Bursa de Valori Bucuresti SA (BVB) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of BVB. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Stefan from Wood & Company, who will lead you through this conference. Please go ahead, sir.

Good afternoon, everyone, and welcome to Bucharest Stock Exchange's First Quarter 2020 Results Call. I am Stefan Lungu from Wood & Company. And introducing the speakers, we have Adrian Tanase, CEO; Virgil Stroia, CFO; Alexandru Nan, Financial Controller; and Remus Danila, IR Officer. I will now hand over to the speakers for the results presentation. Thank you.

Hello. I'm Adrian Tanase, CEO, and I want to do a short introduction about and a brief description of our results in the first quarter. Afterwards, I will hand over the presentation to my colleagues into the office, my financial colleagues, to bring you more details about our financials. So first quarter has been characterized by the -- has been a good quarter for us in terms of liquidity, both in regular markets, on secondary markets and front-end in the offers side. So if you are excluding the offers, the liquidity done on the regular market has increased by 17% year-on-year, so comparing with the first quarter 2019. And including offers, the liquidity has increased by roughly 29%. So this has bring increase into the revenue side, creating an increase of operational profit of more than 150%, both on the individual level and consolidated level. And as we have announced, due to our investments in our subsidiaries, referring to the -- here to the CCP project, the financial results, at least at the individual level, have been affected by -- anyway, the bottom line has increased by 50% comparing year-on-year due to the operational results. So revenues has been influenced by the larger liquidity, as I said. The operational, on the cost side, yes, we are facing disinflation on the wage side. We have reduced some costs -- third-party costs due to inactivity we had in March and April due to the virus. And as I said, so we have a short increase on the cost side comparing with the first part of 2019. But as I said, the bottom line has still increased by 50%. So more than 50% both on the consolidated and individual level. Yes, that's all from my side, as a short introduction. I will give the floor to my colleagues to bring you more details. And yes, I'm still here for questions afterwards. Thank you.

Hello. Alexandru Nan speaking, the Financial Controller of the Bucharest Stock Exchange Group, and I'm trying to bring a bit more details regarding our main financial indicators. As you've seen already, our revenues increased by -- our consolidated revenues increased by 37% from RON 8.86 million to RON 12.11 million. As Adrian said before, this growth was influenced by the Trading segment mainly, which also impacted the Post-Trading segment, while the Registry segment has increased also, but due to some one-off revenues. The consolidated operating expenses increased by 11% year-on-year from RON 7.24 million to almost RON 8 million, mainly due to the advance of the personnel expenses, but also due to the expenses with services provided by third parties, also by some one-off expenses like some consultancy expenses related with the CCP project at the -- on the BVB side. Due to the revenue increase by 37% and the increase of the operating expenses by only 11%, the consolidated operating profit of the group increased by 153% from RON 1.62 million to RON 4.09 million. The net financial income recorded a decrease due to -- mainly due to the reduction of the unrealized exchange rate differences by almost RON 1 million. So the decrease was from RON 1.69 million to almost RON 0.8 million. But due to the good operating results, the net profit of the BVB Group for the first quarter increased by 54% from RON 2.72 million to RON 4.21 million. 87% of the net result was generated by the Trading segment, meaning the BVB as a stand-alone company. Regarding the operating segment revenues, we've seen an increase by 48% for the Trading segment revenue from RON 5.3 million to RON 7.87 million. The increase was mainly driven by the trading activity, also from the regular transactions, but also due to the increase of the SPOs. As we've seen already, 28% overall increase on the trading figures from RON 3.09 billion to RON 3.53 billion. Regarding the Post-Trading revenues and Registry revenues, we've seen for Post-Trading 15% increase as a result of the maintaining the quality of custodian in the central depository system but also due to the increase in the settlement revenues as the result of the traded value on the Bucharest Stock Exchange. So the increase of the Registry segment was a 30% increase, and it was influenced by some one-off events, as I said before. Regarding the consolidated operating expenses, we've seen some increases on the personnel expenses. There are some salary adjustment that started during the second quarter of 2019. So somehow is a base effect during 2019 in the first quarter, and we didn't see such a salary adjustment. But also we had a base effect on the central depository side as during the first quarter of 2019 the Board was not yet authorized by the Financial Supervisory Authority. So we couldn't -- we didn't record any expenses related to the Board, while in 2020, we recorded this type of expenses. The expenses with service provided with third-parties increased by 45%. But as I said before, it's kind of one-off expense due to some estimated expenses with consultancy related to the CCP project, while the consolidated other operating expenses decreased by 2%, a small decrease, which was mainly influenced by some postponement of some BVB events for the second part of the year due to the new coronavirus pandemic. We've seen also some small increment on the IT maintenance services due to the increasing requirements of the regulation in force. Related financial position, we've seen a small increase on the total assets of 1%, or almost RON 2.7 million. So no big movement. Related to the shareholder equity, we've seen 2% increase due to the positive results of the first quarter of the year and due to the fact that the dividend will be paid in the second quarter of the year. So these are our main consolidated financial figures. If you have any questions related to the financials or other questions, please let us know.

[Operator Instructions] And we received the first question, is from Irina Railean, BT Capital Partners.

I have several questions, and I will start one by one. I would like to ask you something about your premises and assumptions in the revenue and expenses budget for this year. And I would like to ask you if the estimated trading value, does it take into account an eventual promotion to the emerging market in September? Also, related to the budget, I saw some -- that you anticipate some higher revenues from IT&C and from -- we're seeing some cost to the CCP. Will they be offset on the group level? And also regarding the CapEx. This RON 2.2 million projection, is this something specific to 2020 or such amounts could be seen in the following 2, 3 years or -- I mean as part of a longer-term upgrading strategy?

Yes. Virgil Stroia. Regarding the revenues, the budgeted revenues, we are in the budget. So if this was the question. Regarding the IT&C revenues, yes, of course, we are -- on the consolidated level, we do eliminate intra-group transactions. It is true also that at this stage regarding the CCP, the revenues from the CCP, this revenue, intra-group, was not eliminated given that our first opinion for this quarter is that we are trying to capitalize this cost at the group level. So -- and regarding the -- it was also a one-off position of almost RON 1 million, which can be now found in the -- on the revenue side and on the asset side, as an intangible asset. We are still discussing with our auditors for the yearly setup of this new policy. Regarding the CapEx figures, this is, for the BVB, a normal level. So the RON 2.2 million is, we can see that it's a normal evolution yearly to have that.

And regarding my first question, I mean when you designed this revenue and expenses budget for 2020, was this before the virus outbreak and its impact on the international and local market? Or was this after?

It was before. And regarding your question, if this was the impact of the emerging market classification, yes, we did consider some evolutions in our budgeted figures.

And just one more question about the CCP. If you could provide us some details on how the project is going, the approvals and authorizations you need. And also, if you have a possible projection or estimate on how this project will impact the overall BVB Group in the upcoming future? I guess this year will -- you will only register like some expenses with this project. But what about the next 2, 3 years?

Yes. I will speak about the CCP project. So you have a partner into this project, the CCP provider, at the European level. And we are very close to sign the contract. Actually, the contract should have been signed in the first quarter but due to the COVID our partner couldn't -- has asked to postpone the signature. And hopefully, we'll sign by the end of May, the contract with them. Probably the -- as we have mentioned in our business cases, the authorization and the process implementation would take 2 years, yes? So now the new time line to get authorization and carrier, to have the CCP producing operational revenues is mid of 2022. So until that moment, at the group level, we will reduce around the operational costs, unfortunately, on this -- for this subsidiary of BVB, and some financial revenues. But still into our business plan and according with our -- still our projections in these 2 years, we will have operational losses and the overall losses reduced some on the CCP level, yes. And these losses will be -- will hit our consolidated results. Also, the CCP is impacting our individual results as well because our financial results, as we have already observed in the first quarter and probably in the last quarter of 2019, are smaller than comparing with last year because our financial position assets are smaller due to the investment of EUR 10 million into the CCP, yes. So yes, this is the impact of the CCP. It's a little bit postponed. The initiation of authorization implementation is postponed due to COVID, yes. It's normal, yes. And I think by the end of this month or next month, we will sign the contract and the new guideline to have it authorized is mid of 2022. And up to that moment, yes, our financial results at the consolidated level will be -- our operational cost will be higher comparing with -- at the group level comparing with last year.

Do you have any estimates about how much additional cost will CCP -- will you incur in CCP project this year? And -- I mean, by 2022, do you have anything?

Yes. Yes, yes. We have into the business plan. You could read. Again, we have this document approved in January 2019 and you will read that our estimates regarding the losses registered by the CCP in the first 2 years will be approximately EUR 3 million, total losses.

At the moment, we have no further questions. [Operator Instructions] As we have no further questions, I would like to hand back to the speakers for some closing remarks.

Okay. So it has been a good operational -- from the operational side, a very good, very good quarter. Hopefully, this will continue. Of course, you should recognize that this liquidity has been created by the COVID. It's not the base case scenario in our case. But yes, hopefully, the liquidity will stay, and you have a good perspective to have 2 companies included in the FTSE Russell indices in September, which are Banca Transilvania and Nuclearelectrica. And yes, we are speaking with other issuers to improve their liquidity, to take the measures to improve their liquidity to meet the FTSE Russell criteria. And I'm referring here to implementation of market making -- issuer market-making programs. And we are speaking with some important issuers to contract such a broker to offer these services, and hopefully in September 2021 to have larger number of companies included in FTSE Russell indices. And our projects are continuing. CCP, of course, is the main project for us. And -- but of course, we are looking in other directions as well. Speaking with political -- with the government to -- and our main scope is to introduce this fiscal incentive for the retailer center, to have withholding tax system included in the capital market. So of course, the discussions about the government to issue instruments -- to continue to issue instruments in the market, both equities and debt, as well. And yes, our discussions with some other private companies to -- about the possibility to float their companies. But of course, COVID has freezed -- frozen a little bit the primary market. And our hope is that this crisis to pass fast. Yes, that's all from our side. And of course, we are at your disposal to -- if you have any other questions, please don't hesitate to contact us on other means.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.