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

So as usually, we have here at BVB headquarter, Mr. Adrian Tanase, our CEO; Mr. Virgil Stroia, our CFO; and Ms. Cristina Radulescu, our Senior Financial Controller. And we will kick off. Apologies again for the technical problems, and I will share the presentation. So very briefly regarding the changes in the last quarter. What is maybe worth mentioning in line with the trend in the last quarter, we see a continuous increase in the stake owned by Romanian institutional investors that exceeded 79% of the -- at the end of June 2020. In terms of price performance, the performance of the BVB shares started to close the gap with the BET index, let's say, the main benchmark. So yes, this quarter, the share price had a positive performance. Moving forward a bit, the highlights of the second quarter. We have seen significant increases in revenues both at standalone level and consolidated level: 44%, standalone; 35% increase in revenues, consolidated. The operating profit had a very significant jump to 103% standalone, 6x at consolidated level and -- while the net profit also increased significantly both at standalone and consolidated level. In terms of the main items that influenced these results, we have seen a stronger top line performance. So revenues, both on the trading site and -- trading side, and we will speak about this in the next slide, was heavily influenced by the significant amount of public offers, but also significant growth of non-trading revenue on standalone basis, market data issues as well as post-trading operations at Central Depository level. Also, we have seen a significant influence of the net financial revenue, which were up 165% at group level, and is driven by Forex gains on realized part of our cash management and also higher interest rates. Of course, here in the coming quarters, in case it is a volatile environment. So hopefully, in the coming quarters, the performance will remain positive on the financial side. Regarding the expenses, these were up 15% consolidated level, mainly due to increases in personnel expenses, slight increase in the number of employees, stock option plan cost recognition and also the remuneration policy based on the inflation adjustments of the wages. And these were partially offset by lower CCP costs. Going back to the volume and the evolution of trading revenues, as we can see, the share trading volume was kind of -- was small, was half of the first quarter. We were discussing 3 months ago about the extraordinary performance in Q1 of trading revenue. This has subsided significantly. On the other hand, this was compensated by large values of public offers. Then here, we had significant number of high-value offers on the bond side as well as some secondary offers on the share side here. Fondul Proprietatea was the main best example with a significant buyback offer in the market. In terms of other updates, looking at the primary markets. Now as far as the -- we understand from the market participants and what we hear is that the most likely date for the Hidroelectrica IPO is Q1 next year. Also recent very positive news is the approval of the listing of Salrom, the National Salt Company. This will follow similar paths with Hidroelectrica listing. Basically, Fondul Proprietatea is the minority shareholder there, and the state agrees for Salrom to be listed through with the sale of existing shares of Fondul Proprietatea. Also, there seems to be still significant appetite among private companies for related financing and listing on the stock exchange, both on the main market and the AeRO market. Here, the market conditions, maybe in the last quarter, were not the best, but we see [indiscernible]. And hopefully, there will be positive primary market events in the last 2 quarters of the year. And as mentioned already, there was significant activity in the bond market. Of course, we have a high rising rate environment, rising yields. So several banks like BCR have actually 2 bond issuances. The Bucharest Municipality had a significant bond issuance and as well there was a significant new tranche of Fidelis government bonds. But besides the primary market, we have seen higher volumes than average on the secondary market once again with the repricing of the bonds. The CCP, here, the project enters the testing phase of the technical solutions. Now our guidance -- our current guidance for authorization start of operation is Q1 2023. This is basically one quarter, 1.5 quarter later than our previous guidance, and this delay is due to the inclusion of the system test results in the authorization documentation. So basically, we are running the tests and the results of the test will be part of the documentation to be submitted a couple of months to the local regulator. Some other significant developments in Q2. Basically, the most important one from a market perspective with the change in the tax regime for capital gains. Now there is a withholding regime for private investors with the rate of 1% for longer-term holdings and 3% for short-term holdings. And this lease change was already approved by the Romanian Parliament and will be implemented in 2023. And locally, we launched the ESG guidelines in April this year. And as well, we are still working on several projects such as Made in Romania, BVB Research Hub and as well the ESG projects. So here I will pass to my colleague, Cristina, for the detailed financial results analysis.

Moving on to the year-to-date results on BVB standalone. The operating revenues have increased 57% up to RON 18.35 million. These are mainly due -- this is mainly due to the increasing public offers, as Remus already mentioned, but also to good development in the first quarter in trading revenues. Operating expenses have increased 20% up to RON 10.53 million and are mainly driven by the advance in personnel expenses and other operating expenses, which are influenced by the increase in inflation. But also, we have an effect on the investment of receivables depreciation adjustment, which are lower compared to the previous year. Operating profit increased 167% up to RON 7.82 million, and the operating margin improved from 25% to 43%. Net financial income is RON 2.53 million, 91% increase compared with previous year. And they are mainly increased by the dividend revenues from the Central Depository in amount of RON 1.53 million compared with previous year when it was RON 580,000. Net profit is RON 9.1 million, increasing 155% compared with the previous year, with a net margin of 50% compared with 31% the last year. In the second quarter, BVB standalone, already mentioned by Remus also, the operating revenue is RON 8.49 million, increasing 44% compared with the second quarter in 2021. And it's mainly influenced by the public offers carried out in the second quarter on the main market, which were posted to 4x the public offers revenue. Operating expenses are RON 5.56 million, up 12% compared with the second quarter of the previous year and are mainly driven by advance in personnel expenses, the annual indexation performed in April 2022, but also increased in personnel and sustained by the increase in operating expenses, which are affected by the rising inflation. Operating profit, RON 82.93 million, 3x increase compared with the second quarter of 2021. Net financial income is RON 2.24 million, influenced by the dividend from the Central Depository. And net profit of the second quarter is RON 4.71 million, 3x increase compared to second quarter of 2021. Regarding consolidated results. On BVB Group, the first semester, the operating revenue is RON 30.47 million, increased by 46%, compared with the previous year, and are mainly influenced by the advance in trading segment, 58%, but with recorded increases on other business segments also. Operating expenses are RON 22.26 million, a 12% increase compared with previous year and are mainly driven by the advance in personnel expenses and other operating expenses. Operating -- consolidated operating profit is RON 8.21 million, RON 7 million higher than the first half of 2021. Net financial income is RON 1.96 million, slight decrease compared with the previous year. Net profit increases to RON 8.76 million, 3x higher compared with the previous year, directly influenced by the increase in revenues. On the second -- regarding the second quarter results. The consolidated results, the operating revenue increased by 35% compared with the second quarter of previous year, up to RON 14.87 million. And that mainly driven by the increase in trading segment revenue. Operating expenses are RON 12.34 million, 15% increase compared with previous year and are mainly driven by the advance in personnel expenses in Central Depository. Operating profit increases 8x up to RON 2.53 million. Net financial income is RON 1.24 million, a 165% increase compared with previous year and are mainly influenced by the increase in RON with the exchange rate. Net profit of the second quarter is RON 3.32 million, increased several -- 6x compared with the previous year.

On the next slide, I will take -- we will make a mix. So on the next slide, we have a presentation of the revenue side segment, and we'll see increases in all the segments. Of course, as you know, from the trading segment, the increase is, as my colleagues explained, from the regular and also from the public offers transactions. On the post-trading segment, we have an increase of 31% year-on-year. And this is due to the increasing revenues from the participants admission and maintaining, and coming also from the increase in commission and in the portfolio value held by the custodians with the local settlement revenues by BVB markets are up 53% year-on-year, influenced also by the values traded in BVB. Increase similar, we had also on the registry segments. And here, as you know, the revenues are generated from the issuance of financial instruments and which had also an increase in the tariffs, but also due to higher revenues collected from the holders of financial instruments as a result of the increase in the number of services requested. We have also some graphs with breakdown of operating revenues in the BVB Group in the first half of 2022 and also another presentation regarding the trading segments revenues in the first 6 months of 2022. Regarding the expenses, as mentioned before, here, we have some -- another more detailed breakdown in speaking about the BVB standalone figures. Yes, we have an increase in the personnel expenses due to a higher number of employees. Also as the entire market is experiencing, we have also a turnover of personnel in the companies. And also we are consolidating the team in the CCP, which is also generating some variation in the personnel expenses. And yes, given the remuneration policy and the market cost for the wage center in Romania, we are applying some inflation rate indexation, also adjustments according to the market. Another increase or advance, let's say, so we have other operating expenses generated by a lower positive impact from receivable adjustments. As Cristina mentioned, yes, in the last year, we had really covered from the amount provisions or estimate it as unrecoverable. We had last year some more efforts in order to recover them. In the meantime, the amount, the unrecoverable amount decreased, and so you can see this impacted other operating expenses. We have some higher marketing and promotion expenses. Yes, as you know, we have the -- from the programs, the projects that are now from year-to-year rollover as BVB Research Hub and Made in Romania, these are 2 main projects, and ESG, the 2 main projects of the BVB Group and other expenses that increased also maybe as an effect of rising inflation or as they were reported earlier in the year. Regarding the operating expenses for the BVB Group. We have the 12% increase compared to the 6 months 2021. So we're speaking the first half of 2022. As mentioned, we will not repeat again the same explanation, the increase in number of personnel, the indexation. Also some changes in the policy -- in the accounting policy group at Central Depository level that will increase this year a little bit of the expenses. But from next year, we'll have a normal level. We have a decrease in the third-party services expenses compared to last year. Here, we are reporting an important part with the expenses recorded by CCP.RO for the consulting services costs from the CC&G contracts necessarily in order to authorize the CCP.RO as Central Counterparty. We -- after the 2 years contract, we were able to capitalize some elements from the contract as intangible assets that will be depreciated in the following year. So the impact will be not in the -- in 2022. It will come to the depreciation expense in the next year. And as I mentioned for the other expenses, a part of the marketing and promotion that are coming mainly from the BVB and the increase in the administrative expenses as we all feel effect of the rising inflation. We have also some increased expenses in the depreciation and amortization of intangible and tangible fixed assets from the last year investments and here more from the -- we see in BVB part. And yes, we are coming to the almost last slide. Regarding the financial position. The standalone, we don't have in the total assets and total equity and liabilities high valuation. These are coming mainly from the results recorded in the year. And yes, we have to mention it was important that we had the cash-out from the payment of the dividends for over RON 7 million. So these are -- this is -- also had an impact that offset or reduced the results or the impact of the results in the -- from the 6 months of 2022, mainly same. At the group level, here, the impact from seeing the figures from December and 30th of June. So the financial position at 31 December and 30 of June, total variation is even less significant in the group. And yes, these are the main elements that we have to mention in -- regarding the first 6 months results in 2022. And the last slide is a presentation of the dividend yields from the last year. Regarding the results or in case you are thinking to make an estimation of -- for the full year, yes, we are able to reach or to be over the results of 2021. But given the events happened on the trading markets, in the trading, the offers that generated some higher revenues, we don't have other information to double to see so -- this result in the second quarter. So in case you're thinking to double the results for the -- from the 6 months in -- for the 12 months of 2022, I don't think it's the best matter to get an estimation for 2022 results. Thank you. In case you have questions regarding the figures, please let us know. We'll be glad to answer.

This is David from Wood & Co. Just a very quick question on costs, and with higher number of employees, salaries being fixed [ in addition ]. Could you give us some guidance where do you see your costs for 2022?

There was another element to be mentioned here regarding the personnel expenses is that we changed in 2022 the estimation of the bonuses. So the recognition of the estimated amounts for the bonuses as following. So last year, given the results during the year, the estimation was made in the second part of the year. We didn't know how the year will be. So it was another period, busy year given the first quarter and the results we saw and we were followed in the first quarter. We increased significant estimations. So we recognize also more in the -- during the 12 months in this. And also the Central Depository, they had another policy of providing the bonuses with increased costs in the first 6 months. So that didn't accrue -- or the amount accrued was lower for 2021 and higher in 2022. We can say that the increase in the last 6 months will be lower. So in the second semester half year.