Euronext Publishes Third Quarter 2017 Results

RESULTS DRIVEN BY VOLUME GROWTH AND THE CONTRIBUTION FROM NEW ACQUISITIONS

 

Regulatory News:

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

• Strong revenue growth in Q3 2017, up +14.1%¹ compared to Q3 2016, to €128.7m, mainly due to:
  • Improvement of volumes in a stabilised macro environment:
    • Cash average daily volume (ADV) up +19.5% in Q3 2017 compared to Q3 2016, to €6.9bn
    • Market share of cash equities strengthened to 65.2%, with robust yield
    • Improved competitive landscape for Dutch derivatives with equity derivatives ADV up +20.8%
  • Strong listing activity over the quarter, with increases in IPO (+68.6%) and follow-on (+38.2%) revenue
  • Deployment of Agility for Growth initiatives (€2.9m of revenue): development of Corporate Services activity through the acquisition of iBabs in July 2017
  • Positive impact of the acquisition of FastMatch (€2.9m of revenue²), with spot FX ADV up +49.5% to $18.3bn
• Cumulated costs savings since 1 April 2016 of €11.9m at the end of Q3 2017, slightly down compared to Q2 2017 due to the costs related to Optiq® and MiFID II projects
• Growth of EBITDA, up +13.3%, to €69.5m (EBITDA margin of 53.9%, -0.5 points vs. Q3 2016)
• Net profit stable (+0.6%) at €38.3m, with good operating performance offset by exceptional items of -€9.7m, mainly related to break-up fee, one-off pension costs and advisory costs
• Signing of a 10-year agreement with LCH SA for financial and commodities derivatives clearing, and the swap of a 2.3% minority stake in LCH Group with a 11.1% stake with a pre-emption right³ in LCH SA (to be closed in the next few months)

Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext NV., said:

“Euronext’s results for the third quarter of 2017 were driven by the improvement of volume in a stabilised macro environment and by the first contributions of our new acquisitions. We ensured a +13.3% growth in EBITDA this quarter, while we pursued major projects such as MiFID II and Optiq®. This quarter was marked by the deployment of our Agility for Growth strategic plan, through the acquisition of iBabs in July, and by the closing of the acquisition of FastMatch in August. Another major milestone was met in August when we secured the renewal of a 10-year agreement for derivatives clearing with LCH SA, as well as a 11.1% stake and a pre-emption right in this company, ensuring a long-term and improved value proposition for our customers and investors.”

¹ Unless stated otherwise, percentages compare Q3 2017 data to Q3 2016 data
² FastMatch is consolidated since 14 August 2017 (1.6 months over Q3 2017)
³ Swap without cash settlement, subject to regulatory approval. Please refer to “Highlights of the period” paragraph

Euronext third quarter of 2017 financial performance

The third quarter of 2017 saw an improved trading environment, despite very low volatility, with a stabilised macro environment in Europe. This translated into improved trading volumes on both cash and derivatives markets, with derivatives also benefiting from the TOM ceasing activities in the Netherlands in June 2017.

As a consequence, in Q3 2017, Euronext consolidated revenue increased by +14.1% over the quarter, to €128.7m, mainly driven by volume growth and the positive impact of Agility for Growth initiatives (€2.9m), notably the acquisition of iBabs in July 2017, and by the acquisition of FastMatch on 14 August 2017, which allowed Euronext to record spot FX trading revenue for the first time this quarter.

Operational expenses excluding Depreciation & Amortisation increased by +15.2% to €59.3m due to ongoing IT projects (including the development of our new trading platform, Optiq®, and compliance with MiFID II), the deployment of Agility for Growth initiatives, and incorporation of newly acquired businesses (see above).

At the end of Q3 2017, €11.9 million of cumulated cost savings had been achieved since 1 April 2016, down compared to Q2 2017, mainly due to the projects costs previously mentioned.

During the third quarter of 2017, Agility for Growth initiatives generated €2.9m of revenue and €2.8m of costs.

EBITDA growth for the quarter was strong at €69.5m, up +13.3%, representing a margin of 53.9% which is down 0.5 points compared to Q3 2016.

Excluding the impact of the consolidation of FastMatch from mid-August 2017, Euronext consolidated revenue would have grown by +11.3% and EBITDA margin would have reached 54.2%, down 0.2 points compared to Q3 2016.

Depreciation and Amortisation decreased by -7.7% in Q3 2017, to €3.6m, resulting from certain assets now being fully amortised.

Operating profit before exceptional items was €65.9m, a +14.7% increase compared to Q3 2016.

€9.7m of exceptional costs were booked in Q3 2017 compared to €1.1m of exceptional costs in Q3 2016. These costs were primarily related to the €5.0m break-up fee for the termination of the agreement on derivatives clearing with ICE following the agreement with LCH SA (refer to Highlights of the Period paragraph). Other exceptional costs included one-off pension costs and advisory costs.

Net financing expenses for Q3 2017 were €0.4m compared to net financing expenses of €0.5m in Q3 2016.

Results from equity investment amounted to €1.8m in Q3 2017 and are related to a deferred capital gain.

Income tax for Q3 2017 was €18.7m, representing an effective tax rate for the quarter of 32.4% (Q3 2016: €17.8 million and 31.9%). This is consistent with the normalised tax rate of the Company and with the computation of the tax expense with discrete items.

Share of non-controlling interests mainly relating to FastMatch, iBabs and Company Webcast amounted to €0.6m in Q3 2017.

As a result, the net profit for Q3 2017 increased slightly by +0.6%, to €38.3m. This represents an EPS of €0.55 basic and fully diluted in Q3 2017, compared to €0.55 basic and fully diluted in Q3 2016. The number of shares used for the basic calculation was 69,576,205 and for the fully diluted calculation was 69,898,433.

As of 30 September 2017, the Company had cash and cash equivalents of €140.6m, and €164.7m of outstanding long-term debt.

Third quarter of 2017 business highlights

• Listing

Listing revenue was €20.2m in Q3 2017, an increase of +46.6% compared to Q3 2016 and confirming the growing use of equity financing on capital markets. This solid performance was driven by the increased revenue from IPOs, material increases in follow-on activity and the positive impact of the acquisition of iBabs in July 2017, part of the Corporate Services, an “Agility for Growth” initiative.

Primary market activity over the quarter was growing given market conditions and despite low volatility. The trend of large capitalisations returning to Euronext, first seen at the beginning of the year, continued with listings such as Nepi Rockcastle PLC in Amsterdam. Follow-on revenue was driven up by an increasingly active European M&A environment.

In total, €68.2bn in equity and debt were raised on our markets in Q3 2017, compared to €70.8bn in Q3 2016. Four new listings, including three SME deals, were completed, compared to six listings during Q3 2016.

• Trading

Cash trading

Average daily volume for cash trading increased by +19.5% to €6.9bn compared to Q3 2016. The improvement in volume resulted from a more stable political outlook in France, favourable economic conditions and improved corporate earnings across the Eurozone. In this environment of rising volume, revenue increased by +11.0% to a Q3 2017 total of €44.4 million. Yield softened slightly over the quarter but averaged 0.50 bps, a -5.6% decrease compared to the 0.52 bps yield of Q3 2016.

Euronext’s market share strengthened during the quarter, averaging 65.2% in Q3 2017. This is a significant increase of +5.3 points over Q3 2016. The increase resulted from the implementation of the new non-member proprietary fee scheme called Omega, which onboarded one new customer this quarter, and from further optimisation within the SLP programme that attracted additional volumes. Furthermore, the Equity Best of Book service which attracts retail flows to Euronext markets, continued to gain traction, with one new liquidity provider connected this quarter.

The average daily transaction value of ETFs was €416m, constrained by low volatility, and was stable (+0.4%) compared to Q3 2016. However, new ETF listings continued their positive momentum with 17 new products listed, bringing the total number of ETFs listed on Euronext to 830 at the end of September.

Derivatives trading

Derivatives trading revenue increased by +8.7% in Q3 2017, to €9.9m. Individual equity derivatives achieved a +23.6% increase on average daily volume to 229,802 contracts, while the average daily volume on equity index derivatives was up +17.8% to 214,693 contracts. As a reminder, TOM, the competitor of Euronext on the Dutch market, ceased its operations in June 2017. Because of this exceptional circumstance, a non-recurring migration of open-interest from TOM to Euronext took place in June at marginal rates. Yield on derivatives was slightly down at 0.30 bps in Q3 2017, but remained higher than in Q2 2017.

Commodity products recorded improved average daily volumes in Q3 2017, up +13.9% to 56,564 contracts. Despite a well-supplied, low-volatility market, the quarter saw a recovery from last crop campaign in an improved competitive landscape.

Spot FX trading

The average daily volume on the FastMatch spot foreign exchange market (a 90% owned subsidiary since August 2017) was $18.3bn in Q3 2017, up +49.5% compared to Q3 2016.

• Market data & indices

Market data and indices revenue was down -2.5% to €25.2m over the quarter. This decrease was primarily due to higher contractual audit findings in Q3 2016.

• Post-trade

Clearing

Clearing revenue increased by +14.9%, from €11.1m in Q3 2016 to €12.8m in Q3 2017, reflecting stronger derivatives trading activity as well as higher treasury and other clearing income.

Settlement & Custody

Revenue from Interbolsa in Portugal increased by +3.1%, to €5.1m this quarter, driven by an increase of settlement, public debt and equities under custody.

• Market solutions & other

Revenue from Market Solutions increased by +4.1% in Q3 2017, to €8.2m. The business continued to benefit from MiFID II projects and related work for commercial technology clients. To date, five commercial agreements have been signed for the deployment of Optiq® in the Americas and the Middle East.

Corporate highlights of Q3 2017

• New milestone in the delivery of the Agility for Growth strategic plan

On 10 July 2017, Euronext announced the acquisition of a 60% controlling stake in iBabs, a leading Dutch provider of dematerialised board portal solutions for corporate and public organisations, for a consideration of €30.1 million. The acquisition of iBabs marks the achievement of a significant milestone in the development of the Euronext Corporate Services franchise. This transaction strengthens Euronext’s value proposition to listed companies while targeting a broader audience of private companies and public institutions. iBabs’ solutions support governance, workflow management, efficient decision making and secured collaboration at board level and across management teams. These solutions are integrated into the Euronext Corporate Services offering alongside existing services such as our next-generation webcast solution, investor relationship management tool and tailor-made advisory service.

In July 2017, Euronext Corporate Services launched its new website, complementing the existing day-to-day support service and providing a new suite of services that truly address the challenges facing our clients on the capital markets.

• Completion of the acquisition of FastMatch and launch of FX tape

On 23 May 2017, Euronext announced the acquisition of FastMatch, the fastest growing Electronic Communication Network in the spot Foreign Exchange market, which closed on 14 August 2017 following regulatory and anti-trust approvals.

FastMatch has leading-edge technology, entrepreneurial spirit and access to a large, transparent and diversified pool of liquidity at unrivalled speed and capacity. Through the acquisition of an interest of approximately 90% in FastMatch, for an initial cash consideration of $160m (including cash), Euronext will progressively enable FastMatch to increase its growth profile in Europe, commercialise its market data and develop derivative products. This acquisition is fully financed through bank debt, does not impair the strong creditworthiness of Euronext and consequently does not limit Euronext’s ability to pursue other external growth opportunities.

On 25 September 2017, an innovative new market data product, FX Tape, was launched. FX Tape will improve post-trade transparency in FX markets and allow market participants to monetize their trading data. FX Tape will also serve as a central reference point for Spot FX transacted prices helping market participants evaluate best execution performance.

FX Tape will publish real-time post-trade information collected from market participants in aggregated and delayed fashion to minimize market impact. This product will be available for distribution to thousands of market participants and vendors across the world via distribution networks operated by FastMatch and Euronext.

The FX Tape will be open to all contributors under an open access model with a percentage of the net revenue generated shared with contributors according to the volume contributed.

• Securing clearing solutions for derivatives markets post 2018

On 8 August 2017, Euronext announced it had signed binding terms with LCH SA, LCH Group and London Stock Exchange Group for the continued provision of clearing services for its derivatives products. As a consequence, Euronext terminated the agreement signed in April 2017¹ with ICE Clear Netherlands.

The new long-term agreement covers the clearing of financial and commodity derivatives for a period of 10 years, providing continuity of clearing services for members, and avoiding the cost and disruption of migration at a time where clients are working on MiFID2 implementation and Brexit planning. Euronext and LCH SA will work together to develop new products for the benefit of clearing members and market participants, and will focus on providing a lower cost service for members.

Euronext will swap its current 2.3% stake in LCH Group for an 11.1% stake in LCH SA, subject to regulatory approvals and other customary conditions. LCH SA is a leading multi-asset CCP, based in the Eurozone, with substantial growth opportunities in the fixed income and CDS businesses. This transaction will strengthen the long-standing relationship between Euronext and LCH SA, and cement the strategic future of LCH SA.

Euronext will remain on the Board of LCH SA following completion of the share swap. Euronext will also nominate one representative to LCH SA Audit Committee and will continue to be represented at LCH SA Risk Committee. A new Consultative Committee dedicated to Euronext derivatives business will be created.

The parties have agreed that Euronext will have certain minority protection rights connected with its new shareholding in LCH SA. Euronext will have a pre-emption right in circumstances where LCH Group decides to sell more than 50% of the shares of LCH SA. The pre-emption right involves a right of first offer and subject to certain conditions, a matching right. In addition, LCH Group has a pre-emption right over a transfer of shares by Euronext and the ability to buy back Euronext's shares in certain circumstances where the derivatives agreement is terminated.

In addition the agreement provides a comparable revenue sharing mechanism delivering a continued clearing income stream for Euronext. Euronext will also recognise at closing a net capital gain following the share swap of around €24m.

Overall this represents a long term, sustainable continuity of clearing services for Euronext and its clients.

Please refer to the “Corporate highlights having occurred since 30 September 2017” paragraph below for more details.

• New term loan facility

Euronext signed a term loan facility with five banks to the amount of €175.0 million and accordion of €125.0 million as per 19 July 2017. The term loan facility has a maturity of three years, with two one-year extensions. The funds were used to finance the acquisition of FastMatch and to repay the draw down on the revolving credit facility that was used to fund the acquisition of iBabs.

• Update on technology

In Q3 2017, Euronext reached a significant milestone in the Optiq® programme with the migration to the Optiq® Market Data Gateway for cash on 10 July 2017 and for derivatives on 28 August 2017. The smooth transitions demonstrated the stability of the system and since migration members have experienced outstanding latency improvements. The launch of the new gateway was also a key milestone in the MiFID II rolling compliance programme which will continue throughout the remainder of 2017.

Client testing for the Optiq® Cash Order Entry and Matching components began in September with other delivery work progressing as scheduled.

¹ For more information, please refer to the press release of 3 April 2017 available on www.euronext.com

Corporate highlights having occurred since 30 September 2017

• Euronext and LCH SA sign definitive agreement for derivatives clearing

On 1 November 2017, Euronext announced the signing of the renewal of its agreement with LCH SA on the continued provision of derivatives and commodities clearing services for a period of 10 years. This follows the announcement of 8 August 2017 (please see above). Euronext entered into definitive agreements to swap its current 2.3% stake in LCH Group for an 11.1% stake in LCH SA. This transaction is subject to regulatory review and is expected to close in the next few months.

Agenda

A conference call and a webcast will be held today at 9.00am CET (Paris time):

Website : www.euronext.com/en/investors

To connect to the conference call, please dial:

PIN CODE: 59016391#

Live Webcast:

A live audio webcast and replay after the call will be available via this link and on Euronext Investor Relations website.

About Euronext

Euronext is the leading pan-European exchange in the Eurozone with nearly 1,300 listed issuers worth close to €3.6 trillion in market capitalisation as of end September 2017, an unmatched blue chip franchise consisting of 24 issuers in the Morningstar® Eurozone 50 Index℠ 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. In addition to its main regulated market, Euronext also operates Euronext Growth^TM (formerly known as Alternext) and Euronext Access^TM (formerly known as the Free Market). 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.

APPENDIX

Non-IFRS financial measures

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

• Operational expenses excluding depreciation and amortisation
• EBITDA, EBITDA margin.

Non-IFRS measures are defined as follows:

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

Consolidated income statement

The figures in this document have not been audited or reviewed by our external auditor.

Consolidated comprehensive income statement

The figures in this document have not been audited or reviewed by our external auditor.

Consolidated balance sheet

The figures in this document have not been audited or reviewed by our external auditor.

Consolidated statement of cash flows

The figures in this document have not been audited or reviewed by our external auditor.

Volumes for Q3 2017

Cash markets activity

* included New Listings incl over allotment, Follow-ons on Equities, Corporate Bonds on Euronext Listed Issuers. Corporate bonds figures revised as from January 2017 to exclude Euronext listed financials issuers and to regroup them in a broader newly created financial bonds category. Public/Semi-Public bonds category not reported before, created as from January 2017

Derivatives markets activity

Spot FX Trading

 

View source version on businesswire.com: http://www.businesswire.com/news/home/20171107006692/en/

 

Media
Alice Jentink: +31 20 721 4488
ajentink@euronext.com
or
Analysts & investors
Aurélie Cohen: +33 1 70 48 24 17
ir@euronext.com