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Moscow Exchange (MOEX) today announced its financial results for the second quarter (2Q) 2014 according to International Financial Reporting Standards (IFRS).
According to Moscow Exchange, strong earnings were driven by growth across the exchange’s highly diversified business, particularly the FX Market, equities and depository and settlement services.
Indeed, when comparing this quarter’s profit to that attained in the first quarter of 2014, the increase of 5.2% achieved in the second quarter compared to the same period one year previous, is considerably down. Compared to the first quarter, in which a 23.72% increase was achieved compared to the first quarter of 2013, it still represents a remarkable achievement considering the global slowdown in revenues that has blighted the entire industry this year so far.
FX trading volumes for the second quarter of the year weighed in at RUB 52.78 trillion, which is a decline when compared to last quarter’s 53.8 trillion. When viewed on an annual basis, this quarter’s FX trading volume stands 28% higher than those of the same period last year.
Spot trading volumes declined 1.6% YoY, while swap trading volumes grew materially, up 46.8% YoY driven by continued strong demand for liquidity-management tools by market participants.
Despite these slight downturns in trading volumes gained from the venue’s FX trading activity, it is unlikely to be cause for concern, as last quarter’s activity generated a gargantuan 95.4% increase in trading volumes compared to the previous year.
Indeed, Moscow Exchange has benefited from increased connectivity to other markets, and the demand for ruble liquidity that has ensued during the past year.
KEY 2Q14 OPERATING AND FINANCIAL HIGHLIGHTS
Net profit increased 5.2% YoY to RUB 3.47 billion; earnings per share (EPS) increased 6.0% YoY to RUB 1.58.
Total operating income rose 7.1% YoY to RUB 6.75 billion.
EBITDA grew 11.8% YoY to RUB 5.08 billion; EBITDA margin was 75.3%, versus 72.1% in 2Q13.
KEY CORPORATE HIGHLIGHTS
Moscow Exchange paid a record dividend to shareholders of RUB 2.38 per share (a payout of 46% of IFRS net profit). Payments were made by August 15.
The company”s AGM reduced the number of Supervisory Board members from 19 to 15, further enhancing the efficiency of the Board. Five members of the new board are independent directors. Former Deputy Prime Minister, Alexey Kudrin, was elected as Chairman of the Supervisory Board.
Moscow Exchange completed reforms to the listing process, simplifying the quotation list structure and also strengthening listing requirements for issuers, including with respect to corporate governance. The new quotation list structure has helped to broaden the range of investment opportunities for Russian pension funds.
Shares of Yandex (MOEX: YNDX), one of Europe’s largest internet companies and the leading search provider in Russia, began trading on Moscow Exchange.
Moscow Exchange introduced new trading opportunities by offering interdealer repo and repo with the Central Bank of Russia using Eurobonds on the CBR”s Lombard list.
Moscow Exchange joined the FIX Trading Community as a new Global Premier member. The use of the FIX protocol is essential in order to reach the global trading community across all its asset classes.
Moscow Exchange hosted in Moscow the leaders of the world’s futures and options markets and global clearing houses at the 31st World Federation of Exchanges (WFE) — International Options Market Association (IOMA) Derivatives Conference.
The Company signed cooperation agreements with Gift of Life, Vera and ORBI charitable foundations. Moscow Exchange undertook to allocate a significant portion of its charity budget to these three organisations, thereby increasing the efficiency of its allocation of charitable funds, while also reaching a larger audience and enabling the Exchange to engage more of its employees into its charity work.
EVENTS OCCURRING AFTER THE END OF 2Q 2014
Moscow Exchange’s free-float increased to 55.7%, one of the largest free-floats on the Russian market, as a result of the Central Bank of Russia selling an 11.7% stake in the company.
Alexander Afanasiev, Chief Executive Officer of Moscow Exchange, said: “We are announcing the best quarterly numbers for Moscow Exchange to date, demonstrating once again that our business model is capable of delivering strong results in any market environment. We are experiencing high trading volumes across our main markets, we have maintained a disciplined focus on cost control, and we benefit from important reforms to the market infrastructure recently introduced.
“We have seen a rapidly changing operating environment and market conditions this year, presenting a test to Moscow Exchange and its ability to provide a seamless service to clients and to continue to develop its business. I am pleased to say that we have successfully passed this test.”We remain focused on offering market participants new trading and post-trading opportunities. Opening up of the Russian stock market to international central securities depositories is an important milestone in this process.
“The past AGM approved a record high dividend payment, which is yet another example of our commitment to share profits with shareholders. The recent sale by the Central Bank of Russia of an 11.7% stake in Moscow Exchange to the market once again demonstrated the quality and depth of the local market, and the potential for companies to carry out large transactions in local shares. With this transaction, we have reached a free-float of over 55.7%, one of the largest in the Russian market, giving us an even more balanced and diverse shareholder base. Going forward, we remain committed to best-in-class corporate governance and delivering strong returns for shareholders.”
Evgeny Fetisov, Chief Financial Officer of Moscow Exchange, added: “I”m pleased that we have managed to achieve such a strong set of numbers in the second quarter. Infrastructure upgrades to the equity market, which were completed last year, continued to bear fruit, driving fees from equities up 20.7% YoY. At the same time, the FX market and post-trade services remained key growth drivers, with each posting double-digit fee and commission income growth. This allowed us to reach another record for fee and commission income in the second quarter. We maintained our focus on strict cost control, bringing administrative expenses down 4.2% YoY, which contributed to our EBITDA margin of 75.3%, a new record high.”
ANALYSIS OF 2Q14 FINANCIALS
Total Operating Income. Operating income was up 7.1% YoY to RUB 6.75 billion. Revenue growth for the quarter was driven by higher income from all markets except for derivatives, strong performance of depository & settlement fees & commissions, as well as higher interest income.
Securities (Equities & Bond) Market. Fee & commission income from the Equities Market climbed 20.7% YoY to RUB 453.04 million. Equities trading volume increased 16.5% YoY to RUB 2.54 trillion. The equity market”s total capitalization was RUB 25.03 trillion (US$ 735.02 billion) as of 30 June 2014. Fee & commission income from the Bond Market decreased 23.1% YoY to RUB 241.89 million. Bond trading volume declined 44.9% YoY to RUB 2.27 trillion. Listing and other services fees increased 18.5% to RUB 58.52 million.
Foreign Exchange Market. Fee & commission income from the FX Market increased 16.7% YoY to
RUB 743.15 million, while trading volumes rose 28.0% YoY to RUB 52.78 trillion. Spot trading volumes declined 1.6% YoY, while swap trading volumes grew materially, up 46.8% YoY driven by continued strong demand for liquidity-management tools by market participants.
Money Market. Fee & commission income from the Money Market increased 5.7% YoY to RUB 712.02 million. Total trading volume, including repo transactions and the credit & deposit market, declined 20.4% YoY to RUB 46.55 trillion, largely due to the CBR”s decision to move to 1-week REPO auctions instead of 1-day REPO, which led to a lower number of REPO trades, though with longer maturity. Trading volume of REPO with the Central Counterparty continued to grow rapidly, showing 27 times YoY increase.
Derivatives Market. Fee & commission income from the Derivatives Market declined 29.2% YoY to RUB 335.28 million. While trading volume decreased 25.2% YoY to RUB 11.1 trillion (274.21 million contracts), open interest rose 35.6% YoY to 11.4 million contracts at the end of 2Q14. Futures on FX comprised 40.8% of total futures trading volume versus 35.8% in the same period last year due to higher FX-rate volatility, while share of futures on equity indexes declined from 53.7% to 49.3% of total futures trading volume. The share of options in Derivatives Market trading volume grew to 8.8% from 7.5% in 2Q13
Depository and Settlement Services. Fee & commission income from depository and settlement services increased 37.3% YoY to RUB 734.65 million. The volume of assets on deposit at the National Securities Depository (NSD) increased to RUB 23.44 trillion as of the end of 2Q14 from RUB 22.35 trillion as of the end of 1Q14, and averaged RUB 22.58 trillion for 2Q14.
Net Interest & Other Finance Income. Net Interest & other finance income increased by 7.5% YoY and totaled RUB 3.2 billion. Funds available for investment averaged RUB 711.4 billion in 2Q14. Net Interest & other finance income accounted for 47.7% of the Exchange”s operating income.
Cash Position. The Exchange”s own cash position totaled RUB 45.90 billion as of 30 June 2014. The Exchange had no outstanding debt as of the end of 2Q14.
Expenses. Operating expenses grew by 9.1% YoY in 2Q14 to RUB 2.36 billion. The major cost item remained personnel, which grew by 23.5% YoY to RUB 1.29 billion, driven mainly by a low-base effect as a result of the introduction of a new methodology for bonus accruals. Some bonuses for FY2014 were accrued in 1H 2014, while similar expenses for the full year 2013 started to be reflected in the financials in the second half of the previous year. Other operating expenses remained under strict control, while cost-saving initiatives allowed decreasing administrative expenses by 4.2% YoY driven by lower expenses on professional services, market maker fees and taxes other than income tax.
Capital expenditures were RUB 125.51 million in 2Q14, which were largely spent on software development and improvements.
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