Hellenic Exchanges Athens Stock Exchange SA

ATHEX:EXAE

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I am Jota, your Chorus Call operator. Welcome, and thank you for joining the Hellenic Exchanges - Athens Stock Exchange conference call and live webcast to present and discuss the first quarter 2021 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Nikos Koskoletos, CFO; Mr. Stelios Konstantinou, Head of Investor Relations. Gentlemen, you may now proceed.

[Stelios Konstantinou, executive]

Good afternoon, ladies and gentlemen. And good morning to those of you listening to us from the other side of the Atlantic. We would like to present the financial results of the group for the first quarter of 2021, which were published yesterday and are available in the IR section of our website and then take any questions that you might have. Nick?

[Nikos Koskoletos, executive]

Thank you, Stelios, and my best to all participants. Moving on, some highlights about the performance of our market in terms of volumes. I think what stands out is the fact that the average daily traded value dropped by 11.7% for the first quarter to EUR 75 million versus close to EUR 85 million in Q1 of 2020. The average market cap is slightly lower year-over-year, 2%. We had an increase in derivatives in terms of contracts, increased by 42%, 55,000 contracts compared to [ 38.7 ] .

If we examine the quarterly market performance over the past 5 quarters in terms of trading, we see, obviously, a strong quarter in Q1 2020, which was the best quarter of 2020 for that matter and by far before the onset of the pandemic. So we've head a weak Q2, even weaker Q3 and then we had a turnaround in the fourth quarter when trading activity returned to Q1 levels. So far this year, we have the, as mentioned, in Q1, 75 million. But average daily trading values have increased, and currently stand at over 80 million and helped by a very strong month of May.

We are seeking on moving forward. Aside from the volumes and the trading activity, we are seeking on moving forward. With regards to the series of actions and initiatives lined up that we feed into the strategic outline that we have mentioned in the past with regards to increasing the tradable assets of the business, expanding over the value chain in terms of servicing, and then how do we enlarge our footprint geographically and servicing other market infrastructures.

We also had the licensing of our subsidiary, ATHEXCSD and the CDSDR and that started post April 12, that's when -- that was the go-live date and enables us to tap into additional services offered to the capital market and the corporate ecosystem, and those are things that we're working on as Stelios will go into more detail when presenting our results.

But at this point, I wanted to highlight a few things on my side. On ancillary services, I wish to stress the strategic importance of this particular line as things mature more and more and revenue potential is being captured. In the past, we have mentioned that EnEx relationship, when mature will yield close to EUR 1.8 million, and this is the case post-Q4. And to all the existing items that we are working on, we are committed to adding more deliverables and working on finding additional opportunities, along the strategic accesses that I mentioned before.

Just a few notes. We have our upcoming AGM at the end of the month. We have already made public with the announcement of our annual results, the recommendation for a EUR 0.07 dividend per share and then an additional EUR 0.07 as a capital return. And the other thing we wanted to mention is that we are also bringing to the AGM a share buyback program. And this buyback program will be for purchases up to 10% of our share capital with an upper limit of, at this point, EUR 5 per share.

At this point, I'd like to pass it on to Stelios to go through our Q1 performance in more detail. Stelios?

[Stelios Konstantinou, executive]

Thanks, Nick. So let's start our overview of our financial performance as always from the top. The consolidated turnover of the group in the first quarter of 2021 was EUR 8.4 million compared to EUR 8.2 million in the first quarter of last year, up 2.3%. If we break it down into the 3 revenue streams, we see that trading based revenue, i.e., from trading, clearing and settlement, the first 3 lines on our P&L, that was down 12% as ADTV dropped by 12% in the first quarter of 2021 compared to the same period last year.

Market-based revenue, i.e., Exchange, Depository and Clearing House revenue services. So the second 3 lines in our P&L was up 12.5%.

And finally, revenue from ancillary services, which includes market data services to the energy exchange to Boursa Kuwait and others was up a strong [ 33% ].

If we look at the 6 more, most important revenue drivers, which together account for about 90% of total revenue. We see that revenue from clearing made up 30% of total turnover. And in -- and amounted EUR 2.52 million compared to EUR 2.86 million in the first quarter of last year, and that's down 12%. And the drop, as mentioned already, is due to lower trading activity in the cash market as revenue from the derivatives market was flat.

Revenue from trading represents 16% of total consolidated turnover. And in the first quarter, it was down as expected, 15% to EUR 1.36 million compared to EUR 1.61 million again , on the back of lower trading activity in the cash market.

Now as far as revenue from the derivatives market is concerned, both trading and clearing, in the first quarter of 2021, trading activity, i.e., the number of contract was up 42%, as mentioned already, while revenue was flat. And that can only mean that the average revenue per contract was down, and it was actually down 31% to EUR 0.172 per contract compared to EUR 0.249 per contract in the first quarter of 2020.

As you know, pricing depends on the type of investor, the product being traded and the prices of the underlying securities. And as a result, market volumes and our revenue do not always go hand-in-hand.

Lastly, on derivatives, trading and clearing revenue in 2021 was flat at EUR 555,000 compared to EUR 558,000, corresponding to 14.3% of all trading and clearing revenue and 6.6% of total turnover.

Moving on, revenue from Exchange Services makes up 11% of total turnover. And this line includes the quarterly subscription fees paid by listed companies, fees on right issues and IPOs as well as fees paid by members, and that came in at EUR 885,000, up 12.5% compared to the first quarter of last year.

Revenue from Depository Services, is up 13%, coming in at EUR 702,000 compared to EUR 620,000 in the first quarter of last year. Revenue from this line makes up 8.4% of total turnover and includes revenue from rights issues, again, quarterly subscriptions paid by operators and revenue from inheritances.

Now revenue from ancillary services makes up 15% of total turnover. And in the first quarter of 2021, it was up a strong 83% to EUR [ 1.22 ] million compared to EUR 668,000 in the first quarter of last year. This increase is mainly due to the increase in revenue from the support of other markets, such as the Energy Exchange Group and Boursa Kuwait mainly. The large increase in ancillary services is due to the 260% increase in revenue from the support of these markets to EUR 570,000 in the first quarter of 2021 compared to only EUR 158,000 in the first quarter of 2020.

In particular, if we break that down further, revenue from the energy exchange was [ 390,000 -- EUR 309,000 ] compared to EUR 118,000 in the first quarter of last year, and revenue from Boursa Kuwait was EUR 126,000 compared to 0 in the first quarter of last year.

Revenue from colocation services, which is also included in ancillary services was also up 24% to EUR 255,000 compared to of EUR 205,000 last year.

Lastly, revenue from market data makes up 7.6% of total turnover and includes the fees that we collect from data vendors for the provision of Athens Exchange market data. These fees depend essentially on the number of data terminals to which these data vendor disseminate Athex market data to and amounted to EUR 634,000 in the first quarter of this year compared to EUR 618,000 in the corresponding period last year, and that's up 2.6%.

Turning now to the expense side. Total operating expenses, including ancillary services dropped by 1.3% in the first quarter of this year, coming in at EUR 4.68 million compared to [ EUR 474 million ] last year. If we break down these expenses, we see that personnel costs were down 6.9% to EUR 2.56 million compared to EUR 2.75 million last year, while all other expenses were up 6.5%, coming in at EUR 2.12 million compared to EUR 1.99 million in the first quarter of last year.

Now the main drivers behind this increase are higher consultant fees, admittedly from a low base in 2020 and higher maintenance costs due to the new service contracts to support our IT infrastructure, including some new systems that were procured and installed.

On the other hand, personnel costs were lower because, a, we increased CapEx in 2021 to "normal" levels compared to a lower level in the same period last year; and b, because we have lower social security contributions this year compared to last.

Other operating expenses were also down 26%, and that's due mainly because of EUR 100,000 donation that we gave last year to the Ministry of Health to combat COVID-19 pandemic.

Personnel, remuneration and expenses accounts for 60% of total OpEx compared to 62% in the first quarter of last year and is by far the largest expense category, as always. And headcount at the group at the end of March 2021 was 231 compared to 223 at the end of March 2020.

Turning now to the bottom line. The earnings before interest and taxes of the group increased by 14.5% to EUR 2.27 million compared to EUR 1.99 million in Q1 2020. Interest income was only EUR 4,000 compared to EUR 40,000 in 2020, due obviously to the significantly lower interest rates offered on deposits.

And thus, the net after-tax earnings of the group amounted to EUR 1.95 million compared to EUR 1.56 million in the first quarter of last year, up 25%.

The effective tax rate on consolidated earnings in the first quarter of this year was 14.1% compared to 21.5% in the first quarter of last year. We remind you that for 2020, or last year, the nominal corporate income tax rate was 24%, while for 2021, the nominal rate is 22%.

Turning now to the balance sheet, the cash and cash equivalents of the group at the end of March 2021 increased to EUR 70.3 million compared to EUR 68 million at the end of 2020. And at the parent company, cash and cash equivalents were EUR 18.6 million compared to EUR 17.9 million last year and approximately 20% of that cash, i.e., EUR 13.6 million at the end of the first quarter 2021, is kept at the central bank, the Bank of Greece, where interest rates are negative currently at minus 0.5%.

Lastly, also on the balance sheet, a further EUR 223.4 million that we report as both an asset and a liability are actually third-party cash assets and concerned margins in the cash and derivatives markets. These are clearing fund assets. And these funds are also deposited at the Bank of Greece.

And with this, I would like to thank you for listening in. We would like now to open the earnings call to any questions that you might have. Thank you.

[Operator]

[Operator Instructions] The question comes from the line of [indiscernible] with [ Better Securities ].

[Unknown Analyst]

I have 2 questions actually. During your presentation, you mentioned the figure of around EUR 1.8 million. Does that refer to the total expected sales from services rendered that you expect for full year 2021, which includes, let's say, the energy market and the Kuwait bourse and all the other bourses that you provide services to. That's the first question.

And if you could guide us for Q2, provided that we have already completed the Piraeus bank share capital increase, and we have pending at AGM and Alpha Bank and also 2 bonds that were issued, I think it's Costamare during Q2, and it was Motor Oil, I guess. Could you give us a color on what level the impact will be on your profitability, let's say, on the EBITDA level from these corporate actions?

[Nikos Koskoletos, executive]

Thank you, [ John ], for the question. The -- on the EUR 1.8 million that was quoted, that is the guidance that we're giving on our relationship with EnEx alone, not the whole line with regards to additional services. And that's the number that we're quoting that EnEx for Athex Group is a EUR 1.8 million relationship in full maturity.

[Unknown Analyst]

That's on a full year basis, right?

[Nikos Koskoletos, executive]

Correct. So that's 1 thing. So it's not -- so it's a very -- that is the line item and revenue estimated, if you will, for the full mature nature of the relationship that we have with that particular client.

[Unknown Analyst]

Will 2021 be a complete year of full exploitation of the energy market. I mean, will we reach the EUR 1.8 million for...

[Nikos Koskoletos, executive]

We do expect that 2021 will be such a year. Now with regards to Piraeus Bank, so Piraeus bank, yes, it was a very significant issue. Revenues on a cash basis, it is close to EUR 1 million. But as you recall, these types of revenues no longer get recorded on our revenue line at point in time, but it's rather point over time. So you will see it on our liability as a service that we owe to those clients for over a period of time. So we do collect the money on a cash basis, but we don't book it in our revenue depending on the issue. If it's a primary listing, if it's an initial listing, it's 5 years that we amortize the revenue over that period. If it's a secondary issue, as is the case with Piraeus, it's over a 3- year basis.

So that's why you'll see that on the liability side that we have for services owed in terms of our obligations, that particular line has increase from just over EUR 1 million to just under EUR 2 million. It was close to EUR 1.1 million in the short-term and long term liability. And then if you put on the Piraeus one, it's close to EUR 2 million that it's gone to that point. So again, you will see it on a cash basis, but you will not see -- it's gradual with regards to how it impacts our revenue line.

Now with regards to Motor Oil, well, there the discussion is a little bit more limited with regards to the listing fees that we get from those type of instruments in terms of the bond. So like, for example, Motor Oil for us is close to 13,000, 13,000 revenue stream that gets amortized over a period. But with the bonds, what we do collect is close to 90,000 from the electric book -- the electronic book building process, and that is booked within a year. So from Motor Oil's bond, it's close to 90,000 we get and another [ 13 ] amortized over a period of time.

For Alpha Bank, well, then it's -- I think I don't have the numbers off hand, but I think it's fair to assume that they will be proportional to the number that I mentioned for Piraeus with regard to the differentiation of size.

But I think one of the predominated driving factors with regard to the second quarter aside from the services that we're working on. And as they grow and continue to increase in terms of percentage of our OpEx base, I think we will have a significant, if nothing else changes, tailwind from the trading volumes that are significantly higher in the second quarter vis-à-vis the first quarter.

[Unknown Analyst]

You mean as an operating leverage effect?

[Nikos Koskoletos, executive]

Correct.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

[Nikos Koskoletos, executive]

Okay. Stelios, do you want to wrap that up?

[Stelios Konstantinou, executive]

Yes. Sure. Thank you to everyone for taking the time to listening. If you want, we are happy to discuss with you in private, if you want to take any matter up. And thanks again for participating. Have a great afternoon. Bye-bye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephones. Thank you for calling, and have a pleasant evening.