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

So I hope everybody can see the presentation well. So just a quick summary about the most recent evolution. Basically, our share price has been relatively flat in the last period in terms of market liquidity. We are still trading around [ RON 160,000 ] per day. There are no major changes in our ownership structure, also in terms of, let's say, breakdown by type of investors. We continuously see an increase in the holdings of the local investors. While for the institutional investors, there's [indiscernible] for only 1.37% of our ownership. In terms of the group structure. You can already notice perhaps that we have excluded the investor compensation fund from our structure. We have quite a few additions in terms of listed companies. Now we have a total of 84 companies on our main market and 281 on the AeRO market, following the quite a good dividend in terms of new listings. Classification, you've already quite well know. Emerging markets September 2012 with FTSE Russell and frontier market with MSCI. Moving forward to the business highlights for the first half of the year. So we had a record period in terms of new listings. As already mentioned, we had the first IPO since 2017, TTS, for EUR 58 million. Also, we had another IPO which actually happened after the end of Q2. So it happened in the first weeks of Q3, one for One United, the real estate developer. And quite a few bond listings on the main market as well, 6 government bond listings and 5 corporate bond listing for the total value above EUR 1 billion. Our AeRO market is extremely dynamic, new -- 14 new companies listed their shares in the first half of the year and as well we had 12 bond listings with a total amount of roughly EUR 60 million being raised. In terms of market evolution, we continue reaching new heights almost on a weekly basis, while the valuation still be rather attractive, especially in comparison with the developed markets. Also, it has been quite a busy period internally as well as we had a few projects that were launched in the last month. Maybe the most [ distinct ] one would be the new edition of Made in Romania, which this year has been moved on an online platform, which can be checked on in investingromania.ro, and also BVB Research Hub, which can be found on website, bvbresearch.ro. Moving on towards the financial part. So although the main focus of the report, and I say the [ market is ] focused on the half year results. We also did a short review for second quarter, separately, just to give you an idea about what happened in the last 3 months. In a nutshell, we can say that on the operational side, on the revenue side, we had a very, very good second quarter, especially in comparison with the second quarter of 2020. We have seen at group level an increase of 48% of operating revenue relative to the individual level, an increase of 32%. The drivers for this revenue increase, on one hand, the higher turnover on the share segment, up 15% compared to the second quarter of 2020. Also, we have a very high increase in bond trading, including offers, 48x higher than 2020. Albeit, as was mentioned several times before, the bond trading revenues are rather limited for us, obviously, due to the fee structure. Contributing significantly on the individual side are the market data sales and issuer fees. These are segments that we improved significantly last year in terms of the new product offering, new pricing, and we continue to see high double-digit growth rate for revenues from these business lines, up 70% to 80% compared to last year. On the consolidated side, we have seen a very, very strong performance in the second quarter from the Central Depository from the post-trading side, 48% increase in revenues and a [ 61% ] increase in net profit, mainly as a result of both one-off operations. And here, we speak mainly about some squeeze-out offers, some changes in ownership among state-owned companies. But also on the, let's say, sustainable on the recurrent side was an important revenue source for the Central Depository is the fee charged for the custodians holding their assets with the Central Depository. And as the value of this portfolio goes higher definitely, the fees taken for the service are increasing as well. The difference -- moving on from the operating towards the net profit. We have seen a significant decrease in the second quarter for financial results. We have a 40% decrease at both the individual and consolidated level. There are mainly two reasons for this. Looking at the individual side, we have the intra-group revenues, mainly the Central Depository dividends, which usually were paid in second half -- in second quarter of the year. This year, they will be paid in the second half, most likely in September. So they will be accounted in the third quarter for an amount of roughly RON 0.5 million. Also at the group level, we have seen a decrease in financial revenues, mainly due to the lower interest revenues and also lower ForEx gains. Here, there is on one side, [ the invested here ], the main culprit, the main reason is the cash spending in the account of the CCP, which last year basically was held in RON. Since then, it was exchanged to euro. We benefited in the last quarter from some ForEx exchange gains, which haven't repeated -- haven't happened in the second quarter as the euro-ron rate was fairly stable in Q2 of 2021. In terms of operational expenses. Compared to the first quarter when we saw expenses decrease in the individual level in the high single digit roughly percent, second quarter, especially with the pileup with projects coming to fruition, so an increase of 25% in expenses at individual level, mainly marketing cost. So largely, on one hand, we've seen quite a quick resumption of the events on the back of the disappearing, let's say, restrictions related to COVID. But also we've mentioned the flag before, we have initiated some significant projects. And in terms of cost influence. The Research Hub and ESG are the most significant one. At group level, besides this individual level cost, we also have still the CCP-related marketing, let's say, quarterly expenses. In terms of other developments in the first half of the year, but also looking a bit ahead. So CCP project, we are maintaining our guidelines. The authorization, documentation is expected to be submitted in October this year. And we hope to -- we are positive and we are confident that the revenue generation activities will start in the second half of 2022. Primary market outlook stays very strong, and this is, as always, a major catalyst for our financials, for our revenues and for our profits. We are -- we have visibility on, let's say, between 2 and 5 IPOs until the end of the year on the main market. And they're based on market information, based on private placements having already taken place. We expect at least 10, but more or more likely up to 15 listings on the AeRO market on the share segment also until the end of the year. Regarding the law concerning the listing of the state-owned companies. Well, politics is always difficult now. We think -- we believe that there will be an update probably in October after the Parliament resumes activity, but also after the internal elections in the governing parties will happen. So they will have also very settled leadership, hopefully. Also another important event that will happen soon is the FTSE balancing. As you know in Q3 September last year, we had been added [indiscernible] to the emerging markets [indiscernible] which saw a very high volumes traded in September on the BVB platform. Now we have this new rebalancing. We are fairly, fairly confident that at least 1 more Romanian company will be included in the FTSE main indices. And yes, we do hope that there might be an increase in the weight of the Romanian company in the FTSE indices based on the evolution of other emerging markets in the last 6 months. So this being said, it's also very important element to watch because September last year was a very strong year in terms of trading revenues for us. So we really hope to be able to at least match the activity we had seen in Q3 of 2020. Another [indiscernible] that started very, very recently, also after the end of Q2, was the market making for BVB shares. We have seen an impact in last month. But anyway, but it was a summer month, so it's a project we will carry on with then hopefully to bring in far more, more interest towards BVB shares and more, let's say, participation from bigger investors as well. And yes, until the end of the year and ongoing until the end of the year, we are looking at some ESG developments. The main focus will be probably the project that will be launched with the EBRD very soon to provide ESG guidelines for the local market. We are in discussions with potential providers with lending and borrowing platforms. This is something that also we see as having the potential major impact on the liquidity in the local market in the future. But we know the real free float for the Romanian companies is rather limited. And we see this as a barrier for the daily trading averages. So we do hope that by implementing lending and borrowing possibility for the local investors as well, not only for the foreign ones. There will be maybe more activity and more or less a speculative trading and participation from other types of investors as well. We are working also with other develop for BVB Research Hub, more and more functionality there. And also, as we have already announced, we are in the, let's say, advanced stages of we are starting our index for the AeRO market, which hopefully time will bring additional products and additional interest towards the market, especially on the back of the high number of new and exciting companies being listed there. In terms of -- just to put everything in a broader picture. We reiterate our, let's say, strategic objectives to double the market liquidity. And basically just to kind of align what we have presented so far with the major strategic direction. We have this -- increasing the retail investor base. And this can be, for instance, this one is BVB Research Hub project, which we hope would gain a lot more traction in the coming quarters. This [indiscernible] we believe, a very interesting tool. Attracting more issuers, that's something that's already happening in some extent, maybe even beyond our initial expectations, especially on the AeRO market. Derivative market and all the functionalities that come with the CCP is obviously a huge difference. We cannot wait to have functioning and bringing also revenue for the BVB Group. And we have improving transparency coverage. Obviously, we are working on the ESG, corporate governance and so on. We also announced recently in this respect the collaboration with Envisia, which is one of the largest providers of financial education for -- in Romania, and we're going to support some of their programs dedicated for the corporate governance of the listed companies. While looking at the international side of the business, the international participants international investors, particularly, here, we still see that probably the MSCI inclusion might be the -- just the catalyst for the local market. And in this sense, yes, we are really hoping to have some other very large issues in the trade in due course. So Virgil, do you want to cover the first half results?

Yes, I will mention some of the elements that influence the figures in the first half of 2021, the results. Also, we prepared in the presentation also more details regarding the first half. You also mentioned -- Remus mentioned some of the elements that influenced the figures in the second quarter, probably we will mention also as main factors for the first half. But from my point of view, so an important part was the payment of the dividend for the 2020 results in June this year over RON 8.5 million. Also, I have -- I would like to comment regarding the presentation, the first -- the slides from the group structure. From the financial point of view and also the fund -- the compensation fund is also still part of the group. And in the financial figures, it was consolidated, but presented also as discontinued operation according to the IFRS requests. We are expecting these days the payment of the shares held by BVB in the compensation fund. And from this point, we will consider that the compensation part is no longer part of the BVB Group. So the picture from the beginning is more as an -- is close to the future structure of the Group BVB with another 2 companies, the Central Depository and the CCP. So I showed you -- you saw in our presentation on our figures that this time in our -- and also in the last year, we have also the individual results and the consolidated results. And I will speak a little bit about the consolidated results. Here, I'm sure you saw that our net profit is lower than the individual results. And in the first 6 months, even if we realized an increase of 7% in our operational revenues and -- this is coming also from the trading parts on the BVB and also from the Central Depository increase in revenues. We do have a much higher increase in percentage and also in value on the operational expenses side, as expected, to say so. So we did expect that this influence in the consolidated result, and it's even better than my expectations for the first 6 months. And this is mainly to generated from the CCP project. And as you know, the CCP project is a very important project for us. And it is true at the beginning, as mentioned also in the plan, in the business plan presented in 2019. At the beginning, the -- our subsidiary, CCP, until the start of the operation will generate some losses, operational losses and also the net losses. So we can say that the main part of this increase in the operational expenses is coming from the CCP subsidiary and it's as expected and is due to the process of our authorization as a counterparty -- central counterparty. We do have also some increases in the -- of operational expenses in BVB and the Central Depository. But it's also this increase this year in -- also in effect of the lower expenses in the first half of 2020. Due to pandemic, we had to stop some of the projects and also to rethink the projects that it took us -- probably for many companies, it took some times until we found the best solutions to reorganize our projects, mainly in the -- on the promoting of the Romanian capital markets partners. As Remus mentioned, we have now new projects that started at the end of 2020 or in the second half of 2020 and continued or were launched in 2021 as the hub -- the Research Hub and also the ESG part. So the net profit was lower than the same period results in 2020 on the consolidated side. Regarding CCP, as we mentioned in our report, the activity also, the main activity, started in the second half of 2020, which means that also the main expenses started in the second half of 2020 and also were generated in 2021. And we are -- we can say we can expect also in the next period the same level from this point of view. On the individual result. Yes, we have the operational revenues. Even we can see in the figures a decrease of 6%, taking out the intercompany revenues that were -- it was one-off in 2020. We can say we are on the similar level as in 2020, even with a small increase. Yes, the -- but we do have also the increase, as mentioned by Remus, in the revenues from the taxes of maintaining our issuers and data vending revenues in this. Regarding the operational expenses. As we mentioned, also mentioned part in the -- for the operational results, we have an increase of 8%, and it's mainly due to the projects started at the end of 2020 and continue in 2021 and the lack of expenses or a decrease -- abrupt decrease in the expenses in the second -- in the Q2 2020 marketing and promotion expenses, which were organized as events and promoting the capital market. This type of expense is also in the last year. We are used now -- we are dedicated to promote the capital market and to sustain our partners, our stakeholders as the participants, the brokers and also the issuers. And we can say that in this period, we do launched projects on all the -- for all our stakeholders, and we are supporting them in their activity. We're using different tools. So we do generated almost RON 3 million as operational result in 2021. If we compare with the first half of 2020, we had that time RON 4.3 million, while taking out the almost RON 1 million that was the entire group revenue. We are also in the same range with a smaller decrease than the 32% in this part. Now net financial results. Recorded also for the individual, for the BVB individual, recorded also a decrease. And here, we have an impact of lower results from our -- from the Central Depository -- from our subsidiary, Central Depository, which recorded a lower result in 2020. So we also had a lower amount recorded as dividends from Central Depository in 2021 compared to last year. So is this cutoff, think each year for recording the dividends. So on -- yes, net profit of almost RON 3.6 million for the individual result, which will be also at year-end the base for paying the dividends and in time. So yes, I mentioned about the compensation fund. These are the main elements. So of course, that we have also in our presentation. [indiscernible] so the trend in our revenues and how that was influenced by the trading activity on Slide 12. Yes, we can mention here the very nice increase in our trading revenues from our AeRO market, almost 4x. Even though the figures are low, RON 600,000, for us, it's an important indication that regarding the interest of our -- mostly our retail investors and the interest in the Bucharest Stock Exchange AeRO market. Yes, the trading revenues from the regulated market you have mainly from shares, followed the activity, the trading values, yes, with a decrease of 40%. Also, we had also a decrease of 46%. So lower revenues from the public offers, yes. Less secondary public offers in 2021, even if we had a higher number in 2021, but the value was lower. So also the revenues was lower in 2021. Yes, on Slide 14, we have the post-trading segment revenues. So the revenues from the Central Depository. And as we mentioned -- as Remus mentioned, we have here a nice increase from here. And also from the registry segment revenues, we are happy to see here, which are the post-trading revenues is in direct effect of increasing the -- of the stocks price in the second semester of 2021. And yes, we have Slide 15, the explanation regarding the operating expenses and the main influences on this. We can see here -- so regarding the CCP subsidiary expenses, that is expenses are coming from the personnel expenses. We have here a team, an entire team that is working in order to send the authorization files to, as I say, in order to obtain authorization as CCP, hopefully, next year. Yes, our projects -- and also from the CCP part, so we have the -- as mentioned, the personnel expenses, but we have also the higher cost from the consulting services that are from the contract with the Italian partners, CC&G. Yes, these expenses are recorded over the period of the contract, pro rata based on the months that are according to the contract, more than the 12 months, and will continue also this year in the third quarter. On Slide 16, we have the overview of the financial position. Here to mention our figures that we recorded this year on higher debt liabilities from recognition of the debt related to the headquarter rental contracts, according to IFRS 16. So this, I can say, influenced the liability part. The rest are some normal elements for and insurances for us. So I think I covered the main positions regarding the financial figures for the first semester of 2021. So if you have questions, please let us know.

Yes, this is David from Wood. I actually have a question on the sort of non-trading revenue services. I understand that some of these were one-offs, the large increase that we saw in the second quarter. But I also noticed in the presentation that some of the increase was due to an increase in tariffs, for example, in the registry segment.

Yes. It's a mix.

It's a mix. Yes. And if you could...

It's a mix. It's a mix. And it's a mix also from the tariffs and also one-off elements. Even this one-off are starting to be repetitive, so from 1 year to another.

Yes, to clarify a little bit more. But do you hear me?

Yes, I do. Yes. Just fine.

To clarify a little bit more. So yes, at the BVB level, individual level was an asset of increase of tariffs, the maintenance and for the data vending, yes. It's a different effect. But the Central Depository level, when we have experienced also some operational revenues or higher operational revenues, these are part which might be recurrent, which is -- are the custodian fees, yes. Starting on revenues. The fees are the same in percentage, but the base is higher because the value of assets has increased, yes, because the prices have increased. And -- but at the deposit level, we had also some one-offs due to some revenues created by some [ 3 payment transfer ] because some shareholdings -- shareholders at the government level has changed for the state-owned companies, yes. So [ we had ] transfer some states to a minister to another minister. So we are charging this. And also some squeeze-out operations, yes, from the AeRO market. So the overall [indiscernible] market, some value companies staying there has released the companies and they have performed some squeeze-out operations. And we think this operation with certain depositories creating some revenues. So this is the picture. But at the BVB level, everything is due to the increase of the tariffs, which we have performed last year and the results are coming because you might -- you could see the result this year. And these are recurrent revenues.

Right, right. And so if I was to ask about the split -- so sorry, I mean, the growth of these -- that were due to one-offs and the growth that was sort of something recurrent. I mean is that something easy to calculate? Or am I asking to...

No, no, we can provide you this split. We can calculate it. It's mainly part -- I think the bigger part is from the increase of the level from the custodians that is portfolio and the taxes and the fees that we are taking from this.

Understand. Okay. Okay. So a bigger part is something recurrent rather than the one-off [indiscernible]?