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

Hello, everyone. My name is David, and I am an equity analyst at Wood & Co., and I will be moderating today's conference call regarding BVB's third quarter results. Today's speakers are Adrian Tanase, the CEO of Bucharest Stock Exchange; Virgil Stroia, the CFO; Financial Control, Alexandru Nan; and we also have Remus Danila, the PR and IR officer of the company. So without further ado, I hand over to CEO, Tanase, to start the presentation.

Hello, everyone. So my name is Adrian Tanase. I'm the CEO of Bucharest Stock Exchange. I will describe a little bit of context of the third quarter and the event which has taken place, very important event for our stock exchange. And afterwards, I will pass to my colleague from financial figure -- to present the financial figures in more detail. And of course, I'm here in the call for available for other questions you might have. So the third quarter has been very good for the stock exchange, both in terms of the events which have taken place but also in terms of the liquidity we have experienced. I want to mention a bit of event. Probably you know that the most important event has been the promotion of the Bucharest Stock Exchange -- the effective promotion of the Bucharest Stock Exchange to the status of secondary emerging market by FTSE Russell Indices. For the moment, we have only 2 companies, Banca Transilvania and Nuclearelectrica, included into the index. But of course, this is a balancing process. It's a continuous process for this, FTSE Russell side. And we are expecting -- we are hoping that more and more -- many companies to enter into this index, this emerging market indices. The first rebalancing will follow in March 2021. Due to this event, we have experienced a very large volume in September of EUR 580 million. This is a record for our stock exchange. Also in the third quarter, the Ministry of Finance has decided to issue some government bonds in the stock exchange. They have stopped since 2016. They have -- they didn't issue anything, and they have decided to start to issue government bond, which is a very good decision for the stock exchange because it's attracting individual investors in the market and our interest to have -- to develop this community significantly, and there was -- those issues are very important. According to our estimates, 5,000 or 6,000 new accounts have been opened during this issue. And just recently, starting on Monday, they have -- they started the secondary -- a second issue of government bonds. So we are in the middle of a second of government bonds on the stock exchange. Also in this quarter, more precisely starting the 1st of October, we have started implementation process and authorization process effectively of the center counterparty. Again, this is the most important project for our company. And as I have mentioned in the past as well, this authorization implementation for us, it will take roughly 2 years in the -- our estimate is that in 2022, we'll have this clearinghouse functioning and authorizer functioning, and we'll be able to launch the derivative market. And then last but not least, we have launched first ESG -- we have the first ESG initiative in collaboration with Sustainalytics. We want to calculate the scores for all the -- these Romania-listed company on the regulated market and in the future to have those scores publicly available for the investors. This green part being more and more important to us at European level, and we want to get this trend. In terms of liquidity, we have experienced in the third quarter, as I said, that the liquidity has been very good, especially the -- generated by the promotion on the equity side of the promotion to the secondary emerging market -- start of the inclusion in the emerging markets indices. So in the third quarter, the liquidity on the secondary market has increased by 70% roughly comparing with the same quarter last year -- no, 50%. And including the, of course, the increase has been 70%. So you have -- so, as I said, all the kind of instruments has experienced quite strong increases. On the fixed income side, it's a huge increase. So we have -- due to the offer of the government bonds in the third quarter, we have like RON 2 billion. When you compare it with only RON 12 million in the third quarter of 2019. Also on the certificates on those, let's say, instrument -- derivative instruments, this has been 4x, I would say. Yes, as you could -- yes, those -- this liquidity has generated a lot of operating revenues. So those operating revenues are recognized in to our P&L. We could observe that the growth, both on the individual level and consolidated level, on the operational profit and also on the bottom line on the net profit. So we have, at least at the EBITDA level, have managed to offset the decrease of the financial results generated by investments in the CCP. We have managed to offset this decrease into a strong increase in the operational results. Yes, I will stop now and I will pass to my colleagues from Financial Department to explain in more detail the financial results. And maybe afterwards, I will mention a little bit about our future projects. Thank you very much.

Hello. My name is Alexandru Nan. I'm the Financial Controller of the Bucharest Stock Exchange Group. And I will briefly detail the financial figures and the financial indicators recorded by the BVB Group for the third quarter but also for the year-to-date period. So as our CEO already disclosed, we've seen a very good increase in the trading figures, which impacted very well our operating revenues. So at the group level, we've seen a 38% increase in the operating revenues for the third quarter, while for the year-to-date period, the increase was about 20%. The expenses recorded also an increase, but only by 16% at the quarter level and 9% at the year-to-date level. Here, we have to state that due to the consolidation of the new subsidiary, CCP.RO, we've seen an increase of -- half of the increase of the operating expenses is generated by the consolidation of our new subsidiaries. The effect of the increase of operating revenues at the operating profit level made to see an increase of almost 150% at the quarter level and 79% at the year-to-date level for the first 9 months. This generated very good operating margin for the Bucharest Stock Exchange Group of 30% at the quarter level and 23% at the year-to-date level. Our financial revenues have seen a decrease. And the main impacting factor is the decrease in the -- the adverse impact of the exchange rate differences from the -- mainly from the revaluation of our USD position. As you know already, the USD exchange rate decreased by 4%, almost for the first 9 months of the year. But due to the very strong increase of the operating profit, we've seen an increase in the net profit of about 30% at the quarter level and about 18% at the year-to-date level. So for the first 9 months, the Bucharest Stock Exchange Group recorded a net profit of RON 7.91 million, which correspond to a net margin of about 25%. Regarding the Bucharest Stock Exchange as a stand-alone company, we've seen also a very good figure. The increase of the operating revenues for the third quarter is about 60%, whilst for the first 9 months, we've seen a 33% increase. The expenses, operating expenses at the quarter level, increased by 8%, and for the first 9-month period, they remained stable. This generated an increase in the operating profit at the quarter level by 2x and for the first 9 months of about 150% increase. The operating margins are very strong of 51% at the quarter level and 41% at the year-to-date level. As we've seen at the group level, we've seen also that the BVB stand-alone level, the impact of the exchange rate differences decreased our financial revenues. At the quarter level, we are mainly on the breakeven while for the 9-month period, we've seen a 60% decrease. Again, due to the very strong operating profit, we've seen increases in our net profit of 39% at the quarter level and about 29% at the year-to-date level. Regarding our operating segment at the BVB Group level, the trading segment revenues, which are generated by the Bucharest Stock Exchange as a stand-alone company, seen a 27% increase, and the main factor is the increase of the regular share trading but also the offer share transactions, meaning the secondary public offerings. At the post-trading level, we've seen also an increase by 7% and is mainly fueled by the increase in the trading activity. While for the registry segment, we've seen an increase of 10%, but here is the impact of some one-off revenues. Regarding the consolidated operating expenditures, we've seen that for the 9 months period, they increased by 9%. But as I said already, half of the increase is generated by the consolidation of the new subsidiary, which in the first 9 months of the 2019, we didn't have the company established and incorporated. So no impact for 2019. Also, we've seen some increase in the personnel expenses again due to the consolidation of the new subsidiary but also due to the application of our remuneration policy at the BVB Group level, which in 2019, it was applied starting with the third and fourth quarter. So it's a base effect of this increase. Regarding the services provided by third parties, we've seen 30% increase for the first 9 months of the year. But again, we have the effect of the consolidation of the new subsidiary and the related consultancy expenditure. The other operating expenses are quite stable. Basically, without the consolidation of the new subsidiary, we had received a -- we have recorded a decrease in the operating expenses and mainly are due to the postponement of some events due to the COVID-19 crisis. Regarding the consolidated financial position, we've seen small changes in the total assets, 1% decrease. While regarding the liabilities, we've seen a small decrease of the liabilities. And regarding the shareholders' equity, it is more or less stable. This was impacted by the very good results in the first 9 months of the year, which covered the value of dividends paid by BVB in the first half but also covered the acquisition of the treasury shares made by BVB. This is all regarding the financial indicators of the BVB Group and the BVB as a stand-alone company. If you have questions, please ask.

[Operator Instructions] We currently have no question registered.

This is David, the moderator. I'll kick off, if I may. I just have one quick question regarding the pricing review that you've been conducting recently. My question is, when do you think we could see the results kicking into the financials? Would that be next year or...

I did not understand the question. Can you repeat, please, David?

Sure. No, the question was regarding the pricing review that I know that you've been conducting recently. And the question is, at what point or when do you think we'll see the results that the increase probably in revenues coming from the pricing review? Would that be next year already? Or...

So the review of -- sorry, I didn't understand the review of what? Sorry, David.