Earnings Call: Q2 2021

Jul 26, 2021

Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus' operator. Welcome and thank you for joining the Hellenic Exchange's Asian Stock Exchange Conference Call to present and discuss the First Half twenty twenty one Financial Results. At this time, I would like to turn the conference over to Mr. Nick Coscolato, CFO and Mr. Stelios Kosaridino, Head of Investor Relations. Gentlemen, you may now proceed. Good afternoon, ladies and gentlemen, And good morning to those of you listening to us from the other side of the Atlantic. We would like to present the financial results of the group for the first half of 2021, which were published yesterday and are, of course, available in the IR section of our website and then take any questions that you might have. Nick, I don't know if you want to start with some comments. Yes. Thank you, Sergio. And my best to all participants. Some highlights about the performance of our market as we usually do. The average capitalization of the market has increased by almost 17%, We're standing at close to €57,000,000,000 €58,000,000,000 Obviously, the Latest number is higher than that, but we're talking about the average now. We said banks market cap has increased by 19 While the market capital rest of the market has increased by 16%, some positive trends coming through on the average The average daily traded value, which has increased 8% on a half year basis to 81 €1,000,000 versus €75,000,000 last year. Derivatives as well I'll stand much higher. So if on that note, if we do examine the quarterly market performance of the past five quarters in terms of trading. Obviously, we had a very weak Q2 last year, which was right after the onset of the pandemic and even weaker Q3, and obviously, because of the result of the lockdowns and overall slowdown economic activity And the decrease of the ability, but that all that turned around in Q4, where trading was up follow through into Q1 of this year and Q2 of this year as well. And we also had increased market activity as well. So it's some issues, some equity issues, both from 2 of the 2 systemic banks and then some bond issues as well. So, Sayel will go into more detail about that during our results presentation. But at this point, I just wanted to highlight a few things from our side. I think it's something that we've been talking about for quite a bit over the past year and how we're seeking to move forward with regards to the series of actions and initiatives that we've lined up and feed into the strategic outline that we've been discussing. The licensing of our subsidiary, AFIC the CSDR and the sort of the operation under the new regime that went live on the 4th on 12th April. And that enables us to tap into additional services offered to the capital market and the corporate ecosystem. Our 20th Annual General Meeting elected 4 new members on the Board of Directors, which increased the body's independence and enriching its knowledge and experience. We're very excited about that. And lastly, starting off that we want to do in terms of our implementing our sustainability policy. This operation with Green Electricity also includes the colocation service, this. And we aim at making it even more competitive as an offering for existing and prospective clients. So at this point, I'd like to pass it on to Pedro to go through our first half twenty twenty one performance in more detail. Thanks, Nick. So let's start the overview of our first half twenty twenty one performance, as always, from the top. The consolidated turnover of the group in the first half of the year was $18,400,000 compared to $15,200,000 in the first half of twenty twenty, and that's up 21.3%. If we analyze revenue further in the 3 segments, And we see that trading base revenue was up 4% on the back of higher ABTV in the cash market in the first half of this year compared to last year. Market cap based revenue, and that is exchange depository and clearinghouse services, was up almost 45%, mainly on the back of fees on corporate actions and other services to issuers. While revenue from ancillary services, which includes market data, support of other markets, etcetera, was up a strong 46.4 percent and we'll have a few more things to say about that. If we look Further into our top line, there are 6 most important revenue drivers, which This account for about 90% of total revenue. We see that revenue from clearing made up 29% of total turnover and amounted to 5,400,000 compared to $5,200,000 in the first half of last year, and that's up 4.2%. And that increase in turn is the U. K. 7.3% increase in clearing revenue in the cash market, while derivatives market revenue was up 3.4%. Relling from trading represents 16% of total consolidated turnover. And in the first half of the year, it was up 1.1 percent to $2,950,000 Now as far as revenue from the derivatives markets, the financial results of trading and clearing. It's concerned in the first half of the year. Our trading activity, as already mentioned and measured in number of contracts, increased by 67% the 69,700 contracts compared to 41,600. However, revenue was up only 3.5% And that only can only mean that the average revenue per contract was down 39% to EUR 0.137 euros as opposed to €0.23 per contract. As you know, pricing in a derivatives market Depends on the type of investor, the product being traded and the prices of the underlying securities. And as a result, market volumes and our revenues do not always I'll go hand in hand, and as a matter of fact, they rarely do. Lastly, on derivatives, trading and clearing revenue in the first half of twenty twenty one was 1.12 $1,000,000 compared to $1,080,000 corresponding to 13.4% of total trading and clearing revenue and 6.1% of total consolidated the trend of total turnover, and this line includes the quarterly subscription fees paid by listed companies, fees on rights uses and IPOs as well as fees paid by members. And that Line came in at $1,940,000 up 27% compared to the first half of last year. Revenue from depository services is up 71% amounted to $1,960,000 compared to $1,500,000 in the first half of last year. And revenue from this line makes up 11% of total turnover and again includes revenue from rights issues, the quarterly subscriptions paid by operators and discuss and revenue from inheritances and on. And most revenue from that line was from corporate actions by issuers, just under 1,000,000 this year compared to $412,000 last year as well as subscription fees of operators, which is a custody a type like fee that is based on the capitalization of the markets. And revenue from ancillary services It's up 15% of total turnover in the first half of twenty twenty one. It was up 123% to $2,800,000 compared to $1,300,000 in the first half of last year. And this increase is due to the more than 500% increase in revenue from supporting other markets, which came in at 1.6 EUR 1,000,000 in the first half of this year compared to EUR 260,000 in the first half of last year. In particular, the significant increase is mainly due to the provision of additional services following the start of the operation of the spot electricity market of the energy exchange under the so called European target model, the provision of services to Borsa Kuwait, the Cyprus Stock Exchange and Venezuela, which is the Hellenic gas emission system operator. In addition The significant increase in revenue from the support of other markets, we also had revenue from XNET increased by 36% and revenue from collocations and services also increased by 16%. Finally, as far as the top line is concerned, Revenue from market data makes up 7% of total turnover and includes the fee that we collect from data vendors for the provision of Athens Exchange market data. And revenue from market data increased by 1.3%. Turning now to the expense side. Total operating expenses, including ancillary services increased by 8% in the first half of twenty twenty one at $10,200,000 compared to $9,500,000 last year. Operating expenses were up by approximately $670,000 or 7.6 percent in the first half of this year at $9,500,000 compared to $8,800,000 last year. And if we break down operating expenses in turn, we see that personnel costs were flat at $4,500,000 however, and all other expenses were up 18.6 percent at $4,800,000 compared to $4,000,000 last year. And if we examine that further, we see that the main drivers behind this increase are an increase of about $340,000 in consultant fees as well as an increase of about $260,000 in maintenance and IT support. Personnel, remuneration and expenses account for 37% of total operating expenses compared to 60 2% in the first half of twenty twenty and is by far the largest expense category. And headcount of the group at at the end of June 2021 was $233,000,000 compared to $220,000,000 at the end of the same period last year. Turning now to the bottom line. The earnings before interest and taxes of the group increased by 84% to $5,300,000 compared to CNY 2,900,000 in the first half of twenty twenty. The net after tax earnings of the group amounted to CNY 5,100,000 compared to CNY 2,300,000 in the first half of twenty twenty, and that's 123% increase. The effective consolidated the tax rate on earnings in the first half of twenty twenty one was 9.5% compared to 23.9% in the first half of last year. I will remind you that for 2020, the nominal corporate income tax rate was 24%, while for 2021, the nominal rate has been reduced to 22%. Turning now to the balance sheet. The cash and cash equivalents of the group At the end of June 2021 increased to $71,000,000 compared to $68,000,000 at the end of 2020. In the parent company, cash and cash equivalents were $32,900,000 compared to $17,900,000 at the end of 2020. Now approximately 20% of the cash, I. E, dollars 14,600,000 at the end of the first half of this year the step at the Central Bank, the Bank of Greece, where interest rates are negative currently at minus 0.5%. And also on the balance sheet, as you know, there's a further $277,600,000 that we report as both an asset and a liability. And these are 3rd party cash assets and concerned margins in the cash and derivatives markets. And these funds are also deposited Now finally, before we go into any Q and A that you might have, I'd like to inform you But yesterday, we also published the dates for the capital return. The capital return as approved was $0.07 per share. And the Board set the dates yesterday. The ex date for the capital returns is August 4, and the payment date this August 11. And with that, I'd like to thank you for listening in and we'd like to open the call to any questions That's all I have. Thank you. The first question comes from the line of Pouloh Uri Salek Sandros with Wood and Co. Please go ahead. Yes, hi, good afternoon. A quick question on my end regarding costs and the tax rate. On the tax rate, we've seen We have a very low effective tax rate in both Q1 and Q2. So is there any guidance regarding the full year tax that we should assume in our models for 2021 and maybe for 2022 and 2023, If you can have some guidance on that. And the second is regarding costs. We've seen in the first half costs rising. Total cost of personnel is relatively flattish. Total cost rose by about 8% year on year, if I remember correctly. And I think you had provided some guidance in the Q1 conference call for a cost growth of around 3% to 4%, if, again, I remember correctly. Is there any guidance on cost growth for the full year? How do you reiterate this guidance you gave in the Q1? Thanks. Okay. Alex, thank you. With regards to the tax, yes, the effective tax rate seems to be is lower because the effect that we weren't getting the the impact from the credit stemming from the loss that we recorded from the Divestment of our Piraeus shares that we had from 2015. We recorded a €3,500,000 loss there. So if If you do the numbers, the 22% of that is something that we will be benefiting from this year. That is 1. And then there is the some deferred tax elements that are helping us this year as well with regards to the differentiation between the Greek GAAP and IFRS. I think that we've seen the lows And in the Q2, most likely, we will be operating on whatever profitability adjusted for the second half of that tax loss that we mentioned before. I think that is pretty much something that you can work with. So that's with regard to the tax. I can't really comment on tax effective tax rate For the future, like post this year for that matter. Now with regards to OpEx, What we have this year, I think, if you the consultancy fees, like third party expenses, what we had is we had a second increase In the remuneration of the Board, that's one element that will be impacting the second half of the year. Overall, that 3%, 4%, maybe taken up take it up a few percentage points, But nothing more significant than that. And what you see now in particular to the line of third party expenses, I think it's more of a timing issue. The fact that last year, it was pretty low as a base effect and then that kind of kicks in, in the second half of the year. So I think the year over year is not going to be as pronounced as indicated in the first half. So overall, operating expenses is nothing to really comment on other than what I mentioned before. And then maybe discuss Think about a number that may be 1 or 2 percentage points higher than what we discussed before because we are working on multiple elements here and getting quotes that could be a little bit different than what we had originally envisioned with regards to support that we might need to do the things that we're looking to do. So I don't know if I think pretty much that's it. I think it covers your question. Yes, very clear. Thank you. The next question is from the line of Mamisoglouzman with Ambrosia Capital. Please go ahead. Yes. Hi, many thanks for the call. Just following up on the cost. So as a quarter, it's Up to EUR 5,600,000. Is that the run rate we should assume for the rest of the year? A bit too high? And the one offs are, if Just conceptually, why where will we see declines? Compared to the second half of last year? No, no. I'm talking about Q on Q. So Q2 is 5.6 And I think you just mentioned it's probably a bit too high on a quarterly run rate. So Q3 versus Q2, where would you see some decline in costs, if that makes sense? I'm not too sure I understand what you're Maybe I misunderstood you. So BRL 5,600,000 operating expenses is for Q2, right? Should we assume this is the ongoing rate for Q3, Q4 and then build up on that for 2022? Or is it going to be a lower number? No, it's that's what I'm saying. It's going to be that's why I said it. It sounds a bit too high because, for example, difference between Q2 and Q1. On the 3rd party expenses, I wouldn't annualize the $600,000 that you see there, nor would I annualize the IT stuff, The IT maintenance there. That's what I'm saying. There's like more of a timing issue between Q1 and Q2 with regards to invoicing, etcetera. So that's why I'm saying I wouldn't annualize that the 5,600,000 that you mentioned before. Okay. No, that's helpful. And then on the revenue bit, obviously, the answer to the revenue is the up and coming, The trendy line. Are you able to give us any color on where you expect that line to end for full year 2021? Do you want something or some color on that? There's nothing to say more than with regards to those lines than what we've already talked about in the past. It's something that is extremely important for us Strategically, we want It's something that we're working very hard on getting more and more traction On those particular lines, In the future, we do want that line all encompassing to be north than €10,000,000 for example. But we are and this is something I think makes sense to mention now. It's something that we're looking at maybe Because there are more services that we are offering that are part of what is Now depicted as exchange services or depository services. And we need We want to really highlight the cluster of what is really services oriented. So again, with regards to the current structure of our revenue base, I think The element here to discuss is that as it stands out, we're looking at in the future to go north than 10,000,000. Okay. And that's like a medium term goal, is it 3 to 5 years kind of thing or No, I think we might have achieved that earlier than that. Okay. With regards to shorter term, so you've moved from 1.2 to 1.6 for that line from Q1. 1.2 to 1.6, okay? Q1, Q2, right? Is that 1 I understand, I think that's what you were alluding to. That number your goal is to continue to grow that on a quarterly or monthly whatever basis. There's no one offs in there, right? So at the minimum, under normal conditions, that SEK1.6 billion we should expect it to carry on I'm not too sure which mines you're quoting as $1,200,000 Oh, that okay. In the services Yes. Okay. I got it. I got it. Yes. So yes, when I'm talking about services, I was talking about the starting from data feed all the way down. All that, That's what I was talking about, getting north of $10,000,000 So with regards to that number, Yes. I think most likely Q2 also had close to 300,000, 300 1,000 that was a one off with regards to delivery of a system that we had in Enex. So I don't think that we will be Repeating 1.6 per quarter as things stand now. If we come up with additional elements of services going forward, then it might be. But as it stands now, I think something in between of Q1, Q2. Given the relationships that we have now, I think that's more of what things could look like. So that part, take your line. Okay. Many thanks for that clarification. No problem. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you. Okay. So thank you all for participating. I hope you enjoy the rest of the summer and schedule, I'll leave it to you, too. I was going to say the same thing. Thank you for taking the time, Vladimir being on some beach the listening to our comments. If you want to take something up privately, of course, feel free to do so.