The FINANCIAL -- Moscow Exchange (MOEX) on May 14 announces its financial results for the first quarter (1Q) 2015 according to International Financial Reporting Standards (IFRS). Strong earnings growth was driven by fees and commissions generated by Money Market and Depository and Settlement Services, as well as higher net interest income.
KEY 1Q 2015 FINANCIAL HIGHLIGHTS
Operating income increased 82.4% YoY to RUB 11.87 bln.
EBITDA increased 115.9% YoY to RUB 9.41 bln; the EBITDA margin was 79.3% vs. 66.9% in 1Q 2014.
Operating expenses grew by 11.9% YoY to RUB 2.87 bln.
Net income increased 127.2% YoY to RUB 7.20 bln; basic earnings per share increased to RUB 3.25 from RUB 1.45.
KEY CORPORATE HIGHLIGHTS IN 1Q 2015
The Supervisory Board adopted a new corporate strategy for the Group that outlines objectives and key initiatives planned for 2015-2020.
From the beginning of the year, Moscow Exchange began registering individual investment accounts with which persons are entitled to a tax credit on investments.
Moscow Exchange expanded its international presence by offering customers network connectivity in top financial centres globally using TMX Atrium's infrastructure. TMX Atrium provides connections to more than 20 points of presence around the globe, and initial increased demand has come from European financial centres.
Ordinary shares of United Company RUSAL plc, a leading global aluminium producer, began trading on Moscow Exchange on March 30. RUSAL is the latest in a series of companies incorporated outside Russia to list on Moscow Exchange, following a regulatory change in 2013 that made that possible.
Moscow Exchange began trading in futures contracts on the currency pairs CNY/RUB, USD/CAD and USD/TRY.
FTSE, one of the world's leading index providers, began using MOEX's closing auction prices for listed Russian securities when calculating end-of-day values for its indexes. The change benefits market participants by generating greater liquidity both during the closing auction and in trading sessions throughout the day.
EVENTS OCURRING AFTER THE END OF 1Q 2015
The 2015 Moscow Exchange Forum, one of the largest annual conferences on the Russian financial market, attracted more than 1,200 participants.
Shares of United Wagon Company, the market leader in innovative railcar manufacturing in Russia, began trading on Moscow Exchange on 30 April following an IPO on Moscow Exchange only that raised RUB 9.028 bln (USD 175 mln).
On 28 April Moscow Exchange's AGM voted in the new Supervisory Board, with 15 members including five independent directors. The Supervisory Board re-elected Alexey Kudrin as Chairman.
At the AGM Alexander Afanasiev was appointed Chief Executive Officer for an additional three year term.
The AGM approved a dividend for 2014 of RUB 8.82 bln, or 55.12% of net profit under IFRS, which equates to RUB 3.87 per ordinary share. Dividends will be paid by 16 June 2015.
Alexander Afanasiev, Chief Executive Officer of Moscow Exchange, said:
"Our diversified business model again drove excellent financial results in the first quarter. Since the start of the year we have seen several successful equity offerings by Russian companies on our market, demonstrating that high-quality issuers can in fact raise substantial capital in the current environment. In April, as interest rates have come down we have also seen the bond market become more attractive for issuers, with growth in new issuance which resulted in higher secondary bond trading volumes. Looking forward, we expect this trend to continue.
"Several important decisions were taken at the recent AGM, notably an increase in the number of Independent Directors on the Supervisory Board and the approval of a sizeable dividend. Strong corporate governance, transparency and responsiveness to the needs of the market and our client base remain key priorities for the Exchange."
Evgeny Fetisov, Chief Financial Officer of Moscow Exchange, added:
"Today we report the best quarterly results in the company's history thanks to growth in trading volumes across most markets as well as increased client balances and a supportive interest rate environment. The Group's business model will continue to deliver strong results in subsequent quarters even as interest rates decline and the share of interest income returns to more typical levels. During the quarter we continued to demonstrate cost discipline in the high-inflation environment, with operating cost growth of only 11.9%. Combined with strong top-line growth this led to an increase of the EBITDA margin to 79.3%."
ANALYSIS OF 1Q 2015 FINANCIALS
Total Operating Income. Operating income increased 82.4% YoY to RUB 11.87 bln. Revenue growth for the quarter was driven by higher fees and commissions across all markets (excluding derivatives and equities), as well as higher fees and commissions from depository and settlement services. Net interest income also contributed to operating income growth on the back of high interest rates and an increase in the investment portfolio.
Year-to-date Moscow Exchange has seen a shift towards trading of longer term instruments. As a result starting 1 January 2015 fee and commission income is deferred and accounted for as earnings over the life period of these instruments. A portion of fee and commission income for trades that occurred on the Money, Derivatives, and FX Markets in Q1 2015, a total of RUB 936.5 mln, has been designated as income of future periods.
Securities (Equity & Bond) Market. Fee and commission income from the Equity Market declined 4.9% YoY to RUB 429.8 mln as equities trading volumes decreased 9.0% YoY to RUB 2.47 trn. The Equity Market's total capitalisation was RUB 27.20 trn (USD 470.44 bln) as of 31 March 2015. Fee and commission income from the Bond Market rose 3.0% YoY to RUB 222.5 mln driven by a recovery of the bond primary market, up 193% YoY. Total bond trading volumes declined 21.5% YoY to RUB 2.1 trn. Listing and other services fees increased 145.0% YoY to RUB 86.7 mln.
Foreign Exchange Market. Fee and commission income from the FX Market increased 7.5% YoY to RUB 859.7 mln. Trading volumes rose 3.7% YoY to RUB 55.8 trn. Spot trading volumes grew 9.0% YoY to RUB 20.8 trn, while swap trading volumes were flat (RUB 35.0 trn in 1Q 2015 vs. RUB 34.7 trn in 1Q 2014).
Money Market. Fee and commission income from the Money Market increased 38.7% YoY to RUB 804.2 mln. Total trading volumes, including repo transactions and the credit and deposit market, increased 1.3% YoY to RUB 58.6 trn. The Bank of Russia's shift to longer tenor repo transactions extended the average repo maturity and resulted in higher fees from these transactions.
Derivatives Market. Fee and commission income from the Derivatives Market decreased 43.2% YoY to RUB 246.4 mln due to a shift in the product mix. Robust activity on FX spot markets in the quarter drove increased demand for futures on currency pairs, while demand for futures on indices declined. FX derivatives trading increased 76.4% YoY and comprised 64.1% of total volumes on the Derivatives Market, while derivatives on indices accounted for 26.8%. Total derivatives market trading volumes increased 17.7% YoY to RUB 17.1 trn (312.6 mln contracts). A recent spike in volatility led to higher margin requirements and increased the cost to market participants of maintaining positions. As a result, open positions on derivatives decreased 20% YoY to RUB 336.5 bln.
Depository and Settlement Services. Fee and commission income from depository and settlement services increased 12.1% YoY to RUB 822.4 mln. The volume of assets on deposit at the National Securities Depository (NSD) increased to RUB 27.4 trn as of the end of 1Q 2015 versus RUB 24.9 trn as of the end of 2014). Average assets under custody were RUB 27.9 trn in 1Q 2015.
Net Interest & Other Finance Income. Net interest and other finance income increased 208.9% driven by higher interest rates and growth of the investment portfolio. Funds available for investments averaged RUB 1,338.4 bln in 1Q 2015, up from RUB 441.5 bln in 1Q 2014. As a result, net interest and other finance income accounted for 68.0% of the Exchange's operating income, up from 40.0% in 1Q 2014.
Cash Position. The Exchange's cash position* totalled RUB 67.5 bln as of 31 March 2015. The Exchange had no outstanding debt as of the end of 1Q 2015.
Expenses. Operating expenses increased moderately, up 11.9% YoY to RUB 2.87 bln. Staff costs increased 9.1% YoY and remained the major cost item, comprising 50.8% of operating expenses. Administrative and other operating expenses grew by 14.9% YoY driven by impairment of funds due from financial institutions in Ukraine, higher spending on rent and office equipment as well as associated provisions.
Capital expenditures were RUB 752.9 mln in 1Q 2015.