Earnings Call: Q4 2020

Mar 12, 2021

Hello, everyone. Welcome, everyone, on the call dedicated to financial results of the Warsaw Exchange Group for the Q4 of 2020. Today's meeting will be in a traditional manner. 1st, we will present you all the numbers and then we will move on to Q and A session. We have all the members of Warsaw Exchange Management Board on the call. Happy to present everything to you and then move on to the questions as well Commodity House. I will hand over now to the speakers. Thank you very much, John. Hello, everyone. My name is Marek Dietel. I'm CEO of the Russia Stock Exchange. If I may ask you to The presentation to the Page 3 where we presented the highlights of 2020, except for the financial results which were excellent and It's a balance purely going to present you with the external financial results. But besides of that, we were very active in switching new products In the financial markets and also in our derivative market, We also were simplifying our structure of bond issuing with making 1 central place for non governmental bonds and other Right for government bonds trading. We were doing a lot of our strategy, especially The commercial market was introduced through products where we also improved our IT to service product and we also We collected almost 40 authorized warehouses and 28 other warehouses for the agricultural market are pending for the authorization. And we have 3 brokers what is good enough for running this new business line. We've been also doing a lot in the technology space, mainly through our GPW Tech, our subsidiary focused on The technology and the communication of technology and we developed to complete the development Well, 3 products, TCA tool, so now take out tool to estimate the implicit, explicit cost and market impact of the trade. So very handy tool For expenditure, brokers and also for exchanges. And we are now busy Testing this with our clients in the cloud based model, so the clients are already testing that. And some retailers also Check the market potential for that. We were also working hard on our blockchain based tokenized assets exchange where we received research and development grant for building up. We were also Very successful in gaining new customers for our data services, mainly due to the to our New owned products, so for us that's the EU. So with this Polish LIBOR, it's called Zbor. So our subsidiary GPW benchmark Got the full BMR authorization for this key in the trade benchmark and we are very actively marketing this money market benchmark from California to Tokyo. And we were very Please with our virtual roadshow with Asian American investors. For obvious reason, we changed Our plan from offline roadshows to online roadshows, but it's really played out quite Well, we also stated last year the process of acquiring majority stake in Armenia Stock Exchange, a small exchange We're quite profitable and currently we signed time sheet and currently with help of EBRD, advisors from the EBRD are where building the business plan for the Armenian Capital Market. We also acquired 28 new clients for our information services for all our business lines, including GPW, what is equities trading and corporate bonds, but also For both what is the government bond and TGE what is commodity is trading, so we have now And center the sales of the data services and look like its performance, our sales performance has improved in this business line. And for more details, I would like to hand over to Itabella for business updates and later to Piotr for financial update. Thank you. Hello, Cesca, a member of the management board in charge of business development and sales. And I would like to focus in my part of today's results presentation On more detail information related to the trading volumes and our investor activity. And let's start with an international perspective. So on the we are on Slide number 4. In 2020, the worst of exchange was the European leader in terms of the dynamics of equity turnover growth. And the change of equity turnover value year on year reached the level of above 56%. And it was a better result than the result achieved by the global exchanges such as Nasdaq, Nordics and Bali, Deutsche versus Fixed Exchange or Euronext. When we look on Slide number 5 as another market indicator, turnover velocity. So the average value in 2020 was 59.8. But in 2 months, in October December, the Warsaw Exchange was ranked on the top amount European Stock Exchanger. And in October, So we were the most liquid exchange in the whole European Union measured by velocity. And in December, we took a second And then we are on the Slide number 6. And In Q4, there was a significant increase of trading volumes on the main stock markets by 129% year on year and 63% quarter on quarter. And Higher year was really good in terms of turnover, and the total turnover value reached the level of almost €300,000,000,000. And there we believe that there are a few main reasons of such growth of turnover. So one is the persistent high activity of our retail clients. And the share of retail clients In total, turnover reached 25%, and it was the highest level since 2,009 when this parameter was on the level 27%. In 2020, a number of individual brokerage accounts increased by more than 85, 84,000. The other factor was the high end trading volumes connected with the build of Allegro. So just to remind you that it was the 2nd big debut in Europe and the 9th in the whole world. And the value of the offer was PLN 10,600,000,000. So Allegro accounted for around 21% of the total turnover in Q4. And average session turnover in Q4, it was PLN384,000,000. Also, you had a very heavy trading volumes on another company, a CV project company from gaming sector. And here, increase in over took place after the release of the new game, Cyberpunk, in December. So the rising star of 2020 in terms of turnover growth was our new connect market, which is the SME platform. And Nutanec is the market where retail investors are dominant, And they were active mainly on the companies which we call COVID winners, so from gaming sector, biotech, fintech. And the trading volume reached the level of more than BRL5 billion in Q4. And this was as much as almost 1200% more than a year before. And investors were also active in other segments of equity market, structured products and ETFs. So as of the end of 2020, we had available around 2,000 products, structured products and 7 EPS. And if we're saying that at the beginning of this year, the new ETF was launched based on NASDAQ 100 impact, And we are expecting another one based on S and P 500 next week. In the previous years, numerous sales and education activities were carried out by us. And especially we promoted gaining on the Warsaw Stock Exchange, gaining sector and also the sector of innovative small companies. Also in Q4, we organized the quarterly roadshow dedicated to our foreign investors. Market liquidity is supported by market makers, but also the participants of our 2 programs, high volume provider and high volume pound, And the share of HBP and HBP participants in equity turnover, it was 11 0.1% in Q4. So now let's go to the Slide number 7, and this is about our derivatives market. So trading volumes on derivatives are always connected with market volatility. And in Q4, volatility was higher than in the in Q3, but below levels from the Q3 of the year. The trading volumes on the rebates market increased by 96% year on year and 42% quarter on quarter. And the future contract based on our Blue Chip Index B20 remain the flagship product. And this contract accounted for over 50% of total trading volume. And I just want to also Underlying that we have some other derivatives and especially if we think category of products, the single stock futures. And we have already informed the market that As an exchange, we are ready to add new single stock futures as soon as there is such a demand of market participants. And in October last year, new 4 single stock futures were launched. So Our high volume provided program covers also the derivatives market and the share of LVP in total spending going towards above 12%. And now on the Slide number 8, We tried to summarize the achievements in individual segments of our markets. And in fact, one conclusion is appropriate here that the previous year 2020 was a very, was a great year for our financial markets. And market conditions were favorable. However, just I would like Underlying that much has been done, I would say, to help us. So the new products were launched, new derivatives, EPS, structured products. We organized numerous sales and educational activity. We had active program research coverage support, which included 51 companies and 13 broker dealers. And we started with the new program dedicated So issuers and potential issuers and it was it was being a listed company. And in this program, we propose several educational activities for the companies, Plus, also, we did some pricing activities, especially for the companies that suffer on COVID last year. And let's go to the Slide number 9. And this is about ESG, which We think it's one of the most powerful trends, which will shape The financial markets globally, but also in Poland. And we looked at the ESG, I would say, through business plans. So we know from our roadshows that This is very important also. The ESG is important topic for our global clients. And if our issuers try to adjust with the reporting requirements, they will be blacklisted by global investors And it means lots of business for the exchange. So it is why we try to support our issuers to adjust to this trend. So we have a 2 fold role. So first of all, as a Warsaw Stock Exchange is a public company, So we need to adjust ourselves as a public company to the new expectation of regulators and investors. And in this role, we have prepared to do this. However, we have been already producing integrated reports for 2 recent years. And these reports included also non financial factors like social environment and also governance, password. The second role is the role of the plus organizer of trading platform. And here together with EBRD, the exchange is involved in the project The aim at creation of the guidelines for listed companies. So the selected advisers will recommend Our company's words and how to report in every category of ESG factors. So we also became last year a member of UN Global Compact Organization, and we want to show from their experience and knowledge. And last but not least, we are involved in product offer development. So we offer already a big ESG, but also our daughter company, GCW Benchmark, So it's working on some other indicators like green, weak indices friendly and also some low carbon indicators. So this is that's it from my side. And I would like So I want to give the floor to my colleague, Ger Borovsky. Thank you, Isabella. Good afternoon, everybody. This is Pierre Borowski in terms of operations, regulations and finance on the Wealth of the Exchange. We are on the Slide number 11. As Isabella explained, the very good activity, market activity resulted in Financial results in 2020. We had record high sales revenue, record high EBITDA in the History of the Warsaw Exchange and also very high net profit at the level of PLN 151.4 million. Lotef. So it was, in many respects, record year in the 3 years of history of our stock exchange. On the Slide number 12, you see the sales revenue quarter by quarter. So it was a Year on year increase of 44.4%. We had very healthy EBITDA margin at the level of 55.6 percent in the last quarter of last year and also very good Net profit margin at the level of 40.3%. This excellent results were mainly due to the Very high activity on investors on financial market in equities but also in derivatives as well. Slide number 13. Trading revenue, it was higher by 100 and Sorry, 118.7 percent. And this was the result of activity of All groups of investors, especially the retail investors, but also very active Market makers in this period. And we observed a sharp increase of average Turnover in shares concession on the main market. And this resulted in this excellent level of Revenues. Slide number 14. We also enjoyed the increase of listing revenue by 21.5 percent. And despite the pandemic and difficult The IPO market was very active. We had this, the biggest stagger IPO of Allegro Company, but also some small IPOs in the Q4, altogether 5 of them on the main market and 3 new listings from NewConnect. And it resulted in higher listing revenues by 21.5 Percent in the last quarter of the last year. Also the SPOs, the existing listed companies also issued shares Altogether, the value of PLN2 1,000,000,000. So in this respect, it was very active for quarter for us. Slide number 15. Information Services, Market Data, Swedbank is also evolving very well. It was a year on year increase by 13.3%. And we are very glad with this because we See the increase in all the investor groups. We have a new subscription for Mac data, new distributors. So it looks really, really good. That's all for the moment for me, and I'll hand over To Adam Wodkowski, Deputy President of Polish Power Exchange. My name is Adam Wodkowski. I am the CFO of CIGI, and I will present you a few slides about situation on the commodity markets. So let's go through the Numbers on Slide 17. In the Q4 2020, the volume of electricity traded on PGE amounted to 60.7 terawatts hour compared with 66 point 7 terawatt hours in the Q4 of 2019 and 53 terawatt hours in the Q1 Of 2020. This represents a decline by 8.9% year on year and increased by 14.6% quarter on quarter. Finally, the year on year decline is the result of high level of yearly instruments open interest That was established in previous quarters. There was also still a significant impact of possible removal Of the exchange obligations, since it could confirm delivery year starting with 2021 and hence affected trading on other instruments of the electricity in forward markets. The volume of natural gas traded on CGE totaled 40.2 terawatt hours compared with 40.7 terawatt hours in the Q4 of 2019 and 35.2 terawatt hours in the Q3 of 2020. Regarding electricity market, The IFN trading volumes were extraordinarily high in the first half of the year. Despite declines Year on year in the second half of twenty twenty, the annual volume of natural gas and electricity traded on TGE Exceeded 2019 volume and hello again, Arnaud Kostya. We will continue Presentation, we were at Slide 17. And On the green, I will concentrate your patience on the second part of this slide. On the green certificate market, we've seen a slight growth year on year by 1.4% with trading volume 6.3 terawatt hours. There were a bit bigger growth regarding the whole 2020 by 4.1% and quarter on quarter by 6.2%. This seems to be result of Increased level of certificate redemption obligation and high volume of certificate issued. We see a certain drop in the liquidity on the white certificate market. The supply of these certificates is is relatively low, which keeps prices high. At the end of 2020, there was a decline in an overall volume of white certificate issued that amounted to 46.5 percent year on year. In the Q4 2020, the volume of white certificate Traded on TGE totaled 29.2 kilo total compared with 20, 81, Kilo, in the Q4 2019, which means that decreased by 63.9 percent 24.9 kilowatt hour in Q3 2020, which means an increase by 70.3%. But I would like to say that the situation was predicted in our financial trends on 2020. On the next slide, we can see that the revenue from trading on electricity markets in 4th Quarter 2020 increased by 8% year on year to €5,300,000 PRM. The increase comes from rising the spot market trading fees and these markets relatively high volumes. Q4 2020 was, as I mentioned before, the best quarter of PG story on the spot electricity market. And the revenues trading on natural gas markets are stable. In the Q4 2020, they increased by 0.6% year on year to 3,400,000 PLN and despite lower overall trading volume. It's the result of high spot market volume that has a bit higher fee than the gas forward market. The property rights market revenue dropped in Q4 2020 by 9.7% Year on year to PLN6.1 million. It comes from the significant decrease of White certificate trading volume, but revenues from property rights were 500,000 higher than Q3 2020. TGP, it has stable revenues from other resources Then trading fees in 4th quarter, they amounted to frequency on TRM. And finally, the last slide of my presentation, revenues from Clearing. In Q4 2020, there was an increase in revenue from clearing by 2.6% year on year, they amounted to 12,700,000 PRM. This growth is a result of high volume from spot markets regarding both PCT and natural gas. At Royal Gas Sports Markets, etcetera, TV, high clearing fee of 0.08 per megawatt hours. There was also an increase of clearing fees on electricity spot market in our clearinghouse in line with CGE's actions. The revenue from operating certificates of origin Register amounted to €5,500,000 which means to grow by 8.7% year on year. Is the result of postponing the time of certificate redemption by the President of Energy Regulatory office from Q1 to Q4 2020. That's all about the domestic market. Thank you for your attention. Thank you. Hold on. This is Kjell Borowski again. So Jump to the Slide number 21, operating expenses and financial expenses in Q4 'twenty. So we observed the increase of operating expenses by 21.5%. It was mainly due to the higher employee costs. Employee costs were higher because we hired new staff, 7 persons are working on our strategic projects. And that's, this was extremely successful financial year. We created additional provisions for the annual bonus for our employees to share The success with them. Also, external services were slightly higher by DKK1 1,000,000 and it was due to the higher Cost of IT but also the higher cost of promotion and education. We observed the sharp increase of the return investors In trading on the stock exchange, so due to the fact we have to spend more money for the education of the market because we want these investors to stay with us for Stronger time. Slide number 22, share of profit of entities married by equity method. And Last quarter of the last year stood at the level of €4,800,000 It was much higher year on year but also the quarter on quarter. And It was mainly because of the contribution of KDPW Group, it's a national depository for securities in CCP. On the Polish market, They had also very successful financial year, 'twenty two, because of the market activity. So they enjoyed the increase of Revenue from clearing fees, settlement fees and depository fees. So they contributed to our success as well. Slide number 23 is consolidated balance As you can observe, we have a very healthy good liquid position with a lot of cash generated during the Last year, so we observed the increase of assets and of the liquid financial assets. So thank you very much for your attention. It was the last slide during this presentation. I hand over to the organizer of the conference. Good afternoon, ladies and gentlemen. This is Salvi Traskuk from Wood and Company. I have few questions. First of all, Thank you so much for the presentation. It's been very insightful indeed. There was a miss That is the consensus on the 4th quarter results, I mean, higher than expected operating costs And these were salaries and external services in most cases, these 2 categories by roughly €2,000,000 higher than the ones I penciled in my pocket. And could you please elaborate if that high salaries And external services costs should be sustained in this year or these were rather inflated by some one offs? Let me take that question. Yes, Morag, Dieter. So in a nutshell, when it comes to salaries, simply our bond system is very progressive and Very great operational performance we had last year. We thought it also that we have to pay Higher variable compensation. And personally, I am very happy because it's a clear sign That we had a great year behind us. And also, we were rather moderating last year when it comes to salary increase. But this variable compensation comes in good moments when the team was really working very hard On transferring our organization from centralized in one building to decentralized due to COVID constraints. So It's very timely bonus. And it's hopefully, it will stay with us this bonus. So next year, we're going to have also to like turn with us, but You never know. Our business is extremely volatile. When it comes to external services, Simply the more we develop the technology, the more we have external services related to the 3rd party subcontractors and also some IT specialists, especially those well paid IT specialists, they are sole entrepreneurs. So they issue us invoices every month. So they are that in terms of accounting treated as external services and they usually work only for us. And this is the nature of the Polish IT business. And if we're going to rather stabilize on this level because We do not expect that much new hiring related to our services. So this will definitely will not be a drop that fast. And that's why the investor is obviously going to stabilize or increase in moderate pace. Piotr, the CFO, would you like to add something? So I'm not really because we lost connection. Okay. So that's all. Okay. Okay. One only one factor we should recall and Which caused increase of external services. One more, it's promotional cost because we postponed all the events That shows the year to the Q1 because of the pandemic situation. And thanks to that, you can see the Increase of the promotional cost also in the Q4. Okay. Is that all the factors, for example, Personal costs and IT costs. Okay. Thank you. My next question is, you recently held a passive investment conference And last year, you've managed to launch a few ETFs. Do you think that do you plan launching further ETFs this year? And if so, what will be the benchmarks on equity indices or also fixed income? Yes. Isabella, if you can deal with this question. Yes, sure. So as I mentioned during my During my part of presentation, so we have just launched EPS based on NASDAQ Snow Index and We are expecting the new one based on S and P 500 and the debut is next Monday. And then according to the information that we have received on the ETF Producers, I would say, or So we can expect the ETF based on our weak tax index. So again, based on stocks, but technology from technology sector. And then probably this year or maybe next year, there will be another approach to EPS based on fixed income. So this is the plan. But of course, we cooperate not only with 1 EPS provider, but also with other providers. And let's hope that they will decide also to launch data that through our exchange. Because some of the foreign ETF providers, they just decide to stay with only global exchanges. But we hope that 1 or 2, perhaps, we decide also the EPS on our exchange. So this is the plan about EPS. Last year, you announced collaboration with EBRD on Promotion of ESG ratings. Could you please elaborate a bit more what have left the plan for this year For this cooperation, do you plan any do you expect any events? And could you please just run through the pipeline if there are any projects On the table as it states regarding this initiative. Yes, yes. So to be honest, we cooperate with EBRD with the project, which is focused on preparation of guidelines for our issuers. And we want to have prepared It's a very detailed and practical guideline because currently our issuers could be potentially lost. How to properly report ESG factors. So there are some regulations, but It's very difficult to measure all these factors and prepare the relevant information to especially to global investors. So we want to offer them the guidelines. But about the ESG ratings, So we cooperate with another partner, which is Sustain Analytics. And Sustain Analytics prepared for us some ratings for the purpose of creation of big ESG. And they prepared the ranking of the companies, which are included in ESG Index. And this is but this is a slightly different cooperation. So I think that this is So my explanation of the cooperation with IBRD. Maybe 2 more questions. In 2020, the most pronounced event that happened on or one of the most pronounced events that happened in the Warsaw Exchange was a Significant spike of retail investors activity. Do you think that this level of activity should be sustained in or can be sustained in 2021? So who is going to answer? In fact, continue. Yes, it does very well. Okay. So I believe that in 2021, we'll have also the higher CPG of rebate clients? And what are the reasons that I think that it will be also the continuation of the trend from the previous year. First of all, in Poland, we have still record low straight. And the National Bank of Poland announced that they are not going to change it. So I think that Polish citizens, they look for alternatives to multiply or even protect their capital. And one of the interesting It is the worth of stock exchange. And also, I think another reason is the IPO pipeline. So Now the IPO market is, I think it's very active and promising. And we have a lot of questions from the potential issuer side. So there are 5 prospectus in for us to say and also a lot of companies that want to to go to new connect market. So also, I think that there will be some new opportunities for for easy clients to invest in good companies from interesting sectors. And also, I think that our Our offer is more and more interesting. So the offer of structured products and these structured products that allow especially Our interest clients to go short and to earn our market of a particular commodity Underlying for some structured products to earn money because the short selling it's not so open in the Polish market for retail clients. Through the structured products and also EPS. So I think that we managed to bring the attention of retail clarity. And I also follow what some analytics and our broker dealers Just comment in the public domain and they all think that the strength of active saving of retail clients to Argentina this year. Okay, perfect. That's very clear. My last question regards the dividend policy. Well, 2020 results are stellar compared to the previous years. It seems that the equity strong equity volumes will stay with us In 2022, which are essentially the most important contributor to your top line. Roughly 35% of your top line comes from the equities trading. So it seems that this year should also be not that bad. And hence, do you And if possible positive surprise on the dividend front, in your financial forecast, you outlined the dividend policy growth path, which assumes that you should pay at least NOK2.5 per share dividend from 2020 profit. Can we expect anything more than this $2,500,000,000 per share? Can I ask you to speak to me? The idea was that we increase By 10 gross per share was that we have a stable dividend policy. So our investors know what to expect is the minimum. The bottom is 10% 10% gross profit plus every year, and this is the minimum. So we do not intend to change our dividend Well, we see that's too early to talk about it. It's so dependent on the many other factors than our profit or cash And when can we expect the dividend proposal to be released? We usually, Josh, When we do, we usually release that somewhere in March, don't we? Before, it will be Yes. That's the final question. Recommendation. Mhmm. When do we present it? For the recommendation, usually May. May, May, May. May, May, yes. Okay, perfect. That's all from us. I think Okay. Ladies and gentlemen, thank you so much for the participation in this conference call. I would like to also thank the Warsaw Soft Exchange Management Board members for participating and present those results. Congrats to the entire team for delivering such From 2020 figures and let's keep our fingers crossed for also very decent set of results in 2021. Thank you so much. Have a great weekend to everyone. Thank you. Bye