Hello, and welcome to the Flowtraders Q2 2021 Results Call. My name is Molly, and I'll be your coordinator for today's event. Please note that this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions. Call.
Call. I will now hand you over to Jonathan Berger to begin today's conference. Thank you.
Thank you. Good morning, everyone, and thank you for joining Flowtrader's 2nd Quarter and Half Year twenty twenty one Results Call. As you've no doubt already seen, we released our results first thing this morning. Call. I'm joined here on the call by Flowtrader's CEO, Dennis Dykstra as well as Chief Trading Officer, Volker Jollik, who will run through the results presentation.
Call. Afterwards, I'll be happy to take any questions you may have.
Before we begin, let me draw your attention to
the disclaimer on Page 2. Call.
Please be advised that if
you continue to listen to this presentation, you are bound by this disclaimer. Also, please note the results we will discuss in this presentation are unaudited.
Call. With the formalities out
of the way, I would now like to hand over to Dennis for his opening remarks.
Call. Thank you, Jonathan. Good morning, and thank you all for joining this call, where we will provide additional color on our second quarter and half year twenty twenty one results. Call. The first half of twenty twenty one overall saw more normalized levels of market activity when compared to the exceptional market circumstances experience in 2020.
Accordingly, market ETP value traded decreased 14% year over year. Call. The Q2 of 2021 was more subdued than the first, and this was reflected in the ETP market value traded, call, which decreased by 40% quarter on quarter. Our own ETP value traded essentially tracked the broader market in the 2nd quarter, decreasing by 15%. From a year on year perspective, flow traders only decreased by 6%, which clearly outperformed the broader market.
Call. Consequently, this market environment along with Flowtrader's own pricing and hedging capabilities translated into a net trading income call. €94,400,000 in the Q2 of 2021 compared to €142,200,000 in the Q1 of 2021 €229,900,000 in the Q2 of 2020. This contributed to NCI for the first half as a whole call of €236,600,000 We demonstrated yet again strong margins with the EBITDA margin of 43% call. In the Q2 of 2021 with an EBITDA of €40,300,000 Overall, in the first half of twenty twenty one, call.
Our EBITDA was €119,600,000 with a margin of 51%. Call. The Q2 2021 net profit amounted to €28,700,000 with a basic earnings per share of EUR 0.66 Ultimately, we recorded a net profit for the first half of twenty twenty one of EUR 90,200,000 call with a basic earnings per share of €2.05 Taking all of this into account, Flowtrader proposes an interim dividend call. This will be paid on August 20. We are cautiously monitoring the evolution of the pandemic call.
And our business continuity plan remains active with the health and well-being of our colleagues being of the utmost importance. Call. We once again retained a strong focus on implementing our strategic growth agenda during the Q2, which saw further confirmation of our structural growth. Accordingly, we have worked to a larger ETP footprint call. And I've taken further steps in enhancing coverage of fixed income cryptocurrency and commodity markets.
These investments are call. Now let's take a closer look at the market developments call as well as a deeper dive into Flowtrader's performance and accomplishments. Firstly, we will review recent ETP market dynamics on the next slide. Call. As shown at the top left hand side of this slide, ETP market value traded declined 40% in the Q2 of 2021 call.
Compared to the Q1 as markets further normalized. Market volumes for the first half of twenty twenty one were also 40 quarter. Implied volatility also trended downwards during the 2nd quarter call from the higher level seen in the first. Accordingly, this reduced market velocity in the second quarter after an uptick seen in the first. ATP assets under management surpassed the $7,000,000,000,000 mark for the first time In the first half year, as we perspective driven by equity ETFs, call.
The first half also saw record ESG and crypto inflows. Naturally, as a key part of the ETP ecosystem, flow traders facilitated trading across all these ETP asset classes. In summary, it is fair to say that momentum and the outlook in the EDP universe remained extremely positive in the first half. Now I will hand over to Volker, who will review Flowtrader's regional performance in greater detail on the next slide.
Thank you, Dennis, and good morning all. Call. On this slide, we present an overview of some of the key performance indicators for the Q2 and for the first half 2021 on a regional basis. As Dennis mentioned earlier, Q2 was more subdued generally from a market activity standpoint
call. And that is very much reflected in the performance
by region. Encouragingly, our own ETP value traded outperformed the market in every region in Q2. Call. In Europe, we maintained our position as the leading liquidity provider in E2Ps both on and off exchange. The region delivered a robust trading performance in Q2 with contribution from crypto market making activities.
And once again, Europe remains the largest NPI contributor and FlowTrade's most important market. Call. In a consistent team across all of our regions, we have sought to deepen and expand our overall footprint. In Europe, we have the new office in Paris, partnership with ICAP on the launch of a new crypto platform and successfully connected to Bloomberg's Epic Store platform. Moving to the Americas, again, the trading performance reflects lower levels of market activity.
The Americas remain a growth region call. Accordingly, we continue to expand our lead market maker activities with issuers as evidenced by the iShares ESG ETFs. Call. From a footprint perspective, we connected with additional counterparties as our single dealer platform went live and also commenced coverage call. And as an example, we acted as a market maker in the newly launched CNH Future on Hong Kong Exchange and we have submitted our Q3 registration for China trading.
Call. I will now hand over to Dennis for the next slide, where we cover the cost base in greater detail.
Thanks, Wilkard. Call. The main drivers of the 8% year over year and 4% quarter on quarter increases in fixed expenses relate to new hires and technology investments. Call. We have incurred in the first half €1,300,000 of additional one off expenses in the first half, which relate primarily to the ongoing COVID-nineteen related expenses.
Our headcount increased by 2% versus the end of the Q1 quarter with a focus on technology and development hires to call. In terms of cost for the full year, we still expect maximum growth in fixed operating expenses of circa 15% for 2021. Now we will take a closer look at Flowtrader's capital position on the next slide. We show our required CET1 capital levels on the top left hand part of the slide. Call.
After accounting for the interim dividend, Flowtrader's capital buffers have remained strong and remained comfortably above call requirements under CRR or IFR. Our owned fund requirements increased to €271,000,000
at the
end of June from €226,000,000 at the end of March. This reflects the nature of the trading book at that point in time with increased crypto and fixed income trading. We had a total CET1 of €449,000,000 at the end of June 2021. Call. On the top right hand side of the slide, you can see that our solvency ratio with the prime brokers as at 30th June reduced slightly from the end of Q1 reflecting a reduction accumulated trading capital to €690,000,000 Again, we are comfortably above prime broker requirements.
The new IFP IFR prudential regime finally came into force on June 26, 2021. Call. The initial impact has been broadly neutral as lower capital requirements have been partly offset by growth business activities, call. We remain in ongoing discussions with the DNB as to the precise implementation call. Considering all these developments, FlowTrade, as I said, the full year 2021 interim dividend €1 per share.
Now I will hand over to Volker again to discuss our strategy in medium term growth focus areas.
Thank you, Dennis. This slide will be familiar to all of you. And again, our growth focus areas call. Remain as we outlined previously. Recent developments during the first half of the year have further confirmed our strategy with the structural growth in the business very much conference.
Seeking to enlarge our global EDP footprint means that we can align ourselves with the structural growth in passive investments, call. Which has continued apace in H1. E2P assets under management surpassed the $7,000,000,000,000 mark for the first time in H1. Call. We have also seen record inflows into ESG and crypto, which has translated into increased trading activity in those areas.
Call. Our goal is to remain market leader in Europe and seek to be top 5 in the U. S. In terms of enhancing our coverage of fixed income, we want to Build on the fact that fixed income continues to be a growing ETP asset class by becoming the global top 3 liquidity provider in fixed income ETPs. We will also leverage access to the underlying.
This will be done through promoting and driving market electrification, call, which will create a more level playing field. From a currency trading perspective, we are leveraging our global infrastructure to provide liquidity to currency pools and counterparties. Our aim is to be a top 15 FX liquidity provider on Euromoney, call. And we want to grow commodities by leveraging our top 5 rank on ECNs with spot metals. Lastly, we will further develop our crypto business by call.
These growth focus areas have the ultimate goal of driving structural NTI growth. I will now turn to the final slide of the presentation call. We once again retained a strong focus on implementing our strategic growth agenda during the Q2. We are confident of delivering additional progress during the remainder 2021. In the first half of the year, Flowtrader is built on our leading global EDP liquidity provider position and grew our presence in all regions, call, especially in the U.
S. And Asia. Highlights include acting as a lead market maker on an increasing number of new issuers in the U. S, commencing coverage of Brazil products and Canadian crypto ETPs and further deepening our ecosystem relationships in APAC. Call.
Globally, we now trade around 1900 institutional counterparties. In the second half, call. We will focus further on expanding our counterparty base as well as increasing and deepening product coverage, connecting with additional venues and following up Q3 registration. We have enhanced coverage of fixed income in the first half of the year through expanding our infrastructure. We have retained our number one off exchange position in fixed income ETFs.
Focus for the rest of the year is on further enhancing our pricing capabilities call. As well as accessing more liquidity and increasing volumes as well. From a currency and crypto perspective, We are now constantly trading more than $5,000,000,000 daily as we build bilateral connectivity and trade processing. During the first half of the year, we have successfully completed our connectivity migration to increase our counterparty reach call. And partnered with ICAP on the launch of our crypto trading platform.
Work will continue in the second half on scaling FX bilateral counterparty business and increasing our product coverage.
Call. Thanks, Volker. This now concludes the formal part of our presentation. Call. We'd now like to open up the floor for any questions you may have.
Operator?
Thank you. Call. The first question today comes from the line of Thomas Kuber calling from KBC Securities. Please go ahead.
Hi, good morning. Yes, thank you for taking my questions. Maybe the first one Yes. On competitive pressure, I think during the Q3, you mentioned that call. The lower volatility levels in that quarter caused a lot of competitors to reenter the market and compared to earlier in the year, Which weighed heavily on the results then.
This quarter, despite significantly lower volatility, We're not really seeing that effect and with NTI still quite a bit higher than Q3. Did something change in terms of Like the competitive landscape? Or is this difference more linked to your increased footprint or the type of products traded? Yes. Any comments on that would be helpful.
And then maybe a second question, maybe a bit more general. Call. With the VIX levels now back around longer term averages and yet no specific events in this quarter, Like the COVID linked sell offs or the sector rotation that we saw in the Q1, would it be fair to say that Q2 is Yes, sort of a standard quarter for you and maybe a good basis to extrapolate from going forward? Or are you still seeing some elevated And thus unsustainable activity coming from COVID? Thank you.
Thanks for the questions, by the way. I think on the competitive landscape, we have not seen any big changes in the last 3 to 6 months In either region, I don't know Fokker if you can add anything there, but
No, I agree that there haven't been any Major changes in the competitive landscape.
Anywhere. So and on your second question call. On kind of the lower volatility environment, I think the second quarter demonstrated that the investments we've done in the last few years on kind of diversifying, but also increasing the footprint, focusing on the right Parts of the ETP ecosystem being kind of ESG related, fixed income related And also crypto, where the growth is also there, kind of focusing on being a kind of incremental part of the growth in Not only kind of historically, but also going forward. In addition to the investments we've done in kind of improving Pricing, but also diversification into our asset classes started to pay off. So also there, call.
The purpose of those investments is to also structurally grow our MTI into more asset classes, more products, Broadening the kind of the investor base we are connected to in every region. It's hard to say whether this is a normal quarter, but I think it's just a confirmation of The focus and the investments we've been doing in the last few years, any ambitious focus there or?
The fixed index obviously describes the implied volatility for the SP index, and we're trading many more asset class and different products. So It has been a standard quarter. I think if you look at all the different asset classes, probably it's difficult to say that. You look for instance on the crypto side and the fixed income side. So we look at more indicators for that.
Equity was relatively quiet, but Fixed Income was even more quiet and compensated a bit on the crypto that was Pretty active, mostly in May as well, some downticks. It's a mix.
And maybe as a Short follow-up on that. And I think the question has been asked in previous calls as well. So apologies for re asking that. But call. On crypto, any plans to maybe provide some additional color or guidance on that financially, I mean?
No. As the property answer is going to be the same as in For the previous questions, we don't disclose NTI or contributions to NTI per asset classes yet.
Call. Yes, that's clear. No problem. Thanks.
The next question comes from the line of Michael Rowe calling from Degroof Petercam. Please go ahead.
Yes. Good morning, gentlemen. Call. I have a couple of questions on China, where you filed for approval to trade. How long does such a filing generally last?
Is this a couple of months or could you perhaps take a year before you can start training? Then second, Once approved, how much of that Chinese market is then addressable for you? Is it all of it or only parts? Call. And then finally, is revenue captured there roughly comparable to that of APAC?
Good morning, Michael, and thanks for the question. So call. The QV registration was filed kind of a couple of weeks ago. We expect an answer reasonably soon. This will allow us to kind of start trading some of the Exchange is remotely, but it is expected that we need to follow-up Probably with more onshore presence down the road to really cover kind of all oil exchanges on China Mainland.
So this is a very important first step call. Turning to China Onshore Markets. So it's hard to say Anything about kind of the revenue capture that's available for us, but we do see that it is very significant market. It's a high growth market and also they're teaming up with kind of other markets participants. This should be a very nice growth opportunity.
Okay.
So then since you'll be starting remotely, is it Fair to assume that you can only address a certain part of the market. And once you have an office there, all of it could be open to you?
Yes.
Okay. Well, considering an onshore presence, now a nasty question. How will you protect your IP?
Call. Well, we trade kind of many asset classes in many countries, right? So call. We take kind of security and the cybersecurity very, very serious. So we have the ability to kind of separate kind of entry points to any market from kind of the core And kind of isolated.
So we kind of China is not the only market which might have a perceived higher level of kind of security. So that's something we have been dealing with and also we'll deal with going forward.
Call. Okay. Clear. Well, and then I also have a question on crypto. And I think in previous calls, You didn't quantify it, of course, but you I think it was also downplayed as by suggesting that it's contributing, but it's not huge within the NTI as a whole.
However, my perception is that crypto in general is volatile, but in Q2, it was Even more volatile than usual. So having said that, it was probably relatively modest in your NGI in Q1 and also in Q2. But Quarter on quarter, was there quite a good improvement because of that increased volatility? Or would that also be too much for you to disclose?
That would be a bit too much detail. But what we can say on call. The focus it receives is that this market is developing pretty rapidly, also impacting the entire financial ecosystem. And that's also a reason that we call. Our active, present and following everything that's happening, because it will change some of the process in the financial world.
So we have a relatively strong team monitoring this Because we expect this to have a lot of impact going forward. So we're not going to call it on all the NPI growth here.
Call. Okay. Well, too bad on that. And given those huge swings that we've seen in the past few weeks months, That hasn't resulted in any kind of inconsistent trades or losses or The model is working fine in spite of Bitcoin halving in a couple of weeks.
You mean 30% down on a day? No.
Yes, yes, yes. That is not all of a sudden leading to Mist rates on your parts, everything is working fine, your model is indeed able to digest all of that?
We didn't have a loss on that day. The exchange is obviously not that mature. So
the trade capture
The stability of the platform is slightly less than the regulated exchanges. So this is something we have to deal with, but on our Positioning risk side, we have not encountered any problems.
Okay, good. That's reassuring. That's it from my side. Thank you.
Thank you. Call.
The next question comes from the line of Lotte Timmermans calling from ABN AMRO ODDO BHF. Please go ahead.
Good morning, gentlemen. One question left from my side. On U. S. Revenue capture, it was a bit light, especially compared to last quarter.
Call. I know you profited from some good fixed income flows last quarter, also supported by strong creation of redemption activity. Call. What share would have been relating to this activity in Q1? And could you say anything about potential pricing pressure or market share going forward in the U.
S?
Yes. So indeed the lower activities in the fixed income play a role here, But it's not the only factor in the market. If you look at the XT side, it's broadly You've added into an international segment where we do really well and the KPIs look in line with what we want, maybe a bit higher. And We have the domestic side where they're slightly behind. So we're working on that as well.
And in that area, There's a lot of volume. So the impact for instance the market share metric, if you will look at that one, I call it isolated. So it is a combination of the way that Behavior of the market is first our strategies. So it's a bit above, a bit on the lower activity on fixed income Slightly more challenging environment on the domestic side, which is traditionally not our strongest point. But on the international side, we're doing pretty well, so I think it's looking good We wanted to be slightly better.
So I think it's slightly below our expectations. Call. Yes. Hopefully, next quarter we can update that it's back in line again because there is definitely growth still visible on the longer term trend.
So not any structural issues or pricing pressure there, just market related slowing down of the market And less disruptions?
Yes.
Okay. Thanks. Question.
The next question comes from the line of Martin Price calling from Jefferies. Please go ahead.
Call. Good morning, guys. Thanks for taking my questions. I've got 2, if I may. The first one is just on capital.
Just wondering if you could provide some quantification of how much lower the new capital requirements are relative to the old regime, Perhaps assuming the trading book unchanged. And are you hopeful of much further capital relief as a result of the discussions that you're having currently with the DNB? And secondly, just on China. Would establishing an onshore presence result in any noteworthy uptick in capital needs call. Investment requirements, perhaps relative to your existing cost guidance.
Thank you.
On the capital, as the new IFR regulation is relatively new, so we're still kind of finalizing some kind of nitty gritty details with the regulators. So kind of both of us I want to start with a conservative approach. So hopefully, and we're kind of confident as always, There are opportunities to kind of get it more kind of proportionate for also the market risk we actually take And have on our balance sheet. So I think also historically we were expecting and also Kind of the new regulation was aimed to have more kind of proportionate capital requirements. So having capital requirements, which are reasonably in line, yes, it's kind of I think it can be more a bit more sophisticated.
So We are confident we can lower it. So it is in line and it kind of differs Kind of with the positions, but it's there is no big swing. So think about kind of 5%, 10% range of the old capital requirements. And on your the China question, it's kind of relatively similar To any other office we will open, whether it's U. K.
Or a bigger trading setup like Hong Kong or New York, A big part of the infrastructure is already built, so all the trading applications. So opening a new office is predominantly about kind of A slight increase in kind of fixed costs like rent, probably some connectivity from a data perspective, But no big kind of capital or cost changes in the foreseeable future.
That's very helpful. Thanks Dennis.
Call. The next question comes from the line of Michael Werner calling from UBS. Please go ahead.
Call. Thank you very much, and thanks for the presentation, guys. Just two questions from me. One on the tax rate. I think the tax rate went up Q2 versus what we've seen over the past couple of quarters.
I was just wondering, if you can explain what was going on there? Call. And then second, with regards to Flowtraders being the number one market share leader in crypto ETFs, call. I was wondering if there is a magnitude in terms of that market share that you could provide. Thanks.
Thanks for the question. So on the tax rate, This has mainly to do with the tax treatment of equity or share compensation for our For the employees, which is to a certain degree not tax deductible in especially the Netherlands. So That's the reason for the slight uptick in Q2. We don't expect long term any changes there. So The guidance of our kind of an effective tax rate of 20% remains in place, Especially kind of the longer term.
The second question on the magnitude of the market share, I think. Call.
So most of the ETPs are listed in Europe at the moment and the rest of the world is slowly seeing more listings coming. So for instance, in the U. S, not yet. We have some other plans. So we're focusing on the true ETPs here.
It's mostly Europe. Call. So we're on the whole of Europe, we have market shares on exchange around 40% And off exchange, 20 high to 30. And for the crypto, it's slightly higher than that, But there is not a huge number of things. It's a bit more variable because of the low number of listings, But you can say between 35,000,000 and 45,000,000.
Thank you very much. Very helpful.
Cheers. Call.
Thank you. We have no further questions coming through on the phone lines at this time. So I'd like to hand the call back over to your hosts. Thank you.
Call. Thank you, operator. I'd like
to thank the analysts for participating in today's call. Please note that we'll host our next analyst call when we release our Q4 and full year 2021 results early in 2022. Details of this call and the time of this call will follow in due course. Our Q3 trading update is scheduled to be released on the 28th of October 2021. This now ends the call.
Thanks again, everybody, and have a good day.