Hellenic Exchanges Athens Stock Exchange SA

ATHEX:EXAE

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Popi, your Chorus Call operator. Welcome, and thank you for joining the Athens Exchange Group conference call to present and discuss the first quarter 2023 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Nikolaos Koskoletos, CFO; Mr. Stelios Konstantinou 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 2023, which was published yesterday and are available in the IR section of our website. Then we'll take any questions that you might have.

Nick, I'll pass the floor to you.

[Nikos Koskoletos, executive]

Yes. Good afternoon, and good morning to all. Just a few comments on what has developed over the first quarter. We had average daily traded value increasing by 21% and as you probably know very well at EUR 113 million per day, and that's up from the EUR 93 million that we had last year. Last year was a typical year of having 2 halves, a very strong first half, as you remember very well, and a rather weak second half. This year, we started off a lot stronger than last year, and it seems that the market dynamics have maintained their momentum. The average market cap is also up by 8% compared to last year. And that's predominantly driven by the increase in the value of the banking sector, but the rest of the market has also followed by 4.5%.

So far, as I mentioned, things have been maintaining their momentum. April was a little bit weaker compared to what we had seen. But May has picked up momentum as well. Year-to-date average traded value stands ahead of EUR 100 million per day. Now one of the key highlights that you'll see with regards to our revenue one -- in Q1, we had 2 more trading days so that was accretive as well compared to last year.

The other element that I wanted to touch upon is with regards to operating expenses, you'll see that -- there is that 20% year-over-year delta. However, we need to note here that there was a change in management in -- at the end of the first quarter last year. We've been focusing on increasing our competitiveness and bolstering the executive team and that has something -- those were developments that took place in the -- most in the half of the year. So in Q1 of 2023, we actually have the annualized impact of that. So we have a little bit of a base effect. It is not something that we considered as the run rate for this year. We expect those expenses to come off as the year progresses vis-a-vis last year, so that's why we expect overall operating expenses as we have talked about the particular line during our previous calls, we expect that to be at a high single-digit figure.

With regard to electricity cost, that is also normalizing, and that should be some headwind -- sorry, some tailwind to our operating expense line vis-a-vis the headwind that it was last year. As you know, we proposed EUR 0.15 per share as a dividend. That's just over EUR 9 million of earnings that we're paying out to shareholders and that it will be approved on June 8 on our AGM where we also have bought to our shareholders a new buyback program -- share buyback program for up to 10%. We already have 2.5 million shares as treasury stock that we acquired over the previous program. Now the shares are either to be canceled or need to be given to -- as reward to employees for executive remuneration or a combination of those 2. The Board has not made any decision as of yet. However, we do believe that it's a good practice to have as an approval from the AGM and is something that we will be bringing to the shareholders on June 8. So I'll leave it at that right now, and then we can pick up anything that you might have on during the Q&A.

Stelios, I'll pass it on to you.

[Stelios Konstantinou, executive]

Thanks, Nick. So let's start with the overview of our first quarter financial performance from the top. The consolidated turnover of the group in the first quarter of this year was EUR 11.7 million compared to EUR 9.9 million in the first quarter of last year, that's up 18%.

If we look at the breakdown, we see that trading-based revenue, i.e., from trading and post trading, the first 2 lines in the P&L. That was up 31% on the back of a 21% increase in ADTV in the market, as Nick mentioned, in the first quarter of this year compared to the same period last year. Market cap-based revenue, i.e., from listings and services to issuers, was up 9% on an 8% increase in the average market capitalization. And finally, revenue from services i.e., data services, IT, digital and some ancillary services that we have was down 4% in the first quarter.

Now if we look at the revenue lines in a little bit more detail, we see that revenue for trading represents about 20% of total consolidated turnover. And in the first quarter of the year, it was up 26% to EUR 2.3 million. Revenue from post trading made up 46% of total turnover and amounted to EUR 5.4 million compared to EUR 4.1 million in the first quarter of last year, and that's up 33% with the increase there being due mainly to a 135% increase from settlement, a 27% increase from stock clearing and a 27% increase from derivatives clearing. Now the large increase in settlement revenue just mentioned, is in turn mostly due to increased fees from OTC transactions, which were up by about 400,000 in the quarter.

As far as revenue from the derivatives market is concerned, both trading and post-trading in the first quarter of the year, trading activity, measured by the average daily number of contracts increased by 21% to 53,800 contracts compared to 33,200 last year. And revenue from derivatives was up 27% with the average revenue per contract increasing by 2% to EUR 0.219 per contract compared to EUR 0.215 last year. Our fees, as you know, derivatives contracts 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 post-trading revenue in the first quarter of the year was EUR 730,000 compared to EUR 580,000 and that corresponds to approximately 10% of total training and post trading revenue. Moving on, revenue from listing makes up 11% of total turnover, and this line includes the quarterly subscription fees paid by listed companies, fees on rights issues and IPOs and other services to issuers and that line amounted to EUR 1.3 million, up 9% compared to the same quarter last year. Revenue from data services makes up 7.5% of total turnover and includes the fees that we collect from data vendors for the provision of Athens Exchange data. The fees that we collect from market data depend essentially on the number of data terminals to which these data vendors disseminate Athex market data too. And in the first quarter of 2023 dropped by 2.2%. As we've mentioned before, we have gradually been increasing our data fee prices, so this drop is due to invoice timing.

So moving on. Revenue from IT and digital services makes up 13% of all turnover and includes revenue from digital services, infrastructure and technological solutions to the Energy Exchange Group and Boursa Kuwait. And this category also includes revenue from services such as Electronic Book Building, Axialine and some others. Revenue from IT and Digital Services was down 7% to EUR 1.5 million compared to EUR 1.6 million last year. And lastly, revenue from ancillary services makes up 2% of all turnover in the first quarter of the year was up 3%. And this category includes revenue from support services to the Energy Exchange, rental income and some others.

Moving on to the expense side. Total operating expenses increased by 19.5% in the first quarter of the year, as previously mentioned to EUR 5.9 million compared to EUR 4.9 million last year. And we can break that down, we can see that personnel costs were up 24% in the quarter at EUR 3.3 million compared to EUR 2.6 million last year, while all other expenses increased by approximately EUR 320,000 i.e., by about 14%. And that was mainly due to an increase in consulting fee. We think that increase being due to a timing factor again and which is expected to normalize in the quarters that we follow.

Overall, utility costs are essentially flat with energy costs apparently normalizing. In fact, electricity costs were EUR 280,000 in the first quarter of the year compared to EUR 320,000 in the first quarter of last year, down 13%. Personnel, remuneration expenses, our largest expense category accounts for 56% of total operating expenses compared to 54% in 2022. With head count at the group at the end of March 2023 at 244 compared to 221 at the end of the first quarter of last year.

Turning now to the bottom line. the earnings before interest and taxes of the group increased by 25.7% to EUR 4.3 million compared to EUR 3.4 million in the first quarter of last year. And we remind you that in the first quarter of last year, we had extraordinary income of EUR 625,000 resulting from a favorable core judgment concerning the return of tax and penalties that were assessed following the tax audit for fiscal years 2008, '09, '10, and we have appealed to have a further amount of EUR 270,000 return and we're waiting the core decision on that.

So at the end of the day, the net after-tax earnings of the group amounted to EUR 3.33 million, up 1.9% compared to the first quarter of last year on a reported basis. While on an adjusted basis, earnings of the tax were up 26%. And in 2023, as in 2022, the nominal corporate income tax rate was 22%, with the effective tax rate on consolidated earnings in the first quarter of this year, coming in at 23.2% compared to 18.9% in the first quarter of 2022.

On the balance sheet, the cash and cash equivalents of the group on March 31, 2023, increased to EUR 63.5 million compared to EUR 60.6 million at the end of 2022 with approximately 24% of the cash, approximately EUR 15.5 million at the end of March being kept at the Central Bank, the Bank of Greece. The increases in interest rates by the ECB has eliminated the costs associated with keeping that cash at the Central Bank i.e. the negative interest rates that we had up until last summer. And finally, also on the balance sheet, we have a further EUR 312.6 million that we report as both an asset and a liability, and these are third-party cash assets and concerned margins at our subsidiary office receives from its members in the cash and derivatives markets.

So this concludes our brief comments on the first quarter performance of the group. And I would like to turn the floor over to you for any questions that you might have.

[Operator]

[Operator Instructions] The first question comes from the line of Alevizos Alevizakos with Axia Ventures.

[Alevizos Alevizakos, analyst]

Well done for the set of results. I just got a couple of quick questions. The first one is, clearly, after the first round of elections last week, we started seeing like -- too much higher like ADV. I wanted to know whether you've seen in your data any recent influx of retail participation versus institutionals. And have you seen like the actual number of retail accounts increasing to levels not seen like in many years? Have you got something quantifiable for us. That's the first question.

And then the second question, I know that you have already mentioned that there will be the dividend of EUR 0.15 through the AGM. But you also mentioned that it's likely that there would be another buyback or actually to increase the buyback. Do you see at this valuation level, the share buyback as being preferred over dividend for the shareholders?

[Nikos Koskoletos, executive]

Okay. So I'll take the second question first if I may. When we were planning for the AGM agenda, we had not foreseen such a rapid increase in the share price that we've seen over the last, let's say, a month or so because that's something we've been planning, I had nor is the -- so that's one thing. And the reason I'm saying this is because when we set up the agenda with the shareholders, it is not something that we want to do and that we will be acting upon the decision right away. We want to have the opportunity to do so, should market opportunities be such that it is much better for shareholders that we do buyback shares like we did with the previous program.

Obviously, there's a wide range -- a wide price range that is set up by the AGM. Nevertheless, with the Board a much more specific execution of the share buyback program is actually authorized as we progress given the authorization. Just to give you an example, in 2021, we got the AGM approval in the -- in May and June, and we started buying back shares in November. So again, the valuation is something that obviously we do look at, but it's a standby tool that we wish to have and that's something you need shareholder approval for it. Doesn't mean that we will be executing upon it right away and agnostic to buying back shares at any price. So I hope that covers your question on that respect.

Now with regards to the retail, that is something that we do over a by-weekly so to speak, interim. We're waiting for the month to end, and we'll be having those kind of -- that kind of information available as we assess and that will be made available to the public as it is with the regular reporting that we have with regards to retail participation. Well, it's not something that we monitor live on a day-to-day basis.

[Alevizos Alevizakos, analyst]

All right. Regarding the question on distribution, just to clarify one point. So the idea is basically at the AGM to ask for up to 10% buyback, that means up to 6 million shares, right? So it means incrementally from what you got right now or it means another 6 million?

[Nikos Koskoletos, executive]

No, no, no. It means from where we are right now, we're at 2.5 million shares basically because the -- you can buy -- you can have a strategy shares only up to 10%. So basically, right now, our allowance would be 3.5 million more shares given the fact that we already have 2.5 million bought back.

[Operator]

[Operator Instructions] The next question comes from the line of Memisoglu, Osman with Ambrosia Capital.

[Osman Memisoglu, analyst]

Just -- sorry, I missed it. I just want to clarify. On the cost front, you mentioned that you expect operating expenses to rise by high single digits this year. Is that is that accurate?

[Nikos Koskoletos, executive]

Correct.

[Osman Memisoglu, analyst]

And is this like to plateau on expenses? Because I -- we all know you've been hiring. So after that ceteris paribus, that's the new operating platform around 245, 250 people? Is that fair to assume?

[Nikos Koskoletos, executive]

That is fair to assume, yes.

[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.

[Stelios Konstantinou, executive]

Thank you all for participating at this call. We will be happy to take any questions that you might have in private. Thanks again for participating, and have a great afternoon.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.