Euronext Athens Holding S.A. (EXAE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the Hellenic Exchanges-Athens Stock Exchange conference call to present and discuss the first half 2020 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nick Koskoletos, CFO; and Mr. Stelios Konstantinou, Head of Investor Relations. Gentlemen, you may now proceed.

Thank you. Good afternoon, ladies and gentlemen, and good morning to those of you listening to us from the other side of the Atlantic. We would like to present the financial results of the group for the first half of 2020, which were published yesterday and are available in the IR section of our website, and then take any questions that you might have. Nick?

Yes, thank you, Stelios. And good afternoon and good morning to all. So we've made a habit of filling you in on how we're dealing with the COVID-19 pandemic as a group, and I usually do that before saying a few words on the -- on results and comment on how the market dynamics seem to be unfolding. So on the COVID front and as we have adapted a post-lockdown norm. So we continue to support our employees with the necessary equipment and tools they have so that they can have a functional work environment from home. We continue to monitor the temperature of all incoming traffic at the main facilities regardless if it's an employee or a visitor. We brought forward several maintenance works related to our HVAC infrastructure, meaning air filters, air vent cleaning, et cetera, in order to secure air quality at our facilities. And given the unobstructed operation over the past 4 months, the vast majority of our workforce continues to operate remotely. And so moving on to some highlights about the performance of our markets. So in the first half of the year, the average market cap of the Greek system dropped by almost 4% to EUR 49.4 billion versus EUR 51.3 billion at the end of H1 2019. And if you break that down: The listed banks' market cap increased by 3.1%. However, that [ at the moment has ] been quite choppy and volatile. So the market cap of the rest of the market has dropped by 4.8%. The average exchange value versus last year increased by 12.9% to EUR 75.3 million versus EUR 66.7 million, whilst derivatives also dropped by 13.4%, so it's 41,600 contracts compared to 48,100. The results for the first half of the year are improved compared to those corresponding to the first half of 2019, and that is due to the strong performance that we had in the first quarter of this year. Compared to the second quarter, our results were worse, and that is because of the value -- the trading activity that was much lower in the second quarter of 2020 versus the second quarter of 2019 and despite the fact that the market performance across the world and that -- which deteriorated significantly in the second quarter. But overall, the -- on an H1 basis, it seems that we're holding our ground. But despite the gradual return to normality and the COVID-29 (sic) [ COVID-19 ] pandemic continues to have its swings and seems to have negatively impacted trading activity in the third quarter so far, while the average market cap is at a 3-year low. And at this point, I'd like to pass it on to Stelios, our IRO, to go through our H1 performance in more detail. Stelios?

Thanks, Nick. So let's start with the overview of our H1 2020 financial performance from the top. The consolidated turnover of the group in the first half of 2020 was EUR 14.5 million compared to EUR 13.7 million in the first half of last year, and that's up 6.1%. If we analyze revenue further and we do that in 3 main categories, we see that trading-based revenue, i.e., from trading, clearing and settlement, was up 16% on the back of higher ADTVs in the cash market in the first half of this year compared to last year. Market cap-based revenue, i.e., exchange, depository and clearing house services, was up 2.5% on the back of higher revenue from listed company subscriptions, [ things in ] corporate actions and some other services like digital certificates, while on the other hand, revenue from ancillary services, which includes market data and some other service that we provide, was down 8.8%. If we look at revenue over the past 5 quarters, we can see first, as Nick essentially mentioned already, that the first half of 2020 results were strong on the back of a very strong first quarter, with a weaker Q-on-Q performance. So if we look at the 5 most important revenue drivers as we traditionally do, which together account for 80% of total revenue, we see that, first, revenue from clearing made up 34% of total turnover and amounted to EUR 5.2 million versus EUR 4.4 million in the first half of last year, and that's up 19%. And the increase is due essentially to the 16% increase in clearing revenue in the cash market. Revenue from trading represents 19% of total consolidated turnover. And in the first half of this year, it was up 17% to EUR 2.9 million compared to EUR 2.5 million, with most of that increase coming from the cash market which was up 18%. As far as revenue from the derivatives market, both trading and clearing is concerned, in the first half of 2020, trading activity, number of contracts, dropped by 13.4%, as mentioned already. However, revenue was up 25%. And the average revenue per contract was up 28% to EUR 0.223 per contract compared to EUR 0.174 per contract last year. As you know, pricing depends on the type of investor, of the product being traded and the prices of the underlying securities. And as a result, market volumes and our revenue do not always go hand-in-hand. Lastly on derivatives, trading and clearing revenue in the first half of 2020 was EUR 1.1 million compared to EUR 1 million, and that corresponds to 13.3% of total trading and clearing revenue and 7.1% of total turnover. Moving on. Revenue from exchange services makes up 10% of total turnover, and this line includes the quarterly subscription fees paid by listed companies, fees and licensing on IPOs as well as fees paid by members. And that revenue came up to EUR 1.5 million, up 14% compared to the first half of last year. Revenue from market data makes up 9% of total turnover and includes the fees that we collect from data vendors for the provision of Athens Exchange market data. The fees that we collect depend essentially on the number of data terminals to which these data vendors disseminate our market data to and, as such, is one of the few revenue lines that does not directly depend on market activity. Revenue from market data increased by 2.4% to EUR 1.35 million compared to 1.26 million (sic) [ EUR 1.318 million ] last year. Finally, revenue from depository services is down 9%, amounting to EUR 1.15 million compared to EUR 1.26 million in the first half of last year. Revenue from this line makes up 8% of total turnover; and includes revenue from rights issues, quarterly subscriptions paid by operators and revenue from inheritances. Turning now to the expense side. Total operating expenses, including ancillary services, increased by 9.3% in the first half of 2020 to EUR 9.48 million compared to EUR 8.68 million last year. Operating expenses were up by approximately EUR 1.1 million or 14.2% in the first half of this year at 80.8 million (sic) [ EUR 8.8 million ] compared to EUR 7.7 million. And if we break down operating expenses, we'll see that personnel costs were up with 14.5%, while all other expenses were up by 3%. Now the main drivers behind the increase in expenses is, first of all, some targeted raises that we're giving to employees after a number of years of no increases; as well as the strengthening of the management structure that took place in late last year and early this year. And with the year-on-year rate of change [ next ] is expected to abate going forward, as the first round of these wage increases occurred in the third quarter of last year. We also had some consultant fees for the improvement of the business organization. We paid EUR 102,000 in fees to the Hellenic Capital Market Commission to examine the licensing dossier of our subsidiary, ATHEXCSD, in order for it to obtain a license under CSDR. And finally, we [ had fully paid ] and gave a EUR 100,000 donation to the Ministry of Health to support the effort to combat the COVID-19 pandemic. And there were some smaller additional one-off expenses related to broad employee testing as well. Now personnel remuneration and expenses accounts for 62% of total OpEx. And it's about the same as in the first half of last year and is, by far and as always, the largest expense category. Headcount at the group at the end of June 2020 was 220, which was exactly the same number as we had at the end of first half last year. And if we move on and turn to the bottom line. The earnings before interest and taxes of the group dropped by 3% to EUR 2.87 million compared to EUR 2.96 million in the first half of last year. Interest income in the first half of this year was EUR 73,000 compared to EUR 236,000 in the first half of 2019 due obviously to the significantly lower interest rates offered on deposits. And thus, net after-tax profits of the group amounted to 2.73 million (sic) [ EUR 2.273 million ] compared to EUR 2.24 million in the first half of 2020. That's a 1.5% increase. The effective tax rate on consolidated earnings in the first half of 2020 was 23.9% compared to EUR 29.1% in the first half of 2019. However, we'd like to remind you that in 2020, the nominal corporate income tax rate is 24%, as is -- as well as the case in 2019. However, you might recall that, for the first 3 quarters of 2019, the rate used was 28%, as the law lowering the tax rate to 24% was only passed in early 2020. Turning now to the balance sheet. The cash and cash equivalents of the group on June 31, 2020, increased to EUR 74.1 million compared to EUR 73.4 million at the end of 2019. And at the parent company, cash and cash equivalents were EUR 22.8 million compared to EUR 17.3 million. Approximately 35% of the cash, that would be about EUR 26.4 million, at the end of the first half of this year is kept at the central bank, where interest rates are negative currently at minus 0.5%, with the remainder of the cash of the group being kept in a number of banks that operate in Greece, both foreign and local. And also on the balance sheet, a further EUR 213.3 million that we report as both an asset and a liability are, in fact, third-party cash assets and concern margins in the cash and derivatives market. And these funds are also deposited at the Bank of Greece. And lastly before we go into Q&A, we would like to inform you about the dates for the capital return which were announced together with the results last night. The amount of the capital return is EUR 0.09 per share, as you probably know. And the ex-date was set for August 5, with the payment date being August 12. And with that pieces of information, I'd like to thank you for listening in. And we could -- we'll be happy to take any questions that you might have.

[Operator Instructions] The first question is from the line of Kourtesis, Iakovos with Piraeus Securities.

If I may ask. As we noticed during the third quarter, we've had some increased activity related to the issue of bonds by GEK TERNA and LAMDA Development. If you could let us know what is the expected revenues [ you're going to have ] from these activities.

Iakovos, thanks for the question. As you know, the exchange collect the money on these bond issues, mostly from the -- what is called [ in Greek Eviv ] from the auction system. So the actual economics on that, if I recall correctly, it is close to EUR 170,000 per issue -- for a EUR 500 million issue, it would be close to 170,000, and that's about it. The -- vis-à-vis an equity issue, where you get a lot more money paid, it is a lot more profitable for the exchange because you actually get paid for the registration of the securities. And that is subject to IFRS 15. As you recall from last year, we were talking about that. But from the bond issue, it helps. The economics are not as profitable as it is for equity, so we should not -- we should have that clear in our heads, that those 2 are disassociated. So it's mostly from the auctioning system that we offer as a service that we get paid, then the actual registration of the securities and the flotation of those securities. So again [ we can answer ] what I mentioned before. And it's done mostly to add depth to the actual capital market because it obviously complements the offering, product offering. And that's about it, so...

So the economics possibly is the 170,000 per EUR 500 million issued. It's what's correct.

Correct.

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any further questions. Thank you.

Okay. So we'd like to thank all for participating. Hopefully, everybody has a safe and a well-deserved rest for the summer period. And looking forward to speaking to you in the next period and obviously in November when we're going to have our Q3 results. And I'll pass it on to Stelios just in case he wants to add anything to the closing remarks.

I think people want to hit the beach, as do I, I suppose. So thank you for listening in. Thank you for being kind in the middle of summer and not asking too many questions. And we'll see you all at the end of November when we publish our 9-month results. Thanks again for taking the time to listen in. Bye-bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephones. Thank you for calling, and have a pleasant day.