Hello, 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. Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext. Sir, please go ahead with your meeting.
Good morning, everybody, thank you for joining us this morning for the Euronext first quarter 2019 results conference call and the webcast. I am Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext, I will start with the highlights of this first quarter of 2019. Giorgio Modica, our CFO, will further develop the main financials for the fourth quarter. I will update you on our current tender offer for Oslo Børs VPS following the announcement earlier this week from the Norwegian Ministry of Finance giving clearance to Euronext to acquire up to 100% of Oslo Børs VPS capital. I will finally open up for questions together with Anthony Attia, 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 EUR 2.1 million, up +1.4% to EUR 152.6 million. 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 Euronext Dublin and Commcise 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&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 -3% in Q1 2019 to EUR 89.3 million.
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 EUR 6.7 million run rate of cost synergies already delivered from Euronext Dublin following the migration to our proprietary trading platform, Optiq, which was implemented on the 4th of February 2019. Overall, this strong operating performance over the quarter resulted in a 1.7% decrease in adjusted EPS at EUR 0.87 per share. On a reported basis, Q1 2019 net income was down -6.6% at EUR 56.1 million, impacted by exceptional items only partially offset by improved net financing income, results from equity investment and lower tax rates with the impact of the Irish tax rate. Moving on to slide six. This quarter saw the continuing development of our diversification strategy and of our geographical expansion.
First, we successfully executed the migration of Euronext Dublin to our proprietary trading platform, Optiq, as I said, on the 4th of February 2019, provided Irish capital market 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. Second, we mark a new milestone in the development of our Spot FX 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-volume 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 ComStage, our recently acquired SaaS provider of research evaluation and commission management for financial services firm that contributed this quarter EUR 1.1 million to group revenue. I now leave the floor to Giorgio Modica for the detailed presentations of our Q1 2019 financial results.
Thank you very much, Stéphane, 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 first quarter of 2019, the organic growth of Euronext excludes ComStage and Euronext Dublin, as well as any project costs supported by Euronext for the integration of those two companies. Euronext consolidated revenue increased by EUR 2.1 million or 1.4% vis-a-vis the first quarter of 2018 to EUR 152.6 million. 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 Dublin, ComStage, contributed EUR 9.1 million of additional revenues this quarter. On a like-for-like basis, Euronext consolidated revenues decreased 4.7%.
Looking across the different businesses, listing revenue recorded a strong increase of EUR 6.1 million or EUR 28.1 million from last year to EUR 28 million. This reflects the contribution of Euronext Dublin and the strong performance of corporate services. As a reminder, the consolidation of Euronext Dublin only started from the second quarter of 2018 from a P&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. Spot FX revenues increased despite softer volume as a result of improved market share, good revenue capture, and positive FX impact. Advanced data services posted a good performance with revenue up 3.8% to EUR 30.8 million, thanks to indices and the consolidation of Euronext Dublin. As mentioned, we reported the first contribution from ComStage, EUR 1.1 million, that you can see in our P&L as investor services.
In the first quarter of 2018, non-volume related revenue accounted for 47% of total revenue. This non-volume related revenue covered 114% over cost, excluding D&A. Moving to slide nine, listing benefited from the positive contribution of Euronext Dublin for EUR 5.5 million. Corporate services revenue strongly increased close to 40% vis-à-vis last year. As a result, listing revenue increased 28.1% in the first quarter year-on-year to EUR 28 million. Please note that this is the last quarter benefiting from the favorable comparison basis, as from the next quarter, Euronext Dublin 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 four out of five new listing this quarter coming from non-Euronext markets.
Secondary market activity remained modest, mainly driven by technical deals. Moving to debt, our franchise continued to benefit from the consolidation of Euronext Dublin. Moving now to cash trading, slide 10. The first quarter of 2019 saw subdued volumes, with ADV declining 16.9% to EUR 7.2 billion. A strengthened yield and a solid market share partially offset the drop of cash trading revenue this quarter that decreased 13.3% to EUR 48.3 million. More specifically, the market share was 66.1%, stable compared to last year. It was up 1.9% at 0.53 basis point. ETF trading was impacted by declining volatility, while the number of listed ETF increased to 1,185 at the end of March 2019. Slide 11, derivative revenues was slightly down in line with volumes, -1.5% to EUR 10.4 million, impacted by low level of volatility over the quarter. Revenue capture was stable at EUR 0.28 per lot.
Commodity volumes slightly increased with ADV up 2.7% compared to the first quarter of 2018, as the relaunch of our new market participant program, designed to develop the non-physical market, continued to attract new flows. Finally, Euronext FX generated EUR 5.8 million revenues this quarter, reporting an increase of 10.4% versus the same quarter last year, thanks to a stronger yield, client acquisition, and positive FX rate impact, and despite challenging market conditions with Spot FX ADV down 2.1% to $19.8 billion. Moving to slide 12, advanced data services revenues was up 3.8% to EUR 30.8 million, primarily resulting from the consolidation of Euronext Dublin and the good performance of indices. Revenue from Euronext Technology Solutions and other increased 4.4% to EUR 9.3 million, supported by an increased activity in managed services solution and the consolidation of Euronext Dublin activity.
Clearing revenue was slightly up at EUR 13.2 million, with lower derivative volumes more than offset by higher treasury income. Revenue from custody and settlement was stable at EUR 5.5 million, as increased assets under custody at Interbolsa were offset by lower corporate action activity. Investor services that account for ComStage business reported EUR 1.1 million in revenues. The integration is underway with the Euronext teams and the business continue to grow, benefiting from Euronext reach and expertise. Moving down to slide 13. EBITDA for the quarter decreased 3% to EUR 89.3 million. This decrease is mainly related to the consolidation of new business and lower like-for-like revenue linked to subdued trading volumes. From a top-line perspective, revenue at constant perimeter decreased EUR 7.1 million due to lower trading revenues, as I said, while Dublin and ComStage contributed EUR 9.1 million.
Looking at cost this quarter, the bridge of OpEx is impacted by numerous factors, namely, the impact of the change in perimeter accounts for EUR 6 million. The positive impact of IFRS 16 on cost accounts for EUR 2.7 million. Finally, as I mentioned in our Q1 call last year, a negative comparison basis related to positive one-off in the first quarter of 2018 for approximately EUR 1.5 million. This EUR 1.5 million is the net impact of a positive one-off for EUR 3.5 million in the salary line, a negative one-off of EUR 2 million 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 ComStage that together added EUR 3.7 million to our cost base, and for EUR 3.5 million of negative comparison basis related to the positive one-off that I just mentioned. Professional services were positively impacted by the decrease of IT costs, 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 Stéphane did, that out of the target EUR 8 million of saving expected, EUR 6.7 million 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%, 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&A mechanically increased due to the adoption of IFRS 16, and D&A are also impacted by the PPA of recent acquisition. Exceptional items this quarter are mainly related to M&A for the contemplated acquisition of Oslo Børs VPS, and restructuring cost and settlement cost. 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 fourth quarter this year, while they used to pay in the second quarter the previous year. As a reminder, it represented EUR 4.3 million in the second quarter of 2018. 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 first quarter 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 first quarter of 2019. Excluding those exceptional items, the cash flow conversion remains unchanged versus the first quarter of 2018.
As far as leverage is concerned, our net debt remain limited, leaving us strategic and financial flexibility even after the contemplated acquisition up to 100% of Oslo Børs VPS capital. Looking at the bottom of the slide, as of the end of the first quarter of 2019, our liquidity position remained strong, close to EUR 670 million. In addition, I would like to highlight that our RCF was extended to EUR 400 million in early April, increasing our liquidity position to over EUR 800 million. Now I hand back the floor to Stéphane Boujnah.
Thank you very much, Giorgio. Moving on to slide 17, I'd like to update you regarding our tender offer for Oslo Børs VPS. As you may already know, the Norwegian Ministry of Finance gave clearance to Euronext to acquire up to 100% of the shares of Oslo Børs VPS on Monday, 13 May. I would like to remind you quickly the key highlights of this transaction. Our offer is to acquire all issued and outstanding shares of Oslo Børs VPS for a total consideration of NOK 6.79 billion, i.e., EUR 692 million for 100% 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 or existing offer will end on the 31st of May 2019. 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 Børs VPS, 53.4%, including pre-commitment, share standard to the offer, and directly owned shares. The Euronext College of Regulators has given its non-objections to the contemplated transactions. Now, the Euronext shareholders have been asked to approve the transactions at the annual general meeting, which is going to take place later this morning. Euronext preference shareholders, who represent 23.86% of Euronext capital, have confirmed their support for these transactions.
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 targets. Thank you. We are now available for your questions with Anthony Attia, Managing Board Member, and Giorgio Modica.
If you would like to ask a question, please press star one on your telephone keypad. If you change your mind or wish to withdraw your question, please press star two. Please ensure your line remains unmuted locally, and I will introduce you into the call. We do have a couple of questions in the queue. The first question comes from the line of Kyle Voigt from Keefe, Bruyette & Woods. Please go ahead.
Hi. Good morning. I guess my first question is just on Oslo. Have you been in contact with the two largest shareholders there since gaining approval by the Norwegian Ministry of Finance? I'm just trying to get a sense for those two 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. What we have said to them very clearly before the decision, because we have been in contact with them before the decision in informal 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 bound by the transaction agreement they signed with Nasdaq.
Okay. Understood. Just one follow-up from me just regarding your leverage. You say you'd be around two 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? 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?
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 rating remains unchanged. Clearly, we would proactively look for additional acquisitions, having in mind that we will not compromise with the strong investment-grade profile. When it comes to the target rating, as you know, we cannot fully control the flow of M&A. What we are certain of is our strong deleveraging profile given best-in-class EBITDA to cash flow conversion. Therefore, what we can say is that even if our leverage increases, we are very comfortable to decrease it quickly through organic cash generation. The key two pillars are first, our willingness to keep strengthening and acquire new activities going forward, but as well, our willingness to remain with a strong investment grade.
Giorgio, should we expect you to de-leverage, I guess, from that two times net debt to EBITDA? Is that going to be a priority for cash? That there's no M&A opportunities available immediately.
If there are no M&A opportunity available, clearly we will deleverage mechanically. 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 Giblat from Exane. Please go ahead.
Yeah, good morning. I 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. 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? Finally, on the cost base, you're talking about EUR 6.7 million of run rate synergies. What were the actual synergies delivered in Q1? I'm just trying to figure what the run rate cost base is from here. Thank you.
I'll just take the first question on Oslo. Giorgio 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.
Yeah. 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. We believe that this new yield would be sustainable. On your second question, out of the EUR 6.7 million of target synergies, the new synergies delivered in the first quarter are EUR 4 million 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. Next quarter, clearly, this EUR 4 million savings will have a stronger impact because will be fully phased.
Thank you.
The next question comes from the line of Albert Ploe from ING. Please go ahead. Albert, please go ahead. Your line is unmuted.
Apologies for that. Thank you for taking my question. Basically, I have one question on the cost base and the outlook for 2019. On the like for like, you reported a decline of 2.1%, but I assume it is still fair that looking at your guidance provided with Q4 of a low single-digit growth, including full year of Dublin, that it still stands. Should we read anything into the Q1, let's say, delivery that you are more hopeful on your full year guidance or basically it is an inline kind of performance as expected, which would be my own conclusion. Thank you.
Just to clarify, when we provided the guidance, clearly IFRS 16 was not in place. The low single-digit growth of OpEx 2018, excluding D&A, it does exclude the impact of IFRS 16. 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 first quarter. Which on a quarterly basis, for the first quarter, was EUR 2.7 million. On a yearly basis, should be around EUR 10 million-EUR 11 million. 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 continued to fall year-over-year. Is there any countermeasures you have planned? Is there any opportunity where you can balance this out so nice yield management doesn't help with falling volume so much. Secondly, could you guide us for the new tax rate looking forward for the company? Also, on the extraordinary cost we should also model in the next quarters for the Oslo Børs integration. Last but not least.
On the funding for Oslo Børs, you showed that you will use your revolving credit facility. Any indication for the yield you're paying? Thank you.
On your three questions, starting from FX. FastMatch did show a slight decrease of volumes, where the market and our competitor show a double-digit decrease in the same quarter, which means that FastMatch gained significant market share in the last quarter. It is fair what you are saying. Unfortunately, the first quarter of 2019 was very bad for FX volume. On a relative term performance, the performance of FastMatch was satisfactory in our view. This is the first question. The second question around the tax rate. The tax rate that we posted for the quarter, which is 29%, clearly does not take fully 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. With respect to the exceptional costs, we do not provide you with a guideline so far. On the funding cost, just to clarify, we have an FCF of EUR 400 million, 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 Børs VPS. Our objective would be to then find a longer-term source to take out the bridge. With respect to the rates, we will see what will be the prevailing condition, the moment we will secure this long-term funding.
What I can tell you is that the conditions at the moment are extremely favorable.
Understood. Thank you very much.
The next question comes from the line of Michael 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 was 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. Did you adjust prices during the quarter, or is this a year-on-year and quarter-on-quarter uptick more a reflection of just the lower volume environment, or was there also a mix shift in there? Second, just a follow-on, in terms of the FX volumes. Yeah, absolutely. 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. Again, I was just wondering if there was anything specific there, or is this just in line with market volumes? Thank you.
Starting from your first question. Yeah, as we always highlighted, there is a relationship between the volumes and the yield, and a trade-off between the two. Clearly, we are always aiming to maximize revenues with the best combination between market share and yield. This is a 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. 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. 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 to 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 comes from the line of Gurjit Kambo from JP Morgan. Please go ahead.
Hi, good morning. Gurjit from JP Morgan. Just one question. On the advanced data services, could you just give us a bit of color around what's going on there? The growth organically was basically stable. What I'm trying to understand is, are you seeing clients potentially doing more block purchasing of data, maybe going to fewer suppliers, and I guess banks and asset managers are more conscious on what they're spending on data. Are you seeing any pressure on pricing of data?
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. 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. The growth is again, a marginal erosion of consumption of data, more than offset by the increase of new products we're developing.
Is it fair to expect sort of low single-digit growth in that business going forward?
We will provide a midterm target in October with the new plan. Again, the thing that I can say now is again, there are two trends. We have new products which are growing nicely, especially on the index department, which more than offset 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, 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? Secondly, ComStage has unsurprisingly, I guess, below group margins. 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.
On the FX matching engine in Singapore, this is an exciting opportunity, but it is going to be live end of this year, it's too early to size the opportunity. We really believe that growing in Asia is going to be a very relevant component for the future growth of FX. To summarize, too quickly to tell, but it's an exciting opportunity the way we see that. On your second question, related to ComStage. ComStage 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. 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. As another reminder, if you would like to ask a question, please press star one. There are no further questions, I'll hand back over to your hosts for any concluding remarks.
Okay. Have a good day.
Thank you for joining today's call. You may now disconnect your lines.