Earnings Call: Q2 2021

Oct 28, 2020

I would now like to give you the explanation regarding the Q2 results material. I understand that the materials can be seen. For those of you participating via telephone, please refer to Page 4. This is the market trends, cash equities. This is the premise of the results. Let me explain this market trend. In this graph, to the right, where it is indicated in red is the cash equity's average daily trading value. Below in the table where it is indicated in rent is the cash equity's average trading value for the first half. At the very bottom, cash equities auction off auction total is presented. The result was 3,286,800,000,000 yen compared to the previous year, this is up 17% indicated to the right. However, in the past 6 months, it isn't as if it was prevailing at the same level. In the Q1, in April to June, there was large concentration. The average was around 3 point 5,000,000,000,000 yen On the other hand, for July to September, in the second quarter, it was at the planned level of 3,000,000,000,000 yen in terms of average daily and trading value. In terms of the 6 months average, we were at 3,286,000,000,000 yen. 800,000,000,000 yen So that is the situation for cash Equities. In the Q1 results, we mentioned that the markets for emerging companies such as mothers was where we saw increase in trading value. Having entered October, this trend has continued. Please now refer to Page 5. This is the market trend for derivatives. Please refer to the table below indicated in blue shows the actual for the first half. The second line from the bottom is the total trading volume for financial derivatives. For the 6 months, total was 196,000,000 contracts. This is up 12% year on year, showing growth. Here, once again, there is a difference between April to June and the second quarter. In the April to June period, it was JPY 111,000,000. So there was high concentration in the Q1. In the July to September period, derivative trading declined and the total was 196,000,000 contracts. So this is also skewed. The bottom total trading volume for commodity derivatives was 9,740,000 contracts for the 6 months. Compared to the previous year, it was down by 7.4%. If you divide Q1 from the Q2, for commodity derivatives, the trend was somewhat different. In the Q1, the result was 4,570,000 contracts. 2nd quarter result was 5,000,000, 170,005,170,000 contracts. Therefore, in terms of commodity derivatives, the 2nd quarter was stronger. In July, as you know very well, a product transfer was made. Significant commodity derivatives products were transferred from Tocom to OSE. Therefore, financial flow has driven upward trading as a result of this. That is all in terms of market trends for derivatives. Now we will proceed to Page 6 and explain the operating revenue. The left hand paragraph indicates the result for the previous year's first half, JPY 57,936,000,000. The waterfall chart indicates the movement toward this year. As I mentioned earlier, cash equities was very strong. Therefore, trading services as well as clearing services increased. Please refer to the breakdown of the trading services. Financial derivatives was minus 200,000,000. With respect to derivatives, number of contracts increased. However, JGB Futures contracts with high fees declined year on year. There was significant revenue decline. As a result of this, even though the number of contracts increased on revenue basis, it is slightly negative. At the very bottom of trading services, effects from consolidation of TOKOM is indicated. As you know very well, TOKAM was consolidated in the second half of the last fiscal year. Therefore, the first half last year did not include TOCOM, which is also the same case for expenses. For revenues and expenses, Tokon will be included for the first time. As for Listing Services, the result was flat year on year. Information Services, it is up by a little bit less than 1,000,000,000 yen As I mentioned earlier, the cash equity market was very strong. With that, we saw individual investors checking stock price more frequently, and there was increase in trades. Therefore, market information usage increased. As a result, Information Services increased by 960,000,000 yen So those are the major items. And as a result, we ended at 3,834,000,000 in terms of operating revenue, which is up 10% year on year. Please refer to the next page. I would like to explain the operating expenses. As I have explained earlier, to the left, we have the first half result for the previous year, which was JPY 27,482,000,000,000. And the waterfall chart shows the movement to this year's result. Starting with personnel expenses increased by 1,000,000,000 plus. As mentioned here below, with the business integration with DOCOM, we have had employees transferred. So this is the increment of the employee transfers. As you know very well, for this year, we had to take measures against COVID-nineteen. Expenses for measures as well as allowances have been implemented. Therefore, as a result, for personnel expenses, there was an increase of 1,000,000,000 yen. I would also like to mention system maintenance and operation expenses as well as depreciation and amortization. These are expenses for the continuous investment in our system. Therefore, this increase is within our expectations. Details are presented below under depreciation and amortization. As a result, the operating expenses for the first half of fiscal 2020 was JPY30,332,000,000,000, which is a 10% increase year on year. Maybe going to Page 8. I'm sorry that this is a busy chart. The upper half shows the operating revenues, operating expenses, operating income and net income. First of all, regarding operating revenue, if we compare the first half of last year and this year, the two bar graphs on the left should be referred to. As you can see, operating revenue increased by 10% plus. To the right is operating expenses. As I have already explained, there was a 10% increase year on year. Operating income also increased 10% year on year, and net income to the right also increased by 10% year on year. If we look at net income, the first half was 27,787,000,000. As a result, we have decided to revise the full year forecast. Let me give you the details. Please refer to the table below. The average daily trading volume and value of major products are shown. The orange is the first half result for fiscal year 2020. For cash equities, trading value was 3,286,800,000,000 yen. This is the result for the first half. The initial forecast was 3,000,000,000,000 yen, but this was higher at 3,280,000,000,000 yen. Regarding the full year forecast, in July, the cash equities were prevailing in line with the forecast. There is also uncertainty regarding COVID-nineteen. There is uncertainty, especially in the European countries. Therefore, for the second half, we did not change the original forecast. For the full year basis, since there was increase in the first half, we have decided to revise to JPY 3,100,000,000,000 For derivatives, the situation is similar. The actual in the first half and on the other hand, the second half, our forecast has been kept flat. And the revised forecast is reflected in the stable. Based on these market assumptions, the upper graphs show the forecast. Let me explain them 1 by 1. For operating revenue, for the fiscal year 2020 forecast, please refer to the light green bar. The original forecast was JPY 121,500,000,000, which was increased to 126,000,000,000. At the risk of repeating myself, I would like to further elaborate. The increase was JPY 4,500,000,000. This consists of the strength of the cash equities in the first half as well as large financings by listed companies that have been implemented and announced. These factors have been taken into consideration. Next, operating expenses. The original forecast was 61,500,000,000 yen which has increased by 1,000,000,000 yen to 62,500,000,000 yen The 1,000,000,000 yen increase consists of plus and minuses. We have to take measures against the system failures as well as we must also have measures for COVID-nineteen. That is the reason why we have increased the operating expenses by 1,000,000,000 yen As a result, for the operating income, the original forecast was JPY 62,000,000,000 has been increased to JPY 65,500,000,000. Net income and the original forecast of JPY 42,500,000,000 has been increased to JPY 45,500,000,000. This has already been announced last yesterday. So this JPY 45,500,000,000 means that with the 60 percent payout ratio, it calculates to JPY 52 per share. Interim dividend will be JPY 26 and the ENVIPA dividend will be JPY 26 yen This information has also been announced yesterday. With that, I would like to conclude my explanation.