Singapore Exchange Limited

Good morning to everybody here today and to those viewing this session over webcast. Welcome to Singapore Exchange Group's FY2023 full year results. The agenda for today, first our CFO, Ng Yau Lung, will give a financial highlight and performance briefing. followed by a business update by our CEO, Lobin Chai. So without further ado, let me introduce to you Ng Yau Long, who is our CFO, to present the financial updates. Yau Long, please.

Okay, a very good morning. Thank you for joining us this morning. Let me start with our highlights, our full year financial performance which has really demonstrated the strength and resilience of our platform in a quite challenging macroeconomic environment. So on an adjusted basis, our group NPAT, all earnings increase just over 10% to $503 million. This reflects the underlying performance of business performance as we have stripped off one of items when we talk about adjusted earnings. Otherwise, on a gap basis, the earnings would have been up 26.5% to $571 million. Okay. The improved underlying earnings was driven first by a revenue growth of 8.7% year-on-year to almost $1.2 billion and a one percentage point lower growth in expenses at 7.7%. As a result, our operating profit, our group earnings margin improved by 50 to 60 basis points. Now let me take you through the details of our financial performance. Similar to the first half of FY23, our derivatives franchise remained the key driver of our group's revenue growth, with a 27% year-on-year increase of $116 million. Revenue from our derivatives business, which cuts across the different asset classes, contributed about 45% of our group revenues, so it includes both trading and clearing revenue and also the associated treasury income. While the overall derivative volumes was flat year on year, we did see healthy volume growth from commodities and our exchange-traded currency futures. So our commodities daily average volume, or DAV, increased 35% to reach a new high of 160,000 contracts. Our currency futures volume grew almost 30%, largely driven by our CNH contract setting a record DAV of 152,000 contracts. And this volume growth reflects the strength of our diversified multi-asset business. It has enabled us to cross-sell and also attract a wider range of clients and market makers. Average fees increased 6.5% to $1.61. Due to an increase in the proportion of higher full-fee paying customers for our key equity derivative contracts, we saw stronger volume growth in INR as well that contributed. As for our cash market and capital raising businesses, not surprisingly, we saw a revenue decline from fixed income listings, IPOs, and cash equities trading. This is due to the quite unprecedented pace of monetary policy tightening by major central banks and that has affected regional and global stock markets in their level of trading activity and their listing activities. Before I go into the breakdown of our revenue and expense growth, let me touch on the reconciliation between our GAAP or reported earnings and the adjusted earnings. There's quite a big difference this time around. It's largely due to non-cash items, which I've boxed in red. In the first half results, we have already recorded 48 million of such net adjustments. For the second half, We're recording an additional $20 million of net adjustments. So let me go through these adjustments. First is a full-year fair value gain of about $40 million from our investment in a private equity fund managed by 7Rich. It reflects the continued strong operating performance of the underlying asset trading technology. This is a single asset fund which invested in the trading software provider, TT, in short. As they have continued to perform well in the second half of our financial year, our investment in this fund was further revalued upwards by about $13 million. In the first half, we revalued upwards by $27 million. So that gave us that $40 million uplift. And this fair value adjustment flows through our P&L given its accounting classification. Next is a $23 million write-back of the forward liability to acquire the remaining 7% stake in Scientific Beta, or SB. This forward liability relates to a put-and-call option agreement with ADEC, which is the 7% minority holder, to acquire its stake in about 18 months' time. We are required to fair value or estimate the value of this forward liability regularly. And given the anticipated operating performance of SB compared to the projections at acquisition, the cost of acquiring this stake has actually come down. And this is therefore recognized as an accounting gain and hence a write-back. I will not elaborate on the other two items which I talked about in the first half, the $15 million and $10 million gain that we had. I'll touch on the green box. Along the same vein, we also took an $8 million impairment of the acquired intangible assets in scientific beta relating to know-how and customers. In any case, we have been amortizing this purchase intangibles at about $6 to $7 million a year. So this is an additional impairment. And then the remaining impairment of $3 million relates to the value of Baltic-owned land in the UK due to the weaker UK commercial property market. Coming to revenue, and I've talked across our three business segments, our fixed income currencies and commodities business, or FICC, it accounts for 28% of our total revenue. It grew 34%. to about $338 million from primarily the growth in currencies and commodities. And even if we exclude the revenue impact from MaxTrader, which we acquired in January 2022, so there was six months in FY22 and 12 months in FY23, the FICC revenue will still be up 31%. And clearly, this has exceeded our mid-teens revenue growth expectation for the FICC segment. We see growing momentum in our FX business, both exchange-traded and OTC. I mentioned earlier the almost 30% growth in our on-exchange currency volumes. In the OTC space, the FX ADV grew about 7% year-on-year to about US$76 billion. But if you compare on a half-on-half basis, i.e. second half of FY23 versus the first half, you will actually see a more than 20% growth. So second half was $83 billion U.S. ADV compared to the first half, $68 billion. So this reflects the refocus on client engagement and the uptick in client activities in the second half of FY23 following the completion of the planned platform migration in the first half of the financial year. Commodities, I mentioned volumes grew 35%. Iron ore continued to be the standout performer. Volumes in iron ore grew 41% year on year. And in that contract, we broadened our range of financial clients in iron ore. Proportion of screen trading climbed from 29% to 46%. Now, moving on to equities. Equity derivatives revenue increased about 17%. This includes clearly both the trading and clearing revenue and the associated treasury income. Although there was a 9% decline in volumes, this was offset by the higher average fees from our key contracts. A volume in our flagship A50 contract was slower, given the China sentiments and the slower-than-expected growth momentum following its opening. Again, we have seen it across many other markets as well. As for revenue for cash equities, 11% lower came from both a decline in both trading value and also the average fees. SDAV, or the Securities Daily Average Value, declined about 13% to about $1.1 billion, primarily driven by our REIT segment and the small and mid-cap stocks. Average clearing fee declined 0.07 basis points. 2.49 basis points due to a higher participation from active traders and market makers. Revenue from DCI, or the data connectivity and business, was comparable. So we saw higher connectivity revenue from the upselling of services to existing clients, introduction of new gift-related colo and network services, offset by lower revenue from our index business. Our index business has also been affected by the macro environment. the assets tracking factors generally underperformed compared to those tracking technology-driven cap-weighted indices, and hence have declined again a year ago. Last month, we successfully launched a GiveConnect in collaboration with our partner, From a financial reporting purpose, let me just explain why I'm highlighting this slide. Under this new partnership arrangement, the royalties expense for the GIF-NIFTI contract will no longer be applicable. It will be replaced by a revenue share arrangement, of which the economics are largely similar. So from a financial reporting perspective, what this means is that instead of having the royalties expense in our expense segment, the revenue that we share with NSE will be netted off against our trading and clearing revenue. So I wanted to share the FY23 numbers to illustrate the point. So the pro forma average clearing fee will be actually just 3% or 5 cents lower at $1.56 as compared to the FY23 average clearing fee of $1.61. It's a pro forma number. It uses the FY23 numbers, no change in other variables included in the calculation. So it's just a mere movement of something that was formerly classified as expenses to the revenue line. So as the new arrangement takes place from FY24, I'm giving these numbers way in advance so that as you look at FY24 average clearing fees, you will have a right reference point to compare against, and that will be the pro forma numbers which are highlighted in the right-hand side of the slide. And this information will be posted on our IR website for reference. And moving on to expenses, on a headline basis, went up 7.7% to $605 million. The additional six months from the full-year consolidation of MaxTrader in FY23 versus FY22 contributed 2.2 percentage points to this increase. So that's the extra six months, right, the annualization impact. And if we take that out, expenses would have grown 5.5%. And where did all this expense growth come from? Staff costs, which is about 45% of our cost base, increased 10%. We saw higher staff costs from the merit increment, salary adjustments, and also increase in the group headcount. Technology expenses was up about 8%, primarily from the full-year consolidation of MaxTrader and the higher data center utilities costs. Royalties, not surprising, rose about 5.5%, mainly due to the higher INR futures volume. Other expenses similarly grew about 4.5% as we resumed business travel and higher marketing activities. Now, looking ahead, FY24, both for expense and capex, clearly we'll continue to strike the balance between investing to grow our businesses and maintaining that cost discipline. So we expect expenses in FY24 to increase at a mid-single-digit percentage range. This increase will come from higher staff costs and also investments in growing our OTCFX business. For CapEx, in FY23, we came in just under $60 million, or at $59 million, lower than the initially guided range of $70 to $75 million. This was mainly due to deferment of about $8 million over for projects, which was planned for FY23. We will now defer it to FY24, and as a result, the guidance for next year looks higher. It is at $75 to $80 million. But if you average that out over the FY23 and 24, it will be around $70 million. So the capex, again, is to grow our OTCFX business, strengthen system resilience and architecture, and also consolidate our office space. Our balance sheet continues to be robust. Absolute debt levels have declined following the repayment of our bank loans. Leverage ratio, very healthy, 1.1 times on a gross debt to EBITDA metric basis. Interest coverage ratio is more than 100 times. So the Board of Directors has proposed a final quarterly dividend of $0.085 per share. So if approved at our upcoming AGM in October, this would represent an annualised increase of 6.3%. And with that, let me now hand over to Bunchai, our CEO, who will deliver our business update.

Thank you, Yao Lung. A very good morning, everyone. Also, thank you for joining us this morning, as you just heard from Yao Lung. Overall, we have delivered another set of resilient results this financial year. Our multi-asset strategy continues to provide market participants with the diverse investment and risk management tools that they need in this challenging macro environment. This is reflected in our diversified revenue streams with strong performance, as you have heard, in our derivatives businesses across equities, commodities and FX amid lower activity in our cash, equities and index businesses. Let me start off by the Thank you very much. Asia remains a bright spot for global investors. China and India together are forecast to generate about half of global growth this year. Southeast Asian countries are projected to remain resilient in the second half of the year on account of the continued recovery in domestic and tourism demand. Thank you very much. In the last financial year, we continued to demonstrate our leadership in Asian derivatives across asset classes globally. I will now illustrate this with a few examples. Our commodity franchise has yet another milestone year. Volumes in the commodity derivatives increased over 35% to a record 41 million contracts on the back of a 40% growth in iron ore derivatives volume. Thank you very much. The proportion of screen trading has also doubled in the past two years as a result of expanded participation during the European and U.S. trading hours. This is demonstrated in the growth of our T plus 1 session, which is now at about 18% of the total trading volume. With increased financialization of INR contracts, our trading volumes are now more than twice the size of the underlying seaborn fiscal market, which is a record high. You can see from the slide on the right-hand side for FY 2021, there was just over one time. Today, it is now twice the underlying seaborn fiscal market. Our flagship commodity contracts such as iron ore and rubber serve as bellwether for Asian economies which are rapidly growing and urbanizing. Transport is another core pillar of our commodities business as part of price discovery for seaborn commodities. remain the largest clearing venue for dry FFAs, and with Baltics Exchange expertise, we have now expanded into different transport segments such as containers and air freight. Moving on to our FX franchise, SGXFX has grown significantly in the last few years. We started with just six FX futures contracts 10 years ago. Since then, our shelf of FX products has grown six times. Today, we are the largest and most liquid venue for Asian currency derivatives. Besides our leadership in CNH and INR contracts, we've also established new foothold in Korean Won, Taiwan Dollar, and Thai Baht futures. In FY 2023, we achieved record volumes in notional terms of over US $2.5 trillion. This is up almost 56% from a year ago. SGXFX remains the go-to venue for currencies, especially during volatile markets. With regulatory developments such as unclear margin rules coming into full force, global investors are driving more OTC trading to on-exchange central clearing to enhance margin efficiency. We're also seeing positive traction in our OTC FX volumes across both G10 and Asian currencies. As you heard, our OTC FX volumes achieve a daily record ADV of US $76 billion in the financial year. And we'll achieve our target of $100 billion ADV by FY 2025 or earlier. Looking at FX in totality while making good progress in achieving our vision of an integrated FX marketplace. SGXFX has become Asia's leading and most comprehensive venue for the risk management and trading of major currencies across FX instruments. We are well-placed to offer holistic and innovative FX offerings on a global scale This integrated venue that we are building provides a solid foundation for FX franchise future growth. Thank you very much. Thank you very much. For the NIFTY, we successfully migrated our contracts to the GIF Connect and kick-started it with an open interest of around US$9 billion. This paves the way for both SGX Group and NSC to deepen our collaboration to drive mutual success and to capture more growth opportunities. Thank you very much. Thank you very much. In the past two years, we have accelerated our efforts to expand our sustainability link derivatives to capitalize on evolving investment mandates. Estimates indicate that more than one-third of all equity capital is passive. This makes benchmarks a powerful tool for climate transition. Earlier in June, we launched the first global shelf of futures tracking, the MSCI Climate Action Index, covering five geographies, World, Europe, US, Asia X Japan, and Japan. The index facilitates real-world decarbonization through a sector-diversified, bottom-up, and forward-looking approach. We are building a new global ecosystem around climate action indices and plan to include ETFs in the near future. Our climate action derivatives complement our existing sustainability link derivatives shell. As investors allocate more capital to transition finance, they will need similar tools like the ones that they are used to. For example, our SGX would see blossom Japan index futures, which allows investors to access Japanese companies with strong ESG practices, continue to grow steadily. In addition, we have added a climate option to our Nikkei 225 futures contract. The Nikkei 225 Climate Change 1.5 Degrees Target Index switches offer a seamless liquidity option for investors to enhance exposure to Japanese companies committed to climate transition. Moving on to the data connectivity and indices, or DCI. Our data and connectivity business continues to enjoy stable growth. Our connectivity business grew from offering more value-added services to existing clients and new gift-related co-location and network services. Our market data business grew due to an increase in in non-display usage licenses and distribution of commodities data. This growth was slightly offset by lower revenues from our index business. We continue to believe that the index industry remains an attractive sector and are therefore committed to capitalizing on our differentiated strengths in indexing to strengthen the business. Notably, Scientific Beta's research expertise and IP creation remains a key lever in building cutting-edge risk management index solutions. A case in point is Scientific Beta's climate impact solution, which ensures a robust decarbonization approach. Notwithstanding the current macro environment, we believe there are still opportunities for smart beta indices to help investors diversify and balance their portfolios. In the past year, SGX Index H has stepped up efforts in co-creating indices with a large focus on sustainability. There's also been an increase in adoption of our IH indices in partnership with leading structured products issuers in Europe. Partnership remains an important aspect of the index ecosystem and will be a focus for our index business as we look to raise commercial and realize these opportunities. We'll focus on creating growth and scale through partnerships with customers, data providers and distribution channels. Thank you very much. of global economic growth. And SGX Group is at the heart of international capital flows to this part of the world. To pursue growth further, we are scaling our multi-asset offering globally through our network, our partnerships, and geographical expansion of client coverage. Where we have done well, we will enlarge and consolidate our position to derive greater network effect. Where we have room to do better, we will push towards better performance. We have made good headway in becoming a global transition finance hub in Asia and will continue to strengthen our position as a top leader in this space and build up our portfolio of sustainable and transition finance solutions across asset classes. Our aim is to achieve high single-digit revenue growth, while keeping our expense growth in the mid-single-digit range, so as to reward shareholders with a mid-single-digit percentage increase in our dividend per share over the medium term. I hope you're as positive as I am about SGX Group's prospects. With this, thank you for your attention, and we'll be happy to take your questions. Thank you.