Euronext publishes Second Quarter 2014 results

RELEASE 07 AUG 2014 07:30 CET

Third party quarterly revenue increased by +5.2% on an adjusted basis ¹ to €116.3 million (Q2 2013 adjusted: €110.6m), or +16.9% on a reported basis (Q2 2013 reported: €99.5m)
Quarterly operational expenses excluding depreciation and amortization under tight control, decreasing by -8.5% compared to Q2 2013 adjusted ¹ (increase by +0.4% compared to Q2 2013 reported)
EBITDA margin of 46.3% in Q2 2014
Robust listing activity and very healthy cash trading volumes fuelled growth
Strong confidence in Euronext capacity to deliver the €60 million of efficiencies ² ; working on an aggressive plan to accelerate timing

Regulatory News:

Euronext (Paris:ENX) (Amsterdam:ENX) (Brussels:ENX) today announced its results for the second quarter and for the first six months of 2014.

“Euronext has achieved significant milestones in the first six months of the year. In this tight timeframe, the team successfully separated our company from ICE and completed its IPO through crisp execution. Our focus now is to reposition Euronext as a leading capital raising center, leveraging on our strong but underexploited franchises, our capacity to innovate and the favorable sector dynamics to expand and remix our businesses. Euronext’s strengthened management team is fully committed to executing our strategic plan and thus generating the value we committed to our shareholders. We have confidence that we will reach our €60 million of efficiencies and we are working on an aggressive plan to accelerate timing.” said Dominique Cerutti, CEO and Chairman of the Managing Board of Euronext NV.

Financial performance

Third party quarterly revenue increased by +5.2% on an adjusted¹ basis to €116.3 million (Q2 2013 adjusted: €110.6m) or +16.9% on a reported basis (Q2 2013 reported: €99.5m), driven by very strong activity in the listing business and healthy volumes on the cash trading business. These quarterly revenue include €10.6 million from the derivatives clearing contract with LCH.Clearnet which came into force on April 1^st, 2014 (adjusted¹ clearing revenue for Q2 2013: €11.1 million).

Quarterly operational expenses excluding Depreciation & Amortization slightly decreased by -8.5% on an adjusted¹ basis to €67.4 million (Q2 2013 adjusted: €73.7m) or increased by +0.4% (Q2 2013 reported: €67.2m), thanks to tight cost control. These expenses include €6.4 million of costs related to the contract with LCH.Clearnet above mentioned (Q2 2013: €6.5m if this contract had been in place at that time). As a result of this positive jaws effect, the EBITDA margin reached €58.1 million in Q2 2014, or 46.3% (Q2 2013 adjusted¹: 43.5%, or Q2 2013 reported: 43.7%)

ICE transitional revenue and other income for the quarter was €9.2 million, reflecting primarily the IT support services provided to Liffe for €6.5 million for the operation of its derivatives exchanges in the UK and in the US. This transitional revenue is not expected to be recurring beyong the fiscal year 2014.

H1 2014 EBITDA amounted to €110.2 million an increase of +9.5% versus H1 2013 adjusted¹, or +14.7% versus H1 2013 reported.

Depreciation and Amortization decreased by €1 million, from €5.1 million in Q2 2013 to €4.1 million this quarter, due to the end of the amortization of the historic UTP value in April 2014.

H1 2014 operating profit before exceptional items was €101.4 million (Q2 2014: €54 million), an increase of +11.7% compared to H1 2013 on an adjusted¹ basis (+4.6% quarter on quarter adjusted¹), or +17.6% compared to H1 2013 reported (+14.6% quarter on quarter reported).

€19.9 million of exceptional costs were booked in the first-half of 2014 of which €7.7 million in the second quarter. These costs are mainly restructuring costs, in line with Euronext’s strategy to enhance operational efficiency and achieve cost savings.

The tax rate for the quarter was 36.9%, whereas for the first-half it was 54.7% due to some one-off tax items booked during the first quarter of the year (which include derecognition of some deferred tax assets in connection with the demerger).

As of June 30^th, 2014 the Company had cash and cash equivalents of €186.5 million, and total debt of €248 million.

Business highlights

Listing

Listing revenues amounted to €18.9 million in Q2 2014, an increase of 22.6% compared to the €15.4 million achieved during the same period in 2013. For the first-half of the year listing revenues increased to €32.5 million, up 22.4%, compared to €26.6 million in H1 2013.

The listing business saw a marked increase in activity in Q2 2014 with total capital raised on our markets amounting to €33.6 billion compared to €28.4 billion during the same period last year. Total capital raised on our markets in H1 2014 amounts to €57.6 billion compared to €53 billion during the same period last year. In particular, there was a substantial increase in capital raised through IPOs which amounted to €4.3 billion in Q2 2014 taking the total capital raised in IPOs in the first half to €6.5 billion, and exceeding the €3.1 billion raised over 2013 as a whole.

Listing activity across our markets was driven largely by the return of listings through IPOs from large caps but also from SMEs (Small and Medium sized companies) and benefiting from the launch of Enternext, our dedicated market place one year ago. Eight large cap listings were completed compared to one for the same period last year and a total of 25 SME listings were achieved in the first half of 2014 versus 9 during the same period last year. The pipe for the rest of the year confirms this positive trend.

With 50 new ETF listings, Euronext was the only European exchange to grow its franchise over the period on a net basis. Our structured products business has grown to its highest ever level, with 35,230 structured products live at the end of June.

Trading

Cash trading

Volumes on our cash markets have been very active in the second quarter of the year, with average daily value increasing by 5% compared to the same quarter last year. Total value traded for the period increased by 3.8% despite a lower number of trading days in Q2 2014 compared to the same quarter last year (62 versus 63).

Cash markets saw a material increase in trading activity across the first half of 2014, with average daily volumes for the period up 13% versus 2013, during which time Euronext experienced four of the ten highest volume traded days since 2012 and on 20 June, the strongest single day of trading in CAC 40 constituents of €7.046 billion since 2012. Market share remains strong at 65% for the period.

Cash trading revenues increased by 11% in Q2 2014 compared to the same quarter last year (€39.6 million versus €35.6 million). This was driven by the increase in volumes above mentioned combined with the full benefits of the fee change implemented in February 2014.

Revenues for the first half stood at €83.1 million compared to €71.5 million, an increase of 16.3%.

Derivatives trading

In Q2 total equity derivatives volumes decreased by 15% compared to the same quarter in 2013, due to lower volatility. Commodity products recorded 12% increase in Q2 versus 2013. As with the cash markets, volumes were impacted by a lower number of trading days this year compared to last year (62 versus 63).

Over the first six months of the year, broadly in line with peers, average daily volumes in financial futures and options declined by 9%. The CAC 40 futures contract remains Europe’s most heavily traded national index future and the second most heavily traded index future overall.

Over the same H1 period, commodities average daily volumes rose 17.4% and Euronext experienced the most active week ever in terms of volumes (from 3 March 2014 to 7 March 2014), with average daily 83,552 lots traded. The open interest stands at 750,000 lots, the highest level ever.

As a result of this low volatility, revenues for Q2 2014 are down by €2.1 million, from € 12.5 million in Q2 2013 to € 10.4 million this quarter. For the first six months of the year, revenues decreased by 13.5%, from €26.7 million in 2013 to €23.1 million this year.

Market data & indices

Market data & indices quarterly revenues posted a strong increase in Q2 compared to the same period last year: €23.5 million against €20.2 million, an increase of 16.4%. This growth was driven by the implementation of Euronext fees on derivatives following the separation from Liffe as well as the full impact of some fee changes in cash and reference data products that took place in previous quarters, in spite of a slight decrease in the number of data units.

First half revenues were up 12.5%, from €40.4 million in H1 2013 to €45.4 million in H1 2014.

Post-trade

Clearing

The financial benefits of the derivatives clearing agreement with LCH.Clearnet came into force on April 1^st, 2014. To facilitate the comparison, Euronext has decided to provide adjusted figures for 2013, estimating the impact this contract would have had, had it been in place from Q2 2013 onwards.

For Q2 2014 Euronext recorded clearing revenues of €10.6 million, (Q2 2013 adjusted¹: €11.1 million, or Q2 2013 reported: €0.0 million), in line with the decrease in the derivatives trading activity above mentioned although partly compensated by a positive product mix.

Settlement & Custody

Settlement & Custody revenue are derived from the operations of Interbolsa in Portugal. Quarterly revenues are steady, at €5.5 million in Q2 2014 compared to €5.3 million in Q2 2013. Revenues for the first six months of the year amounted to €11.1 million in 2014 compare to €10.7 million in the previous year.

Market solutions & other

Revenues from market solutions strongly decreased in Q2 2014 compared to the same quarter in 2013 (from €10.3 million to €7.8 million).

This was due to the replacement of some allocations (SFTI and Colo revenues) by an SLA (Service Level Agreement) effective April 1^st, 2014 and to a lesser extent a decrease in Exchange Solutions revenues. For the first-half of the year, revenues were €16.7 million, a 22% decrease (H1 2013: €21.4 million).

ICE transitional revenue & other income

In the second quarter ICE transitional revenue amounted to €9.2 million, reflecting (i) the IT support services provided to Liffe for the operation of its derivatives exchanges in the UK and in the US and its foreseen migration onto the ICE platform; (ii) the invoicing of Cannon Bridge House which started as of May 19^th, 2014 and (iii) ancillary services . This should not be compared to the revenues booked last year as, until January 1^st, the financial statements were combined financial statements and included recharge of shared costs made in accordance with the historical transfer pricing agreement between the legal entities which have been terminated and replaced by SLAs for providing services to ICE. These SLAs are priced separately for each service rendered in accordance with market prices.

Corporate Highlights

In the first half 2014 Euronext started executing on its repositioning and its innovation roadmap and has launched a number of new products and services.

Trading

Euronext has launched a number of products and services in the Exchange Traded Fund (ETF) business: launch of a multicurrency trading service for ETF, including for the first time on a U.S. or European exchange, the Chinese Yuan Renminbi (CNY) and the Hong Kong Dollar (HKD); Euronext became the first exchange to start ETF NAV (Net Asset Value) trading; Launch of the RFS (Request for Size) service for ETFs listed on our regulated markets.

In commodities, the combined Rapeseed complex remains on track for Q4, offering the industry both Rapeseed meal and Rapeseed oil futures and options in individual contracts.

The successful take up of our New Market Participant scheme for commodities, with 146 traders across 20 clients from eight cities signed up generated 120,520 lots or 4.2% of volume since May.

The delivery process for milling wheat contract has been strengthened.

The skimmed milk powdered contract has been suspended, pending revamp to deliver a more effective risk solution for the dairy industry aligned with the expiry of EU milk-quotas from 1 April 2015.

In equity derivatives, the world’s first index based Exchange for Physicals remains on track for Q1 2015. Spotlight options in the Netherlands and in Belgium have gone live and weekly expiries on CAC and AEX have been announced for Q3, supported by BNP and Société Générale. The launch of an enlarged suite of 86 single stock futures on a range of liquid Euronext names, will be complemented by the roll-out of Single Stock Futures on 127 Eurozone names during August and September and a further 140 products in non-Euro names before year end.

A block trading regime on the CAC 40 future has been introduced to better facilitate wholesale trading in that important benchmark contract.

A new and improved liquidity provider scheme for the PSI future contract has been launched.

Market data & Indices

Euronext announced the launch of a new PEA PME index family as well as the 3x leverage BEL20 and PSI20 indices and improved license contracts for the issuance of index leverage products.

Listing

In addition to the funding provided to the real economy through our markets, Euronext, through EnterNext our SME market place, announced an agreement with Morningstar in June whereby it will provide independent quantitative equity ratings on 220 TMT companies listed across our Euronext markets to help raise the sector’s visibility and expand the pool of investors.

Separately the approval from the UK FCA in June to operate a UK market further enables Euronext to be become a partner of choice for international companies looking to access Europe's capital markets.

Reinforcement of Euronext NV relationships with other exchanges worldwide:

Euronext signed:

an MoU with the Algiers exchange with a view to enhancing cooperation between our markets;
an agreement with regard to the implementation of its new UTP solution with four Middle East and North African (MENA) exchanges;
an MoU with the Dalian Commodity Exchange to carry out joint research into the promotion, distribution and trading of commodity products, develop new strategies for improving the safe operation of orderly futures and options markets and discuss the feasibility of cooperatively developing new products.

Strengthening of Euronext management team

Euronext strengthened its Managing Board with the recruitment of Jos Dijsselhof as Chief Operating Officer (COO) to drive change in our operations and deliver efficiencies. Jos Dijsselhof also assumes the role of acting CEO of Euronext Amsterdam following the resignation of Cees Vermaas as of July 31^st, 2014. Earlier in the half-year Euronext also boosted its senior management team by the appointment of three leaders for its financial derivatives, commodities and cash businesses reporting to Lee Hodgkinson, CEO of Euronext London and Head of Markets and Global Sales, as well as the appointment of Hans Schinkel as Senior Vice President of Human Resources.

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 follow:

Operational expenses excluding depreciation and amortization as the total of Salaries 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.

Adjusted 30 June 2013 Clearing revenue and Clearing expenses

For comparative purpose, for the six month period and the three month period ending 30 June 2013 the changes in clearing revenue, clearing expenses and the subsequent impact on third party revenue, operational expenses excluding depreciation and amortization have also been included when adjusted for the new derivative clearing agreement with LCH.Clearnet. This was included based on our estimate of the amount of revenue we would have received and the amount of associated expenses we would have paid under the Derivatives Clearing Agreement, based on our actual trading volume for the periods presented and assuming the Derivatives Clearing Agreement had been in effect from 1 April 2013.

¹ for the six month period and the three month period ending 30 June 2013 the changes in third party revenue and operational expenses have also been included when adjusted for the new derivative clearing agreement with LCH.Clearnet. This was included based on our estimate of the amount of revenue we would have received and the amount of associated expenses we would have paid under the Derivatives Clearing Agreement, based on our actual trading volume for the periods presented and assuming the Derivatives Clearing Agreement had been in effect from 1 April 2013, see also specific paragraph and reconciliation pages 6 and 7.
² pre tax operating optimisation and efficiencies

Reconciliation with IFRS income statement

The reconciliation of Non-IFRS measures and adjusted measures with the IFRS income statement is presented hereafter:

Million of €

Q2'2014

Q2'2013
reported

Adjustment

Q2'2013
adjusted

Var vs
reported

Var vs
adjusted

Third party revenue

116.3

99.5

11.1

110.6

16.9%

5.2%

o/w Clearing revenue

10.6

11.1

ICE transitional revenue & Other Income

9.2

19.8

Total revenue

125.5

119.4

11.1

130.4

5.1%

-3.8%

Operational expenses excl. depreciation & amortization

67.4

67.2

6.5

73.7

0.4%

-8.5%

o/w Clearing expenses

6.4

6.5

EBITDA

58.1

52.2

4.5

56.7

11.2%

2.4%

EBITDA margin

46.3%

43.7%

43.5%

Depreciation & amortization

4.1

5.1

Operating profit before exceptional items

54.0

47.1

4.5

51.6

14.6%

4.6%

Million of €

H1'2014

H1'2013
reported

Adjustment

H1'2013
Adjusted

Var vs
reported

Var vs
adjusted

Third party revenue

222.5

197.2

11.1

208.2

12.9%

6.9%

o/w Clearing revenue

10.6

11.1

ICE transitional revenue & Other Income

16.5

42.2

Total revenue

239.0

239.4

11.1

250.5

-0.2%

-4.6%

Operational expenses excl. depreciation & amortization

128.8

143.3

6.5

149.8

-10.1%

-14.0%

o/w Clearing expenses

6.4

6.5

EBITDA

110.2

96.1

4.5

100.6

14.7%

9.5%

EBITDA margin

46.1%

40.2%

Depreciation & amortization

8.8

9.9

Operating profit before exceptional items

101.4

86.3

4.5

90.8

17.6%

11.7%

Cash markets activity