Hello, and welcome to the Euronext Q1 2019 Results Conference Call. Throughout the call, all participants will be in listen only mode and afterwards there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present Mr. Stefan Brujna, CEO and Chairman of the Managing Board of Euronext.
Sir, please go ahead with your meeting.
Good morning, everybody, and thank you for joining us this morning for the Euronext Q1 2019 results conference call and webcast. I am Stephane Moudin, CEO and Chairman of the Managing Board of Euronext, and I will start with the highlights of this Q1 of 2019. Georgios Modicade, our CFO, will then further develop the bank financials for the Q4. I will then update you on our current tender offer for OsloBerge VPS. Following the announcement earlier this week from the Norwegian Ministry of Finance giving clearance to Euronext to acquire up to 100 percent of OsloBerge Capital.
And I will finally open up for questions together with Antoni Atia, member of the Managing Board of Euronext. Euronext reported a strong operating performance for Q1 2019 and clearly demonstrated the benefits of its revenue diversification strategy in an environment of subdued volumes. First, revenue increased in Q1 2019 by €2,100,000 UP plus 1.4 percent to €152,600,000 The improved group revenue profile and the diversification strategy that we have implemented over the past few years allowed to offset declining trading volumes, notably thanks to the consolidation of our recent acquisitions, namely NeonX Dublin and Comfyze, and also a good performance of our non volume related businesses that accounted this quarter for 47% of total group revenues. At the same time, we continue to demonstrate cost discipline. Indeed, while group cost excluding D and A were up, this was entirely due to the consolidation of the newly acquired businesses, partially offset by the adoption of IFRS 16.
As a result, group EBITDA slightly decreased by minus 3% in Q1 2019 to €89,300,000 This translates into an EBITDA margin, which remains very strong at 58.5%, which is nevertheless 2.6 points lower than the one of last year. Yet, this does not fully reflect the €6,700,000 run rate of cost synergies already delivered from Euronextavin following the migration to our proprietary training platform, OPTIC, which was implemented on the 4th February 2019. So overall, this strong operating performance over the quarter resulted in a 1.7% decrease in adjusted EPS at €0.87 per share. And on a reported basis, Q1 2019 net income was down minus 6.6 percent at €56,100,000 impacted by exceptional items, only partially offset by improved net financing income, results from equity investments and lower tax rates that with the impact of the Highlands tax rate. So moving on to Slide 6.
This quarter saw the continued development of our diversification strategy and of our geographical expansion. First, we successfully executed the migration of GeoNex Dublin to our proprietary trading platform, OPTIC, as I said, on the 4th February 2019, provided Irish Capital Markets participants with access to what is the largest single liquidity pool in Europe. This very seamless migration is a clear proof of concept of the success of our decentralized federal model. 2nd, we marked new milestone in the development of our Spot ForEx business with the setup of a new matching engine in Singapore to expand our footprint in the Asia Pacific market. We also continue to work on diversifying our profile to non volumes related businesses.
For example, we expanded our corporate services offering significantly to meet the needs of both listed and non listed users, translating into a 39.6% revenue growth for the corporate services businesses in Q1 2019. Lastly, we welcome the teams of ComSci's, our recently acquired SaaS provider of research, evaluation and commission management for financial services firm that contributed this quarter to €1,100,000 to group revenue. So I now leave the floor to Giorgio Rodica for the detailed presentations of our Q1 2019 financial results.
Thank you very much, Stefan, and good morning, everyone. Before starting, I would like to highlight that starting this quarter, we provide you with information on organic growth, allowing you to track the performance of our business on a like for like basis. As a reminder, for the Q1 of 2019, the organic growth of Euronext excludes Comsize and Euronext Dublin as well as any project costs supported by Euronext for the integration of those two companies. Euronext consolidated revenue increased by €2,100,000 or 1.4 percent visavis the Q1 of 2018 to $152,600,000 This performance was mainly driven by the consolidation of our recently acquired businesses and the good performance of our non volume related activities. Our recent acquisition, namely Euronext W and Comsize contributed $9,100,000 of additional revenues this quarter.
On a like for like basis, Euronet consolidated revenues decreased 4.7%. Looking across the different businesses, listing revenue recorded a strong increase of EUR 6,100,000 or EUR 28,100,000 from last year to EUR 28,000,000. This reflects the contribution of Euronext doubling and the strong performance of Corporate Services. As a reminder, the consolidation of Euronext Dublin only started from the Q2 of 2018 from a P and L perspective. Trading performance was mixed across asset classes.
Cash trading revenues decrease was mitigated, thanks to a good yield and a solid market share. Spotfx revenues increased despite softer volume as a result of improved market share, good revenue capture and positive ForEx impact. Advanced Data Services posted a good performance with revenue up 3.8% to $30,800,000 thanks to indices and the consolidation of Euronext Dublin. As mentioned, we reported the first contribution from Comsys, $1,100,000 that you can see in our P and L as investor services. In the Q1 of 2018, non volume related revenue accounted for 47% of total revenue and these non volume related revenue covered 114% over cost excluding G and A.
Moving to Slide 9, listing benefited from the positive contribution of Euronext Dublin for EUR 5,500,000. Corporate Services revenue strongly increased close to 40% visavislast year. As a result, listing revenue increased 28.1% in the Q1 year on year to EUR 28,000,000 Please note that this is the last quarter benefiting from the favorable comparison basis as from the next quarter, Euronext doubling will be part of the like for like performance of the group. Let's focus on equity first. Primary market activities was low as the quarter was marked by macro uncertainties in Europe.
Euronext offering for Tech SME demonstrated the attractiveness of Euronext value proposition with 4 out of 5 new listing this quarter coming from non Euronext markets. Secondary market activity remained modest, mainly driven by technical deals. Moving to that, our franchise continued to benefit from the consolidation of Euronext Dublin. Moving now to cash trading on Slide 10. The Q1 of 2019 saw subdue volumes with ADV declining 16.9% to 7,200,000,000 dollars However, a strengthened yield and a solid market share partially offset the drop of cash trading revenue this quarter that decreased 13.3 percent to EUR 48,300,000.
More specifically, the market share was 66.1%, stable compared to last year. Yield was up 1.9% at 0.53 basis points. ETF trading was impacted by declining volatility, while the number of listed ETFs increased to 1185 at the end of March 2019. Slide 11, derivative revenues was slightly down in line with volumes minus 1.5 percent to EUR 10,400,000 impacted by low level of volatility over the quarter. Revenue capture was stable at €0.28 per lot.
Commodity volumes slightly increased with ADV up 2.7 percent compared to the Q1 of 2018 as the relaunch of our new market participant program designed to develop the non physical market continue to attract new flows. Finally, Euronext effect generated 5 €800,000 revenues this quarter, reporting an increase of 10.4% versus the same quarter last year, thanks to a stronger yield, client acquisition and positive ForEx rate impact. And despite challenging market condition, we spot FX ADV down 2.1 percent to $19,800,000,000 Moving to Slide 12, advanced data services revenues was up 3.8 percent to $30,800,000 primarily resulting from the consolidation of Euronext Dublin and the good performance of Indesys. Revenue from Euronext Technology Solution and other increased 4.4% to $9,300,000 supported by an increased activity in managed services solution and the consolidation of Euronext Dublin activity. Clearing revenue was slightly up at €13,200,000 with lower derivative volumes more than offset by higher treasury income.
Revenue from custody and settlement was stable at EUR 5,500,000 as increased assets under custody at Intrbulza were offset by lower corporate action activity. Investor Services that account for Comsys business reported 1.1 $1,000,000 in revenues. The integration is underway with the Euronext teams and the business continued to grow benefiting from Euronext reach and expertise. Moving now to Slide 13. EBITDA for the quarter decreased 3% to 89,300,000 dollars This decrease is mainly related to the consolidation of new business and lower like for like revenue linked to subdue trading volumes.
From a top line perspective, revenue at Boston Perimeter decreased €7,100,000 due to lower trading revenues, as I said, while Dublin and Comstice contributed €9,100,000 dollars Looking at cost, this quarter the bridge of OpEx is impacted by numerous factors, namely the impact of the change in perimeter accounts for $6,000,000 the positive impact of IFRS 16 on cost accounts for $2,700,000 And finally, as I mentioned in our Q1 call last year, a negative comparison basis related to positive one off in the Q1 of 2018 for approximately $1,500,000 This $1,500,000 is the net impact of a positive one off for $3,500,000 in the salary line and negative one off of $2,000,000 in the professional service line. Excluding those elements, the like for like cost base of the group remained flat in the last quarter on quarter. Looking now at the details of cost by nature, staff costs increased mainly due to the consolidation of Euronext Dublin and comp size that together added $3,700,000 to our cost base and for $3,500,000 dollars of negative comparison basis related to the positive one off that I just mentioned. Professional services were positively impacted by the decrease of IT cost as well by a favorable comparison basis.
Indeed, last year, as I mentioned, there were some acquisition costs related to the acquisition of Euronext Dublin. With respect to the integration of Euronext Dublin, I would like to highlight, as Stefan did, that out of the target $8,000,000 of saving expected, dollars 6,700,000 run rate cost synergies have been already delivered as of February 2019. Yet, as those are run rate synergies, they do not fully translate into savings this quarter. Overall, EBITDA margin decreased to 58.5 percent, while on a like for like basis, EBITDA margin was at 60% this quarter. Moving to Slide 10 with the net income bridge.
This slide is self explanatory, but I would like to highlight some of the items that explain the decrease in the reported net income. First, D and A mechanically increased due to the adoption of IFRS 16 and D and A are also impacted by the PPA of recent acquisition. Exceptional items this quarter are mainly related to M and A for the contemplated acquisition of Oslo Borse VPS and restructuring cost and settlement cost. Then I would like to highlight as well that the reduction of the net financing income and expenses is almost entirely linked to FX movements. Finally, I would like to remind you that Euroclear will pay a dividend in the Q4 this year, while they used to pay in the Q2 the previous year.
As a reminder, it represented 4,300,000 dollars in the Q2 of 2018. And very last comment on this slide, the tax rate of the group decreased, reflecting the consolidation of Euronext Dublin. And I remind you that the tax rate in Ireland is 12.5%. Moving to conclude on Slide 15. Over the quarter, 66.7% of the EBITDA was converted into net operating cash flow versus 81.5% in the Q1 of 2018.
This decrease compared to 2018 is primarily explained by changes of working capital related to one off settlement and the earn out payments in the Q1 of 2019. Excluding those exceptional items, the cash flow conversion remains unchanged versus the Q1 of 2018. As far as leverage is concerned, our net debt remained limited, leaving us strategic and financial flexibility even after the contemplated acquisition up to 100% of Oslo VPS Capital. Looking at the bottom of the slide, as of the end of Q1 of 2019, our liquidity position remained strong close to EUR 670,000,000 In addition, I would like to highlight that our SCF was extended to EUR 400,000,000 in early April, increasing our liquidity position to over EUR 800,000,000. I'll now hand back the floor to Stefan Buschner.
Thank you very much, Georgios. So moving on to Slide 17, I'd like to update you regarding our tender offer for Oslo BPS. As you may already know, the Norwegian Ministry of Finance gave clearance to Euronext to acquire up to 100 percent of the shares of Oslo BPS on Monday, May 13. I would like to remind you quickly the key highlights of this transaction. So our offer is to acquire all issued and outstanding shares of Oslo Burst EPS for a total consideration of NOK 6,790,000,000 I.
E. €692,000,000 for 100 percent of the capital before interest payment. This transaction is to be financed through existing cash and debt facilities and will still leave room for further acquisitions post completion of this transaction to the limit of remaining strong investment grade. The acceptance offer of our existing offer will end on the 31st May 2019, and we will offer the same conditions to shareholders who haven't tendered their shares to Euronext yet. A quick overview of the next steps.
The ministry's decision was one of the last major conditions to complete the transaction since most of the other condition precedents were already met. Euronext has already secured more than the majority of the capital of Oslo VPS, 53.4 percent, including pre commitment, share standard to the offer and directly owned shares. And the Euronext College of Regulators has given its non objections to the contemplated transactions. So now the Eurex shareholders have been asked to approve the transactions at the Annual General Meeting, which is going to take place later this morning. And Euronext's preferred shareholders who represent 23.86 percent of Euronext Capital have confirmed joint support for these transactions.
So we confirm today that we expect to close the transactions by the end of June 2019. To conclude, we are pleased to let you know that Euronext will present its new strategic plan in October, including our 2022 target. Thank you. We are now available for your questions with Antoni Assia Managing Board member and Giorgio
And we do have a couple of questions in the queue. So the first question comes from the line of Kyle Voigt from Keefe, Broughet and Woods. Please go ahead.
Hi, good morning. I guess my first question is just on Oslo. Have you been in contact with the 2 largest shareholders there since gaining approval by the Ministry of Finance? And I'm just trying to get a sense for those 2 large shareholders in terms of whether or not they would want to tender or retain a minority interest?
No, we haven't been in contact with them formally since the decision. And what we have said to them very clearly before the decision, because we have been in contact with them before the decision in formal meetings is that as soon as they are released from their obligations from NASDAQ, we are happy to offer them the same liquidity terms as the one offered to the shareholders who are not down by the transaction agreement they signed with Nasdaq.
Okay. Understood. And just one follow-up for me, just regarding your leverage. You say you'd be around 2 times net debt to EBITDA, should you acquire 100% of Oslo. How should we think about your willingness to execute on additional transactions while you're integrating Oslo, especially given the size of that transaction?
And then can you also just go over what you view as the target run rate net leverage for the company on an ongoing basis and where investors should expect you to deleverage towards over time?
Yes. So thanks for the question. Clearly, our strategy to keep strengthening the business mix and profile of the company remains unchanged as well the objective to keep Euronext strong investment trading remains unchanged, which means that clearly we would proactively look for additional acquisitions, having in mind that we will not compromise with a strong investment grade profile. Then when it comes to the target rating, I mean, as you know, we cannot fully control the flow of M and A. So what we are certain of is our strong deleveraging profile given best in class EBITDA to cash flow conversion.
And therefore, what we can say is that even if our leverage increases, we are very comfortable to decrease it quickly through organic cash generation. So the key two pillars are, 1st, our willingness to keep strengthening and acquire new activities going forward, but as well our willingness to remain with a strong investment grade.
Georgi, but should we expect you to deleverage, I guess, from that net the 2 times net debt to EBITDA? Is that going to be a priority for cash? There's no M and A opportunities at all immediately?
So we believe yes, I mean, if there are no M and A opportunity available, clearly, we will deleverage mechanically. Then if your question is, do we believe that there is further space for us to keep a strong investment grade profile while doing other acquisition, then the answer is yes.
Understood. Thank you.
The next question comes from the line of Arnaud Kipla from Exane. Please go ahead.
Yes, good morning. I've got three questions, please. Firstly, on the Oslo acquisition. Since the deal is about to close in a month or so, I was wondering if you could give us a bit more indication as to what the level of cost synergy should be. If not, should we regard this as a similar transaction to Dublin and look for a similar kind of percentage of the cost base?
My second question is on FX. So there's been a clear improvement in the yield. I was wondering if you could give some of the reasons behind that. And more important, is this improvement in yield sustainable? And finally, on the cost base, you're talking about €6,700,000 of run rate synergies.
What were the actual synergies delivered in Q1? I'm just trying to figure out what the run rate cost base is from here. Thank you.
I'll just take the first question on Oslo and Georgiou will answer on the yield and on the cost base. We are going to complete the transaction in June. We are going to analyze in a granular manner the pools of synergies both on the cost side and on the revenue side. We have some preliminary views, but we will share with the market our views on such synergies when we announce our Q2 numbers at the beginning of August.
Yes. So when it comes to the other two questions, on the FX yield, this is the result of clearly an improved and cleanup of all the tariff policies and as well of the business mix. And we believe that this new yield is would be sustainable. On your second question, out of the EUR 6,700,000 of target synergies, the new synergies delivered in the Q1 are EUR 4,000,000 on a run rate basis, which is the result of the termination of the DB contract. The contract was terminated as of the beginning of February, and therefore, it does not fully impact the quarter.
So next quarter, clearly, this EUR 4,000,000 savings will have a stronger impact because it would be fully phased.
Thank you.
The next question comes from the line of Albert Plaut from ING. Please go ahead. Albert, please go ahead. Your line is unmuted.
Apologies for that. Thank you for taking my question. Basically, I've got one question on the cost base and the outlook for 2019. On the like for like, you reported a decline of 2 point 1%. But I assume it's still fair that looking at your guidance provided with Q4 for low single digit growth, including full year of Dublin, that it still stands.
So should we read anything into the Q1, let's say, delivery that you're more hopeful on your full year guidance? Or basically, it's an in line kind of performance as expected, which would be my own conclusion? Thank you.
So I mean, just to clarify, when we provided the guidance, clearly IFRS 16 was not in place. So the low single digit growth of OpEx 2018, excluding D and A, it does exclude the impact of IFRS 16. So if we want to include the impact of IFRS 16, again, you should take the cost base of 2018 multiply for this low single digit increase and then deduct an amount similar to the impact of the one we disclosed for the Q1, which is on a quarterly basis, it was for the Q1 was EUR 2,700,000 on a yearly basis should be around EUR 10,000,000, EUR 11,000,000. And the performance so far is in line with our expectations.
Okay. Understood. Very clear. Thank you.
The next question comes from the line of Johannes Thormann from HSBC. Please go ahead.
Good morning, everybody. Johannes Thormann, HSBC. First of all, two follow-up questions. On your spot FX business, you managed your yield very nicely, but the volumes continue to fall year on year. Is there any countermeasures you have planned?
And is there any opportunity where you can balance this out? So NICE and deal management doesn't help with falling volumes so much. Secondly, could you guide us for the new tax rate looking forward for the company? And also on the extraordinary costs, we should also model in the next quarters for the Oslo integration. And last but not least, on the funding for Oslo BOS, you showed that you will use your revolving credit facility.
Any indication for the yield you're paying? Thank you.
So on your three questions, starting from FX, Fast Match did show a slight decrease of volumes, where are the market and our competitors show a double digit decrease in the same quarter, which means that FastNet gained significant market share in the last quarter. So I mean, it's fair what you're saying. Unfortunately, the Q1 of 2019 was very bad for FX volume. But on a relative term performance, the performance of FastNets was satisfactory in our view. So this is the first question.
The second question around the tax rate. So the tax rate that we posted for the quarter, which is 29%, clearly does not take full into consideration Dublin because the integration of Dublin tax rate starts with the integration of the platform because this is the moment where we consider the company to be fully integrated. For the remainder of the year, the tax rate should be slightly lower with respect to the 29% that we posted in this quarter. Then with respect to the exceptional costs, we do not provide you with our guidelines so far. On the funding cost, just to clarify, we have an RCF of EUR 400,000,000, but clearly, we do not intend to use that for the purpose of the acquisition.
We will use a bridge facility that we secured with a group of banks to secure certainty of funds in the framework of the offer we launched on Oslo Board's VPS. And our objective would be to then to find a longer term source to take out the bridge. Now with respect to the rates, I mean, we will see what will be the pre selling condition the moment we will secure this long term funding. But what I can tell you is that the condition at the moment are extremely favorable.
Okay, understood. Thank you very much.
The next question comes from the line of Mike Werner from UBS. Please go ahead.
Thank you. Just two questions from me. First on your cash trading yield at 0.53 basis points. This is quite a strong number and you attribute it in the presentation to yield management. I was just wondering if you could provide a little bit more color, I guess.
I mean, did you adjust prices during the quarter? Or is this year on year and quarter on quarter tick more a reflection of just the lower volume environment? Or was there also a mix shift in there? And then second, just a follow on in terms of the FX volumes, absolutely, I mean, in Q1, we saw volumes down about 2% year on year. In your note yesterday, you indicated that April volumes though are down about 17% from last year and 23% from March levels.
And again, I was just wondering if there was anything specific there or is this just kind of in line with market volumes? Thank you.
So starting from your first question, yes, as we always highlighted, there is a relationship in between the volumes and the yield and a trade off between the 2. But clearly, we are always aiming to maximize constant effort and you should read the 53% as this effort to maximize revenues, having the best mix between market share, quality of the market. And in this respect, we feel that the 0.53 is sustainable. Clearly, if we were to experience a significant increase in volume linked to much better market condition with respect to the one we are experiencing today, we should expect mechanically a slight reduction in the yield as in the past. But again, the objective is always to maximize the yield at each single level of volumes.
On your second question, there is not anything specific you should read through the decrease on FX volume. Again, our market share is improving. So there is nothing specific to highlight on that performance and on the negative performance of the beginning of the second quarter.
Thank you.
The next question The next question comes from the line of Gurjit Kambo from JPMorgan. Please go ahead.
Hi, good morning. Gurjit from JPMorgan. Just one question. On the Advanced Data Services, could you just give us a bit of color around what's sort of going on there? So I think the growth organically was basically sort of stable.
I think what I'm trying to understand is, are you seeing clients potentially doing sort of more block purchasing of data, maybe going to fewer suppliers? And I guess, banks and asset managers are more sort of conscious on what they're spending on data. Are you seeing any sort of pressure on pricing of data?
I mean, the answer to this question is yes. Clients, but it is a long term trend, are seeking to optimize their data consumption.
This is
a fact. And for that reason, we are pushing more for products with a higher growth rate and especially the data indices. And so the growth rate that you see highlighted, you should see that as a combination between the efforts from client to optimize the client consumption and on the other side, the growth of other segments of the business, which are not necessarily related to the key product we sell, which are raw data. So it's the growth is again is a marginal erosion of consumption of data offset more than offset by the increase of new products we're developing.
So is it fair to sort of expect sort of low single digit growth in that business going forward?
I mean, we will provide a midterm target in October with the new plan. And again, the thing that I can say now is, again, there are 2 trends. We have new products which are growing nicely, especially on the index department, which more than offsets the attrition on the historic revenues coming from the sale of our data.
Great. Thank you.
The next question comes from the line of Benjamin Goy from Deutsche Bank. Please go ahead.
Yes, hi, good morning. Two follow-up questions, please. You mentioned your FX business also going to Singapore. So maybe you can give us some more details what to expect in terms of volume contribution going forward. Will it be more like Tokyo?
Or can it really rebalance the business a bit more geographically? And then secondly, comp size has, unsurprisingly, I guess, below group margins. I'm wondering how you manage the business going forward, whether it's for the next year, it's really a revenue focus or also a profitability angle here? Thank you.
So on the FX matching engine in Singapore, this is an exciting opportunity, but it is going to be live end of this year. So it's too early to seize the opportunity. We really believe that growing in Asia is going to be a very relevant component for the future growth of FX. So to summarize, too quickly to tell, but it's an exciting opportunity the way we see that. On your second question, related to comp size, comp size is going to be clearly a growth story.
We have already identified a lot of business opportunity to grow, especially the current footprint as well in the U. S, leveraging the growing infrastructure of Euronext in the U. S. So clearly, this is going to be a top line story much more than a cost story.
Thank you.
There are currently no further questions in the queue. There are no further questions. So I'll hand back over to your hosts for any concluding remarks. Thank you for joining today's call. You may now disconnect your lines.