Singapore Exchange Limited

Good morning, ladies and gentlemen. Welcome to Singapore Exchange FY 2022 full year results. We're very pleased to be here this morning in person to deliver our results to you. Today's agenda will be as follows. We have the FY 2022 Financial Highlights and Performance presented by our CFO, Ng Yao Long, followed by a business update by our CEO, Lo Bun Chai. So without further ado, let me invite Yao Long upstage to present the Financial Performance.

First of all, very good morning to the people physically in the auditorium and those online. Thanks for joining us as we take the chance to present our full year EFY 2022 results. As a group, the revenue increased 4% of $43 million to almost $1.1 billion, highest revenue since listing. And it's pretty broad-based, especially across our derivatives franchise, covering FX, commodities, and equities. Treasury income, or TI, continues to be a drag in this financial year. And if you were to exclude TI, underlying growth would be up higher at 7%. On a headline basis, in terms of expenses, it was 7% year-on-year to $562 million. But on a like-for-like basis, and what do I mean if we exclude the impact from MaxTrader, which we acquired in January 2022, and the credits from the one-off government job support scheme in the earlier FY, total expenses would have only increased 3%. On an adjusted basis, which I think gives a better reflection of our ongoing underlying performance, Earnings would have increased 2% to $456 million. Now let me take you through the details of our performance. Broadly, derivatives trading and clearing revenue across our multi-asset platform and OTCFX were the two revenue growth drivers or the key ones. Business segment-wise, FICC grew 19%. driven mainly by currencies and commodities, and it now contributes 23% of our total group revenue, a 3 percentage point increase from the last FY. And even if we exclude the revenue impact from the acquisition of MaxTrader, FICC revenue would be still up a fairly robust 14%. So in the medium term, I do expect FICC revenue to continue growing in the mid-teens percentage range as we execute on our growth plans. In the FX space, which comprises both the OTCFX and the exchange-traded FX futures, the exchange-traded currency volumes increase 10% from higher activity in our flagship contracts, which is the rupee and the CNH, and reflects our position as as Asia's largest currency futures exchange. The acquisition of MaxTrader has further scaled our currency's business, so OTCFX now contributes 5% of total revenue, and I think this is a meaningful number. ADV, or average daily volume, increased 64% to almost US$71 billion, and we are on track to achieve US$100 billion in the medium term. In commodities, we maintain our leadership position in the offshore iron ore market. So iron ore futures volumes were up 22%. And screen trading, which really measures the success in financialization, now contributes 29% of total iron ore volumes, an increase of 9 percentage points from a year ago. And it's not just about iron ore. Freight derivatives also grew 32%. And moving on to equities. The 22% increase in equity derivatives trading and clearing revenue I think reflects the value that market participants place on our platform, notwithstanding the competitive headwinds. So if I just look at the last five years, equity derivatives revenue, and if we exclude TI, grew by almost 50%. So in FY 2022, we saw not only higher levels of activity, but also higher average fees in the year. So DAV, or daily average volume of our key contracts, showed robust activity level. So China A50 DAV grew 10%, Nifty 50, and Skim Ski, or MSCI Singapore DAV, each grew 15% year-on-year. Our average fee per contract for the entire derivatives franchise increased 13% to $151. And that's mainly due to the higher fees realized from our key A50 and Nifty futures. Revenue for cash equities was lower due to a decline in trading value and also the average fees. SDAV declined 5% to just under $1.3 billion, primarily driven by lower trading activity in stocks in the small mid-cap segments. Trading activity in REIT stocks increased largely due to the reopening of our domestic economy. Average clearing fee was 5% lower as we saw a higher participation rate from our market makers. Revenue from DCI was up 3%, mainly due to the higher subscription in data and co-location services. Treasury income. On a year-on-year basis, it declined $25 million. That was really due to the lower net use. It has bottomed out following the start of the interest rate hike cycle by the major central banks earlier this year. Beyond the recovery of the interest rate environment, I think what is equally important is that we have been able to grow our derivatives business, which meant a higher collateral balance. So that is something that we can control and influence. Moving on, expenses. As I mentioned, it is 7% on a headline basis, but if you strip out the one-offs and max trader, it's actually 3%. And if I can bring the audience back to what we guided a year ago, and even the revision six months ago, the actual expenses of $562 million was actually significantly lower than what we guided. And I will add... that the lower than anticipated expenses was also partially due to a slower pace of hiring in FY 2022, some of which will be carried over to the current financial year. But nonetheless, I would say the overall expense growth reflects our continued discipline in cost management, even in a cost inflationary environment. And this is why you see that staff costs have largely remained comparable year on year, after we exclude MaxTrader, even as we made adjustments to our staff compensation. In response to the market environment, like many other financial institutions, whether in Singapore or globally, SGX is not immune to these pressures. Technology costs were up 5%, primarily from our investments to enhance our OTCFX platform. Processing and royalties rose 10%, or $6 million, not surprising given the higher volumes across our key contracts. Other expenses increased 9% of $5 million due to higher travelling as we recover from the COVID pandemic. There was also a write-off of assets that were no longer in use and we made higher allowances as well. On an adjusted basis, expenses is 3% lower than the reported number. I think this again reflects better the underlying expenses. These are some of the adjustments that we made to remove the one-offs and the amortisation of purchase intangibles. Margins-wise, at the group level, it was a decline of 1.5 percentage point. Two reasons. Treasury income decline and a larger contribution from our subsidiaries. So let me just break it down. First, at the core operating level, we have been able to maintain our margins at about 50%, 58% year-on-year. So the chart on the left shows the EBITDA margin at the core operating level, and that excludes TI and the subsidiaries which were scientific beta and OTCFX. And if you look at the middle chart, it gives you a sense of the magnitude of the TI decline, which we are expecting to recover in FY23. And on the chart on the right, Thank you very much. And if you look at what some of our peers operate in those similar businesses, their margins, I guess you can see that they are not at where we are in terms of the core operating business as well. But what these subsidiaries or the growth pillars contribute financially to the group is a faster growth in revenue and operating profit. Just to give you a sense, revenue contribution has increased to 8.5% of group revenue compared to 7% a year ago. And this percentage is expected to continue to rise. On a like-for-like basis for the subsidiaries, which is beta effects and scientific data, I've stripped off things that were not present in FY21. Margins were comparable at 37%. I think if I look ahead, clearly very mindful of the cost inflationary environment, but I do expect, again, margins to recover over time as we scale our businesses and also with the TI recovery. Leverage ratio, interest coverage ratio remains at, I would say, very healthy levels. On a dollar basis, the debt went up, largely from a US $250 million bond that we issued in September 2021. And the proceeds was used for investment purposes. We acquired MaxTrader, which I've said quite a few times, and also invested in a closed-end fund, which has trading technologies as the underlying asset. Raising external capital, whether it's in the form of convertible bonds or plain US dollar bonds, I think one of the advantages is that it has allowed us to lock in a low funding cost at below 1%, and that's very helpful in a rising rate environment. And this also shows our proactive approach towards capital management, such that we will have the financial flexibility to pursue growth opportunities across the cycle. The Board of Directors have proposed a final quarterly dividend of $0.08 per share. This will be subject to approval at the upcoming AGM in October. And if approved, the total dividend per share would be $0.32 per share for the year. Operating cash flow and the adjusted earnings per share, as you can see, are more than adequate to cover the proposed dividend. The earnings that is retained will be used to invest in growing our business. Looking ahead, FY23, total expenses on a headline basis, we expect it to grow between 7% to 9%. So I think it's important, again, to look beyond the headline growth. And let me just break it down for you and also the context of the increase. So excluding the full-year impact of MaxTrader, expenses are expected to grow 5% to 7%. So what do I mean, right? We acquired MaxTrader in January 2021. That was six months of expenses. Now we will have to consolidate 12 months. So even if everything was unchanged, just by the fact that we consolidate additional six months would have meant a 2% point increase in expenses. So after we adjust for this, our FY2023 expenses are expected to increase 5% to 7%. mainly due to higher staff costs because we are investing in our people and also to build out our OTCFX business. The proportion of the higher staff costs clearly will be due to salary adjustments given the competitive market for talent and the environment that we operate in. And there will also be some hiring that we carry forward from FY2022. I do not expect these expenses to remain beyond FY2023. I anticipate the overall pace of hiring for the entire group, including our subsidiaries, to slow down, and overall compensation levels or adjustments will normalize. So in the medium term, our expense guidance remains unchanged at the mid-single-digit growth range. Transcription by CastingWords Max Trader Acquisition, which is an important one, contributed 2 percentage points per annum to the growth. So it's an inorganic acquisition, and it has added to the expense base. But clearly, this is investment for growth. And as for the core, the remaining group, the expense growth, it's 4 to 5 percent, 4 to 5 percentage points. And this shows the relative contribution, and I wanted to break it down for you to let you know where it is coming from, both on an organic and inorganic basis. CapEx for FY2023 is going to be higher compared to the previous years at about $70 to $75 million as we scale our OTCFX platform. Clearly, as a critical information infrastructure, we will continue to upgrade our platform and system architecture, including investments in cybersecurity. We will also take the chance to improve the efficiency of our office premises as we plan to consolidate our real estate footprint. While the CAPEX range that we have given for FY23 appears to be a significant increase over the past few years. I think it's important to view CAPEX as a multi-year program across refreshed cycles rather than a year-by-year increase or decline. So in the medium term, we do expect capital expenditure to remain at a similar level as we embark on the major system updates. And you will see that over a 10-year historical trend, The average capex to revenue ratio is about 7%. So there are years in which we will be below or above depending on the capex to be done for that year. So it's important to look at it across the cycle. And the other point that I would like to point out is that the business, the group has expanded in the last decade. Although the absolute amount has fluctuated between 40 to 80 million per year, The group revenue has grown almost 1.7 times from FY 2012 to about 1.1 billion in FY 2022. With that, let me now hand over to Boon Chai who will deliver our business update.

Very good morning again, everyone, and thank you for joining us for this FY22 results briefing. As Yaolong has shared at the start, we achieved our highest revenue since listing. Let me now share how our global strengths drove the performance. First, our derivatives platform registered higher volumes, you heard it from Yalong, but it's across all asset classes, equities, currencies, and commodities. And in FY22, as global participants navigate uneven economic recovery as the pandemic evolves, geopolitical tensions rising, supply chain disruptions, Thank you very much. All asset classes year on year, reflecting the global nature of our product suite. Let me go through the various asset classes. First, our equity derivatives product suite continues to provide unparalleled access to the largest economies in Asia, with more than US$22 billion in notional value traded every day in FY22. In FTSE A50, there was increased buy side participation and overall trading activity arising from the evolving pandemic outlook and developments in sectors such as technology and real estate. Likewise, trading volumes in the nifty futures rose in response to the evolving macroeconomic conditions. Our listed Asian FX futures platform, which is the largest globally, provides price discovery and liquid access to the largest and fastest growing economies in Asia. Trading in our key contracts was robust, with total SGX FX futures DAV up 10% to 119,000 contracts, and total promotional value for FY22 was up 2%. 23% to US$1.8 trillion. There were a few single-day trading volume records that was achieved for the CNH futures and IRNA futures. We also saw meaningful growth in FX block trades that are cleared with SGX. As global participants seek increased efficiencies, and cost reduction driven by unclear margin rule changes. We delivered strong results too in commodities as DAV increased 21% to over 118,000 contracts. Global participants continued to look to SGX commodities platform for risk management amidst supply disruptions, economic volatility, and shifting macroeconomic outlook. Arnold DAV was up 22% year-on-year to close to 100,000 contracts with good increase in screen trading volume. Screen trading now accounts for close to 30% of total volumes compared to 20% in FY21. And 30% was across the whole financial year. If we look at the last few months, the percentage is even much higher. Freight also had a strong year with DAV up 32% year-on-year to 8,000 contracts. Our continued focus on building ecosystem together with key global strengths create reinforcing product adjacencies. Let me illustrate that through two thematic. One, as you see on the screen, is the steel and related raw materials, and two, trade and transport. Iron ore, which is a key input to steel, provides a close proxy to macroeconomic growth. Having pioneered iron ore derivatives, we have since created a comprehensive product ecosystem around the concept of a virtual steel mill and broadened our client network. The percentage increase in screen trading that I talk about has really come from a wider array of financial participants. And in freight, which is another proxy that serves as a global economic barometer and as the largest drive-out freight venue, we provide deep liquidity for our customers in FFAs, which is complementary to our C-bond, and as a leading exchange in freight derivatives, we are well poised to expand into container and air freight. We will look to participate in the global energy transition with product launches in battery matters in the months ahead. And with increased liquidity in our commodity suite, such as iron ore, dairy, and freight contracts, they are now included in global commodity indices, which would attract more investors' participation. I shared about our SGX FTSE A50 and SGX Nifty performance in the previous slide. Building on that strength, we have built up a shelf of products covering the ASEAN capital markets of Singapore, Malaysia, Thailand, Indonesia, Vietnam and Philippines. These ASEAN products have strong correlation with domestic indices, allowing investors broad access to growth economies efficiently across borders. The Regional Comprehensive Economic Partnership, RCEP, which came into effect this year, could drive greater trading relationships amongst Asian economies, and global participants can participate in the growth of ASEAN by accessing the respective markets through SGX Single Country Indices or SGX Singapore Single Stock Futures. For example, companies in Singapore's benchmark indices have a strong regional footprint, and SGX single-stock futures on these companies provide an efficient access instrument. Investors also have unique Asian time zone access to the fast-growing Asian technology sector through SGX single-stock futures. FX is another global strength of SGX Group. We now have a sizable and scalable FX franchise comprising OTC FX, FX Futures, and an electronic communication network, ECM. OTC FX, as you heard from Yao Long, contributed 5%. of group revenues and remain on track to achieve an average daily volume of US $100 billion in the medium term, building on its platform and product offerings. Our clients can now connect to a combined liquidity pool of over 100 liquidity providers and market makers. They would be well served by our global client coverage group that operates round the clock and extends across nine locations. Clients will also see enhanced workflow and risk management solutions enabled by our strong technology capabilities. And we will continue to bring new product and platforms enhancement to address new client needs and further product offerings in NDF will be added in the weeks ahead on our FX ECM. This will allow us to offer clients a seamless platform across FX spot, swaps, options, NDFs, and futures. Amidst the shifting economic and market landscape, we see opportunities to continuously provide new investment products for our global participants. In FY22, we saw issuers raising SING dollars $1.9 billion and 84% increase year-on-year. The Capital Markets Initiative announced last September has increased momentum and pipeline for equity capital raising. However, as we are witnessing, market conditions need to stabilize The Consistent Post-Listing Liquidity Demonstrate SGX value as an alternative venue for global companies seeking access to new investors. Through our partnership with US exchanges, issuers can gain round-the-clock liquidity and a diverse pool of investors with an SGX listing. 2022 marks the 20th year anniversary of the establishment of SREITs on SGX. The REIT market has grown in international profile and today more than 80% of REITs and property trusts hold overseas assets. The ecosystem has continued to broaden and deepen with more listed products including derivatives, and ETFs with REITs underlying. SGX is now home to five REITs ETFs with assets under management close to SING dollars 900 million. Our ETF shell is Mountie Asset. In FY22, total assets under management were up more than 30% to SING dollars 12.5 billion. Seven new ETFs were listed in FY22, of which three were powered by Index Edge, SGX's own index business. The eventual launch of the Shenzhen Stock Exchange SGX product link and Thailand-Singapore depository receipt linkage will further complement our product shelf and connectivity. In FY22, we added our first catastrophe bonds, Innovative Asset-backed securities and close to 120 green social sustainability and sustainability link bonds in 2022 to our broad and diverse fixed income listing platform. We will complement and enhance the fixed income issuance ecosystem through MarketNote, a digital market infrastructure MarketNote provides a data-powered collaborative workflow tool for fixed income issuance and further product expansion will be added in this current financial year FY23. This is in addition to the ESG bond information hub that has been introduced. Thank you very much. Thank you very much. We also enhanced our data distribution network in China to distribute SGX securities data. Domestic issuers and investors now have expanded access to data for insights for SGX securities products, including REITs and ETFs to add to existing channel of market data distribution for our derivatives offerings. In commodities, we went live with the trading and clearing of New Zealand Exchange suite of dairy derivatives exclusively on SGX commodities. That happened in November of 2021. And pleased to report that the mutual partnership saw open interest of the product and volume of several dairy products, achieving record levels. In equity derivatives, the NSC-ISC-SGX Connect, or in short, the Gift Connect, was launched by the Prime Minister of the Republic of India, Narendra Modi, in July. The Gift Connect presents an innovative pathway for global investors to participate in India's growth story. These mutual partnerships, which combine the strengths of these partners, serve to provide clients with better access and connectivity, and we look forward to expanding our partnership arrangements. Our financial performance in FY22 reflects the value that investors place in SGX Group's multi-asset businesses, Thank you very much. We will capitalize on our global strengths to deepen our scale in FX and commodities, broaden our product range, and grow our client segment. Our fixed income currency and commodity segment is a key growth engine with an expectation of mid-teens percentage revenue growth in the medium term. We expect equity and bond listings to grow as our capital markets ecosystem deepens and Southeast Asian growth companies mature. We'll build on the momentum of our growing equity derivative suite, scaling the business by increasing our customer base through our global distribution channels. We'll also continue to expand and reinforce our equity derivatives product shelf. Looking forward on building what we've achieved collectively on FY22 and delivering importantly for our customers, shareholders and stakeholders in FY23 and the years ahead. With that, I conclude my presentation and invite my colleagues to join me for the Q&A.