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Edited Transcript of GPW.WA earnings conference call or presentation 14-Aug-20 1:00pm GMT

Half Year 2020 Gielda Papierow Wartosciowych w Warszawie SA Earnings Call

Warsaw Sep 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Gielda Papierow Wartosciowych w Warszawie SA earnings conference call or presentation Friday, August 14, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Marek Dietel

Gielda Papierow Wartosciowych w Warszawie SA - President of the Management Board

* Izabela Olszewska

Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & CSO

* Piotr Borowski

Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & COO

* Piotr Wissman

Gielda Papierow Wartosciowych w Warszawie SA - VP, Management Board

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Presentation

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Unidentified Company Representative [1]

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I would like to welcome you to the second-quarter 2020 conference call with Warsaw Stock Exchange. The Company is represented today by Marek Dietel, CEO; Izabela Olszewska, member of the Management Board; [Piotr] Borowski, member of the Management Board; and [Piotr Wissman], Vice President of the Management Board. Now I would like to pass the floor to the management.

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Marek Dietel, Gielda Papierow Wartosciowych w Warszawie SA - President of the Management Board [2]

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Thank you very much, [Pablo]. Here is Marek Dietel. I hope you have the presentation in front of you, so let us quickly jump to the slide number 3 where I would like to summarize the Q results from the second quarter of 2020. So we had a very healthy EBITDA of over PLN63 million, +10% compared with last year. We have (various) net profit of PLN43.5 million, so again up from the last year. We had some good healthy income ratio of 44.5% and two days ago, we paid out dividends of PLN2.40 per share.

Besides a healthy business performance, we also progressed in our strategic initiatives according to our strategy #GPW2022. [Some expenditure] on our analytical coverage support program. We added 12 companies to this program where we sponsored research and we also gained Refinitiv as our distribution partner for the research. Those research is also available in English, so I hope you will find it useful when investing in Poland and the Warsaw Stock Exchange.

We also pursue our pre-IPO program with our subsidiary, GPW Ventures. When we got the first investor, it's a Polish agency for support of agriculture and we will partner with them in a submission for pre-IPO planned for aggregate businesses. We keep on working with global institutions on ESG issues and we started a program with EBRD, which will help the listed companies to do reporting on their ESG activity. So again, it will be beneficial for the global investors [immediately]. They will be better informed about the ESG efforts of our issuers.

And last but not least, we received another pre-grant from the National Centre of Research and Development. This time it is for a block chain project and we'd like to use block chain to trade tokens and smart contracts on nonfinancial assets. We believe that the digitalization of assets and also going to use paper, nonfinancial assets is a very permissive space and we are happy that we received over [PLN18] million in pre-funding. The total project is for over PLN12 million. And now I'd like to pass to Izabela for a business update on our recent performance in Q2. Thank you.

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Izabela Olszewska, Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & CSO [3]

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Good afternoon. It is Izabela Olszewska speaking. So we are now on slide 4 and the support of our presentation business insights from financial market. So just I would like to start by looking at the turnover on the European stock market and the percentage, the increase on the Warsaw Stock Exchange year-to-year was one of the best in Europe. Of course, certainly, we need to have in mind a base for calculation as we calculate percentage, but of course, but anyway, that is a very good achievement and we think that the growth dynamics of our turnover, they were really, really good in Q2 this year.

Also, our turnover velocity was very high in the whole history of our exchange, but also on the European background and we are in [bank] the biggest name in Europe. Why don't we go to slide number 5, so this is about the investor activity on our equity markets and the value of central order book is trading on both our Main Market and the NewConnect market were record-breaking in Q2 this year. Among indices, the greatest increase was recorded by our index of smaller caps, sWIG80. It was more than +30% and it corresponds to the [absurd] growing share in trading of retail clients. So there were retail clients that were really interested in trading of smaller caps, especially those companies that operate in sectors at a discount to [Covid], like gaming sector, biotech and new technologies, healthcare sector or e-commerce.

So in Q2, we notice a few external factors. They attracted the interest in stock exchange and I would like to mention first of all the [hotel] interest rates in Poland, which together with inflation rates, (inaudible) the situation we are keeping savings of (inaudible) on bank deposits. They were inefficient. So the new clients -- we observed a [flow] of new clients to the market and they discovered that there is a great possibility to earn money on our exchange. So the brokers opened more than 70,000 new accounts in the first half of this year.

But the very important message that I would like just also to pass through is that despite of good external factors, so there are other factors that contributed to the (inaudible) positive quarter results and this is very continuous work of our exchange on new products based on education and on liquidity support programs.

So as far as the products are concerned, so I would like to mention [structured] products and we observe the growing interest in (inaudible) structured products. We have currently more than 1600 different products. The most active in Q2, there were those [made] on German index [tax] and (inaudible) or event, but we have also various categories of structured products and for every investor despite of the level of their appetite.

The passive investment is still growing in Poland and when we look on EPS and over value, so we can see that this is huge growth year-to-year. So we are going to add more EPS. Also, in this year, we expect new two EPS or even three. So of course the [pollet] of this instrument will be growing on the market even in this year.

On the side of education activities, though we organize a lot of product education to our investors, also we organize passive investment conference and there was innovation days. The last one just gathered more than 1000 participants among retail clients.

As far as liquidity support programs are concerned, so, of course, we continue with the high-volume provider program and the new participants of these programs join us. One of the cash market participants joined the high-volume provider program and one HVP participant added cash market to its operation. So we can see that the share of HVP participants in equity turnover was slightly lower than Q1. However, in the nominal value, their activity was bigger than in the previous quarter.

Let's go to the slide number 6, and this is about derivatives markets and on the derivatives market, volatility is the king and in Q2, we still level some volatility. So weaker (inaudible) volatility almost at the level of almost 36% whereas the weaker volatility was on the level of 32% and so it resulted in again the wholly-owneds on derivatives market slightly lower than in the first quarter, but in the first quarter March was extremely active because of the start of the pandemic and very high activity of our investors on the [revalues] market.

The most active project were index futures and still the stock futures. And again, on this market, we have a couple of liquidity support programs. So we are proud of the new derivatives market. [Micah] joined this market and also HVP's participants, they increased their activity and the [churn] and turnover in Q2, it was on the level of 40%. So thank you and I'll pass the floor to Piotr Borowski.

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Piotr Borowski, Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & COO [4]

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Thank you, Izabela. This is Piotr speaking. Now I'll give you a short overview of our financial results. The second quarter we had very good financial results because of this increased market activity on our markets, especially the financial market. So the sales revenues increased by 13.5% year-on-year and were mainly driven by higher revenues on the financial market. While operating expenses increased moderately, only by 4% and this growth was driven -- this increase was driven by salaries and other employee costs, which is connected with our growth strategy with strategic projects that are now in our pipeline. The EBITDA increased by almost by 10% year-on-year while net profit amounted to PLN43.5 million and increased year-on-year 2.2%.

We are moving to the slide 9, so there is good revenues and stable costs resulted in a very high EBITDA margin at the level of 62.5% and net profit margin at 43% in Q2 2020. On slide 10, trading revenues on the financial markets rose by 54% year-on-year and we observed very positive trends there, very positive information because the average daily turnover in shares increased from less than PLN1 billion per session in the first quarter to PLN1.2 billion in the second quarter. So the daily volume was much higher in the second quarter, but also the average fee we charge on the trading transactions was higher than in the first quarter. So at the end of Q2, it was 2.31 bps. This was the result of higher activity of retail clients. We have much more orders and transactions generated by the retail clients and normally they post smaller orders, smaller trades and smaller trades means we -- and more trade because we charge more for developing these smaller trades. It's connected with our fee structure. So smaller trades generally are more profitable for us.

Down to slide number 11, listing revenues. Listing revenues were down, decreased by 25% year-on-year while the listing revenues are influenced by the number of listed companies, so we had some delistings. So the number of companies listed under the stock exchange decreased and also the valuation at the end of the last year was slower and the valuation is the basis for the calculation of the annual fees for listing. But looking forward, we are quite optimistic. We see much more activity also in the primary market, so we expect some big and small IPOs in the coming months.

Slide number 12, we had quite stable growth over the news from information services from information products like indices and market data. It is a stable and modestly growing business. We see annual data vendors and new -- and clients, especially the number of individual investors increase. They are active on the market and that is why they generate demand for information services for market data. I'll ask [Piotr Wissman] from commodity [exchange] to talk about commodity business line.

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Piotr Wissman, Gielda Papierow Wartosciowych w Warszawie SA - VP, Management Board [5]

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Hello, everyone. First, I'd like to present to you (inaudible) in Q2 2020 three main commodity business lines, [ITEGE], which is the electricity gas and property rights markets. I would like to turn your attention to the fact that trading volumes and derivatives for both electricity and the gas markets, which accounts for 86% of shares in total volumes traded on the MMG and gas markets used to be influenced by the seasonal trading behaviors. It means that volumes at the first half of the year are usually smaller than in the second. You can find the compilation of that in the volumes shown on charts for each quarters of the year.

The same situation happened in the first and second quarter of 2020 and both are on the very close level year-on-year on the gas market and even if growth by 18.8% on the electricity market, what was driven by the high price variety caused by the Covid situation.

On the property rights market, after a significant drop in first quarter of 2019 caused by the end of trading in cogeneration certificates in June last year, we are observing a steady increase in volumes quarter-on-quarter. Volumes in second quarter are usually higher than in other quarters because in June all (inaudible) needs to redeem their certification of origin.

In terms of energy efficiency, turnover since third quarter 2019, it's down from 132 kiloton of oil equivalent to 56.4 in second-quarter 2020. It should be noted that so high volumes in second quarter and third quarter of 2019 were driven by the extension in June 2019 support system of energy efficiency options that mitigates until June 2021.

That (inaudible) a huge impact on the level of demand and supply price variety and finally on the volumes in Q2 and Q3 2019. The current level of the turnover is similar to the level in Q2 and Q3 2018, so that is 53 and 60 kiloton equivalent respectively.

If we go to slide 15, revenue from electricity and gas and property rights markets. First piece, bear in mind that revenues from community markets are strongly correlated to their numbers because these are calculated upon the volume traded because of their value as it is collected by the Warsaw Stock Exchange. That's why we may simplify the change in the revenues aren't correlated somehow with the change in the numbers.

Revenue in the second quarter 2020 amounts to almost PLN63 million, which means that increase to 0.3% quarter-on-quarter and decreased 12% and 4% year-on-year. Main factors which had the biggest impact on revenues comparison year-on-year basis on which we should focus on is significant drop of revenue from trading and property rights from PLN12.5 million to PLN8.3 million due to this continuation of trading cogeneration certificate as of June 30, 2019 and decrease of energy efficiency certificate turnover as I mentioned before.

Please let's go -- let's move to slide 16, revenues from clearing. Here again we are giving the correlation between traded volumes on the exchange and (inaudible) fees calculated per each megawatt hour. So we see decrease of revenue from clearing in the second quarter, so PLN11.4 million, which is decreased 6.9% year-on-year due to lack of volumes to clear from cogeneration certificates. Revenue from operation of the register increased in the second quarter to PLN9.1 million driven by an increase in the volume of issue and consult RES certificates. I think that's the main factors in revenues and turnovers in the commodity markets. Now I pass voice to my colleagues for the next slides.

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Izabela Olszewska, Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & CSO [6]

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Piotr Borowski, are you here with us?

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Piotr Borowski, Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & COO [7]

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So can you come back to financials?

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Izabela Olszewska, Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & CSO [8]

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Yes slide number 18.

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Piotr Borowski, Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & COO [9]

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Thank you very much. So the cost to income ratio was at the level of 44.5% lower than the second quarter as a result of higher sales revenues and stable costs. The position was a bit lower year-over-year, lower by 3.6% and there was an increase of salaries and other employee costs. The increase of 16% year-on-year but almost 0 quarter-to-quarter, and this is because we employed new contractual employees and new people in our projects that we are now working on.

So this year, we have an increase of revenue -- of employee costs, personnel costs. There is also a decrease of external services in the second quarter. We had smaller costs of marketing, business, trade and external advisory services. In the second quarter, we created provisions against the potential tax payable by our creating a house for the commodity exchange in the amount of PLN2.9 million. Now we are in a discussion with our tax advisors to prepare the strategy because there are some doubts concerning the taxes, the discrepancies between the EU and Polish tax declarations.

Also, we've written off part of the investment in our [dozer] company, BondSpot, which trades bonds. It's a proficient market. The writeoff costs for the level of PLN3.5 million. It was because we observed a decrease in trading on the treasury bond market and we expect lower revenues this year than we (inaudible).

Slide 19, share of profit of entities associate -- there was an increase of 21% year-on-year and that amounted PLN4.4 million and it was driven mainly by the very good results by the net profit of KDPW, our associate. It's a national depository for securities. They had a PLN4.2 million profit in the second quarter when compared to the PLN3.8 million in the first quarter of this year.

Slide number 20, our consolidated balance. We can say that the first half was very good in terms of business and in terms of financials and there was a very good healthy growth of financial assets and cash and cash equivalents and we, in August this year, two days ago, we paid a dividend PLN2.4 per share. Thank you very much.

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Izabela Olszewska, Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & CSO [10]

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We are ready to answer any questions you might have at the moment so please [proceed].

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Questions and Answers

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Unidentified Participant [1]

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Good afternoon. If I may start, (inaudible) Company. In fact, I have two questions. The first one is you've mentioned that you started collaborating with EBRD in ESG field. Could you please elaborate a bit about this agreement? And the second question is could you please share with us your considerations on the upcoming IPOs? So how many ideas can we expect this year and next year?

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Izabela Olszewska, Gielda Papierow Wartosciowych w Warszawie SA - Member of the Management Board & CSO [2]

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Okay, let's start from the third question, so [that's true], so we have started to negotiate with EBRD and this is the project related to ESG topic. So we discovered that the E and G is absolutely important trend in the market and we would like to prepare our issuers for reporting according to the expectation of the investors. So we had some roadshows abroad, also [leaving] the global fund and all of them in four months that from the next year, the ESG integration will be on the level of almost 100%. So it's very important information and the companies, they will not report on ESG. They will go to the watchlist and those -- which will report according to [SoundArt], which are described by [poly] investors and our local investors. Of course, they will be investable. So it is why we discuss it with EBRD and currently, we are in the procurement process and we are looking for the advisor who will prepare for us the guidelines for our companies how to report ESG for the investors.

And we are the partner and of course, we have some financial contribution to this project. As I mentioned, we received range of process of procurement. We received some proposals and now there is the valuation of the proposals and probably will be installed very soon. So this is about ESG, absolutely important company for us within the exchange. We adopted the ESG strategy and we have a lot of plans related with the implementation of ESG within our company and also I think our markets in the process of ESG implementation today [for instance].

As far as IPO market is concerned, so we think that the rest of the year it will be a good period for IPO. So we had the public announcement from fee companies that are going to be listed on our exchange. So Allegro which is the famous name and again to introduce a (inaudible) and also the company from our media sector, (inaudible), but also we expect several IPOs of more [medium]-sized companies, especially from gaming sector and around 28 companies they announced that they are looking for floating on our NewConnect market. So we think that this would be a good time for IPO business line, but also we expect some S deals in the second part of the year. Thank you.

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Marek Dietel, Gielda Papierow Wartosciowych w Warszawie SA - President of the Management Board [3]

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Are there further questions?

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Operator [4]

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(Operator Instructions). It appears we have no questions on my side.

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Marek Dietel, Gielda Papierow Wartosciowych w Warszawie SA - President of the Management Board [5]

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So Pablo, if there are no questions, I don't know if we continue or what is the plan?

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Unidentified Company Representative [6]

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No, I think we should conclude the conference call at this stage. I'm quite confident if there are any further questions investors can directly contact investor relations department.

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Marek Dietel, Gielda Papierow Wartosciowych w Warszawie SA - President of the Management Board [7]

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Thank you so much for the call today. On behalf of the management of Warsaw Stock Exchange, thank you very much and please don't hesitate to contact IR. Our IR team or the management board are always ready to answer your questions. Thank you very much.