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

Hello, everyone, and welcome to Nuam's Second Quarter 2025 Investor Conference Call. My name is Carlos Barrios, I'm the Senior Manager of Sustainability and IR at Nuam. Speakers today is Mr. Juan Pablo Córdoba, CEO of Nuam; and Patricio Rojas, CFO of Nuam. [Operator Instructions]. Please be advised that this call is being recorded. And following, we will open the floor to questions from the audience in both English or Spanish. Further participation instructions will be given later on. The recording and transcript of this call will be posted on Nuam's website within the next couple of days. Juan Pablo. Good morning, and thank you for joining us. The floor is yours.

Thank you, Carlos, and good morning to all. Thank you very much for joining our second quarter investor call. We're glad to report, I would say, a solid second quarter, recovering the slow start of the year that we saw in the first quarter. So we have, I think, good news in terms of improving performance from a financial point of view. And also, as you -- as the key highlights, I would like to add that the -- we are making progress in our -- in the implementation of our integration project, particularly the trading -- the equity trading platform. I'll give some more details in a few minutes. The way we're going to do the call today is I will do the intro and then Patricio will take over to go over the individual business lines and the rest of the financials, and then we'll open up for questions. So if you want, we can go to the first slide. So in the highlights -- next Slide. Okay. So as I was mentioning, I think the second quarter had much better results than our first quarter. So in terms of revenues, CLP 36.4 billion, CLP 16.6 billion in EBITDA and CLP 8.8 billion in net profit with a positive growth rate Q-on-Q, which again shows a recovery from a slow start of the year. So we still have some room to recover during the year. We're particularly confident in the post-trade business as Patricio will probably show later on. And that should help us then recover fully in terms of financial results. The next Slide, we'll have the year-to-date. So here, we see more flat results, which bring us to half year results with CLP 15.5 billion in net profit, which is slightly below what we had last year, but in line with what we had projected for the year. As you know, this year, the challenges we have the dual task of implementing the projects, which imply an increase in -- or pressure on costs because of some duplicity, but we're trying to contain costs in the day-to-day operation so that the end year results will be in line with our anticipated budget. So we're trying to make some room there for having a flat operational margin by the end of the year, which is what we had expected. In terms of markets, if we go to the next slide in the presentation. In terms of markets, I would say the markets have performed fairly well, both in terms of prices and volumes. Volumes are 3% to 5% above the volumes last year in dollar terms. But more importantly, in prices, we're up over 20% in the equity market, both in Colombia and Chile and roughly 12% in Peru. And as you have seen, the performance of the stock has been relatively good in the year throughout both in volumes and in prices as well. Going to the project implementation, I think we have 2 pieces of news, which I think are very positive. One, it's been made public already, but we have the approval in the 3 countries by the regulators of the 3 countries of the single rule book. Remember that in order to implement the single -- the integrated equity market or the single trading market for equities, we need to have the same technology and the same operational rules, and those operational rules need to be approved by the 3 regulators. That was achieved in July. So by -- since July, we've had the final approval, both of the Peruvian regulator and the Colombian regulator. So we now have the full regulatory approval for the implementation of the trading system. This is, I think, great news in the sense that I would say at the beginning of the year, there was uncertainty regarding the approval in the 3 countries. We now have full approval of the rule books in the 3 countries. This is great news. In terms of project implementation then, we've been pushing along with the technology. Our IT team has put together all of the pieces together. We are in a critical month. The month of September will be the month to finalize all environments for the go-live plan for the months of October and November, but we are still finalizing client testing. As you recall, we've said there's, let's say, 3 pillars to this project implementation. One is the regulatory side, which is 100% completed. Our technology, the setup of the technology would be the second pillar. On our side, we are, I would say, 98% there. Our systems are almost there, and we're finalizing the final stages of that. But the third pillar is client readiness. So since July, we opened up the testing environment for our clients. Clients have been testing between -- sorry, July and the end of September. And if all goes well, we will be able to confirm the go-live dates in tandem with, I hope, the successful testing by all clients. So if all goes according to plan, September finalizes well, and we'll go ahead with the planned dates so far, but we still have a little bit to -- a little bit of uplifting to do, particularly regarding client testing and client readiness for the go-live. As you know, it is very important for us for this go-live to be very successful, and we need 100% of the clients onboarded and ready to go for the creation of the new market. So as I said, I think these are very good news. It's still a very complex project that we're implementing, but things are looking fairly good so far. Still a little bit to go, but we're making all the efforts in that direction. So all in all, Q-on-Q, very good performance. Year-to-date, a little bit flat from last year. We hope to see better numbers for the second part of the year. The markets are performing very well in the region, in the 3 markets that we operate. And our projects are going according to plan so far, and we're making the final push in order to complete the go-live as intended in October and November. So I'll pass it on to Patricio to go in line in detail with the numbers and the business lines, and I'll be ready for questions at the end.

Thank you, Juan Pablo, and good afternoon, everyone. Next slide, please. I'm going to start with the quarterly market highlights in billions of U.S. dollars. As Juan Pablo already mentioned, in general terms, our markets have had a positive performance across most segments. Market cap increased by 5%. Equities traded volumes increased by 6%. Fixed income by 13%. Derivatives by 3%. FX traded volumes in Colombia and Peru decreased by 10%. Total volume cleared increased 16% and assets under custody increased in 6%. Next slide, please. On a year-to-date basis, market highlights also in billions of U.S. dollars. We can see a similar positive performance with market cap increasing in 16% and the rest of the segments also showing very good numbers, especially in the case of equity with an increase of 34% and fixed income with a 14% increase. Please, next slide. We will now move on to the business performance section. There are improvements across all key indicators compared to the first quarter of 2025, bridging the gap on a year-to-date basis and stabilizing results. On a quarterly basis, we had higher revenues in all business lines, excluding others, growing at a 5% in average, with lower operating expenses decreasing 3%, aligned with cost control management, resulting in an EBITDA growing 15%. And the net profit had a 34% increase, improving the margin from 19% to 24%. On a year-to-date basis, we can see a slight increase in revenues, driven by value-added and information services growing 0.4%. On the other hand, EBITDA margin decreased by 7% due to an increase related to integration expenses. And consequently, there was a slight decrease of 2% in net profit. Next slide, please. In general terms, on a quarterly performance -- on a quarterly basis, performance was driven by listing and value-added services, resulting in flat year-to-date revenues. On a quarterly basis, solid performance by value-added services, double-digit increase in listing due to higher dynamism in corporate events and increase in post-trade services. On a year-to-date basis, listing and clearing affected by lower dynamism of extraordinary corporate events double-digit increase in value-added services, fueled by strong performance in back office services, promissory notes issuance and invoice registry and positive performance in information services due to an increase in market data demand. Next slide, please. We will now dive deeper into the individual business units. The Listing and Issuer Services line on a quarterly basis had revenues growing 17%. On a year-to-date basis, revenues decreased by 7%, reaching CLP 8.8 billion due to lower dynamism of extraordinary corporate issuance that last year had an exceptional performance in Colombia and Peru. In the first half of 2025, total issuance included 123 corporate events amounting USD 5.9 billion. Then we have the numbers related to local issuers, where we can see CLP 437 related to equity, CLP 310 related to fixed income, CLP 995 million related to funds and CLP 16 related to ETFs. And also some numbers related to issuance by category on a year-to-date basis with 56 debt issuances, 53 follow ons and 7 tender offers and 7 stock buybacks. Next slide, please. Trading revenues remained stable on a quarterly basis. On a year-to-date basis, revenues showed a slight increase of 100 -- I'm sorry, at 1%, reaching CLP 11.4 billion. We had a strong performance in equities and fixed income market segments with total volumes of USD 587 billion, an increase of 16%. Related with equities, volumes increasing 34% and the number of trades in 17%, reaching 7.8 million transactions. In the case of fixed income, volumes increasing 16% and the number of trades in 1% and derivatives volumes decreasing 1% while the number of contracts decreased 21%. Next slide, please. The clearing and settlement business unit on a quarterly basis had an increase of 6%, reaching CLP 6.2 billion of revenue, accompanied by clearing volumes growing at a rate of 16%. Nevertheless, for the first half of the year, there was a decrease of 11% in revenues with clearing volumes showing a decline of 6% on a year-to-date basis, amounting USD 862 billion. In the rest of the slide, we can see some numbers related to clearing and settlement total volumes. Fixed income decreased in 10%, FX, 6%. OTC derivatives increasing in 7% on exchange derivatives decreasing 1% and equities increasing 19%. Open interest increased in 32% and collateral management volumes increased in 2% in a year-to-date basis. Revenue from the custody business unit decreased in 1%, reaching CLP 10.4 billion as deposit services underperformed despite higher activity in distribution processing and assets under custody increasing in 6%. On a year-to-date basis, revenue increased in 3% to CLP 20.9 billion, with securities under custody growing at a rate of 17%, reaching USD 296 billion. In terms of securities under custody, equity increased in 21%, while fixed income increased in 11% and delivery versus payment and free of payment transactions increased in 47%. Next slide, please. The information business line on a quarterly basis increased 3%. On a year-to-date basis, revenues showed an increase of 8%, driven by positive performance in market data services to vendors and international clients, increasing 7% in revenue. Workstations remained flat, while price vendor services had a solid performance in Colombia, increasing in 10%. Market data vendor end user subscriptions, both local and international, decreasing 2%, while workstations increased in 2 new users. Regarding the Precia drivers, we have a 12,600 subscriptions, an increase of 7 subscriptions in fixed income, an increase of 20% in the number of contracts in OTC derivatives portfolio valuation and 66 fixed income subscriptions internationally. Next slide, please. On a quarterly basis, value-added services had an increase of 21% in revenue. On a year-to-date basis, had an increase of 14%, driven by strong performance in back office services, promissory notes issuance and invoice registry. In the case of back office services, where we have 58% of the market share in Chile. Variable operational use increasing 33% related to [indiscernible] platform, while in the case of Optimus platform, variable operational use increased in 8%. In the case of digital promissory notes, documents in custody increasing 20%. Number of documents issued increased in 44% and the number of transactions increased in 5%. And finally, registered invoices increased in 21%. Next slide, please. Regarding operating expenses, they went up 8% due to increases on staff, other expenses and depreciation and amortization. Staff increased in 9% in a year-to-date basis, increase that is explained by inflation effects, temporary increase in headcount related to regional integration projects and salary adjustments and new benefits policy. Other expenses increased in 5% on a year-to-date basis, mainly explained by project-related expenses. Depreciation and amortization increased in 12%. And on a quarterly basis, we can highlight that during the second quarter of 2025, expenses showed a decrease of 3% compared to the first quarter of the year, driven by the decrease in other expenses. Finally, we will share some main takeaways from our second quarter 2025 results. Solid second quarter 2025 performance with an increase of 5% in a quarterly basis across all revenue lines driven by listing and value-added services. Robust financial performance driven by double-digit growth in EBITDA with an increase of 15% on a quarterly basis and net profit increasing 34% in the same basis. And finally, we want to highlight the achievement of critical milestones for the single market project. Next steps are being coordinated with market participants. And now I will give the word back to Carlos for the questions-and-answers session.

Thank you, Patricio, and thank you, Juan Pablo. We will now open the floor to questions from the audience. [Operator Instructions] We have now a question from Carlos Alcaraz.

[Foreign Language]

I swith to English. Sorry, Carlos, I'll answer in English. So the comparison in Issuer Services between this year and the previous year shows a soft performance in that line of business, but it is mostly related to the one-off events that we had in the first Q and second Q of last year, both in Peru and Colombia. So we had extraordinary revenues last year, and those were associated with tender offers and things of the sort done last year. The rhythm of those tender offers this year has been much slower. It's not something that we control. It's really up to the issuers what type of transactions they do in the market. We had some estimates, but the market has been below those estimates for this year. So regarding that line of business, there's not much we can do. Now in terms of, of course, working with issuers and developing new products or products that are distributed regionally, which is, I think, the key element here. Yes, we have been working with clients in 2 fronts. One is closer relations with issuers in all of the 3 countries. I think this is something that we still need to work further, and there's a great opportunity there to have, let's say, a joint strategy with issuers. We had a very let's say, rewarding meeting in Cartagena a couple of weeks ago in light of the Regional Congreso of Asobolsa where we had the committee of members. So it's the committee of issuers in the market where we discuss all of the issues related to regulation, reporting, liquidity, market making, and particularly this year, we're talking about regional bond issuance. So yes, we're working with them, but this is something that's probably going to be slow, but we are working on creating the business case and the operational tubes for allowing issuers to issue regionally. From a regulatory point of view, this is today enabled. We can do it. But we have to get the issuers on board and the investment banks, et cetera, on board to have our first regional issue, which we hope will be in the next few months. So we're working on it, but it's probably going to be a slow development. In other issues related to issuer services, it has to do more with the new issues in the market, and that follows the market dynamic, which we hope that interest rates as they come down, will reinvigorate new issuance, but interest rates have been going down slower than anticipated. So we keep having that slack for the next quarters.

Okay. I understood. Now I will switch to English if that works for you. My second question is related to the market testing. In the last call, you mentioned that it will start in June and the new trading workstation in July. What initial response do you have from this test? And what feedback have you received from clients?

Yes. Thank you. So the first thing is that we were not able to initiate testing in June as we had anticipated. So we started the 14th of July. So there's a few weeks delay in the start of the testing. I think that today, the feedback from clients regarding the trading engine is pretty positive. We have now for many weeks, a stable environment in the trading engine. And I think the last number was 97% successful connections to the trading engine. So I think that part of the process has gone fairly well. We initiated the trading workstation testing for clients in August. The general feedback is also very positive. But of course, there's always something that needs, let's say, there's always something that can be perfected. So we are finalizing a new version of the trading workstation in the next couple of weeks to sort of satisfy some of the traders' feedback, but it's nothing essential. And I think the overall response has been very positive in terms of the look and feel, the ease of operation and the ease of configuration, moving around the screen, executing orders, et cetera. So I would say both from the trading engine and from the trading workstation, we have very positive feedback and stable environment at this stage. Now the final stage of, let's say, client readiness before the launch has to do with also the confidence that our clients have that everything internally in their own operation works perfectly because one thing is, let's say, the services provided by Nuam, but those services need to interoperate and interact with the internal services or systems of the individual clients. And there, we still have pending a few trials so that they can test the whole, let's say, data stream from receiving the order from a client, putting that order into the system and then going back to the back office and clearing and settlement systems, et cetera. So we're working on it. I think the general feedback is positive. The IT environments are today fairly stable and clients are being able to test, but we still need to improve the level of confidence, let's say, of our clients that everything, not just the Nuam side, but also their internal systems are working in tandem with our system. So that's why I'm saying the month of September is a critical month to be able to finalize all these tests and have all, if not -- or most of our clients, if not all, fairly confident for the go-live.

Okay. And finally, in the April meeting, you approved a more aggressive dividend policy. In 2 quarter, cash dropped 25% due to dividends and negative financing flows. Considering the investment process for the integration, what short-term efficiencies do you expect so that available cash does not drop sharply?

Yes, we are -- so for the second half of this year, we have already identified some improvements or reductions in anticipated expenditures, which will consolidate the cash position, no problem. And then moving forward to '26, '27, which I think we discussed in the previous calls, there are significant efficiencies that need to be captured after the go-live. Of course, if the go-live, as we mentioned probably in the previous calls, the go-live of the trading engine is this year and the go-live of the post-trade systems will be mid of next year. That has been postponed a little bit, but we should be capturing $7 million in the following years in terms of efficiency. So those plants are still are still are still there, but we need to finalize putting all our new systems in production so that you can start decommissioning and simplifying the operation. So that's in the plans.

We now have a question from Jose [indiscernible] from Quest Capital. I will read it in Spanish. [Foreign Language].

The results in Peru are mainly associated with the one-offs that I mentioned that occurred, let's say, on a positive note in the first half of 2024, first quarter and second quarter, but mostly second quarter in Peru, first quarter in Colombia of these public tender offers and special transactions done by issuers. So if you look at all the other business lines, things are relatively in order, but it's really these one-offs associated to public tenders that took place in Peru last year and that implied roughly $2 million in revenues just in Peru alone. Now the other -- and that's regarding Peru. The other business line that is not performing as we expected was clearing and settlement, and that comes mostly from the derivatives business in Colombia, which had a slow start of the year. The first quarter was underperformed, but has since then recovered. And I would say today is flat with last year, and we should be seeing increases as we move forward for the rest of the year.

I'm moving forward to Isabel Luna from IRS Capital. I got a question I will read it in Spanish. [Foreign Language]

Okay. So this is a similar question to the last question from Carlos. We have anticipated '26, '27 and '28. So there will be a 3-year period for the capturing of those expense synergies or the remaining part of the expense synergies. Given that the, let's say, go-live or the clearing settlement is planned for the second half of 2026, it will -- those synergies will not begin before then. So it will be basically the second half of '26 and then full year '27, full year '28. That's the existing, let's say, time frame for those synergies to be captured moving forward. I think we mentioned this in the previous call. We have, of course, high expectations on revenue generation, but it will not be in a straight line. We will probably have stepwise increases in revenues. And also the synergies will be captured gradually, and they will not be in a linear form, but step-wise, as we can decommission some of the existing systems that we have -- that we currently have and that are -- right now, they are duplicated, right, because we have all of the new systems that we're implementing for the new integrated market, but we still have and operate -- run and operate the pre-existing systems that are still serving the market. So we still have some time for these duplicated expenses to be in our financials. But beginning in the second part of 2026, we should start seeing that relief.

Thank you, Juan Pablo. There is another question from Antonio [Foreign Language]

Okay. So again, the second part of the question is similar to the previous one. That's a good point. So we have a broad, let's say, plan for the decommissioning of systems and of course, a line item identification of things that will be eliminated or reduced beginning of the second half of 2026. But probably we have not published that in sufficient detail. So that's a homework that probably we can take, but that will be for, as I said, starting 2026 on that side. On the first part of the question, it has to do with the go-live date basically. I would reiterate what I just said. I think we are making all of the efforts and all of our -- on our side, all of our push so that we have all of the systems in place in a safe and secure and complete fashion so that clients are 100%, let's say, confident that they can do the switch to the new system. But this is a very, let's say, sensitive issue because everybody in the market needs to be ready. We cannot just switch our systems and wait for clients to be ready because the market has to end on a Friday trading in one engine and start next Monday in the new engine. And everybody in the market needs to be on board. So we are making every effort, every push on our side so that the initial dates are -- I mean, we can comply with those dates. But ultimately, it is up to client readiness. The good news is, one, we are no longer pending any regulatory approval. We are okay with the regulation. Our technology is mostly in place. So that should not be a detriment to the plan. But right now, it's really getting clients up to speed and feeling confident that they can make the switch with no problems in their operations because we don't want the market to have a halt because of the change in system. So it's a complicated, let's say, synchronization effort, but we've done it in the past. Markets in the 3 countries have switched trading platforms. This is not something that you do every year. It's probably something you do every 10 years. So we're facing one of those events, which is a 1 in a 10-year cycle event, but we're doing every effort to coordinate it. So hopefully, we have October and November, the go-live dates for Chile, Peru and Colombia as planned.

Thank you, Juan Pablo. We have another question from Conrado [indiscernible] about the equity method. The equity method line fell about 59% this quarter compared to the previous year. What was the main reason for that? Should we expect the current value going forward or a recover to the previous quarter's level?

I'm going to take this question, Carlos. I'm Claudio Diaz, the Regional Finance Senior Manager for Nuam. The main explanation for that is basically performance of our investments in those companies. And in addition, I would say, the main explanation to this variation is due to the investment we have in Deposito de Valores Bolivia, the deposit entity in Bolivia, which is an investment held by [indiscernible]. And basically, what happened here was the impact of the exchange rate they have Bolivianos. And when we have to recognize the effect of the devaluation of that exchange rate of that currency, that explains this impact.

So it's a one-off -- the big impact. What was the amount of the write-off?.

$1 million.

So it's a $1 million write-off, which is a one-off. So we should be in the next quarters back to normal.

Correct.

Carlos, sorry, we're not hearing. We can't hear you very well.

Sorry, do you hear me well now?

Yes.

Yes.

Okay. There is another question in the Spanish from Jorge [Foreign Language].

Can you please, Jorge elaborate your question? I mean what I could comment in general terms is that we implemented a new strategy from moving our investment in Colombia from Nuam to an intermediary holding company. So that would help us to neutralize the effect of the exchange rates, and that helped stabilize the impact of the expenses in taxes. But in general terms, I would like to understand better your question because if I compare 1 year over the 6-month period from 1 year to the other, it's pretty stable.

Your microphone is open if you would like to elaborate your question around taxes, income tax...

[Foreign Language]

Maybe Carlos, we can move on to the next question and leave open the buyback option for Jorge.

Well, as explained in our financial statements, the reconciliation to effective tax rate, you could see that there is a significant impact driven by Colombia, which has 40% tax rate. But also what explains that the most is due to the exchange rate variations and how we have to apply the inflation on the investments held in Chile. So basically, I would say it's due to the value of the investments from a taxable perspective.

Thank you. I'll move forward to the last question from Arturo Ogana from Quest Capital. Excluding the projected synergies, how should the revenues and EBITDA grow in a base case scenario for the regular business? Let me say next 2 years or medium term, should we expect growth at all?

What was the last part, sorry?

The last part should we expect growth at all?

Okay. I would say a couple of things. Well, the synergies we already mentioned, and that's in the plans, and that can be executed, let's say, no problems once the technology is fully implemented and we can start decommissioning the old systems and simplifying the operation. From a growth in revenues perspective, I mean, we are definitely doing all of these efforts to improve liquidity in the market. And as you know, liquidity in the market drives many of the different business lines in the company. However, if you look at equity trading revenues, equity trading revenues are probably only 6% of our total revenues. So yes, we would like to have a 2x or 3x increase in trading volumes over the medium term. I cannot say, again, this is not going to be a linear forecast that you do month by month. But all of the efforts are to increase liquidity significantly for our markets, and this will happen over time. Now how much will that go to the bottom line growth? Well, of course, we hope that a significant portion of that. As you know, the incremental EBITDA of an additional dollar in trading is pretty high. So once we've done the investments, the incremental revenue in trading should be going to the bottom line because there's no variable cost associated to that. But more importantly, I think that the main driver of the integration is to basically increase the size and attractiveness of the market. And that sort of triggers the other business lines. So market data, for example, is an important line of business that should be benefiting from a successful implementation and, let's say, a successful integrated market experience or index products and index provision should also be part of that moving forward and new issuers. The idea is that we'll have a better market with more participants, more liquidity, and that should be a better market environment for new issuers. So the direct impact of the integrated market in terms of trading revenues will be significant, but it's not going to be the big driver given that it's still -- it's a relatively small portion of our top line. But if we are successful, which, of course, we believe we will be successful, it is really the impact on the other business lines that should drive the increment in revenues and, of course, in profitability of the company.

Thank you, Pablo. There is no more questions. So I don't know if you have any final comments on the results, and we can close the call.

Okay. Again, no, thank you, Carlos, and thanks to everyone. I think the second quarter definitely is an improvement from the first quarter. We started off slow in the year. Second quarter performance is much better. We hope to have better quarters, third quarter and fourth quarter. But more importantly, we are focused on the implementation of the integrated market. As I just mentioned, the integrated market is let's say, the pivot for the strategy where not just trading will be enhanced, but the possibilities of all the other business lines in the company. But we first have to deliver, and we are focused right now 100% in delivery of the new trading platform. This month of September is a critical month. Hopefully, with all the efforts that we're making, our clients feel confident that they can -- that we can go live with them, and we will achieve this before year-end. So for the next call, we hope to have this already accomplished, and then we can focus on the next stage of the integration, which will be the clearing and settlement, which is planned for mid-2026. And we will start seeing the benefits of the integrated market in 2026 for sure. So thank you very much. Thanks for listening. Thanks for joining, and hope to see you in the next call.

Well, thank you very much, everyone, for having joined our conference call, and we are very glad that you were able to participate. We will upload the presentation today as well as the recording and the transcript in our Investor Relations section in our website. So thank you very much, and have a good afternoon.

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

Thank you.