Euronext Publishes First Quarter 2017 Results

Regulatory News:

Today Euronext (Paris:ENX) (Amsterdam:ENX) (Brussels:ENX) announced its results for the first quarter 2017.

• Resilient quarter despite lighter trading volumes:
  • Stable revenue: +0.1%, to €126.6 million (Q1 2016: €126.5 million). Strong listing business (+33%) and efficient yield management mitigated lower trading volumes (average trading volumes decreased by -15.9% vs Q1 2016 for cash products and by -8% for derivatives).
  • Increase in operational expenses, excluding depreciation and amortization, driven by IT projects and business initiatives related to “Agility for Growth”: +2.6%, to €56.1 million (Q1 2016: €54.7 million).
• Slight decrease in EBITDA, at €70.5 million (Q1 2016: €71.8 million), representing an EBITDA margin of 55.7% (Q1 2016: 56.8%)
• Growth initiatives related to the “Agility for Growth” strategic plan generated €1 million of revenue and €1.8 million of costs in Q1 2017
• Introduction of a floor in the current dividend policy to deliver a minimum shareholder remuneration

“Once again, Euronext proved the resilience of its business model with stable revenue and a strong EBITDA in the first quarter of 2017, despite trading reduced volumes year over year. The deployment of our strategic plan is gathering pace, and I am extremely proud to announce two developments that show our commitment to deliver value to shareholders and clients. Firstly, through the long-term agreement negotiated with ICE Clear Netherlands, Euronext secured similar financial benefits to those of the current agreement with LCH Clearnet SA, while significantly improving the client value proposition for the clearing of its derivatives products. Second, the introduction of a floor in our dividend policy will provide shareholders with a minimum return and reduce any possible dividend volatility,” said Stéphane Boujnah, Chairman and CEO of the Managing Board of Euronext NV.

Financial performance

The first quarter of 2017 saw a continuation of the 2016 year end environment. Benign volatility translated into reduced trading volumes, both on the cash and derivatives markets, while listing activity improved strongly. As a result, revenue for Q1 2017 increased by +0.1%, to €126.6 million (Q1 2016: €126.5 million). As a reminder, the first quarter of 2016 showed strong trading volumes across cash and derivatives.

Operational expenses excluding Depreciation & Amortization increased by +2.6% to €56.1 million (Q1 2016: €54.7 million) due to costs incurred from the deployment of our “Agility for Growth” strategic plan, ongoing IT projects (development of our new trading platform, Optiq®), and new business initiatives. The Belfast technology centre closed at the end of March 2017, and 125 people now work in our new IT hub in Porto.

The onboarding of costs linked to the execution of these growth initiatives, is accelerating both organically and as a result of the full consolidation of Company Webcast. The impact on the cost base of the Group was €1.8 million in Q1 2017, with the growth initiatives generating €1 million of revenue in this quarter.

Figures for the first quarter 2017 are not fully comparable to Q1 2016, as they include, for the first time, the full consolidation of the financial statements of Company Webcast, the webcast company in which we acquired a 51% stake in February 2017. This company contributed for € 0.8 million of revenues and € 0.7 million of costs this quarter.

The EBITDA remained resilient this quarter, at €70.5 million, representing a margin of 55.7% (Q1 2016: €71.8 million or 56.8%).

As of the end of Q1 2017, €16.6 million of cost savings have been achieved since Q2 2016.

Depreciation and Amortization increased by +1.2% in Q1 2017, to €3.8 million (Q1 2016: €3.7 million), resulting from the start of Interbolsa Target 2 Securities project depreciation in Q3 2016.

Operating profit before exceptional items was €66.7 million, a -2% decrease compared to Q1 2016 (€68.0 million).

€3.1 million of exceptional costs were booked in Q1 2017 compared to a positive amount of €0.6 million in Q1 2016. These costs are mainly related to the potential acquisition of LCH.Clearnet SA, while Q1 2016 exceptional items benefited from an adjustment on the provision related to the French restructuring plans.

Net financing expense for Q1 2017 was €1.1 million compared to a net financing income of €0.9 million in Q1 2016 when some foreign exchange gains were recognized. The first quarter of 2017 was impacted by the payment of interests associated with the early repayment of debt and the set-up costs of the implementation of the new revolving credit facility.

The €0.7 million of result from equity investment relates to dividends from the LCH Group while no dividend income was received in Q1 2016.

Income tax for Q1 2017 was €19.3 million, representing an effective tax rate for the quarter of 30.5% (Q1 2016: 31.0% or €21.6 million). This is in line with the lower profit before tax and the normalized tax rate of the Company.

As a result, the net profit for Q1 2017 decreased by 9%, to €43.9 million (Q1 2016: €48.0 million). This represents an EPS of €0.63 (both basic and fully diluted) in Q1 2017 compared to €0.69 (both basic and fully diluted) in Q1 2016. The number of shares used for the basic calculation was 69,549,719 and 69,895,720 for the fully diluted one.

As of 31 March 2017, the Company had cash and cash equivalents of €141.2 million, and no debt, after the final early debt repayment of €70 million this quarter.

Business highlights

• Listing

Revenue was €18.8 million in Q1 2017, a 33% increase compared to the €14.2 million achieved in Q1 2016, thanks to increases in IPO revenues, annual fees and follow-on revenues.

The first quarter of the year saw the reopening of the IPO market and the return of large capitalisation transactions such as TechnipFMC and Tikehau. This contrasts with Q1 2016 which was impacted by uncertain macro conditions and by soft secondary market activity.

In total, €95 billion in equity and debt were raised on our markets in Q1 2017, compared to €73.7 billion in Q1 2016. Six new listings took place in Q1 2017 - of which 4 SME deals - raising €184 million, compared to one listing for €3 million raised during Q1 2016.

On May 17, Euronext simplified its market names under a common branding. The former Free Market/ Marché Libre/ Easynext market segments are now unified under a single brand name, Euronext Access. Alternext becomes Euronext Growth. This new naming is combined with (1) the creation of Euronext Access+, a compartment dedicated to start-ups and (2) the increase of the Listing Sponsor role. This aims to clarify our service offering and raise the attractiveness of Euronext capital markets towards SMEs across Europe. The creation of a new market model for SMEs was also announced, with the goal of increasing their liquidity and promoting a new block trading service for European SMEs.

• Trading

Cash trading

Average daily volumes reduced by -15.9% to € 7.0 billion compared to a very strong Q1 2016. However, efficient yield management enabled us to partially offset this impact on our top line, recording revenues of €46.7m in Q1 2017, down by -4.9% compared to €49.1m in Q1 2016. Yield averaged 0.51 bps in Q1 2017, a +6.3% increase compared to 0.48 bps in Q1 2016.

Our market share remained resilient at 61.4% during the quarter, up from 61.0% in Q1 2016, and stood at 61.8% at the end of March. It was notably supported by a new non-member proprietary fee scheme that continued to attract incremental volumes, as well as our Equity Best of Book service which now serves 25 members and helps to retain flow on Euronext markets and promote order flow diversity.

The average daily transaction value on ETFs was €497 million, down by -29% compared to Q1 2016. However, we recorded a strong performance in terms of new listings with 25 new products listed on our markets. This brought the total number of ETFs listed on our market at the end of March to 808. Furthermore, our client alignment continued to yield results through the onboarding of Source, a new ETF issuer.

Derivatives trading

Derivatives trading revenue decreased by -7.8% in Q1 2017, to €10.1 million compared to €11.0 million in Q1 2016. The average daily volume on individual equity derivatives decreased by -3.2% to 245,283 contracts (253,399 contracts in Q1 2016), while declining trading activity in equity index derivatives resulted in average daily volumes down by -10.6% to 219,756 contracts (245,824 contracts in Q1 2016).

Commodities products recorded significantly lower average daily volumes in Q1 2017, down -17.0% to 52,634 contracts (63,398 contracts in Q1 2016). The worst wheat crop in over 40 years continued to drive down French non EU exports, strongly impacting trading activity.

• Market data & indices

In Q1 2017, market data and indices revenue decreased by -2%, to €25.7 million (Q1 2016: €26.2 million). The reduction in the number of professional users viewing data on traditional trading screens was offset by a continuing increase in the use of Euronext’s data in automated trading applications.

• Post-trade

Clearing

Clearing revenue decreased by -9%, from €13.0 million in Q1 2016 to €11.8 million in Q1 2017, reflecting lighter derivatives trading activity and a change in the business mix. Commodity product volumes decreased more than financial derivatives over the period, although they contribute comparatively more to clearing revenue.

Settlement & Custody

Revenue from Interbolsa in Portugal increased by +2%, from €4.8 million in Q1 2016 to €4.9 million this quarter.

• Market solutions & other

Revenue from market solutions increased by +4% in Q1 2017, to €8.4 million (Q1 2016: €8.1 million). The business benefited from the launch of MiFID II projects in the last quarter of 2016.

Euronext has long been committed to developing and selling its own core technology as a means of industry benchmarking as well as revenue generation. In March 2017, this commitment was renewed with the selection of Atos as our sales and delivery partner for the new Optiq® platform. The partnership enables Euronext to extend its sales reach and scale its delivery capabilities ahead of the commercial availability of Optiq® in 2018.

Non-IFRS financial measures

For comparative purposes, the company provides unaudited non-IFRS measures including:

• Operational expenses excluding depreciation and amortization;
• EBITDA, EBITDA margin.

We define the non-IFRS measures as follows:

• Operational expenses excluding depreciation and amortization as the total of salary and employee benefits, and other operational expenses;
• EBITDA as the operating profit before exceptional items and depreciation and amortization;
• EBITDA margin as the operating profit before exceptional items and depreciation and amortization, divided by revenue.

Non-IFRS financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures and should be read only in conjunction with the consolidated financial statements.

Adjustment to the current dividend policy

Euronext established its current dividend policy at the time of its IPO in mid-2014. A dividend equal to 50% of reported net earnings enables the Company to distribute a significant portion of the income generated on a yearly basis to its shareholders, while maintaining financial and strategic flexibility.

Euronext has decided to complement this policy, for the remainder of the 'Agility for Growth' plan (i.e. until the Annual General Meeting in 2020), with a minimum shareholder remuneration. Starting with the dividend that will be submitted for the approval of the shareholders at the AGM in 2018, Euronext will distribute the highest of 50% of the reported EPS and a floor at €1.42 per share.

Corporate Highlights

• Securing clearing solutions for cash and derivatives markets post 2018

On 3 January 2017, Euronext announced that it had been granted exclusivity to acquire 100% of the share capital and voting rights of LCH.Clearnet SA, contingent on the closing of the merger between Deutsche Börse AG and LSE Group. Despite the subsequent prohibition of the merger between Deutsche Börse AG and LSE Group by the EU Commission, Euronext has reaffirmed to both LSE and LCH Group its willingness to proceed with the acquisition of LCH.Clearnet SA for €510m, and Euronext continues to remain a willing buyer of LCH.Clearnet SA.

In the absence of obtaining an agreement to complete this acquisition, Euronext was obliged to ensure that its clients obtain the best, most cost effective and competitive clearing solutions beyond 31st December 2018, the date at which the current clearing services agreement with LCH.Clearnet SA will expire.

Under its “Agility for Growth” strategy, Euronext is deploying significant effort to establish clearing optionality for its clients, including acquiring a 20% stake in EuroCCP. This will enable Euronext to offer user choice in clearing for the equity markets within the Eurozone through the implementation of a preferred CCP model. Euronext revenue and profitability will not be impacted by this clearing arrangement with EuroCCP as no financial benefits were attached to the existing cash clearing agreement with LCH.Clearnet SA.

On 3 April 2017, Euronext announced it had signed a binding heads of terms with ICE Clear Netherlands, a subsidiary of Intercontinental Exchange (NYSE: ICE) for the provision of clearing services for its financial derivatives and commodities markets. The agreement with ICE Clear Netherlands covers the clearing of financial derivatives and commodity derivatives for a period of 10 years. Euronext will contribute a €10m upfront investment in ICE Clear Netherlands. Clearing operations will be run from Amsterdam and a new and innovative solution for asset financing, inventory management and physical delivery for commodities will be built by Euronext and operated from Paris. This agreement provides for a continued income stream for Euronext, with EBITDA levels comparable to the existing agreement with LCH.Clearnet SA.

Overall this represents a long term, open access, sustainable and innovative Eurozone based clearing proposition for Euronext and its customers.

• New milestones in the delivery of “Agility for Growth”

During the first quarter of 2017, Euronext achieved new milestones in the delivery of its “Agility for Growth” strategic plan:

• Corporate Services: On 14 February 2017, Euronext announced the acquisition of Company Webcast, a Dutch company, and a market leader in webinars and webcasts. The acquisition of a majority stake (51%) in Company Webcast represents a key milestone in the context of our corporate services offering. The transaction includes an initial cash payment of €3.6 million. The Company serves 260 clients and had revenue of €3.6 million in 2016.

• Diversified post-trade services: In February 2017, Euronext announced the launch of Euronext Collateral Management Services, a new offering that will provide Risk Analytics, Inventory Management and a Collateral Transformation platform supporting commodities, fixed income and equities. These services will be rolled out in stages throughout 2017, starting with the launch of an Inventory Management solution which is being developed in collaboration with industry stakeholders to meet the needs of commodities market participants, storage facilities and financing banks across Europe with the potential to expand into global markets.
• Expansion of fixed income offering: In March 2017, Euronext announced the expansion of its Joint Venture with Algomi, a leading fixed income technology provider, and acquired a minority stake in Algomi through a $10 million strategic investment. This strategic investment, following the existing JV agreement, will enable corporate bond traders to access Algomi’s innovative bond information network on a global basis, and exchange risk more efficiently by identifying the most appropriate counterparty. Euronext is working to establish an Automated Trading System (“ATS”) in North America, while discussions are already under way in APAC, thanks to the exclusivity rights granted to Euronext.
• European indices: In March 2017, Euronext entered into a strategic collaboration with Morningstar, the leading global provider of independent investment research, to launch a new range of Morningstar European indices and associated instruments, traded on Euronext. Later in the year, Euronext will launch options and futures contracts on the two new European indices.
• Appointment of Paulo Rodrigues da Silva as CEO of Euronext Lisbon and Interbolsa

In February 2017, the Supervisory Board of Euronext N.V. has approved unanimously the appointment of Paulo Rodrigues da Silva as CEO of Euronext Lisbon, CEO of Interbolsa and member of the Managing Board of Euronext N.V.. Paulo Rodrigues da Silva joined Euronext in early March 2017, and all regulatory approvals have been received. His nomination is subject to shareholders approval at the 2017 Annual General Meeting.

• Update on technology

The development of Optiq®, our new trading platform, is progressing. Customer conformance testing started in mid-April, with the full scope of market data functionality to be live in June 2017 for cash and in July 2017 for derivatives products. These important technical deliveries represent the first milestones in our MiFID II rolling compliance programme, which will continue throughout the remainder of 2017. The migration to Optiq® for the cash trading businesses will be production ready in Q4 2017, with exact timing subject to consultation with clients.

Consolidated income statement

Consolidated comprehensive income statement

Consolidated balance sheet

Consolidated statement of cash flows

Cash markets activity

Derivatives markets activity

Financial calendar

About Euronext

Euronext is the leading pan-European exchange in the Eurozone with nearly 1,300 listed issuers worth close to €3.5 trillion in market capitalisation as of end March 2017, an unmatched blue chip franchise consisting of 25 issuers in the EURO STOXX 50® benchmark and a strong diverse domestic and international client base.

Euronext operates regulated and transparent equity and derivatives markets. Its total product offering includes Equities, Exchange Traded Funds, Warrants & Certificates, Bonds, Derivatives, Commodities and Indices. Euronext also leverages its expertise in running markets by providing technology and managed services to third parties. Euronext operates regulated markets, Alternext and the Free Market; in addition it offers EnterNext, which facilitates SMEs’ access to capital markets.

For the latest news, find us on Twitter (twitter.com/euronext) and LinkedIn (linkedin.com/euronext).

Disclaimer

This press release is for information purposes only and is not a recommendation to engage in investment activities. This press release is provided “as is” without representation or warranty of any kind. While all reasonable care has been taken to ensure the accuracy of the content, Euronext does not guarantee its accuracy or completeness. Euronext will not be held liable for any loss or damages of any nature ensuing from using, trusting or acting on information provided. No information set out or referred to in this publication may be regarded as creating any right or obligation. The creation of rights and obligations in respect of financial products that are traded on the exchanges operated by Euronext’s subsidiaries shall depend solely on the applicable rules of the market operator. All proprietary rights and interest in or connected with this publication shall vest in Euronext.

This press release speaks only as of this date. Euronext refers to Euronext N.V. and its affiliates. Information regarding trademarks and intellectual property rights of Euronext is located at www.euronext.com/terms-use.

© 2017, Euronext N.V. - All rights reserved.

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Euronext
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