Good day, and welcome to the Goldman Sachs hosted WSE conference call. At this time, I would like to turn the conference over to today's speakers. Please go ahead.
Hello, everyone. Good morning or good afternoon, wherever you are. My name is Marek Dietl. I'm the CEO of the Warsaw Stock Exchange. Thank you very much for joining us today for our quarterly results. We will start with a brief introduction to capital markets in Poland. Hopefully, you have a presentation in front of you. And without any further introductions, I will just go to the slide number 2, where you have an overview of main Polish government initiatives related to the COVID-19 crisis. In a nutshell, it's 8% of the GDP, so it's by far the largest stimulus program in modern history of Poland. It consists of actions targeted for protecting jobs, helping micro-businesses up to nine employees.
Poland is a very entrepreneurial country with three million entrepreneurs, so it's really important to keep those small companies going. There is also a facility for medium-sized companies, enterprises which they are offered up to PLN 0.8 million loan of preferential conditions, and if they keep the employment, 75% of the money will be reimbursed will be not refundable for them. And there is also in the pipeline program to help large companies. It's still being debated by the European Commission, and hopefully it will be soon in the market. All the initiatives are also supported by the Polish Central Bank with quantitative easing. It's the first quantitative easing in the history of the National Bank of Poland.
Despite the size of this easing, still the Polish currency, Polish zloty remains quite stable. There is also on the right-hand side, you see the regulatory package offered by the Polish Financial Supervision Commission, which relaxed some regulations and risk buffers for the banking sector. The banks are very liquid now, and they possess enough cash to finance the economy. Some selected supervisory duties were moved or postponed to ease the life of the banking sector. Polish economy relies very strongly on the banking sector, so liquidity of this industry is absolutely crucial. There will be a space for questions later on.
I move quickly to page number three, which shows the different indices of the Warsaw Stock Exchange. It's a logarithmic scale, so the dynamics of the indexes from the December last year. I see that there are some indexes like big gains, so Gaming Index, which actually rose almost 50%. There is also Tech Index, so tech companies are performing very well, 17% plus. But let's say old economy companies are rather underperforming, especially banks. They performed pretty poorly, and their weight in our main indexes is very strong. So banking sectors and retail actually drove down our main indexes.
What is visible on page four, where we compare the indexes of the Warsaw Stock Exchange main index, WIG20 , this green line, to other indexes, ranging from regional, like Budapest or Prague to S&P. Actually, on average, the Warsaw Stock Exchange main index WIG20 performed at the bottom of the list. It is mainly driven by very poor performance of banks and retail and also utilities. But as I mentioned to you before, some industries performed quite well. On page five, you see the total trading volumes, turnover, and valuation of the domestic companies.
About half of the market, half of the companies in on our venue are the local ones, the others are international ones. And we see quite a heavy drop in the valuation, but at the same time, recently we have a very nice nice trading volumes. Actually, from the beginning of this year, the trading volumes were quite good, but March was actually a great month for us when it comes to the trading volumes. On page six is an update on the Polish pension reforms. Just a brief history. By the end of twentieth century, there was a compulsory capital market-based system, pension system was introduced. It was called OFE, O-F-E. And...
In 2014 , it was partially dissolved and the funds were forced to steadily sell off their assets. Back in 2019 , a new system was introduced, which is voluntary, but default. It is called PPK. It's on the right-hand side, and we see the first assets were paid in by the future retiree in 2019 . In 2020 , the assets of those funds were around 600 million PLN, roughly EUR 150 million . At the same time, the assets, the size of assets of old system dropped.
Due to this drop, it's mainly driven by the valuation change in valuation. The Polish government decided to suspend the reform of OFE of this old system. They were supposed to provide it, like, by the end of August this year, but it was suspended to an indefinite date. We see that we have on page 17 inflow of funds into our market, and that, and WIG, our growth market index returns, this green line. We see in March there are plenty of investors getting a bit scared or quite scary, and they drop off the market. Mainly mutual funds investors decide to sell off their stakes in this, in those funds.
At the same time, we had almost 60,000 new... Sorry, fifty-six, I think, thousand new brokerage accounts opened in Poland. Some retail investors came back. Of course, there was a net outflows from our exchange due to the crisis. Other long-term thing in our market is the capital market development strategy, which was prepared by consulting company, but sponsored by EBRD, European Bank for Reconstruction and Development. It assumes quite a strong deregulation and modernization of Polish capital market, and sets a very ambitious target developing the capital markets. We are happy to announce that the Polish government did not withdraw from this strategy, which was accepted in December 2019 . It's supposed to be continued despite the COVID-19 crisis.
And now let me hand over to our CSO, Izabela Olszewska, and our Chief Operating and Financial Officer, Piotr Borowski, for the presentation of the group results, and the Q&A session will follow. Thank you very much.
Good afternoon. My name is Izabela Olszewska. I'm a member of the board of the Warsaw Stock Exchange, and just I would like to lead you through the business part of the presentation. Please, let's start from the slide number 12. The first quarter of the year was really good for the Warsaw Stock Exchange trading business. The extraordinary situation which was connected with the coronavirus pandemic was the main reason of the high volatility on the market. We observed the increased activity of investors, and it resulted in the high volumes. When you look at the numbers, the volumes on the stock market were significantly higher than in the previous quarter, and also the corresponding period in the previous year.
Let me share with you some key observations for the stock market. The first one is the growing activity of retail investors. It was already mentioned by our CEO. Just, I would like to add that in recent years, the share of retail investors dropped significantly. We are very happy that the new investors they appeared on the market, and also the old one unfroze their accounts. Now our focus is on keeping further these investors. We think that external circumstances, as well as our diversified offer of products, allow us to keep them further on the market.
The second observation is a significant increase of activity on Warsaw Stock Exchange, as in the market, NewConnect, and also continuous interest in the gaming sector. So, when after the fall of indices, we had the recovery started in the second part of March. And the biggest gains were recorded by NewConnect NC Index and WIG Index and it was connected with the activity also of retail investors, because their choice was the technology companies, gaming sector and also new technology sector companies.
In Q1, we organized first time in our exchange history the IR roadshows in a new online form, and organizing of IR roadshow is our constant activity because we support our listed companies looking for new investors and new sources of capital. But this time we arrange this roadshow in online form, but in Japan and Singapore, which means that we also open our new geographical direction, which is Asia. Also, the last observation here is the high activity of liquidity providers, which are our partners in High Volume Provider Programme. And even though there is a percentage decrease, the nominal value of their turnover grew up because the whole pie grew as well.
Now, let's go to the slide number 13 and derivatives segment. So high volatility on the market had also a positive impact on all our derivatives. So the total volumes increased by more than 80% year to year. And the most activated contracts were single stock futures. Again, on derivatives market, liquidity providers operating within High Volume Provider Program increased their activity and increased the shared turnover. And now, on the Slide 14, there are some highlights related to all categories of our instruments. But especially I would like to highlight something else, a very diverse, diversified offer of Warsaw Stock Exchange.
We offer to our investors not only equities and derivatives, but also wide palette of structured products. As of the end of Q1, we had one thousand three hundred various structured products in trading. There were Trackers, Turbo, Factors, for different appetite on risks and with various underlyings. And of course, this is very important to underline that these products they allow especially retail investors to earn on falling markets, because in Poland, retail investors have very limited access to short selling. So the structured products, they're for them, a good alternative. And the Q1 was also the best period ever for listed ETFs. So of course, that's true that with ETFs, we started from a low base.
And currently there are seven ETF listed on our Polish indices, WIG20 and WIG40, but also DAX and S&P 500. But the most popular was an ETFs based on WIG20 Short. And again, the large number of trades in this segment of the market they indicated the high activity of retail investors. So that's all for now from my side. And just I think that the next slides they belong to Piotr Borowski.
Right. Thank you, Iza. Hello, everybody. This is Piotr Borowski. I'm COO and CFO of the Warsaw Stock Exchange. We are on the slide number 16. So the high trading revenue volumes reflected in high revenues from the financial markets. You can see that there was a strong increase in sales revenues by 15%, EBITDA by 29, almost 30%, and net profit by almost 20%. That was really very good quarter for us. And operating expenses were under control. They also rose slightly by 3.2%, is due to the development of our strategic initiatives, and I will develop on this further on the next slide. On the Slide 17, you see that we still enjoy a very high EBITDA margin, which is 51.6%. Almost the same like at the end of the year.
While the net profit margin rose because of the much higher trading revenues. On the Slide 18, we see the sharp increase in trading revenues from the financial markets, because we enjoyed the strong increase in the trading volumes in all business lines, what was said by Izabela. So in equities, derivatives and fixed income altogether, it was much better quarter, one of the best in our history. The slide number nineteen, the listing revenues were stable. We charged our issuers with the listing fees at the beginning of the year, and we calculate these listing fees on the value of shares at the end of the previous year. So, it was a good situation for us because it was before the decrease of prices.
The listing fee was calculated, and that's why is at the same level, like for the last year. Slide 20, the market data services, they are very good source of income, very stable, and we are very optimistic about this because we expect moderate growth in this business line, and we are signing a new contract with data vendors for this kind of services within our groups. It's not only Warsaw Stock Exchange, but also Commodity Exchange and the BondSpot, the bond trading entity. So this is about the revenues of the Warsaw Stock Exchange, and now I would ask Paweł Ostrowski, CFO of our Commodity Exchange, to comment on the revenues of the Commodity Exchange. Please, Paweł. And unmute your phone.
Hello, Paweł Ostrowski, Polish Power Exchange. Good afternoon. So I would like to briefly go through the main data of the commodities market. So, starting with page 22, and talking about the electricity market. So the volume of trading is quite stable. So first quarter is 66 terawatt-hours. So, that was quite interesting quarter. So, we had quite decent results in terms of turnover in January, 11 terawatt-hours. Each of the following months from February to the end of March, the turnover exceeded 20 terawatt-hours. So that previously happened only in two months of 2019, and this is quite significant. On the gas market, we...
The winter was warm, so it wasn't conducive to the gas consumption and then high turnover in the market. Hence we had the poor January of less than two terawatt-hours of turnover. Next two months were better. In March, we had three terawatt-hours, and this was a much better decrease year- on- year, amount almost to 50% increase. Property rights, so we recorded slight increase in trading in green certificates. That was by 2.3% in January to the end of March, 8.9 terawatt-hours, decreased by 4%. In this market, we saw sharp drop in prices in mid-March. That was also significant important issue. The current prices stabilized around 130 złoty.
We could observe the upward trend in white certificates. It's been broken, they have already returned to around PLN 2,000 per TWh. So that's mainly about what's happening in terms of volumes. I will say maybe on following slides, what was behind our revenues are mainly following the turnover, the volume we are trading on the power exchange. When we talk about revenues on page 23, so they have increased quite significantly on electricity market. That quarter, we could observe almost 50% increase year- on- year, mainly due to the increase on power trading. This was the high, the main reason was high volatility of CO2 prices, and then that affected the volatility of electricity prices.
That was similarly for gas, and the main driver was the change in fuel prices on the global market. That was the main issue. That was also. We could observe increased interest in electricity, energy and gas trading among companies, our clients. We continue TGE liquidity improvement program. We consult with the market on an ongoing basis. For that purpose, we've created Market Council that operates this market, including a market maker program, for example. Most, maybe not most, but worth highlighting subject is animators. In the first quarter, one of them gave up for organizational reasons, including pandemic. At the time, we acquired an animator for a larger number of instruments from four to 28 instruments for electricity.
So we are working currently and making similar solutions for the gas market also to appear soon. We are gradually increasing the efficiency from sale of additional services. So here we would like to increase the revenue. We could observe quite good results quarter- on- quarter basis, and we would like to follow all the activity on the Warsaw Stock Exchange in that area. So that's something we will work on, and we would like to increase our revenues. If we could move to the page twenty-four, the revenues from clearing. That's quite obvious, but I would like to underline this quite strong correlation between revenues realized by clearing house.
With TV there is some slight delay in the timing of numbers, of course. So revenue from clearing increased almost 20% on year-on-year basis, and revenue from operational register certificates decreased to 5.6 million PLN, mainly due to the end of the cogeneration program. In terms of the transaction in renewables electricity in the register of guarantees, we also observed some decline. So these are main figures, as I mentioned. So in terms of clearing, it's just following the situation on the main markets, on the power exchange. So that's briefly from side of Polish Power Exchange.
Okay. Thank you, Pawel. So this is Piotr Borowski again, and I will continue on the financial situation of the Warsaw Stock Exchange Group. So we are on the slide number 26. There is a structure of our operating expenses, and they grew slightly by 3.2%. It was mainly due to the salaries and employee cost growth while we are hiring new people for our strategic initiatives. We have several big projects opened as we are still diversifying our business. And there was also a growth of external services. It was mainly the cost of IT services and advisory services also mainly connected to our strategic projects. And we booked a lower provision for the tax for our market regulator.
It was 80% of the maximum value for the last year, and it was also consulted with our auditor, and we are very comfortable with this. Slide number 27, share of profit of our associates. There was a big growth by 100% year- on- year. It was mainly due to the very good quarter accounted by the KDPW. KDPW is a national depository for securities, the entity which provides services in settlement, clearing, and depository for Polish financial market. And the last slide, consolidated balance sheet of GPW Group. We have a very solid and balance sheet, and we are planning to pay dividend. We recommend it to our AGM to pay 2.4 PLN per share dividend for the last year.
We observed the increase in the balance of cash of PLN 55 million due to the trading revenues, very good quarter in trading and due to the annual fees that we collect in advance for the whole year in January, especially the annual fees from our issuers. That's all about the presentation. Thank you.
Ladies and gentlemen, we have just finished our presentation session, so we would like to move to Q&A session. If you have any questions, please take your time to do it now.
All participant lines have been opened. Thank you.
Hello? Hello.
Yes.
This is Pawel Wieprzowski, Wood & Company. Good afternoon. I have two questions. First of all, thank you so much for holding a conference call, and congrats to your results. My first question is about your strategic initiatives. Could you please name the three projects that are on the top of your initiatives agenda to be launched this year?
Sure. Thank you for the question. It's my idea again. Top of our list is agriculture market, and this has been launched this year in March. And yesterday, we had first transaction on this exchange, the auction for 250 tons of wheat. There were one private seller and 10 buyers. And we are very positive on that, and we are still in the test phase until the end of August, so we do not record any revenues because the users can trade for free. But we are very positive that it can be another important pillar in our revenues. Second, so number one for sure.
Number two is GPW, or maybe number two is introduction of new products to our exchange last year and this year. We are very busy introducing structured products, ETFs, new indices, and so on. And we have harvested the results last quarter, when especially those newly introduced instruments were very actively traded. And we'll continue to offer new products, so expansion of our core business. And number three would be GPW Data. We received the funding from National Centre for Research and Development, and step by step, we introduced a new data product.
If I can name also a fourth one, we have first technology ready for sale to the third party, and our newly established company, GPW Tech, is going to sell it to start deploying it and offering it to the third parties next quarter. So basically, the mix of new platforms, expansion of existing platforms, and new data and technology products are the pillars of our growth strategy.
Perfect. My second question relates to the provisions you recorded in the fourth quarter and the first quarter of this year. Could you please confirm that even if you need to release these provisions and pay these amounts, you're still dedicated to pay the dividends as disclosed in your strategy last year? So at least PLN 2.5 per share from 2020 profit.
Nothing changes in that respect. We have a very, consistent, and stable, policy when it comes to dividends. We want to increase by ten groszy, every year. So our aim as a board, of course, AGM is to decide, but our aim is to recommend to the AGM, the amount, we have in our, financial KPI. And we also do our best to be able to resolve this, this provision because they are related to some VAT issues, and we are, we are more quite convinced that, there will be a solution. But of course, to be on the safe side, we, introduced those provisions.
But still, we believe that the court settlement and out of court discussion with the Ministry of Finance will find a positive commencement on our end. So we'll resolve this, but as I mentioned, even if we have to pay this additional VAT, we are comfortable with our dividend policy.
Okay, perfect. And maybe one more question. You've mentioned that you are working on introducing new ETFs and other projects, products to your offer. Could you please share with your thoughts on the potential development of the entire classes, investment industry in Poland? Do you see the huge space for further products offering here? And if so, do you think that the next step should be adding, for instance, ETFs benchmarked to some foreign stocks?
Basically, we believe that the ETF space can be further developed in Poland. We are very positive on that. Especially, we are contemplating some solutions for that instrument. But maybe I will leave the floor to Izabela Olszewska, our Chief Sales Officer, for further details. Iza, the floor is yours.
Yes. So I think that passive investment becomes more and more popular in Poland, so yes, we are working on some new ETFs with the ETF providers. And what I would like to also confirm is that the first in line is the ETFs based on that instrument, on bonds. But of course, we have currently two ETFs which are based on foreign indices, so I'd like to mention ETFs, one based on the DAX and one on S&P 500. The investors they've got already access to indices, but of course, if there is such an interest, we can add more.
But currently, the most important was to create all the possible ETFs based on our indices, and also that can reflect different situations in the market, so short leverage, et cetera. So, the answer is yes, we think about also foreign indices. But I think that now the biggest interest is in bond ETFs and also with the Polish indices ETFs.
Thank you.
Especially. Okay.
No, please, please go on.
Hello, I just wanted to add that we still work on a securities lending and borrowing system, which will for sure allow in especially retail investors from other strategies that they can use now. So ETFs again, especially those short ETFs, they allow them to earn on foreign markets. So it is why the interest was so high in the recent periods.
Splendid. Thank you so much.
Hi, this is Ashwin Sharma calling from Goldman Sachs. Thank you so much for your time and a very insightful presentation. We've seen obviously, with the amount of market volatility, changing some market rules, specifically with regard to short selling bans, and trading hours. And that's true of EM as much as it is DM. With that, have there been any considerations for a change on your side, if I may ask, please?
We are... You mean trading hours? Just like trading hours . You meant trading hours? Changing trading hours?
Yeah, trading hours or indeed, short sell bans.
Yes. Okay. Yeah. No, we do not plan to introduce any changes. Currently, we went through a roller coaster related to, at the same time, high volatility market and very high investors activity, so very high investor activity. And at the same time we achieved 95% of the staff working in home office space. So currently, we do not consider any changes in trading hours and any major changes in our back end technologies and so on. Because it will... We don't want to create additional risk for our business continuity.
And concerning the short selling, there was no ban in Poland on short selling, and we haven't heard about this such intentions from our regulator. No discussion about this now.
Understood, and a quick follow-up as well. You mentioned some of the initiatives around ETFs on the credit side, which sounds very, very interesting. Any ambition for, in terms of new product launches this year or indeed next year on the derivatives side, please?
So maybe I will hand over to Izabela. What is the timeline for derivatives?
Yes. So, we have single stock options in the pipeline. So, currently we're working on this product, and we think that everything will be ready in the end of the year. But of course, the moment when we start to offer single stock options, it will depend on the market and the interest of market participants to use this product. And also, the most important, the market makers, which are absolutely needed here. So, we think that we'll be ready, as I mentioned, in the end of the year, but perhaps we can start in the next year, at the beginning of the next year.
Crystal clear. Thank you very much.
Are there any other questions?
Sorry, one more if I may, if there's no one else jumping on. ESG, we're seeing an increase in take-up, and, and indeed, it's a subject and theme that's increasingly dominating mind share with investors on our side. Could you perhaps talk to how you think about ESG and any initiatives that you may well be running to help improve any ESG metrics?
ESG was supposed to be a core topic for us this year, but we had to cancel the conferences around that. But still, we continue working on our ESG. And again, Izabela, if you can step in and tell us more about our... Plenty of our ESG initiatives, but select only the top ones, like with EBRD and so on.
Yes, yes, yes. So, of course, we realize that ESG topic is absolutely important, and we approach it from the business perspective. So I think we would like to help our companies to follow the ESG, how say, they, they revealed the ESG policy and of course, how they what they plan to do in their strategies related to the ESG things. But we started the whole plan, how to implement ESG strategy on our market. We started from ourselves, so as the management board of the exchange, we prepared the whole program.
And also, we have a very good partner because this is EBRD, so we are very close to finish our arrangement and start the project, which will be focused on our companies and preparing the guidelines for the companies, not only listed here in Poland, but in the whole region. So this is our main initiative. Also, we will soon start the training and workshops for our sales and buy side to show them how it is important to push the companies to use ESG in their business and their strategies and policies.
So we are now the member of UN Global Compact as well, so we are very close to the topic. So a lot of things in this ESG is now, and a lot of projects are open, and we operate as exchange, as a moderator, I would say, of all these initiatives. Also, as our CEO mentioned in the first part of the presentation, this topic of ESG is one-- is a part of a strategy for development of the capital market in Poland. So this is the document which grouped all the most important initiatives for the capital market.
ESG is one of this important thing that the owner of the strategy, the Ministry of Finance, thinks that should be implemented very soon. We are the part of the group, but also there are some other market participants. I think that very soon we'll have open a couple of good initiatives in ESG area.
Just to chip in, we have also WIG-ESG index, special index, which is covering 60 companies. So if someone... and there are already some funds which are benchmarking themselves to this index. So we would also welcome an ETF provider, ESG ETF provider, which will benchmark it to the WIG-ESG. So any question?
Is there any? If there are no other questions, we will finish for today. I would like to thank you for joining the conference and taking your time to listen to the presentation about our business. If you have any questions in the meantime, or if you would like to know more about our business and financials, please contact Investor Relations department. We are very happy to help and cooperate, and we are there for you. Thank you all for joining, and goodbye.
Thank you very much for questions and listening to us. Thank you very much.
Thank you so much.
This concludes today's call. Thank you for your participation. You may now disconnect.