Euronext Publishes 2016 Full-Year Results

Regulatory News:

Today Euronext (Paris:ENX) (Amsterdam:ENX) (Brussels:ENX) announced its results for the full year 2016.

• Strong operating performance despite pressure on trading volumes:
  • Decrease in revenue: -4.3%, to €496.4 million (2015: €518.5 million). Efficient yield management partially offset lower trading volumes (average trading volumes decreased by -15.3% vs 2015 for cash products and by -7.2% for derivatives).
  • Cost discipline resulted in strong reduction in operational expenses excluding depreciation and amortization: - 9.4%, to €212.5 million (2015: €234.7 million).
  • €15.6 million of cumulated gross efficiencies achieved since Q2 2016 as part of the cost cutting programme announced in the Agility for Growth plan, including some releases of accruals for €3.3 million.
• Stable EBITDA at €283.9 million translated into a strong improvement in EBITDA margin, to 57.2% (2015: 54.7%).
• Significant increase in EPS (basic): +14.6%, to €2.83 (2015: €2.47).
• In line with dividend policy, €1.42 per share dividend proposed for approval at the AGM on 19 May 2017, which represents an increase of 14.5% compared to €1.24 per share paid last year.
• Important milestones achieved in the deployment of Agility for Growth Strategic plan.
• Optionality to deploy capital thanks to cash flow generation profile and strong balance sheet.
• Disciplined M&A approach combined with potential acquisition of LCH.Clearnet SA, a strong value proposition for Euronext’s stakeholders.

“The Euronext team is proud of the results we announce today for 2016. In a year marked by lower volumes on our markets that induced, as guided with our Q3 2016 results, a 4.3% decrease in revenue, we have managed to maintain our EBITDA in absolute terms stable compared to last year. Our cost base has been significantly reduced, and is now fully covered by our non-volume related revenue only. As a result, our profitability and EPS increased significantly and we are in a position to propose for the approval of our Annual General Meeting on 19 May 2017, based on our consistent dividend policy, the payment of a dividend of €1.42 per share, increased by 14.5% compared to last year. These results demonstrate Euronext’s continuous capability to service our shareholders and customers, and to deliver value against a tough trading environment. 2017 will be a critical year for our industry landscape. We will remain focused on executing our Agility for Growth strategy and maximizing opportunities that may arise, as we did with the agreement to potentially acquire LCH.Clearnet S.A.,” said Stéphane Boujnah, Chairman and CEO of the Managing Board of Euronext NV.

Financial performance

The year 2016 was marked by a down-trend in volatility, both for cash and derivatives markets, with some volatility spikes around the UK referendum in June and the US elections in November. Ongoing uncertainty also resulted in low activity on primary markets. As a result, revenue for the full-year decreased by -4.3% to €496.4 million (2015: €518.5 million). As a reminder, 2015 was the strongest year since 2008, both in terms of trading volumes and in terms of primary markets activity.

Operational expenses excluding Depreciation & Amortization decreased by -9.4% to €212.5 million (2015: €234.7 million).

This performance results from the strict execution of our strategic plan with €15.6 million of cost savings since Q2 2016. The level of operational expenses has been reduced by some reversal of accruals for a total amount of €3.3 million.

The onboarding of costs, linked to the execution of the growth initiatives, ramped up after the summer break, impacting the cost base of the Company by €2.1 million for the full year 2016 and generating €0.8 million of revenue. The relocation of our IT operations from Belfast to Porto is nearly complete, with 88 people hired in Porto, while the closure of the Belfast office will be effective at the end of Q1 2017.

This strong focus on costs has allowed us to contain the impact of the reduced revenue on EBITDA, which remained stable in 2016, to €283.9 million, representing a margin of 57.2% (2015: 54.7% or €283.8 million).

Depreciation and Amortization decreased by -11.6% in 2016, to €15.1 million (2015: €17.1 million). The impact of the end of the accelerated depreciation of assets, resulting from relocations of our offices in Belgium and France, and of the roll-out of a portion of UTP amortization were partially offset by the start of Interbolsa T2S project depreciation in Q3 2016.

Operating profit before exceptional items was €268.8 million, an increase of +0.8% compared to 2015 (€266.8 million).

€10.0 million of exceptional items were booked in 2016 compared to €28.7 million in 2015. These costs consisted mainly of M&A related costs, for €3.3 million, and of restructuring costs for €7.1 million in 2016. In 2015 some reversal of provision related to Cannon Bridge House premises for €14.4 million had partially compensated the €35.0 million of restructuring costs.

Results from equity investment increased by 29.8% in 2016, to €6.0 million (2015: €4.6 million), due to the increase in dividends paid by Euroclear (both direct and indirect stakes), and to €0.7 million of dividend paid this year by LCH Group (2015: zero).

Income tax for the full year 2016 was €67.0 million, representing an effective tax rate for the year of 25.4% (2015: 27.6%), both years being impacted by the release of tax provisions (€16.3 million in 2016 and €13.9 million in 2015).

As a result, the net profit for 2016 increased by 14.1%, to €197.0 million (2015: €172.7 million). This represents an EPS (basic) of € 2.83 (€2.82 fully diluted) in 2016 compared to €2.47 (€2.46 fully diluted) in 2015. The number of shares used for the basic calculation was 69,526,615 for 2016, compared to 69,851,603 in 2015.

As of 31 December 2016, the Company had cash and cash equivalents of €174.5 million, and total debt of €69.1 million, after the partial debt repayment of €40 million in Q3 2016 and the €86.2 million dividend payment in Q2 2016.

Business highlights

• Listing

Revenue was €68.7 million in 2016, a decrease of -2.6% compared to the €70.5 million achieved in 2015. This decrease was driven by the fall in IPO fees and reduced listing fees for ETPs in comparison with 2015. In 2015, large transactions such as Lafarge-Holcim, Altice, Amundi and ABN Amro were key contributors to the listing revenue performance. In 2016 much uncertainty and volatility induced low activity on primary markets even though two benchmark transactions took place on our market (Coca Cola European Partners and AB Inbev).

28 new listings took place in 2016, raising €3.7 billion, compared to 52 listings for €12.4 billion during 2015, due to the uncertainty created by various global factors throughout the year (UK referendum in June, US elections in November, etc.).

Euronext continued to be the venue of choice for Tech SMEs. Although the number of new SME listings decreased from 36 in 2015 to 23 in 2016, these companies raised €1,430 million in 2016 compared to €1,337 million in 2015.

Amongst these listings, Euronext markets registered interesting small and mid cap deals in 2016, confirming the relevance of its strategy and its willingness to develop specific offers for these kinds of companies: Maisons du Monde (a regional based mid-cap furniture company), Nextstage (the first listing of a private equity fund on Euronext Paris) as well as Geneuro and Noxxon Pharma (listing of a Swiss and a German Biotech).

In 2016, Euronext saw an all time high on secondary issues, to €56.4 billion, up 72% compared to €32.9 billion in 2015. Debt capital markets issuance also increased in 2016, with €80.6 billion raised by corporates on our markets in 2016 vs €66.4 billion in 2015.

In total €140.7 billion in equity and debt was raised on our markets in 2016, compared to €111.7 billion in 2015.

• Trading

Cash trading

Full-year 2016 volumes in Cash Trading were down due to the macro factors mentioned above, translating into reduced investor confidence post Brexit and lower volatility, particularly in Q3. Average daily volumes were € 7.0 billion (-15.3% compared to 2015). However, efficient yield management enabled us to partially de-correlate revenue from volumes, thus minimising the impact on our top line. Yield averaged 0.50 bps in 2016, compared to 0.47 bps in 2015, a +7.8% increase. Revenue for the full-year is down by -8.4% to €180.7 million (2015: €197.2 million).

Average market share for the year was 61.0%. The year ended strongly with December market share at 65.2%, following lows in October at 58.6% as a result of the launch of several initiatives (notably new fee scheme for non-member proprietary flow and a new best execution service for retail investors). Average market share in 2015 was 63.5%, in a context of buoyant market activity.

Activity on ETFs followed a similar trend, with an average daily transaction value at €554 million, down 9.7% compared to €613 million in 2015. However, we recorded a record number of new ETFs listed on our markets, at 137, bringing the total number of ETFs listed on our markets at 790 by year end (up +13.5% versus end of 2015: 696). Our client alignment is demonstrated by Euronext winning four awards during 2016, being consistently recognised as the Best ETF Exchange in Europe. A new issuer, UBS AG has been onboarded in January 2016.

Derivatives trading

Derivatives trading revenue decreased by -9.8% in 2016 compared to 2015, amounting to €40.1 million (2015: €44.5 million) as a result of the lower volatility .

Index product trading volumes declined by -9.8% in 2016 compared to 2015 (average daily volumes of 214,520 lots in 2016 vs 237,881 in 2015). Trading activity on our individual equity options franchise decreased by -5.2% during 2016 compared to 2015 as market volatility was higher last year (average daily volumes was 222,942 lots in 2016 vs 235,135 in 2015).

A materially sub-standard 2016 French wheat harvest have impacted volumes in commodity products that declined by -4.1% in 2016 compared to 2015 (average daily volumes of 53,536 lots in 2016 vs 55,843 lots in 2015).

• Market data & indices

Market data and indices revenue delivered a strong performance in 2016 with revenue up + 6.0% compared to 2015, to €105.7 million (2015: €99.8 million), benefiting from the positive impact of the new products and services launched during the course of 2015 as well as from some fee adjustments.

• Post-trade

Clearing

Consistent with the trend in derivatives trading mentioned above, clearing revenue decreased by -7.6%, from €51.9 million in 2015 to €48.0 million in 2016.

Settlement & Custody

Revenue from Interbolsa in Portugal in 2016 was €19.6 million; stable compared to the €19.7 million achieved in 2015.

• Market solutions & other

Revenue from market solutions decreased by -3.3% in 2016, to €33.0 million (2015: €34.1 million). The decrease in software solution revenue during transition to Optiq platform was partially offset by the introduction of a new Market Abuse Regulation compliance service in July.

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.

Update on the Agility for Growth plan

Since the publication of its strategic plan in May 2016, Euronext has started the deployment of the Agility for Growth plan and has achieved a number of significant milestones.

Technology

2016 has been a year of intense focus on our technology capabilities. The relocation of IT operations from Belfast to Porto is being delivered on time and within budget. As of 31 December 2016, 88 people had been onboarded in Porto and the Belfast office will be closed, as planned, at the end of Q1 2017. Over time this will enable us to operate more efficiently at lower cost.

The development of Optiq, our new trading platform, is taking shape. The customer test platform opened as scheduled in November 2016 for market data. The launch of the new market data infrastructure for cash and derivatives products is scheduled for May 2017. The migration to Optiq for the cash businesses will be completed in October 2017 and will include MiFID II compliance.

Strengthen resilience of the core business

By the end of 2016, Euronext already achieved 70% of the gross cost reduction programme (based on 2016 cost base that was also reduced by €3.3 million of non-recurring reversals of accruals), thanks to strong cost discipline and due to fact that the onboarding of costs related to the growth initiatives started only after the summer break.

Euronext has begun enhancing its agility, demonstrated by a number of product launches leveraging the regulatory environment, to help clients comply with major changes implied by MiFID II or MAR. Thanks to reinforced client centricity, Euronext also identified selected opportunities that translate into innovative projects such as the involvement in a Blockchain consortium and new areas of business, evidenced by the expansion of our fixed income offering.

In addition Euronext announced several milestones that will strengthen its core business:

• Launch of a series of initiatives dedicated to family businesses. Aiming at promoting listings and increasing the visibility of family businesses towards investors, this includes European roadshows to meet investors, improved financial analysis coverage through the Morningstar programme, and a dedicated section on Euronext’s website. Euronext will also launch the Euronext Family Business index®, a new European index with 90 component companies—from major corporations to SMEs—in the four countries covered by Euronext. Furthermore, FamilyShare, a dedicated programme offering support and coaching to unlisted family businesses, will be set up across Euronext markets and tailored to the specific needs of each country.
• Creation of a new pan-European block trading service. Euronext and AX Trading announced this morning the creation of a strategic partnership to launch a pan-European block trading service in Equities, ETFs and Depositary Receipts. Euronext will license AX Trading’s leading edge technology on a pan-European exclusive basis to create a multilateral trading facility (MTF) owned and operated by Euronext, pending relevant regulatory approval. This strategic partnership will result in implementation and development cost of €1 million for Euronext.

Initiatives adding value to investors:

• Expansion of fixed income offering. In November 2016, Euronext and Algomi announced a plan to launch a new trading facility to improve liquidity in pan-European corporate bond trading. Under a ten year strategic partnership agreement, Euronext and Algomi will form a Joint Venture with technology supplied by Algomi, to improve liquidity in pan-European corporate bond trading. This long-term joint-venture will deploy Algomi’s award winning technology to a new MTF owned and operated by Euronext. By linking together Euronext, the banks and investors in a collaborative network, Euronext becomes a centralised market place for pan-European corporate bond trading.
• “One-stop-shop” for ETFs. Euronext aims to offer the ETF community a “one-stop shop” solution for multi-national listing and trading in ETFs and investments. Euronext has conducted in depth discussions with more than 40 financial institutions over Q3 and Q4 2016 to finalise platform design. The specifications, including NAV trading and request-for-quote services, are now completed and included in Optiq specifications. IT development will start in May 2017 for a launch in November 2017.
• European indices. Euronext, in partnership with an independent investment research provider, will launch in Q2 2017 open-source European Indices on which clients will be able to create ETPs. First revenues are expected in Q3 2017. In addition Euronext will launch futures and options linked to the indices and the partnership will include in phase two smart beta indices.
• Initiatives in commodities. Euronext aims at becoming the European specialist content provider of reference on Agricultural products and other commodity markets. Euronext will provide economic analysis, training and establish price reporting services for European agricultural markets. Euronext is conducting a European-wide target screening to find the suitable acquisition target. Euronext will also expand its trading instruments offering by entering the OTC-cleared instruments space in these markets. The target operating model has been finalized with the CCP, instruments batches and Price Reporting Agents (PRAs) are identified. IT detailed business requirements have been finalized, technical implementation will start in Q2 for a go live end of 2017.
• Diversified post-trade services. Euronext has now deployed the first major phases and features of the Euronext RiskGuard pre-trade risk management solution and continues to develop its suite of collateral management services. In addition, Euronext has made public its intention to deliver a MiFID II compliant system for trade reporting and transaction reporting. This will require authorisation as an Approved Publication Arrangement, (“APA”) and an Approved Reporting Mechanism (“ARM”) under MiFID II. The launches of these solutions will be in Q4 2017.
  Euronext announced this morning the launch of a new service, Euronext Chequers services, that will provide Risk Analytics, Inventory Management and a Collateral Transformation platform supporting commodities, fixed income and equities. Chequers will be rolled out in stages throughout 2017. March will see the launch of an Inventory Management solution which has been 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. The second phase, scheduled for June 2017, will see the launch of an electronic all-to-all trading platform supporting all asset classes including commodities that pairs liquidity providers with liquidity takers.

Initiatives adding value to issuers:

• European Tech Hub for SMEs. Euronext has identified four target countries – Germany, Switzerland, Italy and Spain – to set up and roll-out dedicated offers to attract Tech SMEs on Euronext markets with the aim to become the number one exchange for European Tech SMEs in continental Europe. Following an in-depth market study and interviews with more than 150 local stakeholders, the value proposition is now finalized with specific services identified to boost visibility towards investors and support roll-out in the respective markets. Local recruitments have been launched. Seven technology companies headquartered in these European countries are already listed on Euronext and the pipeline is building up.
• Corporate Services. Euronext’s ambitions remain to help issuers to further unlock the full potential of capital markets. Euronext has conducted a survey and qualitative interviews with approximately 40 issuers across its four domestic markets and all segments in order to understand their main needs in terms of investor relations and financial communication. The definition of the offering is finalized with a flexible and case-by-case approach for each one of the services to be provided: organic growth, acquisitions as well as external partnerships. The first component has been launched, with the roll-out of pre and post listing services with 16 post listing mandates in France, and one executed mandate in pre listing.
  Euronext announced yesterday evening the acquisition of Company Webcast, a Dutch company, market leader in webinars and webcasts. The acquisition of a majority stake (51%) in Company Webcast represents a key milestone in the context of corporate services offering. The cash consideration for the transaction is €3.6 million. The Company serves 260 clients and had revenue of €3.6 million in 2016. The acquisition of Company Webcast represents the second step in building a comprehensive corporate services offering.

The Agility for Growth strategic plan is already bearing its first fruits and delivering enhanced shareholder value. If approved during the Annual General Meeting on 19 May 2017, the dividend paid of €1.42 per share will represent an increase of 14.5% compared to the dividend paid last year. Stronger profitability combined with consistent dividend policy translates into increased shareholder remuneration while Euronext maintains significant flexibility to deploy capital. 2016 has been the first year of capital deployment since IPO; Euronext will pursue the implementation of its strategy in 2017 where organic milestones and various products and services launches will be combined with additional acquisitions and partnerships.

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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 more than 1,300 listed issuers worth close to €3.3 trillion in market capitalisation as of end December 2016, 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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