers in freight FFA and obviously in ferrous raw materials in the complete virtual steel mill. If you look back in the calendar year of 2021, That was a record year for dry freight derivatives volume globally. And with shipping, shipping alone or shipping transport, this is 85% of world trade. And with the volatility that was caused by the supply chain and trade disruption, as well as higher energy prices, this really saw greater demand for shipping risk management solutions. Our subsidiary, Baltic Exchange, reported freight volumes, referencing its index, were up 61% on a year-on-year basis. Options trading in the dry-buck market was up 25% year-on-year, an all-time high. We look forward to broadening the adoption of Baltic indices by exchanges globally. New freight futures on 6th Daily Freighto's Baltic Index indices will be launched by the end of this month by a global exchange. And just November last year, our partner exchange, NZX, its dairy derivatives went live. on SGX. That will now have global access and reach. And the NZX suite of dairy derivatives now only trades exclusively on SGX, obviously in a strong partnership between the two exchanges. And this will allow us, both exchanges, to harness the complementary capabilities of the New Zealand Exchange product and the SGX client distribution footprint. As more economies emerge from the pandemic and as more economies reopen, we expect global trade to rebound. And I think our SGX suite of commodities contracts provides an avenue for investors to position, to gain access, to trade, and to risk manage. And these are opportunities that I think the market can look forward to. Also very pleased to report that our FX market Futures Franchise, the largest and the most liquid FX derivatives exchange in Asia, continues to thrive. Just to share with you the volume on a calendar year basis, 2021 over 2022, that is up almost 6% to $1.5 trillion from roughly about $1.4 trillion before. and we're seeing greater electronic trading, we're seeing greater connectivity between OTC and on-exchange trading. We now truly have a sizable and scalable FX franchise. You heard from Yalung, volumes are now in the first half up 40%, close to 60 billion US now. And we are excited to further grow this ADV with the completion of the acquisition of MaxTrader, which is now part of the SGX Group, as well as our FX ECN that went live last November. We're starting off with G10 Sport FX. So with the combination of futures, BitFX, MaxTrader, ECN, that really brings together a continuum of FX services. So just to put it simply, why so? One, across a whole spectrum of FX clients now. This obviously covers the buy side, real money, hedge funds. It covers also the sell side, regional banks, broker dealers, and global banks. Two, it will offer workflow, risk management solutions, and different marketplaces. And third, it will offer across different product segments. You will have FX spot, swaps, MDFs, options, and futures. So just to give the context in terms of example, because this is what we call, and you heard a lot about us talking this, a greater network effect. And what would it do? This will allow us to tap not just into existing clients, but be able to tap into new segments of clients. So for example, an existing client of MaxTrader can now also use the BitFX platform for its asset management, wealth management, or private banking segments. We can now cross-sell more efficiently SGX features product, we can also incubate a primary pool of Asian FX liquidity in this Asian time zone. through our ECM. So customers will truly enjoy a comprehensive suite of FX products across different platforms. You can switch between futures or OTC FX and your switch will depend on what best suits your need as we continue to introduce new products, new functionalities. We'll enhance it further for better user experience and proposition. Grateful that our efforts to serve our customers have been recognized. We won and received several important accolades in the first half of the financial year across different asset classes. So, Directive Exchange of the Year, Asia Pacific District Exchange of the Year, Commodities Exchange of the Year, Asia FX Exchange, Asia FX Clearinghouse, and also a few days ago, Scientific Meter was named the Best Specialist ESG Index Provider at the ESG Investing Awards 2022. So through innovative products, platforms and services to robust and resilient trading, risk management and clearing capabilities, we will be able and are committed to delivering more of this as we provide global investors with a trusted platform that connects Asia, a growing Asia, an important Asia, to global markets and globally to Asia. Our customers can look forward to new Asian currencies, metals, chemicals, and single stock futures in the coming months. We'll be actively building more connectivity with marketplaces around the world, a key part of how we intend to broaden our platform. Our clearing partnership with the CME Group was expanded. We added Pan-Asian benchmark equity derivatives onto the mutual offset link. Our collaboration with New Zealand on dairy derivatives really showed the positive effects how global distribution can add to a key product globally. We'll soon extend our connectivity to NSC in Gif City, India. And in equities, very focused on building the ETF link with Shenzhen Stock Exchange as we meet investor demand for China-related investment products. The link adds to our upcoming depository receipt linkage with the Stock Exchange of Thailand. So as our various business pillars grow and scale, the SGX Group today offers customers a broader, a deeper proposition across six brands. Six brands across our multi-asset business. SGX commodities, SGX equity derivatives, SGX fixed income, SGX FX, SGX indices, and SGX securities. And this is supplemented by 10 offices globally and presence in 17 major cities. The SGX Group will serve our customers even better. Our customers will benefit From one, a multi-asset access solutions to a growing Asian economies on a single platform. They will be able to access BAP, cargo and freight risk management solutions on a single platform. They will be able to enjoy thematic index construction in partnership with us and product listing solutions on a single platform. they will be able to access different liquidity pools in FX across futures and OTC and also digital asset and sustainability solutions across different asset classes. So we truly look forward to giving and delivering more value for our customers, our shareholders, and our various stakeholders, not just for FY22, but beyond. So thank you very much for your attention. I conclude my presentation and have my colleagues join me for the Q&A segment.