Euronext NV

PAR:ENX

Earnings Call Transcript 2019-Q3

[Operator]

Hello, and welcome to the Euronext Q3 2019 results call. My name is Kevin, and I'll be your coordinator for today's event. [Operator Instructions]I would now like to hand over to your host, Stéphane Boujnah to begin today's conference. Thank you.

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

Good morning from Oslo, and thank you for joining us this morning for the Euronext Third Quarter 2019 Results Conference Call and Webcast. I'm Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext. And I will start with the highlights of this third quarter 2019.Giorgio Modica, Euronext's CFO, will then further develop the main business and financial highlights of the quarter. We will then open for questions together with Anthony Attia, a member of the Managing Board of Euronext.In the third quarter of 2019, Euronext grew its revenue by 20.4% to $181.7 million. Euronext grew its EBITDA by 23% to EUR 108 million. And Euronext grew its reported net income by 25.8% to EUR 63.5 million. This performance was driven by a combination of organic growth, continued cost control and the consolidation of Oslo Børs VPS.So first on the revenue side. Revenue increased in Q3 2019 by EUR 30.8 million, up plus 20.4% to $181.7 million. This performance reflects solid organic growth of our trading and services business, and the consolidation of Oslo Børs VPS. Our diversification strategy continued to pay off with the nonvolume-related revenue accounting now for 52% of the group revenue, thanks to tripled custody and settlement revenue. And now this nonvolume-related revenue covered 129% of the operating cost this quarter.Second, corporate services continued to report double-digit growth and the listing business saw the comeback of IPO this quarter.Third, cash trading revenue grew driven by increase in average daily volumes at 69.4% market share and a 0.51 bps yield. The indices part of Advanced Data Services performed well, offsetting, for sure, a certain downside trend on market data. Only clearing revenue were slightly down due to a decrease in commodities volumes.And finally, Oslo Børs VPS contributed EUR 25.5 million for Q3 2019.Now moving on to the cost side. We continue to deliver a robust cost control, and we can confirm today our 2019 cost guidance for the full year. This cost discipline translated into EUR 1.1 million of organic operating cost reduction in Q3 2019.In Ireland, we delivered EUR 7.6 million of run rate cost synergies at the end of the third quarter in Euronext Dublin, which is a significant step towards the EUR 8 million targeted run rate cost synergies. On the other hand, we consolidated EUR 14.5 million of additional cost related to the onboarding of acquisitions during that quarter.Now moving on to the margin. Taking all the above into account, the group EBITDA grew faster than revenue by 23% in Q3 2019 to EUR 108 million. This translated into a combined EBITDA margin of 59.4%, which is 1.2 points higher than last year. And even an EBITDA margin that reached 61.6% organically, i.e., for the same perimeter as Q3 2018.So finally, on the net side, this strong operating performance over the quarter resulted in a 15.1% increase in adjusted EPS at EUR 0.98 per share. Q3 reported net income, up 25.8% to EUR 63.5 million, showing the highest -- sorry, so showing the high accretion since day 1 of the Oslo Børs VPS acquisitions. So for sure, we recorded a higher tax rate due to noncash adjustment in deferred tax assets and liabilities, and I'm sure Giorgio will answer questions on this particular item.So the recent weeks, as you may have seen, were marked by the disclosure or the release of our strategic plan, Let's Grow Together 2022, along with a full new set of guidance for 2022. Organic growth as well as innovation and a strong focus on sustainable finance are very important components of our strategy. As just a first example, we have launched earlier this week, the Green Bond initiative in Dublin to further enhance the visibility of our Green Bond offering.So I now hand over to Giorgio Modica for the detailed presentation of our third quarter.

[Giorgio Modica, Chief Financial Officer]

Thank you, Stéphane, and good morning, everyone. First of all, I would like you -- to remind you that for the third quarter of 2019, the organic growth of the group exclude Oslo Børs VPS, Commcise, OPCVM 360 and any project cost supported by Euronext for their integration. In the third quarter of 2019, Euronext consolidated revenue increased to EUR 181.7 million with an increase of EUR 30.8 million or 20.4%. These results were driven by a solid 2.5% organic revenue growth driven by listing, cash trading and service businesses with combined contribution from Oslo Børs VPS for EUR 25.5 million and Commcise for EUR 1.5 million.Now looking at the different business lines. Listing revenues grew 25.1% to EUR 34.8 million driven by the double-digit growth of corporate service dynamic equity issuance activity over the quarter and the consolidation of Oslo Børs VPS.Trading business revenue was up 9% to EUR 70.8 million with a strong combined cash trading market share at 69.4% and an organic cash trading yield at 0.53 basis points and 0.51, including Oslo. Advanced Data Services reported a good quarter, up 13.9% to EUR 33.5 million, primarily driven by the integration of Oslo Børs VPS and the good performance of indices, especially ESG. Post-trade activity strongly increased to EUR 30.8 million, resulting from the consolidation of VPS activities, offsetting lower clearing revenues due to unfavorable revenue mix with lower commodity volumes.As Stéphane already mentioned, in the third quarter of 2019, nonvolume-related revenue accounted for 52% of total group revenue, reflecting notably the increased proportion of services and custody and settlement in our revenue mix. Lastly, the nonvolume-related revenues cover 129% of our operating costs, excluding D&A, compared to 110% last year.Moving to Slide 7 for listing. The 25.1% growth this quarter was driven by corporate services and Oslo Børs. Corporate service continues to grow with a strong organic growth of almost 50% from last year, thanks to the increased commercial activity. Combined with the activities of Oslo Børs VPS, our corporate service franchise reported EUR 6 million of revenues this quarter.With regard to the equity listing, we reported an active quarter with 12 new listing and EUR 221 million rate. Our international offering for large caps was further enhanced by the listing of the South African company, Prosus, with a market capitalization of EUR 120 billion on its first day of listing and a Greek company, Titan. In addition, we had 10 SME listing this quarter, with a strong contribution from our European Tech SME initiative.Secondary market activity was stable, reflecting light M&A activity over the quarter. Our debt franchise reported strong growth, demonstrating our leading global position on this market.Lastly, as announced in October, at our Investor Day, we launched this week our Green Bond offering across all Euronext markets, with more than 50 initial participating issuers to this initiative to promote and support the Green Bonds.Moving to our trading business on Slide 8. We start with cash trading. Cash trading reported strong growth with revenue up 10% to EUR 53.4 million. This growth was driven by organic growth and Oslo Børs VPS contribution. The quarter was marked by the peak in volatility in August, which drove ADV to a EUR 7.9 billion average, up 9.6%.In this context, the combined market share was 69.4%, including Oslo, 3.7 points higher than last year and reached 69.7% like-for-like. We continued our active yield management. Revenue capture was at 0.53 basis points on an organic basis despite the higher volatility. Combined yield with Oslo is slightly diluted because of the higher share of reported deals in Oslo at 0.51 basis points.Moving on trading derivatives now. Trading derivatives revenues was up 4% to EUR 11.5 million. Financial derivatives were supported, as I mentioned, by higher volatility. In addition, revenue capture improved for index derivatives. We experienced a weak physical market activity this quarter that impacted commodity volumes. This unfavorable product mix resulted in slightly lower revenue per lot at EUR 0.30 per lot in the third quarter of 2019.Lastly, on FX trading, revenue were 10.8%, up to EUR 6 million, resulting from positive foreign exchange rate impact and revenue capture management while volumes remained stable at $19.4 billion ADV over the quarter.Moving to Slide 9 for post-trade business. Revenue from our post-trading activity increased 56.5% to EUR 30.8 million, resulting from the consolidation of VPS custody and settlement activity for EUR 12 million. Clearing revenue was down 6.5% to EUR 13.3 million due, as already commented, to the unfavorable derivative products mix with lower commodity volumes. In addition, I would like to remind that we do not record any clearing revenue from Oslo Børs derivative products.Moving to Slide 10. With Advanced Data Services, revenues was up 13.9% to EUR 33.5 million in the third quarter of 2019. Oslo Børs VPS data business contributed for EUR 3.7 million. The growth of our indices franchise, and notably on ESG product, offset a slight decrease in market data revenue.Proceeding now with investor services, revenue was EUR 1.8 million as the business continued to grow, benefiting from Euronext reach and expertise. We also reported a small contribution from Oslo Børs VPS for EUR 0.3 million.Lastly, on Technology Solution, revenue was up 9.5% to EUR 9.9 million, reflecting the good performance of hosted service business as well the continued work on Optiq commercial project deliveries.Moving to Slide 10 (sic) [ Slide 12 ]. For the financial highlight of the quarter, we start with EBITDA. Euronext EBITDA grew faster than revenue, as Stéphane mentioned, 23% to EUR 108 million this quarter driven by organic growth, continued cost discipline and the consolidation of our recent acquisitions. Overall, the EBITDA margin increased to 59.4% in the third quarter of 2019, up 1.2 points. On a like-for-like basis, EBITDA margin was at 61.6% this quarter, up 3.5 points. From a revenue perspective, revenue at constant perimeter increased EUR 3.7 million, reflecting trading and listing revenue growth with Oslo Børs VPS, Commcise and other nonorganic elements contributing EUR 27.1 million.Looking at cost. Organic operating expenses, excluding D&A, [ increased -- decreased ], the EUR 3.8 million. This reflects both the adoption of IFRS 16 for around EUR 2.7 million and the continuous cost optimization for around EUR 1.1 million. With respect to the integration of Euronext Dublin, out of the targeted EUR 8 million of expected run rate savings, EUR 7.6 million have been already delivered as of September 2019. In this context, we confirm our 2019 cost guidance of a low single-digit growth compared to 2018, including Euronext Dublin, but excluding Oslo Børs VPS.In addition, we consolidated EUR 14.5 million of operating cost, excluding D&A, from Oslo Børs VPS, OPCVM this quarter. As a reminder, Oslo Børs VPS integration cost will gain traction in the fourth quarter through increased provision and additional operating cost and some new projects will be launched in the fourth quarter.Moving to Slide 13 to the net income. The net income grew faster than EBITDA by 25.8% to EUR 63.5 million, resulting from the following elements: G&A mechanically increased due to the adoption of IFRS 16 and were also impacted by the [ first ] consolidation of Oslo Børs VPS DNA, and the PPA accounts for EUR 3.4 million for 3.5 months of consolidation. This is important to highlight, 3.5 months means that we needed to catch up 2 weeks of PPA from the last quarter as we closed the transaction in mid-June. On a run rate basis, the PPA for Oslo will be of around EUR 3 million per quarter.Exceptional items were lower this quarter compared to the third quarter of 2019 that was marked by very exceptional items, mainly related to the acquisition of Euronext Dublin. As I mentioned earlier, we might expect increased cost for Oslo Børs VPS integration cost in both operating and exceptional expenses in Q4 2019. And going forward, I'll remind you that the target for integration cost for Oslo Børs VPS was set at EUR 18 million. And clearly, in the fourth quarter, we will book provision for a part of that.Net financing income increased following the launch of our second bond. This line could be impacted in the fourth quarter as well by the revaluation of the earnout and the right to buy back the minority of some of our corporate service subsidiaries.Lastly, income tax rate increased, resulting from noncash adjustments on deferred tax asset liabilities. Excluding this impact, the tax rate was slightly above 30%, and we expect this rate to continue in Q4 with the information we have at the moment.Going forward, we expect the combined tax rate will go below 30% in 2020, if the tax rate expected across the Euronext country will materialize as expected. And in this respect, I would like to give you some more details. So clearly, in France, the tax rate that today is at 32% will reduce next year to 20 -- a little bit lower than 29%. And clearly, this had a one-off impact on the valuation of our tax assets.In the Netherlands, we experienced some change in expectation as well. The tax rate was supposed to go down to 20.5% and will go down with respect to 2019 but at the lower pace, at 21.7%. And this had as well a negative impact on the valuation of some of our tax liability. So the general trend of taxes across the Euronext country is a reduction. But with a reduction, there are some noncash elements impacting our P&L.Adjusted for the PPA and exceptional items, adjusted net income was up 15.1% to EUR 68.3 million, translating into an adjusted EPS of EUR 0.98 for the quarter. I remind you that our adjustment includes the -- all the PPAs, exceptional items and the tax impact of those adjustments.To conclude with financial on Slide 14. Over the quarter, 70.3% of EBITDA was converted into net operating cash flow compared to 80.6% last year. These results from negative changes in working capital driven by an acceleration of payment process linked to the migration to a new ERP in Euronext and the payment of the success fee related to the acquisition of Oslo Børs VPS. It is to be noted as well that last year, there was a positive change in working capital impacted by the accrued expenses related to the termination of the DB contract. As far as the leverage is concerned, following the launch of our second bond, our net debt is at EUR 739 million, representing an adjusted net leverage of 1.8x pro forma.Looking at the bottom of the slide, as of the end of the third quarter of 2019, our liquidity position remained strong, close to EUR 680 million, including the undrawn RCF of EUR 355 million.This concludes my presentation, I'll now hand back the floor to Stéphane Boujnah.

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

Thank you, Giorgio. Just 3 comments to summarize this quarter. We reported a very strong quarter with net income growing faster than all other metrics, faster than EBITDA, faster than revenues. And this is the result, as you have understood it, of, for sure, the consolidation of our last acquisitions, and the results of robust organic growth and the results of continued cost management. As planned, we will deliver on our 2019 organic cost guidance of a low single-digit growth of our operating cost versus 2018.My final comment is that for -- during Q4, you will see the launch of Optiq for derivatives markets at the end of November. This will be the last step of our Optiq trading platform delivery.We are now available for your questions with Anthony Attia, member of the Managing Board and Giorgio Modica.

[Operator]

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

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

Just 2 questions from me. I was just wondering if you could provide a little bit more color about the businesses? I know, I think you charge on a per-client basis right now. But going forward, how are you going to be looking to potentially harmonize the fee rates with Oslo Børs?And then second, I just noticed a bit of a tick up in terms of the -- your cash -- targeted cash for operations to about EUR 180 million from EUR 110 million in the second quarter. I assume this is related to Oslo Børs. I was just wondering if you could provide a little color as to the breakdown between the exchange business versus the CSD business.

[Giorgio Modica, Chief Financial Officer]

Yes. Thank you for the question. So when it comes to Oslo Børs VPS, if we look at the rate, it's actually not too dissimilar for the one of Euronext. What does change, however, is the mix in between the volumes, which are only reported volumes and therefore bring very limited contribution, and the volume for which we charge. So in terms of delta, there is -- in terms of average fee, there is clearly not -- were already in line, to put it this way. Then clearly, in terms of harmonization of fees, we will need to wait for the Optiq migration. And this is clearly a process that needs to be designed and agreed with the members to make sure that we design the best scheme. As clearly, the local members are very important to our business.So what I can comment today is, first, that on the part of the volume on which we charge, there is not a significant delta between Oslo Børs VPS margin and our margin. And once we will have concluded the work to define the migration project, we will be able to give more details on that.When it comes to the question of the EUR 180 million, you are correct. So the first element I would like to highlight, this EUR 180 million that is an increase with respect to the previous EUR 110 million are not only related to capital requirements. So this is the cash that [ within sufficient ] to operate our business, of which capital requirement is an element.Now coming to your last question, we do not provide the breakdown of this number. That includes several elements. However, what I can tell you is that, clearly, a significant part of the increase is related to the integration of Oslo Børs VPS.

[Operator]

Our next question comes from the line of Philip Middleton from Merrill Lynch.

[Philip David Middleton, Analyst]

Maybe this is on -- a couple for Anthony. Looking at your cash equity yield, again, it seems like on the organic yield, you've done a very good job of triangulating market share and yield. Whereas, I normally thought there was a bit of a -- the 2 works in opposite directions. Could you talk through how you've done that? And also just conceptually, could you talk through a little bit how you would go about integrating an exchange with very different charging structures, where maybe some people paid less and some people paid a lot more? How would you think about that?

[Giorgio Modica, Chief Financial Officer]

Yes. So let me take these 2 questions. So the first element is that, as we explained during the Investor Day, the way we are improving market share in yields is providing a better value proposition for clients. And so far, the programs that we did put in place proved to be very successful. And specifically, the Best of Book and the OMEGA pack, which is the access to our market for nonmembers. What is interesting is that this very strong performance in market share was reached despite a level of closing auction that we consider normal and lower than the level we reached in previous quarter. Then -- and this is something that we would continue to do, which means the leverage the unique diversity of the flows in our market to propose value-add liquidity schemes to client to be able to maximize our market share.And the second element, which is important as well, is clearly, when the liquidity drops, having the natural flows of retail and institutional clients provides to be a sustainable competitive advantage versus competition that suffer more than we do.Your second question was related to the integration of Oslo Børs, and you're absolutely right. This is the core of the migration process. Switching from one system to the other, we did it many times. It's an activity that is not too complex from a technical point of view. The part that really needs to be well defined is the synchronization with the local ecosystem, and this is a process that takes months. And this is the reason why we will finalize that throughout the course of 2020. So there is not a single rule, it's really interacting and discussing with the local members to find the best balance in between the value-add and the change of fees. But you are right, this is something that needs to be very carefully assessed.

[Operator]

Our next question comes from the line of Benjamin Goy from Deutsche Bank.

[Benjamin Goy, Research Analyst]

Two questions, please, from my side. First, I think, Stéphane, you were quoted last night on saying you look at opportunities when they arise for M&A. So just wondering how this works on the integration side? Do you feel capable to handle 2 significant transactions at the same time, just hypothetically speaking?And then secondly, on Technology Solutions, a good organic growth rate. Maybe you can speak a bit more about the external pipeline for this business going into 2020.

[Giorgio Modica, Chief Financial Officer]

Okay. We have acquired, over the past 4 years, a very strong track record in terms of managing operations. What we are in the process of executing in Oslo is similar to what we have done in Ireland. And what we have done in Ireland is similar to what we have done to ourselves, to the core business of Euronext. So you have seen the number for the Euronext core business. You have seen the number for Ireland, we're almost a year ahead of schedule, we are close to delivering the targeted run rate cost synergies that were anticipated at the time of closing Ireland in -- of closing the acquisition -- the Irish Stock Exchange, sorry, in March 2018.We are well advanced in the integration process of Oslo Børs VPS. Obviously, we have to respect all the applicable rules and regulations and employees consultations and dialogues with the regulators. But as far as everything that is related to Euronext is concerned, things are going extremely well. So the question of our capability to integrate other assets is obviously an operational issue, but we are confident that on the basis of what we have done so far, we will do it.As far as market solution or exchange solutions is concerned, we have -- the marketing of our solutions is really focused on the Optiq platform. It's live for cash trading since last year. It's going to be live on derivatives in the coming weeks. And all the marketing efforts across the planet is driven by this -- marketing this new offering. I don't want to comment on the pipeline at this stage because this business is a very discrete number of opportunities in reality. So we are -- there are a few ongoing RFPs. Some of them are public, others are not. You'll have to understand that when exchanges are talking to us, they are talking about switching from a solution with another provider to us. And therefore, many of them want that process to be relatively discrete because they use another provider. So I don't want to comment on the pipeline because it's a finite number of opportunities.

[Operator]

[Operator Instructions] Our next question comes from the line of Gurjit Kambo from JPMorgan.

[Gurjit Singh Kambo, Head of Diversified Financials Research]

Just 2 questions. Firstly, in terms of the nonvolume-related revenues, they've increased to about 52%. And I think it was 46% last year and around 44% in 2014. How important is it to keep that number going up? And particularly, I guess in the face of sort of looking out to nonorganic growth, do you look at that progression in that sort of nonvolume-related revenues? That's the first question.And then secondly, I think you cited some good growth within the ESG products within the advanced Data Services Business. What are the sort of revenue sort of yields in that business? Are they similar to, I guess, non-ESG products?

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

So Giorgio will take your second question. I'll take the first one. So yes, so on the nonvolume. So the objective of Euronext is to become more relevant in Europe. And to -- in order to achieve that objective, we want to diversify our top line, for sure, and we want to grow in size. So clearly, the ultimate objective is to continue to diversify our revenues, and it's also to look for opportunities to grow the size of Euronext. But that clear objective is definitely to continue growing this -- the nonvolume-related revenues as demonstrated by the efforts we have done over the past 2 years. Giorgio?

[Giorgio Modica, Chief Financial Officer]

Yes. And on your second question, the indices are performing well. Also thanks to the ESG underlying to -- on both structured products and ETF. We created 5 families of indices for our clients. In terms of profitability, there is not anything specific to highlight with respect in terms of difference between ESG and non-ESG products.

[Operator]

Our next question comes from the line of Ron Heijdenrijk from ABN AMRO.

[Ron Heijdenrijk, Analyst]

A few questions from my side. Firstly, Q3 has a seasonality in the Oslo Børs reporting, both on the settlement revenues as well as on the cost. I was wondering, is that seasonality going to be there going forward? Or is that going to change when the integration of Oslo Børs has been done?Secondly, you were mentioning on one-off changes in working capital. You were mentioning some acceleration in migration cost, but I didn't catch that completely. So could you please repeat the changes -- the one-off changes in the working capital in the third quarter?And then thirdly, were there in this quarter any one-offs in the EBITDA, so in the cost base or in the revenue space? And that's it for now.

[Giorgio Modica, Chief Financial Officer]

Yes. So with respect to the -- to your question around seasonality. With respect to the top line, the seasonality you should expect is not a lot dissimilar to the seasonality of exchanges that usually have weak Q3s and as well the listing activity as the usual seasonality. But nothing specific to report there.Where to a certain extent, there is a seasonality is with respect to the costs, so the margin was between brackets inflated in the second quarter but this is more of an accounting element. And therefore, as far as your projections are concerned, if you consider the margin of the third quarter, this is something -- a margin that can be considered in line with the past and sustainable.With respect to the one-off, it's -- what has happened is a very practical thing, which means that we migrated to a new version of the ERP. And to have a smoother migration, we anticipated the payments. So it's a very practical element. And then we will go back to the usual element, but these had an impact in terms of our cash flow. And the other elements that I wanted to mention is the payment of the fee, the success fee due to -- for the success of Oslo. Whereas, the other element that highlighted in the third quarter of 2018 was linked to the fact that there was a positive change in working capital related to a noncash cost item related to the cost settlement of the DB contract. As you remember, we provisioned net cost in the third quarter, and we expensed the cost in the -- and we cash out the cost in the first quarter of 2019 as we migrated the system in February this year.Your last question was with respect to one-off. There is nothing specific to highlight. When there is something we usually do, there is some small cost for Oslo but it's not material. So I would not mention anything.

[Ron Heijdenrijk, Analyst]

That's very clear. If I may, one further question. You were mentioning that the Oslo Børs integration costs would go up in the fourth quarter of the year. You mentioned the EUR 18 million integration cost, which would go through the exceptionals, a portion of that. And can you maybe elaborate on how much you are planning to take off this EUR 18 million in the fourth quarter?

[Giorgio Modica, Chief Financial Officer]

So what I was saying, clearly, we do not expect the full EUR 18 million to be in next quarter. What is going to happen is that the costs that are well identified to be paid and would not be recurring will need to be provisioned. And in this cost, you might include the costs like early termination of contracts as well as redundancies. So the next quarter, clearly, the computation will need to be finalized depending on final elements. But you would expect a provision within the same scheme of what happened in Dublin last year. So clearly, we are looking at an amount which is clearly significantly lower than 50% of the total envelope.

[Operator]

Our next question comes from the line of Johannes Thormann from HSBC.

[Johannes Thormann, Global Head of Exchanges and Analyst]

Johannes Thormann, HSBC. Two questions from my side, please. You nicely provided the breakdown of Oslo Børs' contribution to the revenues. Could you provide this also to the personnel costs and the other costs, how much in the quarter have come from that source?And secondly, looking at the tax rate, I know it's difficult to give a precise guidance but could you give us a feeling, a range how low you think the tax rates can go in the long term?

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

[ We're still ] in tax rate.

[Giorgio Modica, Chief Financial Officer]

So the question is on the cost or on the revenues? You think on the...

[Johannes Thormann, Global Head of Exchanges and Analyst]

On the cost now. Because I didn't find it in the presentation. You gave the breakdown for every revenue line, how much contribution of Oslo was but I didn't find it for the...

[Giorgio Modica, Chief Financial Officer]

Yes, yes, yes. I understand that. The breakdown we can give is that the staff cost is around EUR 8.5 million out of the total of EUR 13.2 million, which are the cost of Oslo.

[Johannes Thormann, Global Head of Exchanges and Analyst]

And the question on tax rate?

[Giorgio Modica, Chief Financial Officer]

And the question on tax rate, in Norway, the tax rate -- the corporate tax rate is -- the nominal for financial institution is 24%. And clearly, the actual one with the light margin is between 24% and 25%.

[Operator]

Our next question is from Andrew Coombs from Citi.

[Andrew Philip Coombs, Director]

Two, please. The first on clearing. You talk about an unfavorable derivatives product mix with lower commodities. Could you just elaborate there exactly what was driving the weakness?And secondly, an accounting question. In depreciation and amortization charge, you're now including a purchase price adjustment for Oslo Børs, I think EUR 3.5 million this quarter. You're guiding for EUR 3 million going forward. What are the drivers that could flex that? I know it's a noncash item, but just wondering how long we can expect it to last for. And what are the key drivers for that number?

[Giorgio Modica, Chief Financial Officer]

Yes. So your -- I'll start with your second question. So on that one, just to be completely clear on that item. So when you look at the increase of D&As, let's first start from a pure comparable standpoint. So what has happened between last year and this year comparing quarter-to-quarter, 2 things have happened. On the one side, the normal D&A of tangible/intangible assets have reduced in size. On the other side, there is the impact of IFRS 16 that has increased the D&A of EUR 2.7 million. The net of these 2 element is an increase of D&As of around EUR 2 million. So from a -- let's say, if we exclude the accounting principles change between the 2 quarters, D&A have reduced.Now the other part is the change in scope. The change -- the impact of the change in scope is around EUR 5 million. Out of this EUR 5 million, again, the part that is related to PPAs in general, because there is no -- only Oslo that we commented, but there is as well a big portion of Commcise. That contribution is EUR 3.5 million out of the EUR 5 million and the rest is the usual D&A of the companies that we have acquired.Then when it comes more specifically to the PPA element, what happens is that when we complete an acquisition, the asset and liability needs to be revalued at fair value and then amortized during the remaining useful life of those assets. Usually, there are 2 key categories. There is a client relationship and software, which have useful life which is very different. And therefore, you should expect that charge to remain in the P&L for a significant long time.

[Andrew Philip Coombs, Director]

And on the clearing?

[Giorgio Modica, Chief Financial Officer]

And on the clearing, I cannot comment exactly on the different charge, but the cost of clearing commodity is significantly higher because there is a component of physical settlement. So the base fee is higher. And therefore, the drop in the commodity volumes has limited impact on the trading but significantly higher on the clearing. If you want your simulation, you can assume that pretty much all the drop is related to the change in mix.

[Operator]

Our final question comes from the line of Bruce Hamilton from Morgan Stanley.

[Bruce Allan Hamilton, Equity Analyst]

Yes. Just a couple of follow-ups. On the clearing point, so I get the commodities, obviously, is much higher margin, but within the rest of the clearing, is there any other sort of margin differentials between sort of index and single stock options? Or should we not really worry too much about it and just focus on commodities and noncommodities.Secondly, in terms of the sort of clearing fees and rebates, how often do you sort of renegotiate with LCH? So just a reminder on the sort of contract terms there.And then finally, if we're just thinking about depreciation and amortization and there is also sort of moving parts going on here, but is the way to think about it, in terms of cash cost, I think you guide to sort of 3% to 5% of revenues in terms of CapEx. So is kind of EUR 9 million the upper end of what we should think about in terms of the sort of the P&L cost of CapEx on a quarterly basis?

[Giorgio Modica, Chief Financial Officer]

Yes. So let me start with the CapEx. Yes, so that what you should consider is 3% to 5% of our top line. This is what you should think in terms of cash costs. With respect to the differentiating element between the different classes of derivatives, yes, there are differences. But as you said, if you consider it as one, it would be good enough in terms of expectations.And your second question was...

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

Negotiation with...

[Giorgio Modica, Chief Financial Officer]

Negotiation is defined agreed for the next 10 years. So it's -- there is no additional negotiation to be made. The conditions are defined for the next 10 years.

[Operator]

I would now like to hand back to your host, Stéphane Boujnah, for any further remarks.

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

Well, thank you very much for your time this morning, and have a good day from Oslo where it has starting snowing. Have a good day.

[Operator]

Thank you for joining this morning's conference call. You may now disconnect your lines.