Earnings Call: Q2 2019

Oct 29, 2018

Quarterly report

Thank you very much for attending this meeting despite your busy schedules. Yesterday, the Q2 results were announced. And therefore, I'd like to give you explanation of the outline of the results spending the first ten minutes. Without further ado, I'd like to go into the explanation. This is the contents. In the first half, I'd like to talk about the business developments. And on the latter half, I will spend talking about the overview of the earnings for the Q2 of fiscal year 2018. Starting off with the business development. I would like to, 1st of all, review the market trends as mentioned here. The explanation is given in the sentences above. The first point is regarding cash equities. For April to September, in terms of average daily trading value, increased 5.8% year on year at 3,250,000,000,000 yen Last year was 3,070,000,000,000 yen Therefore, we have achieved increase of 5.8%. Below, the derivatives business is explained. The derivatives trading volume of all products increased 8.3% year on year to approximately 160,000,000 contracts. Let me highlight the major areas that increase. Average daily trading volume of 10 year JGBA Futures increased 23.6% year on year to approximately 40,000 contracts. And that of Nikkei 2 to 5 futures increased 5.8% year on year to approximately 176,000 contracts. So derivative business grew. Now regarding ETF, ETN and REIT trends. As we have explained from the past, from the July of 2018, we have launched the ETF market making incentive scheme. The average daily trading value from April to September driven by the trading of leverage in the CTFs increase, we have achieved 20.4% increase year over year. There was significant increase in this area. The 3rd bullet point is regarding ETF AUM, mainly that of ETFs tracking topics, has been steadily increasing since fiscal year 2016. This is driven by the increase in the purchases by the BOJ. Regarding cash equity, I would like to also talk about the IPO and TO trends, especially in the case of IPOs. In the first half for this fiscal year, the IPO number has increased significantly against 29 last year, increased by 20 to 49 has been achieved. On a fiscal year basis, for last year, IPO amounted to 83. Therefore, if we continue this trend, it is likely that we might reach 100 or even exceed 100 in terms of the number of IPOs. Derivatives. The highlight is that 10 year JGB Futures transactions increase trading increase in this area it increased by 8.3% year on year. The BOJ Activities is very important in terms of the exit of from the QE will have an impact. Further explanation will be given on this point later. For the 10 year JGP futures, we believe that the strong trend will continue. So that is the first half. Next, I would like to go into the second half, talking about the overview of earnings for the Q2 fiscal year 2018 or IFRS. In terms of operating revenues, let me explain these bullet points 1 by 1. Basically, the for all the breakdown items that we have seen an increase year on year, I would like to now highlight the major points, which are highlighted in the bullet points. Regarding the revenues from clearing services increased mainly driven by OTC products. With this, compared to last year, increase in revenues by 1,000,000,000 yen Regarding revenues from listing services, as I have already mentioned, the number of IPOs have increased. And this is reflected in the listing services increase. In terms of revenues from listing services, the higher stock prices in the market is having an impact as well. And therefore, this is based on the market capitalization basis. And that is the reason why revenues from Listing Services is increasing, also driven by the purchases of ETF by the BOJ. Next is information from correction, revenues from Information Services. The information is written here. The BOJ purchase of the ETF has had an impact, but the resource is something else to emphasize. Beyond that, market use data usage increased significantly as well. We are happy to say that market data usage increased, which also pushed up the revenues from Information Services. The last item is others, plus 823,000,000. This is from the colocation service increase as well as the utilization of ARO NET are included in this category. Various items are included here. This is something that I'll further elaborate later when I talk about expenses. But I would say that this is a larger increase than previous years. Our subsidiaries are selling system development to the outside, which is also included in this category. And next, I would like to talk about the operating expenses. Let me highlight where there have been significant decreases. For system maintenance as well as depreciation and amortization have increased. This is related to the launch of the new clearing system. Furthermore, In terms of the depreciation and amortization, below this item in the light pink rectangle is shown here. It shows that the system development for the shortening of the Going back to the previous page, in terms of operating revenue, there is 1,000,000,000 yen in terms of clearing OTC related is included. OTC JGB clearing fee has been added as operating revenue. And corresponding to this response, the expenses have been incurred as well. So there have been impact on both the revenues as well as expenses. In terms of other expenses, R and D has increased. But as I mentioned earlier, assistant development by the subsidiaries to outside parties, the costs thereof has also been included. This is also reflected both in revenues as well as expenses. All in all, expenses increased by 2,200,000,000 or 9.2% year on year. So So this is the summary and the revision of the full year forecast. This slide shows the summary. To this slide, it may be hard to see, But if you look at the upper graph, for the Q2, the cumulative April to September for the Q2 of fiscal year 2018, operating revenue, operating expenses and operating income and net income on year on year basis has increased. As for the profit, it has increased by 5.4% year on year. As for net profit, it's 5.4%. So the progress is nearly 50%. In terms of the revision for the full year forecast, if you look at the bottom, you see the average daily trading volume and volume of major products. In the red box, you see the revision. And on the left of that, you see the initial assumptions. As for cash equities, the average daily trading volume, we were expecting 3,450,000,000,000 yen. After the revision, it's 3,250,000,000,000 yen. There was a slight decrease, 5.7 percent decrease. And you see derivatives below. The major products for derivatives and you see the assumption for topics futures, Nikkei 2 to 5 futures, Nikkei 2 to 5 options and 10 year JGB futures. Product by product, we will review the assumptions and we will come up with the forecasts and we will add up all we have added up all of the assumptions for forecasts. Compared with the initial forecast, there were some changes. As for 10 year JGB Futures, compared with the initial forecast, we are more bullish. However, for the other products, we believe that there may be some difficulties. So we have brought down some forecasts. So we have looked at the assumptions for the operating revenue, operating expenses and operating income. And you see the after the revision forecasts on the upper graph in the red box. So we had brought down the operating revenue to 120,000,000,000 yen down from 123,000,000,000 yen As for the operating expenses, it is 54,200,000,000 yen And as for the operating income and net income, it is maintained. And in terms of the dividend per share remains unchanged. So this is what we have announced yesterday. So that is the contents of the earnings for the Q2. And I would like to show you on this slide the topics for the Q2. There are 4 items on this slide. Upper right box that talks about non disclosure agreement with Tokyo Commodity Exchange. That was done on October 23rd and it has already been announced. So in relation to Tokom, so we in order to get into concrete discussions, I mean, including integration, we have concluded NDA. I think that you are already aware of this, because we have already made a press release about this. That will be all for my explanation. Thank you very much for your kind attention.