Euronext NV

PAR:ENX

Earnings Call Analysis

Euronext Reports Q3 2023 Growth and Cost Discipline

Euronext's Q3 2023 was marked by a 2.8% growth in underlying revenue to $360.2 million, driven by non-volume-related businesses now accounting for 60% of total revenue. Operating expenses dropped by 2.6%, leading to better-than-expected underlying costs, with full-year guidance now lower than the initially projected $630 million. Adjusted EBITDA increased by 6.9% to $213.7 million, and adjusted EBITDA margin improved by 2.3 points to 59.3%. A $41.6 million capital gain from selling an 11.1% stake in LCH SA contributed to a more than double year-on-year net income of EUR 166.5 million, and adjusted EPS rose by 13.7% to EUR 1.38. Net debt to adjusted EBITDA ratio stood at 2x, with a cash flow conversion rate of 100.7%. Significant progress was made in the strategic plan, with an anticipated achievement of EUR 70 million in synergies by the end of 2023, surpassing the initial EUR 60 million target.

Euronext Posts Strong Quarter Amplified by Organic Growth and Cost Discipline

Euronext's third quarter of 2023 reflected a robust performance, characterized by organic growth in non-volume-related businesses and sustained cost discipline. Underlying revenue and income reached $360.2 million, marking an increase of 2.8% compared to the same quarter in the previous year. The increase was even higher at current currency rates, registering 4.1%. A reported revenue growth of 19.5% was observed, largely influenced by a positive comparison base related to a non-underlying loss reported last year. Despite challenges such as currency depreciation and lower equity and derivative activities affecting revenue, the company achieved a significant milestone by generating positive finance income for the first time, which indicates earnings from cash deposits exceeding interest paid on debt.

Non-Volume-Related Businesses Drive Growth; Trading Activities Show Mixed Results

Non-volume-related businesses, which now account for 60% of Euronext's total revenue, were major growth drivers for the quarter. The Technology Solutions sector saw a 5.5% revenue increase, Advanced Data Services rose by 4.7%, and Investor Services climbed 20.4%. Euronext Corporate Services also experienced solid performance with a 12.5% revenue increase. While cash trading revenue experienced a year-on-year decrease of 4.4%, derivative trading revenue fell by 3.9%, and FX trading revenue dropped by 11.4%, fixed income and power trading posted double-digit growth, demonstrating resilience and diversification in Euronext's trading activities.

Achievements in Post-Trade Activities and Clearing Expansion

In post-trade activities, Euronext reported an increase in clearing revenue by 1.6%, benefiting from higher bond and commodity clearing activities. The financial review highlighted a rebound in the net treasury income, reaching EUR 13.7 million this quarter, in stark contrast to the EUR 38.1 million negative amount in the corresponding quarter of the previous year. They are on track to deliver EUR 70 million of cumulative run rate synergies by the end of 2023, exceeding their initial target and signifying progress in the integration of Borsa Italiana and the expansion of Euronext clearing.

Cost-Efficiency and Debt Management

Euronext continues to exhibit strong cost management, with underlying operating expenses down by 2.6% and expectations of full-year costs to be lower than the original guidance of $630 million, thanks to the depreciation of the Norwegian krone. The company also highlighted an impressive cash flow conversion rate of 100.7% and managed to maintain a net debt to adjusted EBITDA ratio of 2x by the end of the third quarter.

Forward-Looking Statements Signal Continued Leadership and Integration Benefits

Looking forward, Euronext anticipates leveraging their growth and integration strategies to further solidify their leadership in listings, particularly in Europe. They expressed a strong sense of optimism about their position in the industry and are well on their way to achieving a meaningful presence across the entire capital market value chain by the end of 2024.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and welcome to the Euronext Third Quarter 2023 results. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]. I will now hand over the call to your host, Stephane Boujnah Euronext's CEO and Chairman, Managing Board; Jodi Modica, Euronext's CFO, to begin today's conference. Thank you.

[Stéphane Boujnah, executive]

Stephane BoujnahThank you for joining us this morning for the Euronext Third Quarter 2023 Results Conference Call and webcast. I am Stephanee Boujnah, CEO and Chairman of the Managing Board of Euronext, and I will start with the highlights of the third quarter. Giorgio Modica, Euronext CFO, will then further develop the main business and financial highlights of the quarter. Starting with Slide #4. Euronext reported a strong quarter driven by organic growth in non-volume-related businesses and continued cost discipline. Underlying revenue and income reached $360.2 million, up plus 2.8% compared to Q3 2022 and up plus 4.1% at current currency rates. On a reported basis, revenue was up plus 19.5%, reflecting the positive comparison base linked to the non-underlying loss reported in net treasury income last year in try. This robust performance this quarter was notably enabled by continued organic growth from our non-volume-related businesses. And these non-volume-related businesses represent now 60% of our total revenue. And obviously, the other contributor has been the double-digit growth in fixed income and in power trading. This more than offset the negative currency impact from the depreciation of the Norwegian quarter against the euro as well as lower equity and derivative related activities. Our revenue was also negatively impacted by the recognition of a small credit note that was not predictable. And that explains most of the small delta with market expectations this quarter. our underlying operating expenses, excluding D&A this quarter were at EUR 146.5 million, down minus 2.6% compared to Q3 2022. This strong cost performance despite inflation results from continued cost discipline and positive foreign exchange rate impact. Considering the current foreign exchange rate of the Norwegian quarter, we expect a full year positive impact in 2023 of $12 million from the Norwegian quarter depreciation on our cost base. We therefore expect underlying costs, excluding G&A for the full year to be lower than the original guidance of $630 million even in February 2023 through the Norwegian quarter remained depreciated compared to last year. In this context, adjusted EBITDA in Q3 2023 reached $213.7 million, up plus 6.9% compared to the adjusted EBITDA of Q3 2022. Our adjusted EBITDA margin reached 59.3%, up plus 2.3 points compared to Q3 2022. I would like to highlight that the high interest rate environment enabled us for the first time to generate positive finance income, meaning we earn more from all cash deposits than we pay as interest for our debt. Reported net income was at EUR 166.5 million, more than doubling year-on-year. This achievement reflects our good operating performance together with $41.6 million capital gain we received this quarter following the disposal of your next 11.1% stake in LCH SA as well as the positive comparison base linked to the one-off loss reported under net treasury income last year in Q3. Adjusted to these 2 one-off impacts, negative 1 last year, positive one this year. Euronext profit grew by plus 13.2% to $146.5 million. This translated into an adjusted earning per share at EUR 1.38, up plus 13.7%. On a reported basis, the EPS more than doubled year-on-year to EUR 1.57. Lastly, net debt to adjusted EBITDA reached 2x at the end of Q3 2023, and our cash flow conversion reached 100.7%. As you can see, our financial health or balance sheet position or liquidity position or cash generation is very good. From a business perspective, this quarter, we strengthened our position as the leading cash trading and leasing venue in Europe. Cash trading market share grew to 66.5% on average and revenue capture reached 0.4 bps, well above the 2 floors we committed to deliver at the beginning of the year on those 2 metrics. On the listing side, we attracted on our market, 72% of new European listings this quarter, with 23 new listings in Q3, bringing the total number of yesteryear to-date to 51 listings, well ahead of our peers in Europe. Notably, the U.S. beauty company, Gucci, you are listed on Euronext Paris to expand its exposure with European investors. On the ESG front, we also continue to innovate with the launch of my ESG profile. We are the first exchange that makes individual ESG data of our issuers available on our Euronext website in a standardized format, uniting more than 60,000 ESG data points from 1,900 listed companies. We also confirm our global leadership in bond listing and in ESG bond listings in Europe. Moving now to Slide 5. Over the past weeks, we successfully delivered several key milestones of our growth for impact 2024 strategic plan. And we are now well on track to deliver at the end of 2023 for intermediate target of EUR 70 million of cumulative run rate synergies in relation to the acquisition of the Borsar Italiana group. This is already more than the initial targeted amount of EUR 60 million of synergies that we contemplated in April '21 or the end of '24. We were initially contemplated $60 million by the end of '24, and we are going to deliver EUR 70 million by the end of ‘23. At the end of Q3 2023, we have delivered EUR 47.6 million of cumulative run rate annual EBITDA synergies -- and we have incurred EUR 95.1 million of cumulative implementation costs since the acquisition of the Borsa Italiana Group, in line with our plan. Since September, all Euronext cash markets are operated on a single technology trading platform uptick. The completion of these migrations allowed for the decommissioning of the third-party provider that was supplying the technology for Borsa Italiana and will generate related cost synergies as from Q4 2023. The third and final phase of the trading platform migration is for derivative instruments and is planned for the first quarter of 2024. We have also marked the first step in the expansion of Euronext clearing to all Durnex markets. Since Monday this week, one clearing is positioned as the default CP for Euronext Brussels cash markets. And the other Euronext markets will follow later this month as planned, delivering additional revenue synergies this year. We paved the way for the expansion of Euronext hearing for the clearing of derivatives on all Euronext markets, which will be completed in Q3 2024. And this migration will contribute meaningfully to the targeted EUR 115 million of cumulative run rate EBITDA synergies that we committed to deliver by the end of '24. All in all, we are very well on track for the delivery of the $150 million of cumulative run rate annual synergies by the end of '24. A large part of the remaining synergies will be delivered through the expansion of Euronext clearing for derivative markets in Q3 '24. I'm glad to announce that the European Union has appointed MTS as a recognized interdealer platform for the implementation of electronic market making and EU issued debt instruments. You may know that the European Union Next Generation program is issuing approximately EUR 750 billion of new sovereign debt instruments. So the fact that MTS is now a recognized interdealer platform for the implementation of electronic market making for these instruments is the successful result of our cross-selling efforts since the integration of MTS within our next 2 years ago. This is another very tangible evidence of the revenue generation created by the integration of MTS within the European project of Euronext. Early November, we have launched very successfully in this new market, which traded volumes and dealer participation have been very dynamic and already this EU programs represent the third largest volumes on MTS after Italy and span. I now hand over to Giorgio Modica for the review of our third quarter 2023 performance.

[Giorgio Modica, executive]

Thank you, Stephane, and good morning, everyone. Let's now have a look at the performance of this third quarter of 2023. I'm now on Slide 7. As already mentioned, total revenue this quarter reached EUR 360.2 million. This is up 19.5% compared to last year reported revenue plus 2.8% compared to last year's underlying revenue and plus 4.1% like-for-like. – 60% our revenue is non-volume-related, highlighting the success of our diversification strategy. Our diversified business model delivered a solid quarter, driven by organic growth in our non-volume-related businesses and by double-digit trading revenue growth in fixed income and power trading. I will come back to that in a minute. In addition, transitional revenue was negatively impacted by a nonrecurring credit note. Turning to the next slide, Slide 8. I will now start with the financial review of our non-volume-related activities, which continued to drive growth also this quarter. Technology Solutions reported EUR 27.4 million of revenues, up 5.5%, thanks to the continued benefit from the internalization of our colocation services. Advanced Data Services reached EUR 55.5 million of revenue, up 4.7%, driven by the growth in our market data as well as the continued strong performance of the Data Solutions business. As a reminder, Q3 always sees a seasonal softer summer period for nonprofessional users. Investor Services reported EUR 3 million in revenue in the third quarter of 2023, representing a 20.4% increase compared to the same quarter last year. This results from the continued commercial expansion of the franchise across the largest global investment manager. Slide 9. Listing revenue was EUR 54.6 million, up 3.4% like-for-like, reflecting a resilient quarter for listing and follow-on activities and the continued strong growth of our corporate service SaaS offering. Reported revenue was up 1.1%, reflecting the impact of the weak knock in our Norwegian activities. Euronext demonstrated once again its leadership position in listing in Europe, recording 72% of the new European equity listing this quarter with 23% listing in the third quarter, and this brings the total year-to-date listing at 54%. On the debt side, we reached for the first time over 54,000 bonds listed on our market, while we also strengthened our leadership position in ESG bond listing as well as our global position for that listing. Euronext Corporate Services continued to deliver a solid performance with revenue growing to EUR 10.6 million this quarter, up 12.5% compared to the third quarter of 2022, resulting from a strong performance of the SaaS offering. Lastly, we continue to innovate with the launch of my ESG profile as Stephane highlighted earlier, and we are the first exchange to provide such data. Moving now to trading on Slide 10. As I mentioned earlier, Euronext trading revenue was $118.3 million, benefiting from Euronext diversified trading activity. Cash trading revenue was EUR 64.4 million, down 4.4% year-on-year, reflecting a low volatility environment for equity trading. In this challenging environment, we confirm our strong value proposition and competitive position in cash trade. Cash revenue captured average 0.54 basis points despite the average order size is still at a very high level. This is above the targeted floor of 0.52 basis points and demonstrates the benefits from the integration of Borsa Italiana cash equity markets to Optiq. Cash equity market share averaged 66.5% this quarter, here again above the floor of 63%. Derivative trading revenue decreased 3.9% to EUR 13.4 million this quarter due to lower financial derivatives volumes with ADV down 2% and partially offset by the stronger performance of commodity derivatives with volumes up 14.7% versus last year. Average revenue capture on derivative trading was EUR 0.34 per lot. Lastly, FX trading reported EUR 6.4 billion of revenue this quarter, down 11.4% despite higher traded volumes and this is the result as well of the U.S. depreciation and an unfavorable mix of volumes. Continuing with our trading activity on Slide 11. Fixed income trading revenue grew 18.7% to EUR 25.4 million this quarter, reflecting the strong performance of MTS cash, MTS Repo and the increased traction of Euronext fixed income retail franchise. Our fixed income franchise continued to be supported by the favorable interest rate environment and good market volatility. For the third quarter of 2023, MTS Cash recorded EUR 21.3 billion of average daily volume. This is plus 38.1% and MTS Repo recorded EUR 410.2 billion of time-adjusted ADV. As Stephane has highlighted, MTS has been nominated by the EU as a recognized in the dealer platform for the implementation of electronic market making on EU issued debt instruments, and we launched that market on the 1st November this year. Our trading revenue through EUR 8.6 million this quarter. This is up 10% compared to the same quarter last year, driven by the very strong intraday volumes and improved revenue capture, partially offset by lower day-ahead volumes and also impacted by the NOK depreciation as we discussed. I would like to conclude the business review on Slide 12 with our post-trade activities. Clearing revenue was up 1.6% to EUR 29.5 million this quarter, benefiting from the stronger bond and commodity cleaning activity compensating the are softer equity clearing environment. Non-volume-related clearing revenue accounted for $8 million of the total clearing revenue this quarter. The net treasury income reached EUR 13.7 million this quarter compared to a negative $38.1 million last year. I remind you that last year in the third quarter 2022, we proceeded with a partial disposal of Euronext's clearing investment portfolio, which led to a non-underlying loss of EUR 49 million recorded in NPI. As Stephane announced at the end of October, Euronext clearing was introduced the new bar-based margin methodology for equity, ETF and financial derivative markets which creates efficiency for our clearing members. This mechanically decreases the default fund contribution. Consequently during the next 3 quarters until the expansion of our CCP to Euronext listed derivative, we expect NTI to be for a short period of time, slightly lower than the current level, at circa EUR 12 million per quarter should the market conditions remain the same. For the... Completion of the existing expansion of Euronext clearing in the third quarter of 2024 onwards, the NTI is expected to increase back again, thanks to the addition of the listed derivative flows. Just to be clear, we expect that in the fiscal year 2024, the NPI will be higher and the NTI in the fiscal year 2023, again, should everything remain the same so the drop is expected to be temporary. Lastly, revenue from custody settlement and other posted activity was EUR 58.9 million, this is a 6.5% increase like-for-like, reflecting the increased revenue capture in services and higher asset under custody partially offset by slightly lower segment activity. As a reminder, Q3 is usually impacted by seasonality in a negative fashion. On a reported basis, revenue increased 3.1%, again impacted by the NOC. Moving on, and I'm now on Slide 14 with the financial review for the quarter, starting with the EBITDA bridge. Euronext adjusted EBITDA for the quarter was up 6.9% to $213.7 million, resulting from higher revenue in our non-volume-related activities, combined with the continued cost discipline and the positive foreign exchange rate impact on expenses. This translated into an adjusted EBITDA margin of 59.3%. Considering the current foreign exchange rate of the NOC, we also expect a full year positive impact of EUR 12 million on our cost base from the NOC depreciation. Consequently, Euronext expects its underlying costs, excluding D&A, to be lower than its current 2023 cost guidance at EUR 630 million. Nonunderlying costs for the quarter were EUR 7.1 million, primarily in relation to the ongoing work related to the clearing expansion,n the optic migration and in general, the Borsa Italiana integration. Moving now to net income on Slide 15, adjusted net income this quarter is strongly up at EUR 146.5 million, resulting notably from the higher net financing income resulting from a higher interest rate income from cash and cash equivalents. As Stephane highlighted, this is the first time we are earning more from our cash deposits and we pay an interest for our debt. Then we have a materially higher result from equity investments, and this reflects the EUR 41.6 million capital gain arising from the disposal our stake in LCH SA and the dividend received from Euroclear. Lastly, Income tax for the third quarter 2023 was EUR 48.4 million. This translated into an effective tax rate of 22% for the quarter. As a result, reported net income more than doubled to EUR 166.5 million, and adjusted EPS past was up 13.7% at EUR 1.38 per share. To conclude with cash flow generation and leverage, as you can see, our balance sheet position is very solid as well as our cash flow generation. In the third quarter this year, Euronext reported a net cash flow from operation activity of EUR 174.5 million compared to EUR 318.1 million the same quarter last year, reflecting lower change in working capital. Excluding the impact on working capital from Euronext clearing and Nord Pool CCP activities, net cash flow from operations accounted for 100.7% of EBITDA in the third quarter this year. Net debt to adjusted EBITDA was just at 2x at the end of the quarter and 2.2x on reported EBITDA. With this, this concludes my presentation, and I would like to give back the floor to Stephane.

[Stéphane Boujnah, executive]

Thank you, Giorgio. As you understand, overall, this quarter demonstrated the robustness of our diversified model and we have strong confidence in our growth prospects and our capacity to control costs over the next months. Second, for 2023 costs are expected to be lower than our initial guidance, resulting from the positive impact of the Norwegian quarter depreciation. And third, in the next quarters, we will deliver 2 major milestones of our growth for Impact 2024 project plan, which will contribute very significantly to the EUR 150 million synergies that we will achieve by the end of ‘24. Euronext will have by the end of ‘24 meaningful presence on the entire capital market value chain ideally positioned now to generate further organic growth throughout this integrated value chain. Thank you for your attention, and I'm happy with Giorgio and few other colleagues to take your questions now.

[Operator]

[Operator instructions]. We will take the first question from Karl from KBW.

[Karl Barker, analyst]

Maybe 2 questions for me. First, just in terms of the equities clearing rollout in the fourth quarter, should we think about run rate revenue from that being roughly equal to the delta between and promised run rate synergies by year-end and the $48 million already delivered. So roughly speaking, it implied kind of $20 million to $25 million of revenue run rate revenues from equity clearing and what factors could possibly drive upside to that figure? And then second question is on expenses. Just if we annualize the first 9 months of the year, we derived in something like just over $600 million of expenses for the full year. So I guess, is that the right way to think about full year expenses at this point? Or will there be elevated expenses in 4Q specifically around the clearing migration or other investments?

[Stéphane Boujnah, executive]

So Giorgio is going to address the 2 questions, the first one on synergies and the second one on expenses.

[Giorgio Modica, executive]

Yes. So let me start with the first one on rate synergies. One element--so just a reminder, out of the EUR 115 million, EUR 45 million of synergies are going to come from -- are going to come from the migration of clearing, we did not provide a split. What I can confirm now is that most of the gap between the synergies reached so far, the EUR 48 million and the EUR 70 million target by the end of the year is going to be presented by the run rate synergies on the equity clearing. But this is not going to be the only component because we're expecting to keep reducing costs as a result of additional steps in the integration of Borsa Italiana. So short version of the answer is the most part of the gap is going to be the run rate synergies on equity clearing, but not all of that. And in terms of potential upside, the potential upside to that is delivering more synergies, and we will try to do that as we do every quarter. When it comes to your second question, here, we wanted to highlight one very factual element is that Euronext has around NOK 1 billion expenses in our P&L and this translates into -- we expect to translate into a saving related to currency of around EUR 12 million, which will mechanically reduce our expenses for the year, as we said. So we expect to have reported costs for the end of the year lower than the EUR 630 million. So this is where we -- the guidance that we wish to share so far. Clearly, in the fourth quarter, it's going to be a project quarter. So not necessarily the expense are going to be in line with the previous quarter. And I want to highlight as well that usually -- and you can look at previous quarter, there is a seasonal component where the third quarter is lower cost. So on average, we have a fourth quarter cost above the level of the third quarter. So again, to some luck, this is the guidance we gave to the market. As always, we will try to be as efficient as possible on cost for the first -- fourth quarter as well. But again, you would not be correct to extrapolate from the previous 3 quarters, the exact cost for the fourth quarter.

[Operator]

We will take the next question from Lam Hurbert from Bank of America.

[Lam Hurbert, analyst]

I've got 2 of them. Firstly, on the revenue capture, went up to 0.54 basis points. Can you talk about the outlook for this going forward? And also the impact from the higher revenue yield on market share, it seems that both yield and the share were higher. Secondly, if you can talk a bit more about the MTS for market making of EU dentisments, which Stephane mentioned. I know it's still early, but can you just talk about your outlook for growth on it and also how you plan on capturing liquidity.

[Stéphane Boujnah, executive]

So I'll take the question on MTS and Giorgio will address your question on the market share and liquidity trading and yield. MTS is an amazing platform for secondary trading of Gobi. It grew from a very strong and powerful solutions for Italian Govies towards other OECD countries. It's very active on the Spanish market and for months, we tried to explain with the European Commission, the benefits of creating an electronic secondary trading platform, which all the benefits into merchant fancy. Initially, the commission wanted to use the sort of traditional primary dealer club system. Over time, they realized that with the size of the issuance with the necessity to be careful on spreads that an MTS type of solution was the right solution for them. And they have decided to appoint MPS as the relevant electronic platform for that purpose. What we -- and that has started to operate on November the first. I mean it's definitely a Q4 event, not a Q3 event, but we wanted to share that with you because what we are seeing for the past few days is a very, very rapid and dynamic development of operations on liquidity. What I said earlier in qualitative terms is, I think, striking. Today, the EU business or the EU bonds trading on Euronext and on the electric -- on MTS platform is the third largest pool of assets after Italian debt and Spanish debt. So we are very enthusiastic because it's a perfect fit for perfectly identified problem within the European Commission. And I think it's a very promising development. Giorgio, on revenue capture and yield...

[Giorgio Modica, executive]

Absolutely. Two elements in this respect that there are many variables as you now know which impacted the revenue capture and here, there are, to a certain extent, a number of offsetting items. So just a few of them. The first element is that we want to highlight that the average size of order remains particularly elevated, although we have seen a slight decrease of average size of order. So in absolute terms, this is a negative, but this negative impact is reduced slightly, I would say. And the other element that has always been positively geared with respect to the revenue capture is the volume. Unfortunately, the volumes this quarter are low given to the weaker market condition and the seasonal impact of the summer break. So all in all, these 2 factors lead to the increase of the revenue capture to the 0.54. So again, to summarize, slightly better average size, although they remain significantly higher than they were some years ago on the -- and this is on the negative side. On the positive side, what we have is the reduction of the volumes, which trigger an increase the average revenue capture.

[Operator]

We will take the next question from Bruce Hamilton from Morgan Stanley.

[Bruce Hamilton, analyst]

Firstly, just on Slide 5, looking at the sort of $45 million delta in synergies between N24 and 23, I assume the vast majority of that would relate to the derivatives clearing and could you help us think about how much of that is the kind of cost save versus revenues? Or is it much more tilted to the later that would be helpful. Secondly, on the sort of MTS internationalization point, can you give us a sense of what the market share looks like at the moment on a sort of pan-European basis and where you seeing that might go to? And where you see your sort of edge versus you say, key competitors? And then final point on the encouraging sort of improvement in cash volumes and margins, I think there's a tendency when volumes are seasonally soft, but a bit more volume moves to the primary exchange. So have you seen that sort of market share sustained through Q4? Has there been a bit of slippage?

[Stéphane Boujnah, executive]

So on MTS, we -- it's far too early to give you any credible number on market share because we have started operating this market less than 5 working days ago. But what we can tell you in qualitative terms is that we have been positively surprised by the onboarding of clients and their volumes that are what is in market share requires a total understanding of what's well in the market. So it's far too early to tell. I'll let Giorgio comment on the synergies. I think the point was covered in the previous question, but maybe it's an opportunity for Giorgio to elaborate and to answer your question on volumes.

[Giorgio Modica, executive]

Yes. Let me be clearer. When it comes to the equity clearing migration, we are only talking about revenue synergies because this is a line of business that we never consolidated in our P&L that was in the P&L of our former provider LCH SA. So that element is only revenue synergies. Then if your question is with respect to the delta between where we are now at synergies at 48 and 70, whether the bulk is going to be increased revenues or reduce costs. The answer to that is the bulk is going to be increased revenues and not reduced cost.

[Bruce Hamilton, analyst]

The question was actually on the delta between the ‘24 synergy run rate of EUR 115 million and the end ‘23 at 70 million. That I presume is almost entirely driven by the derivatives clearing. And I was trying to understand how much of that would be sort of revenues and how much of that would be cost if I've understood that that is the bulk of that $45 million.

[Giorgio Modica, executive]

Yes. So in this respect, on a run rate basis, then we get into the next year. So the next year, what is going to happen, the most important element is going to be the derivative clearing migration. Now conversely to what I just said, we have already the clearing revenues of our derivative franchise within our P&L. But we have as well, as you see a line, which is the retrocession we give to LCH SA for the rival cleaning arrangement, which is worth around EUR 35 million per year. Now that part is going to disappear next year. And this is going to be partially offset by clearly the ramp-up of activities that we would have to put in place to serve our client base. So in this -- for next year, not to be too precise, but I would say it's going to be either 50-50 or slightly more cost than revenues.

[Bruce Hamilton, analyst]

And on the market share in cash in...

[Giorgio Modica, executive]

Absolutely, yes. So when it comes to Q4, what we see is a volatility of market share with some reduction that is not to be over-interpreted. This is the usual inter-quarter volatility. We're confident that we will be still able to deliver the objective that we set at the beginning of the year. So we have seen a slight fluctuation. We are seeing now a recovery but nothing that should be over interpret and then that concerns us.

[Operator]

We will take the next question from line Greg Sanson from BNP Paribas.

[Gregory Sanson, analyst]

Yes, three questions from my side. Firstly, on Advanced Data Services growth slowed a little bit this quarter to 5%. I think you mentioned some factors like summer and some one-offs. So should we be expecting that to reaccelerate in coming quarters back towards that 7%, 8%, 9%, it was in Q1, Q2. That would be the first question. Second one is on Corporate Services, growing double digits. Can you help kind of frame the runway for growth here? What proportion of Euronext listed companies are kind of paying clients in this region. And then thirdly, on financing and if I compare the the finance income and your kind of cost on your debt, it maybe implies like a 2.5% interest rate on your average cash. Is that kind of about right? And is the kind of Q3 financing sustainable level?

[Stéphane Boujnah, executive]

Giorgio will address your 3 questions on Data Services and Corporate Services and on the cost of debt.

[Giorgio Modica, executive]

So with respect to your first question, a few things to highlight. So clearly, the nonprofessional users have slightly reduced during the summer break. We have seen after that, a positive trend, but it's too early to conclude on the quarter. So I cannot give you a specific target for Q4. And the reason why I'm focusing on Q4 is that, as you know, that we revised our pricing on market data on a yearly basis. So starting from the first quarter next year, we were going to have -- and for next year, we will have a new pricing that will include an element of adjustment that will drive market data revenues up regardless to a certain extent of the -- on the number of users. So to summarize, next quarter, not the trend is positive, but it's too early to conclude on the quarter on the number of terminals. So I cannot guide you further. For next year, you should take into consideration as well the yearly adjustment on pricing. When it comes to corporate services, so this line of business has been growing double digits for a very long time. And our ambition is to have that growing further. And I don't know whether you have another question on that, but it's difficult for me to be more precise. What I can share with you is that the part of the business which is growing the most is the SaaS service business. And finally, when it comes to the interest we earn on our cash, our 2.5% is not too off, but you should appreciate that this number in the past has progressively went up, because we progressively adjust condition of our cash investment throughout the group. So we have seen a pickup, but at the moment, 2.5% is -- on average is about right.

[Operator]

We will take the next question from line Benjamin Goy from Deutsche Bank.

[Benjamin Goy, analyst]

Two questions, please. The first on M&A and the second on pricing. Your leverage continues to fall so now at 2x. So you certainly have more firepower. Just interested in your stand on the market has actually -- the seller's expectation come down and what are interesting areas for you and whether any life discussions at the moment. And the second is you already alluded to the pricing on the data services side. I was just wondering what the pricing outlook it could change and update your pricing outlook for the other non-volume-related businesses going into 2024?

[Stéphane Boujnah, executive]

So I'll take the first question on M&A and Giorgio will take the second one. Euronext continues to be a very strong free cash flow generator. This strong free cash flow generation is driven towards deleveraging the company and as we have always done it, we monitor very closely whether or not we have opportunities to deploy capital to achieve 2 strategic objectives. One is to accelerate the top line growth of the company. And clearly, the bigger we get, the more tangible the assets must be because in the top line at group level of EUR 1.5 billion relevant assets up to move the needle. So first strategic objective, accelerate the top line growth of the company. Second strategic objective, diversifying the revenue mix to be less dependent on market volatility, as I keep saying, our cash equity trading business represents 18% of the top line of the group, 1.8, and it represents 80%, a zero of the questions we get usually from enemy. So that's quite important for us to make sure that we have -- we continue to diversify our top line and what you can see today with a quarter where 60% of our revenues were non-volume-related business is that we have been able to offset the low volumes on equities and derivatives with non-volume-related businesses. So we have those 2 objectives: accelerate the growth of the top line, diversify the revenues. To the extent we can find opportunities that are relevant to achieve those objectives and that can meet something which is relatively specific to Euronext and which probably sets us in a different world vis-a-vis some of our peers. And if -- when we can get the confidence that we will generate a return on capital employed of such acquisitions above the work of the company after synergies in year -- between year 3 and 5. Then we will try to analyze that further. So we do monitor opportunities. I agree with you that there is some form of adjustment of valuations, although one should not be over excited. I mean, high-quality assets still go to the market with high valuations. But the impact on valuation is more on average assets and core assets, but high-quality assets still go with high value. So yes, we do that. It's not new. We do that with a stronger confidence because the company is more deleveraged than it has ever been since the acquisition of Borsa. Giorgio?

[Giorgio Modica, executive]

Yes. On your question on price adjustment for non-volume led businesses, what I can say is that not necessarily the decision communication for next year have been all taken the seasonality of price increases is not the same across all the businesses. What I can tell to you that on market data, this has been already defined and we're positioning ourselves into a mid-single digit -- high single-digit type of an for increase for 2024, for the rest of the business, again, as we did last year, we might be more precise in February, but we have not concluded on all the business and communicated with all the clients. So I cannot be more precise than that.

[Operator]

We will take the next question from Enrico Bolzoni from JP Morgan.

[Enrico Bolzoni, analyst]

So one on technology actually, some of your competitors are investing a lot in cloud technology, they are mentioning AI quite a bit. I just wanted to get your thoughts in terms of what kind of opportunities you see there? Clearly, you're taking a slightly different path with the build of your data center, but I'd be curious to know if there are opportunities in that space, also maybe in the context of M&A? And then just a clarification again on the cost for the fourth quarter. If I had to kind of back solve for what sort of cost level I should see in Q4 now to eat the, say, the new guidance, which is going to be, if I understand correctly, a bit below EUR 620 million. Still, we need to see quite a bit of an uptick, which is maybe slightly higher than what has been seen historically in Q4 versus Q3. I just wanted to understand whether there is scope to slightly better there. And then a final one on in terms of the new products you plan to launch last time when you gave an update, you said that you were thinking about what sort of derivative products you are considering launching next year once you have the clearing of derivatives as well in-house. Is there any update? And have you defined a sort of addressable market in terms of revenue opportunity there?

[Stéphane Boujnah, executive]

Let me take the question on technology and questions on new products launch and Giorgio will take your question on costs. On technology, you mentioned a few concepts that are very different in terms of nature, scope and impact on business, you mentioned artificial intelligence, you mentioned cluod. So on artificial intelligence, we are deploying a lot of energy, a lot of resources to analyze very, very carefully what can be the impact of the various artificial intelligence IDs, sometimes solutions on our cost base and on our revenue generation. It's work in progress. There are a few very basic operational issues that we have already taken. We have a few promising ideas. Again, it's development. It's an area where the only way to be efficient is to try a lot and to promise a little. So it's too early to commit to anything. But that's an area where definitely we don't want to waste time because we believe that being wrong is less of a risk than being late. When it comes to what you call cloud, which is basically outsourcing data and applications on data centers of large U.S.-based players. We have a sort of a different approach from some of our competitors, for two reasons Number #1, we somehow managed cloud services with our colocation services. We have our own operations within our data center and we believe that having critical applications like our matching engine posted in operations that we run is very important, considering what we do and managing colocation services in the data center that is a cutting handset center located in Europe is also important, both for operational, industrial and business profile reasons. We do use for certain operations that we consider as not critical, some providers that are providing outsourced data centers as long as they are -- their facilities are located within the European Union because we don't want to take any risk on data regulation or cloud packed or these sort of things and provided that noncritical applications are hosted in those out data centers. So it's a very different approach from the one -- it's closer to the approach of ICE than to the approach of some other players in the U.S. On the new products, we -- what I said last quarter was very specific. It's clear that the creation of an integrated value chain is going to be a game changer for Euronext because having under the same roof or derivative products and or clearing operations is going to create a new area of opportunities. We are not building Euronext clearing, thus for the sake of migrating the cash clearing business that used to be operated by LCH SA and to migrate the derivatives clearing business used to be operated by LCH SA. This is not a switch of business from one location to the other, from one provider to an internalized provider. This is an initiative, the purpose of which is to build another new integrated derivatives and clearing house in Europe. We are in the process of developing products across new asset classes across OTC, across all the reporting area where this integrated value chain can be relevant. But we are at the business development phase, what we commit to deliver are the numbers for 2024 that were announced in our guidance for -- at the beginning of '23, when we upgraded our targets for synergies in relation to the both circle acquisitions from EUR 100 million to EUR 150 million. So these are the guidance and the expectations we want to create. But what I'm telling you is that we are not going to start working on the growth of the business in '25, '26 and '27 in January 1 2025. What we are doing for a few months already, and which is going to be the most intense efforts in the course of 24 is to transform various IDs, plans into projects so that they can be up and running in -- at the latest in '25 and for a few of them as soon as H2 24. Sorry for this long answer, but I wanted to provide you a background to bridge a gap between the reality of what we do within the company on the one hand and the fact that you need to plug a number in your model on your head.

[Giorgio Modica, executive]

Yes. So I mean I understand very well your question. And I guess that your colleague in the call I have the same question. So it's simplify what are going to be the costs in Q4. Before I trying to answer that question, I want to add one element. You should appreciate that our cost base is not fixed, and there are some elements which are outside role, just to name a few, we have clearing expenses that are related to the level of activity, there is the evolution of the exchange rate, and there is -- just to mention one, even the share price of Euronext that has an impact on a part of our cost. So having said that, what we have shared with you is the fact that you should shave off EUR 12 million from the EUR 630 million, and this is NOC only. Then what we have shared with you is that usually -- and as you know, as you can check, the fourth quarter expenses are usually higher in the range of 6%, 7% with respect to the previous quarter. So this gives you, I would say, a fairly narrow range, which is 610, 618, roughly speaking. And within that range, you would need to make your assumption. It's difficult for me to be more precise than that. And I hope you appreciate that. Thank you.

[Operator]

We will take the next question from Ian White from Autonomous Research.

[Ian White, analyst]

Just 2 short follow-ups from me, please. First up, just on the dark pool. Just wondered if you could provide us with an update on that and any prospect there for when we might start to see that have an impact on trading volumes? And just secondly, I think it was around this time last year, you started to talk about the prospect of inflation-linked price increases related to the developments we've seen in 2022. Obviously, that feed into pricing for 2024. But I guess, 2023 has been another year where we've had above normal inflation. And so should we be thinking about further price increases that might be above usual in 2025, given what we've seen so far this year. If you could help me with that, please, that would be great.

[Stéphane Boujnah, executive]

Okay. On the dark initiatives, it's technically live, and it will be live to markets and up and running in the course of Q1 next year. The support for clients is very strong. But we don't want to create any expectations on at this stage on the news before the project is really up and running in the course of Q1 '24.

[Giorgio Modica, executive]

I hope I got your question right. So your question is what about price increases for 2025?

[Ian White, analyst]

Yes.

[Giorgio Modica, executive]

If that is your question, the only way it's really too early, what I can highlight to you is that there are certain parts of the business where we have usually seasonal review of prices. These include market data in other areas of our activities, such as from time to time listing and post trade, but it's really, really too early. I mean we have not finalized and we cannot share with you the numbers for next year. We will do that later on in Feb. But as far as 2025 is concerned, the only way I can answer is that usually, one of the business lines we review systematically around midyear is market data.

[Operator]

[Operator instructions]. We will take the next question from Mike Weiner from UBS.

[Mike Weiner, analyst]

Just 2 follow-ups for me, please. First, when you talked about M&A and the requirements for the ROIC to beat your WACC in years 3 to 5. I just wanted to know what your current WACC that you're using internally is? And then second, you indicated that the bridge between the $48 million of synergies, EBITDA synergy run rate at the end of Q3 and the $70 million at the end of Q4, more than half of that, I think, or at least most of that gap is coming from cash clearing. Can you tell me what the other portions are? My understanding is that you get to switch off some technology services that were provided to Borsa Italiana, now that all of the products have been moved on to Optiq. I was just wondering if that's the case, when that switch was enacted or if it hasn't been yet when it might be? Just trying to figure out the cadence of expenses in Q4.

[Stéphane Boujnah, executive]

So Giorgio will answer your 2 questions on the financial criteria for the return on capital employed for capital deployment? And the second question on the synergies level in Q4. Right?

[Giorgio Modica, executive]

Yes. So let me start with that. So it comes to the -- what we are using is a high single-digit number. This is something that we never share for one simple reason is that it changes from target to target. It depends where the target is and what the activity is. So what I would say is a high single-digit type of percentage. When it comes to your second question and maybe let me clarify for everyone because there were a few questions. The first part is the bridge between the EUR 48 million and the 70 million. Now in that bridge, there are 2 elements. One element, which is the main one, so it's going to be more than 50%, significantly more than 50% and this is related to the equity cash equity clearing migration. And this is going to be revenue synergies. The reminder, which is your second part of the question, it's going to be mainly the beginning of the reduction of the setup we did put in place to deliver the projects. So we will have a ramp down of the setup we did put in place to deliver the major project because as you now very well understand, the integration of Borsa Italiana is coming to an end. So this is going to be the cost component for next quarter. Then clearly, as you correctly pointed out, there are certain contracts that are going to be reduced, et cetera, but this will represent the reduction is more the ramp down of the project set up, let me put it this way. Then for next year, we still have the -- to deliver the migration of derivative clearing. And here, I would like to clarify that the further gap between the EUR 70 million and EUR 115 million, this is going to be a combination of revenues and concerning. And when it comes to the mix, what I said is that for next year, we should expect, broadly speaking, and maybe we'll be more precise in February. The bulk of this 45 around 50% or slightly more to come from cost savings, mainly related to the termination of the clearing derivative contract with CLH SA.

[Operator]

We will take the next question from line Oliver Carruthers from Goldman Sachs.

[Oliver Carruthers, analyst]

It's Oliver Carruthers from Goldman Sachs. So we had another confirmation from a large-cap issuer this morning that they will be delisting their shares of the European venue and migrating to the U.S. I appreciate this equally listing and cash trading is a relatively small part of your business model now. But as the largest European listing venue, Stephane, can you share some thoughts and some perspective here as to what you think is driving this trend, if you can call it a trend and really where do we go from here?

[Stéphane Boujnah, executive]

I'm going to try to be here. ‘23 has been a dry year in listing by any standards. We have 2 trends, one trend and a few visible events. A few visible events are the one you mentioned, the fact that a few companies, midsize or large companies from Ireland, in particular, have decided to relocate their listings in the U.S. That's in each case, driven by fundamental dynamics of their business and the fact that in all those cases, the priority for those companies is to be more visible in the U.S. and to be more -- and to be included in the relevant U.S. indices. And we see that in situations where and the business of those relevant companies is moving or the Barry center is moving to U.S. These things happen, these events are unfortunate, there are not -- they are not great news. They are not in particular, great news for the average market. But they have their own logic and we have to respect and to understand that this is a normal part of business. There is another trend, which is that many companies are already in Europe to go public and try to go public, but are a bit numbers, in particular since the recent political developments, which has created uncertainty about what would the aftermarket would look like after IPO. So that's why the interesting thing is that we had several large transactions that have been postponed or canceled for the moment. And that's bad news for '23. But the flip side is that we have an impressive pipeline for the beginning of 24, which is -- which consists of all these deals that have been postponed. The reality is that whatever the overall market case, one of the most fascinating developments of the past months is that Euronext is now by far the largest listing venue in Europe. We had 72% in Q3 of the European listing to Plex and Eurex. We had also U.S. companies seeking a dual listing in Europe like Cote, which is a $10 billion-plus type of market cap deciding to have a dual listing in pace. We had non-Euronext countries, companies listing in Euroland, like Ferrovial in Spain, which is a large Spanish company deciding to list on Euronext in Amsterdam. So we see a momentum in both ways. Yes, we are concerned about the sort of dry market we had in '23. Yes, I feel that 24 would be better because the depth of the current pipeline. And yes, probably the form of prospect of stabilization of the interest rates rise, which seems to be perceived as getting to some form of plateau is going to recreate attractiveness of equity market for companies that, in any event, need to raise equity or for companies where in any event, if investors want to have a proper liquidity event. So I'm reasonably confident.

[Operator]

There's no further questions at this time. I'll hand it back over to your host for closing remarks.

[Stéphane Boujnah, executive]

Well, thank you very much for your time. All the Investor Relations team is available to provide you with more granular analysis and details if you want to reach out to already lemon you did. And I wish you a very good day.