Earnings Call: Q4 2021

Apr 28, 2021

Today, I would like to start with an update of our 3rd medium term management plan and an overview of the earnings for the fiscal year 2020. First, I will give you an update on the 3rd medium term management plan. As you know, JPX's business aims to achieve sustainable growth over the medium- to long term by providing a reliable and convenient market infrastructure rather than focus on short term measures that will immediately lead to profits. Against this backdrop, we have been making steady progress in implementing the key strategies set forth in the 3rd medium term management plan, which was launched 2 years ago. While maintaining the basic framework, we have updated the plan, taking into consideration the changes in the business environment. Let me explain the update that we have made. Page 4. Looking back on the last fiscal year, we regret the inconvenience caused to market participants by the system failure and the whole day trading halt that occurred on October 1. We, the JPX Group, have realized once again the heavy responsibility we have as a market operator. The JPX Group has been implementing measures to prevent recurrence, starting with those that can be implemented immediately. And the report by the Council for Recurrence Prevention Measures was compiled on the 25th of last month. In the future, we will continue to improve our response through close communication with market participants and through training. Page 5. I will explain the progress made in various measures. In the field of derivatives, the comprehensive exchange was fully launched in July of last year with the transfer of commodities and the integration of the clearinghouses. With regard to the review of market segments, we have been improving the system step by step, including the announcement of the listing system for new market segments at the end of last year. In the information field, we have made steady progress in implementing measures of our priority strategies, including the disclosure of the gradual transition process for topics and the development of new services. Basics. In this update, 1st and foremost, in order to restore market confidence and strengthen our functions, we will implement urgent measures to prevent recurrence in order to achieve never stop and improved resilience in a safe house manner. From a medium- to long term perspective, we will fulfill our primary mission of stable operation of the market by reviewing our IT functions and human resources and promoting the establishment of the Center For Advanced Research and Development announced last month along with other DX related measures. In addition, this fiscal year will be the final year of our current 3rd medium term management plan, we will implement important measures such as the reorganization of market segments in a safe manner. In addition, to prepare for medium- to long term changes in the environment, we will continue preparations to enable responses to changes in the way capital is raised and invested, such as ESG Investment. For the details of other specific measures, please refer to the document entitled 3rd, medium term management plan update for fiscal year 2021. Page 7. I will explain the summary of the earnings later. But as mentioned here, during the last fiscal year, we have achieved the financial targets set forth in the 3rd medium term management plan ahead of the final year of the plan. Against this backdrop. In the current fiscal year, we will allocate the necessary resources to strengthen our market functions, such as improving our resilience and to promote digital transformation in order to respond to changes in the environment in the mid- to long term. We have also increased our capital investment from 45,000,000,000 yen to 50,000,000,000 yen earmarked for the 3 years of the plan. That is all for the update to the medium term management plan. I will now explain the overview of earnings for fiscal year 2020. Page 9. With regard to market trends in the cash equities market, the Nikkei stock average was strong and temporarily recovered to the 30,000 yen level for the first time in 30 years last fiscal year due to higher expectations for vaccines and economic stimulus measures in various countries amid the spread of COVID-nineteen. As a result, the average daily trading value of cash equities rose 1% to a record high of 3,480,000,000,000 yen. Page 10, the market trends of derivatives. The annual trading volume of financial derivatives was 363,000,000 contracts. Increase in volatility did not to occur despite continued high stock prices, resulting in a decline of 11 point 8% compared to the record high of the previous fiscal year. The annual trading volume of commodity derivatives was 19,510,000 contracts, down 8.9% from the previous year due to a decline in precious metals related commodities despite doubling of the volume of crude oil futures compared to the previous year. Page 11. The operating revenues will be explained. The aforementioned increase in trading of cash equities drove increases in trading services and clearing services. In addition, Listing Services grew due to an increase in the amount raised by listed companies and growth of ETF AUM. In addition, Information Services was also strong due to an increase in market data usage fees. On the other hand, other operating revenues decreased due to a decline in income from services provided for trading system, etcetera, resulting from the business integration with Tocom. As a result of the above, overall operating revenues increased by 9,600,000,000 yen or 7.8 percent year on year to 133,300,000,000 yen Page 12. This section describes the status of operating expenses. First of all, in addition to the impact of the business integration with DOCOM, personnel expenses increased due to the implementation of various countermeasures against COVID-nineteen. In addition, there was an increase in system related expenses such as system maintenance and operation expenses and depreciation and amortization expenses due to the construction of the Kansai backup center and the impact of the business integration with Stockholm. On the other hand, other operating expenses decreased due to a reactionary decline in financial advisory expenses associated with the business integration with Tocom that were recorded in the previous fiscal year and suspension of face to face events and business trips because of the spread of COVID-nineteen. As a result, overall operating expenses increased 2,800,000,000 yen or 4.9 percent year on year to 61,300,000,000 yen Page 13. Next, please refer to the financial highlights on the stage. As I mentioned earlier, operating expenses such as system related expenses increased. However, it was more than offset by the increase in operating revenues driven by the increase in cash equities trading. As a result, operating income increased by 6,000,000,000 yen or 8.8 percent year on year to 74,500,000,000 yen net income attributable to owners of the parent increased by 3,700,000,000 yen or 7.9 percent year on year to 51,300,000,000 yen. Page 14. In the forecast for fiscal year 2021, we have assumed that the volume of cash, equities and derivatives will be flat year on year, and operating revenues will be around 130,000,000,000 yen the same level as the previous year. On the other hand, operating expenses are expected to increase 5.9% year on year to 65,000,000,000 yen because of measures to cheap stable market operations and medium- to long term growth. As a result, operating income is forecast to decline by 11.5 percent to 66,000,000,000 yen and net income is also expected to decline by 11.5% to 45,500,000,000. Page 15. JPX basic policy is to maintain a dividend payout ratio of approximately 60%. Based on this, ordinary dividend for fiscal year will be JPY 58 per share for the full year. As I mentioned earlier, the final year financial targets set forth in the 3rd medium term management plan have been met ahead of schedule. In order to express our gratitude to our shareholders for their support for the various measures we have implemented to ensure stable market operations amid the spread of COVID-nineteen, we have decided to pay a special dividend of 10 yen per share. Please refer to Page 16. Finally, I would like to explain about the acquisition of own shares. We have decided to implement a share buyback. The purpose is to enhance shareholder returns through the implementation of an agile and flexible capital policy. The total value of shares to be acquired will be up to 20,000,000 yen and the repurchase will be conducted on the Tokyo Exchange's auction market with a deadline of 6 months starting today, April 30. For your information, the amount of 20,000,000,000 yen is equivalent to approximately 1.4% of our market capitalization based on the current level of the company's stock price. This concludes my explanation.