Good morning to everybody here today, and to those viewing this session over webcast. Welcome to Singapore Exchange Group's FY 2023 full year results. The agenda for today, first, our CFO, Ng Yao Loong, will give a financial highlight and performance briefing, followed by a business update by our CEO, Loh Boon Chye. So without further ado, let me introduce to you, Ng Yao Loong, who is our CFO, to present the financial updates. Yao Loong, please.
Okay, a very good morning. Thank you for joining us this, this morning. Let me start with our highlights, our full year financial performance, which has really demonstrated the strength and resilience of our platform in a quite challenging macroeconomic environment. On an adjusted basis, our group NPAT, all earnings increased just over 10% to SGD 503 million. This reflects the underlying performance or business performance, as we have stripped off one-off items when we talk about adjusted earnings. Otherwise, on a GAAP basis, the earnings would have been up 26.5% to SGD 571 million. The improved underlying earnings was driven first by a revenue growth of 8.7% year-on-year, to almost SGD 1.2 billion, and a one percentage point lower growth in expenses at 7.7%.
As a result, our operating profit, our group earnings margin improved by 50-60 basis points. Let me take you through the details of our financial performance. Similar to the first half of FY 2023, our derivatives franchise remained the key driver of our group's revenue growth, with a 27% year-on-year increase, or SGD 116 million. Revenue from our derivatives business, which cuts across the different asset classes, contributed about 45% of our group revenues. Includes both trading and clearing revenue, and also the associated treasury income. While the overall derivative volumes was flat year-on-year, we did see healthy volume growth from commodities and our exchange-traded currency futures. Our commodities daily average volume, or DAV, increased 35% to reach a new high of 160,000 contracts.
Our currency futures volume grew almost 30%, largely driven by our CNH contract, setting a record DAV of 152,000 contracts. This volume growth reflects the strength of our diversified multi-asset business. It has enabled us to cross-sell and also attract a wider range of clients and market makers. Average fees increased 6.5% to SGD 1.61 due to an increase in the proportion of higher full-fee-paying customers. For our key equity derivative contracts, we saw stronger volume growth in iron ore as well, that contributed. As for our cash market and capital-raising businesses, not surprisingly, we saw a revenue decline from fixed income listings, IPOs, and cash equities trading.
This is due to the quite unprecedented pace of monetary policy tightening by major central banks. That has affected regional and global stock markets in their level of trading activity and public and their listing activities. Before I go into the breakdown of our revenue and expense growth, let me touch on the reconciliation between our GAAP or reported earnings and the adjusted earnings. It's quite a big difference this time around. It's largely due to non-cash items, which are boxed in red. In the first half results, we have already recorded SGD 48 million of such net adjustments. For the second half, we're recording an additional SGD 20 million of net adjustments. Let me go through these adjustments. First, is a full year fair value gain of about SGD 40 million from our investment in a private equity fund managed by 7RIDGE.
Reflects the continued strong operating performance of the underlying asset Trading Technologies. This is a single asset fund which invested in the trading software provider, TT, in short. As they have continued to perform well in the second half of our financial year, our investment in this fund was further revalued upwards by about SGD 13 million. In the first half, we revalued upwards by SGD 27 million, that gave us that SGD 40 million uplift. This fair value adjustment flows through our P&L, given its accounting classification. Next, is a SGD 23 million write-back of the forward liability to acquire the remaining 7% stake in Scientific Beta, or SB. This forward liability relates to a put and call option agreement with EDHEC, which is the 7% minority holder, to acquire its stake in about 18 months' time.
We are required to fair value or estimate the value of this forward liability regularly, given the anticipated operating performance of SB compared to the projections at acquisition, the cost of acquiring this stake has actually come down. This is therefore recognized as an accounting gain, and hence, a write-back. I will not elaborate on the other two items, which I talk about in the first half, the SGD 15 million and SGD 10 million gain that we had. Touch on the green box. Along the same vein, we also took an SGD 8 million impairment of the acquired intangible assets in Scientific Beta relating to know-how and customers. In any case, we have been amortizing this purchased intangibles at about SGD 6 million-SGD 7 million a year, so this is an additional impairment.
The remaining impairment of SGD 3 million relates to the value of the Baltic owned land in the U.K., due to the weaker U.K. commercial property market. Coming to revenue, I'll talk across our three business segments. Our Fixed Income, Currencies, and Commodities business, or FICC, it accounts for 28% of our total revenue. It grew 34% to about SGD 338 million, from primarily the growth in currencies and commodities. Even if we exclude the revenue impact from MaxxTrader, which we acquired in January 2022, so that was 6 months in FY 2022 and 12 months in FY 2023, the FICC revenue will still be up 31%. Clearly, this has exceeded our mid-teens revenue growth expectation for the FICC segment. We see growing momentum in our FX business, both exchange traded and OTC.
Mentioned earlier, the almost 30% growth in our on-exchange currency volumes. In the OTC space, the FX ADV grew about 7% year-on-year to about $76 billion. If you compare on a half-on-half basis, i.e., second half of FY 2023 versus the first half, we will actually see a more than 20% growth. Second half was $83 billion ADV, compared to the first half, $68 billion. This reflects the refocus on client engagement and the uptick in client activities in the second half of FY 2023, following the completion of the planned platform migration in the first half of the financial year. At Commodities, I mentioned volumes grew 35%. Iron ore continued to be the standout performer. Volumes in iron ore grew 41% year-on-year.
In that contract, we broadened our range of financial clients in iron ore. Proportion of screen trading climbed from 29% to 46%. Now, moving on to Equities. Equity derivatives revenue increased about 17%. This includes clearly both the trading and clearing revenue and the associated treasury income. Although there was a 9% decline in volumes, this was offset by the higher average fees from our key contracts. A volume in our flagship A50 contract was slower, given the China sentiments and the slower than expected growth momentum following its opening. Again, we have seen it across many other markets as well. As for revenue for cash equities, 11% lower, came from both a decline in both trading value and also the average fees.
SDAV, or the Securities Daily Average Value, declined about 13% to about SGD 1.1 billion, primarily driven by our REIT segment and the small and mid-cap stocks. Average clearing fee declined 0.07 basis points, to 2.49 basis points, due to a higher participation from active traders and market makers. Revenue from DCI, or the Data Connectivity and Indices business, was comparable. We saw higher connectivity revenue from the upselling of services to existing clients, introduction of new GIFT-related colo and network services, offset by lower revenue from our index business. Our index business has also been affected by the macro environment. The assets tracking factors generally underperform compared to those tracking technology-driven, cap-weighted indices. Hence, have declined against a year ago. Last month, we successfully launched the GIFT Connect in collaboration with our partner, NSE.
From a financial reporting purpose, let me just explain why I'm highlighting this slide. Under this new partnership arrangement, the royalties expense for the GIFT Nifty contract will no longer be applicable, right? It will be replaced by a revenue share arrangement, of which the economics are largely similar. From a financial reporting perspective, what this means is that instead of having the royalties expense in our expense segment, the revenue that we share with NSE will be netted off against our trading and clearing revenue. I wanted to share the FY 2023 numbers to illustrate the point. The pro forma average clearing fee will be actually just 3%, or SGD 0.05 lower, at SGD 1.56, as compared to the FY 2023 average clearing fee of SGD 1.61. It's a pro forma number. It uses the FY 2023 numbers.
No change in other variables included in the calculation. It's just a mere movement of something that was formerly classified as expenses to the revenue line. As the new arrangement takes place from FY 2024, I'm giving these numbers way in advance, so that as you look at FY 2024 average clearing fees, you will have a right reference point to compare against, and that will be the pro forma numbers which I've highlighted in the right-hand side of the slide. This information will be posted on our IR website for reference. Moving on to expenses, on a headline basis, went up 7.7% to SGD 605 million. The additional six months from the full year consolidation of MaxxTrader in FY 2023 versus FY 2022 contributed 2.2 percentage points to this increase.
That's the extra six months, right? The annualization impact. If we take that out, expenses would have grown 5.5%. Where did all this expense growth come from? Staff costs, which is about 45% of our cost base, increased 10%. We saw higher staff costs from the merit increment, salary adjustments, and also increase in the group headcount. Technology expenses was up about 8%, primarily from the full-year consolidation of MaxxTrader and a higher data center utilities cost. Royalties, not surprising, rose about 5.5%, mainly due to the higher INR futures volume. Other expenses similarly grew about 4.5% as we resume business travel and higher marketing activities.
Looking ahead, FY 2024, both for expense and CapEx, clearly we'll continue to strike the balance between investing to grow our businesses and maintaining the cost discipline. We expect expenses in FY 2024 to increase at a mid-single-digit percentage range. This increase will come from higher staff cost and also investments in growing our OTCFX business. For CapEx, in FY 2023, we came in just under $60 million or at $59 million, lower than the initially guided range of $70 million-$75 million. This was mainly due to deferment of about $8 million for projects which was planned for FY 2023. We will now defer it to FY 2024, and as a result, the guidance for next year looks higher. It is at $75 million-$80 million.
If you average that out over the FY 2023 and 2024, it will be around SGD 70 million. The CapEx, again, is to grow our OTCFX business, strengthen system resilience and architecture, and also consolidate our office space. Our balance sheet continues to be robust. Absolute debt levels have declined following the repayment of our bank loans. Leverage ratio, very healthy, 1.1x on a gross debt to EBITDA metric basis. Interest coverage ratio is more than 100 x. The board of directors has proposed a final quarterly dividend of SGD 0.085 per share. If approved at our upcoming AGM in October, this would represent an annualized increase of 6.3%. With that, let me now hand over to Boon Chye, our CEO, who will deliver our business update.
Thank you, Yao Loong . A very good morning, everyone. Also, thank you for joining us this morning. As you have just heard from Yao Loong , overall, we have delivered another set of resilient results this financial year. Our multi-asset strategy continues to provide market participants with the diverse investment and risk management tools that they need in this challenging macro environment. This is reflected in our diversified revenue streams, with strong performance, as you heard, in our derivatives businesses across equities, commodities, and FX, amid lower activity in our cash, equities, and index businesses. Let me start off by reiterating the prime position that SGX Group is in, which is Asia.
The global economy is expected to remain challenging with elevated interest rates, inflation, sluggish demand, and geopolitical tensions weighing on global trade. Against this backdrop, Asia remains a bright spot for global investors. China and India together are forecasted to generate about half of global growth this year. Southeast Asian countries are projected to remain resilient in the second half of the year on account of the continued recovery in domestic and tourism demand. SGX Group is playing to our strengths in this environment. Our multi-asset strategy has enabled us to firmly establish ourselves as the trusted Pan-Asian hub for global investors to invest, manage, and manage risk, and raise capital. In the last financial year, we continued to demonstrate our leadership in Asian derivatives across asset classes globally. I will now illustrate this with a few examples.
Our commodity franchise has yet another milestone year. Volumes in the commodity derivatives increased over 35% to a record 41 million contracts on the back of a 40% growth in iron ore derivatives volume. Our efforts to expand the ecosystem to reach more financial participants, such as asset managers and hedge funds, has borne fruit, as iron ore has gained global significance as a proxy for Asia's growth. The proportion of screen trading has also doubled in the past two years as a result of expanded participation during the European and U.S. trading hours. This is demonstrated in the growth of our T+1 session, which is now about 18% of the total trading volume. With increased financialization of iron ore contracts, our trading volumes are now more than twice the size of the underlying seaborne physical market, which is a record high.
You can see from the slide on the right-hand side, for FY 2021, there was just over one time. Today, it is now twice the underlying seaborne physical market. Our flagship commodity contracts, such as iron ore and rubber, serve as bellwether for Asian economies, which are rapidly growing and urbanizing. Transport is another core pillar of our commodities business as part of price discovery for seaborne commodities. Remain the largest clearing venue for dry FFAs, and with Baltic Exchange expertise, we have now expanded into different transport segments such as containers and airfreight. Moving on to our FX franchise, SGX FX has grown significantly in the last few years. We started with just six FX futures contracts 10 years ago. Since then, our shelf of FX products has grown 6x .
Today, we are the largest and most liquid venue for Asian currency derivatives. Besides our leadership in CNH and INR contracts, we've also established new foothold in Korean won, Taiwan dollar, and Thai baht futures. In FY 2023, we achieved record volumes in notional terms of over $2.5 trillion. This is up almost 56% from a year ago. SGX FX remains the go-to venue for currencies, especially during volatile markets. With regulatory developments, such as Uncleared Margin Rules coming into full force, global investors are driving more OTC trading to on-exchange central clearing to enhance margin efficiency. We're also seeing positive traction in our OTCFX volumes across both G10 and Asian currencies.
As you have heard, our OTCFX volumes achieve a daily record ADV of $76 billion in the financial year, and we'll achieve our target of $100 billion ADV by FY 2025 or earlier. Looking at FX in totality, while making good progress in achieving our vision of an integrated FX marketplace, SGX FX has become Asia's leading and most comprehensive venue for the risk management and trading of major currencies across FX instruments. We are well-placed to offer holistic and innovative FX offerings on a global scale in both workflow and trading solutions. This integrated venue that we're building provides a solid foundation for our FX franchise future growth. On equity derivatives business, it continued to be resilient in FY 2023. We maintained our position as the most liquid, neutral venue for major Asian equity derivatives in a fast-growing region.
Trading in our A50 and Nifty contracts remained strong as we cemented our position as the primary venue for international investors accessing China and India. For the Nifty, we successfully migrated our contracts to the GIFT Connect and kick-started it with an open interest of around $9 billion. This paves the way for both SGX Group and NSE to deepen our collaboration to drive mutual success and to capture more growth opportunities. We continue to work closely with our members to increase trading activity in the GIFT Connect. There was also positive momentum and growth of liquidity in other key Asian contracts. The trading volume and market share of our FTSE Taiwan futures contract continue to grow. We will leverage the momentum, together with the recent launch of SGX FTSE Taiwan options, to deepen our Taiwan derivatives franchise this coming year.
Further, the MSCI Singapore contract saw heightened volume from greater volatility and increased adoption. In the past two years, we have accelerated our efforts to expand our sustainability-linked derivatives to capitalize on evolving investment mandates. Estimates indicate that more than one-third of all equity capital is passive. This makes benchmarks a powerful tool for climate transition. Earlier in June, we launched the first global shelf of futures tracking the MSCI Climate Action Indexes, covering five geographies, World, Europe, U.S., Asia ex Japan and Japan.
The index facilitates real-world decarbonization through a sector-diversified, bottom-up, and forward-looking approach. We are building a new global ecosystem around climate action indices and plan to include ETFs in the near future. Our climate action derivatives complement our existing sustainability-linked derivatives shell. As investors allocate more capital to transition finance, they will need similar tools like the ones that they are used to.
For example, our SGX FTSE Blossom Japan Index Futures, which allows investors to access Japanese companies with strong ESG practices, continue to grow steadily. In addition, we've added a climate option to our Nikkei 225 futures contract. The Nikkei 225 Climate Change 1.5 Degrees Target Index Futures offer a seamless liquidity option for investors to enhance exposure to Japanese companies committed to climate transition. Moving on to the Data Connectivity and Indices, or DCI. Our data and connectivity business continues to enjoy stable growth. Our connectivity business grew from offering more value-added services to existing clients and new GIFT-related colocation and network services. Our market data business grew due to an increase in non-display usage licenses and distribution of commodities data. This growth was slightly offset by lower revenues from our index business.
We continue to believe that the index industry remains an attractive sector and are therefore committed to capitalizing on our differentiated strengths in indexing to strengthen the business. Notably, Scientific Beta's research expertise in IP creation remains a key lever in building cutting-edge risk management index solutions. A case in point is Scientific Beta's Climate Impact Solution, which ensures a robust decarbonization approach. Notwithstanding the current macro environment, we believe there are still opportunities for smart beta indices to help investors diversify and balance their portfolios. In the past year, SGX Index Edge has stepped up efforts in co-creating indices, which with a large focus on sustainability. There's also been an increase in adoption of our iEdge indices in partnership with leading structured products issuers in Europe.
Partnership remains an important aspect of the index ecosystem and will be a focus for our index business as we look to raise commercial and realize these opportunities. We're focused on creating growth and scale through partnerships with customers, data providers, and distribution channels. Putting all our assets together as one single business and ecosystem, we are advancing from a position of strength as Asia's leading global exchange. Asia is at the center of global economic growth, and SGX Group is at the heart of international capital flows to this part of the world. To pursue growth further, we are scaling our multi-asset offering globally through our network, our partnerships, and geographical expansion of client coverage. Where we have done well, we will enlarge and consolidate our position to derive greater network effect. Where we have room to do better, we will push towards better performance.
We've made good headway in becoming a global transition finance hub in Asia, and we'll continue to strengthen our position as a thought leader in this space, and build up our portfolio of sustainable and transition finance solutions across asset classes. Our aim is to achieve high single-digit revenue growth while keeping our expense growth in the mid-single digit range, so as to reward shareholders with a mid-single digit % increase in our dividend per share over the medium term. I hope you're as positive as I am about SGX Group's prospects. With this, thank you for your attention, and we'll be happy to take your questions. Thank you. Yeah, Jayden?
Okay, thank you, SGX team, and well done on a solid result, given the backdrop. Couple of questions from me. Just wanted to have an update on the IPO pipeline, if there's any signs of any turnaround in the, in the securities market. Just secondly, more of a mechanical question on the expenses guidance. I understand that we will no longer have the royalty expense for the, the GIFT partnership. Just wanna understand if it's an equal and offsetting sort of number versus revenues, and if that's already factored into the expense guidance, I think, 'cause you have, like, a mid-single digit expense view for the next couple of years. Those are the first two questions, if I can.
Yeah. I'll, I'll take the second question first. You're right, Jay, Jayden, our FY 2024 expense has taken into account the, the impact of not having to pay the Nifty royalties. Yeah. That is covered in the mid-single digit expense range.
On the, yeah, IPO pipeline, I guess, hazy crystal ball, but we've had a hazy crystal ball for, I guess, the last year and a half. Pretty unprecedented environment, where essentially the, the IPO market has been shut, globally, for, for new issuance activity. I think I'm gonna say pretty much the same as what I said at this time, six months ago, that for the near term it still looks difficult, but we're seeing some early signs of global activity resuming. Frankly, I think we're gonna see that, you know, first and foremost, with some of the highest quality issuers, perhaps also more in the developed markets. Having said that, it, it keeps me cautiously optimistic for, I guess, the medium term.
If we look at 2024, calendar year 2024, you know, there is, after a year and a half, pent-up supply building up. Companies still need to grow. A lot of companies that have been privately capitalized for a long period of time now are gonna need liquidity for their shareholders. We continue to have very good dialogues with issuers from the region, we believe that activity will pick up as we see the momentum kick off with an, you know, gradually improving environment. Rates outlook has stabilized a bit. Valuations have increased over the last couple of months, important for confidence, hopefully with that, we're gonna see in the next in the next period, activity on the global level and also here in Singapore resume.
Thank you.
Yeah. Next to the. Yeah, on the left. Yeah. To your left.
Hi, good morning. Thanks for the presentation. This is Yong Hong from Citigroup. Maybe just following up on Jayden's question, and just to be more direct. Following that Nifty contract migration, what is the impact to your bottom line? And, you know, from your money statistics, what can we expect changes to your DDAV, for example? Thank you.
We're one calendar month into full-scale operations. The reason we embarked on this journey, I mean, there's a constancy to what we do across this waterfront. Everything that Boon Chye presented wasn't done in one day. This has been done over 30 years. There's a constancy to the way that we have approached the need for the clients to access the Asian capital structure. Again, as, as Boon Chye alluded to, right? In 10 years' time, four of the world's five largest economies are right here. It's India, it's China, it's Indonesia, it's Japan.
That is covered in our derivatives waterfront, and the move that we have taken in India is to say that because the opportunity was there to work with this partner, NSE, to build this Connect, the clever and opportunistic way to do this is to do it as we have done, which is to move our clients into a joint liquidity pool with the NSE, where they are already the world's largest derivatives exchange. We're trying to create value by bringing their liquidity pool together with our liquidity pool. I am confident. I think our cadence is good, and our visibility is clear, that with the delivery of full-scale operations, we will see more than we used to see. It starts with more participants. It moves on to more products.
There are now eight products on the Connect. Of course, as you've seen in China, we've done the full waterfront, Iron ore, CNH, A50, H50, Climate Action. Of course, our ambition is to go that way as India's capital structure also evolves, right? There's a constancy to the way we do this, which is, you have to come with us on this journey, that everything we execute creates incremental network value, portfolio value with the customers. I think it's underlined with the confidence that the customers carried with us. We've done such migrations or liquidity switches a couple of times. When we went into Taiwan, MSCI to FTSE, maybe people asked a lot of questions about, "Are you sure you can do this?" I think as we approach this particular migration, I mean, you can ask your internal clients, too, right?
The general feedback is, "We'll go with you because you've done this before. We understand the journey," and we have the special blessing that the tailwind of India capital markets is very, very strong, right? I hope that's a complete answer to your question.
Yeah, thanks for that. Just one more question. I think on your treasury income, I think there's way ahead of what we were modeling and how sustainable that is, given that, I think, Hong Kong EX, for example, they have been cutting down debt. How should we expect that going forward?
Yeah. Well, that's a million-dollar question f orecast on interest rate. Yeah, I don't know. I mean, Pol had a hard time forecasting IPO. I can outdo the Fed. Look, I think for the last 12 months, the rate hike has been quite unprecedented. The pace at which you went from practically zero to just over 5%. We don't think, I mean, the market doesn't think that we are gonna see a repeat of that cycle. I think markets, in fact, whether they are ahead of themselves, do expect to see some form of cuts in 2024. These things are exogenous. We will have to deal with it as they come. What we can do is to continue to drive our derivatives business. There's a yield impact and there's a collateral balance, right?
As we do more business and customers leave more overnight interest with us, that's where we can drive the growth of our business and then the associated treasury income. The yields will come up, they'll be up, they'll be down, and we'll manage it along the way. Priority still is to make sure that customer collateral money is safe. When they park their open interest with us, they have to risk manage, and we'll make sure their collateral parked with us is in, you know, the safest way that we can do so. I think there's one. Can you guys hear me?
Yeah. Yeah.
To your right.
Hi, yeah. Thilan from Maybank. Just a couple of questions. One is on your derivative fees. You know, we saw it improving, you know, this half. Can you give us a little bit of color on how you're thinking about the outlook for that? I mean, how much more can you kind of squeeze out from the client mix there? Are there any more sort of, you know, discounts and things like that, that are still in there, and how should we think about that going into, the, the 1st half? My 2nd question is, you know, on your cash equities business, you know, you've got the Thai ADRs that have been, you know, put in place.
How are you kind of thinking about the success of that, and how are you thinking about the sort of, you know, pipeline of new products there coming through? Thank you.
On the first, I think I, I want to emphasize, as we have done before, that we don't drive this as a specific outcome. The realized return per contract is a consequence of client mix and volume mix, and importantly, product mix. If you've seen the most successful growth products are iron ore, which is naturally a premium priced product. That is one primary driver. The other one also is that if you look at the equity derivatives franchise, it was a slightly lower volatility environment, which tends to mean that our short-horizon traders did a little less, but our long-horizon customers did a little more. Those guys, again, are naturally more premium-paying customers. It's the custom mix and the product mix that's approximate driver.
I think you, you have to feel comfortable that there's a natural elasticity, that when volume appears to come down a little, premium pricing appears, right? There, there's a, there's a, there's a natural elasticity to the franchise that says that as volume goes up, there's a rebalancing because there's a natural return to customers who need to trade more, but they tend to keep less overnight interest with us. That's a sign of a, of a healthy, multi-product franchise. With respect to the depository receipts, it is part of a program that we're trying to think through for the cash market to say: What were some of the things and some of the lessons that we may have learned in the DT franchise, that we could usefully apply to in a securities format?
You'll probably see that across the board, we're trying to productize a little more, which means that we bring instruments which are of interest in a securities format, which covers the Pan-Asian waterfront. This covers things from DLCs to structured certificates, which are coming up, with a very wide range of ETFs. Now, SDRs are very interesting because they are in our context, backed by statute, meaning they're recognized in the Securities and Futures Act as a thing where they previously weren't. The body of work begins with making sure that the, the stack, the regulatory stack, technology stack, the customer stack, that supports the DR framework in Singapore is well entrenched. The second step, therefore, is to work with a partner where there is the potential for value creation. Our stuff trading in their market, their stuff trading in our market.
This, we hope, is the beginning of some kind of federation of exchanges in Asia, where the win-win outcome is very clear. As you know, a lot of the challenges in working through collaboration is, share of pie versus size of pie. We believe that with this format, it is 100% clear that when the pie grows, there is no need to fight over the pie. For example, as Thai companies are brought into our market, from Thai baht into Singapore dollars or U.S. dollars, distributed through our customer network, this is natural value accretion because we have completely segmented networks. It's capital control there, it's a DM here.
If we create value and and they create value, when hopefully in the coming year, we bring some Singapore shares into the Thai market, with that useful example, we think we can create a, hopefully, this is forward-looking, a federation of interested partners. The market structure of our part of the world isn't gonna change anytime soon. Capital controls, local currencies, EM versus DM. For a long time to come, we'll be the only DM in this region. We think there's natural value to be created, but the plumbing needs to be put in place, and we think the SDR is a very good way to start. You know, 12 months ago, we'd have called it a token, because that's precisely what it is, is a token recognized in statute, but, you know, we'll call it an SDR.
Thank you.
Dominic, any questions from the webcast audience?
Yes, there's one question from Paul Chew, from Phillip Securities. It's on our OTCFX business. In order to hit $100 billion ADV, what are the key drivers apart from market conditions?
We are, we, we are excited about the long-term prospect for foreign exchange within the SGX Group. I think Boon Chye shared, I think two, two external driven secular trend in the medium long term. I think one piece is within Asia itself, we are a growth region, and we will continue to be a growth region. When we look at the positioning, clearly, SGX FX is a global service. We have clients throughout the world, but we are the biggest platform when it comes to Asian currency. One, our dominance for our OTCFX technologies franchise within the Asian, within solving illiquidity challenges for clients assessing the region, is going to position us well as Asia continues to grow. Two, we think that, you know, we are in a secular trend around more digitalization.
We are seeing more clients across buy side and sell side clients, looking at more solutions to digitalize. More recently, I think the, the hype now is AI automation. Within that, when you think about what is the criteria of foundation for you to automate, to use all the technology that's out there, all the new large language model that you can apply to different client service that you have, right? The fundamental building block is a solid partner, robust partner for you to digitalize, right? How information is transferred, and how you send orders, and how you execute efficiently.
The technology platform that we have built up over the years, BidFX on the buy side, MaxxTrader on the sell side, is going to give us a very strong foundation as the industry looks towards more digitalization, more automation, and having a partner with a global network to help them engage the rest of their global net, clients in a more efficient way. I would see that, that, that, that clearly, there's, there will be a external secular tailwind for us. More importantly, I think within the franchise, Yao Loong briefly mentioned that, you know, first half last year, compared to first half this year, I think, you know, second half this year, I think we have accelerated the growth.
Part of the reason is that I think, you know, we had a 12, 18 months migration process, where we were moving BidFX out into a new infrastructure. What we have also done is that we have also upgraded the BidFX system with new functionality and on a new HTML5, more accessible client trading platform. A lot of the investment, I would say, that we have done for both BidFX and Max around technology that we have done in the last 12, 18 months, I think were bear fruit for us, and we will continue to invest in this very exciting vertical. Harsh?
Thanks. Thanks for the for the presentation. I had three questions, Boon Chye, if I may. First one is the guidance on cost and revenue growth over the next few years. Medium term, mid-single digit cost growth, high single digit revenue growth. Now, one of the big tailwinds in last 12 months have been rates.
So as rates normalize, whenever it does, FY 2024, FY 2025- ave you factored that in, in your guidance of high single-digit revenue growth? Can there be a period whenever the treasury income normalizes, that you may probably not get that kind of revenue growth in next couple of years?
In, in projecting that associated treasury income, we are not in the business of forecasting forward, so generally we'll see what the market consensus is out there in terms of the forward rates, and just use that as assumption in our planning parameter when we do some of these projections that we have shared with you and the, and the market.
Right. on that, if I look at the Fed Fund futures being priced in about 200 bps of rate cut same time next year, that's already factored in your high single-digit revenue growth guidance?
Well, when, when we look at our medium-term plan, it all centers around our initiatives right? Our portfolio of asset classes, the region that we're doing well, where we want to now penetrate further, upsell, regions where we can really expand more, and then obviously, gaps in our products to fill, fill the shelf. I talk about transition finance, right? One third of equity capital specific, we are now the preferred venue for Asian equity derivatives. Investors would need similar tools. Those are medium-term pathways that we plan for. And as Ya Loong said, yes, there will then be assumptions on growth of how we see in our underlying businesses and the associated margins and what the forward markets are pricing in.
Right. I should think of the guidance as more, bottom-up business guidance, and the treasury income goes up or down, that will be a fluctuation. Okay.
Yeah.
Fair. Second question is around your debt to EBITDA, 1.1x. It was 1.2x, it has improved. You have in the past stated ambitions to use organic and inorganic means to broaden the franchise. You have done a lot of deals in the last five, seven years. What is the max debt to EBITDA you think you can get to? What are the timeline that you are thinking about getting there, and some of the gaps you talked about in your portfolio, what are those gaps? Effectively, I'm trying to figure out what can you buy, and when can you buy, and how large is that acquisition or those series of acquisitions? Any guidance around that will be very useful.
Well, something that is not visible today may be visible tomorrow. Something that are visible today may be less relevant tomorrow. Let me try and answer your question, Harsh. I think what is important is, we have a very strong foundation, I think, in our portfolio of multi-asset today. I mean, if you look at the environment that we operate through, and how we've delivered, a resilient set of results. With Asia being the center of global growth, multi-asset platform, hub here is our strategy continuously and going forward. First, we will improve on it through geography, partnership networks, and clients. Two, as I said before, I think, fixed income is still a market that is important. It does not necessarily mean that we will have to acquire.
I think we've shown a history of being a good partner. Might talk about share of pie, business size of pie, grow that pie, I think both sides will win. As to as and when, which I think the underlying importance is, does an asset really fit into our strategy? If it does, it is then incumbent upon us to put through the lens of our investment framework and be able to explain to our stakeholders, including shareholders, even if this were to be debt-funded.
I think that's the way we'll look at this. I wouldn't want to really focus around the boundaries of the leverage. That will also be guided by obviously having a very strong and robust clearinghouse. At the same time, we have now laid out also the way we want to think about rewarding shareholders as our business grow.
I'll, I'll come to the shareholder reward in a minute. I think previously you talked about. I think there was some discussion around 2x debt to EBITDA as being kind of upper limit. Is that fair to think about 1.5x-2x, that you can get there in terms of acquisitions? The reason I'm asking that, Boon Chye, is because interest rates today are very different from 12 months ago. Your funding cost and your, you know, hurdle rate would have kind of meaningfully gone up. Can you actually do an acquisition which is accretive today, debt-funded, given the delta in rates? Would you rather just focus more on organic and partnership kind of thing? Like, what is the max you can go to in terms of leverage?
As you, as you pointed out, Harsh, the, the cost of money clearly has gone up. What that means is, any asset that we're looking at, the hurdle rate has probably clearly gone up. That may mean that the, the, the expected, fit and returns that we put the asset through the, analyzing lens will be a much, much, in greater detail. Maybe that, that number comes down, right? Your 1.5x, 2 x may come down, because just, interest is clearly one factor you think about in, in looking at, acquisition. Also, I would reiterate that, if you look at the, the businesses that we have today, it's much stronger than what it would be worth three, four years ago, right? There is already a lot to build upon.
As I said, where we are strong and leading, we really want to derive greater network effects. Where there are rooms to improve, then we'll really make sure to identify those gaps and work on it.
Right. Thanks for that. This brings me to the final question on, the dividend per share, went up 6% odd. Your guidance is for mid-single digit. I'm assuming it means SGD 0.005 per quarter increase every year for next few years. Is that a fair way of thinking about it?
I would like to look at it in the medium term.
Yeah.
Not automatically it change every quarter. I think we want to signal to our shareholder as our businesses grow over medium term. You ask me, how do you define medium term, right? Short term is less than two years. We look at long term beyond five. Over that kind of period, we want to make sure that as our businesses grow, we reward shareholders with mid-single digit, kind of, dividend growth rate.
Right. If I kind of put all of the things that you said together, the cost of fund has gone up, so you may not necessarily now look at, like, 1.5x-2x debt to EBITDA. You may still get there if there's a really good deal, but that's not we are looking for. Hence, you are retaining more cash, so that in case there is an acquisition, you don't have to take as much debt. Is that a way of thinking about it? Because I would have imagined with such a fantastic, performance, even core business of 15%, with one offset is better, that you may have paid a bit more.
Today, there is a negative spread between the dividend yields I'm getting at SGX versus the Singapore risk-free and three -month interbank rate. It's very tough to... And that's what the stock price is telling you this morning. Despite a fantastic set of results, it's treading water at best. Shareholders are clearly saying that they want more payout, but it seems that what you are guiding for is way more measured pace of DPS increase. How do we kind of bridge that gap?
No, I think shareholders clearly would like to be rewarded with dividends. That's clear, and then that's one of the important considerations that we would have. I also think that shareholders would like our businesses to grow. Part of the way to look at this is, you can either business--, don't forget we're in an evolving environment, so we could either pay down debt, we could either retain some cash to invest organically, because there are still opportunities that we see, right? Geographies, people, all, as and when, if there are assets that comes through that makes sense, we may acquire. Which is why we want to think of this at least on the medium term.
As things evolve, these are the different levers that we are trying to balance, and maybe, we return more capital if there's no need for debt, or, we use those capital according to how we see the best return for the businesses and to grow it, and yet, rewarding our shareholders with dividend growth.
Got it. Thank you.
I've got several questions from Goldman Sachs, Gurpreet, based in Hong Kong. Three questions. The first one is: How much more penetration from iron ore from the 2x physical market can you go, given equities peak around 3x-4x? Second question is margin balances, how have they grown or how have they been so far? The third question: Can you elaborate more on the impairment of Scientific Beta's acquisition?
Can you repeat the third question?
Elaborate on the impairment on SB acquisition.
I'll, I'll take the first two questions. Margin balances, I'm just comparing FY 2023, FY 2022, you have seen that DAV more or less was 1 million lots . Margin balances have been largely flat year-on-year. Composition-wise, there's been changes as clearing members, customers decide how to optimize their collateral portfolio. That is a customer decision. We provide a variety of currencies and different sorts of cash to non-cash collateral for them to decide how best to collateralize their position. Overall, margin balance is flat, composition, some changes.
Maybe to touch on that also, and again, to reemphasize, the drivers that Loh Boon Chye had mentioned on margin, don't forget that we went through a period where volatility was high, so margin charged was also. That fluctuates, too. So a large part of the driver of what we do is how much do customers keep with us? How much margin per lot do I have to charge? And that then makes up the master pool, right? So what I would say is that the underlying open interest in terms of futures contracts kept with us, has been very, very strong.
On the Scientific Beta, beta impairment of the purchased intangible. This intangible assets, as a result of the acquisition back in FY 2020 under the accounting rules, we are allowed to capitalize these assets. Then as part of the accounting rules, we will then amortize them over a period of time, over several years. That, clearly, the intangible assets at the point when we, when it was valued, would have been based on a DCF way of looking at the value, right?
Projected cash flows. As we have explained that overall, the index business where it, the factors, the assets tracking factors, have lagged the cap-weighted technology-laden indices, assets in that business under replication have fallen. As a result, the intangible assets relating around the know-how customer, when we look at the cash flows or the DCF going forward, it has been weaker. Overall, the difference in value will be taken as an impairment. It is a non-cash charge.
I would say that under normal circumstances, when we have done it, we will have amortized this over the period of time, whether seven, eight, nine years. It would have gone down to zero, because it's purchased intangibles, right? We decided for prudence, we will do it. As I, as I said, it is a non-cash charge. Nothing has happened in that sense. It's an accounting from the acquisition, comparing the cash flows, and then taking a non-cash impairment. As I said, we would have amortized that to zero over time.
Iron ore.
Yeah. On, on, on iron ore, I think while, while there will be always be uncertainty around near-term performance, when I look at the medium, long-term opportunity of iron ore, we, we, we see significant upside. I think one more just on the physical market, Asia will continue to drive global growth. Asia is a stage of development where a big part of the growth will also be driven by urbanization, construction, infrastructure building. Within that, I think on the physical market, especially SGX, iron ore as the global seaborne benchmark, I think on the physical side, on the medium long term, as the region globalize, I think the demand on the physical base, right, will continue to grow.
Two, over the last few years, and, and I think partially demonstrated by, I think, you know, some of the numbers that Boon Chye showed. We have invested very significantly around providing the market structure, one, to enable, I think, a better understanding of, you know, the, the iron ore market, the microstructure. We have worked with research partner, we have worked with major investment banks, commodities, research around how we can allow people to understand the commodity sets across. On market structure side, you know, we continue, we, for example, to improve market structure, we've thickened the tick size, which then, you know, allows the market basically, for, to, to basically trade at a tighter tick. We have also created a settlement window a year and a half ago.
I think in the forward, we will continue, I think, to look at how we can improve the market structure. For example, providing more information around trader positioning, something that is more common outside the region, so something we are doing, first half of next year. I would say that, when we then contrast that, against, I think, the correlation that we have, where I think when you see increase in screen, together with increase in volume, we see that, it's complementary, where, when the screen, percentage of transaction improve, and especially the absolute liquidity that you get on screen improve, improve the market efficiency of the overall iron ore market.
We do think that, you know, as we have more financial player coming in, where we drive more demand around screen transactions, when there is more transparency, which then, you know, together with the improving market structure, reduce the cost of access, improve market velocity. To us, you know, there is a lot more headroom when we think about how much more as a percentage of physical this can go. When we think about the major other more financialized, commodity asset class, classes that's out there, right? And you have oil, you have gold, and if, you know, if you look at the commodity asset classes, you know, 2 x is actually relatively low multiple compared to those.
The focus for us is, I think, one, again, on the physical side, we are bullish, right? This is a commodities that power Asia growth. I think we are bullish that we will continue to be relevant, and there will be a physical growth around that in the medium long term. More importantly, on financialization, I think as we improve the market structure, you know, there will be, you know, good tailwind that we will enjoy as we continue to work with participants to improve the market. Before we draw this to a close, any last questions from anyone? Wow! Okay, maybe, on the back there.
Hi, thank you. I'm Andrea from CGS-CIMB. Just a follow-up on the Nifty product. With the shift of Nifty to the GIFT Nifty, in terms of the revenue share between SGX and the NSE, I do understand that there's a difference in how the revenue is split, depending on where the transaction originates from. Can you give us some color on whether most of the transactions now, are they still being driven from the SGX side of things, and how you see this split changing over time? If this splits more materially-
Meaning that more transactions come from the GIFT from the NSE side. Are we expecting to see a larger change in that pro forma clearing fee more than 3% that you have presented?
Let me address the second part, because that is about the size of pie. The first one is, is a share of pie question, which is, for the purpose of this Connect, is genuinely not interesting, right? Which is if they grow by 1,000x and we grow by 1,000x , overall, we're indifferent to the fact that our growth rate was the same. The key is that we grow, our origin grows, but they grow, their origin grows, and these two pools of liquidity interact, because that's what creates extra business. As of today, six weeks into the cutover, the majority of the transactions originate from SGX, because that is this phase of the migration. It's our customers, our clearing members are bringing that pool over. The next phase, we fully anticipate to see more direct trading, more, higher velocity trading, right?
That is what we are working for. We have strong visibility as to how we achieve this, and that's phase two of what we're doing after full-scale operations.
Okay. Thank you.
Yep. Yes, go ahead. Sorry, can't hear you.
Hi, Tabitha from DBS. I just have one question. How should we think about the step-up of dividends versus paying down the outstanding debt that SGX has taken on to finance the various acquisitions? Is there a medium-term target of where the debt equity should be, and what is the refinancing cost step-up of the SGD 350 million of current borrowings?
I'll take this. We are comfortable operating in the current environment. I think our leverage ratio is very low, and more importantly, our interest coverage ratio, some things that we don't talk about, is also healthy. As funding costs go up, clearly this is something we look at. In terms of the you're referring to the convertible bond that is due in March, we will clearly take a decision as to whether we refinance the whole thing or do partial pay down and things like that.
That decision, we have stressed it, and compared to the what we have shared today in terms of the medium-term dividend growth, that clearly we have the ability to do that independently of our decision to refinance the convertible bond. As for how much it will cost, we will see when we get to that point.
Okay, last one. Jayden, to you. Just wait, wait for the mic, yeah.
Thank you. Just wanted to follow up on the Scientific Beta. Can you share any further color on how much the assets under replication have declined? Then just coming back to the points that Harsh raised around M&A. I mean, the M&A for FX is clearly going very well, but this one doesn't seem to have lived up to the initial expectations. What, what sort of learnings do you sort of take from this when you're looking at further opportunities?
No, we don't disclose. Yeah, we, we, we have not disclosed the assets under replication for Scientific Beta. Yeah.
We don't disclose the AUM, but if you go through the, the last, broadly speaking, last two years, it's really a tech-driven, cap-weighted kind of market, the Magnificent Seven, right? There is that tilt towards that. I think the interesting bit is factors remain relevant, but you always obviously have a relative comparison. What we have done is also to strengthen the offerings, so the climate impact indices that we've done and obviously, in terms of coverage. I think that we talk about high interest rates value coming back, so these are all a bit cyclical. All right. Thank you very much. Thank you for being here and participating in our results briefing. Have a good day.