Nuam S.A. (NUAM) Earnings Call Transcript & Summary

Good morning, and welcome to NUAM's First Quarter 2025 Investor Conference Call. My name is Bruno Alonso, and I'm the Head of Investor Relations at NUAM. The speaker for today is Patricio Rojas, NUAM's Chief Financial Officer. [Operator Instructions] Please be advised that this call is being recorded and that following the presentation, we will open the floor to questions from the audience in both English and Spanish. Further participation instructions will be given later on. The video recording and transcript of this call will be available on NUAM's website within the next few days. I will now repeat this information in Spanish for Spanish-speaking participants. [Foreign Language] Patricio, good morning, and thank you for joining us. The floor is yours.

Thank you, Bruno, and good morning, everyone. Let's go to the agenda, please. We will start by reviewing the main contents of the presentation. First, we will go over financial market and corporate highlights to provide a general overview. Then we will move to the quarterly business performance, reviewing each business unit and other relevant information. And finally, we will go close to the key takeaways of our latest results. Next slide, please. Okay. We will now move to the financial information. During the first quarter of this year, we had a steady financial performance, driven by trading and value-added services units. Total revenues reached CLP 34.8 billion, which means a 3% of increase, where non-trading revenues increasing 1% compared to last year first quarter and trading revenues increasing 13% compared to last year's first quarter. In the case of EBITDA, it reached CLP 14.4 billion, with a decrease of 6% compared to last year. We had a 41% EBITDA margin, down from 45% we had last year. And operating expenses had a decrease of 1 year (sic) [ 1% ] also compared to the first quarter of last year. In the case of net profits, we had CLP 6.6 billion, which means an increase of 360% compared to last year. And consequently, net margin increasing 19%, up from 4%. Before moving forward, we would like to highlight that from now on, all of our financial figures will be presented in Chilean pesos in order to be consistent with our financial statements that under IFRS have the Chilean peso as a functional currency. Despite that, we will keep giving a pro forma reference in U.S. dollars in the section of annexes of this presentation. Next slide, please. Okay. We will continue with market highlights. There was an increase in average daily trading volumes during the first quarter with almost USD 10 billion with an increase of 15%. Also, we had a good performance in our main stock indexes with MSCI NUAM increasing in 15%, the IPSA, the Chilean index increasing in 14%, the COLCAP, the Colombian index increasing 16% and the Peru Select increasing in 4%. Also, we announced that we have a new stock broker operating in Peru. And we want to highlight from the last NUAM shareholders meeting that the dividend per share increased 30%. It was approved a dividend of CLP 181. And talking about the dividend policy for this year, the profit distribution will increase from the previous 50% of profits to 70%. And finally, we announced that we have a new Board of Directors that was elected during the shareholders' meeting with now 11 members, going down from the 16 members we had before. Also, we have an outstanding performance of NUAM's stock. The price in Chile, in Chilean pesos is a bit more than CLP 5,000 with an increase of 31% compared to last year. In terms of bursatility, which is a liquidity measure, also, we have an increase of 37 percentage points compared to last year with 49% of bursatility right now. And also the trading volume, the daily trading volume increased with an average of CLP 443 million a day, which is an increase of more than 200%. In terms of regional integration projects, there are some updates in the regional go-to-market strategy. For market testing, dates and milestones have been aligned with clients' needs. For participants development, testing will start in June and has been extended to a period of 12 weeks in total. And for new trading workstation, testing will start next month in July. Finally, we would like to share some great news that were made public yesterday as a significant event. The harmonized trading rules for equities were approved by the regulator in Chile. And even though approval is still pending in Colombia and Peru, we maintain a fluent communication with those regulators. So we are confident in receiving those approval in the short-term. Next slide, please. Okay. There has been a positive performance across all market segments, especially in equities, fixed income and derivatives. The market capitalization increasing 9%, reaching USD 371 billion during the quarter. Equities traded volumes increasing 45%, fixed income traded volumes increasing 21%, derivatives traded volumes increasing 11%, FX in 5%. The total volume cleared increasing 3%. And finally, assets under custody increased in 5%. Next slide, please. Okay. So we will now move on the business performance section. Related to income statement, we have to -- we want to highlight that we had a stable performance in revenues growing at 3%. Operating expenses decreased in 1%. EBITDA decreased in 6%, dropping the EBITDA margin from 45% to 41% due to increases in other expenses and staff, all related to integration expenses. Net profit had a 360% increase improving the margin from 4% to 19% due to a lower FX impact in tax provision and PPA adjustments in depreciation and amortization. Next slide, please. Okay. Revenues highlights. In general terms, we were able to maintain steady revenue that increased in 3% compared to last year first quarter. Listing and issuer services were affected by lower dynamism of extraordinary corporate events. In trading, we had a double-digit increase fueled by positive dynamic in all market segments. In post-trading clearing and settlement was affected by lower rates in collateral management in Colombia, while custody services were impacted by lower activity and interest rates in distributions processing in Peru. The positive performance in information was driven by market access and price vendor services. And finally, we had a double-digit growth in value-added services, driven by promissory notes and invoice registry. Next slide, please. We will now dive deeper into the individual business units. The listing and issuer services line was down 8% with CLP 4 billion in revenue due to lower dynamism of extraordinary issuance in Colombia. Overall, issuance volumes reached 61 corporate events, totaling almost USD 3 billion with an increase of 74% year-on-year. The number of local issuers just in the case of equity decreased in a number of 10. But in the case of fixed income funds and ETFs, we had some increases. And in terms of issuance by category, the 61 corporate events are compound by 23 related to debt issuance, 32 related to follow-ons and 5 related to tender offers, all of those 3 totaling approximately USD 1 billion, each of them. And also, we had one stock buyback totaling USD 5 million. Next slide, please. Okay. The trading business unit had a strong increase -- 13% increase, reaching CLP 5.7 billion of revenue. We had a strong performance in all on exchange market segments, with a total volume of USD 274 billion, an increase of 23%. In the case of equities, volumes increased in 45% and the number of trades increased in 17% with a total of 3.4 million transactions. In the case of fixed income, volumes increasing 23%, number of trades in 4%. And in the derivatives market, volumes increased in 8%, while the number of contracts increased in 18%. Next slide, please. The clearing and settlement business unit had a decrease of 1%, reaching CLP 5.8 billion of revenue due to lower interest rates for collateral management. But in terms of clearing volumes, we had an increase of 3%, reaching USD 458 billion. On a year-on-year basis, total volumes by market are the following: fixed income, an increase of 1%; FX, an increase of 5%; ODC derivatives, an increase of 7%; on-exchange derivatives, an increase of 8%; equities, an increase of 39% and open interest increased in 24%, while collateral management increased in 41% compared to last year with a total of $112 million under management. Okay. The revenue from the custody business unit decreased in 3%, reaching CLP 10.5 billion, mainly impacted by lower activity and interest rates in distributions processing in Peru. There was a slight increase of 5% on securities under custody, increasing to USD 279 billion. In terms of securities under custody, equity had an increase of 10% with USD 149 billion and fixed income remain with no changes with $130 billion. Delivery versus payment and free of payment transactions increased in 47%, reaching 1 million transactions and distributions processing the volume increased in 3% up to USD 19 billion. Next slide, please. In the case of information business, the business line, we had an increase of 6%, up to CLP 4.7 billion, driven by positive performance in market access and price vendor services. Market data vendor end user subscriptions, both local and international, decreased in 15%, while workstations remain almost with no changes with a total of a bit more than 2,000 workstations in the net. Regarding the precia drivers, we had some decreases in subscriptions for valuation inputs for OTC derivatives in fixed income, local and in fixed income international, but we have an increase of more than 200% in the number of contracts in OTC derivatives portfolio valuation. Next slide, please. Value-added services had an increase of 21%, reaching CLP 3.7 billion, driven by outstanding performance in promissory notes issuance and registered invoices. Sebra/Optimus Systems with 58% of the market share in Chile had a decrease of 2 brokers in the case of Sebra, but an increase of 1 broker in the case of Optimus. In the case of Sebra, variable operation use increased in 16%, up to 82 million transactions. And in the case of Optimus, variable operational use increased in 2%, up to 11 million transactions. With the business of Pacta related to digital promissory notes, documents in custody increasing 19%. The issuance, the number of documents increased in 39% and the number of transactions increased in 34%. And finally, the business of Factrack related to registered invoices increased in 22% up to 521,000 registrations. Next slide, please. Regarding operating expenses, they were down 1% compared to last year due to mainly adjustments in depreciation and amortization. In the case of staff expenses, those increased 8%, mainly explained by inflation effects, but also by a temporary increase in the headcount related to regional integration projects. Other expenses increased in 12%, also increased or explained by higher project-related expenses, mainly to new technology licensing and fees and data center maintenance and support services. In the case of depreciation and amortization, there was a decrease of 32% due to the PPA adjustments made by the end of last year, which is mainly explained by that adjustment. So 76% of the decrease is related to the PPA that was in the depreciation and amortization. Next slide, please. Okay. Finally, we will share the main takeaways from our first quarter results. Steady revenue performance with a 3% of increase driven by trading and value-added services business units, consistent EBITDA margin at 41% with stable revenues and transitory increases in expenses. And NUAM a single market project schedule was adjusted based on clients' development needs and testing progress. So now I will give the word back to Bruno for the questions and answers session.

Great. Thank you very much, Patricio. We will now open the floor to questions from the audience. [Operator Instructions] [Foreign Language] So we will start with a few questions that have been sent to us via chat and written, and we're going to read them out loud in the language they were made. [Foreign Language]

[Foreign Language]

[Foreign Language] We're going to go ahead and take a verbal question. Felix Garcia from Appalachia Research.

Congratulations on the results. I have 2 questions. First, regarding the decline in clearing and settlement revenues, could you provide more color on what drove that decrease? And secondly, where did you expect the EBITDA margin to land in 2025?

Very well. So I'll take the first one, if you don't mind, regarding the decrease in clearing and settlement revenue that was mainly caused by a decrease in collateral management. And even though the volumes increased, not all of the collateral management volumes actually generate revenue, only a portion of them do. So we had a lower portion of them generating revenue. And also this collateral is placed at a overnight rate, and that's how the revenue is generated. So if the interest rates go down, so will the revenue. And regarding your second question, Antonio, could you please remind us, it was regarding the EBITDA, please?

Yes. Where do you expect the EBITDA margin to land in 2025?

Well, in general terms, we do not give estimations of the numbers for the future. But in general terms, our business is very steady. So we shouldn't have big differences while we keep the concept that we have right now, which is different and separated businesses still in Chile, Colombia and Peru. Of course, we should see some differences once the integration begins in operational terms, which, as we have said, it's a process that we are just starting now with the testing. And after that, we should put into production the new trading platform and after that also the trading and settlement platforms. So in general terms, we do not expect big changes in those margins. But of course, after the integration begins, probably we should see better numbers since the market should be bigger and also the attraction for intermediaries and investors should be created also.

Thank you, Patricio, and thank you, Felix, for your question. We'll now move on to another one. This one comes from Mr. Ignacio [ Genos ] from Penta Enterprises. I'm going to read that out in Spanish. [Foreign Language].

Yes, yes. It is very similar to the question we just answered. I would say that the numbers we are having right now shouldn't be too different. And in that sense, I think, are quite normal. So I don't think I have too much to add about that.

Great. Well, thank you, and thank you, Ignacio as well. The next question comes from Gary King from [ Treplaham Capital ]. He says, can you explain why lower interest rates reduced revenues in post trade? My impression was that the pricing in the segment related to total volume cleared and asset up. The price in this segment was related to total volume cleared and assets under custody. Yes, indeed. Thank you, Gary. So I just explained how collateral management worked and how it was affected by interest rates in the clearing and settlement business line. And regarding custody, when it comes to distributions processing, some of the corporate events funds that must be delivered to the issuer, they are received ahead of time. So those funds are placed at a overnight rate. So if those interest rates go down, so will the revenue generated by them, which is shared by -- with the issuer. So that's twofold -- that's how we explain the twofold impact by interest rates in both custody and clearing settlement. We'll now move on to the next question from Conrado Teixeira from ICM. And the question is, EBITDA margin declined this quarter, impacted by softer top line growth and rising costs. Looking ahead, how should we think about margin evolution? Do you expect this trend to persist? Or is there room for recovery in the coming quarters?

Yes. As we explained during the presentation, we had some increases in expenses that are transitory that are related with the integration process. So we expect that to continue during the following quarters, but should decrease once the integration begins to get into production. So it's just transitory. So in the long-term, we should see better behavior in that respect.

The next question comes from Manuel [ Bintaya ]. [Foreign Language]

Well, that business is mostly in Peru. We don't have any estimations to start having that business. So, so far, there will be no changes in that matter.

Great. Thank you, Manuel, for your participation. And there are no more written questions in the chat. We see there's a hand raised. And Felix, we're going to go ahead and ask you if you have another question to ask. Right. It seems like the hand was lowered. And we received another question from Eduardo Greca from ICM. The question reads. Hi. How do you see the optimal capital structure of the company? Does it make sense to have the significant amount of cash in the balance sheet and at the same time, we generate so much cash?

So in this case, we have to keep in mind that we're doing a heavily intense in terms of investments, as Patricio described to compile with our plan of investment. So at this point, we have cash enough to respond to our compromises related to this future, but during the next quarter and the second half of the year. So we don't think that we have an excess in terms of cash. So we need that amount, as I explained, in terms of be able to pay our main providers in connection with the integration business plan.

Great. Thank you, Eduardo, for your question. We're going to move on to the next one comes from Mr. Arturo Gana from Quest Capital and the question reads. [Foreign Language]

Yes, I think we already talk about the first question. Of course, since some of the expenses are transitory once we don't need to have those expenses, EBITDA margin could rise a little bit. And the second question related with the tax percentage. We have to take into consideration that about 55% of our revenue comes from Colombia, where the tax is 40% tax. In the case of Peru, we received almost 20% of revenue from there, where the tax is around 29.5%. And in the case of Chile, with less than 25% of revenue, the tax rate is 27%. So it should be a tax rate somewhere 30-something percent, 35% or 36%, of course, depending on the proportion of revenues where they originate. So this is more or less the tax rate we should expect in the long-term.

Thank you, Patricio, and thank you, Arturo for your question. And before closing this question-and-answer session and moving on to some closing remarks. [Operator Instructions] [Foreign Language]

[Foreign Language]

[Foreign Language]

Yes, hi. Regarding the [indiscernible] in Peru, we are in the process with regulators to get all the regulatory approvals in order to incorporate the [indiscernible] in Peru. We expect to get those approvals mid of 2026 in order to be able to begin operations not before the fourth quarter of next year.

Okay. In regarding the FX market, we have no news about that. We are really, really focused on the integration process. So we have no news to describe right now.

Well, thank you very much for everyone for having joined our conference call. We are very glad you were able to participate. We will upload the video recording, as well as the transcript soon in the Investor Relations section of our website. And our next earnings conference call will be in September. Thank you very much, and have a good afternoon.

We'll now be closing all the lines. Thank you, and have a nice day.