Bolsa Mexicana de Valores SAB de CV
BMV:BOLSAA
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Bolsa Mexicana de Valores SAB de CV
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Greetings, and welcome to the Bolsa Mexicana de Valores First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ramon Guemez, CFO. Thank you, Ramon. You may begin.
Thank you. Good morning, and welcome to Bolsa Mexicana de Valores First Quarter 2023 Earnings Conference Call. Before proceeding, I'd like to provide a brief safe harbor statement. This presentation contains forward-looking statements and information related to Bolsa that are based on the analysis and expectations of its management. As well as assumptions made and currently available at Bolsa. Such statements reflect the current views of Bolsa related to future events and are subject to risks, uncertainties and assumptions. Many factors could cause the current results, performance or achievements of Bolsa to be somewhat different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in general economic, political, governmental and business conditions, both in a global scale and in the individual countries in which Bolsa does business, such as changes in monetary policies and inflation rates, in prices, in business strategy and various other factors.
Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary considerably from those described herein as anticipated, believed, estimated, expected or targeted. Bolsa does not intend and does not assume any obligation to update these forward-looking statements. I would also like to remind participants that today's call is being recorded and a replay of this call will be available online on April 20 at Bolsa's corporate website, www.bmv.com.mx.
During this call, all figures are in Mexican pesos and compared to the first quarter of 2022, unless stated otherwise. This call is intended for the financial community only, and the floor will be opened at the end to address any questions you may have. Joining us for today's call are Jose-Oriol Bosch, our CEO; Jose Manuel Allende, Chief Capital Information Markets and Information Services Officer; Roberto Gonzalez, Chief Post Trade Officer; Claudio Vivian, Chief Information Officer; Hugo Contreras, Chief Compliance Regulations Officer; Alfredo Guillen, Managing Director of Equity Market; Jose Miguel de Dios, Managing Director of Derivatives Market; Rosa Crespo, Managing Director of Human Resources; Mr. Rene Ramon, Director of Investor Relations; and myself, Ramon Guemez CFO. I would now like to turn the call over to our CEO, Jose-Oriol Bosch.
Thank you, Ramon. Good morning, and thank you for joining us for the first quarter 2023 earnings conference call. As for today's format, First, we'll go over the financial highlights, and then we will focus on the main drivers of each business line. When comparing the first quarter of 2023 with the same quarter of 2022, it is important to consider 2 things. The first, Indeval and SIF ICAP registered nonrecurring revenue of MXN 129 million in the first quarter of 2022. Second, FX had a double impact in the quarter. About 30% of BNP's revenue and 25% of its expenses are linked to the U.S. dollar. On one hand, the strength of the Mexican peso had a MXN 37 million negative impact in revenue, mainly in information services and the central securities depository in Indeval. On the other hand, expenses were MXN 13 million lower than expected in technology, consulting and cost of fees.
Please let's start in Slide 3 to review the first quarter financial highlights. As you can see, we delivered resilient recurring results after showing a good quarter for trading and clearing derivatives, lifting of short-term and long-term debt and information services. Revenue was MXN 1 billion, down MXN 116 million or 10% compared with the first quarter of 2022 and up MXN 13 million or 1% after eliminating last year's onetime items. Expenses were MXN 471 million, up $21 million or 5%, mainly due to higher personnel costs, the option to purchase the remaining 20% of SIF ICAP Chile, 10% BMV and [10% hike] and BMV's building renovations. EBITDA reached MXN 620 million, that is MXN 8 million lower or 1% negative when compared to the 2022 adjusted EBITDA, which only considered ongoing revenue. Net income was registered at MXN 415 million, 13% below quarter-over-year and 9% higher quarter-over-quarter.
In Slide #4, in revenue by business line in the first quarter of 2023, -- as you may know, one of the strengths of our business model is its diversification. Our operations play a role across the value chain with highly recurring revenue in nature and strong customer retention. Capital formation or the listing of equity and debt as well as its annual maintenance contributed this quarter with 13% of BMV group revenue.
Transactional businesses, which consist of equity trading and clearing, derivatives trading and clearing and OTC trading generated 37% of revenue. Information services made up of data analytics, indices, valuation and financial risk management services had a 19% weight. The central securities depository Indeval, which is responsible for the cost of settlement and global market services participated with 28% of revenue. As mentioned before, revenue was MXN 1 billion, down MXN 116 million or minus 10% compared with the first quarter of 2022.
However, after eliminating the nonrecurring items, the revenue was up MXN 13 million or 1% positive. Please turn to Slide #5 to go over equity trading and clearing. As you can see, cash equity trading revenue was down MXN 10 million due to a lower average daily traded value at BMV, which was registered at MXN 18.3 billion. The regulatory changes regarding the best execution rules or the way we did the force allocation of trades was implemented in August 2022. In first quarter of '23, BMV's market share was 85% versus 91% in the first quarter of '22.
However, we were able to regain some ground 200 basis points quarter-over-quarter due to the liquidity fund in BMV and the extensive experience and the quality service we provide. As for the equity clearing house, CCV revenue was down $4 million since the ADTV for the local Mexican equity market was down 8%. CCV acts as the central securities frontier party and clearing house for all the Mexican stock markets. In Slide #6, on derivatives trading and clearing, the revenue in MexDer and Asigna was up 11% and 27%, respectively, due to higher trading of dollar future, longer tenor traded of tier swaps and stock derivatives. The dollar futures notional value amounted to $424 million, the highest since 2014. However, the open interest at the end of the period was 32% lower than in 2022 due to institutional clients closing position.
Higher trading of Dollar futures and IRS represented a 28% growth in average margin deposits closing the period with MXN 38 billion. As you know, last April, we implemented a liquidity provider program for dollar futures as part of our long-term strategy to increase the participation of electronic trades. This has been a success, and we are analyzing other derivatives that could benefit from this program. Moreover, we continue in the authorization process to list options and futures of shadow listed securities traded in the global market or FIC.
On Slide #7, on the OTC trading, SIF ICAP revenue was down MXN 17 million or 9% lower compared to the first quarter of 2022. It is important to highlight that in the first quarter of '22, SIF ICAP Chile registered nonrecurring revenue of MXN 32 million for VAT refunds without having an impact from personnel expenses. Excluding this item, SIF ICAP revenue increased MXN 15 million, MXN 9 million in SIF ICAP Mexico and MXN 6 million in SIF ICAP Chile, mainly due to higher trading of interest rate swaps by institutional clients.
On Slide #8 on the capital formation, Listing revenue reached MXN 10 million, 2 million or 14% lower to that of first quarter '22. MXN 3 million less in equity due to fewer warrants registered in the period and MXN 1 million more in debt because of long-term debt listings. In short-term debt, 292 issues were placed for a total amount of MXN 56 billion, while the long-term debt 21 issues were registered for a total amount of MXN 87 billion. In fact, the first quarter of 2023 shows a very strong start to the year-in long-term debt listings, showing a 433% growth in amount place. Financials were the most active sector in the quarter, which is good news for the economy, thanks to its multiplier effect. This figure also shows the recovery in Mexico could be accelerating and BMV Group is playing an important role. Moreover, 35% of the total long-term debt issued in BMV during the quarter was sustainable through thematic green and sustainable bonds and sustainability-linked bonds.
We will continue promoting this market through our digital platforms and education programs as we continue to a more sustainable economic model. Regarding the equity market, Fibra social issued Fibra E for MXN 6 billion. Regarding maintenance fees were about MXN 8 million due to the recovery of long-term debt, which last year showed 53% growth in amount placed from MXN 133 billion in 2021 to MXN 204 billion in 2022. In Slide #9 on the central securities depository, Indeval, revenue was MXN 283 million, down MXN 124 million. Last year, during the first quarter, we registered nonrecurring revenue for MXN 97 million due to the prescription of liabilities.
Excluding these extraordinary items, revenues decreased by MXN 27 million, MXN 20 million explained by global market services and global custody could see are in U.S. dollar and MXN 7 million due to a lower number of cross-border transaction and trade [indiscernible] in the global market.
Assets under custody increased 7% in the local market to MXN 31.3 trillion and decreased 10% in the global market to MXN 1.5 billion, partly due to FX and international financial market corrections. As mentioned during the last conference call, Indeval received the authorization from the U.S. Internal Revenue Service to operate as a qualified intermediary. During 2023, we will control the tax withholding process for American securities listed in the global market, bringing several operational efficiency and savings, which can be identified under cost to be expenses. On Slide #10 on Information Services, the revenue and information services reached MXN 200 million in the first quarter of 2023, up MXN 24 million or 14%. Market data showed a MXN 5 million increment due to international sales and the growth in the number of retail investor terminal. As for sales increased MXN 20 million due to onetime licensing and implementation sales of our portfolio management software and more valuation and risk management services.
It is important to note that the appreciation of the Mexican peso against the U.S. dollar represented a negative impact of MXN 16 million in information services. Excluding the extraordinary revenue at and the exchange rate variation information service of recurring revenue would have been MXN 206 million in the first quarter of 2023. We expect this business line to continue growing at double-digit rates, given the demand for our data locally and internationally.
All in all, a good set of numbers in derivatives trading and clearing OTC trading, capital formation and information services. On the other hand and as mentioned at the beginning of the call, the strength of the Mexican peso had a MXN 37 million negative impact in revenue. Now let's look at our operating expenses in Slide #12. Operating expenses in the first quarter of 2023 were MXN 471 million, MXN 21 million or 5% higher than the first quarter of 2022. Expenses were MXN 13 million lower than expected due to FX.
Personnel expenses, up 7% due to annual salary increments and higher recurring revenue in Technology, up MXN 3 million because of a reclassification from consulting fees to IT related to hardware management. Expenses should have been MXN 7 million higher, assuming the same effect as in the first quarter of 2022. Depreciation was in line with last year's figure because on one hand, we registered 4 million more in for the segregation post-trade infrastructure, and on the other hand, we completed the amortization of the central lining of equities and derivatives. Rent and maintenance, up MXN 4 million because of higher maintenance costs and building renovation.
And sub-custody down MXN 10 million since Indeval was authorized as a qualified intermediary, and this, in turn, transforms into lower cost associated with the administration of tax forms and W8 formats. This line also benefited from a strong peso given that fees are in U.S. dollars. CNBV fees are linked to inflation are up 8%. Other increased MXN 4 million because of the option to purchase the remaining shares of SIF-ICAP, which is planned for 2027.
It is important to note that FX fluctuations had a positive impact in expenses and were MXN 13 million lower than expected. We continue executing with cost discipline towards increased operational leverage, while investing in technology upgrade to strengthen the resilience of our platform. Please turn to Slide #12 for our conclusion. Notably, the first quarter of 2022 made for a tough quarter to compare with because of extraordinary revenue concepts and foreign exchange fluctuations. Non the less BMV Group delivered resilient recurrent results this quarter due to transactional businesses, new clients in information services and a stronger start of the year in long-term debt listings, all while keeping costs well under control.
We maintain our leadership position in capital formation and equity trading by capitalizing on our competitive strengths and our experienced management team. In derivatives, we continue looking for options to increase liquidity as well as other growth projects that require regulatory approval. Furthermore, we are committed to strengthen our analytics offering since data is insight that drives trading, and those trades generate new data and so on. Regarding BMV's technology transformation, we are strengthening our platforms with the aim of having an evergreen and seamless technology across all divisions.
Additionally, we continue working in a design study with a third-party market infrastructure to analyze caps and evaluate the need of upgrading our post-trade platform to enhance our product offering and simplify our operations. Furthermore, the segregation of post-trade infrastructure is on track for both productive and disaster recovery.
With that, I thank you for your time. And together with my colleagues, we will gladly answer any questions you might have. Thank you very much.
[Operator Instructions] Our first question is from Ernesto Gabilondo with Bank of America.
Congrats on your results. I have 3 questions from my side. The first one is, if you have an update on what to expect with the potential changes to the Mexican securities law. So far, we have seen that the Deputy Minister of Finance was expecting something around the second quarter of this year. So any color on when it would be happening and the topics that are being analyzed, I think, will be very helpful.
Then my second question is on your maintenance fees. We saw -- they are growing in this quarter, likely they have reached the inflection point. So I was just wondering what should we expect for this line in the next quarters? Should it be stable? Or should we continue to see the growth we saw in this quarter? And then my last question is on your EBITDA margin. It returned again to the 60%. So how do you see in the next quarter, do you think it should be relatively at these levels? Or do you see room it can improve to a higher level?
Ernesto, thank you very much for your questions. Regarding the first one, [indiscernible] the regular session for -- of the Congress in Mexico will close at the end of this month, at the end of April. And the next regular session will start in September. But by this time, by the end of the year, the priorities in Mexico will be different, much more focused on the political rate.
As you know, in Mexico, we will have presidential elections in June 2024. So we hope, and this is what we have been also talking to financial authorities, in particular with the Ministry of Finance. But we hope that these changes in the [Mexicana de Valores] in the stock exchange law, that, as you know, includes the idea of local 144A, among other things, will be presented and approved it in the Congress in the next day before the month end. So let's keep our fingers crossed. We think that this initiative will definitely be much better to develop a new and bring new companies to the exchange market and opening more exchanges in Mexico. So let's hope that it is approved this month.
Regarding the second question about maintenance fee, it was a positive quarter. We raised from MXN 113 million to MXN 121 million due to statements on last year in November, December last year. As this maintenance, we saw charges at the beginning of the year to all the securities that we have listed on the -- on January 1. We can expect that this first quarter number should -- the increase on this quarter should be repeated in the following quarters, more or less MXN 8 million over each of last year's quarters. So these are good news is the first year, as you pointed, it's an inflection point in the first year since 2018 that we see growth in the revenues of the issuer segment due to activity, which is ramping up, and we are gaining market share.
And Ernesto, regarding your third question on where to expect EBITDA margins, we're expecting them to remain in this range, a little higher, a little lower, but definitely around this range.
Our next question is from Domingos Falavina with JPMorgan.
Two questions here on my side, and I had some connection issues online. So I'm not sure if you touched on that. I apologize if you do. But you mentioned the SIF ICAP option to buy in 2027. And I think you mentioned 20% stake. My questions are if you could provide a bit more detail on that, what's the agreement in[indiscernible] and how much left would adding or reduce, I guess, in equity pickup and adding bottom line? The second question, within maintenance. There were two 10 million, right? One you mentioned is nonrecurring the other one, you were MXN 10 million recurring. I'm just curious if this is a recurring quarterly or if these are recurring kind of yearly or semesterly that happened to hit this quarter only?
Regarding your first question, the SIF ICAP Chile. We have a partner there who holds 20% of the shares, and we have an option where we can either buy or we can sell at a given point. It's depending on the results, it's a times EBITDA margin -- times EBITDA multiple that you can see. It's currently worth a little more than 1 million -- than a MXN 100 million liability on our balance sheet. We've had this for some time. In the past, we've renewed or extended the options. And regarding your second question, could you repeat that? We didn't hear it very well.
Yes. The second question is your maintenance had -- you mentioned recurring events -- I'm sorry, MXN 20 million, MXN 10 million been on nonrecurring and the other MXN 10 million on recurring. One was risk engineering, the other one, I don't have [indiscernible] in front of me. But my question is the MXN 10 million that you did not mention that is not nonrecurring. So the one that I'm assuming is recurring, is that MXN 10 million per quarter? Or is it MXN 10 million that happened -- has once a year, and it happens to hit the first quarter or something like that.
This is not in maintenance fees. This is for Valmer information services.
Yes. Sorry, sorry, information services, you're right.
I will let Jose Manuel Allende take this.
The MXN 10 million quarter -- the MXN 10 million of this quarter, it should be just once a year for this quarter, will not be recurrent.
Sorry, just making sure. There is MXN 20 million, right, you mentioned. One is risk engineering and the other one that -- can you remind me the second one?
It's a service that's a onetime sale. It also impacts a little of our expenses, and that is nonrecurring. So you have MXN 10 million recurring, MXN 10 million nonrecurring, exactly.
Okay. So the MXN 10 million that is recurring. Is that only in the first quarter? Or can we replicate in every quarter?
No, no, you've replicated for Q2, Q3 and Q4.
That was my question. Okay. So the MXN 10 million that is recurring is a quarterly MXN 10 million.
Yes.
Our next question is from Edson Murguia with [indiscernible].
I have 2 of them. I think the first 1 is regarding on Custody assets. You mentioned on a global scale, decreased 10%. But on a local scale, increased 7%. So I was wondering if you can give us a little bit more color about what's happened during the first quarter in the global market under the clearing in Custody Asset. And the second question is regarding on what happened on April 10, basically last week. If you can give us a little bit more color about the specifics about when the stock exchange suspended operation in the morning. So I'm trying to figure out this is related to operational, the customer delay savings, so we're trying to figure out if it's more related to [indiscernible]. So that will be super helpful.
Okay. Thank you, Edson.
On the custody side, the revenues on the assets on the local side increased mainly on government securities that have continuously increasing the issuance of additional securities and also recovery on the Mexican Stock Exchange. On the global market, we did have an impact on the effects. So the valuation that you see is in pesos. So our budget was 20.8%, and it means that the average for the quarter is about 18.2% or something like that. So it does have an impact on FX when you make the valuation in pesos. Still, it's around 3% down in U.S. dollars. That's for custody.
In regard to my second question?
Yes. This is Alfredo Guillen. Regarding the incident we had in the market on the 10th, the good news is that we installed several applications regarding market data and the communication bus ready to comply with the requirements of the market. As our technology director told us, this infrastructure will allow us to be more efficient in terms of delivering market data to the market. For obvious reasons, this was a massive change for the exchange during holiday season. So unfortunately, we had some troubles during the morning and we had to hold the market in 2 occasions. But rest assured that we are prepared for -- to cope with new volumes and we have a very good track record in the last year. So we are confident that this is not a recurring situation.
Our next question is from Carlos Gomez with HSBC.
I wonder if you could give us an update about your share buyback, how much you have executed and how much you intend to do this quarter and this year? Second, can you give us an update also on regulation regarding Banxico. We understand that it has been difficult to get different changes approved because of changes in [personnel] in Banxico, wondering if there has been any update there or you are closer to resolutions. The third is, how does it look? I mean, Mexico is obviously in fashion right now, and there's a lot of investor interest, but how far away from the point where you will see increased issuance and increased volumes because of this additional interest from abroad?
Regarding our share buybacks, we plan to continue with our program. How much we buy depends on how we see the price. So it really depends on our -- it's a combination of our results and the price of the -- and on our share price. And that -- look, we analyze that and we decide how much we will buy every day. But we're still active in that -- we're still active in the program. On the -- what's spending on Banxico Roberto will help us.
Okay. For direct costs, we need the approvals not only from Banxico but also from CNBV. So we already presented the concept and the business to the new team of CNBV which was well received. And we are seeing additional interest now that we've seen some concerns about the financial help of some global financial institutions. So global custodians have reached again that they will -- they have additional interest to go and come directly to the CSD. So we continue working with them, and the intention is to get approval at some point this year.
Some point this year. Okay. So you don't need any further approvals from the central bank. It will be the CNBV that would be the key regulator at this point?
Well, yes, but for the fees and anything related to that, we need the approval from CNBV, [indiscernible] but with the okay or concurrence of the Central Bank. So at the end, we are presenting all the different things in addition to our Board or to the both regulators.
Regarding the -- the last one, I think that the -- in Mexico, we are having a historical opportunity with the near [shoring] and I think that this has been already reflected in the capital formation in particular, in the long-term debt that we have been financing in the [bolsa] at the end of last year and this quarter, that the number, as already mentioned, were quite positive. We're also seeing that in other products, as an example, in the Mexican REITs in the Fibra that we are seeing a couple of follow-ons and looking for new money to finance these big opportunities. So I think that all in all, this is going to be very positive for the Mexico country and for the Mexican stock exchange at well.
So you would say that you are already seeing the signs of that. Do you expect a big acceleration this year? Or this is a multiyear process?
No, I think that this is going to be long term. It's already started last year. And last year, the numbers in capital formation in new companies, new amount was much higher than the previous year, and I think that impacted because of that. We did see that in the first quarter. And I think that we'll continue seeing that in the next quarter. So hopefully, this is going to be the case.
And finally, going back to the share buyback, do you expect to complete the program this year?
We don't have a fixed target as to the number of shares we want to purchase in the year, Carlos. So as I said, it really depends on the performance of our share price.
Our next question is from Rodolfo Ramos with Bradesco BBI.
I just have 1 on the Afores, and I'd just like to hear your views there. I mean they are starting to see greater flows as a result of the pension reform this year. When you look at their portfolio, at least on the equity side, the domestic part of their portfolio relative to the global, it's rather small, around 30%. So I just wanted to see your thoughts as to potential new flows into the domestic side of the equity part of their portfolio from the pension reform and going forward, if you see any -- what kind of upside you see there?
Well, we started seeing additional increases on the portfolio for the pension funds. And this would not only impact the asset that normally what we see in the global market. It's certainly more in equities, but also in derivatives. So -- while this will be gradually, we will start seeing this year. We might not have yet numbers on the size of the opportunity. But yes, we are seeing much more activity and interest on more -- not only the traditional investments, but more on the global market and particularly on the derivatives.
Our next question is from Domingos Falavina with JPMorgan.
I had a couple of additional ones. Just an update on the cost to separate the infrastructure. I understand after you filed for the holding company, you may need to carve out some of the infrastructure from the back office or from different subsidiaries. So kind of the expected cost. And if part of that is already reflected on your cost? That's question one. Question 2 is, I read in the newspaper recently that the Banamex deal could involve a potential listing since you guys are certainly more informed than we are. Just kind of pick your brain if any process has been done for that listing and if you guys anticipate any potential listing of Banamex either through the merger as it is with [indiscernible] or as an alternative for demerger.
Domingos, regarding the post-trade segregation, what we're doing is rapidly, we used to, let us share infrastructure between the 3 post-trade entities. And now we're separating them so that each of the legal entities will have its individual infrastructure. This makes it safer in general to -- it's a safer environment. Regarding the cost, it's a combination of CapEx and OpEx, roughly MXN 50 million of each, where some of it is already reflected on Q1. Let's say, the proportiona part on the OpEx side. And on the CapEx side, we're on our way to -- on the investments. So that project, I think, is going well. But it's one of the major expenses we're planning for the year. And on the possibility of listing Banamex, I will let Jose Manuel take that.
Of course, we're open and would love to have it listed and it's an important bank and will be very good for the for our market. But so far, we have nothing on it. You have any information. Besides that, that is public on the media. So far, nothing on that side.
There are no further questions at this time. I would like to turn the floor back over to José-Oriol Bosch, CEO, for closing comments.
Thank you very much for attending, participating and for all the questions you had. If you need something else, you already have our contact information. So thanks again, and have a great day. Bye.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.