Euronext Publishes Third Quarter 2016 Results

Regulatory News:

Today Euronext (Paris:ENX) (Amsterdam:ENX) (Brussels:ENX) announced its results for the third quarter of 2016.

• Decrease in revenue: -15.2%, to €112.8 million (Q3 2015: €133.0 million, which was the second best quarter ever)
• Revenue was impacted by lower trading volumes (cash average trading volumes decreased by -29.4% vs Q3 2015) and the fall in IPOs and M&A driven listing operations
• Continued strong reduction in operational expenses excluding depreciation and amortization: -7.8%, to €51.5 million (Q3 2015: €55.8 million)
• €11.4 million of cumulated gross efficiencies achieved since Q2 2016 as part of the cost cutting programme announced in the Agility for Growth plan
• EBITDA margin of 54.4% (Q3 2015: 58.0%)
• Launch of a new trading facility to improve liquidity in pan-European corporate bond trading

"Facing a challenging market environment in Q3, both in listing and trading, due to the uncertainty lingering on after the Brexit referendum, combined with significantly lower volatility compared to the same period last year, Euronext revenue was down. However, our continuous cost discipline generated incremental efficiencies. As a whole, we achieved a 54.4% EBITDA margin in Q3. If the market conditions were to remain what they are or improve during Q4, we are confident that our EBITDA margin for the full year will be above the one of 2015.” said Stéphane Boujnah, Chairman and CEO of the Managing Board of Euronext NV.

Financial performance

Seasonally low levels of volume in cash and derivatives markets were further negatively impacted in July and August as a result of the UK referendum on 23 June 2016, which saw volatility drop to 12-month lows following a brief spike in the final days of June. Volumes improved in September, but the volatility on Euronext markets was reduced compared to other European markets. Revenue from listing decreased due to the fall in large-cap IPO and M&A driven listing operations.

As a result, quarterly revenue decreased by -15.2% to € 112.8 million (Q3 2015: €133.0 million). As a reminder, the third quarter of 2015 was an unprecedented quarter for Euronext at that time, both in terms of revenue and profitability, buoyed by successive rounds of market volatility throughout the period, combined with a renewed vigour in the IPO market.

Operational expenses excluding Depreciation & Amortization decreased by -7.8% to €51.5 million (Q3 2015: €55.8 million). This performance results from the phasing of the various components of our strategic plan. The strict execution of our cost reduction programme bears fruits with €11.4 million of cost reductions achieved over the past two quarters while the onboarding of costs linked to the execution of the growth initiatives ramped up after the summer break. The relocation of our IT operations to Porto is taking shape with over half of the staff recruited.

This strong focus on costs has allowed us to limit the impact of the reduced revenue on the EBITDA, which decreased in Q3 2016 to €61.3 million, representing a margin of 54.4% (Q3 2015: 58.0% or €77.1 million).

Depreciation and Amortization increased by +2.1% in Q3 2016, to €3.8 million in line with the rescoping of our footprint and the assets renewal cycle (Q3 2015: €3.8 million).

Quarterly operating profit before exceptional items was €57.5 million, a decrease of -21.7% compared to Q3 2015.

€1.1 million of exceptional costs were booked in Q3 2016 compared to €1.8 million in Q3 2015, primarily restructuring costs.

The income tax for the quarter was €17.8 million, representing a tax rate for the quarter of 31.9% (Q3 2015: 33.9%, higher than the normalized tax rate due to recognition of discrete items).

As a result, the net profit for Q3 2016 decreased by 20.2%, to €38.1 million (Q3 2015: €47.7 million). This represents an EPS (both basic and fully diluted) of € 0.55 in Q3 2016 compared to €0.68 in Q3 2015.The number of shares used for the basic calculation was 69,525,864 for Q3 2016, compared to 69,933,648 in Q3 2015.

As of 30 September 2016, the Company had cash and cash equivalents excluding financial investments of €156.7 million, and total debt of € 68.8 million, after the partial debt repayment of €40 million in September 2016.

Business highlights

• Listing

Revenue was €13.8 million in Q3 2016, a decrease of -30.4% compared to the €19.8 million achieved in Q3 2015. This decrease was driven by the fall in IPO and centralizations fees in comparison with Q3 2015. In Q3 2015, large transactions as Lafarge-Holcim and Altice were key contributors to the listing revenue performance. This quarter, the global IPO market was put on hold with some flagship transactions expected in Q3 2016 postponed due to the market environment.

Six new listings took place in Q3 2016, raising €411 million, compared to 10 listings for €698 million during the same quarter in 2015, due to existing uncertainties in a post Brexit environment.

However, Euronext continues to be the venue of choice for Tech SMEs. Euronext registered five SME listings, of which three of Biotech companies, marking the reopening of the sector after a quiet beginning of the year (2 listings on H1 2016 vs 10 in H1 2015). Amongst these three companies, Noxxons Pharma, a German Biotech chose Euronext, demonstrating the potential of our "The exchange for European Tech SMEs” initiative”. Total money raised by SMEs including corporate bonds in Q3 2016 amounted to €1.7 billion, up 47% compared to the €1.1 billion raised in Q3 2015.

Debt capital markets issuance also decreased this quarter, with €13.6 billion raised by corporates on our markets in Q3 2016 vs €17.3 billion in Q3 2015 due to reduced number of issues and fewer significant operations with only two deals above €1 billion compared to six in 2015.

In total €32 billion in equity and debt was raised on our markets in Q3 2016 (including the €13 billion private placement of Abbvie, a US based company that does not generate the same revenue benefits as domestic placements) compared to €21.2 billion in Q3 2015.

• Trading

Cash trading

Q3 volumes in Cash Trading were significantly down due primarily to reduced investor confidence post Brexit and lower volatility, to €5.8 billion (-29.4% compared to Q3 2015). However, yield was up, thanks to our pricing segmentation which de-correlates revenue from volumes, helping to rebalance the cyclical effects of this transaction business. As a result, revenue is down by -19.2% to €40.0 million in Q3 2016 (Q3 2015:€49.6 million).

The exceptional environment in this quarter translated into a reduced market share, at 60.0% in Q3 2016, although it returned to 61% in September; and in a good yield performance, which stood at 0.52bps in Q3 2016 (Q3 2015: 0.46bps).

Activity on ETFs followed the same trend, with an average daily transaction value at €245 million, down 37% compared to €390 million in Q3 2015. However, we have reached a record number of new ETFs listed on our markets, at 122 during the first nine months of the year.

Derivatives trading

Derivatives trading revenue decreased by -23.4% in Q3 2016 compared to Q3 2015, amounting to €9.1 million (Q3 2015: €11.9 million).

Index product trading volumes declined by -23% in Q3 2016 compared to Q3 2015 (average daily volumes of 182,217 lots in Q3 2016 vs 236,518 in Q3 2015). Trading activity on our individual equity options franchise decreased by 25% during Q3 2016 compared to Q3 2015 as market volatility was higher last year (average daily volumes was 185,893 lots in Q3 2016 vs 247,725 in Q3 2015).

Volumes in commodity products were significantly lower (-26%) in Q3 2016 compared to Q3 2015 (average daily volumes of 49,665 lots in Q3 2016 vs 67,319 lots in Q3 2015). A materially sub-standard 2016 French wheat harvest, the worst in over 40 years, comingled with very poor wheat head filling which impaired quality, is expected to drive French non EU exports from about 13 million tons last year to less than 5 million tons for the current crop year (July2016-June2017). This situation that usually triggers price upside volatility in our contracts and in turn tends to compensate trading volumes has not the same impact this time. The abundant harvests in other major producing regions (Black Sea, North America, Australia) have kept global markets well-supplied and curbed price upside volatility.

• Market data & indices

Market data and indices revenue in Q3 2016 was up + 6.1% compared to Q3 2015, to €25.9 million (Q3 2015: €24.4 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.

• Post-trade

Clearing

As a result from the trend in derivatives trading mentioned above, clearing revenue decreased by -23.8%, from €14.6 million in Q3 2015 to €11.1 million in Q3 2016.

Settlement & Custody

Revenue from Interbolsa in Portugal in Q3 2016 was €4.9 million, up 2.1% compared to the €4.8 million in Q3 2015, mainly due an increase in public and private debt under custody and an increase in the number of settlement instructions.

• Market solutions & other

Revenue from market solutions were stable in Q3 2016 compared to Q3 2015 at €7.9 million.The introduction of a new Market Abuse Regulation compliance service in July compensated the reduction stemming from the termination of BMF Bovespa contract and the end of the HKeX project last year.

Corporate Highlights

• Definitive agreement for the acquisition of a 20% stake in EuroCCP

In August, Euronext announced it has signed a definitive agreement to acquire a 20% stake in EuroCCP, the leading CCP for pan-European equity markets, providing clearing and settlement services, for an amount of circa €14 million. The completion of the transaction is subject to regulatory approvals and the deal is expected to close towards the end of the year. This transaction will enable Euronext to offer user choice in clearing for the equity markets within the Eurozone, through the implementation of a preferred CCP model followed by a fully interoperable service, which will be open to other CCPs in due course.

• Partial debt reimbursement

In September, Euronext repaid €40 million as an early repayment of the €110 million Term Loan drawn as per March 23, 2015. The undrawn Revolving Credit Facility of €390 million remains in place. The term of both instruments is 3 years, which started on March 23, 2015, with two 1 year extension possibilities. The other related terms and conditions of both instruments remain unchanged.

• Continuous upgrades of technology

Euronext is on track to deliver its main transformation and compliance projects. The project to create a new and innovative center of competence for Technology in Porto, and the associated closure of our Belfast center is on track to be fully implemented in Q2 2017.

The Optiq programme to replace our core trading system for Cash & Derivatives and to deliver a new enhanced and multi-market trading platform is progessing as scheduled. It will provide customers with maximum flexibility, simplified and harmonized messaging, as well as high performance and stability. First release for Optiq is the Market Data functionality, which will be delivered in test this year to subsequently go live in Q1 2017, second delivery of the Cash market will go live before the end of 2017, followed by Derivatives market in 2018.

Update on the Agility for Growth plan

We confirm our commitment to provide a full update on Agility for Growth plan with our Full-Year results on 15 February 2017.

The ramp-up of our growth initiatives is ongoing with €1.1 million of implementation cost spent to date.

Our enhanced agility translated into our investment in Tredzone (agreement signed in July) and in the partnership with Algomi. On 3 November, Euronext announced a 10 year partnership with leading Fixed Income technology provider Algomi. This long-term joint-venture will deploy Algomi’s award winning technology to a new UK-based MTF owned and operated by Euronext. Dealers will be able to access the trading interface directly through their existing Algomi technology or through the dealers other stand-alone systems. The platform will use algorithmic smart matching processes to create an auction between dealers to improve liquidity and search for best execution.

Outlook for the remainder of the year

Taking into account the current market environment which is struggling to recover after the slowest quarter in terms of volume trading in two years, we anticipate our revenue for the full year to decrease by a mid-single digit percentage compared to 2015.

However, thanks to our ongoing efforts to reduce our underlying cost base, we are confident in our capacity to deliver nearly two-third of the €22 million of gross cost savings that we have announced in May 2016 as early as by the end of this year. A small part of these cost reductions will be offset by the incremental costs that will be onboarded in the last quarter of the year to sustain the implementation of our growth strategy related to our Agility for Growth initiatives.

If market conditions were to remain what they currently are or to improve during the remainder of the year, we are confident that our EBITDA margin for the full year will be above the one of 2015 (54.7% as a reminder).

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.

About Euronext

Euronext is the leading pan-European exchange in the Euro zone with more than 1 300 listed issuers worth close to €3.1 trillion in market capitalization as of end July 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.

Disclaimer

This presentation may include forward-looking statements, which are based on Euronext’s current expectations and projections about future events. By their nature, forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors because they relate to events and depend on circumstances that will occur in the future whether or not outside the control of Euronext. Such factors may cause actual results, performance or developments to differ materially from those expressed or implied by such forward-looking statements. Accordingly, no undue reliance should be placed on any forward-looking statements. Forward-looking statements speak only as at the date at which they are made. Euronext expressly disclaims any obligation or undertaking to update, review or revise any forward-looking statements contained in this presentation to reflect any change in its expectations or any change in events, conditions or circumstances on which such statements are based unless required to do so by applicable law.

Financial objectives are internal objectives of the Company to measure its operational performance and should not be read as indicating that the Company is targeting such metrics for any particular fiscal year. The Company’s ability to achieve these financial objectives is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control, and upon assumptions with respect to future business decisions that are subject to change. As a result, the Company’s actual results may vary from these financial objectives, and those variations may be material.

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.

© 2016, Euronext N.V. - All rights reserved.

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