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

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Athens Exchange Group Conference Call to present and discuss the third quarter 2022 financial results. [Operator Instructions] And 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.

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 9 months of 2022, 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 evening and good morning to all. I just wanted to note a couple of drivers that -- as we usually do that impact our -- that have impacted our 9 months performance. So the average traded value on a daily basis increased by 7% in the 9 months of 2022, close to EUR 79 million versus EUR 74 million in the last year's period. The average market cap stood 6.2% higher than the respective period in 2021. The listed banks market cap increased by close to 30%, while the market cap of the rest of the market has increased by 2.5%. In terms of those things that are shaping up in 2022 as we head towards the end of the year, you probably -- as you are very well aware, market activity has been slowing down in each quarter compared to last year. And we are basically a tale of 2 halves. First half of the year was very strong, close to EUR 90 million. And then the second half, much less than that. Q3 numbers, you've probably seen them, just over EUR 50 million per day. And it seems that Q4 so far is not significantly different than that. On now our operating expenses, those are -- have been picking up. So we've been through management changes and some restructuring as well as wage inflation pressure that was expected as had been mentioned during our last call to be more evident in the second half as most of the changes -- and some wage adjustments did take place in June. Our electricity cost is up by almost 87%. However, the impact to the group is limited overall as it represents close to 6.4% of OpEx, nevertheless, because it is -- the movement is on the margin, and it's quite notable, it's something that we're monitoring. Overall, on a reported basis, our bottom line for the 9-month period of 2022 stood at EUR 6.8 million versus EUR 7 million last year, whereas last year, we did remind you that we had an abnormally low effective tax rate due to the loss incurred from the sale of the Piraeus share that we had last year. So at this point, I'd like to pass it on to Stelios to go through our 9 months 2022 performance in more detail, and then we'll be open for any questions that you may have. Stelios?

Thanks, Nick. So let's start with the overview of our 9-month 2022 financial performance. At the top, the consolidated turnover of the group in the 9-month period was EUR 29.3 million compared to EUR 27 million in the 9 months of last year. That's up 8.4%. If we dive a little deeper, we see that trading-based revenue, i.e., from trading and post-trading, was up 10% on the back of a 7% increase in ADTV in the cash market in the 9-month period this year compared to last. Market cap-based revenue, i.e., from listings and services to issuers, was up 26% due to a 6% increase in the average capitalization in the market, even though core productivity, rights issues, new share and bond listings were significantly lower in the 9-month period of this year compared to the 9 months of 2021. And revenue from services, which is data services, IT, digital and ancillary services was essentially flat. Looking at the top line in more detail, we see that revenue from trading represents 16% of total consolidated turnover. And in the 9-month 2022 period was up 5% to EUR 4.7 million compared to EUR 4.5 million last year. Revenue from post-trading made up 40% of total turnover, and amounted to EUR 11.8 million compared to EUR 10.5 million in the 9 months of 2021. That's up 12%. The increase is due to a 6.7% increase in clearing revenue in the cash market, while derivatives market revenue was down 3.3%. As far as revenue from the derivatives markets, both trading and post-trading is concerned, in the 9 months of 2022 trading activity measured by the average daily number of contracts, dropped by 35% to 36,800 contracts compared to 56,700 last year. [ However ], revenue in turn was down only 3.2% and the average revenue per contract increased by 50% to EUR 0.219 per contract compared to EUR 0.146 per contract. Our fees for derivatives contracts depends on the type of investor, the product being traded and the prices of the underlying securities. And as a result, market volumes and our revenue rarely go hand-in-hand. Lastly, on derivatives, trading and post-trading revenue in the 9 months of 2022 was EUR 1.47 million compared to EUR 1.51 million, which corresponds to 9% of total trading and post-trading revenue. Revenue from listing makes up 13% of total turnover. This line includes the quarterly subscription fees paid by listed companies, fees on rights issues, IPOs and other services to issuers, and amounted to EUR 3.7 million, up 26% compared to the 9 months of 2021 when it was EUR 2.9 million. Revenue from data services makes up 9% of total turnover, and includes the fees that we collect from data vendors for the provision of ATHEX market data as well as revenue from InBroker. The fees that we collect from market data depend essentially on the number of data terminals, to which these data vendors disseminate ATHEX market data too and increase by 5.5%. And as you know, as we mentioned before, we have been gradually increasing -- been increasing our data feed prices. Revenue from IT and digital services makes up 18% of all turnover, and includes revenue from digital services, infrastructure and technological solutions to the Energy Exchange Group and Boursa Kuwait. This category also includes revenue from services, such as Electronic Book Building, AXIAline, Axia e-Shareholders Meeting, Colocation and some others. Revenue from IT and digital services was down 1% to EUR 5.35 million compared to EUR 5.41 million last year. And finally, as far as top line is concerned, revenue from ancillary services makes up 20% of total turnover. And in the 9 months of 2022, it was down 12% to EUR 877,000 compared to EUR 1 million in the 9 months of 2021. Ancillary services include revenue from support services to the Energy Exchange, some rents that we collect and some others. Moving on to the expense side. Total operating expenses increased by 12.3% in the 9 months of 2022 at EUR 16.9 million compared to EUR 15.1 million last year. If we break that down, we see that personnel costs are up 5.5% in the 9 months of the year at EUR 8.6 million compared to EUR 8.15 million last year. And all other expenses increased by approximately EUR 1.4 million, i.e., by about 20%, with the highlights being a 49% increase in utilities due to the persistent high electricity prices in the 9 months of the year, that Nick touched upon. And in addition, a 26% increase in taxes, mainly due to higher VAT payments. Personnel remuneration and expenses accounts for 51% of total operating expenses and head count at the group on September 30, 2022 was 234 compared to 231 at the end of the 9-month period last year. Turning now to the bottom line. The earnings before interest and taxes of the group increased by 1.2% to EUR 7.7 million compared to EUR 7.6 million in the 9 months of 2021. In the 9 months of 2022, we booked EUR 625,000 in revenue from tax returns resulting from a favorable court judgment concerning the return of tax and penalties that were assessed following a tax audit for fiscal years 2008, '09 and '10. On that, we have appealed to have a further and final EUR 270,000 returned to us, and we think we will be [ vindicated ]. So at the end of the day, the net after-tax earnings of the group amounted to EUR 6.8 million compared to EUR 7.0 million in the 9 months of 2021. That's a 2.4% decrease. In 2022 and 2021, the nominal corporate income tax rate was 22%. And while the effective tax rate on consolidated earnings this year was 22.5% compared to the abnormally low 11.1% in 2021. On the balance sheet now, the cash and cash equivalents of the group on September 30, 2022 dropped to EUR 61.9 million compared to EUR 71.9 million at the end of 2021, with the drivers behind that reduction being a EUR 9.1 million dividend paying to shareholders, that was made in mid-June, and the continuing purchases of treasury stock that had been taking place throughout the year. Approximately 18% of the cash, i.e., EUR 14.7 million at the end of the 9-month period is kept at Central Bank, where interest rates were until the 26th of July of this year at minus 0.5%. Now the recent increases in interest rates by the [ ECB ] has eliminated the cost associated with the negative interest rates, and we will see where that takes us. Also on the balance sheet, a further EUR 259.1 million that we report as both an asset and a liability, our third-party cash assets and concerned margins at our subsidiary AthexClear receives from its members in the cash and derivatives markets. These funds are also deposited at the Central Bank, the Bank of Greece. So lastly, as regards to our share buyback program, on September 30, 2022, we had spent approximately EUR 7.1 million to purchase 2.1 million shares at an average price of EUR 3.38 per share. The share buyback program will conclude in a few days at the end of November as we have reached the end of the time period that was mandated from the AGM a couple of years ago. And with that comment on the share buyback program, I'd like to conclude the comments, the brief overview of the 9-month 2022 financial results and open up to any questions on this call that you might have. Thank you.

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

Just a couple on my side, particularly on the revenue front, could you give us any color on why settlement fees -- income from settlement fees doubled in 1 quarter versus first half? That's on the revenue side. And then on the cost side, particularly personnel costs, should we expect a typical quarter-on-quarter increase in Q4? And any color on how much so? And also, any color on '23 personnel costs? Are you done with the head count increase? Should we expect more wage increases?

Osman, thank you for the questions. On the settlement side, what we had in the third quarter was a one-off increased activity on the OTC side. There was an increased activity on some -- over the accounting transactions. So we collected the revenue on the settlement side of that. So that was a one-off. And then with regards to the personnel that you mentioned, our head count has been increasing over the past few quarters. I believe, towards the end of the year, maybe the beginning of next, we will have completed -- we have already done most of the head count increase that we are anticipating. But there is a few more adjustments that are required. Overall, in terms of the modeling that you mentioned, there's -- like in the first quarter of next year -- the first half of next year, you will have the annualized impact from the fact that most of the adjustments happened at the end of Q2. So you'll have that. And then I expect as we go into the second half of next year, that will come off a bit. So overall, I do not think that we will move significantly from the dynamics of this year with regards to next year at least.

So in Q4 -- could you remind me that it's not every year, but are Q4 seasonally higher, maybe because of some of the...

Yes. Yes. There is, yes. Q4 is seasonally higher, but we do not anticipate for the year-end number to deviate significantly from what we have talked about with regards to the overall growth rate of that number.

Okay. And the one-off for settlement was roughly how much?

Just -- I don't remember the number off the top of my head. It was close to just over EUR 0.5 million.

[Operator Instructions] The next question comes from the line of Boulougouris, Alexandros with Wood & Co.

Sorry, just to clarify on the question from my colleague before on the cost in case I'm not missing something. You mentioned that cost growth in 2023 should follow a similar trend as in 2022. If I'm not mistaken, [indiscernible] is down, maybe I didn't write it, correctly.

Correct.

So in the region of around, in the 9-month period, is close to 10%, correct?

More or less, yes. But again, it's a matter of the fact that, as I mentioned, it was -- it's the comparison of the 2 halves that's why overall, you'll have the same impact. But just since I'm assuming that you do want specific numbers, it's safe to assume that -- those numbers that you mentioned.

[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.

So -- okay. Thank you all for participating. We look forward to any questions that you might want to take up in private. Thanks again for participating. Have a great afternoon.

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