Euronext NV

PAR:ENX

Earnings Call Transcript 2022-Q1

[Operator]

Hello, and welcome to the Euronext First Quarter 2022 Results Call. My name is Jazz, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand over to your host, Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext to begin today's call. Thank you.

[Stéphane Boujnah, executive]

Good morning, everybody, and thank you for joining us this morning for Euronext First Quarter 2022 Results Conference Call and Webcast. I am Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext, and I will start with the highlights of the first quarter before handing over to Giorgio Modica, Euronext CFO, who will then further develop the main business and financial highlights of the quarter.

Moving to Slide 4. Before discussing our first quarter performance, I would like to say a few words on the current situation in Europe. This quarter was marked by the Russian invasion of Ukraine. And while our exposure to Ukraine, Russia, Belarus is negligible, our European roots are the core DNA of the Euronext project. And as the leading pan-European market infrastructure, we remain extremely concerned by this situation.

Clearly, this crisis has generated strong volatility across European markets, yet we have continued to provide fair and transparent markets at all times, and we have demonstrated the resilience of our business model in those circumstances. We continue to monitor closely the situation, notably with regard to the implementation of the sanctions on Russia and Belarus. However, as I just said, our exposure to the situation is negligible.

Moving now to the presentation of our first quarter results. Euronext reported a very strong performance in the first quarter of 2022 with revenue reaching EUR 395.7 million. This is the highest quarterly revenue we have ever disclosed at Euronext. During the first quarter of 2022, revenue increased by more than 50%. Adjusted EBITDA increased by more than 50% and adjusted net income increased by more than 50%. This is not only due to the consolidation of the Borsa Italiana Group. Our results were also up year-on-year on a pro forma basis. In other words, including Borsa Italiana Group as if we were owners of this asset in Q1 2021.

On that pro forma basis, Euronext reported plus 6% growth in the first quarter revenue this year and plus 11.4% growth in adjusted EBITDA. And this strong performance results from several drivers. On the one hand, both nonvolume-related revenue and trading activities reported a very strong performance. On the other hand, we benefited from our continued cost discipline combined with the successful ongoing integration of the Borsa Italiana Group and the delivery of the related expected synergies.

On the revenue side, our trading activities were driven by the volatile environment at the end of the first quarter of this year. In the meantime, our non-volume-related activities proved also to be resilient. All together, non-volume-related revenue accounted for 55% of total revenue and covered 151% of underlying operating expenses, including D&A.

And on the cost side, the reported increase for sure in underlying expenses, excluding D&A, reflects the consolidating costs from the Borsa Italiana Group. But I would like to emphasize that both on a like-for-like basis and on a pro forma basis, the underlying expenses, excluding D&A, were down compared to last year. This is the result of our continued tight cost control, combined with the successful ongoing integration of the Borsa Italiana Group, that is enabling us to deliver on the targeted EBITDA synergies.

Overall, these numbers translated into a plus 11.4% increase in pro forma adjusted EBITDA to EUR 252.2 million, resulting in an adjusted EBITDA margin of plus 3.1 points to 63.7%. Bottom line, we delivered in the first quarter of 2022, a plus 73 -- sorry, a plus 7.3% increase in adjusted EPS at EUR 1.54 per share. On a reported basis, net income was up plus 46.5% to EUR 143.8 million. Giorgio will further detail this financial performance, but our strong performance in Q1 improved our leverage position. It provides us with additional strategic flexibility as recently recognized by S&P, which confirmed our rating at BBB and improved the outlook from stable to positive.

During this third -- first quarter, we pursued the strong momentum around delivery of the integration plan and the delivery of synergies in relation to the acquisition of the Borsa Italiana Group, and we pursued the development of the first key migration -- the migration of Core Data Centre to Bergamo, which will occur in a few weeks. With regards to the targeted synergies, we have reached EUR 15.2 million of cumulative run rate EBITDA synergies at the end of this quarter, just 11 months after the closing of the acquisition.

Another key achievement is the confirmed go-live of our new green Core Data Centre near Bergamo. Euronext will become the operator of its own Core Data Centre next month. From 6 June 2022, our new Core Data Centre will be live, unlocking the first batch of identified business development synergy. And this migration will be the first major milestones within our Growth for Impact 2024 strategic plan that will pave the way for the migration of the Italian cash equities and derivatives markets and to the Optiq trading platform in 2023. And I would like to thank our teams and to thank the teams of our clients for this successful migration project that will benefit more broadly the world financial ecosystem and that will help all our clients reduce their carbon footprint.

As a result of our progress in the integration of the Borsa Italiana Group and as a result of continued cost control in the first quarter, we are, today, very pleased to upgrade our 2022 cost guidance, expecting EUR 10 million less of underlying costs and EUR 10 million less of implementation costs. This translates into expected underlying costs for 2022 of EUR 612 million down from the EUR 622 million previously announced in February this year. In addition, we now expect EUR 150 million of nonrecurring implementation costs by 2024 down from EUR 160 million initially announced in November 2021.

Moving to the next slide. Allow me to highlight some recent developments in our ESG strategy. As you know, we believe that Euronext must play a critical role to promote the transition of companies to more sustainable business models. We also continued to advance on the different pillars of our Fit for 1.5-degree commitment during this first quarter of 2022. We pursued the development of our ESG offering as we continue to strengthen the ESG franchise of our national flagship indices. We have welcomed additional issuers of sustainability-linked bonds on our markets. Alongside the enhancement of our ESG offering, we continue to act as a partner of choice for our clients, publishing or guide for ESG reporting target 1.5 degree and performing the sustainable training initiatives to support our clients in their ESG journey.

From internal Euronext corporate perspective, we're also starting to deliver on [ Onos ] own ambitious ESG commitment. As I mentioned before, the migration of our new Core Data Centre near Bergamo, will represent a massive milestone towards our Fit for 1.5-degree commitment. Furthermore, we continue to empower our people, for example, by launching for the third year in a row our [ TechShares ] for all employees program as well as training our employees on climate issues. But for the past few years already, 100% of the Euronext employees are shareholders in Euronext.

Lastly, as you may have seen in our universal registration document, we have disclosed our first set of targets in line with science-based target initiatives. These targets notably include an expected reduction by at least 42% of our Scope 1 and Scope 2 carbon emissions by 2030 compared to 2020 as well as a reduction of at least 42.6% of our Scope 3 travel carbon emissions by 2030 compared to 2019.

So the assessment to further reduce our emissions is being finalized, and we are able -- we will be able to publish our final targets by June 2022.

So I now hand over to Giorgio Modica for the review of our first quarter performance.

[Giorgio Modica, executive]

Thank you, Stéphane, and good morning, everyone. I am now on Slide 9. In the first quarter of 2022, Euronext's consolidated revenue and income grew 6% pro forma for the acquisition of the Borsa Italiana Group. On a reported basis, revenue and income grew 58.8% to EUR 395.7 million, representing an increase of EUR 146.6 million. These strong results were driven by the growth of both loan volume-related activities and trading and the integration of the Borsa Italiana Group. On a like-for-like basis and at current (sic) [constant] currencies, i.e., mainly excluding Borsa Italiana Group consolidation that started in the first quarter of 2021, Euronext's consolidated revenue was up 6.9% compared to the first quarter of 2021.

We recorded good performance across different business lines. Trading revenue increased EUR 150.8 million up 9.9% pro forma and 57.2% on a reported basis, resulting from strong trading activity across all asset classes and products. Post trade revenue increased 3.1% pro forma and 51.7% on a reported basis to EUR 95.8 million driven by the continued strong activity. Clearing revenue profited from the highly volatile environment, while custody and settlement revenue was stable.

Advanced Data Services revenue increased 3.4%, pro forma and 43.9% on a reported basis to EUR 52.6 million due to a solid core business performance. Listing revenue grew 12.4% pro forma and 42.9% on a reported basis to EUR 55.4 million. The listing activity was resilient and Euronext confirmed its leading position as the leading venue for equity and ETF listings in Europe and for bond listings worldwide.

In terms of revenue mix, in the first quarter of 2022, non-volume-related revenue accounted for 55% of total group revenue versus 58% pro forma in the first quarter 2021 as a result of the increasing relevance of our non-volume-related revenue in our business mix even during periods of high trading activity.

I would like to highlight that to better reflect the segmentation of our revenue mix between volume-related and non-volume-related revenues, from this quarter, we include within our non-volume-related revenue part of the revenue of clearing such as the net treasury income and membership fees. Lastly, non-volume-related revenues covered 151% of our underlying operating costs, excluding D&A, compared to 147% pro forma last year.

Moving to the next slide for listing. I'm on Slide 10. Listing revenue was EUR 55.4 million an increase of 12.4% on a pro forma basis and 42.9% on a reported basis compared to the first quarter of 2021. To better understand this trend, I would like to highlight that according to the principles of IFRS 15, admission revenues are recognized over a period of time, which, for Euronext, mostly ranges between 3 and 5 years. As a result, in the first quarter of 2022, we benefited from the exceptional listing activity of 2021, offsetting a softer IPO environment this quarter.

In detail, during the first quarter of 2022, Euronext was able to confirm its leading position in Europe for primary equity listing, counting 22 new listing despite the recent headwinds to the listing activity. Euronext also recorded the 3 largest IPO in Europe in terms of money raised and continue to demonstrate its activity as a SPAC hub.

In the first quarter of 2022, EUR 2.2 billion was raised on Euronext primary market, which represents 73% of the total money raised on primary markets all over Europe. As far as secondary issues are concerned, EUR 2.6 billion were raised in the first quarter of 2022.

The deal pipeline remains strong, but market conditions have worsened with several issues postponing the execution of deals. If current market conditions persist, next quarter might not be as strong as the first quarter.

Moving to ETF. Once again, we confirm in the first quarter of 2022, our position as the listing venue for ETF with 3,679 ETFs listed at the end of March 2022. Euronext also reinforced its position as the leading venue for bond listing worldwide with over 52,000 bonds listed across all Euronext markets and continue to grow its ESG bond listing franchise. In the first quarter of 2022, EUR 320.5 billion in debt was raised on Euronext markets. Overall, this brings us to a total of EUR 325.2 billion raised in equity and debt on Euronext market in the first quarter of 2022.

Lastly, Euronext Corporate Services reported a record quarter in terms of revenues at EUR 10.5 million. The plus 15.7% increase on year results from a strong performance across services and increasing commercial traction in Italy. Like-for-like listing and corporate service revenues increased 12.5% compared to the first quarter of last year. In summary, this quarter demonstrates the strength of our equity and debt listing businesses in highly volatile market conditions.

Let's move to our trading business. Next on Slide 11 and start with cash trading. On a pro forma basis, including Borsa Italiana, ADV increased 19.8% to EUR 15.5 billion, representing the second strongest quarter ever recorded on Euronext equity markets after the first quarter of 2020 at the beginning of the COVID-19 pandemic.

Average revenue capture over the quarter was at 0.47 basis points, and the market share averaged 68.1%, including Borsa Italiana. This level of average fee is impacted by the dilution coming from the consolidation of Borsa Italiana and the normalization of market behaviors and the average size of orders. Excluding Borsa Italiana, the average fee remains above 0.50 basis points. Cash trading revenues increased 11.1% pro forma and 35.7% on a reported basis to EUR 94 million.

Moving on to derivative trading. Derivative trading revenue was up 9.3% pro forma and 37.5% on a reported basis to EUR 16.1 million in this quarter. Pro forma average daily volumes on financial derivatives was up 6.1% from the first quarter of 2021, reflecting the high volatility environment for equity derivatives. Commodities reported another record quarter, while average daily volumes were up 6.1% compared to an already-strong quarter in the first quarter of 2021. The average revenue capture over the quarter for derivative trading was EUR 0.30 per lot.

Lastly, fixed income trading. Fixed income trading reported revenue at EUR 24.4 million primarily resulting from the consolidation of MTS. On a pro forma basis, fixed income revenue increased 4.7%. In the first quarter 2022, MTS cash generated $16.9 million of revenues and MTS repo generated EUR 5.2 million in revenue.

Repo trading saw a strong traction this quarter with terms adjusted ADV up 25% to EUR 347.9 billion. MTS cash maintained a robust performance in market dominated by raising interest rates with ADV, volumes down only 1.6% versus the exceptional Q1 2021 to EUR 22.7 billion.

Let's continue with trading on Slide 12, and let's start with the FX business. The first quarter of 2022 was the second best quarter ever for Euronext FX after the first quarter of 2020 both in terms of revenue and average daily volumes, thanks to the positive impact of volatility.

Euronext reported average spot FX trading volumes of $24.5 billion in the first quarter of 2022, up 14.4% compared to the first quarter of 2021. Spot effect trading revenues increased 18% compared to the first quarter of 2021 at EUR 7.2 million.

Power Trading reported EUR 9.1 million in revenue this quarter, a solid growth of 8.4% compared to the first quarter of 2021 as a result of a larger footprint in Central Europe and a solid performance in the U.K. and in the Nordics. In the first quarter of 2022, average daily day-ahead power trading was 3.13 terawatt hour with a 6.3% increase compared to the same quarter last year and average daily intraday power traded was at 0.08 terawatt hour, up 25.9% compared to the first quarter of 2021.

Moving to Slide 13. Revenue from our posted activity, including net treasury income, increased EUR 72.9 million to EUR 109.2 million. Clearing revenue was up 87.2% and 11.2% on a pro forma basis to EUR 31.9 million. As a result of higher clearing revenue both at Euronext clearing and LCH SA reflecting higher trading activity.

On a like-for-like basis, at current currencies, clearing revenue was up 14% compared to the first quarter of 2021. Net treasury income through CCP business of Euronext cleaning was EUR 15.4 million. Custody and settlement and positive revenue encompassing the activity of the 4 CSD we operate under the Euronext Security brand was up 38.6% to EUR 63.9 million on a reported basis. The performance was organically driven by increased number of accounts in Euronext Security also in Euronext Security Copenhagen. On a pro forma basis, revenue was stable year-on-year. On a like-for-like basis and at current currencies, custody and settlement and other post-trade revenue slightly decreased 2.5% compared to the first quarter of 2021, mainly related to lower settlement activity versus the first quarter of 2021.

I'm now on Slide 14. Advanced Data Services, revenue was up 43.9% to EUR 52.6 million. This represents a 3.4% increase on a pro forma basis compared to the first quarter of 2021 driven by strong performance of our market data business, resulting from higher number of users and sustained growth of the data solution offering.

Investor Services revenue was at EUR 2.2 million this quarter, down on a pro forma basis driven by a change in scope, up 7.4% on a like-for-like basis. Lastly, Technology Solutions revenue was up 94.5% compared to Q1 2021 to EUR 23.1 million as a result of the consolidation of Borsa Italiana Group technology business, including Gatelab and X2M. On a pro forma basis, Technology Solutions revenue decreased slightly by 2.9%, mainly due to a seasonal decline in client activity.

Moving to Slide 16. For the financial highlights of the quarter, let's start with the EBITDA bridge. As announced with the last publication, from the first quarter of 2022, we do not have any more a separate line below EBITDA to capture exceptional items. From this quarter, all costs are included by nature in the different lines of our P&L. This means that our EBITDA includes exceptional costs as well. However, we now publish an adjusted EBITDA which correspond to revenues minus non-underlying cost -- underlying costs, excluding D&A, which highlights the underlying performance of Euronext.

The definition of non-underlying items include integration costs, double run of significant projects, operating exceptional items, amortization of intangible assets from acquisitions, nonoperating exceptional items and tax on the non-underlying items that I just described.

Euronext adjusted EBITDA for the quarter was up 66.8% to EUR 252.2 million. On a pro forma basis, adjusted EBITDA grew 11.4%, demonstrating Euronext's ability to capture value in a volatile environment and its trademark cost discipline. This result is also impacted by the release of approximately EUR 4.5 million of bonus accruals in the first quarter of 2022.

The adjusted EBITDA margin increased to 63.7% this quarter from 60.7% in the first quarter of 2021. On a like-for-like basis, EBITDA margin was at 64% this quarter, up 2.9 points and adjusted EBITDA increased 12%. Finally, non-underlying costs, excluding D&A, were EUR 5.5 million and were mostly related to the Borsa Italiana integration, bringing the EBITDA of the group to EUR 246.7 million.

Moving to Slide 9 for the bridge of net income. The net income increased this quarter 46.5% to EUR 143.8 million. On a pro forma basis, net income increased 10.9%, resulting from the following elements: D&A slightly increased EUR 2.5 million, reflecting the impact of the new Data Centre and higher tangible and intangible fixed asset D&A. The result from equity investments decreased EUR 8.6 million as this year, this line only reflects the contribution of our 11% stake in LCH SA, whereas last year, Euronext received a one-off interim dividend from Euroclear.

I would like to highlight that the EUR 20.6 million of non-underlying costs in the bridge are mainly represented by DNA, namely the PPA amortization of our acquisitions. Lastly, income tax for the first quarter of 2022 was EUR 52 million. This translates into an effective tax rate for the quarter of 26.1%. For 2022, we expect a stable tax rate at around 27%.

Adjusted for non-underlying costs, adjusted net income was EUR 164.4 million, translating into an adjusted EPS increase of 7.3% to EUR 1.54 per share this quarter.

I'm now moving to Slide 18 for the cash flow generation and leverage. Net operating cash flow amounted to EUR 368.6 million. Excluding the CCP activities impact of Nord Pool and Euronext clearing on the change in working capital, 84% of our adjusted EBITDA was converted into post-tax operating cash flow. Our strong cash flow generation capability enable us to significantly deleverage to 2.3x net debt to EBITDA at the end of this quarter. This compares to 2.6x at the end of the fourth quarter 2021 and 3.2x following the closing of the Borsa Italiana acquisition. This improved leverage provide us with additional strategic flexibility as recently recognized by S&P, which confirmed our rating at BBB but improved the outlook from stable to positive.

Moving to Slide 19 for the evolution of our liquidity position over the quarter. As illustrated, our liquidity position remains strong above EUR 1.5 billion, including the undrawn RCF, revolving credit facility, of EUR 600 million, while excluding the cash currently in transit at Nord Pool.

With this, I would like to give back the floor to Stéphane Boujnah.

[Stéphane Boujnah, executive]

Thank you, Giorgio, and happy to take your questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Mike Werner from UBS.

[Michael Werner, analyst]

Two questions, please. First, on the EUR 4.5 million release of the bonus accrual in Q1, can you just provide a little bit of color as to what drove that also whether that's something that was -- is probably considered one-off and nonrecurring?

And then second, on the Technology Solutions business, you indicated kind of just lower client activity in Q1, but the Q1 revenue run rate was about 9% lower than the run rate that we saw in the second half of last year. So I was just wondering, yes, is this something that's maybe seasonal one-off? Is this kind of really client-related and activity-related? Or is this kind of a more appropriate run rate going forward given the change in the markets?

[Giorgio Modica, executive]

Thank you very much for your question. So starting from the EUR 4.5 million. So this is an adjustment that we had when we had to finalize the decision on variable payments. So this can be considered, in one sense, one-off because clearly, this is something that is going to happen only in the first quarter of 2022. However, embedded in the number, you see already a lower accrual that will last throughout 2022. So there is a part which is recurring and a part which is one-off. And the EUR 4.5 million specifically, this is the one-off component.

When it comes to the Technology Solutions, a part of our activity is client-related. And what we have seen is a seasonal slowdown in the first quarter that we think is going to be recovered in the next quarter -- quarters of 2022.

[Michael Werner, analyst]

And just a quick follow-up, please. In terms of the release on the bonus accrual, EUR 4.5 million, should we assume that accounts for about half of the lower cost guidance, the EUR 10 million cut in cost that you guided for 2022?

[Giorgio Modica, executive]

I mean as the cost target is going to be benchmark against the actual number for 2022. Clearly, any decrease in cost in the first quarter is included in that number.

[Operator]

The next question comes from the line of Bruce Hamilton from Morgan Stanley.

[Bruce Hamilton, analyst]

I've got 3. Firstly, obviously, you've given us an update on the time line for the initial return on revenue synergies linked to the migration of the Data Centre. But could you give us any color on sort of time frame and potential quantum around the opportunity linked to internationalization of MTS? Is that just a sort of gradual process? Or how should we sort of think about that?

Secondly, in terms of the importance of retail activity, could you give any sense of how much of your cash trading relates to retail and where we are -- where that is versus history, just to give a sense of any sort of further risk of normalization and similarly in the kind of post trade business?

And then finally, in terms of balance sheet flexibility, obviously, great that your net debt EBITDA is coming down quite quickly. Can you remind us what sort of levels the credit rating agencies are now comfortable with? I assume that may have gone up a little bit in terms of where you could sort of run without putting at risk your rating. So maybe just give us an update on that.

[Stéphane Boujnah, executive]

So I will take the question on the revenue synergies, and Giorgio will answer the questions on the retail activities and all the balance sheet in relation to the perception by rating agencies.

Let's be clear, we had announced in November that we -- in relation to the acquisition of the Borsa Italiana, we would extract EUR 45 million of cost synergies, EUR 15 million of revenue synergies. And we announced in February that in addition to those EUR 60 million, we will -- I guess, to EUR 100 million through EBITDA expansion, we'd make sure of cost synergies and revenue synergies in relation to various projects, one of them being the migration of the Core Data Centre.

So as of today, we have extracted in relation to the acquisition of the Borsa Italiana Group in Italy, the Borsa Italiana Group, EUR 15 million of run rate cost synergies. So it's about 1/3 of the EUR 45 million cost synergies that we had announced or targeted for the end of '24 in November '21. So EUR 15 million, part of EUR 45 million all costs.

For the first time with the migration of the Core Data Centre to Bergamo, where we will start invoicing directly colocation services, we will start generating revenue synergies. So going forward, starting next quarter, we will have a contribution of revenue synergies to -- in the mix of synergy extracted in relation to this -- the acquisition of the Borsa Italiana Group.

As far as the MTS revenue synergies are concerned, they are part of the bigger pocket of revenue synergies, and they take longer than a few quarters to be extracted. So we have various progress -- projects that are ongoing, but they are not -- the international MTS revenues are not going to materialize in a material -- in a significant manner immediately. They are part of all the revenue synergies. Some of them are more or less one-off related, like the -- not one-off but milestone-related, like the development of the revenues to be extracted from the Core Data Centre in Bergamo. So you will see them in a recurrent manner after the implementation of the migration of 6 June.

Others are ramping up with the penetration of clients with the international and MTS business in the Euronext countries. And that's more a project that we'll develop across '23 and '24. Giorgio?

[Giorgio Modica, executive]

Yes, absolutely. So when it comes to the retail activity, what we have seen is that the participation in this volatile environment is slightly different from what it was 1 year ago. And we see less participation for this new crisis linked to the war in Ukraine with respect to what we have seen at the time of the pandemic. So the retail participation remains mid-single digits. So we're talking of 3%, 4% where it used to peak to 6%, 7% at the peak of the pandemic.

Then when it comes to your second question on -- with respect to leverage and rating in the note from S&P, S&P clearly highlights some targets for the end of 2023 and seems to hint that if we will go and if we remain in that trajectory, we might have further improved clearly before the end of 2023.

So the objective for the trajectory points at the FFO to net debt of 30% and a net debt to EBITDA of 2.5x. So as long as we will remain in the trajectory, I believe without waiting the end of '23, we might be open to good surprises. On the lower side, however, I wanted to remind you in terms of flex that the BBB rating band ranges between 4.5 and 3.5x net debt to EBITDA in terms of leverage and between 18% and 23% in terms of FFO to net debt.

[Operator]

The next question comes from the line of Haley Tam from Crédit Suisse.

[Haley Tam, analyst]

If I can have a few follow-ups, please. Just with the data center migration, could you confirm that all your clients who currently colocate with you in London are moving with you to the Ponte San Pietro Data Centre? And I apologize if I missed it, but have you actually quantified how much of the additional EUR 40 million synergies will be coming from this move versus perhaps Euronext clearing in the longer term?

And then if I can, I'd like to ask a question just about Euroclear and the 9.8% ICE stake that is now being sold to the French and Belgian government investment firms who are also referenced shareholders of Euronext. Could you give us any color on what this means, if anything, from a strategic perspective for you?

[Stéphane Boujnah, executive]

Okay. On the Core Data Centre, you have a questions on operations and a question on revenues. So I can confirm that all our clients are ready or about to be ready, and there will be further testing and reversal between now and 6 June with our clients. And if we confirm today the time table for the migration of the Core Data Centre, this is because, as seasoned operational professionals, we have reached the conclusion that, together with all clients, the teams in the Aruba facilities near Bergamo across our various clients and within Euronext are ready for that migration.

We do not disclose the granular breakdown of EBITDA contributions to the additional revenues to be generated by this quarter, but next quarter, we will be in a position to be more specific because, by then, you will see the contribution to the run rate revenue synergies of the revenue generated by the co-location services charged directly to the Core Data Centre in Bergamo.

On the Euroclear situation, we have noticed the fact that SFTI and Euroclear have acquired the stake that was sold by ICE. We are familiar with SFTI and with Caisse des Dépôts et Consignations who are both referenced shareholders of Euronext. By the way, Euroclear is also a reference shareholder of Euronext. So we know each other extremely well. This -- the fact that there is a common interest by SFTI and by Caisse des Dépôts et Consignations for both Euronext, which is the leading pan-European market infrastructure, in particular, in terms of trading and post-trade and for Euroclear which is the leading ICSD in Europe is -- shows the consistency of the strategy of Caisse des Dépôts et Consignations and SFTI, but it doesn't mean anything else that we have 2 strong shareholders of Euronext who have a strong interest for market infrastructures in Europe across the value chain.

[Operator]

The next question comes from the line of Philip Middleton from Bank of America.

[Philip Middleton, analyst]

First of all, on costs. Could you talk a little bit about what the revised guidance for this year potentially means for years further out? So are we looking at some of the cost savings which are one-off, so you don't read that through? Or do you feel that the lower level of bonuses is in some sense, sustainable and that, therefore, the EUR 10 million may endure through further years?

And secondly, I wonder if you could tell us a little bit more about the economics of the clearing and settlement business. So how much of this roughly the revenues come from asset-based revenues compared to the settlement revenues?

[Stéphane Boujnah, executive]

Okay. So Giorgio will answer your first questions on the inertia in the revised guidance. And Anthony, who is the Head of Post Trade will answer your questions on the revenue model about the clearing business of Euronext clearing formerly known as CC&G. Over to you, Giorgio.

[Giorgio Modica, executive]

Yes. So when it comes to cost, let's first focus ourselves on 2022. So what is going to happen this year is the following. So you should expect in the next quarter, clearly, the one-off elements not to be there anymore. And we will have, to a certain extent, the seasonal inflation coming from the increase of salary kicking in from the second quarter this year.

And then it's difficult for me to be more granular when it comes to the phasing of cost, rather than reiterating the new target is EUR 622 million because we will have many projects completing and many projects starting, which gives to a certain extent a complex phasing of the cost throughout 2022.

Then when we move to 2023, again, it's very early, I believe, given the situation we're having at the moment to anticipate what is going to be the target and revenues from -- for next year. So clearly, we are analyzing the situation with the objective of maximizing revenues and minimizing cost. I appreciate this might seem high level, but this is exactly what we are trying to achieve.

So to make the long story short, [ 612 ] is what we see for 2022, you will see a slight increase in the second quarter coming from one-off elements that are not going to be there anymore plus some inflation on salary cost. And then we see a rather steady state for the remainder of the year.

[Anthony Attia, executive]

This is Anthony. Thank you for your question. So across our core CSD, the split of revenue is quite similar. We have roughly 50% linked to custody activity. And so exposed to the valuation of assets. And the remaining 50% are linked to settlement and issuance businesses. What I want to note is that we also are developing services on top of this type of revenue. So it's a new business and it's growing, and I want to take the example of tax reporting services in Norway or data services. And this is the part of the CSD business that is new and growing. Thank you.

[Operator]

The next question comes from the line of Kyle Voigt from KBW.

[Kyle Voigt, analyst]

Cboe has been rolling out its competing equity index derivatives products across Europe. I know it's very early days there, but are you seeing any evidence of end customer activity migrating away? And could you comment on whether you expect to make any potential changes to pricing there? Or if you feel comfortable with the competitive positioning of those products?

And my second question is on the M&A environment. As you've stated previously, you've delevered significantly at 2.3x net leverage now. I guess, given the volatility we're seeing, at least in public market valuations, in a given the uncertain macro environment. Can you just talk a bit about the M&A environment and whether you're still seeing potentially attractive opportunities in this type of environment?

[Stéphane Boujnah, executive]

I will answer the M&A question, and Giorgio will answer the question about the competitive environment, particularly in relation to the Cboe initiatives.

The way Euronext has approached -- has been approaching M&A since the IPO is extremely consistent and disciplined. We do believe that external growth is a fundamental component of the growth ambitions of Euronext for 2 reasons: to expand our European footprint in situations or in infrastructures where there are fundamental compelling synergies to be extracted by the expansion of the single liquidity pool, single order book, single technology platform; and to diversify the revenue streams of Euronext to be less dependent on volatility, in particular in volatility related to equity markets.

In order to pursue those 2 objectives, in particular the ones of diversification, we have an investment committee of 4 hours that meets every 4 weeks. -- no matter the level of leverage, no matter the stock price of Euronext, no matter the competitive environment, no matter whether LSE is trying to merge with Deutsche Börse, who is not merging with LSE and whether SIX is buying BME or not, we do have systematically a framework where we monitor opportunities.

The other framework we have is that we are very disciplined in terms of return of capital employed. We believe that our purpose is to extract synergy through consolidation of assets. And therefore, we don't overpay for assets. That's why, for example, after very long debate, we decided not to bid for the acquisition of BME and to let SIX pay the price they have paid for that acquisition at that time because we felt that we could not justify value creation for that particular asset.

So we are extremely disciplined in terms of how much we are willing to pay. Sometimes we take bold decisions like paying EUR 4.4 billion for the acquisition of Borsa Italiana because we feel on the basis of our experience that business is going to perform better than the market felt and that we could extract more synergies than the market believed. And for the moment, that has proved to be the right call.

Going forward, one of the new development, exactly as you articulated it, is the fact that, to a certain extent, valuation, in particular of technology-driven assets, SaaS assets, data assets are starting in certain subsegments of those 2 domains to go down or to cool down. Some private equity owners who are considering selling those assets are becoming more reasonable in their expectations.

So this is happening. Anyone who was on M&A in his life knows that this phase of adjustment of -- this phase of cooling down of sellers' expectations can take a few months. It's just the beginning of the process. In that environment, -- it's true that some assets that were not within our reach in terms of multiple because we could not justify this type of valuations of a few quarters ago are slowing -- are slowly reaching a territory where we could justify those valuations, but that's just one component of an overall environment. So we are not going to buy things because they are cheap, just as we were not buying them because they were expensive. We will buy them because we believe that they create synergies. And we can extract value, and they make sense in terms of the strategic fit with the rest of the product portfolio.

Sorry for this long answer, but you gave me the opportunity to frame the overall approach of M&A and the way we will use the new balance sheet flexibility that we have regained by strong operating performance and strong cash flow generation. Over to you, Giorgio, on the Cboe initiatives.

[Giorgio Modica, executive]

Thank you very much, Stéphane. Clearly, Cboe is a very strong and reputable competitor, and we are looking carefully at the moves. However, at the moment, we are convinced that the quality of execution of our market does not need -- does not justify any price decrease in order to compete on that market. So again, Euronext is about overall quality of trading, and we still are the venue that sets and define the best execution, and this is our competitive leverage against competition. So this is the first point.

The second point is about client traction. And again, what Stéphane said on the data center is, i.e., that clients are with us and ready to migrate in the new Data Centre at the 6th of June is a testament to the fact that what we are trying to achieve in Europe is fully supported. We are asking a lot from our clients because we want to give a lot to our clients and the payoff is positive.

So again, what we are seeing is a strong support from our client base in a moment of high transformation. And we believe that even before having delivered all the benefits that we're trying to achieve with this transformation, the quality of our execution is sufficient to maintain and strengthen our position as a leading venue in Europe.

[Operator]

The next question comes from the line of Arnaud Giblat from BNP Paribas.

[Arnaud Giblat, analyst]

I've got 2 questions left, please. Firstly, can I ask with regards to the normalization of retail activity. You mentioned that on the trading side, I'm wondering on the settlements and custody side, how things are going. I mean some of the retail brokers in the Nordics have reported a slow-down in activity. I think your revenues are more geared into a number of accounts more than anything else.

So -- what's the outlook there? Should we expect a continuation of the strength and we're seeing in the Nordics? Or do you expect the accounts to remain open? Or should we expect some degree of normalization with activity coming down?

And my second question is on annual fees and investing. That's up 15% quarter-on-quarter. Could you run me maybe through some of the drivers behind that and whether or not it's sustainable?

[Stéphane Boujnah, executive]

So I'll let Anthony to answer your question as head of primary markets and listing -- expert on listing fees and also on the nature of the development of our post trade business or CSD business in the Nordic.

[Anthony Attia, executive]

Thank you, Stéphane. So concerning the retail activity on our CSDs it's about, as Stéphane said, the Nordic activity that is in Copenhagen and Oslo, Well, we don't -- what we have observed in the last quarter is a normalization or stabilization of the number of retail accounts, which is still high from a historical perspective. And nevertheless, the number of settlement instruction has normalized and we observe a drop compared to the peak that we had last year.

Concerning the annual fees on equity listings, we have different adjustments in front of inflation compared to our listing venues or countries, but we decided for this year to increase the yearly fees on our large cap issuers, which is an increase that was long overdue. This is a one-off increase, but we are obviously monitoring the effects of inflation across the board on our different fees.

[Operator]

The next question comes from the line of Martin Price from Jefferies.

[Martin Price, analyst]

Most of my questions have actually been asked, but maybe just on the revenue growth target of 3% to 4% per annum through to 2024, which you detailed at the Capital Markets Day last year. Within this, I wonder if you could just provide an update on your assumptions around volume growth and revenue capture for the core cash trading business and whether market development since the Capital Markets Day may have prompted any form of reevaluation.

[Giorgio Modica, executive]

Thank you very much for your question, which is a fairly legitimate one. So clearly, we are assessing -- reassessing the market environment on a daily basis. So we feel that at the moment, the market environment is more volatile than what we had expected at the Investor Day. And this might trigger at some point the decision, but we really feel that it's too early 5, 6 months after the Investor Day to change the target for 2024. So we're doing a step at the time, delivering the key milestone of the project. And clearly, we will ask ourselves in the next question -- in the next quarter, the question on whether it is appropriate and timely a potential change of the targets for '24.

So again, to make a long story short, we don't feel it's appropriate moment to change the target for '24. But we are assessing the situation and in this quarter, in the next quarter, we will clearly look at that.

[Operator]

Next question comes from the line of Johannes Thormann from HSBC.

[Johannes Thormann, analyst]

Johannes speaking. Three questions, please. First of all, you previously said when the Euroclear trade was at 50 bps that this is not sustainable. Now we have 47. Is this more of a good run rate? Or what's your view on that? .

Secondly, just on the Nordic CSD business, a follow-up question. I'm sorry if I missed it, but the number of accounts, why did it increase? If the retail trading activity has normalized, what has been the driver for the increased number of accounts?

And last but not least, on the Euroclear stake sale recently, you argue that you look for -- take it to a strategic fit. You own a stake in Euroclear, and you have already leveraged below the 2.5 level. Why haven't you bought a stake yourself to position yourself at a better moment?

[Stéphane Boujnah, executive]

I will -- thank you for your questions. I will answer Euroclear question, and Anthony will answer the question on the Nordic CSDs retail accounts, and Giorgio will answer your first (sic) [third] question.

On the Euroclear situation, it's very simple. When the process the sale of the disposal of the ICE stake started before the summer, we were approached, and we looked at it very carefully. We decided not to deploy the capital of our shareholders in this transaction for 2 reasons. We believe that the best use of Euronext capital is to try whenever it's possible to control -- to buy controlling stakes in order to extract synergies because we are an industrial player and to consolidate assets.

We believe that we are not big enough deploy several hundreds of millions just to deploy capital through a minority stake in a nonliquid company. So as a principle, we are not huge enough to do multi-hundred millions stakes for minority stakes in an illiquid company.

The second reason, which is more important is that we already have what we need to protect the optionality of being [ running table ] if one day, the situation around Euroclear is becoming actionable. We are -- we own directly and indirectly, approximately 5% of the equity in Euroclear, and we are a Board member of Euroclear. So increasing our stake in Euroclear will not have materially change our position. We would not have had a second Board member and we would have just moved our stake from, let's say, 5% to -- close to that and for assuming that we would have bought 50% of the ICE stake.

So we believe that this type of progress in the optionality of one day doing something with Euroclear if and when the Euroclear situation is actionable, was not justifying the deployment of, in this particular case, approximately for the sake of the argument of 5% or 4%, let's say, EUR 350 million. And we believe, in other words, that the capital of our shareholders is better deployed in due course to a situation where we can extract synergies.

That was the rationale of not bidding for the stake. And that's an illustration of the sort of very strong M&A discipline that I described earlier on when -- in the previous question of one of your colleagues. I'll give the floor to Anthony for your questions on the CSD accounts.

[Anthony Attia, executive]

Thank you, Stéphane. So on the -- on our 4 CSDs, as you might know, we have 2 different accounts management models. One is the one in Italy and in Portugal, where we have omnibus accounts, and it's the custodians on clients who are managing the relationship with the retail. And in Denmark and in Norway, the CSDs have the direct management of the retail account. That's a different revenue stream.

Last year, we observed a significant return of the retail investors on the equity market, on the stock exchange, which had a consequence to increase the number of accounts opened in the CSD. So we had new accounts that have been opened and also the increase of the settlement instruction processed by the CSD as a consequence of the trading on exchange.

In Q1 this year, as I said, we observed a stabilization of the number of accounts. So we -- very few accounts were closed, and so we see a normalization of the number of accounts and, as Giorgio explained, a drop in retail activity, which has the consequence to have a drop in settlement activities as well.

[Giorgio Modica, executive]

Yes. So in other words, people kept their accounts and traded less. So we did -- to a certain extent, the number of accounts is the stock and the settlement distraction is a flow that comes from the stock.

So coming to your question about the revenue capture -- so the first element, and I believe that your question deserves a complete answer. So the first element that I wanted to highlight is when -- 2 years ago, we were highlighting that 0.50 was a run rate and we were anticipating a reduction of the revenue capture. That was not including Borsa Italiana, whereas the 0.47 does include Borsa Italiana. And when we take into consideration Euronext alone, we are still above the 0.50 that we guided the market to be a sustainable long-term target.

So what is happening and why the average fee have trended down. So there are a couple of key drivers. The first one is that the revenue capture of Boss Italiana is more sensible to the average size of trade, which means that it benefits from a lower average size and get diluted when the average size increases. So this is one of the reasons why you have seen the average revenue capture trending down.

And the second element is the behavior of our clients within the order book. Now we have more and more liquidity providers which are able to comply with the highest standard in terms of execution, and therefore, they are having access as they had in the past to fee segments, which are lower than the average one.

So the combination of these 2 trends explained the 0.47, which we believe is sustainable overall into the new market conditions. But again, the 0.47 should not be compared to the target we gave to the market of 0.50 because that one was excluding Borsa Italiana, which, today, on average, has lower average fees with respect to the rest of the Euronext markets.

[Operator]

The next question comes from the line of Reg Watson from ING.

[Reginald Watson, analyst]

Apologies if this has already been asked and answered, but as well as improving your guidance for the underlying cost for this year, you also improved your guidance for the one-off costs out to 2024. Have you changed the EUR 50 million guidance for one-off costs for 2022? And if not, why not? So perhaps a little bit of color on the phasing there.

And then second question for Stéphane. The strategic flexibility that you mentioned, there are other forces in Europe which are off acquiring or consolidating platform businesses. Do you find that attractive as a strategic option for Euronext as well?

[Stéphane Boujnah, executive]

Okay. First of all, let me apologize because that will have to be the last set of questions because we have to run to the Annual General Meeting in a few minutes. So apologies for the ones who could not ask questions. On your strategic question, yes, there are still single country or several countries exchange or market infrastructures in Europe.

As I said on many occasions, the Euronext federal model is an open model. We are happy to welcome within our open federal governance or open federal supervision or open single liquidity pool, single order book enabled by a single technology platform exchanges that we want to address the issues of scalability, attractiveness of the local market, exchanges that want to combine the continuity of their relatively autonomy and identity while being part of something that is scalable.

And we have from time-to-time dialogues with exchanges who need to decide what they want to do. But in Europe, there are all sorts of situations. There are large market infrastructures that are very local in terms of culture and very diversified and where the exchange part has become a minimal part of the business. You have other exchanges that are very focused on the historical core exchange business and want to remain independent because they don't mind the weaknesses of the drawbacks of being relatively small and the others who are really thinking about consolidation. But it's a game of consenting adults and things happen when everyone is ready to accept or to find the mutual benefits and the compromise that go with mergers and with consolidation.

So we monitor very, very precisely in detail, every situation in Europe, whether they are actionable or not because this is our core mission, to build the leading pan-European market infrastructure in Europe and to make sure that we build the backbone of the capital market vision. So this is at the core of our attention.

Giorgio, on the guidance?

[Giorgio Modica, executive]

So a very fair question. So the point is that we made a reassessment of the overall integration costs as well taking into account that the big part, to a certain extent, is going to be delivered on the 6th of June. And we came up with the conclusion that EUR 150 million is good enough for us to deliver. However, the reason why we didn't change the EUR 50 million is that we don't want to put ourselves in the position to miss a target potentially if we accelerate delivery.

As you know, many times, acceleration means acceleration of cost as well. So when it comes to the phasing, we kept the previous phasing and, again, not because we are shy but because we know that sometimes acceleration and strategic flexibility, we need to capture, the opportunity we will have in the next quarter might trigger anticipating some cost or moving costs from one quarter to the other. So this is the reason why we decided to be less specific on non-underlying costs than we have been on underlying costs.

[Operator]

There are no further questions in the queue. So I will hand the call back to your host for some closing remarks.

[Stéphane Boujnah, executive]

Thank you very much. I wish you a very good day.

[Operator]

Thank you for joining today's call. You may now disconnect your lines.