Euronext NV

PAR:ENX

Earnings Call Transcript 2021-Q2

[Operator]

Hello, and welcome to the Euronext Second Quarter 2021 Results Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this event is being recorded. [Operator Instructions] And I will now hand you over to your host, Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext to begin today's conference. Thank you.

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

Good morning, everybody, and thank you very much for joining us this morning for the Euronext Second Quarter 2021 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 this second quarter. Giorgio Modica, the Euronext CFO, will then further develop the main business and financial highlights. Euronext reported a strong quarter -- second quarter performance with growth in both revenue and adjusted EPS. But before I take you through the numbers, I would like to single out a few important points. First, this is the first time we have consolidated the Borsa Italiana Group accounts. You will see in most of the existing revenue line, the contribution of the Borsa Italiana Group. But you will see also a new revenue lines such as fixed income, our net treasury income from CC&G and activity, the contribution of Borsa Italiana. Second, we recorded good organic revenue growth despite the fact that the comparable Q2 figures from 2020 were exceptionally high because of the volatile market conditions at that time that many of you remember. The growth of this quarter was made possible, thanks to the diversification of our activities, and we'll focus on that in a few minutes, the resilience of our core business. Third, our performance in listing has been very strong. With 62 new equity listings in the second quarter, we have confirmed again our position as the largest listing venue in Europe, with close to 1,900 listed companies, representing approximately EUR 6.4 trillion in aggregate market capitalization. And as the largest liquidity pool in Europe with EUR 12 billion average value traded daily, we are becoming definitely the largest listing venue and the largest equity trading venue in Europe. We will come in Q2 2021, large listings such as old funds and [ 8 SPACs ]. In addition, in Q2 2021, EUR 7.1 billion was raised on Euronext primary market. This amount doubled compared to the EUR 3.4 billion raised in Q2 2020. Technology and innovative-driven projects accounted for more than half of the total new listings since the beginning of the year. And besides, secondary markets reported a solid strong, solid second quarter of 2021, with EUR 32 billion raised in secondary equity issues compared to EUR 16.4 billion in Q2 2020. I would like also to emphasize that Euronext was the leading exchange in Europe for the listings of ETFs for the second quarter in a row. With regards to ESG, Euronext demonstrated again this quarter that it is more than ever the venue of choice for sustainable projects. 1/3 of new listings we welcome were Cleantech. We have now over 40 European ESG indices. And we announced the upcoming launch of the Italian Med ESG index following the launch of the CAC40 ESG. We also announced that Euronext was selected by the German government to launch an ESG index to be replicated by German pension funds. This development shows the strength of our index franchise even outside of Euronext country's borders. Looking at the numbers themselves for Q2 2021. Revenue increased by EUR 118 million, up plus 56% to EUR 328.8 million. This solid performance was driven by organic growth of 3.5% in nontrading activities, with record activity in listing and fast-growing post-trade activity in the Nordic region. It was also driven by the consolidation of the Borsa Italiana Group for 2 months and 2 days in Q2 2021, contributing for EUR 89.6 million to revenue and income. As you know, we monitor closely the share of nonvolume-related revenue in our mix, which rose this quarter to 56% of total revenue. And now nonvolume-related revenue cover 137% and of operating expenses, excluding G&A. On the cost side, the reported increase this particular quarter is mainly related to the consolidation costs from the Borsa Italiana Group and also the VP Securities cost for EUR 41 million -- EUR 41.2 million. And also related to these incremental costs are related to the integration of the Borsa Italiana Group as announced in the full year in Q1 results. Overall, these numbers translated into group EBITDA increase of plus 53.8% to EUR 192.9 million and an EBITDA margin of 58.7% in Q2 2021. On a like-for-like basis, our EBITDA margin in Q2 2021 was 59.2%. And the solid group business performance resulted in a plus 28.6% increase in adjusted EPS at EUR 1.43 per share. On a reported basis, net income was up plus 5.6% to EUR 86.6 million, despite exceptional and financing items related to the Borsa Italiana Group acquisition. I want to underline the fact that during the second quarter of 2021, we achieved the targeted synergies for VP Securities in Copenhagen, only 11 months after the closing of this transaction. With these 2 milestones, we have completed an integration plan for recent Nordic acquisitions, well ahead of schedule. We are also very pleased to see the fast-growing pace of the VP Securities business since the acquisition in August last year. Regarding the integration plan for the Borsa Italiana Group in Italy. All our teams across the businesses and across the Borsa Italiana Group companies are now working together very effectively and with to make this acquisition a success and to build together the leading pan-European market infrastructure. I now hand over to Giorgio Modica for the detailed review of our businesses.

[Giorgio Modica, Chief Financial Officer]

Thank you very much, Stéphane, and good morning, everyone. I'm now on Slide 6. In the second quarter of 2021, Euronext consolidated revenues reached EUR 328.8 million with an increase of EUR 118 million or 56%. These results were driven by the organic growth in post trades listing activity and by the contribution of the Borsa Italiana Group consolidated this quarter for 2 months and today, it's important to highlight this. On a like-for-like basis and at current currencies, excluding the impact of the Borsa Italiana Group, Nord Pool Ticker, 3Sens and VP Securities, Euronext consolidated revenue was up 3.5% versus the second quarter of 2020. This is an important message. Despite significantly softer trading volume, Euronext delivered organic growth, thanks to an improved revenue mix. Moving now to the different business lines. Postpaid revenue, including net treasury income increased 157.4% to EUR 93 million as a result of the excellent performance of VP Securities in Denmark and Euronext VPS in Norway in the consolidation of Monte Titoli and CC&G activities. The strong listing revenue growth, up 33.6% to EUR 48.2 million results from a record quarter in listing and the continued strong performance of corporate services as well as the consolidation of the Borsa Italiana Group. Advanced Data Services revenue increased to EUR 46.5 million, up 29.7%, benefiting from the resilient performance of market data and the consolidation of the Borsa Italiana Group. Trading revenue increased to EUR 112.8 million, up 26.1%, thanks to the consolidation of Borsa Italiana and MTS trading activities, the good revenue capture and market share for cash trading activities despite softer volumes in the second quarter -- softer volume in the second quarter of 2021. With regard to fixed income trading. I would like to highlight that MTS cash activities was a key growth engine for the quarter, posting over 50% growth in revenue. In terms of revenue mix this quarter, nonvolume-related revenue accounted for 56% of total group revenue versus 49% in the second quarter of 2020, reflecting the increased diversification in our revenue mix and a good performance of non-trading activities. Please note that these non-volume-related activities now include net treasury income from CC&G. Lastly, nonvolume-related revenue covered 137% of our operating costs, excluding D&A, compared to 122% last year. I'm moving now to Slide 7 for listing. Listing revenue was EUR 48.2 million, an increase of 33.6% compared to the second quarter of 2020. Driven by record activity in equity and ETF listing and positive traction of ESG bond listing, the strong performance of Corporate Services, up 31.2% and as well as the consolidation of the Borsa Italiana listing activity, again, for 2 months and 2 days. With regards to equity leasing in the second quarter of 2021. So the continuation of a strong primary equity listing with 62 new listing on Euronext, including 3 large caps and 8 SPACs. As Stéphane said, we have confirmed our leadership as the leading listing venue in Europe for equities and ETFs. Secondary market activity reported a good second quarter and net listing highlighted the growing momentum in ESG bond listing. Let's move now to our trading business, slide 8. I would like to highlight that the revenue you see on the slide are actual revenues, i.e., includes only 45 trading days for Borsa Italiana. While other KPIs, except the market share are pro forma, i.e., includes Borsa Italiana for the full quarter. Let's start with cash trading. ADV on a pro forma basis decreased 9.2%, reflecting softer cash trading volume compared to an exceptional second quarter of 2020. On a pro forma basis, the average revenue capture over the quarter reached 0.52 basis points. Excluding Borsa Italiana, the revenue capture on cash trading averaged 0.57 basis points this quarter, while the market share was 68.3% and close to 69% at the end of the quarter. The consolidation of the cash trading activity of Borsa Italiana and this robust revenue capture offset lower trading volume resulting in cash trading revenue increasing 8.7% to EUR 70.1 million. Let's move now to derivative trading. Derivative trading revenue was up 18.3% to EUR 13.1 million in the second quarter of 2021. Pro forma average daily volumes on financial derivatives were down 7.9%, reflecting lower volatility and risk appetite vis-a-vis the second quarter of 2020. Commodity products on the other side reported a very strong quarter with average daily volume up 41.3%, reflecting the successful geographical and client expansion. On a pro forma basis, the average revenue capture over the quarter for derivative trading was EUR 0.28 per lot. On a stand-alone basis, Euronext reported average revenue capture of EUR 0.26 per lot. Moving to fixed income trading. That is one of the new reporting lines you see in our P&L this quarter. Fixed income trading includes now the trading activities of MTS, both cash and repo and the fixed income trading activity of Euronext and Borsa Italiana, such as Monte and . Fixed income trading reported revenue of EUR 17.3 million in the second quarter of 2021 compared to EUR 0.6 million in the second quarter of 2020 as a result from the consolidation of the Borsa Italiana Group. For 2 months and 2 days of consolidation in the second quarter of 2021, MTS cash generated EUR 12.5 million of revenues and MTS Repo generated $3.2 million in revenue. For the full second quarter 2021, on a like-for-like basis at constant currencies, MTS cash reported revenue growth of 52.2% in while MTS Repo reported a revenue decrease of 1.6%, reflecting stronger client appetite for cash transactions. The strong performance of MTS cash trading activity reflects the positive momentum in cash bond trading, supported by the steady issuance and support from the ECB bond buying program, the EU recovery fund to support the European economy and generally greater adoption of electronic trading solutions. Continuing with trading on Slide 9. Euronext reported average spot effect trading daily volumes of $18.6 billion in the second quarter of '21, down 9.8% compared to the second quarter of 2020, resulting from a less volatile trading environment. As a result, spot effect trading revenue decreased 15.5% to EUR 5.7 million. Power trading reported stable revenues at EUR 6.6 million, reflecting lower power trading activity, offset by positive foreign exchange impact. In the second quarter 2021, average daily day-ahead power traded was 2.17 terawatt hour and average daily intraday power traded was 0.07 terawatt hour. Moving to Slide 10. Revenue from our post trade activity, including treasury income increased 157.4% to EUR 93 million. Clearing revenue was up 70.6% in the second quarter of 2021 to EUR 26.6 million as a result of higher clearing revenue and treasury income received from LCH SA and the consolidation of CC&G activity for 2 months and 2 days. On a like-for-like basis, at current currencies, clearing revenue was up 20.6% compared to the second quarter of 2020. Net treasury income of CC&G was EUR 9.6 million and is also another new line of our P&L. If we focus on CC&G for the full second quarter of '21, on a like-for-like basis, at constant currency, CC&G reported stable revenues compared to the same quarter last year. Custody, settlement and other post-trade and compassing activity of the 4 CSD, we operate, namely InterBolsa, Euronext VPS, VP Securities and now Monte Titoli, reported strong revenue growth to EUR 56.8 million, mainly reflecting the contribution of VP Securities, a very strong organic performance of our Nordic and the consolidation of Monte Titoli. Moving to Slide 11. Advanced Data Service revenue was up 29.7% to EUR 46.5 million in the second quarter of 2021, driven by a resilient market data business and the consolidation of the Borsa Italiana Group various data activities. Proceeding now with investor services revenue was up 29.8% to EUR 2.2 million, reflecting continued commercial development. Lastly, on Technology Solutions and other. Revenue almost doubled in the second quarter 2021 to EUR 22.9 million as a result of a strong safety colocation revenue and the consolidation of the technology business of Borsa Italiana Group, including Gatelab, a financial software company, offering brokering and property trading platform and X2M, that provides the low latency trading access to the international financial markets. Moving to Slide 13 for the financial highlights of the second quarter. Let's start with the EBITDA bridge. EBITDA for Euronext this quarter was up 53.8% to EUR 192.9 million. EBITDA margin slightly decreased but remained strong at 58.7% this quarter despite the ongoing integration activities impacting the quarter. On a like-for-like basis, the EBITDA margin was at 59.2% this quarter and EBITDA increased 2.4%. From a revenue perspective, at constant perimeter, those revenue increased EUR 7.5 million compared to last year, reflecting the listing and post-trade organic growth. The Borsa Italiana Group contributed EUR 89.6 million to the top line and the other business acquired for EUR 20 million, and this EUR 20 million mainly reflect the consolidation of VP Securities. Looking at costs. Group operating costs, excluding D&A, were up EUR 50.6 million to EUR 135.9 million as a result of EUR 4.5 million of additional organic costs, mainly reflecting the staff cost and EUR 46.4 million additional cost from change of scope, as a result of the consolidation of the Borsa Italiana Group, VP Securities and other smaller recent acquisitions and also from the integration costs mainly related to the Borsa Italiana Group. As a reminder, the figures related to the Borsa Italiana Group represent 2 months and 2 days of consolidation in the second quarter of 2021. Moving to Slide 14 for the net income bridge. Net income increased this quarter by 5.6% to EUR 86.6 million, resulting from the following elements. D&A mechanically increased, impacted by consolidation of recent acquisition D&A and PPA. Going forward, quarterly D&A for the Euronext Group are expected to amount to around EUR 37 million, including PPA for around EUR 20 million. Exceptional costs were EUR 26 million, mainly related to the transaction of the Borsa Italiana Group. I remind you that the estimate of those costs were already disclosed in our 2020 universal registration document for approximately EUR 30 million. There's more discrepancy between the actual and the estimate resulted from cost savings, cost already booked in the first quarter of 2021 or being capitalized in the first half of this year. Net financing expense for the second quarter of 2021 was EUR 10.5 million higher compared to last year, primarily resulting from the consolidation of the cost related to the acquisition of Borsa Italiana. On a normalized basis, the financing costs are expected to amount to around [ EUR 7 million to EUR 8 million ] per quarter. Lastly, income tax for the second quarter 2020 was EUR 37.2 million. This translates into an effective tax rate of 29.6%, impacted by nondeductible exceptional costs. Going forward, excluding the potential impact of nondeductible exceptional item, we expect our tax rate to normalize at around 28%. Adjusted for PPA and exceptional items, adjusted net income was EUR 134.7 million, translating into an adjusted EPS increase of 26.8% to EUR 1.43 per share this quarter. Moving to Slide 15 for the cash flow generation and leverage. The net operating cash flow was slightly negative this quarter at EUR 1.3 million net negative. I would like to highlight that this includes the negative impact of Nord Pool and CC&G cleaning activities on the changes of working capital for EUR 63 million. In addition, the cash flow generation this quarter was impacted by higher tax paid due to the higher taxable income in 2020 versus 2019 and the seasonality of tax cash out. Our net debt-to-EBITDA ratio is at 3.1x at the end of June 2021, following the bond we issued to finance the Borsa Italiana acquisition. You can find our debt schedule in appendix. Lastly, on Slide 16, for the evolution of our liquidity position over the quarter. As you can see, the main impacts are related to the acquisition of the Borsa Italiana Group and its refinancing. In particular, the key items are EUR 5.5 million, mainly related to EUR 3.8 billion of bridge facility and EUR 1.8 billion, three-tranche bond issuance; 4.1 billion of investment mainly from the acquisition of Borsa Italiana; net of the cash acquired EUR 2.4 billion of capital increase; and EUR 3.7 billion of bridge facility repayment. Our liquidity position was strong at above EUR 1.2 billion, including the undrawn SCF for EUR 600 million. Finally, our targeted cash for operation increased from EUR 180 million to EUR 400 million following the acquisition of Borsa Italiana. I now hand over the floor back to Stéphane Boujnah.

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

Thank you, Giorgio, and thank you again for your participation to this call. We were very pleased to share with you a stronger Q2 2021 in terms of organic performance listed by the first contribution of the Borsa Italiana group accounts. We are actively preparing the new Euronext strategic plan, which will include a 2024 group guidance. And we will release this new Euronext strategic plan in November in 2021. We are now available for your questions with Giorgio Modica, our group CFO; and Antonio Atta, the Group Head of Primary Markets and Post Trade.

[Operator]

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

[Michael Joseph Werner, Executive Director and Equity Research Analyst]

Congrats on the results, guys. Two questions, if you don't mind. First, on fixed income trading, particularly the cash portion. You noted that there was quite a strong increase quarter-on-quarter. I was just wondering how this quarter compares to other quarters. I don't have a really good look into where these volumes have been quarterly. So maybe if you could just provide some context with regards to the Q2 volumes relative to maybe the full year 2020 run rate? And then also, any indication as to how July volumes are panning out? And then second, Stéphane, I think I saw you made some comments about internalizing the clearing opportunity. And I was just wondering -- I mean, our numbers show that you account -- or Euronext now with Borsa Italiana Group consolidated account for more than 50% of the revenues for the Paris subsidiary of LCH. So I was just wondering if Euronext would also be willing to consider a potential transaction or M&A solution to clearing with regards to the Paris subsidiary of LCH?

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

So I'll answer your question on clearing and Giorgio will answer your question on fee income trading. 3 or 4 comments on your question on clearing. First, I don't want to comment the financials of LCH SA. And I'm not totally convinced that the percentage you are referring to are accurate. But I'm not in a position to comment the LCH SA numbers. Second, on the M&A front, it's a situation, which is pretty clear. We own 11.1% of LCH SA. We seated the Board of LCH SA. We have preemption right in the event of a transaction where [ LCH ] activity will sell as LCH SA. But it's up to the controlling shareholder group to decide whether they have an interest to consider such a transaction or not. As you know, the assets that are part of LCH SA, formally known as Clearnet, used to be part of Euronext. They were sold to Group in 2004, if I'm not mistaken. And that -- and we try to acquire those assets in 2016, '17 in the context of the remedies for the attempted merger between Deutsche Borsa and LCH. Actually, we acquired them on the condition precedent of the completion of this merger, which did not complete. So it's not like the idea has never existed, but the reality of corporate life is that it's a London Stock Exchange decision to decide whether or not we would be interested in such transaction. On the -- what you referred to as the internalization of clearing. The matter has been discussed several times and requires some level of granular analysis because it's not binary. And what I said yesterday to a gentlemen from Reuters, I think, was slightly more complex than what was necessarily expressed in the report. We are now the owner for the first time of 100% of a clearing house. And that changes completely the way we look at clearing flows from Euronext clients and Euronext operations. And we have the duty to consider how, when, at what pace, for what assets, we could consider offering to our clients the possibility to clear the flows they trade with us within CC&G. And we are exploring these options. And this option requires the completion of at least 4 or 5 work streams. The first work stream is a legal work stream, which is a proper negotiation with LCH SA, LCH Limited and LSEG because we have an agreement with them that last until 2027. We have exit windows from this contract, but there are breakup fees associated to this to defecating this contract. Like any contract the closer you get to the maturity, the smaller the broker fee, . So without entering into details, there is an element, which is negotiations with the incumbent provider. The second element is to assess what would it mean in terms of CapEx to transform CC&G, which today is mainly a single country clearinghouse for the Italian market into a pan-European clearing platform. And that's an easy work stream to do, but that's also work in progress, how much technology CapEx are needed. The third work stream is what does it mean in terms of capital requirement and in terms of risk model. So far, CC&G is probably one of the safest clearing house in Europe with very strong capital requirements or initial margin required by the -- by the Central Bank of Italy. To what extent this margin -- initial margin profile and risk model would be adjusted to make CC&G more competitive is another issue that requires a dialogue that has started on CREDITALIA. The fourth work stream is what is the right solution for the various assets that are to be cleared by LCH SA with clear cash, equity, trading. But we don't have any revenue sharing agreement with LCH SA for those operations. And as you know, they are not very complicated in terms of margin, but it is a relatively commoditized business. So what type of solution could be explored for these type of assets. Then we have derivatives. Derivatives require more margin, and we have a profit sharing arrangement with LCH SA, which is valuable to us, and that probably triggers a different type of options and solutions. And we have commodities, clearing. Now for the commodities, some of them behave almost like financial derivatives because they are cash settled, but others have a specific profile in terms of clearing because they are physically settled. And then we have the repo business of mainly the -- for the Italian govies repo, which has particular features and particular interactions between LCH SA and MTS. So the solution is not -- cannot be captured in one time since we required granular analysis. Then we need to have a dialogue with clients because clients like gross margin collateral -- . Yes. Okay. So we have some . And my point is that we have also to go to the roots of what sort of incentives need to be created for clients to migrate. That being said, the big picture is that we own 100% of CC&G and we own 11% of LCH SA. So that's what's behind my comments made yesterday. We are exploring the options. We are analyzing the pros and cons of all the situations. We have a good constructive dialogue with LCH, but we have also extremely productive, innovative discussions within Euronext with the CC&G teams. And we will share the conclusions at the Investor Day that will take place at the beginning of November. Apologies for this long answer but they can be a simplified reply to your question.

[Giorgio Modica, Chief Financial Officer]

Yes, let me take your question of MTS. So the first element that is important to highlight is that starting from the end of last year, the market has perceived a very strong support to the debt issuance of European govies. This has increased the appetite of investor. Number one, to invest in cash transaction vis-a-vis using the repo channel of MTS. So this explains the mild dilution of the repo volumes and revenues vis-a-vis what happened in cash. And then as you correctly highlighted, we are witnessing an explosion of volumes, which depending on the quarter and the month are between 50% and 100% higher than the volumes that we witnessed last year. Now part of your question entails the outlook for the remainder of the year. What I can share with you is that the trend remains strong as we speak. Even if we start receiving some fatigue from the market given this prolonged period of extremely high trading volume. But I believe that the important element is that the underlying factors and tailwinds are there to stay in a view. The first one is support of EU to the pandemic recovery. The next-gen program will help as well. And the general political stability across Europe is another very important factor. So what we can see is clearly, those volumes are exceptionally high. However, the positive trends are still there even though some first signs of fatigue are starting to appear.

[Operator]

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

[Kyle Kenneth Voigt, Managing Director]

So the first question is on just cash equities revenue capture, excluding Borsa Italiana, once again came in very strong. I think you noted before that you expected that capture rate, excluding Borsa Italiana, to settle in a lower range than it was -- than it had been at for the last several quarters. I guess now that this trend has persisted, do you expect those cash equity capture rates to still move directionally lower? Or do you think we're in a more sustainable type of revenue capture yield environment? So that's the first question. Second question, is just with the strong EBITDA growth, the pro forma leverage has come down faster than we expected. Can you just give us some updated thoughts about this kind of new diversified pro forma business? And what type of leverage profile you think this business can sustain on an ongoing basis? And where you're willing to flex that to the high end for further M&A? And then lastly, should we think about M&A as really off the table for the next 12 months or so as you focus on integrating Borsa Italiana because of the size of that integration? Or are you still comfortable executing on M&A opportunities?

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

Kyle, I'll provide you with a general qualitative answer to your strategic question on M&A. And Giorgio will answer your question on cash equity capture or yield and on the pro forma leverage profile evolution. Clearly, the key priority of Euronext for the coming 18 months is to make the acquisition of Borsa Italiana a success, leveraging on the very good quality of the teams, the very good features of the local markets and the trust we have in the possibility to grow the business in Italy. So our priority for the next, let's say, 18 months is to integrate Borsa Italiana to grow the combined top line of the group to grow the EBITDA, to grow the free cash flow generation, to delever the company as quickly as possible. And we will probably not have proactive M&A move until we significantly deleverage. That being said, the reality of corporate life and M&A is that situations come when they come, and you don't select the timing of sellers. So we are monitoring very closely opportunities to further expand the European footprint of Euronext and the European federal model of Euronext. And we see whether some opportunities come or not after 18 months or before 18 months. Also, we continue to monitor very closely opportunities to diversify our top line to be less dependent than we are even if you have massively diversified over the past 5 years, less dependent on volumes . And this monitoring exercise is exploration to continue. So to the extent we have control of timing, we try to push them down the road for the next 18 months. To the extent we do not, we will not have control of timing, we will explore ways to offer to our shareholders the possibility to capture those deals when they offer great EBITDA expansion potential. So it's a sort of generic reply because unfortunately, we can be specific only on specific situations, but at least you have the mindset in terms of priorities.

[Giorgio Modica, Chief Financial Officer]

So let me take your first 2 questions. So revenue capture. Yes, you're absolutely right. We are at the highest point ever. And in this respect, we -- what I would like to share with you is similar to the message that I said in previous quarter. This is a result of very specific market condition, which are linked as well to the size of the order that remains low. So what we have seen are a number of elements. The first one is that volumes and volatility has normalized. But on the other side, other elements of the market remain specific like retail participation, which remains relatively high. And the average trade side remains low, and this trigger a level of revenue capture that we still do not deem sustainable in the long term. So now we have as well the revenue coming from Borsa Italiana, which are diluting the yield, you have seen the EUR 0.52 as pro forma revenue capture for the whole group. So what I can share with you is that on a pro forma basis, we believe that what would be sustainable for us is the revenue capture below 0.50 basis points at around 47, 48. This is more or less what we anticipate would be sustainable in the long term. That doesn't mean that the next quarter, we might not have a similar situation as the one we are witnessing this quarter, but this is our view for the long term. When it comes to leverage, again, you are very right. When we closed the transaction, we were in a better situation than the one we were expected to be in September. And today, we are in a better situation than the one we were expecting when we closed the transaction. This gives us a room of maneuver within our current rating bond of several hundreds of million euros in terms of theoretical fire power. However, as Stéphane commented, our priority is to integrate Borsa Italiana and then we would be extremely tough in the assessment of any potential opportunities in the short term.

[Operator]

The next question comes in from the line of Arnaud Giblat calling from Exane.

[Arnaud Maurice Andre Giblat, MD & Research Analyst]

Three questions, please. Firstly, could I ask you to comment perhaps on a specific deal situation. I think the Eurocar state has come up for sale from ICE. I think in the past, you've also mentioned wanting to become the Euronext of clearing and settlement across Europe. So could you perhaps comment on whether or not you've got any interest in there? Secondly, I was wanting to get some of your views on net treasury income. I mean historically, on the [ direct ] ownership, there's been a significant amount of optimization, if you can call it that way, of net treasury income yield at Borsa Italiana, maybe going up the risk curve. How do you see the situation there? Do you think the yields are optimal? Or can you shift them -- are you expecting them to just one another? And my final question is, could you perhaps quantify the integration costs that have happened over the quarter?

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

Okay. I will answer your first question, and Giorgio will answer your second question and your third question. The first question on the reported in the media, interest for ICE to dispose the 9.8% stake in Georgia. I don't have any comments to make as far as the Euronext approach of the situation is. On the other 3 issues, Giorgio?

[Giorgio Modica, Chief Financial Officer]

Absolutely. So when it comes to the net treasury income, what I can comment is that the investment policies of CC&G has been -- has remained stable for a number of years. And if we look at the revenue capture out of the investment portfolio, which I want to highlight, remains a very small portion of the overall initial margin and default fund has been fairly stable in the last years. And we feel that level is in line with the risk appetite of our group. Having said that, it is clear that clearing activities are new to Euronext, and we will be extremely cautious. And we will monitor the investment policies in the quarters and years to come. When it comes to the integration costs, this quarter, we did spend above EBITDA around EUR 5 million.

[Operator]

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

[Bruce Allan Hamilton, Equity Analyst]

Just a question on it was very good. In terms of your sort of plans to extend the offering outside of Italy, obviously, you gave quite a detailed answer about the steps you need to go through for CC&G to think about or bring clearing back from LCH, but what are the sort of steps to go through on the MTS side to maybe extend that? And then secondly, I guess, often in large exchange deals, there is discussion with users around some sharing of the benefits of the deal in terms of pricing give up or other. How should we think about that? And I assume it's already embedded in the sort of revenue synergy numbers, that would be net of any sort of give back to users. But is there any sort of -- are there any areas where there could be some price adjustments to benefit users?

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

Yes. So I will take your question. So if I understand correctly, the line was a little breaking up. What we will be doing in order to extend the potential of certain Euronext Borsa Italiana subsidiaries outside of Italy. And I believe you were mentioning MTS. This is something that we are already doing. And the work is around different lines. One line is clearly to export the value proposition that MTS has built on sovereign debt to other geographies outside of Italy. MTS has a very specific electronic solution that might greatly help DMOs around Europe, and we are actively marketing for that. And the other element, we believe that the full value chain of Borsa Italiana and Euronext will deserve a greater share of the EU program for the refinancing and development of European economy. We believe that Euronext Dublin could contribute. We believe that our CSD would be able to contribute. And we believe that the electronic platform of MTS will play -- could play a very significant role in this respect. When it comes to your second question, I can only confirm that any retrocession or any give back, as you called it, would be or is embedded in the target that we have already shared and is going to be included in the target that we will share to the market at the Investor Day later this year.

[Operator]

The next question comes in from the line of Enrico Bolzoni from Credit Suisse.

[Enrico Bolzoni, Research Analyst]

Just a couple one on costs. We were pretty much under control over the quarter despite the Borsa acquisition. Can you just give an update on how we should think about that in terms of future quarters, in terms of evolution the near term, I'm talking about operating, so excluding clearly the exceptionals? And then I have another question on actually the -- again, the custodian settlement that clearly was very, very strong. So again, can you just -- how comfortable you are that this strength can continue for this part of the business over the coming quarters? And then finally, just a bit of a general question. There are numbers of retail players that are coming in Europe and quite a few of them offer basically internalization of trade between clients. So is this something that down the line concerns you the fact that there's going to be more and more of these players that actually internalize the trading orders [ de facto ] keeping the actual infrastructure?

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

So starting with your third question on costs. The way I can help you is twofold. I can confirm the target that we have set for the perimeter, excluding Borsa Italiana, in February with the result of 2020. So our ambition to decrease cost with respect to the full 2020 by mid-single digits. Then to be more granular than that, we will need to go to the Investor Day. This is more, if you want, of a technical quarter between -- and we're going to have some -- it's very difficult to give you a specific target for Q3. So I cannot do more than that. The other element that I can highlight is that clearly, we are in the process of onboarding costs for the integration and to get prepared to the migration of the data center that will impact our cost in the quarters to come. When -- for the -- then I will take your question on retail, and I will give the floor to Anthony Attia, who is the Global Head of Post Trade to answer your last question. So when it comes to retail, I want to highlight a few elements. Number one is that Euronext has a very strong retail participation. And it is one of the key assets of the group, and we are willing to leverage that even more going forward. The second element is that in this respect, Borsa Italiana provides a great contribution because also the Italian ecosystem -- retail ecosystem is intimately linked to the stock exchange, and we are willing to use and leverage that asset even more. We are always vigilant for the new threats that might emerge around retail. At the moment, what I can say is that we believe that we have the right elements and strategic flexibility to cope with those elements. And one of the most important element is making sure that we are able to display the value add of our solution with respect to other solution. Because many times, internalization comes at a very significant cost for retail even if this cost is not explicit in a fee, but it's implicit with the lower quality of execution. Anthony?

[Anthony Attia, Global Head of Primary Markets & Post Trade]

Thank you, Giorgio. So concerning our ESD businesses, so we have 4 drivers for the growth of the earnings of the CC&Gs. The first one is the valuation of assets which, as you know, has been growing in the past few months. And now we are reaching a level of EUR 6.3 trillion in our CC&G. It's obviously difficult to predict the trend, but it's a macro trend that you can follow. The second driver is the number of settlement instructions, which is the results of the trading on the different markets that are captured by the CC&G. And we had -- in Q2, we had managed EUR 33.1 million settlement instructions. And again, this is the consequence of the volumes of the market. We've observed some stabilization in the past few weeks. The third driver is specific to our Nordic CSDs, which manage retail account directly in a position to the continental CC&Gs such as Monte Titoli or InterBolsa account. And the revenues are directly linked with a number of new accounts being opened for the retail clients and as well as the retail activity. So same thing, this has been growing in the past few quarters, although we observed some trends to stabilization. The last driver is very important for us because it's the -- it's the gross part of the CC&G, which is a diversification to post-trade services around our CSD. This is something that we would comment in the future, but it is still modest at that stage.

[Operator]

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

[Philip David Middleton, Analyst]

I wondered if you could say a little bit. Obviously, you talking a lot Borsa Italiana, which is like a fantastic deal. But could you say a little bit about your ambitions in the Nordic region now you've completed your integrations there. I am sure there's plenty you can do there organically. And secondly, you gave this very compelling figure about nonvolume-based revenues? Presumably that's only including 2 months of Borsa Italiana and that would have been higher have you accounted for a full 3 months. Do you have any idea about what that number might have been?

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

I will answer your questions on our Nordic strategy, and Giorgio will answer your question on the revenues. The Nordic region is a very important component of the Onex strategy. There is no European success without a Nordic dimension. Before the acquisition of the Borsa Italiana Group, the Nordic region was representing 25% of the top line of the group. And all the investments we have made in this part of the world are extremely successful, and we are very happy with the -- this pace and of integrations over there, the flexibility offered by local market, and it's really a place where we want to grow for sure. We had several dialogues with several players, mainly in the field of platforms to diversify our revenue mix. And we definitely will try to continue this dialogue and to capture any available opportunity to grow in this part of the world, again, with a focus on acquiring assets that would help us to diversify our revenue mix.

[Giorgio Modica, Chief Financial Officer]

Philip, with respect to your second question, my honest answer is that this quarter with so many gaps and changes to conclude that we did not conclude that one. So I do not have a reliable number to share with you. But my guess is that the number will not be dramatically different from the 56%.

[Operator]

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

[Martin Gerald Price, Equity Analyst]

I've got 2 quick ones. The first was just on costs. I was just wondering if you could provide an update on the nonrecurring expenses you expect to be included in full year 2021 operating costs rather than exceptionals? I think you said you booked EUR 5 million in the first half. Just be helpful to understand how significant those items are in the context of your guidance for this year? Second question, just a quick one on M&A. Clearly, you've done a lot of deals in the last 3 to 5 years. We've seen you divest a couple of noncore assets this year as you optimize the portfolio. I was just wondering if we should expect a bit more of this and potentially something more significant in terms of size? Or are you sort of essentially happy with the existing business perimeter?

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

I think I covered the acquisition part in the previous question and you are opening a new question about the disposal of assets or the asset rotations, whatever you want to call the fact that you're sell asset. We have a clear view on that one. The bigger Euronet growth gets, the more important is to trim the perimeter and to disposed assets that can find a better, better owner elsewhere. And I'm referring here to small businesses that have a margin dilutive impact on the group. The philosophy, and since you ask an open-ended question, is the following. We don't like margin-dilutive businesses. We can live with margin dilutive businesses if such margin dilutive businesses produce growth at a higher level than the core business and/or quality of earnings in terms of resilience of revenues that is stronger and better than the core business. Now if a margin dilutive business doesn't grow and doesn't bring in any material way quality of earnings, then we sell or restructure. We do whatever is appropriate to make sure that it is not part of the Euronext perimeter. We have done that in the past 2 quarters in Q1 with in Q2 with OMS. These were 2 good assets that were a part of the perimeter of Borsa VPS when we acquired it in 2019. We looked for 1.5 years as to what to do with those assets and we reached the conclusion that we were not the best owner. And that we will not be in a position to create any convergence towards the blended margin contribution of the group nor that the growth profile nor the quality of the earnings would be material enough to just define it. So we have done it. We will continue to have the same approach across the group, and it's a sort of continuous sanity check, trimming effort that we have on every asset. And we will apply the same logic on some periphery assets, let's say, within the Borsa Italiana Group, even when appropriate. But this is a sort of a very important discipline to focus the group on areas where we do create value and not to use our shareholders' resources in areas where we don't create value.

[Giorgio Modica, Chief Financial Officer]

Yes, on your question on cost, the short answer is that I cannot give you a target for the next quarter or the end of the year. The slightly longer version of the answer is that we put a lot of importance in the credibility of what we -- of the target we set out. So we are still gathering the information needed to give you the plan as little as possible at the time of the Investor Day. What I can tell you as well is that out of the around EUR 5 billion that I was mentioning, not 100% is related to Borsa Italiana because there is a small component around 10%, which is related to the completion of the integration of other acquisitions. And the other element I can share with you is that you should expect this number to grow in the next quarter as we are getting equipped to deliver on very ambitious projects such as the migration of the data center and the Optiq migration. Unfortunately, I cannot tell you more than that, more to come at the Investor Day.

[Operator]

The next question comes in from the line of Ian White calling from Autonomous Research.

[Ian White, Research Analyst]

Just 2 follow-ups from me, please. So first of all, just on Corporate Services. Could you provide a sense of the penetration rate for those services, please? Essentially, what percentage of the group's listed issuers purchases those services today? I'm just keen to understand the scale of the remaining opportunity there. Secondly, a follow-up on the clearing discussion. So I'd be care to understand the extent of flexibility you think you might have there, particularly on the MiFID nondiscriminatory access provisions. So basically, do you think it's possible to silo the MTS business specifically and actually sever the clearing link to LCH SA? Or is it more likely that any bearing solution that you pursue going forward would maintain a choice for end users between CC&G and LCH SA over the long term, please?

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

I will answer your second question and Anthony and will answer your first question on Corporate Services as is the end of listing, which includes our corporate services ambitions. No one is suggesting to create a fourth side of or any solution, which will be contradictory to the terms of EMEA. So what we are discussing and what I commented earlier on is the possible development of a solution to be proposed to our clients and because we want to be a TCP, not work clients. And we are just talking about offering them a solution that is complemented and that could be an alternative to what they do today with then CSD. So nothing different or contradictory to the current regulatory framework. So no silo ambition. It's just an alternative proposal. Anthony, on Corporate Services?

[Anthony Attia, Global Head of Primary Markets & Post Trade]

Thank you, Stéphane. So on our Corporate Services business, it's a diverse business from a client segmentation point of view as well as the -- from a product offering, software-as-a-service offering point of view. So we do offer our services to listed issuers, some of them being Euronext listed issuers, others being non-Euronext TCP issuers, it is wide and then broad across Europe. We do not disclose the proportion of issuers versus non-issuer clients. But what I can tell you is that we still have a larger opportunities in Europe to deploy or advisory post-listing services as well as a webcast services, in particular, in this increased accelerated digitalization period of time where we see a high demand. Some of our corporate services are targeting nonissuers, this is why it's called corporate services. And it's the same thing. We have a very deep, very broad potential client base in Europe. From a geographical point of view, it's the same approach. We -- of course, we leverage on the countries where Euronext is present, but we are also expanding on non-Euronext countries such as Spain, Sweden and Germany, for instance.

[Operator]

The final question comes in from the line of Andrew Coombs, calling from Citi.

[Andrew Philip Coombs, Director]

I have a broad-based question, and I appreciate that some of this, we may have to wait until the investor update later in the year. Just want to ask your thoughts on investment spend more broadly. You obviously have a lot of initiatives coming up in terms of the Optiq migration, the data center migration, potential shift in post trade from LCH SA, CC&G, you're still sizing at the clients, the time frame and all of these things. I guess my question would be when you think about investment spend, number one is, how do you think about how you book it? This between exceptionals OpEx, CapEx? And secondly, what do you deem to be the necessary payback period for that investment?

[Giorgio Modica, Chief Financial Officer]

So I can take the more accounting question and then Stéphane can take the more strategic of the question. So our rule -- and this is very important. What you read in the line, exceptional items, does not mean one-off. It's very, very specific category of one-off. And those are the one-offs, which are related to transactions that are considered transformational in nature. And the shortcut for that, that usually fits 95% of the cases are the transaction where we need to seek for Board approval, just to give you a very practical example. An M&A fee paid to an investment banker to buy a company -- a small company would be in OpEx. So in the last quarter, for example, even in large transactions, we have booked those type of costs in OpEx. However, when it comes to transactions that require Board approval, such as Borsa Italiana, then the same line item in nature is recorded into the line -- into the line of exceptional items. So going forward, what you will see, but -- so this is one condition. The second condition is that in terms of amount, we'll need to be meaningful, and therefore, several hundred thousand case. For example, for the Borsa Italiana Group will not be booked cleanly as exceptional. So in the EUR 26 million, what you will see are more the invoices from lawyers, banks, et cetera. And then -- so I believe that I answer your question or not fully?

[Andrew Philip Coombs, Director]

Well, then let me ask a couple of follow-ups. I guess given that point, absent any further M&A, should we expect exceptional items to trend to 0? And then also on the CapEx versus OpEx, and you think about the investment, is it a case that technology investment goes in CapEx and the bulk of the rest is in OpEx?

[Giorgio Modica, Chief Financial Officer]

Yes. Yes, absolutely, yes. Any -- so the first element to your question, in the range between being aggressive or conservative on capitalization, we are very conservative, which means that if you compare ourselves to the other, most of our IT expenses flow through OpEx, which does not mean that we do not invest enough. It means that we are conservative. However, the large projects that you are mentioning that will trigger a long-term financial benefit from the group, of course, are going to be booked as CapEx.

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

On my side, to give you some intellectual framework to assess the way we look at these big technology projects with a strategic component. This situation is different from the 3 examples you have mentioned. For the Optiq trading platform migration, this is part of the fundamental synergies of the acquisition of Borsa Italiana. So the cost part, the revenue part and the restructuring cost part of the Optiq migrations are the component of what has been announced today. The cost part is part of the EUR 45 million cost synergies to be extracted from the transaction by your . The revenue part is included in the EUR 15 million of revenue synergies to be generated by your , and the restructuring costs are part of the EUR 100 million revenue -- restructuring costs that we have announced when the deal was made public. For the core data center, this is not part of the initial synergy story. So we will announce in November the contribution of the core data center migration to the expansion of the Euronext EBITDA, and the restructuring costs will be separated from the EUR 100 million restructuring costs. For the clearing migration, if any, as I told you, it's work in progress, but that will be a separate project as well. So -- and as for any of these projects, there will be an element of if this migration of clearing is eventually decided and completed, an element of cost synergies or produce synergies and on implementation costs with significant one-offs. So the solution is very different each time. We measure the stand-alone financial profile of the initiatives in terms of return on capital deployed, like any investment. In some cases, we look at the strategic value because there are things that we have to do for strategic reasons that make -- I mean the migration of the core data center was something we had to do for sorts of reason, including uncertainty post-Brexit. And although it's a deal that makes sense in any respect. It's a little where with the decision was somehow a decision and where we had to price the structuring benefit of having a core data center in a facility that was built very recently in 2017, in the 110% renewable energy production facility in -- within Italy, which is now a very core market to Euronext and within a coordinated regulated environment of the European Union. So that's part the reason as much as the stand-alone financial -- the same for clearing. For clearing, the decision is really what you need for Euronext in terms of reduction of costs, incremental revenues and return on capital vis-a-vis in the one-off costs. But there is also an element of what does it mean to be fully independent in terms of clearing and not to be dependent on the contract that has a maturity that ends in 2027. So for this type of very, very fundamental projects, we have the factory in -- we have to price the strategic value of positioning the complete differently and to make it less dependent on third parties than before. So that's the way we're approaching those big projects.

[Operator]

Thank you. That was the final question in the queue. So I shall turn the call back across to yourselves for any concluding remarks.

[Stéphane Boujnah, Chairman of the Managing Board & Group CEO]

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

[Operator]

Thank you for joining today's call. You may now disconnect your handsets. Hosts, please stay connected and await further instruction.