Euronext Publishes Third Quarter 2014 Results

Regulatory News:

Euronext (Paris:ENX) (Amsterdam:ENX) (Brussels:ENX) today announced its results for the third quarter of 2014.

• Third party quarterly revenue increased by +10.3% on an adjusted basis¹ to €112.3 million (Q3 2013 adjusted: €101.9 million), or +24% on a reported basis (Q3 2013 reported: €90.6 million)
• Robust cost discipline continues with quarterly operational expenses excluding depreciation and amortization decreasing by -8.2% compared to Q3 2013 adjusted¹ (increase by +0.6% compared to Q3 2013 reported)
• EBITDA margin of 44.1% in Q3 2014; EBITDA margin year-to-date of 45.4%
• Growth driven by ongoing strong cash trading, market data businesses, sustained listing activity and first benefits of initiatives
• Execution of strategic roadmap on track
• €30 million of efficiencies already achieved on an adjusted basis - commitment to deliver €60 million efficiencies² by end of H1 2015 on a run-rate basis, 18 months ahead of schedule

"Euronext continues to execute on its ambitious development strategy. Our revenue shows solid growth, the €60 million of efficiencies previously committed will be delivered 18 months ahead of schedule and our EBITDA target of 45% has therefore been met earlier than previously announced. This solid set of results demonstrates our capacity to deliver on our medium term objectives. We remain confident that the long term economic and regulatory cycle favourable for Euronext’s growth continues, despite some recent short term market turbulence. I am also delighted to have been joined by an extremely high calibre team who will reinforce our focus on innovation and execution in order to position Euronext as a leading pan-European capital raising centre,” said Dominique Cerutti, CEO and Chairman of the Managing Board of Euronext NV.

Financial performance

Third party quarterly revenue increased by +10.3% on an adjusted¹ basis to €112.3 million (Q3 2013 adjusted: €101.9m) or +24% on a reported basis (Q3 2013 reported: €90.6m), driven by sustained listing activity and strong revenues from cash trading and from market data businesses. This quarterly revenue includes €11.9 million from the derivatives clearing contract with our industrial partner LCH.Clearnet which came into force on 1 April 2014 (adjusted¹ clearing revenue for Q3 2013: €11.3 million).

Quarterly operational expenses excluding Depreciation & Amortization decreased by 8.2% on an adjusted¹ basis to €68.5 million (Q3 2013 adjusted: €74.7m) or increased by +0.6% on a reported basis (Q3 2013 reported: €68.1m), thanks to very strong cost discipline. These expenses include € 6.8 million of costs related to the contract with LCH.Clearnet above mentioned (Q3 2013: €6.6m if this contract had been in place at that time). The EBITDA margin increased strongly in Q3 2014, to 44.1% compared to 38.3% in Q3 2013 adjusted¹, or 38.0% Q3 2013 reported.

ICE transitional revenue and other income for the quarter was €10.3 million, reflecting primarily the IT support services provided to Liffe for €6.4 million for the operation of its derivatives exchanges in the UK and in the US. The impact of the Cannon Bridge House sublease rent in London was €3.4m in Q3 2014. As a reminder, this transitional revenue is not expected to be recurring beyond the fiscal year 2014.

Depreciation and Amortization decreased by €0.6 million, from €4.7 million in Q3 2013 to €4.1 million this quarter, as already outlined in the Q2 2014 results publication, due to the end of the amortization of the historic UTP value in April 2014.

Q3 2014 operating profit before exceptional items was €50.0 million, a 19.9% increase compared to Q3 2013 on an adjusted¹ basis (+35.2% quarter on quarter reported).

€5.7 million of exceptional costs, mainly restructuring costs linked to Euronext’s strategy to enhance its operational efficiency, were booked in Q3 2014.

A net release of a provision for an uncertain tax position of €18.6 million, relating mainly to the non-deductibility of intercompany interest paid, has led to a positive income tax item of €6.0 million in Q3 2014, while an expense of €12.5 million had been booked in Q3 2013. This release of tax provision offset the one-off tax item booked during the first quarter of the year 2014 (which included derecognition of some deferred tax assets in connection with the demerger). Thus, for the first nine months of the year the tax rate stands at 30.5%, in line with the Company normalized tax rate.

As of 30 September 2014 the Company had cash and cash equivalents excluding financial investments of €238 million, and total debt of €248 million.

Business highlights

• Listing

In Q3 2014 listing revenues amounted to €13.2 million, an increase of 17.9% compared to the €11.2 million achieved during the same period in 2013.

The listing business registered another good quarter this year thanks to among others the IPOs of six SMEs (versus three in Q3 2013), with a total of €1,725m of capital raised (versus €46m in Q3 2013). The largest IPO so far this year in Europe, NN Group, took place on Euronext markets, with €1.54 billion of capital raised and a total market capitalisation at listing of €7.35 billion.

A number of successful bond listings also took place. In September, Euronext Paris listed a RMB2 billion bond for the Bank of China, positioning Euronext Paris as a marketplace for renminbi bonds. The same month Agence Française de Development raised €1 billion in the first climate bond from a French Agency with the funds used to finance climate-change mitigation projects. This is the third such large green bond listed on Euronext following GDF Suez and Ile de France earlier in the year.

• Trading

Cash trading

Q3 2014 was another strong quarter for our cash trading business with revenue increasing by 15.9% compared to Q3 2013. This is due to an increase of +11.1% in trading volumes in value traded, combined with a higher average fee per trade resulting from the fee change in February 2014.

The ETF segment was particularly dynamic with volume up 23% and the most active day of the year on 4 September 2014, when €572m were traded was a record.

The warrants and certificates segment reached a new record high at 40,208 products active at the end of August.

Euronext market share in domestic equities for the nine months to end of September remains stable at 64.4%, with a small variation during Q3 to 63.4%. In Q3 Euronext remained the most liquid trading venue on EuroStoxx50 component securities with 24.6% market share year-to-date.

Euronext has announced its intention to make evolutions on its SLP in Q4 2014 so as to enhance its impact on market share and ensure the costs of the scheme match its benefits.

Derivatives trading

Derivatives trading revenue increased by 3% in Q3 2014 compared to the same quarter last year, amounting to €11.3 million (Q3 2013: €11m). Although the global number of derivatives traded was nearly stable this quarter compared to Q3 2013, the product mix impacted favourably the average fee per lot.

The 3% decrease in number of equity derivatives traded due to structural deleveraging and low volatility was more than offset by strong activity in commodities (+ 27% compared to Q3 2013).

The average fee per lot has thus achieved a +3% increase this quarter.

On the Dutch equity derivatives market, as part of its plan to compete more effectively on the Dutch retail segment, Euronext announced this quarter a set of initiatives: a partnership with DEGIRO, the fastest growing on-line broker in Europe with growth in the Netherlands outpacing the rest of Europe, in the field of information provided to retail investors; and a targeted client flow trading fee reduction to be implemented in Q4 2014.

Work continues on developing our derivatives franchise through product innovation, with the expanded rapeseed complex and weekly index future expiry dates confirmed for launch in November and December respectively.

• Market data & indices

Market data & indices quarterly revenue posted a strong increase in Q3 2014 compared to the same period last year: €24.1 million against €21 million, an increase of 14.8%.

This growth was driven by a strong take up of the Continental Derivatives data packages by clients and a significant increase in licensed products to Euronext indices.

In August, Euronext announced some price increases for level 2 data effective 1 January 2015. This increase reflects the investment made in systems and networks to reduce latency of the depth of order book data.

• Post-trade

Clearing

The financial benefits of the derivatives clearing agreement with LCH.Clearnet came into force on 1 April 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 Q3 2014 Euronext recorded clearing revenues of €11.9 million, (Q3 2013 adjusted¹: €11.3 million, or Q3 2013 reported: €0.0 million). This 5.3% increase compared to the adjusted number for Q3 2013 results from the favourable impact of the derivatives product mix, as mentioned above.

Important progress is being made with LCH.Clearnet, our partner CCP, on the full operationalisation of our clearing contract, with a view to supporting product innovation and delivering maximum capital efficiencies to clients.

Settlement & Custody

Quarterly revenues for Interbolsa in Portugal are steady at €5.2 million in Q3 2014 (same amount in Q3 last year).

• Market solutions & other

Revenues from market solutions decreased in Q3 2014 compared to the same quarter in 2013 (from €9.7 million to €8.4 million), as expected in the middle of the adaptation period to refocus the strategy of commercial technology.

As already explained in the interim results for the six-months of 2014, this was due to the replacement of some allocations (connectivity and colocation revenues) by a Service Level Agreement (SLA) effective 1 April 2014.

The contracts with four MENA clients for new UTP-hybrid platform have been signed this quarter, providing clients with a cost-effective, high-performance platform including Sharia compliant markets and offering an expansion path into derivatives markets. This ten-year commitment provides Euronext with a stable revenue stream and a basis for long-term product planning.

ICE transitional revenue & other income

In the third quarter ICE transitional revenue amounted to € 10.3 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 on a full quarter basis (it started as of 19 May 2014) and (iii) ancillary services. This should not be compared to the revenues booked last year as, until 1 January 2014, 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.

Update on Euronext medium term objectives

Euronext has completed its separation from NYSE / ICE, repositioned its offering, focused on cost cutting and delivered on top line growth. Euronext continues to translate its vision into revenue growth, through executing on its highly focused product and platform roadmap so as to deliver shareholder return.

The current priorities focus on reinvigorating our existing core businesses by broadening the product scope to adjacencies and always further improving transparency, liquidity, innovation and customer service.

Key specific areas of focus are:

- Finessing cash market liquidity schemes and market quality, aggressively repositioning and promoting ETFs and adjacent markets;

- Building out a full pan-European service offering in our equity derivatives franchise;

- Expanding our commodities franchise in the oilseed and dairy segments;

- Full operationalizing our contract with LCH.Clearnet, our partner CCP;

- Developing new Information Service revenue through technology upgrades to our index platform and corporate action delivery channels;

- Embedding EnterNext as the leading market place for SMEs.

Looking ahead, we will leverage our deep bench of talent and the close relationships with our community of clients to strategically remix our business profile, expand businesses and accelerate product innovation.

- Our major priority will be to grow our under exploited derivatives business through new product expansion in listed and OTC equity options and futures, index volatility products and commodity derivatives and ETFs.

- In particular we will seek to position our business as a solution provider to clients implementing regulatory-driven change.

- Euronext will also focus on developing non-transaction related revenue streams in the market data and index space.

In parallel, we are adapting our cost structure smoothly and Euronext’s management is now in a position to deliver the €60 million efficiencies³ by the end of H1 2015 on a run-rate basis, 18 months ahead of schedule.

As a consequence of this top line expansion and the acceleration of the delivery of the €60 million of efficiencies, our objective to achieve an EBITDA margin in the range of 45% has already been achieved.

The execution team continue to work on additional costs benefits. The amount and timing are being worked through and will be announced in due time, together with an updated EBITDA margin objective. We do not anticipate any material change to the €90 million of anticipated restructuring expenses to generate these additional savings.

Corporate Highlights

• Corporate governance

The Supervisory Board and the committees are due to be completed before the end of the year:

• The three Board members representing ICE resigned following the IPO of Euronext on 20 June 2014, while three Board members representatives of the Reference Shareholders will be appointed subject to regulatory approvals and to the Extraordinary General Meeting to be called before the end of the year 2014;
• The Board Committees will be restructured by then.
• Dialogue on capital requirements

A constructive dialogue has been initiated with the Dutch Minister of Finance. Euronext N.V. and Euronext Amsterdam N.V. filed "a statement of objections” regarding certain elements of the exchange license which the Dutch Minister of Finance granted shortly before the IPO. The dialogue focusses on the prudential requirements imposed at the level of Euronext N.V.. An oral hearing took place at the Ministry of Finance on 6 October 2014. Euronext is currently awaiting the decision of the Minister, but at this stage nothing can be said about the possible outcome of the procedure.

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 third quarter 2013 Clearing revenue and Clearing expenses

For comparative purpose, for the three month period ending 30 September 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 in the third quarter of 2013.

Reconciliation with IFRS income statement

The reconciliation of Non-IFRS measurements and adjusted measures with the IFRS income statement for Q3 2013 on a stand alone basis is presented hereafter:

Cash markets activity

[Financial Tables Not Included]

Derivatives markets activity

[Financial Tables Not Included]

Reported operating profit, quarterly results

[Financial Tables Not Included]

Condensed Interim Consolidated Income Statement

[Financial Tables Not Included]

Condensed Interim Consolidated Statement of Comprehensive Income

[Financial Tables Not Included]

Condensed Interim Consolidated Balance Sheet

[Financial Tables Not Included]

Condensed Interim Consolidated Statement of Cash Flows

[Financial Tables Not Included]

Report is available on www.euronext.com/investors

Financial calendar

About Euronext

Euronext is the primary exchange in the Euro zone with over 1 300 issuers worth €2.6 trillion in market capitalization, an unmatched blue chip franchise consisting of 20+ 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 of 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.

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. Whilst 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 https://www.euronext.com/terms-use.

© 2014, Euronext N.V. - All rights reserved.

¹ for the three month period ending 30 September 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 pretax operating optimization and efficiencies
³ pretax operating optimisation and efficiencies