Earnings Call: Q1 2021

May 28, 2021

Ladies and gentlemen, welcome to the Warsaw Stock Exchange 1Q 2021 Results Call. I now have the pleasure of handing over to your host Pavel to begin today's presentation. Good afternoon, ladies and gentlemen. My name is Pavel Yevzchoski and on behalf of Wood and Company, I very warmly welcome you to the Q1 results conference call with Warsaw Stock Change Management. Today, the company is represented by Izabela Olszewski, Member of the Management Board Piotr Porowski, also Member of the Management Board of the Warsaw Stock Exchange Mr. Adam Motkowski, Vice President of the Management Board of the Polish Power Exchange. Gentlemen, congrats to the results. Please go ahead. Hello. I'm Isabela Alszescar. I'm the vendor of the Management Board. I'm in charge Of business and sales. And in my part of presentation, I would like to focus on trading volumes and the investors' Activity in the Q1 of 2021. And just Slide number 3. And just starting to even international landscape, The World Stock Exchange maintain its leading position on the European markets when it Comes to the dynamics of the trading volume growth. And trading volumes in Q1 were 37% higher And the chart shows that other exchanges of our Old Continental say recorded slower growth or declines. But of course, this is for Q1, but So we are now in May, so let me comment on April May. So the market was more quiet In April and a little bit better in May, trading volumes were and are still not bad, but A little bit worse than in Q1 months. In Q1 this year, the working stock exchange recorded very well Velocity ratio with an increase of in market capitalization is about 40%. So please look at Slide number 4, and this is about the situation on Equity markets. So the Q1 2021 was very good on the equity market. Although our trading volume was lower than in the last quarter of the previous year, But of course, we should remember that in Q4 last year, there were 2 extraordinary months. So October, With the debut of Allegro, the company, and it was the largest IPO in the world Thank you. Sorry. The second IPO in the whole Europe, the value of offer reached PLN 10,600,000,000 and this review is accompanied by an extremely high turnover, especially in the first session After the view. In December, we noticed very heavy trading on another blue chip CD Projekt. This is a company games provider, And they released the long awaited game Cyberpunk. And of Together with the release of this game, so the investors, they traded a lot in the stocks Of this company. The high trading volumes in Q1 were a result of several main factors. And Just I would like to point out the continuing significant investors activity On Allegro stock and the share of trading in Allegro in the total trading volume reached almost 11%. Also high volatility of CV project stock, so almost 19% of the total trading volume. We had also the debut of huge gains, huge company's gift provider, which is registered in the U. S. And the value of offer was €1,700,000,000 again, the big company. And it resulted in the trading activity, especially high trading activity in the first session after the review. Also, the increased base and activities of retail investors, that was also in Q1. So we continue with this high activity of our retail clients. And I would like also to underline the inflow of new capital to equity funds in Poland, and it was around SEK 2,000,000,000 Polish Zote of Dresh Capital. We are opening when it comes to our equity main partners. So on Wednesday this week, we had another interesting video, just a petco company. This company represents the commerce sector and the value of profit was €3,700,000,000 per liter. There are a few professionals of other companies with FSR waiting for approval. So We think that this year will be a good year on our primary market. We see also an interest of foreign investors And traders in our markets. Connecting on the situation on our SME platform, NewConnect, So we noticed quite significant decline of trading volumes quarter on quarter. However, in Q1, the trading volume was still much higher than a year ago. And we think that So the trading volumes in this market will rather stabilize on the levels observed in the Q1 or first half of twenty twenty. So the 3rd Q4 of 2020 seems to be very extraordinary. In the other segments of wetland markets, the structured tow bags have been becoming more and more popular in bunkering vessels. Currently, we have 2,200 products. Also in Q1, Our EPS offer, just so to our EPS offers, there were added 2 additional drawbacks, ETF based on Nasdaq 100 Index and ETF based on S and P 500. Both ETFs, they We've built in currency risk hedging, which means that they are really good, especially for our retail clients. We continued in Q1 with our sales and marketing activities. So we organized Another the 6th edition of Innovation Day, this is a very Good evening to the opinion of our investors because the goal is to present the innovative companies To our investors, both those who are already listed on our market and those who are just being prepared to listing. We continue the 2nd edition of Growth Academy. This is our educational and networking dedicated to mid and small cabs, but some of our participants, they already declared that they are very much interested in floating in our markets. We also continue with our project with the title, it's worth being listed company. In this program, we would like to provide support to our issuers in various forms. So education, but also last year we decreased leasing fees for COVID losers. And also we had many 1 on 1 meetings with potential sales and stock issuers. In the liquidity space, we had our high volume providers very active In equity turnover, so their share in equity turnover reached more than 13%. And what's also worth underlying events again, the number of blockage accounts for retail clients increased. And comparing the situation at the end of Q1 with the year end 2019, It was an increase of more than 86,000 accounts. So Just going to derivatives market, so Slide number 5. The trading volume in Q1 It was comparable to Q1 revenues here 2020. But it's worth saying clearly that the Last year, the over was slightly different. So single sub futures and currency futures were more popular than VIC 2020 future. And bear in mind that the trading fees are lower for single stock futures and currency futures than for big to enter futures. So I would say in the total deal, we earn less by 15% quarter on quarter. We are very open for the new products and the new single So futures are in the pipeline. So we are going to launch Single substitution is based on SED cost talks, and it will happen very soon In the liquidity space, the share Of HBP participants program, it was 11%. It is a bit lower than in the Q1 2020. However, I would like to underline that we have a relatively large share of all liquidity providers, So not only HDP, but also market maker on our derivatives. Now a few words about ESG, Slide number 6. ESG is a very hot topic for us. We have been continuing to prepare our company and our Capital Group to the best founders of reporting and simultaneously also as an organizer of Trading platform for 800 companies. We want to support our listed companies in this And this is Ariel. So first of all, the updated best practice for listed companies 2021, which will be effective as of July this year. They have been implemented and they cover ESG factors including of course climate, Sustainable Development, social issues and And some other important factors on ESG's page. The companies are obliged to comply or explain If you are not compliant with our best practice documents. Also together with European Bank for Construction and Development, we published The ESG reporting guidelines, this is very practical manual based on interview with among other global investors. And we hope that these guidelines will support our issuers in non financial reporting, Which will address investor expectations. Of course, we organize some education Activities for our issuers for both sell side and buy side. And on the product development side, we have already the EFG, VIC, EFG Index And our daughter company, GPW Benchmark has been analyzing low carbon indicators. And of course, we would like to bring we'd like to focus on bringing our big index family. Also, we have started the cooperation with the Ministry of Finance in Poland to develop the set of incentives for green Advanced Markets. So we look at ESG through business plans. This is absolutely very important topic for us. So that is from my side at the moment and Piotr over to you. Thank you, Isit de Bla. So I'm Peter Bla of King Charles' Operations Finance. We are on Slide number 8. This excellent market situation resulted in very good sales revenues. Was it to be changed? Kapsal Group generated sales revenues in the Q1 at the level of PLN112 1,000,000 which was increased by 15.5 percent year on year. Operating expenses also increased The level of 66 tonnes in New Zealand is low, mainly due to the higher employee costs and Hi, external service charges connected with our new strategic initiatives. We also created a higher provision So the fee for market regulator, the level of €14,000,000 and it is For me on higher when compared to the same provision in the Q1 of last year, We created provisioning the maximum possible amount not to be surprised This year by our regulator. EBITDA was at the level of €53,600,000 increased year on year by 7.1% And net profit was much higher by 32% compared in the Q1 of last year and net profit for this Quarter was €33,700,000 Slide number 9, this Good sales revenue resulted in still very healthy EBITDA margin on the level of 47.8% in the 1st quarter, Thanks. According to the net profit margin amounted 34.4% for the Q1 of this Yes. Slide number 10. We had excellent quarter on the finance market, Securities market and the diversified in high trading revenue, which increased by 28% year on year To the level of €53,200,000 We observed quite high Average equity turnover per everyone trading session, which was 1,600,000 profit lot in the 3rd quarter, It was slightly lower than the last quarter of the last year, which was €1,800,000 But On the other hand, this quarter, the Q1 of this year was much, much better than the Q3 of the last year because then the turnover was Around PLN 1,000,000,000. The ASP is more stable on the stock market of PLN 2.22 Good. What is worth mentioning is that we have higher activity, not only on the equity market, but also in the Futures and options market and especially we are very glad with the bond market, the treasury bond market and our battery company Thanks, Pat. They had a very good first quarter with a higher number, especially on the conditional transaction, it was higher By 93%. Slide number 11, Listing revenues was also higher than in the Q1 of the last year, higher by 16% and amounted €6,200,000,000 is mainly due to the new listings, new listings of secondary offerings The IPO, we had a big IPO in the Q1, it was mentioned by Isabella, paid of additional income and We are quite optimistic on the sweetener slide. We expect more IPF In the coming months of this year. Slide number 12, You have any information from our market data. We are quite successful in this and there's stable steady growth. It was higher by almost 12% year on year. And we developed this Business line, due to the active, especially securities market, we are all the time connecting the new clients And good data vendors and all these slight lines not only from the market data from also solutions but also from Bonstad, DPW benchmark and also from TGE, our community Exchange. So we observed the increase in the whole segment of this business line. Thank you, Piotr. Welcome everyone. Adam Mokrovskiy from CIGE speaking. Let me present you the most important information about the commodity market in the Q1 2021. Here on Slide 14. In the Q1, the volume of electricity traded on TGE, the head market reached the highest level in Q3, It's also resulted in a record volume of trading in the entire spot energy market, It amounted to 9.6 per hour. In relation to the Q1 of 2020, the turnover on the spot market Increased by 14% and in comparison to the Q4 of 2020 by 2%. The decrease in turnover on the forward markets resulted in decreasing the total volume of Electricity trading, which in Q1 2021 amounted to 47.7 terawatt hour. We have to it is minus 28.3 percent year over year and minus 21.4 percent quarter on quarter. But it's certainly noted that we deal here with the base effect Because the Q1 of 2020 was the beginning of the lockdown, which was followed by a record high turnover on the forward market And which makes it the best Q3 in terms of turnover on the energy marketing in the whole history of PG. So the Q3 of this year ranks 2nd 1 in this ranking. The total volume of trading of natural gas market in Q1 was 36.5 terawatt hour, down by 8.9% compared to Q1 2020 And by 9.2% compared to the previous quarter. Relatively, across the beginning of the year compared to the Previous year's results in an increase in the turnover on the spot gas market in the Q1 of this year. In relation to the same period of 2020, the volume increased by over 1 third, Reaching the level of 10 terawatt hours. The volume of trading on the gas Forward market in Q1 2021 was 26.5 terawatt hours, recording year over year Please by 18.5%. And on the RIS Property Rights market, trading volume in the first Quarter 2021 amounted to 7.2 kilowatt hour and was higher by 17.8% compared to the Q1 of the previous year. On the agricultural exchange market, the 5th Quarter of 2021, dropped the largest trading volume so far, amounting 4,500 Tons, but remember that this market is still in the development phase. Let's go to the next slide, referring revenues in the Q1 2021. For example, on the energy and gas market contributed to the decrease in revenues in the Q3 of this year. On the energy market, revenues decreased by 18.6% year over year and on the gas market of 7.3 Thank you. Revenues from property rights trading fell by 4.9% year over year, which was Due to a significant decline in trading rights certificates, in Q1, we resolved that Higher revenues from other fees paid by participants. It was a result of Increased prices in the P table and new fees collected from participant for April. And now the last slide from this part is the news from the clearing and to register of certificates of origin. In Q1 2021, our clearinghouse reached revenues from transaction settlement Of PLN 30,000,000 PLN, it means minus 0.8% year over year, 2.4 percent quarter on quarter. In spite of fairly large The decrease in turnover in the forward energy gas market, turnover in the spot market increased, as I mentioned before. Hence, we noted Such a small decrease in income from settlement. Maintaining the certificate of origin register and the guarantees register Generate revenues in the level of TRY 6,800,000, such a high level of revenue in relation to the previous quarters A lot mainly from the greater number of issued certificates of Allegion and all Thank you, Adam. So we are on Slide 18. Again, result of the capital group of also exchange operating expenses, Because income ratio slightly increased, the level of 59.5%. And as I mentioned, we created a higher provision this year for the market regulator of PLN14.2 million compared Well, the PLN 10,000,000 in the Q4 of the last year, depreciation was lower by 10% and the market at PLN 8,800,000 And there is increase of total employee costs and external service charges. Employee costs Increased mainly due to our new business projects and external services, there are several factors like Mr. Kajit, initiatives are a bit of higher cost of IT and new markets like international energy market Started by the commodity exchange and higher promotion and educational costs We look forward to the Q1 of the year. Slide number 19, we said very good Show of profit of entities narrowed by the equity method in the Q4 of this year because it was a deliver of 5,400,000 Piaan, it was a record high in the last couple of quarters. It was mainly due to the excellent results of the KDP Group, which National depository for securities, including cars on the Deutsche market. They profited from a very active market And security is that also the open new business lines like registering which is obligatory in Poland, registering of Non public banks and from this year they started a business line of Also, the shareholders identification services concerning the public companies. It was the main focus on increasing part of our financial. Slide number 20, confirm the statement of the financial position. You can see this as an excellent So liquidity position, the sharp interest in net liquid financial assets from 6 16 at the end of last year to the P808.5 million At the end of this quarter, and Peter is one of the factors that the management board The World of Trade Exchange recommended to pay the dividend for them. Last year, the dividend payment recommended by us of €100,000,000, which is €2.5 PLN per share is in line with our dividend policy and this dividend will be higher by 0.1 PLN When compared with the dividend for the 2019, and of course, the decision about the dividend finance It will be taken by our shareholders' meeting, which is planned for the 21st of July. If I may, I'll start. Pavel with Trustee and Company. You've mentioned that you're working Now on several strategic initiatives, there is now new project in the pipeline, the digital logistics operator. Could you please elaborate a bit more about the potential cost of these projects and through venues that you expect? And when shall we expect or shall we see the first impact on your P and L from these initiatives and these projects? Okay. So maybe I will start with describing There's some initiatives and I will comment on revenues, but just I would like to ask Piotr, just to comment on the cost of initiatives. So we are, I would say, in the Middle of our strategy implementation and the goal of the strategy is to diversify the sources of revenue. So we would like to be less dependent on equity trading. And sometimes we have No influence on the macroeconomic situation and we would like to have more predictable sources of revenues. So we decided to implement a couple of initiatives in the financial market space and commodity space. And some of these initiatives that are being implemented With the support of grants that we received from National Centre of Research and Development And there are bigger projects and we need to wait for the results Some more time, but some of our initiatives It has been already implemented. And we started to charge and we have First, revenues from, for example, from our GPW Growth Academy and also, for example, the sales Revenues from agriculture markets, they are not huge revenues. This is just the beginning. However, it's very positive that we started Just to generate the revenues. As it was declared During the previous investor conference, we expect A couple of million for the revenues from our strategic initiatives this year. And we haven't changed our mind. So still we expect These revenues, of course, perhaps the majority of these revenues We'll have in the end of the year, so the Q1, this is just the beginning. So, Piotr, if you can comment on calcite Also our strategic revenues. Yes. It concerns the generally concerns the OpEx of our group, we We expect a slight increase this year when compared with the Last year, operating costs, but it will be a sharp increase in the percentage Right. For the Q1, it should be a little slower. And CapEx due to the new Business projects, we estimate that it will be also higher slightly higher than in the last year, which was Quite reasonable, Pablo. Low level and the PLN 40,000,000 and PLN 3,000,000,000 Okay. Perfect. Thank you. My next question would be to be more precise about the potential impact from Strategic initiatives on 2021 financials. You've mentioned recently that we shall Back low single digit millions of revenues in this year. Do you still think this is the correct figure? Or do you An upside to this low single digit millions number? Yes. So we haven't changed It is our opinion and expectation. So I can confirm that it was declared during We just have your investor confidence and we still expect that it will be single digit €1,000,000 revenues from the Okay, perfect. My next question concerns the M and A in Armenia, you are considering purchasing the majority stake in Armenian Stock Exchange. Could you please update us on what's happening with the deal? At what stage it is now? When shall we expect some news flow? So this the earning is, of course, still on our radar. And As we mentioned in Again, our previous comments, this Armenian business seems to be a very healthy one. But of course, we need to conduct the due diligence. We hope to finish it in the first A quarter of this year. In the meantime, we are in the process of preparation of the business plans and together with EBRD, EBRD is also involved in this deal and together with the Management Board of Armenian Stock Exchange. So after the results of due diligence, We will make the final decision. And I think that then Since this moment, of course, there will be no flow of financial resources. And also, it's worth saying that this transaction has some In the mechanism that within 3 years we can withdraw and regain our invested capital. So I think that the conditions which have been negotiated so far, they are very good for the Warsaw Stock Exchange. Well, of course, the due diligence results will be here the most important for the final decision. Perfect. Thank you. My next question is about the pension reform that we'll have this year in Poland, I. E. Clicking the 2nd pillar, assets, and between the 3rd pillar and the first pillar, the default option is that all Office members or Private Pension Fund members are going to the 3rd pillar unless they declare that they prefer to join The first pillar, have you run any kind of analysis or do you have any expectations regarding the fraction of the office members that will go to the 3rd pillar or the first pillar? Of course, we have prepared some scenarios because It's difficult to say now what is the percentage of So the citizens that will decide to transfer their funds to private accounts or maybe Some of them, they decided to transfer to social security system. And of course, there are some scenarios and we analyze them. So, but of course, we need to analyze it And see the wire picture because this is one reform and currently it has not been decided when this The Forum will start in Poland. We expect that the Polish citizens, they will have a window for their declaration Beginning on the 1st June, but now it's not obvious, so probably it will be blessed. But we need to look at it together with another reform and I'm new here Israeli Capital Scheme. So this is the initiative of the government that was Implemented in 2019 and the idea is to build long term savings of poly citizens. And this is the reform which is mandatory For the companies, for the Polish companies and underwriters and voluntary for their employees. However, the assets of In late April, Tuesday, they reached the level of almost PLN5 1,000,000,000 and Spent is invested on our exchange. So looking at the situation on the private patient front side, We're probably a part of the financial resources. We'll cover so called concession fee because if somebody will decide So transfer the funds to private accounts. So the conversion fee should be paid And it's 15%. But together with the employee capital schemes, We think that we can expect a couple, a single digit So, Binion, for this growth, as an inflow to World Stock Exchange. So we assess it altogether as a positive Reform or 2 reforms for the World Stock Exchange future inflows to the market. However, of course, it's very difficult to say and How policy designs will behave and to which options they will choose. Perfect. Last question from my side, I promise. You've mentioned in your part of the presentation that we are working very hard in promoting ESG Initiatives and all the issues associated with corporate governance, etcetera. I know that you are collaborating with BRD in this area. Could you please shed some light on your future plans as far as the collaboration with EBRD in promotion to standards is concerned? I know that You'll be running shortly a conference on ESG. So any colors would be appreciated. Yes. So yes, we just finished the project Together with EBRD in the sense that the reporting guidelines, they have been published. And of course, this is the first step, but then we plan to organize some workshops and Trainings for the company. So at the beginning, we'll do this together with the External advisor who prepared these guidelines for us and for EDRD. But then we would like to take over The exchange of these training activities and we will organize the workshops, the Thanks for the company's with by our staff. So it will be organized by our staff. As I mentioned, these reporting guidelines are very practical. So they refer to the Regulations, also new CFSD directive, but also Our team, project team, they met Global Investors and also our local investors, institutional investors and also some enterprises and I just tried to collect what are the needs on the side of the investors and how they should be addressed The companies and everything is included in the guidance. So we hope that it will be a very Practical and good material for our companies, and it will inspire them to prepare good reports For the investors. And we are, as I said, we are very much interested in this because this is part of our business. If the Global Capital I decide that the company is good and they report properly. So we hope that this capital will be here in Poland. But if the companies will not provide The report according to the expectation of the global investors, so we can expect that they will be neglected and they will be outside of So this is the loss of business for us as an organizer of Trading platform for many, many companies. Perfect. Thank you so much. We currently have no questions. I'll pass back to your host. Ladies and gentlemen, It's been a pleasure to moderate today's call. Thank you so much for participating in it. Have a great afternoon and a great weekend and speak to you after the 2nd quarter results. Stay safe. Thank you. Thank you, gentlemen. This concludes today's call. Thank you for joining. You may now disconnect your line.