Singapore Exchange Limited

Good morning, ladies and gentlemen, and also to those viewing online over the webcast system. Welcome to SGX Group's first half FY2024 results briefing. This morning's agenda will kick off with a presentation of our financial highlights and performance by Mr. Ng Yau Lung, our CFO. This will be followed by a business update by our CEO, Mr. Lo Bun Chai, following which we will end off the briefings with a question and answer session with SGX Senior Executives. So without further delay, let me hand over the stage to our CFO, Mr Ng, please.

A very good morning, and thank you for joining us for this half-year results briefing. So our half-year financial performance reflects the resilience of our multi-asset exchange amidst a challenging macroeconomic environment. We saw strong growth in currencies and commodities, which we will talk about later. But as a group, earnings-wise, on an adjusted basis, it increased 6% to $251 million. This is a metric that we have been showing Adjusted earnings gives a better reflection of our underlying performance as non-cash and one-off items are excluded. This improved earnings was driven by a 4% increase in revenue and a lower growth in expenses of 3%. As a result, we saw improvements in both operating margins and at the earnings level as well. Now let me run through the details of our financial performance. So this half, we continue to cement our position as the platform of choice for Asian access and portfolio risk management. So on the left, our derivatives franchise across the various asset classes grew 6%, or $16 million more. In aggregate, it contributes 45% of our group revenue and includes both trading and clearing revenue and the associated treasury income. So we saw robust volume growth from commodities and FX derivatives and also OTCFX. So commodities DAV, or daily average volume, increased almost 50%, with volume increases across all commodities products. Currency futures DAV grew 25%, mainly driven by our CNH contract. Our OTCFX business continued to see healthy growth, as you can see from the chart on the right. with ADV increasing 46% to US$100 billion. On the other hand, our broader equities business, both cash and derivatives, face challenges, given the elevated interest rate environment, concerns over economic growth, which had a negative impact on market sentiments. So we saw a 12% decline in SDAV, or Securities Daily Average Traded Value, and also a 13% decline in DAV, given the weaker investment sentiments on China, and also the decline in the Nifty volumes as we migrated our members and clients to the Gift Connect. Before I go into the financials, I wanted to explain that and give a sense of the reclassification of our segments. It's not a major change. In October last year, we implemented a new organizational structure to capitalize on the strengths of our multi-asset offering and to further scale the business across products and platforms. So from a financial reporting perspective, we decided to also revise the presentation of revenue in our income statement into four operating segments to better reflect the nature of our revenue streams. So the four operating segments from left to right are fixed income currencies and commodities, or FICC, equities cash, equities derivatives, platform, and others. So the nature of revenue in the first three segments, FICC, equities cash, and equities derivatives, are largely transaction or volume-driven, whereas the nature of revenue classified under platform and others are largely non-transaction driven. For comparability, the segment information for the period first half FY23 has also been restated. So where are the changes? The main change is in the FICC segment where revenue from EMC and Baltic Exchange have been reclassified to platform and others. In addition, The membership-related fees previously in FICC and at the equities business have also been reclassified to platform and others. Market data and indices under the previous data connectivity and indices segment have been split into two line items, namely market data and indices and others under this segment. So in short, The platform and others will include revenue from EMC and Baltic Exchange and the membership-related fees that I talked about, on top of what was originally in the DCI segment. As a segment, it contributes 20% to group revenues, and you may refer to our financial results for more details on the restatement. But as I said, it is not a major change, but I think it better reflects the split between the transaction volumes and the non-transaction volume or the revenue streams in our business. So the change, as you can see, is from the FICC using the first half FY23 numbers. As a proportion, it is now 21% versus 27%, and platform and others grew from 13% to 19%. Nothing changes really for cash and derivatives other than the movement of the membership-related fees. So now to the operating segments based on what I've just described. Our FICC business, which accounts for 26% of our total revenue, grew 28%, or $33 million, from strong growth in currencies and commodities. So I mentioned 18 months ago that we expect this segment to grow at a mid-teens percentage range over the medium term. And based on the results so far, it remains on track to do so, even with the revenue classification. We saw growth momentum in our FX business, both exchange traded and OTC. On the exchange traded side, we saw 24% growth in volumes, largely contributed by our CNH contracts. As I mentioned earlier, OTC FX, the headline ADV was just above $100 billion as we saw an uptick in client risk management activities. And our commodities franchise volume grew 48%, and iron ore continues to be a standout performer as volume grew almost 50% year on year. And this is not due to any low base effects. In fact, iron ore volumes in FY23 grew 41%. Now, moving on to equities. So equities cash, revenue was down 6%. due to a decline in both trading value and the average fees. I mentioned SDAV declined 12%, and that was across the board, mainly driven by lower trading activity in the REITs and the small and mid-cap stock segments. Clearing fee declined to about 2.47 basis points, as we saw higher participation from active traders and market makers. As for equity derivatives, revenue decreased or declined 7%, largely due to the 14% decline in total volumes. So Nifty was one. Nifty volumes was down 39%, lower on a year-on-year basis, and as we migrated our members and clients to GiveConnect. So just to give you a sense, if we exclude Nifty for this segment, the trading and clearing revenue would have been down 5%. And that would have been coming from our key flagship contract as the A50, as there was weaker investor sentiment in that area. On a pro forma basis, the average fee per contract remained comparable at $1.54. Moving on to platform and others, we saw higher revenue across the board from market data, connectivity, and also EMC. Indices revenue remained comparable. Moving on to expenses, it's up 3% to $296 million. Staff costs was the main cost driver. It increased 10% of $13 million. We had higher fixed staff costs from the merit increment and also higher average headcount. We also saw a higher variable cost increase, but that's largely due to timing differences in how we accrue the bonus in the last FOI. So simply put, on a full-year basis, that would normalize because the accrual was largely backloaded in the second half of last FY. Technology expense was up 6%, given some of our higher system maintenance for our OTCFX business. We saw a decline in processing and royalties, largely due to the absence of Nifty Royalties under the GiveConnect partnership. We will continue to remain prudent in managing our costs, Having had the chance to re-look at the numbers, we will therefore revise our expense and capex guidance for FY24. So expense growth in FY24 is likely to be similar to the 3% year-on-year expense growth that we have observed in the first half of FY24. This is lower than the previously guided mid-single-digit percentage range. And as for capex... We anticipate it to be $5 million lower, i.e. at $70 to $75 million, compared to the previously guided range of $75 to $80 million. Now let me just do a reconciliation between the reported earnings and the adjusted earnings. And as you can see, the difference is largely due to the non-cash investments or adjustments shown in the red box. First, We saw a net fair value gain of $35 million, and that came from our investment in a private equity fund managed by 7Rich, reflecting the continued strong operating performance of Trading Technologies, or TT. As that business has done well, our investment in that fund has been further revalued upwards by $36 million. We previously revalued our investment upwards by $40 million in the last FY. And this flows through our P&L, given its accounting classification. We also saw a weaker performance in scientific beta. Assets under replication has declined. It is about $45 billion in the first half of FY24. And that's mainly due to the lower performance of the factor-based indices, which has resulted in some shift in investor preferences as they turn towards alternative investment opportunities. So arising from this, we wrote back our forward liability and also recognised an impairment loss on the purchase intangible assets relating to scientific beta. So the forward liability, which relates to a put and call option that we have with ADAC, which is the other 7% shareholder in scientific beta, to acquire their stake, that value has come down, become lower, and accounting-wise it's actually recognised as a gain So we have adjusted that out. That's why you see a $4 million adjustment in our adjusted earnings. As for the impairment, we took a $5 million impairment on our purchase intangible assets in scientific beta that relates to know-how and customers. So we also took an impairment of about $8 million in the last FY. As for balance sheet-wise, continues to be robust. Moody's has reaffirmed our AA2 ratings in November last year, which is the highest credit rating it has assigned to any exchange group. Leverage ratio remains healthy. Gross debt to EBITDA declined from about 1.1 times to 1 times currently. And in terms of debt maturity, we do have an existing comparable bond that is due in March 2024. and assuming it doesn't convert to equity, we will look at some form of refinancing. The Board of Directors has declared an interim quarterly dividend of $0.085 per share, so this will bring dividends for the first half of FY24 to $0.17 per share, which represents an increase of 6%. With that, let me now hand over to Boon Chye, our CEO, who will deliver our business update.

Global market uncertainties. IMF is anticipating a higher likelihood of a soft landing in the U.S. alongside a faster pace of recovery in emerging markets. We expect inflationary pressures to decline globally, which will in turn determine the level of fiscal support and rate cuts required to support a more balanced global outlook. Globally, markets are still adjusting to an environment with structurally higher rates. On top of this, higher geopolitical tensions have significantly impacted the economic outlook. Investor sentiment has thus been affected in many equity markets. Nonetheless, we believe that Asia continues to lead global growth, albeit at a lower growth rate than before. China remains the world's second largest economy. India has been one of the fastest growing countries and is set to become the third largest economy by 2030. There are also high growth economies in ASEAN like Vietnam and Indonesia which could offer greater opportunities in the near future. SGX is in a strategically strong position with our unique offering of a single-point access into Asia. Simplifying access for our international customers remains highly relevant and important. We continue to do so through our expanded multi-asset product suite, round-the-clock liquidity and efficient market infrastructure. Our fixed income, currencies and commodity business, or FICC, continues to grow. Year on year, its contribution to overall revenue has risen 5 percentage points to 26%. FICC revenue is on track to grow in the mid-teens percentage range over the medium term. Our FX futures have benefited from the volatile currency markets and new clients' adoption on the back of widening rate differentials. Listed FX volumes in the first half of this year grew 24% year-on-year. We secured our market share and position as the primary venue for trading international RMB futures, or C&H. Volumes of our CNH futures almost doubled year-on-year to 15.2 million contracts. Open interest at end December stood at over 120,000 contracts, up 29% from last year. In notional terms, this translates to U.S. $12 billion. The robust growth in volume and liquidity shows that SGX is the preferred choice for trading and accessing international RMB and we are confident it will remain this way. Besides our key CNH and Indian rupee contracts, we also offer a comprehensive suite of contracts across major and emerging market currencies. Year-on-year, volumes have risen 80%, For the current one contract and 46% for the Thai baht contract, albeit from a growing base. To capitalize on the opportunities in the current market environment, we plan to broaden our product suite to include interest rates derivatives. We are also pleased that our OTC FX franchise has grown to become one of the leading exchange-backed OTC platforms. In the first half of FY24, OTC FX average daily volume increased year-on-year by 46% to US $100 billion. Our OTC FX ADV has consistently reached US $100 billion in recent months and we are confident of reaching our target ADV by FY 2025 or earlier and to further drive The strong OTCFX performance was in part due to the expansion of our customer footprint across Asia Pacific, US, EMEA, as well as the broadening of client segments and types. To better support customers, we continue to enhance our OTCFX platforms with new functionalities using data analytics and AI. Next, commodities. Price risk management for commodities has been crucial amidst current inflationary setting and geopolitical tensions. We saw a 48% gain in commodities volume year-on-year to 29 million contracts. This was mainly driven by a sharp increase in iron ore volumes. In just two years, Our iron ore volumes have more than doubled. Screen trading has grown significantly to 60% of volumes. Notably, trading in non-Asian hours rose to 19% of total volumes as adoption by global clients increased. The rising financialization of iron ore is both the driver and outcome of a bigger and more diversified participant base. R&R remains one of the best instruments as a proxy for Asia's growth. Besides R&R, our transport segment has also grown. We are a major clearinghouse for dry FFA futures and options contracts. Volume in freight derivatives increased 46% year-on-year. Our unique commodities offering enables market participants to risk manage both cargo and freight on a single liquid and capital efficient venue. Moving on to our equity derivatives, our equity derivatives portfolio stay resilient amidst a mixed regional equity market performance. Trading activity of our FTSE China A50 contract declined due to lower-than-market expectations of economic growth, which affected investor sentiments. Nonetheless, year on year, our market share remains comparable, and the contract is still the key Chinese equities risk management tool for global investors. Open interest rose 16% year-on-year to over 930,000 contracts, or US$11 billion in notional value, as customers maintain their positions with SGX. For India, we successfully launched full-scale operations of the Gift Connect with open interest of more than US$9 billion in July. In the last six months, our open interest has increased 7% to over 240,000 contracts, or US$11 billion in notional value. We are now working to fully migrate our clearing members within the next few months. This will lead to higher end-client activity and we expect volumes of our gift-free contracts to normalise to pre-migration levels within the next 12 to 18 months. The Gift Connect is the first of its kind financial corridor between Singapore and India. Together with NSE, we look to grow this unified liquidity pool. Our cash equity markets continue to be influenced by elevated interest rates and weak market sentiments. This did not stop us from actively expanding our product shelf and network during the first half of the year. We achieved a milestone with the listing of structured certificates last August, the first in Asia to do so. Since then, we have listed more structured certificates on Asian blue-chip companies. In the ETF space, we continue to enlarge and broaden our shelf. Total AUM of ETFs listed on SGX has reached about SING dollars, $11 billion. In the first half of FY24, we listed new ETFs headlined by two key initiatives. First, we collaborated with BlackRock to launch a landmark climate action ETF, the largest equity ETF in Singapore with a record high AUM of US$426 million at launch. As at the end of December, the AUM has risen 10% to US$467 million. This ETF is an extension of our collaboration with MSCI, with whom we launched the world's first shelf of Climac Action Derivatives. Next, following the successful launch of four ETFs under the ETF link with Shenzhen Stock Exchange, we further strengthened our connectivity with China by launching the first pair of ETFs under our link with the Shanghai Stock Exchange. Building on our Thailand-Singapore depository receipt linkage, the DR of Singapore Airlines commenced trading in Thailand in September last year. Trading activity of the Singapore DRs of the three blue-chip Thai companies listed on SGX in May last year has grown steadily amongst the investors here. SGX and SAT are working closely with the brokers and partners to grow the ecosystems for DRs and we're building on the momentum to add more Thailand and Singapore companies to the link. Looking ahead, Thank you very much. were cautiously optimistic that investors will turn to our derivative suite to manage portfolio risk. Notwithstanding external factors, we will forge ahead with our plans to strengthen our multi-asset offering and network. First, we will expand our product suite, including interest rate derivatives that can complement our multi-asset offering and offer clients another growth We will also drive the adoption and growth of our emerging products. Second, we are enhancing our distribution capabilities by expanding our customer outreach and targeting new customer segments. Third, we are evaluating our options to best position our index business in the broader index ecosystem. This business remains strategically important to SGX. This brings me to the next point on collaboration. We'll strengthen our existing partnerships and look to form new strategic collaborations to enhance our competitiveness and expand our network. We believe that by working together with our partners, we can create synergies and complementarities that can benefit our clients and the ecosystem. Even as we push for growth, we will be prudent in managing our expenses and capital expenditure. Full-year expense percentage growth will likely be similar to the first half 3% year-on-year expense growth rate. FY 2024 CAPEX is expected to be between $70 to $75 million, lower than our previously guided of $75 to $80 million range. Overall, we will maintain our dividend growth guidance of a mid-single-digit percentage increase in CAGR growth in dividend per share over the medium term. With this, I conclude my presentation. Thank you for your attention, and I invite my colleagues to join me for the Q&A segment.