Hello, and welcome to the Euronext Q1 2020 Results. My name is Zvall, and I will be your coordinator for today's event. Please note 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 at the end of the presentation. I will now hand you over to your host, Mr.
Stephane Boussnan, CEO, to begin today's conference. Thank you.
Good morning, everybody, and thank you very much for joining us this morning for your next Q1 2020 results conference call and webcast. I am Stephane Boulnat, CEO and Chairman of the Managing Board of Euronext. And I will start with the highlights of this Q1. Georgio Modica, Euronext CFO, will then further develop the main business and financial highlights. We will then open up for questions together with Antonia Atia, a member of the Managing Board of Euronext.
Before adding to the presentation, I would like to share some remarks on the current situation. The Q1 of 2020 has been an exceptional time for everyone. And while we can observe the impact of the pandemic on our lives today, its future implications remain uncertain for most of us. At TuroNext, our priorities are very simple. It's to ensure the health and safety of our staff and communities and to guarantee the efficient functioning of our operations to ensure fair and orderly market.
This is our primary mission and as a matter of fact, it has never been more crucial than in the current challenging times. Our business continuity management program supported by our previous investments, especially in technology, has allowed us to secure the efficient operations of the company, while ensuring the health and safety of our employees. It allows all of us to implement appropriate adjustments even when needed following a close dialogue with our clients and with our regulators. Stock exchanges are clearly key aggregation centers for liquidity and they play a key role in price formation. Euronext continues to perform this commission despite the exceptional circumstances currently affecting Europe and the world at large.
It's quite obvious that the recent weeks months have demonstrated more than ever the importance of regulated and transparent market infrastructures. Moving now to the results of our Q1 2020. Euronext reported a strong Q1 with significant revenue growth across all our business lines. Revenue increased during this quarter by €84,200,000 up plus 55.2 percent to €236,800,000 compared to Q1 2019. This strong performance reflects obviously high trading volumes across all asset classes, but this strong performance reflects also continuing diversification with the consolidation of Oslo VPS and NERPUL.
Non volume related revenue accounting for 44% of group revenue this quarter and covered 119% of operating expenses, excluding depreciation and amortization. So thanks to our continued cost discipline, EBITDA grew faster than revenue. Group EBITDA grew by 68.1 percent in Q1 2020 to EUR 150,000,000. This translated into an EBITDA margin of 63.4%, which is 4.9. Higher than last year's Q1 EBITDA margin, while we consolidated costs from our recent acquisition, which as you know, are margin dilutive during the initial phase of acquisition and of integration.
So on a like for like basis, EBITDA margin reached 66.7%. In addition, we achieved the targeted €8,000,000 run rate cost synergies from Euronext Dublin 2 years after the completion of the acquisition in March 2018 and as a matter of fact, 1 year ahead of the targeted deadline. In this context, we confirm our cost guidance for the year 2020 announced in February. Overall, this dynamic performance over the quarter resulted in a +65.3 percent increase in adjusted EPS at €1.44 per share on a reported basis. And Q1 2020 net income was up 71.3 percent at €96,100,000 So this performance is not only the result of increased trading volumes.
This strong performance also reflects what has been the trademark of the group for the past few years. 1st, rigorous and constant investments in technology to deliver best in class trading platform, robust capabilities and capacities to absorb extreme volatility and extreme volumes. 2nd, efficient and constant cash trading market share management, yield management that have allowed us to increase our market share in extreme volatility and volume conditions. 3rd, disciplined deployment of capital to acquire, sometimes in very fierce competitive conditions like last year in Norway, value creative assets that have allowed us to benefit from the consolidations of value creative acquisitions. And 4th, continuing cost disciplines, whatever it takes, that have allowed us to grow significantly the EBITDA above the level of the growth of revenues.
And these are things to stay irrespective of volumes volatility. So moving to Slide 5. On 23rd April, Euronext has entered into definitive agreements to acquire approximately 70% of the shares of BP Securities, the Danish CAC operator from its existing owner. The acquisition of BP Securities represents really a new major milestone in deployment of Euronext ambitions to build the leading pan European market infrastructure because the leading acquisition sorry, the acquisition of BP Securities will position Euronext as a leading CSD operator in Europe and as a leading player in the Nordic region because as I said on numerous occasions, there is no European success without a Nordic dimension. And it's quite obvious that this transaction will double Euronext CSD's business size and will further improve the group's revenue mix by further increasing the share of non volume related revenue.
So even if Q1 2020 has showed the importance of the contribution of volume related revenues, our objective remains to diversify our top line to create on the long run a company with a much more diversified revenue mix. And let me use this opportunity to highlight key terms of the transaction. We offered DKK 1,120,000,000 for 100% of the shares and we have opened a tender offer for all the to all the remaining shareholders at the same terms and conditions. Transaction is expected to close by early Q3 2020 once regulatory approvals have been received from the Danish FSA. As I said before, the acquisition of BP Securities is a new major milestone in our geographic expansion in the Nordic region.
1 year ago, in 2000 at the end of 2018, the beginning of 2019, we only had a limited presence to 1 or to very few employees in our corporate services company in Stockholm. We are now present in Bergen, Oslo, Helsinki, Vilnius, Tallinn and soon Copenhagen. So since 2019, Euronec has significantly increased its presence in the Nordic region with more than EUR 850,000,000 of capital deployment and committed in Scandinavia. So to this capital deployment, we strengthened our post trade business with the addition of 2 CSDs and expansion into power trading. And moving to Slide 7, I think we can see here how the disciplined capital deployment further diversifies Euronext business profile.
Pro form a, I. E, including revenues from Oceburs, VPS, Norepool and BP Securities in Copenhagen, our revenue mix would significantly increase its exposure to post trade that would account now for around 23% of group revenue. Post rate will represent now 23% of group revenues. In the meantime, we are also improving our exposure to healthy and solid local economies at the Nordic region. Will generate around 25% of our 2019 revenue pro form a.
So I now hand over to Georgios and Modica for the detailed presentation of our Q1. Thank you, Stephane, and good morning, everyone.
First of all, I would like to highlight that like for like and organic performance refer to the result excluding the impact of the consolidation of Oslo BPS, Nord Pool, OPC VM 360 and changes of foreign exchange rate. As Stefan mentioned, Euronext reported a very strong quarter with revenue reaching EUR 236,800,000, up 55.2% compared to last year. Let's now take a closer look at the different businesses. Double digit growth of volumes across all asset classes, coupled with strong revenue capture and the consolidation of Norpool led to a 73.3% increase in trading revenues for a total of EUR 111,800,000. Post trade revenue more than doubled to EUR 39,200,000 driven by the consolidation of our Norwegian CSD VPS and higher clearing revenues linked to stronger derivative volumes.
Listing revenue grew 26.7 percent to €35,400,000 driven by the organic performance of corporate service and the consolidation of Oslo BPS. Advanced Data Services reported revenue up 13.2% to €34,900,000 driven by the consolidation of acquisition and the resilient core business. In the Q1 of 2020, non volume related revenues, as Stephan mentioned, accounted for 44% of total group's revenue, down year on year due to record trading revenues offsetting the increased exposure of the group to non volume related activities such as services, custody and settlement. Lastly, these non volume related revenues cover 119% of our operating cost excluding G and A compared to 114% last year. Let's move now to Slide 10 for listing.
The growth engine this quarter were corporate service and Oslo BPS. Revenue grew 26.7 percent to EUR 35,400,000. In particular, Corporate Services continued to report strong organic growth, reflecting continued commercial traction across all services. Combined with the activities of Oslo BPS, our corporate service franchise reported EUR 6,800,000 of revenue this quarter. The first part of the quarter display a dynamic start with a good momentum in primary equity issuances until the advent of the COVID-nineteen pandemic that severely affected the rest of the quarter for equity primary market.
In the Q1 of 2020, Euronext welcomed the listing of Merlin Property, Spanish Large Cap and in addition, we had 8 SMEs listing this quarter. In total, EUR 257,000,000 were raised on Euronext primary market compared to EUR 48,000,000 last year. Secondary market saw a similar trend with EUR 11,100,000,000 raised this quarter compared to EUR 5,300,000,000 in the Q1 of 2019. Let's move now to our trading business on Slide 11, and let's start with cash trading. Cash trading revenue increased EUR 32,500,000 or 67.3 percent for a total of EUR 80,800,000, reflecting significantly higher volumes, improving market share and a limited dilution of Euronext revenue capture versus the Q1 of 2019.
This performance was mainly organic with like for like revenue growth of EUR 28,800,000 or 59.6%. Looking now into the different components of this performance. ADV increased to EUR 12,600,000,000 up 53.2 percent pro form a of Oslo Borse volumes, with a significant increase of volumes across all products. Revenue capture was 0.53 basis points on an organic basis, while including Oslo, it was 0.50 basis points. The resilience of our cash revenue capture is mainly linked to 2 elements.
First, the relative stability of the volume mix will not make your spike in volumes from liquidity providers that usually characterize periods of short term volatility. 2nd, the reduced size of average trade positively impact average fees. In this extreme situation, trading volume concentrated on our market thanks to their depth, quality of execution and the reduced appetite of banks to internalize trades, which positively impacted transparently markets. As a consequence, our market share increased to 69.9%, including Oslo 3.9 points higher than last year and reached 70.2 percent like for like. Moving to derivative trading.
Derivative revenue were EUR 15,700,000, up 51%, thanks to the higher selling volumes and slightly higher revenue capture. Product innovation in equity future such as single stock dividend future with new maturity cycles combined with high volatility supported financial derivative volumes with ADV up 37.8 percent, while an improved agricultural physical market benefited to commodity volumes increasing 50.2%. Average revenue per lot increased 2.1% to €0.29 per lot. Let's move to Slide 12 for FX and Power. FX reached record average daily volumes of $25,900,000,000 in the Q1 of 2020, up 30.8% compared to the Q1 of 2019, supported by a highly volatile environment, increasing market share and the strength of the platform.
SpotFX generated EUR 8,000,000 of revenues, up 39.5 percent, reflecting higher volumes combined with an improved fee scheme, partially offsetting an increased level of disclosed trading versus the Q1 of 2019. Let's move now to Power Trading. Power Trading reported EUR 7,200,000 revenues for 2.5 months of consolidation of Norpool, which Euronext acquired 66% in January 2020. This reflects a good performance of the UK and Central and Western Europe market offsetting reduced volumes in the Nordic region impacted by mild winter. Over the Q1 of 2020, average daily volume were 2.9 terawatt hour for the day ahead auction and 0.08 terawatt hour for the intraday trading.
Before moving to the next slide, I would like to highlight a few elements concerning the activity of Norpool. First, trading revenue is not North Pool only source of income. Other revenue for market, traveling, shipping, services and market data are recorded in other P and L lines as we will see in the next slide. 2nd, North Pole Business is impacted by power demand and is therefore seasonal. As a result, it tends to displace stronger Q1 and Q4s, colder months and relatively weaker Q2s and Q3s, milder months.
Finally, the revaluation of NOK against the euro impacted the performance of the business when converted into euros. Let's move to Slide 13 for post trade. Revenue from our post trade activity more than doubled in the Q1 of 2020 to €39,200,000 Clearing revenue was up 45.1 percent to EUR 19,200,000 reflecting higher derivative volumes over the quarter and higher treasury income. Custody and settlement revenue accounted for EUR 20,000,000 plus 262.8%, resulting mainly from the consolidation of our Norwegian CSD VPS and an increased settlement activity at both Interboltsa and VPS. Moving to Slide 14, the final slide on top line.
Starting with Advanced Data Services, revenue was up 13.2% to €34,900,000 in the Q1 of 2020, driven by the consolidation of acquired business, including North Pool Power Data activities and the resilient core business. Investor Services revenue was up 74 point 5% to EUR 1,900,000 reflecting the commercial development and the consolidation of Oslo BPS activity. Lastly, on Technology Solutions, revenue was up 44% to EUR 13,300,000 resulting from the consolidation of Oslo BPS and Northwood. Moving to Slide 16 for the financial highlights of the Q1, starting with the EBITDA bridge. Euronext EBITDA grew 68.1%, as mentioned by Stephane, EUR 250,000,000 this quarter.
We already spent some time on revenues. Therefore, I would like to focus on cost and margin. Organic costs slightly increased, dollars 2,500,000 or 4%, mainly driven by higher clearing expenses for EUR 1,900,000. As you know, those costs are pretty much are only volume related costs within an otherwise nearly fixed cost base. Overall, the EBITDA margin for the group increased to 63.4%, up 4.9 points, while on a like for like basis, the EBITDA margin was at 66.7% this quarter, up 8.2 points.
The profitability of newly acquired business was at 47% this quarter with Oslo BPS benefiting from exceptional high volatility and a strong Q1 seasonal revenue for Northpool, as mentioned in the previous slide. In summary, 1st, organic costs were nearly flat year on year excluding the impact of clearing expenses linked to volumes. 2nd, Euronext displayed a higher level of profitability across the board, thanks to its high operating leverage. I would say that it is a pretty simple quarter to read, have to take questions in the Q and A if needed. Let's move now to the Slide 17 to the net income bridge.
Net income increased this quarter by 71 point 2% to EUR 96,100,000 resulting primarily from the strong operating performance. Looking at below EBITDA items, D and A increased 45.6% during the quarter, mainly resulting the consolidation of recently acquired businesses and the impact of PPA. This is mechanical. The more business we acquire, the more D and A linked to the purchase price allocation. This quarter, nearly EUR 5,000,000 of our D and A are linked to PPA.
Exceptional items were lower this quarter and resulted primarily from advisory costs and restructuring costs at Oslo BPS. Net financial expense increased year over year reflecting the interest expense on the 2nd bond issued in 2019 to finance the acquisition of Oslo Borse BPS. Income tax rate was lower than last year at 28.1% as anticipated, while the income tax charges increase in absolute amount due to the higher level of profitability. Finally, adjusted EPS is up 65.3% at EUR 1.44 To conclude with financial, let's move to the Slide 18. I would like to start spending time on the cash flow conversion rate that reduced this quarter from our normative rate of approximately 2 third to 1 third.
In the Q1 of 2020, the net operating cash flow was lower than last year, impacted by higher changes in working capital from Northpool. More explicitly, as a part of the acquisition of North Pool, we acquired both on the one side, a large payable position that was actually paid during the quarter and on the other hand, necessary cash to settle that position. This settlement negatively impacted the changes in working capital for the group this quarter. If you look further down in the chart of the liquidity bridge, you will notice under the item acquisition of subsidiary net of cash acquired a positive €61,300,000 This is linked to the cash we acquired and it was used to settle the payable position we just discussed. To conclude on Northpool working capital and cash flow conversion, I would like to add a few elements.
1st, North Pole operates the CCP and has a structurally negative working capital as it cashes in power receivable at T+1 before it settles power payables at T+2. 2nd, excluding those self funded working capital fluctuation related to the market activity, Norco cash conversion rate is similar to the one of Euronext. Finally, excluding Norcold changes in working capital, the net operating cash flow would stand at €16,500,000 Moving to the financial leverage of Euronext. Our net debt stands at EUR 602,000,000 representing a net leverage of 1.3 times pro form a on the last 12 months. Looking at the bottom slide of this slide, at the end of the Q1 of 2020, our liquidity position remained strong, close to EUR 820,000,000 including the undrawn RCF of EUR 400,000,000.
You will also notice that we slightly increased our targeted cash flow operation to reflect the increased perimeter of the group. I now hand the floor back to Stephane for
his final remarks. Thank you, Georgios. We successfully managed this high volatility environment to deliver a strong Q1 2020. This demonstrates the relevance of our past investment in technology notably in our proprietary trading platform, uptick and on strong operating leverage. I just want to emphasize a few things because some comments have been written about whether this quarter is sustainable.
So let me say as a matter of conclusions very clear things. There are things that we don't know that may change and that we don't control and these are volumes and volatility. And there are things that we know that will not change and that we control. And these things that we know that will not change and that we control are number 1, our yield management expertise and commitment to extract the best from volumes and volatility, whatever it is. 2nd, our commitment to cost discipline, which allows us in these particular circumstances to grow EBITDA more than revenues.
3rd, a disciplined capital deployment, a disciplined way to acquire company, which translates into the deals we do and also into the deals we don't do as demonstrated over the past few months in order to secure value creation and shareholders value aggregation. 4th, we have created post merger integration factory. I mean, the example of the Irish Stock Exchange where we have delivered €8,000,000 of run rate cost synergies 1 year ahead of schedule demonstrates that the full price we have paid post synergies, post tangible synergies for the acquisition of the Irish Stock Exchange is approximately 7 times the EBITDA. And finally, we are committed to grow, diversify our top line and to expand our federal model by acquisitions. So yield management, cost discipline, disciplined capital deployment, integration, factory, commitment to grow by acquisition, these are things that we know, things that will not change and things that are under our control.
And there are things to last that are very different from external factors like volumes and volatility. So we are now available for your questions with Antoni Attia, Giorgio Modica.
And the first question comes from the line of Benjamin Goy from Deutsche Bank. Please go ahead.
Yes. Hi, good morning. One question on your cost guidance. So as you mentioned, plus 4% like for like, but almost entirely driven by clearing fees. So it seems like you're running ahead a bit of your guidance.
Any thoughts on that? Appreciate it. And then secondly, on BP Securities, maybe you can comment on the discussions of the minorities, how this is going and whether we should expect 100% acquisition as basically all of your acquisitions?
So I'll take the questions on VP Securities, and Georgiou will answer your question on the cost guidance. On the VP Securities situation, we have acquired we have signed an agreement to acquire 70% of the shares. It's subject to Danish FSA approval that we should get in the course of July. So subject to that approval, we will complete controlling transaction. In parallel, we have launched an offer to the minority shareholders.
As you know, under Danish law, like in many other countries, we need to reach 90% of the shares in the company to be in a position to squeeze out the minority shareholders, I. E. To offer a forced exit to the minority shareholders. So this offer is ongoing. We are gathering acceptance.
The offer is open for a relatively long period until the end of August because there are existing preemption rights that need to be clear in the way existing shareholders in BP Securities can transfer their shares. So it's a pure technical issue, but the momentum we are gathering so far make us confident that we should get to the 90% threshold, which will allow us to complete within a reasonable amount of time a full control of 100% of the shares in the company. It's absolutely certain, but there is for a moment a momentum which is favorable.
When it comes to cost, clearly cost discipline is our trademark and our commitment. However, I would like to highlight that evolution of cost is not linear throughout the year, and we are running at the level that we expected to run-in the Q1. And you should take as well into consideration the fact that we might have not evenly spread cost across the different quarter. And therefore, we reiterate the guidance that we shared with you with the result of the end of year 2019.
Very clear. Thank you.
Thank you. The next question comes from the line of Arnaud Giblanc from Exane. Please go ahead.
Yes, good morning. I've got 2 questions. Firstly, on yield in cash equities, that held up very, very well given the strong volumes. Usually, you see the yield move in opposite direction. So is the change in pricing you've enacted and that you went through the Investor Day, is that what's keeping that yield up?
How should we think about the yield sensitivity to volumes in the future? That's my first question. Secondly, on M and A, what I mean, last time you spoke about BME, you were still in the bidding. You had indicated that you were going to you were reviewing your required returns of capital relative to a new WACC. What decided not why did you not proceed?
Was it a case about the revenue synergies or the threshold not high enough? Secondly, I noticed that the VPS deal has a return on invested capital of 10% or greater than 10%, so clearly a much higher return on invested capital than BME would have generated. So what's the thinking here? Are you now back to your guidance of looking for deals higher making a higher percent to 10% return? And secondly, if I can ask on M and A, can you just give us maybe an update in terms of competition for deals?
Where the deals for North Pool and for the EPS securities competitors? Thanks.
I'll take the M and A question, and Georgiou will answer the question on Vivien. The reasons why we did not proceed with the counter bid on BME are very clear. We have analyzed carefully for long the situation, the performance of the asset, the surrounding environment, the strategic value of the acquisition and the return on capital employed to be expected and the environment, including the existing offer of another bidder who was willing to pay multiples on B and E and to accept not to do any synergy for the next 10 years. And the combination of this price paid by another winning buyer plus the commitment not to do anything in the company in terms of cost for the next 10 years compared to our approach of the company, which would have been to make them part of the single liquidity pool enabled by a single order book and powered by a single technology platform, which would have meant significant restructuring and synergies plus or expectations on return on capital employed led us to believe that this transaction despite its strategic benefit would have been value destroying for Euronext shareholders. Hence, we've decided not to do it.
So the hesitations or the time we spent analyzing the whole thing was to assess the strategic value that would have justified to reduce the expectations or self imposed disciplines in terms of return of capital employed. We've reached the conclusions that the gap between the strategic value and the return on capital employed was not to be justified and therefore we decided not to proceed, period. As you said rightly, VPS is a totally different asset, where we believe that extraction of synergies will be much easier. Clearly, as you can imagine, we buy the assets from 5 large shareholders and the largest seller is the Central Bank of Denmark. So these issues have been discussed at length and we are and the price we are paying is definitely much better than the Spanish situation.
I say as a but take it as a sort of a slogan, VPS is roughly 5 times smaller than in terms of revenues than DME and we pay it 20 times less. So it's financially a more attractive asset. It doesn't serve the same strategic purpose, but what you can observe is that when you consolidate OSCO Borse, BPS, North Pole and BP Securities in Copenhagen, you get to a contribution pro form a to the top line of the group of 25%. And with a return on capital employed blended if you look at the region, which is probably more attractive than other decisions we could have made and we have not made. In terms of non pool, like any asset base competition, there is always competition of and at that time there was always competition of private equity players, competition of potential other industrial bidders.
We always face competition. There is no such a thing that but what we try to do is to position Euronext as providing a particular angle. I mean, if we bought VP Securities among other things, if we bought it from the Central Bank of Denmark among other things was the fact that we were perceived as a sort of more than feed and proper, but a sort of predictable appropriate owner of a local market infrastructure, which is not an exchange, but which has many feature of this very regulated transparent infrastructure that needs to be close to regulators and close to local clients.
Yes. Coming to the yield, there are a few elements that I would like to highlight. So clearly in the last 12 months, there were fee changes. However, there were no major fee changes between the last time we spoke with the result of December 2019 and today. So you should not link what has happened to a specific measure was taken in the Q1 of 2020.
So this is the first element. The second element is the fact that clearly the mix of our volumes is a clear trigger of the average fee. And again, as I mentioned, usually what happened with spike of volatility is liquidity providers that usually have lower fees than the rest of the volumes tend to be overrepresented. These did not happen this quarter because despite the very significant level of volumes, the natural volumes, the buy side were quite significant and represented in our volume mix. Then there is a last comment I would like to make, which is the general principle of our fee scheme is that the more you contribute to the quality of the market, the lower the fee you pay.
And clearly, when there are extreme situation in terms of volatility, the possibility to contribute and maintain high level of standard for liquidity provider becomes tougher. And therefore, this can have an impact on average prices. Another element that plays and I already mentioned is the decreased size of average transactions. So all in all, what I would say is that the general between brackets full that higher volumes command lower yield still remain valid. The exceptional circumstances of the Q1 do not cannot be and should not be extrapolated for the remainder of the year.
Thank you.
Thank you. The next question comes from the line of Mike Verner from UBS. Please go ahead.
Thank you. Two questions, please. First on VP Securities. I was just wondering, this is a business that according to their records have grown revenue by just under 1% per annum over the past 3 years. So I was just wondering, do you see an opportunity here to kind of accelerate the revenue growth for the business?
And then how do you look at potential expense synergies relative to the size of the current cost base? And then secondly, you noted that I think you gained certainly a decent amount of market share in Q1 as you indicated that banks behaviors have shifted and people and traders and investors were preferred to transact on venues with greater transparency. Is that something that is continuing into Q2, I. E. Are those market share gains sticky as ultimately volatility, the remaining elevated levels have come off from highs?
Thank you.
So I'll let Giorgio answer the question on the market share development and I'll answer your question about VP Securities. VP Securities operated as a standalone country CSD and had ambitions to grow their top line and they have developed new value added services, but they lacked the scale and the support of a solid shareholder to implement those projects. They have many growth projects that have remained to a large extent aspirational because the previous shareholder basis and the previous board structure was mainly user driven with no focus on growth that was not related to the core local services. So they are very specific projects ready to launch. They have explored cross border IDs, including IDs for Nordic Development Services.
And you should know that I mean, you know, sorry, that VPS in Oslo and VP Securities in Copenhagen share the same technology DNA. The technology used by VPS in Oslo comes from a sort of basic technology developed by VPS in Vepi Securities in Copenhagen. The companies know each other very well. They have discussed in the past ideas to grow a joint offering. They operate the same CSD business model with segregated accounts that make them very, very similar, which is different from what is common in the South of Europe with our jumbo account or Omnibus account.
So there are prospects of growth. As I said in my concluding remarks, the core of the EBITDA expansion will come from the integration of VP Securities into the Euronext cost culture, making a single country platform part of a group organization. But we believe that we are in a position to expand the top line of the group because of this Nordic project.
Jojo? Yes. Coming to the to your second question with respect to market share, there are 2 elements. As you pointed out, there is an increased level of volatility. These attract risk for bank's book and therefore, to a certain extent, reduce the appetite for increasing systemic internalization, which in turn to a certain extent, slightly reduces the size of the non lit market in favor of transparent markets.
So this trend is linked to risk appetite for risk and volatility and remains in place. Then looking at the other market share in the lead market, what I can tell you is that it was strong and remained strong. And clearly, we will need to see how things evolve in an environment which remains highly volatile.
Thank you.
Thank you. The next question comes from the line of Hailey Tam from Credit Suisse. Please go ahead.
Good morning, gentlemen. Two questions from me, please, if I may. The first one just simply on the Oslo BOSS acquisition. I just wondered if there's any update on the synergies there, specifically whether the COVID-nineteen crisis led to any sort of distractions and maybe delays as resources were maybe diverted elsewhere? And I guess on the plus side, you obviously mentioned BP Securities already on the revenue synergy side, but any comments that will be any further comments there will be useful.
And the second question, just in terms of short selling bans, obviously those have been ongoing since the crisis began. And I just wonder whether you thought that's had any ongoing impact on volumes. Yes, any comments you have there would be great. Thank you.
Okay. So I'll take a question in short selling ban and Georgiou will take questions on the update about on the integration of the Oslo. So the throcelin ban is what it is. It's a measure that was enacted in several Euronext jurisdictions, including France and Belgium, not in others. At the mid March, it has been renewed for 1 more month.
In the coming days, there will be discussions among regulators concerned about whether they want to renew it for 1 more month. We believe that at the time it was the decision was taken, it could be understandable. I mean, actually, the regulators called us to consult us and we told them that at that time, anything that could cool down the market and what would be welcome. We did all share with the extension of reservations periods of circuit breakers, etcetera, and they felt that the right compromise to avoid unnecessary procyclical amplification downside for some issuers was to cool down the market with the balance short selling. Today, the situation is very different.
So whatever the decision of the regulators will be, it will be. But we strongly believe that the situation has changed materially since mid March. In terms of revenue impact, it had an impact on our derivatives business, but the good news is that it was massively offset by the volumes that you are observing in the results of this month in cash trading, but it had an impact. But in a crisis environment, I believe that you cannot get the cake and eat it, you cannot get high volatility and volumes on cash trading and expect that the regulators will stand still and will not take some measures that they felt were appropriate to cool down the market during the initial prior to the crisis.
Yes. Then when it comes to the integration program of Oslo BPS, what I can tell you is that the decision have been taken and communicated to the relevant counterparties, which means that we are in full execution and we are not anticipating any changes with respect to the plan that we committed to deliver and that we planned. However, on the other side, it's fair to say that clearly we are living unprecedented times and clearly the success of the integration relies as well on 3rd parties, client readiness, and therefore, we are doing everything possible to minimize the risk that this might have an impact on the plan. But what I can tell you is that based on what we have today and the interaction we have today, we do not envisage any change in the plan.
Thank you. Thank you. The next question comes from the line of Andrew Kumser from Citi. Please go ahead.
Good morning. If I could ask one question, also one follow-up. First question would be on the custody business. Could you just elaborate on any sensitivity you have to the quite sizable cuts that we've seen both in Norwegian rates but also in Fed rates as well? And second question, which should be coming back to the cost guidance.
I think you answered the first question. You said that you maintain the previous guidance of looking at mid single digit growth in OpEx versus the second half annualized. And you seem to suggest that because a lot of the integration and digitization projects will probably come through later in the year. Is that fair? And if so, when can we kind of expect those to come through?
Is that a Q2 event? Or is that going to be more Q3 and Q4 weighted? Thank you.
So Giorgio will answer the cost guidance question. Can you rephrase your first question because you mentioned custody and then exchange rate. I'm not sure whether you referred to the Norwegian Kroner exchange rate situation, which deserves some comments if George can make them. Not so
much exchange rate, but the interest rate cut. So I assume the base rate cut will feed through into your net treasury income at some point, but interested in your thoughts.
I mean in this respect, as you've seen clearly, the revaluation of the NOK against the euro is not positive on two sides. The average rate for the quarter in terms of P and L was around NOK 11.5 against the euro, which is clearly much above the reference rate at which the company was acquired. From an equity standpoint, there is no issue because the business naturally hedged. However, it does create an impact on equity that goes through OCI and will reverse back once the condition of the NOK against the euro will normalize. And as well in the cash flow, you've seen roughly speaking a EUR 30,000,000 impact on the cash at the end of the period.
But again, we are not concerned about that. Then when it comes to your second question about the cost guidance, let me be even clearer. So what we said at the end of actually, at the beginning of this year when we provided the cost guidance, we said, let's take the second half twenty nineteen annualized cost base. This is around EUR 311,000,000 and we gave a cost guidance of mid single digit increase that we do maintain. And you should appreciate that it will be very difficult even more difficult today given the situation provide the exact phasing throughout the quarters.
That by definition cannot be linear, but we need to have a margin flexibility from an operational side. And clearly, the perimeter of the group has changed. So clearly, we will have 11.5 months for North Pole.
As you
know, the revenues in euros are around €40,000,000 We guided on around 25% margin. So on an annualized basis, this is around EUR 30,000,000 of costs. And then clearly, VP Securities pending the date of completion. But let's assume as we announced that this is going to be early Q3. Here, we are guiding for a 35% type of margin on a EUR 57,000,000 revenue.
So you can do the math to see how much could be the cost for 2020. So I guess that those are the key building blocks and we cannot provide further breakdown by quarter over and above the target for year end.
That's useful in terms of the cost block. Thank you. Just on the original question, rather than the FX exchange rate, I was more interested about the impact of the interest rate cuts on your net treasury income within the custody business.
No. This is not I mean, key drivers for the business is key drivers for the business which are measuring value at the end of the year. So for this year, those are locked. And then number of accounts and number of transactions settled, so the interest rate is not a key driver for the evolution of the P and L.
Okay. Thank you.
Thank you. The next question comes from the line of Johannes Thormann from HSBC. Please go ahead.
Good morning, everybody. I have two follow-up questions, please. First of all, on the VPS deal, will you make use of your cash flow and use only existing cash? Or do you need to tap your existing credit lines to pay for VPS? And in terms of EPS accretion, can you guide when you expect a positive impact on your EPS from this deal?
And probably on the extraordinary costs or exceptional items, how much should we expect from VPS and from other deals in this year?
So Giorgio will answer on those two questions. So
the first question is about the The financing. When it comes to the financing is so there are a few elements because clearly, we expect most of the deal to be financed with existing cash. Depending on how things will evolve and to a certain extent, the flexibility between the different Euronext countries, we might finance it completely with the existing cash or to tweeze some cash flow constraints linked partially to the current situation, we might as well use for a very limited portion the RCF that we would then rapidly repay. Then when it comes to the to target about integration cost and VPS, I mean, let's close the transaction first, then we would see to give you more specific targets.
Understood.
Thank you. The next question comes from the line of Karl Voigt from KBW. Please go ahead.
Hi, good morning. I have three questions. So one is the just a follow-up on the M and A environment. Can you just talk about the number and the quality of M and A opportunities you're seeing now versus what you're seeing in a pre COVID-nineteen world? Just wondering if the volatility in public asset values has caused some challenges there.
Second question is on the listings business. Just wondering if market capitalization stay near current levels, I think with the CAC 40 down near 28% year to date and the IPO market likely to remain challenged near term. Is there any way to frame the expected impact to the listings franchise over the next and the revenues over the next 12 months? And then lastly is, when we look back historically at periods of extreme volatility, they typically result in lower market values and eventually lower cash equities industry volumes. As you said in your prepared remarks, volumes aren't something that you can control.
But I'm just wondering in that scenario and which volumes do begin to fall if that comes to fruition. Can you just go over any potential expense levers you may have in a more challenging operating environment?
So I'll take the first question on M and A environment and the crystal ballstress test question, your third question. And then Anthony will take the question on this table. On the M and A environment, it's very difficult to give you a numerical answer. What we can tell you is that as far as we are concerned, we have decided not to pause, not to wait and see, but to continue deploying our external growth ambitions as demonstrated with the VPS the VP Securities deal in Copenhagen announced on the 23rd April in the middle of the pandemic. And as we speak, we are monitoring other situations.
We have some dialogues. As always, most of these analyses and most of these dialogues will lead nowhere because that's the reality of M and A where the circumstances or the conditions to be met for a deal to happen is very constrained by our own expectation and sellers' expectation. What I can tell you to answer in a qualitative way your question is that what the crisis is showing is that some sellers are becoming more flexible. We are not getting a situation where they are distressed sellers, but there are sellers that are revisiting their options. Having an open option where you had pre crisis always deep pocket private equity bidders is not necessarily a good idea because bilateral processes might be more productive than open processes of which the outcome is not certain.
So I would say that the grammar, the choreography, the way of doing deals is slowly and discreetly changing and that creates opportunities for people like us who are very agile and have demonstrated our capability to navigate in bilateral processes. So the environment is definitely changing in terms of number of deals. You will have a deal that will accelerate. You will have sellers who will wait and see. You will have private equity guys who are in a wait and see mode, but are going to reach for some of them liquidity needs to fund other components of their portfolio.
So yes, the environment is changing. Yes, there are opportunities for Euronext. No, I can't give you a number. In terms of listing.
Good morning. This is Anthony. In terms of equity listing, your question was about the impact of the total market cap decrease that we see on the market after COVID-nineteen crisis. So let me remind the structure of the liquidity listing revenues. We have three sources of revenue, 3 buckets.
The first one is new listings, such as IPOs. The second one is secondary follow on activities and the third one are yearly fees. And so your question is definitely related to the yearly fees. They are calculated based on the market cap of our listed companies at the beginning of the year. So for 2020, we have we are immune from the COVID-nineteen impact.
And to appreciate this impact, we're going to have to look at the total market cap at the beginning of 2021. And all this obviously is pre IFRS 15 application on the numbers.
And you had one last question about what happens what's going to happen on cash equity trading volumes and what would be the consequences for the company in the event of a low level plateau, lasting low level plateau. Again, I don't have a crystal ball. I think in the coming months, we will have a combination of positive news flow and negative news flow. There will be positive news flow potentially on vaccine, treatments, tests. There will be a positive news flow on some specific sectors that are benefiting from the current crisis.
And there will be negative news flow on some sectors that are more damaged than we anticipate, especially when the sort of current incubator that is put on the GDP of many countries is going to be lifted and we will see the reality and the normal market conditions of the damage done by self imposed lockdown will have a stream of bad news. On the other hand, we the monetary stimulus is going to continue. The fiscal stimulus is massive. There will be a new layer of fiscal stimulus post crisis. So these flows of money are going to be transformed into debt and equity investment somewhere.
So frankly, it's very difficult to form a definitive use. What I do believe is that we are in a business which is driven by fundamental growth, but also by fundamental intensity of new flows and by fundamental injections of money. So each of us can form his own model. And in the event that all that goes south and ends up in a very dark low volume plateau, what I can tell you is that we have in the last quarter close to 120% of our cost base, which is covered by non volume driven revenues. So even in very extreme circumstances, the diversification that we have embarked into for the past 4 years is relatively protecting us in terms of extreme conditions.
If it were to last, the profitability would probably reduce. But even then, if you look at our experiences in the previous quarters and in the previous years, where sometimes we had significant reduction of flows, Euronext performed better on profitability than our peers on cash trading because of cost base, it's much thinner. So the effort the huge effort made on our cost base has always been driven by a sort of very profound ambition to make sure that in good days we capture a disproportionate part of volumes and volatility by a thin cost base so that we can monetize a disproportionate part of those volumes and volatility. And in that days, we minimize the impact of the cost pressure for so that whatever continues to come in terms of volume and volatilities is modified. And that's what you have observed in the previous years.
So to make a long story short, no clear idea on where volumes will end up, strong confidence that whatever reduction in volumes, the diversification is there and strong confidence that whatever volumes are, we will extract the disproportionate part of those volumes in terms of profitability. Thank you.
Thank you. The next question comes from the line of Martin Price from Jefferies. Please go ahead.
Good morning. Hopefully, two quick questions for me, please. Firstly, on VP Securities. Do you expect the acquisition to change group level cash needed for operations much beyond the €190,000,000 you flagged for the Q1? And secondly, just turning to the derivatives business, you've clearly reported strong volumes there for most of the year.
Clearly, volatility has been the key driver. But it also looks like you've had some success with product innovation, including the new majority cycles on some equity derivatives. So I was just wondering if you could talk
a little bit about the
actions you've taken there to improve the sort of underlying level of structural growth within the derivatives complex, please?
So Giorgio will answer your 2 questions, the one on BP Securities and the other one on the progress made on our organic growth of derivatives.
So when it comes to VP Security, we do not expect major changes in the cash flow profile of Euronext. When it comes to your second question, yes, you're right. What we actually did is 2 things that seem simple but are not listen to clients and execute. And we had quite success looking at 2 products, the Equity Future and the Equity Dividend Future, that I mean, looking at the performance, the growth of the former is quarter year on year is increased tenfold and Equity Day with the Future increased 12 fold with nice gains of market share there. And then the key success was again dialogue with clients that were aiming to have new maturity cycles alongside the existing ones.
And going forward, our ambition is clearly to remain close to clients to detect pockets of demand, which are not addressed today and try to do it more efficiently and with more agility with respect to our main competitors.
That's helpful. Thanks, Georgi.
Thank you. The next question comes from the line of Bruce Hamilton from Morgan Stanley. Please go ahead.
Hi, thanks. Good morning, guys. Many of my questions have been asked. And maybe just a follow-up on the M and A stuff. In terms now of your sort of Nordic footprint, do you feel it's pretty much complete?
Obviously, you alluded to some potential to drive top line through joint projects. But are there any other areas that you would like to fill in to kind of accelerate the growth there? And then just thinking about sort of sourcing deals looking forward, I mean, would you expect that sort of banking consortium owned assets are the most likely area of opportunity just given the obviously the challenges and strategic refocus for many of the banks in the sort of post COVID system?
Can you rephrase your second question?
Yes. So in terms of where you source that, there's also VP securities was sourced from a bank consortium who may not be natural owners. I mean post crisis, would you see that as being even more likely source of assets? Or is it is that too simplistic?
No, I think your comment is right. I mean, if you take a long term historical perspective of our industry, there was a 1st wave of disposal by banks or by consortium of banks of infrastructure assets after the previous crisis where banks were under pressure to recapitalize. So after 2,008, 2009, you've seen in 2010, 2011, 2012 a first layer of disposals of user owned market infrastructures. So whatever is left for the moment is probably going to be subject to the same analysis. So it's not simplistic approach, but it's true that the number of assets that are under this type of ownership is not as large as it was 10 years ago.
But it's clearly the spot where Euronext wants to be to entertain dialogue with those owners, but it's also a spot where private equity buyers want to be and it's a spot where previous owners when they wait the benefit of selling to private equity and selling to Euronext Feel that the required element of continuity are more protected when the new owner is a pan European regulated exchange than when it is a private equity player. But your approach is right. On VPS, there is an Nordic ambition. CSDs are by nature very local. They are very close to the local regulators.
So if there is a world where there is a big gap between PowerPoint and reality, this is the world of CSDs because you don't do whatever you want. The flip side of it is that buyer to entries and stickiness of the revenues in the business are very strong. But in terms of involvement of regulators, in particular risk driven regulators, central banks, etcetera, or specific roles. I mean, in Norway, VPS does produce fundamental components of tax returns in terms of capital gains to the tax authorities. In Portugal, Intrarosa plays an important role to manage sovereign debt.
In Ireland, the CSD collect stamp duty. So local CSDs have to be massively driven by local regulators. So there are things we can do in all the fields that are not subject to the core regulated settlement and custody business because there is a lot of knowledge embedded. There is a lot of data embedded within the CSDs that are not very much valued. So the only grail is to find ways to monetize those data because there is an appetite for many issuers, for many investors to know who are the owners and how the owners behave in the equity world and more broadly in the financial instruments world.
So these create opportunities of top line expansion. You need very similar business models to be able to extract those. You need similar type of clients. The beauty of the Nordic region is that the key players in the local financial world are across the 4 countries in the peninsula and plus Denmark are SEB, Nordea, Danske Bank, DNB plus many local saving banks. And this is a relatively homogeneous business environment.
So we believe that there are opportunities there that for the first time we will be able to unlock.
Got it. Thank you.
Thank you. Our last question for today comes from the line of Ron Hedenried from ABM AMRO. Please go ahead.
Yes. Good morning, gentlemen. I have a few questions that are left. With regards to synergies, you've reached your ISE targeted synergies 1 year early. Do you see any additional synergies coming from that acquisition going forward in the next year, let's say?
And then secondly, that was also a question, I think, from Haley earlier on. On VP Securities, can you share us how we should think about the synergies from that transaction? Also given the fact that all the comments that this is local, but at the same time that they have some similarities with your Norwegian CSD there. And then finally, on VP Securities and maybe even on North Pool, will we at some point in time get a bit more detailed financials on the 2 acquisitions rather than just revenues and EBITDA? And then finally, on the personnel cost, what is the delta this quarter for the North Pole integration?
That's it. Thank you.
Okay. So I'll leave Georgiou answered the 4 questions. The first on the future potential synergies on the island, the synergies within VPL Securities and the prospects on NOPOL.
So starting from your first question. When it comes to Dublin, clearly, our ambition has not stopped with the EUR 8,000,000, but there is a moment where I mean, to a certain extent, it's an artificial perimeter that we are measuring. And now the company is completely integrated. And therefore, for practical reason, we don't look at anymore as a different entity. And therefore, we will stop monitoring that, not because we don't have ambitions, but because now it's part of the core Euronext.
Then to your second question, what should we expect from BP? Here, we should expect 2 things, 2 phases: Phase 1, which is the integration of a stand alone company within the Euronext ecosystem And the second one, which does not affect only VP, but all the CSDs of Euronext is more related to the project of creating Euronext of CSDs. Now the second one, clearly, it's too early to have any discussion. When it comes to the first one, without giving you quantitative targets, what I can tell you is that clearly, as you can see from publicly available information, there were certain specific costs that BP had in the past related to the migration transition to the T2S system. And today, there is a gap of profitability between the VP and VPS.
And clearly, our ambition would be to make sure that all activities are run as efficiently as possible. And then clearly, this would represent the 1st layer and then there is going to be a top up layer related to, again, the Euronext of CSD going forward. Then when it comes to the cost of employees, what I can tell you is that the cost of on a comparable basis, cost for Euronext have been going down around let me give a look. Cost of employees on a like for like basis of around 4%. The rest is coming from change of perimeter and we're not giving the breakdown between how much of that is coming from VPS and how much is coming from North Pole.
Ladies and gentlemen,
if you don't mind, we'll need to close this call. I have to jump on the call for the Annual General Meeting of Euronext NV. So if there are no further questions, let me thank you for your time and your interest for Euronext Development and happy to follow-up on your additional questions to our Investor Relations team. Have a good day.
Thank you for joining today's call. You may now disconnect.