Gielda Papierów Wartosciowych w Warszawie S.A. (GPW) Q2 FY2025 Earnings Call Transcript & Summary

Good afternoon, and good morning, everyone. Welcome to Warsaw Stock Exchange Q2 2025 Results Call today. Let me introduce today's speakers. We have with us our CEO, Tomasz Bardzilowski; CFO, Marcin Rulnicki; and for the first time with us, the Chief Operating Officer of our Commodity Exchange, Mr. Dariusz Wosztak; and I'm Michal Kuzawinski, Head of Strategy and Investor Relations. We will have approximately 25 minutes presentation followed by Q&A and we encourage you to ask questions. [Operator Instructions] And now without further ado, I would like to pass the voice to our CEO, Tomasz Bardzilowsk.

Thank you very much, Michal, and welcome again on our earnings call. We are starting our presentation with the key achievements in the second quarter of this year. And it was a record year in many aspects for Warsaw Stock Exchange in terms of record high equity turnover, in terms of the performance of the market, and also in terms of our results. Equity turnover surged by almost 50% year-on-year in the second quarter. And also, we are proud to say that we have many records in terms of performance. Our broad market index WIG for the first time in its history surpassed [indiscernible] mark of 100,000 points and then recorded several all-time highs until yesterday. And this helped our main engine of our revenues, which are our cash equity business and the financial markets revenues to go up by 24%, combined with a very strong performance from commodities market with revenues up by over 12%, and this led to a 19% increase in the consolidated revenue line to a record high of PLN 144.1 million. In terms of costs, we recorded 8% growth in operating costs, slightly higher than in the first quarter. However, on the back of the positive effect of operating leverage, our cost income ratio fell by more than 6 percentage points to less than 63%, helped with such a strong revenue growth and lower cost income ratio, our EBITDA and net profit increased by around 42% on an adjusted basis. Again, our net profit was a record high, excluding the [indiscernible] exchange, excluding some one-off effects. We paid dividend of PLN 3.15 per share a few weeks ago. It was 5% growth year-on-year, almost 90% of consolidated net profit. And we are very happy to see a strong performance of our share price, which reached an all-time high a few days ago even after deducting the dividend. Just to illustrate what I said about the surging equity turnover, you see on this slide that we had -- the previous quarter was also record high, and this is above the previous high which we recorded in 2020 during so-called COVID rally. According to the statistics of European exchanges, this increase has been one of the best in Europe. And we are especially happy to see high liquidity of the market compared to other European exchanges measured by ratio. We are #2 in Europe with a ratio above 50% in the second quarter. Speaking about the performance of our indices in local currency, there is almost 40% increase since the beginning of the year. And looking at MSCI Poland measured in U.S. dollars, the performance now significantly above [ 5% ] mark, which makes Warsaw in our market one of the best performing global markets in the world. And we believe that the market is still attractive and valued compared to MSCI Emerging Markets or MSCI World you see here still quite significant discounts. In the second quarter, we noticed a significant improvement in terms of the equity market transactions. Here, the value of total ABB [indiscernible] and IPOs went down by 4x compared to the second period of last year and we are especially happy to see couple of IPOs, including the IPO of company Arlen [indiscernible] with offer value of PLN 271 million compared to -- combined with the IPO that we had in January of this year and [indiscernible] especially happy to see a strong aftermarket performance -- price performance of those companies. Looking at the bond market, the non-treasury bond market. Here, we recorded a decline in the issuance mainly due to high base effect in the second quarter of last year with couple of issues from the banking sector. However, we expect a recovery in the third quarter here that two large offerings of consumer companies, including PLN 1 billion [indiscernible]. Let me now pass to our CFO, Marcin, to talk -- to guide you through our numbers in more detail.

Hello, and welcome, everyone. In the following few slides, we would like to present more details on our financial performance in Q2 and the first half of 2025. Starting with big picture P&L consolidated numbers. So as you can see, our revenues in Q2 were PLN 144 million and a growth of almost 20%. And this growth came from both from financial markets where the revenue growth was even more dynamic, mainly due to a very good trading and equity trading related revenue, but also a very solid growth on commodity market with 12.5% up year-on-year. And this was mainly due to high turnover on cash, especially in all transactions. We will present details of the revenues in the following slides. In terms of operating expenses, they reached [ PLN 19 ] million growth and in the second quarter has a growth of 8.1%, a bit faster than in Q1 when we had 5.3% growth rate on operating costs. But we also mentioned that in our Q1 earnings call that in the following quarters of 2025, we expect the growth rate for operating expenses to go up. In other expenses, you see that in comparable data, we had much higher numbers. We had a nonrecurring write-off of one of our intangible assets, one of our software solutions developed internally. Hence, we are presenting adjusted EBITDA and adjusted net profit numbers even though in Q2 or in the first half of 2025, we didn't have any nonrecurring one-off transactions. We have them in comparable data. Anyway, adjusted EBITDA, if you compare to Q2 of 2024 went up by 43%, so pretty impressive growth and also our profitability margin on EBITDA is over 43%. So it's been the highest for the last 3 years, and we are very happy about that. What happens below the operating profit line, we still have a pretty good growth in our associated companies, mainly in [indiscernible] where the profit grew by almost 22% compared to Q2 '24 and also better result on financial activities. And here, we have both a slightly better return on our deposits, but also we have lower financial costs related with interest on potential [indiscernible] liability that we recognize in -- as a result, the adjusted net profit was almost PLN 58 million, and it also grew by almost 43% compared to the previous year. So generally speaking, a very strong quarter, and we are very happy with these results. Looking at the revenue mix, not surprisingly, following the high growth rate in the financial market, also the share of this segment in the overall revenue mix went up. And in Q2, it was over 66% of total consolidated revenue of our group. The commodity market growing slightly slower and consequently, the growth in the overall revenue mix was a bit lower than the year before and went down to 31% with other revenue remaining on a stable level. Now let's have a look at the biggest segment, the financial market and the revenue here, we are analyzing the trading-related revenue. So again, the biggest part of our income from financial markets. And looking at different classes of assets, you can see that the most dynamic growth we observed in the equities. And on the left-hand side of the slide, you can see the dark blue bar representing revenue from equities. And in Q2, they reached a level of PLN 52.5 million after a 45% growth year-on-year. And this is a consequence of record high turnover on equities we had in the Polish market in Q2. It was PLN 131 billion, and it was almost 49% higher than the year before. We can see -- and I'm now looking at the right-hand side of the slide on the table with the operating data. So we can see the average fee per transaction went down a little bit, almost 5% year-on-year. It's not because of any changes in our price list, it's because of lower -- sorry, it's because of the higher value of the average transaction, which translated to a lower average fee. This is how our prices are composed. At the same time, the number of transactions went up. It was 13.4 million transactions in Q2 only, and it's 34% more than the year before. On other assets, we had smaller variances with derivatives going down a little bit and revenues from debt trading going up and other revenues not changing very much. Speaking about other revenue streams within Financial Markets segment, we can see maybe not super dynamic, but solid growth in the information services line, and we are very happy about it because this growth we have observed for a few quarters now. We can see the new customers and new subscribers is growing and this revenue is consistently going up quarter, we are happy about it. In listing revenue, listing related revenue, no big changes. And as for Armenia Stock Exchange, we can see there was a slightly lower revenue in Q2 of '25. But in the first half of the year, we had 6% up in revenues from this market. Now a few words about the commodity market. I will let Dariusz to comment in details on this one.

Hello, everyone. I will [indiscernible] commodity market. Revenues from trading from the commodity market reached almost PLN 26 million [indiscernible] in Q2. This represents an increase of more than 20% year-on-year. Revenues including important segments [indiscernible] on the electricity market compared to the [indiscernible] that represents nearly 6% growth. And we need to remember that energy market [indiscernible] impact on the market liquidity. In Q2 [indiscernible] it means that we have an increase of over 90% year-on-year and high growth in the [indiscernible] the Polish general CDs. We are happy because of the market balance sheet of last quarter, but we also observed strong engagement in the current form. On the property market, we recorded a decrease of almost 20% in quarter 2. In second quarter, we observed a shift in seasonal redemption from Q2 to Q1. In other fee segment, the increase in revenues is mainly due to the revision of our [indiscernible] revenues. In this segment, we recorded an increase of over 21%. This growth was driven by higher trading volumes and transaction on gas market, which are offset, of course, by our clearing house. And in registers, we a decline in income from register maintenance and it is the result of lower volume of operations. And addition mention that the decrease in revenues was caused by a reduction in the mandatory redemption level. I think it's the most important [indiscernible]

Now coming back to consolidated numbers. Let's look at the operating expenses for a while. And in Q2 '25, they reached a level of PLN 90.6 million, 8.1% up year-on-year. Again, a bit faster than in Q1, and we also expected this growth and informed about our expectations already commenting Q1 results. What are the reasons for this growth, mainly in staff-related costs, yes. So in personnel expenses, we had like three reasons for this number going up so much by 13.5%. The first one is the number of our employees. The number of full-time employees at the end of June 2025 was almost 6% higher than the year before and the year earlier. This growth is mainly in IT-related teams. So we have more employees and teams which are involved in development and implementation of our transactional system. But of course, most of these costs are capitalized and treated as investments. And at the same time, we also strengthened the teams which are responsible for maintenance of our infrastructure and software that we use for operational activities. So these two areas where we see the new employees most. We also had increase in remuneration in the whole group, which happened in October 2024 and the average level of this remuneration growth was 6% and of course, comparable data, we don't have it yet. And last but not least, our variable salaries are very much dependent on the performance of the company. And therefore, our good results in the first half of the year and expectations for the second half of the year translate into higher provisions for variable salaries. So that's the third component of the cost growth that you see in Q2. Speaking about external services, we see there is a small decline compared to the previous year. And trends within this group of costs are more or less the same as in previous quarters. So we spend more on IT-related services. And here, you can see in Q2, a growth of almost 10% here. At the same time, we try to be very careful spending on advisory and other external services where in both categories, you see a decline. It's also worth commenting the higher depreciation and amortization costs in Q2. There are mainly two reasons for this. One is that within Warsaw Stock Exchange, we developed two software platforms that were contributed to our dedicated subsidiaries, logistics, and DAI, and they were operationally launched and we started depreciation of this. And so this is the best reason for higher depreciation and amortization costs. And the other one is that we had a number of investments in operational systems of our commodity stock exchange. These extensions were finalized mainly at the end of 2024, and they also resulted in higher amortization in the current year. So this is about details. But looking at the big picture, I think we are happy to say that this is the fifth quarter in a row when we see the revenue growth rate is higher than the operating expenses growth rate, which you can see on the graph on the right-hand side on the slide and it means that in 5 quarters in a row, we have been able to improve our profitability you can see on the bottom graph. And our cost-income ratio is in Q2 at a level of less than 63%. So again, the lowest in the last 3 years. Capital expenditures I would say no surprises here. Even though the growth -- the dynamic, the growth rate of investments year-on-year looks pretty dynamic at 42%. But I would say that the comparable data is very low, especially when you look at equipment investments. What we can see in Q2 '25, PLN 3.3 million quarterly is, I would say, the average level that I would expect, whereas the comparable data just [indiscernible]. So it was exceptional. In intangible assets, in this part of our investments, we can mainly see the salaries and costs related to the development of [indiscernible] system, which are capitalized. So this is the majority of the light blue bar, and it grew 16% year-on-year. And it's according to the plan because we are intensifying the under on in the last month before the [indiscernible]. Speaking about liquidity and our cash position, no surprises here. We had a very strong operating cash flow in the last 12 months ending June '25. Even after deducting higher capital expenditures, still we end with free cash flow, which was more than 30% higher than in 2024. And our results are still, let's say, translating into cash very much. So if you compare operating cash flow to our EBITDA ratio for the last 12 months ending in June is almost 95%. So I would say it's pretty high. Our net cash position at the end of June was almost PLN 470 million. Please note that it was before we paid out the dividend in the first days of August and the dividend in a value of PLN 132 million. So anyway, very, very safe liquid position and very, very strong operating cash flow, no changes.

Let me give you some update on progress of some of our strategic initiatives as per the strategy that we have announced in November last year, 2-year strategy. So a few of them are increased support for local brokers for research and for analysis of smaller companies on the exchange. We have increased the budget for this program by 50%. This program now is including -- is comprising of research coverage of 65 companies by 11 local brokers. And also, we have included a quarterly [indiscernible] on our alternative market coverage and our bond market coverage. On NewConnect, we have changed the segments of the companies that are listed there. And I would say, the largest and most good companies are including in the focus segment, it will be covered by the [indiscernible] sponsoring program. Also, there will be new activities, including conferences for the companies that we want to host this year. Initiative aimed at attracting new IPOs is our IPO academy for the first time will start in October this year, a 5-month program. We are very happy to see that almost -- we have almost full participants who took all available seats in the program. So hopefully, there will be some IPOs from this group as well. And as we speak on many occasions, a very important segment of the market are for us ETFs. We are Zero Trading Fee Program for ETFs is ongoing. And we are happy to see an increase in turnover in ETFs. This turnover increased more than doubled in the first half of this year. And recently, we have -- a few days ago, we had a first listing of a very interesting ETF, a dividend plus ETF, which is based on WIGdivplus index, an index of 52 companies paying regular dividends. And this ETF will pay a quarterly dividend. We have already observed a surge in turnover in ETF. So very happy with this development. And there will be new ETFs quite soon, including ETF global funds companies and also WIG ETF. I just wanted also to share with you the update on where we are -- the launch of WATS on the value trading platform was a proprietary trading platform. Now we are using, as you know, EPG which is a platform delivered by Euronext. And here, the works are going according to the schedule. We are undergoing various test together with exchange members at the end of August, we will have first out of 4 households. And we will confirm a go-live readiness for the 10th of November, the launch date by the end of September. The guidance for the next 2 quarters, how we see the market in terms of financial market, we had a very strong growth trading -- cash trading also in July, almost 7% year-on-year. And in the first half of August, slightly lower. In September, we expect most likely a slower growth, assuming that the volumes will stay comparable to those with August this year due to the base effect, the volumes in September last year were very significant, and there will be a somewhat lower growth. In commodity market, a similar trend as we saw in the second quarter with the gas market turnover very strong, almost over 80% growth in July and almost 100% growth in the first half of August. On the other hand, significant declines in turnover in the energy market trading in July and in property rights. In terms of operating costs, as we said, the operating cost increased in second quarter to 8% on a year-on-year basis. We would anticipate a slightly higher growth rate in second half of this year due to intensification of works on the new trading system and also on the financial accounting system as well as higher expenses for the promotion of our market stock exchange. CapEx should be at a similar or higher or slightly higher level than in the first half of this year. And what's quite important in terms of developments on the market as a whole is a recent announcement from the Minister of Finance of a new personal investment account with some tax incentives. This new account called Polish personal investment account will offer no tax on investments up to PLN 100,000 and above this level a tax on assets, which will be around 0.8% calculated as current rate of capital gains tax multiplied by the on risk-free assets. This solution, as it was said by the Minister of Finance was inspired by a well-known account in Sweden called ISK. And here on the chart on the slide, you can see the development and the growth since the setup 2012's of the most accounts in Sweden [indiscernible] one of the most popular accounts in Europe because as much as 40% of account with total assets on the account almost EUR 180 billion. So that definitely this is something which could attract new investors to the Polish capital market. And according to estimate by the Finance Ministry within 3 first years, the value of assets on accounts reach PLN 100,000 [indiscernible] PLN 25,000 in deposit and we believe that a significant part of this amount will also reach the Warsaw Stock Exchange. And if so, it will be a real market, which as you see also on this chart in terms of market capital to GDP, Poland less developed market ratio. When you look at Germany, this ratio is closer to 50% the average 64%. And in Sweden, as we talked, this is most developed European capital market with the ratio of stock exchange capitalization to GDP of [indiscernible]. So really a long way to go for us we hope that the new account will be introduced in line with the plan, which is for mid next year.

Thank you, and that concludes the presentation. We are ready to begin our question and answer session.

Thank you very much for the presentation. [Operator Instructions]

We have no questions online. So I think the results are unquestionably good and all investors are pleased with what they've seen.

Okay. As I'm seeing no questions. So perhaps I'm going to pass the line back to the company for their concluding remarks.

Great. If you do have questions, please do reach out to our Investor Relations team. Well, thank you for participating in this presentation. We will be happy to look forward to speak to you again to our Q3 results in November. Thank you.

Thank you.

Thank you, and goodbye.