Hello, and welcome to the Euronext Conference Call regarding the acquisition of Borsa Italiana Group. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference 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. And I will now hand you over to your host, Stefan Buschner, CEO and Chairman of the Managing Board of Euronext to begin today's conference.
Thank you.
Good morning, everyone, and thank you for joining us this morning on Entrep noted. I am Lars Petal Bivnat, the CEO and Chairman of the Managing Board of Euronext. And today with me is Georgios Modica, Euronext's CFO. As you've seen Euronext announced this morning something which is quite a turning point in the history of our company with the acquisition of the Borrzeit Helena Group and the creation of what is the leading Pan European market infrastructure. I will start with this presentation with a brief overview of the transaction, then Georgios will introduce the BOSS Italiana Group business and the details about how this combination will create the leading pan European market infrastructure.
I will then highlight the governance evolutions resulting from this proposed combination and how the Italian ecosystem is expected to significantly benefit from it. Last year, I will detail the expected timeline of the proposed combination before opening the floor for Q and A. Starting on Slide 4. The combination of Euronext and Borsair Alena will create the leading pan European market infrastructure, powered by what is unique to Euronext, which is the largest single liquidity pool. This combination will accelerate the path towards properly integrated Capital Markets Union in Europe.
We will become the backbone of the Capital Markets Union in Europe. The combined group will have a very well diversified business mix covering the full exchange value chain. The combined group will become the leading pan European venue for equity, primary and secondary markets, and the combined group will offer a full post trade value chain with the addition of 8 equity asset clearinghouse, the CNG, and a significant CSD that will more than double the volumes of our assets and the custody. Lastly, this acquisition will enhance the Euronec project, while ideally positioning it to benefit from the changing environment. We will translate this new acquisition into new opportunities for further geographical expansion, business diversification, product innovation to provide superior value for local and global clients.
Moving to Slide 4 sorry, to Slide 5. From a financial perspective, the proposed combination will provide compelling value to our shareholders. The combined group will cross the €1,000,000,000 revenue mark and will provide a healthy EBITDA margin profile even prior to any synergies. Based on 2019 financials, the combined group would have generated €1,300,000,000 of revenues and a 55 percent EBITDA margin. As the end of June 2020, on the last 12 months basis, the combined group would have generated €1,400,000,000 of revenues at a 58% EBITDA margin.
But in addition to this current size and profitability, the combination is expected to deliver €60,000,000 of run rate synergies by the 3rd year after completion through €45,000,000 of expected cost synergies and €15,000,000 of expected revenue synergies. We expect to incur €100,000,000 of restructuring costs to deliver these cost synergies. All in all, this combination is expected to result in an immediate accretion on adjusted EPS before any synergies and a double digit EPS accretion on EPS post synergies in year 3. Moving to Slide 6 for the key elements of the structure of Vivienne. Euronext is to acquire 100% of London Stock Exchange Group Holdings Italia, SPA, and the holding company which is the holding company of the Borscht Italia Group for a cash consideration of €4,300,000,000 The transaction will be paid in cash and is expected to be financed through a mix of existing cash, new debt and newly issued shares, including a private placement with CDP Equity and Intesa Sanpaolo to Italian cornerstone investors.
This structure will allow Euronext to maintain its capital allocation policy to preserve its financial health and maintain our investment grade profile. In the meantime, the financing has already been fully secured through bridge loan facilities fully underwritten by a group of banks. Moving to Slide 7 to conclude this overview with a focus on governance. The Euronext 2 tier federal governance model is perfectly fit for such a combination. Italy will be the largest contributor to the revenue of the enlarged group, and the governance will evolve accordingly to reflect this new reality.
Therefore, Italian representatives will be present at every level of the governance of the group. GDP Equity and Intesa Sanpaolo, with whom we are partnering for this deal with the strong support of Fabrizio Palermo, the CEO of TDP and Pierre Paolo Di Stefano, the CEO of CDP Equity, will join Euronext Group's of Reference Shareholders that share Euronext's long term view for European Capital Markets. At Board levels, at the supervisory Board level, 2 Italian representatives will join the supervisory Board of Euronext, and the independent Italian Supervisory Board member will become the chair of the Supervisory Board. At the Managing Board level, the CEO of Borselles Etienne will join the Managing Board and the CEO of MTS will join the extended Managing Board. So all the governance changes are done within the pre existing framework of our federal government.
Moving to Slide 9, a brief introduction to the Borceit Helena Group. Borceit Helena is the leading market infrastructure of a G7 country, of the 3rd largest economy in Europe, but it has also a set of strong and diversified assets. It is a core exchange infrastructure that covers the full financial value chain because it operates, as I mentioned, regulated market, but it also operates the leading bond trading platform in Europe with a significant presence across European markets, MTS. CCNG, which is a very strong multi asset clinic house with pan European capabilities and multistory, a large CSD with more assets under custody than Euronext currency and disease, altogether with Interbulsa in Portugal, DPS in Norway and DP Securities in Copenhagen. And if we move to the following slide, it's clear that the group has a healthy financial profile.
In 2019, it reported €464,000,000 of revenue, with a strong contribution from post trade activities and fixed income trading. It also reported EUR 264,000,000 of EBITDA, growing at a 10% CAGR since 2017. Now moving to Slide 12, I would like to further detail how the proposed combination will create the leading pan European market infrastructure. First, it will further expand Euronext footprint into Italy, as I said, a G7 country and the 3rd largest economy in Europe. 2nd, the combination will significantly further diversify Euronext business mix with new business lines representing around 18% of the combined group revenues.
In particular, the combination will have significant bond trading capabilities to Euronext with the acquisition of the leading European government bonds trading venue, MCS. It will also complete the post trade value chain of Euronext with the acquisition of a multi asset clearinghouse like CCNG, And it will mark a step forward towards our Euronet of CSD's ambitions with the acquisition of a new CSD, a large CLD more typically. If you move to page the following slide, it's clear that the combined group will become the leading equity listing and trading venue in Europe, powered by a single liquidity pool enabled by a single order book and empowered by a single technology platform. And the proposed combination will significantly benefit to market participants because of the mutual reinforcement of training capabilities, the expansion of pan European market data offering and the rollout across all our markets, including tomorrow, Borsa Italiana, of our state of the art proprietary trading technology uptick that will be deployed to Italy cash equities and derivatives markets. Lastly, the proposed combination will generate, as I indicated earlier, further value to our shareholders as we expect to deliver a total of EUR 60,000,000 of run rate synergies in year 3, and that will translate, as indicated earlier, in the double digit accretion plus synergies in year 3.
If you move to the following page, you will see that I mean, it is very important to emphasize the significant impact of the proposed combination on the revenue profile of Euronext. The group continues to expand its geographical footprint in Continental Europe. The combination does balance our revenue mix and also that's balanced our footprint as Italy will become the largest contributor to the combined group, with the contribution representing approximately 34% of the top line of the group. Moving to the following page, you can see that the combined group will also benefit from significantly diversified business mix. The business mix will be more balanced.
It will further reinforce TRUONEX positioning, in particular, in non volume driven activities. And it will offer additional asset classes for trading to its clients with significant addition of fixed income product. This will also translate into an increased contribution from post trade activities and further enhanced trading capabilities. So I hand over to Georgiou Modica, the Euronext CFO, to present to you in detail the businesses of the Borscht and Air Group.
Thank you, Stephane, and good morning, everyone. I'm now starting with Slide 16 for a more detailed overview of the Bors Itliana Group activities, starting with secondary markets, excluding MTS, and we as we will cover that later in the deck. Bors Itliana serves a vibrant ecosystem composed of liquidity providers, banks, brokers and a strong and sophisticated retail clientele. Bors Itliana is the leading regulated exchange in Italy. With 80% market share and ADV of EUR 2,500,000,000 on cash equity trading, it is the go to venue for equity listing and trading in Italy for Italian SMEs and international blue chips.
Borsitagliano through EDAM is the 4th European derivative venue and covers a full range of Italian equity index and single stock derivatives. Bostitaglana also operates some of the larger retail focused market in Europe across multiple asset classes such as ETFs, securitized derivative, warrants and certificates is the leading European venue for retail fixed income trading. Moving to Slide 17. Bursa Italiana Equity Market benefit from a strong listing franchise that share with Euronext the ambition to finance the real economy through dedicated programs and equity markets with a specific focus on SMEs. In addition, Boste Italiana, True Elite offers a unique global market platform and community for private companies and broad SMEs to raise funds through alternative financing options.
We are convinced that the combination of Euronext and Borsitagana listing franchises will be the Pan European leading platform for capital raising, enabled by Pan European financing pool. Moving to Slide 18. I would like to remind everyone that liquidity is the basic component of financial markets and a predictable source of value. The proposed combination will connect the Italian financial ecosystem to the largest liquidity pool for cash trading in Europe. Italian issuers and investors would benefit from a single liquidity pool enabled by a single order book and power by a single technology platform, OPTIC.
This will create a unique gateway to all Euronext equity market for its more than 1900 companies with a total market capitalization of EUR 4,400,000,000 and average daily volume of EUR 12,000,000,000. In addition, it will provide the financial ecosystem with visibility, market and cost efficiency. Slide 19 shows you in a more graphical way how this proposed combination will scale up Euronext to create the leading equity listing and trading venue in Europe. Together, the combined group will be positioned in Europe as the largest cash equity trading venue, the 1st equity capital raising place, the largest pool of listed companies by market capitalization and the 2nd largest venue for ETF Trading. Moving to Slide 20, I would like to conclude on trading activities with a few words on MTS.
With the acquisition of Borsitaliana, Euronext also acquired MTS, the leading European fixed income trading platform. MTS offers trading in cash bond and repo with separate markets for dealer to dealer, dealer to customer and all to all segments. Combined with the leading position of Euronext Double in bond listing, MTS will leapfrog Euronext fixed income franchise. This transaction will establish Euronext as the leading venue for both bond listing and trading and will significantly diversify the current trading revenue mix of the group. Let's move now to post trade on Slide 21, and let's start with clearing.
After more than a decade, the acquisition of Borsitagana will allow Euronext to fully own and operate a multi asset class clearinghouse, CCNG. These major steps will allow to cover the full post trade value chain and will open new opportunities, in particular, the possibility to capture larger parts of the trading value chain to deliver new products and enhance client service. In short, the strategic flexibility of Euronext will increase significantly. Continuing on post trade on Slide 22 with a focus on custody and settlement, the proposed combination would also mark a significant step forward in our ambition of building the Euronext of CSDs. With the acquisition of Bors Itliana, Euronext will add Monet Italy, the Italian CSD, to its postpaid assets, more than doubling its asset under custody and strengthening its network of CSD links across Europe.
Once again, let me try to highlight in a more the way the benefit of the combination, and let's move to Slide 23. As you can see, Euronext and Bors Itliana's value proposition are not only synergistic in listing cash trading and CSD, but also complementary in fixed income trading and clearing. This transaction would allow Euronext to cover the full value chain. The combined group will be positioned as the leading one stop shop player for market infrastructure services in Europe fully integrated along the value chain. Moving to Slide 24, I would like to highlight that Borussia Italiana and Euronext not only share a common vision for the European Capital Markets, they also share a common ambition of accelerating transition towards sustainable growth with strong environmental, social and governance, culture and products.
The combined entity will continue and even deepen both ESG bond franchises, including blue bonds, support ESG focused indices initiatives, rollout ESG corporate services. The combined group will pursue a dual ambition, drive investment in innovative sustainable products and services while inspiring and promoting tangible sustainable practices. Let's move now to the next slide to comment on the significant synergy potential identified for the combined group. Slide 25. We expect to extract a total of $60,000,000 of run rate synergies in year 3 from the combined group.
Those synergies will consist of EUR 45,000,000 of run rate cost synergies, primarily resulting from: number 1, the rollout of our OPTIC trading platform to Borsit Ayana cash and derivative markets number 2, additional technology synergies through enhanced cooperation between our CFD business and number 3, leveraging combined group capabilities, processes and systems. In addition, EUR 15,000,000 of run rate synergies will arise from the deeper liquidity pool and larger investor base benefiting to the combined cash, ETF trading and listing franchise, the rollout of corporate services in Italy and growth opportunities for market debt activities. These expected synergies will contribute to the continued improvement of the combined EBITDA margin. Lastly, we expect some restructuring costs amounting to EUR 100,000,000 to deliver those synergies. To conclude my presentation, let's move to Slide 26 with the financial structure of the deal.
The total cash consideration for 100% of the holding company of Borsitallana Group is EUR 4,300,000,000 excluding the customary closing adjustment reflecting the capital generation of the company since June 2020 to completion. This consideration will be financed through a mix of existing available cash for EUR 300,000,000 new debt issuance for EUR 1,800,000,000 to the issuance of long term debt securities a private placement with GDP Equity and Intesa Sanpaolo for EUR 700,000,000 to occur at completion of the transaction and the rights offering for EUR 1,700,000,000. I would like to insist on the following. The financing is secured via a fully underwriting bridge loan facility. We do not expect any change in the group dividend policy following the transaction, and we remain committed to maintain an investment grade profile expect to be BBB.
Now I hand back the floor to Stefan Boussner. So I'd like to moving
to Page 28 to walk you through details about the changes in governance that will result from the proposed combination. First of all, the Euronext federal model is perfectly fit, prepared, ready to support such combination and to accommodate the consequential adjustment in the government because Borrzeitania Group is a natural addition to our federal model. So within the combined group, within the existing federal governance, the following will happen. 1st, GDP Equity and Intesa Sanpaolo, the 2 Italian cornerstone investors, will join the Euronext reference shareholders. As such, GDP becoming 1 of the top 3 largest shareholder of Euronext will become a member of the Supervisory Board.
We joined the Supervisory Board as a representative of one of the top 3 largest shareholders. In addition, an independent member of the Supervisory Board will join the group, and that gentleman or that lady will become the Chair of the Supervisory Board. But just like any other country within Euronext, Italy will have an independent member at the Supervisory Board. The only new dimension is that, that person will join the group as a tier. So that's for the Supervisory Board.
For the Managing Board, the CEO of Borfait and Hena, like any other CEO of any Euronext country, will join the Managing Board of Euronext. And the CEO of MTS will join what we call the expanded Managing Board that gathers, in addition to the Managing Board members, the leaders of the key functions, central functions, central support functions and the largest businesses of Euronext. So the CEO of MTS will join the extended imaging board at group level as the leader of our fixed income trading ambition. From a regulatory perspective, Comstock, the Italian Financial Supervisory Authority, will be invited to join the Euronext College of Regulators. So they will continue to their job to supervise and oversight, obviously, the Orstedina Group.
But at the same time, they will be part of the group level supervision of the combined group at European level. And as you know, our College of Regulators operate with rotating chair. So approximately every 3 years for 6 months, the supervision of Euronext at group level will be done from Rome and Milan in the context of the rotating chair. Just as for the current semester, the Central Bank of Ireland is in charge of the chair of the supply chain regulators. Moving to the following page, I'd like to detail the timing of the transaction, and I would like to highlight also the significant benefits of this combination for the world Italian ecosystem.
So on Page 31st, it's clear that the Italian issuers will access to the largest liquidity pool in Europe, And that will raise their profile to new investor pool across Europe. And they will also benefit for enhanced corporate services through the combination of the strong corporate services developed by Euronext over the past 5 years with a very profound and deep offer of corporate services developed by Borstotelena. 2nd, the Italian investors will benefit from increased liquidity across 7 national equity markets, gathering over 1800 issuers. 3rd, Italian trading members and market makers will access the largest liquidity pool in Europe, enabled by a single order book and then powered by a single state of the art technology platform across all the Euronext markets. 4th, on the following page, thanks to the Euronext federal model, Borrhet and I will preserve its identity in the combined group, while playing a key role in the future strategy and government, because our model is all about being united in diversity.
And from a regulatory perspective, KonServ, as I indicated earlier, will continue to supervise Borx Italia at the local level, but will have the opportunity to join the Euronext College of Regulators. 5th, Borx Italia employees will have access to further carrier development opportunities within the combined group. I mean, the quality of the talents within bauxite Italia is amazing, And I'm sure the combined entity will provide them with opportunities to develop within Europe, within the DNA of what our focus on Europe is all about, opportunities that for them to grow and develop. And the local expertise, especially in fixed income, in clearing, will be empowered by the local Centre of Excellence for Fixed Income and the group leadership for clearing activities to be developed in Italy. Lastly, the Italian Capital Markets Ecosystem will benefit from we have an enhanced representation within the combined group with, as I said earlier, Italian represented every level of the governance of the company so that Italian stakeholders can feel at home when they join Euronext.
Moving to Slide 33 for the next steps. Please note that this time line is indicative. And but in terms of the next milestone, we are convening an extraordinary general meeting on the 20th November to approve the proposed transaction, to approve the private placements with GDP Equity and Intesa Sanpaolo and to approve the rights issue. We expect to complete the regulatory approval and the competition reviews by the end of Q2 2021, at the latest, when we expect to close the transaction and to complete the covered placements and rights offer. Regarding the closing conditions, the completion of the proposed combination is depending on Euronext and London Subscription Group in our meetings to approve the proposed combination.
Several regulatory approvals in Italy, UK, U. S, Belgium and France a declaration of non objections from the Euronext College of Regulators an antitrust clearance in Germany and the outcome of the European Commission's review of the London Stock Exchange Group acquisition of Refinitiv and that transaction closing in accordance with itself. So lastly, some additional comments on the upcoming extraordinary general meeting. The Managing Board and the Supervisory Board of Euronext have unanimously approved the transaction as they consider it to be in the best interest of Euronext, its shareholders and the other stakeholders. And therefore, ask the shareholders vote in favor of the resolutions tabled at the extraordinary general meeting.
Also, the reference shareholders of Euronext support the proposed combination and have each signed a nearevocable undertaking to vote in favor of the resolutions table at the external regional meeting. Thank you for your attention. You have on Page 13 a summary of the key features of the transaction. And Georgios Modica and myself are now available for your questions.
Our first question comes in from the line of Mike Werner calling from UBS. Mike, please go ahead.
Thank you very much. Congrats on the announcement this morning. Two quick questions. One, with regards to CCNG, the clearinghouse, you indicate that you expect this to be a key pillar of your next enlarged post trade strategy. Currently, you do utilize LCH as a clearinghouse for your cash equities and your derivative positions.
And I know on the derivative side, you have a contract with them until 2028. Is this something where we can see that clearing being migrated in house to CCNG upon within a couple of years post this transaction? And I guess more specifically, is there a break clause or a break fee through the LCH clearing contract? And then second, hopefully more simple, on the cost side with regards to the synergies, how should we think about the realization of those synergies over the 3 year period? Do you expect them to be front
end loaded, back end loaded? Do you expect them to be spent over the 3 years?
Thank you.
Okay. On the C CNG situation, we have an agreement with LCH SA and LCH to for the clearing of the oil and explosives until the end of 2027. When this contract was signed in August 17, we indicated that there were exit windows possible. But clearly, the role of CC and G within the combined entity for the Italian market will be reaffirmed, secured and strengthened. The possibility of migrating flows to CCNG will be something we will analyze in consideration of all the relevant factors, the technology investment that might be required to make that migration possible, the capital requirements that might be imposed by regulators to change the scale and the size of CCNG, The all the implications, including nuances that could apply to the various asset classes that are clear today within the HSA and within CCNG.
So that will be the way we will be approaching that possible evolution in the coming years. And as you have clearly indicated, we have a deadline, which is the end of 2027. Clearly, irrespective of this possible migration of flows, I want to insist on the strategic value for Euronext of being in a position if the deal is completed to have within its portfolio a multi asset sizable clearinghouse because as you know, it was one of the historical strategic weakness of Euronextrot, which was a legacy of the past to be on the exchange of any decent size without its own integrated clearing capabilities. So this change in terms of strategic assets of the group is very important. On the synergies, we don't comment the details of the synergies and the phasing of the synergies.
What I want to indicate and I can reiterate is that most of the cost synergies will be driven by technology changes, driven by the replacement of the existing Millennium IT LSC technology by the state of the art optic ziranec technology that was released in 2019 and that we are confident that we can generate significant revenue synergies by rolling out and scaling at the European level some initiatives that have been developed within some Borscht Italian products and where there is a clear acceleration factor in joining a group that has strong operations in France, Portugal, Belgium, Netherlands, Ireland and Norway.
Excellent. Thank you very much.
The next question comes in from the line of Hailey Tam calling from Credit Suisse. Hailey, please go ahead.
Good morning, gentlemen. Thank you very much for the opportunity to ask questions. Can I have 2, please? Firstly, just a follow-up on the cost synergies on Slide 25. You do say that it's 8% of the combined cost base, but clearly, it's a much larger proportion, I think 23% of the Borsa Italiana cost base at the moment.
Just help us think about that. Could you perhaps give us some color on how much of the existing Bors Italiana cost base is actually technology costs, I think, at the €200,000,000 cost base at the moment? And the second question, hopefully, a very simple one. Are there any terms of the bridge loan facility that you can share with us in terms of the cost and the duration, etcetera? Thank you.
So let me take the question on the cost synergies. Yes, you are absolutely right. A few things that I would like to clarify on synergies. The first one is that as we discussed in the previous question, we believe that we're going potentially to have a strategic advantage out of the ownership of a clearinghouse. However, those advantage potential benefits are not factored into the numbers that we have shared with you.
The second element that I can share is that, as you know, Euronext is a federal exactly the synergies will come from. However, on the other side, we have an experience and data points that make us comfortable in assessing the synergies at group level because this is the way we operate the company. Then with respect to the bridge facility, we cannot disclose the terms. However, I can share with you a few comments. The first one is that the financial condition, I believe, are extremely attractive.
And the second one is that the bridge will allow us sufficient flexibility to be able to select the right market moment for the right issue.
Thank you.
The next question comes in from the line of Arnaud Giblatt calling from Exane. Arnaud, please go ahead.
Yes, good morning. I've got 3 questions, please. Firstly, a quick housekeeping question on depreciation and amortization. I'm just wondering how much G and A we should be factoring in from this deal. On the balance sheet, we see that there's €1,400,000,000 of intangibles.
I'm wondering what the nature of the amortization is and how we should be thinking about that in terms of reinvestment and need to reinvestment in software and other things? That's my first question. Secondly, my second question is, ballpark, we get a we are estimating that the return on invested capital from this deal is about 5% in year 3. I'm wondering how this fits in with your ambition to do deals with a ROIC greater than WACC over 3 years? And thirdly, in terms of the potential for taking clearing revenues from LCH, was there any discussion with LCH or EverSci, rather, I should say, on the contract you have with LCH?
Were the terms of the deal revised? Or is that left untouched? Thank you.
I'll take the last question to tell you that the terms of the deal have not been revised. And I'll let Georgiou comment on the two questions on depreciation and return on capital employed. So
with respect to your first question, I cannot give you the breakdown because clearly, I cannot disclose information which are not already public on a company that we do not own at the moment. However, as you correctly pointed out, the significant intangibles, which are in the balance sheet of the BOSS Itagena Group, are linked to the M and A transaction done in the past. And you shall assume that relevant component within the D and A, which is a relevant component within the DNA, which is attached to the amortization of those intangibles. Unfortunately, I cannot comment more. With respect to your second question, a few comments.
The price has been defined with a multi criteria valuation approach using a cost of capital, which is not dissimilar to the one that you are you as an analyst community are using. And the second element that I wanted to highlight is that in the plan we released in October 2019, we actually increased the period to reach the target from 5 to from 3 to 7 years. Having in mind that for transactions like this one, which are transformational and provide advantage over a longer period, constraining ourselves for the 3 year period would not have been in line with what is required by today's market. And then did you say
transformational deals you'd be looking up for 7 years? Is that what you said?
No, no. What I said is that we extended the period from 5 years because usually transformational deals in order to fully deliver the expected benefits take longer.
Very clear. Thank you very much.
The next question comes in from the line of Benjamin Goy calling from Deutsche Bank. Benjamin, please go ahead.
Yes. Hi, good morning. Two questions, please, from my side. First, you mentioned 3.4x net debt to EBITDA. And then 2 years later, below 3x.
Considering your thoroughly strong cash generation, I was just wondering whether you can give some more color on that progression because it looks a bit unambitious at first glance. And then secondly, maybe you can help us think about the group tax rate, how it's going to progress and whether we basically should add the Italian corporate tax rate to the group and get to some new number? Thank you.
So a few elements in this respect. So the 3.4x is computed on the last 12 months EBITDA of the combined group as of June 2020, which is close to €800,000,000 when it comes and clearly reflects the financing mix that we have discussed. When it comes to the deleveraging profile, what we commented is that we will be below 3x. And for the moment, this is the level that we would like to communicate, and this is in line with our ambition progression to maintain the investment grade that we will hold. When it comes sorry, what was your last question, the second one?
Yes. Maybe you can help
us think about the tax rate for the group going forward?
Absolutely. So today, as you know, the Euronext group is hovering around 27%, 28%. The historic tax rate in the last 3 years for the Bostikaglala Group is around 30%, 31%. So considering that the mix is going to be, roughly speaking, twothree, onethree, this should give you a good approximation of the blended tax rate.
Understood. Thank
you. The next question comes in from the line of Andrew Coombs calling from Citigroup. Andrew, please go ahead.
Good morning. Three questions from me. Firstly, kind of the housekeeping on the numbers. I understand you can't provide detailed financials on a company you don't own yet. But perhaps word into another way.
In the LSE press release, they quoted €200,000,000 PBT number, but that seemed to include some intra group movement. So I think the adjusted numbers will be €182,000,000 2 for PBT, but perhaps you
could just clarify if that's correct.
And then a couple of broader questions. Firstly, on credit rating. Any thoughts on what might happen to your credit rating given the net debt to EBITDA multiple you're moving to? And also, given the trajectory, does this limit the potential for other M and A outside of this deal in the coming 2 to 3 years? And then the final question, return on invested capital.
I can see that you didn't cite it anywhere in the presentation. Previously, one of the terms you've always said for M and A is to have returns above the weighted average cost of capital. I just wanted to check if that remains the case or whether you think the returns here might fall slightly below that? Thank you.
So Giorgio will answer your 3 questions on PBT, on the credit raising and on the ROCE where we have covered the point to a certain extent in previous replies, but we will focus on your third question as well.
So on the PBT, as you can understand, there are all sorts of elements in between EBITDA, which is the number that we can comment today and the PBT. So I will not get into that discussion because I believe that EBITDA is a parameter that you should focus on in assessing the capacity of the group to generate income going forward. Even though I appreciate it's not easy to do the breakdown of how much of that is going to be intangible and adjusted in the adjusted earnings. As far as the rating, what I can tell you is that, first, the deleveraging profile is going to speed up quickly. And you should appreciate that in the 1st 24 months, we will likely have a number of an initial period, we see that the leverage going down significantly and faster than in the previous 2 years.
But then another element that I would like to highlight is that we believe that we have a buffer to maneuver on the current BBB rating. And I believe that if we will be successful in executing the plan, we might see that improving quickly. So this is the first comment. When it comes to the question on the return on invested capital, unfortunately, I need to confirm what I just said. The way we have computed the price is based on the multi criteria valuation that includes fundamental valuation parameters, which have a market standard cost of capital.
Having said that, what I said as well is that our synergies that we announced to the market do not include a number of elements for which we will need to build a better understanding with the different counterpart, client, the Italian ecosystem and LSC to see what is the best strategy. So what I can say is that we see a strategic potential over and above the number that we shared with you. And the very last comment again is the bigger and the more transformational is the deal, the longer time frame it takes to deploy its full potential. And therefore, we are confident that the price that was paid is will allow for value creation.
Thank you.
The next question comes in from the line of Gurjeet Kambo calling from JPMorgan. Please go ahead.
Hi, good morning. Just on the pricing, how should we think about the sort of pricing in Italy versus the other markets of Euronext? And do you see there's a need to normalize pricing across the different markets if you're sort of using a single liquidity pool? So that's the first question. And then the second one, just on owning a multi asset clearing house now, what sort of opportunities are going to open up for UNEX, perhaps a new product development?
Thank you.
We don't comment on the pricing. And on clearing, I think I made the point a few minutes ago, our ambitions to secure the future of CCNG as the clearinghouse of the Italian market is concerned and reiterated or thinking or plans to consider possible migration of flows of European flows for clearing to CCNG will depend on the assessment of various factors, the technology, capital requirements, the diversity of the asset classes that are currently being cleared with the LTHSA and the terms of the existing contractual agreements. One thing must be clear to all of you, which is that there is in the computation of synergies, there is no factoring at this stage of any clearing synergy.
Okay. And then just on the liquidity pools, if you've got one single liquidity pool running, I guess, the back end, The pricing on the front end can be different. Is that correct?
I mean, let me take that one. So one of the key features of our market is clearly the ambition to provide the local clients the possibility to be competitive in global market. And therefore, as you know, our price is segmented and takes into consideration the needs of local markets. So clearly, we do not have specific pricing for specific clients because our price is offered to everyone. However, our segmentation of pricing takes into consideration the needs of local intermediaries.
Yes, that's great. Thank you.
The next question comes in from the line of Martin Price calling from Jefferies. Martin, please go ahead.
Good morning. Just a quick question on MTS. Obviously, it's a slightly unfair statement, but it seems like MTS is a business that perhaps hasn't achieved its full potential in recent years. I'd just be interested in your assessment of what you perceive to be its key strengths and weaknesses and how you think you can accelerate growth within that business?
Thank you. Well, I must say that I'm really impressed by what MTS has achieved. It was initiated as a quasi startup, which was an agency put in place to secure the liquidity of Italian Southern Dons. It has transformed into a full fledged growing business that, a, has diversified its products to multiple sets of investors, retail, institutional and others, multiple products, multiple assets traded on the platform with other OECDs, gobbies now being traded in on NPS and assets that are also and sorry, and the strategy to penetrate other European markets in a very dynamic approach. So one of the things we will do together with them is to accelerate the deployment of their strategy to become more relevant in other European bodies.
And I'm extremely confident that they can do that because they have been very successful so far and they have found the right recipe to be relevant for the training of govies. In particular, in an environment if where there is a consensus that if there is an asset class that is going grow materially in the coming years, this is the world of govies. I mean, everyone is commenting about monetary stimulus and fiscal stimulus, but fiscal stimulus means more gravist. And I think they are ideally positioned in Europe to benefit from the massive inflow of origami. So I'm positive.
I would characterize what they have achieved so far as being impressive. But what I agree with you is that there is more upside both within Euronext and also to capture what other people call sometimes in calls secular growth. I don't know what the secular objective means, but I know that there is an opportunity for the coming years in the global world and that MTS is one of the few platforms that is extremely well positioned to capture those developments. That's very helpful. Thanks, Stefan.
The next question comes in from the line of Bruce Hamilton calling from Morgan Stanley. Bruce, please go ahead.
Hi, good morning guys. Most of the questions have been asked for you. But I guess just one, on the Borsa Italiana before sort of improvement, where would you see sort of revenue growth versus the 2% to 3% that you currently sort of target as organic growth for the group? And then, Juna, kind of so and then looking beyond the $15,000,000 of revenue synergies, where you've talked about some strategic benefits that you think could accrue that aren't embedded into what you've given us. Is that, again, mainly on the revenue side?
Or is there also an opportunity on costs? Clearly, you've got a history of over delivering on cost synergies in previous deals. So should we see strategic benefits on both cost and revenue side? Or is it really more on revenues?
Yes. So when it comes
to
the sorry, what was the first question?
Okay. Let me take it on the synergy side. The situation will be as follows. We are releasing a set of synergy numbers that are you may describe them as conservative. They are synergies that we have documented both on the cost side and on the revenue side.
And as Georgios said a few minutes ago, on the cost side, those synergies are the transaction synergies, but they will be extracted both from the Italian operations and from the rest of the group. And on the revenue side, there are synergies that are based on documented projects and that do not factor some other possibility of generating incremental revenues, including the potential clearing revenue creating synergies that can be very material. So
on your first question, the 2% to 3% growth rate, what I can comment is the factual data, which in the last throughout the cycle type of growth for Borsitaliana was in the mid single digit range. And again, clearly, should we apply a similar growth rate in the future, but we are not disclosing a growth rate target. So for the past, it was a mid single digit growth. And on top of that, we will need to add the synergies that Astefan commented. What we have presented so far are the things that are only related to the, let's call it, single liquidity pool and cross selling, the more structural integration involving IT and clearing are not included in that number.
Thank you.
Thank you. We have currently no further questions. Apologies, we've no further questions coming through. Okay. And we've no further questions coming through.
So I shall turn the call back across to yourself, Stephane, for any closing remarks.
Thank you very much for your time. Have a good day and happy to continue this dialogue with all of you on this deal that is really transformative for the future of Euronext and that will definitely change the profile of the new mix and the strategic outlook of the company. So thanks a lot for your time this morning.