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Euronext reports most profitable quarter since IPO

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Euronext has reported its most profitable quarterly results since its initial public offering (IPO) with revenue in the second quarter of 2016 increasing by 1.7 per cent to EUR132.3 million from EUR130.1 million a year earlier, driven by strong performance in the listing and market data businesses.

This performance more than offset slower trading conditions in the company’s cash and derivatives businesses, which saw lighter volumes as investors reduced risk exposure ahead of the UK referendum on 23 June 2016.

Quarterly operational expenses excluding depreciation and amortisation decreased by 9 per cent to EUR54.6 million (Q2 2015: EUR60 million). These savings result from the strict execution of the cost reduction plan.
 
Compensation costs fell by EUR3.9 million, or 13 per cent, as part of the continuous efforts to improve efficiency across the organisation.

As a result of this increase in revenue combined with a reduced cost base, EBITDA increased to EUR77.7 million, representing a margin of 58.7 per cent compared to 53.9 per cent in Q2 2015.

Depreciation and amortisation decreased by 16.1 per cent in Q2 2016 to EUR3.8 million, mainly due to the accelerated depreciation of assets in Q2 2015 in anticipation of the relocation of Euronext’s premises in Paris and Brussels.
 
Quarterly operating profit before exceptional items was EUR73.9 million, an increase of 12.6 per cent compared to EUR65.6 million in Q2 2015.
 
EUR5.2 million of exceptional costs were booked in the second quarter of 2016. These costs include expenses for employee termination benefits in the various Euronext locations, and expenses related to the update on the French restructuring plans and the relocation of Belfast IT operations to Porto. Exceptional costs in Q2 2015 (EUR24.6 million) included the recognition of the provision for the French restructuring plans (EUR22.1 million) and some redundancy costs in Europe.
 
The tax rate for the quarter was 31.8 per cent, slightly higher than the normalised tax rate of the company due to some discrete items such as the impact of the French restructuring plans.
 
The net profit for Q2 2016 was EUR49.3 million, an increase of 72 per cent compared to the same quarter last year (Q2 2015: EUR28.7 million), representing an EPS of EUR0.71 basic and EUR0.70 fully diluted, compared with EUR0.41 in Q2 2015 (both basic and fully diluted).
 
As of 30 June 2016, after the dividend payment of EUR86.2 million in May, the company had cash and cash equivalents excluding financial investments of EUR152.8 million, and total debt of EUR108.6 million.
 
Listing revenue was EUR23.3 million in Q2 2016, an increase of 21 per cent compared to the EUR19.3 million achieved in Q2 2015. This performance was driven by an increase in both IPO and secondary market activity. In total EUR46.3 billion in equity and debt was raised by corporates on Euronext’s markets in Q2 2016, compared to EUR21.7 billion in Q2 2015.
 
Fourteen new listings took place in Q2 2016, raising EUR3 billion, compared to 14 listings and EUR2.3 billion during the same quarter in 2015. Among the largest deals in Q2 were the IPOs of ASR Nederland and Philips Lighting as well as the technical listing on Euronext London and Euronext Amsterdam of Coca Cola European Partners adding EUR16 billion in market capitalisation.
 
Several benchmark transactions among Euronext’s listed issuers took place during Q2 2016 on its debt capital markets, including the Total EUR1.5 billion bond issuance and JC Decaux EUR750 million transaction.
 
Despite difficult market conditions, small and medium-size companies maintained a capital raising dynamic during Q2, with EUR2.7 billion raised across Euronext’s primary and secondary offerings and 11 new international and domestic SME listings compared to EUR2.1 billion and 12 new listings in Q2 2015.
 
As a result of lighter trading volumes during the quarter, revenue from cash trading decreased by 6.6 per cent, to EUR45.8 million, (Q2 2015: EUR49.0 million) despite cash market average daily volumes in Q2 2016 being down 19.4 per cent, to EUR7.1 billion compared to EUR8.8 billion in Q2 2015, thanks to an increase of 11 per cent in the revenue capture.
 
EUR21.3 billion was traded on 24 June 2016, making this day the most active one since the financial crisis.
 
The company’s domestic market share established at 61.3 per cent for the quarter, steadily increasing since the beginning of the year, from 60.4 per cent in January to 62.2 per cent in June.
 
Activity on ETFs remained resilient in Q2 2016 with an average daily transaction value of EUR560 million, down 5 per cent compared to Q2 2015. Euronext also continues to grow its ETF franchise, with 40 new listings during Q2 2016. It has achieved a record number of new listings in excess of 100 during the first six months of 2016.
 
Derivatives trading revenue decreased by 7.6 per cent in Q2 2016 compared to the same quarter last year, amounting to EUR10.2 million (Q2 2015: EUR11 million) impacted by lower trading volumes.
 
Quarterly average daily volumes on individual equity derivatives decreased by 4 per cent, at 222,631 contracts during the second quarter of 2016, while volumes on equity index derivatives decreased by 16 per cent at 217,211 contracts.
 
Volumes on commodity products were nearly stable at -1 per cent, with quarterly average daily volumes of 55,061 contracts.
 
The company’s total open interest increased to 14.7 million contracts at the end of June 2016 (+8 per cent compared to the end of June 2015).
 
Market data and indices revenue in Q2 2016 was up 11.5 per cent compared to the same quarter in 2015, to EUR27.3 million (Q2 2015: EUR24.5 million) still benefiting from the positive impact of the new products and services launched during the course of 2015 as well as from some fee adjustments starting 1 January 2016.
 
For Q2 2016 Euronext recorded clearing revenue of EUR12.3 million, down 8.0 per cent compared to Q2 2015 (EUR13.3 million), in line with the contraction in the derivatives trading.
 
Revenue for Interbolsa in Portugal remained stable at EUR5.0 million in Q2 2016 (Q2 2015: EUR5.1 million), slightly recovering from Q1 2016 thanks to an increase in public debt assets under custody and higher settlement activity.
 
Revenue from market solutions increased by 2.9 per cent in Q2 2016 compared to the same quarter in 2015 (from EUR8.0 million to EUR8.2million), positively impacted by revenue from SLE connections as a result of change in fees structure and an increase in the number of connections. The impact was slightly lessened by a reduced level of project activity pending Optiq sales.
 
On 13 May 2016 Euronext presented to the market its strategic plan, Agility for Growth, designed to strengthen the resilience of its core business, capture strategic opportunities and grow in selected segments. The driver of this plan is to fulfil Euronext’s core mission: power pan-European capital markets to finance the real economy, while delivering value to shareholders.
 
Euronext’s strategy Agility for Growth translates into a set of new financial objectives. Euronext’s core business revenue will grow by a 2 per cent CAGR over the 2015-2019 period. On top of this, the six new growth initiatives will bring about EUR70 million of additional revenue. As a result, group revenue will grow by a CAGR of 5 per cent over the period, up to about EUR575 million versus EUR467 million in 2015, excluding clearing revenue.
 
A target of EUR22 million of gross efficiencies has been identified, representing about EUR15 million net, taking into account an annual inflation rate of 1 per cent over the period. The restructuring costs requested to deliver the additional cost efficiencies are estimated at 1.5 times the gross efficiencies, or EUR33 million.
 
The completion of the strategic plan and the growth initiatives will induce about EUR35 million of additional operational expenses. On a net basis, the company’s cost base will then increase by about 1 per cent CAGR over the period. Euronext’s EBITDA margin is expected to range between 61 per cent and 63 per cent by 2019.
 
“Euronext has delivered its most profitable quarter since the IPO despite market uncertainty causing lighter volumes until the outcome of the UK referendum on 23 June 2016,” says Stéphane Boujnah (pictured), chairman and CEO of the managing board of Euronext NV. “Revenue generated by non-volumes operations (listing, market data, market solutions) have more than offset the decrease in transaction-based businesses. It reinforces our confidence in our capability to deliver the company’s Agility for Growth plan, which is built on the resilience of our core business with ongoing cost discipline and growth in selected initiatives. In spite of the uncertainties for the second half of 2016, we are well positioned to capture opportunities arising from changes in the industry landscape.” 

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