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

Ladies and gentlemen, thank you for standing by. I am Dally, your Chorus Call operator. Welcome, and thank you for joining the Hellenic Exchanges-Athens Stock Exchange Conference Call to present and discuss the full year 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. Nikos Koskoletos, CFO; and Mr. Stelios Konstantinou, Head of Investor Relations. Gentlemen, you may now proceed.

Good afternoon, ladies and gentlemen, and good morning to those of you who are listening to us from the other side of the Atlantic. We would like to present the financial results of the group for 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're still working in the -- for the most part in remote setup where we've been able to adapt and pick that momentum in deploying our strategic plan that extends on the 3 pillars that we might have mentioned in the past: One, increasing tradable assets; two, expanding our service offering across the value chain and leverage our position in the broader geographic region, while at the same time very keen on improving our operating model and taking action on enabling activities that will ensure growth and debt in the domestic capital market in the long run. So speaking about the market, some highlights about its performance in 2020. Obviously, you know that the average market cap of the market dropped by 13% to EUR 47.5 billion versus EUR 55 billion in 2019, predominantly driven by banks which dropped by 33% and then another 10% from the nonfinancial sector. Average trading value dropped by 3.5% to EUR 65 million versus EUR 67 million in 2019 and relatively stable, moderate decline in the derivative market as well. But if we examine the quarterly market performance, it was quite choppy, very strong Q1, then a weak Q2 and even weaker Q3 as a result of the lockdowns and slowdown in economic activity and a decrease in visibility available in the market. But things did turn around in Q4, November and then especially in December where trading activity returned to levels last seen in the first quarter. So far this year, the average value traded run rate currently stands higher than the 2020, especially on the back of a very strong March where we have surpassed EUR 100 million, bringing the year-to-date average just around EUR 74 million. So we're seeking on moving forward with regards to the series of actions and initiatives lined up that feed into the strategic outline that I mentioned before. The approval of application regarding CSDR basically enables us to tap in traditional services offered to the capital market and corporate ecosystem. And before Stelios goes into a more detailed presentation of results -- of our results, I'd like to highlight a few things. One, you might have seen that we had a real estate revaluation and that mostly deals with the change of accounting method regarding our real estate investment from cost the fair value and this pertains to the property that we own in the City Centre, and that is leased to the Greek Gaming Commission. Second, the uplift in personnel expenses is driven mostly by the one-off provision related to a virus program that we booked in Q4, and we're looking into initiating in the earlier part of this year. And third, on ancillary services, which I wish to stress the strategic importance of this particular line. And as things mature more and more, revenue potential is being captured. So in the past, we have mentioned that the EnEx relationship, the relationship with the energy exchange, when mature, will yield close to EUR 1 million per annum. And then, which in this case, post Q4 and the transition to be a target model we are at that point. And to that, we should add another maybe close to EUR 500,000, which are the fees that are paid to fix -- to offer corporate support. So EnEx has outsourced its finance operation, HR operation, technical support and other business activities for which we are also compensated to the amount that I mentioned before. A special note to Kuwait, which the relationship has matured even further and now reflects a cumulative EUR 1.8 million consultant relationship over the course of the next 5 years. And I think it's very purposeful here to mention that to all these existing relationships, more deliverables may be added and we are constantly working on finding additional opportunities along the lines that we have mentioned before. So given this backdrop, we recorded a bottom line of EUR 3.9 million, which is EUR 0.0640 per share and consistent with the group's dividend policy, the Board will be proposing a EUR 0.07 dividend -- EUR 0.07 per share dividend and an additional EUR 0.07 as a capital return, which makes EUR 0.14, i.e., EUR 8.4 million, returning to our shareholders, implying a yield for 3.6% off the 2020 closing price, which is similar to the 2019 yield despite the decline of our bottom line. And at this point, I'd like to pass it on to Stelios to go through our 2020 performance in more detail. Stelios?

Thanks, Nick, and let's start with the overview of our 2020 financial performance, as always, from the top. The consolidated turnover of the group in 2020 was EUR 30.7 million compared to EUR 33.4 million in 2019, and that's down 7.9%. Now if we break down revenue into the 3 revenue segments that we like to think our revenue is coming from, we see that trading base revenue, i.e., from trading, clearing and settlement, was down 17%, and that's mostly due to the TITAN delisting in 2019 and resulting revenue from that delisting action. And I mentioned that because ADTV dropped much more modest 3.5% in 2020 compared to 2019. Market cap-based revenue, i.e., Exchange, Depository, Clearinghouse Services was up 4% and revenue from ancillary services which includes market data services to the energy exchange revenue from the projects in Kuwait and some other things, as Nick mentioned, was up 5.1%, makes an upgrowth for us. If we look at revenue over the past 5 quarters, we see, again, finishing that as a strong quarter in Q1 before the onset of the pandemic, weak Q2 and Q2, even weaker Q3 and Q3 and a strong recovery towards the end of the year. And again, Q3 results, financial results are not comparable because of the TITAN transaction. Now if we look at the most important revenue drivers in more detail, we see that revenue from clearing made up 30% of turnover and amounted to EUR 9.35 million compared to EUR 9.25 million in 2019, that's up 1% which increase is a strong revenue from the cash market and then derivatives revenue with the difference being made up by revenue from transfers and from trade notification instructions. Revenue from trading represents 17% of total consolidated turnover. And in 2020, it was down marginally 1.4% to EUR 5.2 million compared to EUR 5.3 million, again, on the back of slightly lower trading activity in the cash and derivatives markets. Now as far as revenue from the derivatives market is concerned, both trading and clearing in 2020, trading activity measured in the number of contracts, dropped by 3.6%, as mentioned already, and revenue was down 5.1% with the average earning per contract down 1.2% and to EUR 0.187 per contract compared to EUR 0.199 per contract. As you know, pricing in the REIT market, depends on the type of investors, 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, as a matter of fact that they would do. Now lastly on derivatives, trading and clearing revenue in 2020 was just under EUR 20 -- EUR 2 million compared to EUR 2.1 million, and that corresponds to 13.7% of total trading and clearing revenue and 6.5% of total turnover. Moving on, revenue from exchange services and it's up 10% of whole turnover, and this line includes the quarterly subscription fees paid by listed companies, fees on rights issues and IPOs as well as fees paid by members and it came in and was EUR 3.1 million, up 3% compared to 2019. Now revenue from market data makes up 8.5% of total turnover and includes the fees that we collect from data vendors for the provision of Athens Exchange market data. Moving on down the P&L, we see that revenue from depository services is up 6% coming in at EUR 2.6 million compared to EUR 2.46 million in 2019. And revenue from this line also makes up 8.5% of total turnover and includes revenue from rights issues, quarterly subscriptions paid by operators and revenue from inheritances, et cetera. Now revenue from ancillary services makes up 14% of total turnover. And in 2020, it was up 29% to EUR 4.3 million compared to EUR 3.4 million in 2019. And this line includes revenue, as Nick already mentioned, from the support of other markets, such as the Energy Exchange Group, Boursa Kuwait, et cetera. And this large increase in ancillary services, I think, is a near doubling of revenue from the energy exchange, which is due in turn to the provision of additional services due to the start of the operation and the spot energy market in accordance with the European target models. And this line also includes 426,000 book form services rendered to Boursa Kuwait, which is a new revenue stream in 2020. Finally, on the top line, we would also like to note although it has been already mentioned, there is a 68% reduction in revenue from settlement, which is due once again to the revenue amounted to EUR 2.7 million that we booked from TITAN's delisting in the third quarter, which took place in the third quarter of 2019. Turning now to the expense side. Total operating expenses, including ancillary services, increased by 11.7% at -- in 2020 compared to EUR 21.1 million or rather -- increased by 11.7% in 2020 and came in at EUR 21.1 million compared to EUR 18.9 million. Total expenses were up by about EUR 2.2 million or 12% in 2020 compared to 2019. Now if we break expenses down, further we see that personnel costs were up 12.5% to EUR 11.7 million versus EUR 10.4 million, while adjusting for the wellness VRS provision that we've mentioned already, the increase would have been 6.3%. And all other expenses were up 11% to EUR 9.4 million compared to EUR 8.5 million in 2019. Now some of the drivers behind this increase in expenses are, first of all, some targeted raises given to employees after a number of years of no increasing and the strengthening of the management structure and slight increase of approximately 880,000 in staff salaries and social security contribution. Then second, the VRS provision that was mentioned already and EUR 1 million increase in overall consulting fees for actuarial study, tax and legal services and for the improvement of the business organization. Now on the other hand, we have other OpEx down 2%, and that's despite EUR 100,000 donation by the group to the Ministry of Health early in 2020. And that is the result of significantly lower travel promotion and events related to expenses as you might imagine. Lastly, on expenses, personnel, remuneration and expenses accounts for 39% of the OpEx compared to 61% in 2019. And as always, by far, the largest expense category. And headcount at the group at the end of December 2020 was 230 compared to 218 at the end of December 2019. Turning now to the bottom line, the earnings before interest and taxes of the group dropped by 57% to EUR 3.9 to EUR 4.1 million, I'll be polarized to say, compared to EUR 9.2 million in 2019. Interest income in 2020 was EUR 117,000 compared to EUR 366,000 thousand in 2019, and that's due to be significant lower interest rates offered on deposits. In addition, we also booked EUR 682,000 as income from the revaluation of our real estate assets, and this revaluation is carried out by independent estimators. Therefore, at the end of the day, the net after-tax earnings of the group amounted to EUR 3.9 million compared to EUR 6.1 million in 2019, and that's a 36% drop with the effective tax rate on consolidated earnings in 2020 being 21.1% compared to 25.9% in 2019. And I remind you that for both 2020 and 2019, the nominal corporate income tax rate was 24%. Turning now to the balance sheet. The cash and cash equivalents of the group at the end of December 2020 dropped to EUR 68 million compared to EUR 73.4 million at the end of 2019. And at the parent company, cash and cash equivalents were EUR 17.9 million at the end of 2020 compared to EUR 17.3 million at the end of 2019. With approximately 20% of the cash at the group level, EUR 13.4 million at the end of 2020 being kept in the Central Bank of Bank of Greece, where interest rates are negative, currently at minus 0.5%. And lastly, on the balance sheet, we have a further EUR 224.6 million that we report as both an asset and liability and these assets are third-party assets and concerned margins in the cash and derivatives market. And these funds are also deposited at the Bank of Greece. And with this comment, I would like to thank you for listening in. We will be happy to take any questions that you might have.

[Operator Instructions] The first question is from the line of Memisoglu, Osman with Ambrosia Capital.

A couple of questions. On the cost side, you mentioned the VRS program, could you share with us how much that impacted the 2020 numbers so we could get an underlying figure? And then what's the outlook for 2021 for staff force. And related to this, regarding the consultancy fees, I think previously, we were expecting -- you had discussed that this was going to be coming down, but we had an increase in Q4. What would be the outlook for consultancy fees for '21?

Osman, so the amount for the VRS is EUR 640,000, that has been set aside as a provision. So that's how you would get to a year-over-year number of adjusting for the bonus. It will get you to the 6% that was mentioned. So yes, so you've seen the note that says EUR 700,000 that is for the -- as an expense for the exit of employees. However, for 57 has already been paid out, and that was done in the first 3 quarters. So then another EUR 640,000 was done as a provision for that program that I mentioned before. So that is on that side. And then on the consultancy fees, third-party expenses, yes, you're absolutely right. In fact, we did expect that number to come down. However, we spend -- we took initiatives with regards to an additional project that we were looking into doing with regards to modernizing our current infrastructure or a segment of the infrastructure, if you will, and that was expected and budgeted for 2021. However, given the fact that we picked up momentum, we said we might as well do it now and that's how that number came as a provision in 2020. Now going forward, it is -- we would -- the number is expected to be lower. So I think we keep at the 2020 number has peaked -- is a peak. So we expect that number to be lower. Will it be substantially lower? No. We are in the process of taking on certain projects that will entail an increased amount. But again, as I mentioned, it increased the [indiscernible] and our guidance for that will be that, that number has peaked in 2020. But it will not be EUR 1 million number, for example, if we take off and extrapolate the 2018 and 2019 performance, so to speak, it will be higher than that, but lower than the 2020 peak.

Okay. Got it. And for the staff part, is the provisioning done now or...

Yes. For the time being, because it came hand in hand with the managerial -- so just to give you some background information on that. So there was managerial, there was organizational restructuring, the enhancement of management. And then we need to rightsize our employee -- our workforce for the things that we want to take on. So that means that you could see some additional increases, not necessarily in the actual absolute headcount or if you do see, it would be very marginal. So -- but for the time being and the way we are right now, at least at the stage of our scheduling and planning, this is a one-and-done action with regards to the VRS that I mentioned before. And then with regard to the underlying structure would be, I would expect a number that is in the low single digits.

Low single-digit increase for that line? This would come from salary increases mostly?

Well, the carryover effect from the higher headcount throughout the year. So that would carryover to the next, so that rollover effect if you will. And then there might be some very targeted and specific readjustments to pay. But again, nothing significant for the overall group.

The next question is the from Tsangalakis, Spiros with Pantelakis Securities.

I have 2 questions. If I roll -- I heard correctly, you mentioned the Kuwait-related revenue of EUR 0.5 million for 2020, is that correct?

Yes. It's rounded up, yes, of course it adds 407 -- could we assume that this will be recurrent on a yearly basis going forward because that includes a lump sum that was with regards to the initiation of the relationship. So that regards to -- that lump sum. And then I would say that we have maybe another EUR 1.3 million that would be attributed over the course of the next 4 years, but there could be some volatility because all of these are associated to deliverables.

Okay. And what about the recurrent revenue from the energy exchange, which amounts to EUR 1 million plus EUR 3.5 million that you mentioned totaling 4.5 million?

That would be the recurring revenue set up as stands. But again, the more -- because we constantly are looking at what other opportunities can be capitalized, and that would be added to the recurring nature of that EUR 1.5 million. But as it stands right now, that's the relationship that we have.

Okay. And one last question regarding your cash reserves. Given that you will proceed with a EUR 0.05 capital return, which reduces your cash balance. Until what level would the mother company cash balance might drop going forward? I mean, given the fact that you have to maintain some cash reserves, I think, something around EUR 40 million in the Bank of Greece. So we should expect that figure from EUR 57 million, EUR 58 million to come down to EUR 40 million in the next 3 to 4 years as capital returns?

Okay. So the capital returns at EUR 0.07, I think you mentioned EUR 0.05, the capital returns at EUR 0.07. Our cash balance at the group level is at EUR 68 million. And then we have at the parent level, we have close to EUR 18 million of cash. So yes, the EUR 8.4 million will be coming out of that EUR 17 million for one. We will be looking at distributing dividends from the subsidiaries to the parent, but we have -- yet to decide on what the exact amounts will be. But again, coming back to the, I think, what the essence of your question is, I think we've been talking about this for quite a while now that our capacity to return capital is growing thinner and thinner. That's why the actual capital return element is lower and lower every year. The EUR 40 million that you mentioned is something that does make sense. And we also look at keeping our flexibility with regards to opportunities that might arise in terms of how we expand our geographic footprint or our servicing footprint towards the capital markets. We are steadfast in our approach of rewarding shareholders to the maximum that we can, but again, the capital return capacity is declining.

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

Two questions, if I may. What is the current status of your potential -- the project you have in Lebanon? Where do we stand with this? And second thing, if you can remind to us for each billion of share capital increase is shown on the listed entities, what would be the impact in your EBITDA line?

Okay. So the -- with regard -- it's a very interesting point. I think it gives us a good opportunity to talk about something with regards to a change full CSDR is that our pricing policy also will change effective April 12. So if you don't mind, I have a EUR 500 million ticket preset, and I can give you some numbers there, if you want. And then if you want on a EUR 1 billion per se, we can take it offline. So on the -- if it's an equity issue, we're looking at EUR 400,000 worth of additional revenue, which, depending on the -- if it's an IPO or if it's a new equity issue, it could be attributed over a 3- or 5-year time period because of IFRS 15. But that is an increase. The same amount of money, if it was pre CSDR, that same amount of money would have been EUR 318,000. So about a 26% increase in revenues from a EUR 500 million ticket. And then on bonds -- on the bond side, well, there the amount is much less, actually EUR 53,000 for 500 million issue, and that is up from EUR 13,000, that was the case pre CSDR. But here, I think we should note that a EUR 500 million bond issue adds another EUR 160,000 from the electronic book building platform that we have and those are booked directly to the year's P&L without spreading it out over a 3- or 5-year period or if it's in case of a bond, it is attributed -- it's spread out according to the maturity of the bond. So that's for EUR 500 million if you do want -- for EUR 1 billion per se because there's a scalable price range. You can double for -- to have a ballpark sense of where the numbers could stand. But if you want something more specific, we can take it offline and discuss. And that's with regards to the -- your question. And then with Lebanon, it is unfortunate that basically, we are in constant -- we are in discussions with regards -- with our partners there, but we are operating as a standstill operation right now. We do not have any -- we haven't booked any revenue. We do not know when we could book revenue and when we could start reengaging. The relationship is there. The agreement is there. But given a turbulence in the country and the instability for the time being, it's at at standstill.

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

Thank you, everyone, for taking the time to participate. And as always, we are available for you if you would like to give us any questions in private. Thanks again for listening in.

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