Public Joint-Stock Company Moscow Exchange MICEX-RTS (MOEX) Earnings Call Transcript

Ladies and gentlemen, welcome to the Moscow Exchange Second Quarter 2025 IFRS Results Conference Call. The call is being recorded. [Foreign Language] Please note the company's presentation on your Zoom screen. [Foreign Language] Our call today will be held in English with consecutive interpretation into Russian and back. So you can ask questions in any language and sequence. [Foreign Language] I will now hand it over to Anton Terentiev, Head of IR of Moscow Exchange. Please go ahead. [Foreign Language]

Thank you. Good afternoon, everyone, and welcome to the Moscow Exchange Conference Call on the Second Quarter 2025 IFRS results. As usual, we'll start with prepared remarks and then have a Q&A session. Please ask every question in both Russian and English. For the convenience of our audience, we will make transcripts available in both languages in the next few days. [Foreign Language] Before we start, I would like to remind you that certain statements in this presentation and during the question-and-answer session may relate to future events and expectations, and as such, they constitute forward-looking statements. The actual results may differ materially from these projections. The company does not intend to update these statements prior to the next conference call. By now, we should have received the press release outlining our results. Our management presentation is available on the company's website in the Investor Relations section. [Foreign Language] Slide #2, delivery of strategic initiatives in second quarter and beyond. The exchange continues to add new products. 13 new Russian ETFs on bonds, equities, money market instruments and precious metals have started trading on MOEX since the beginning of the second quarter, bringing the total count of these ETFs to 96, almost 100. MOEX added 39 non-listed equities to CCP-based OTC trading. The resulting total number of such equities equals 174. Derivatives market also has some new things to present and new futures contracts, primarily on equities and commodities were launched since our previous call. Two companies have placed 29 DFA issues of credit nature on MOEX platform since our previous conversation, raising a total of almost RUB 75 billion. Finuslugi added fourth authored mutual fund, building on a healthy demand that has already brought into this product line AUM of about RUB 150 million in just the first 4 months since launch. Easy online access to mutual funds is a unique offering that Finuslugi have brought to facilitate the development of asset management industry. These developments make the market more diversified and appealing to end clients. [Foreign Language] Second, we continue to work on new services. Responding to client activity will began weekend calculation of the MOEX index under the ticker IMOEX2, weekend trading in Russian law ETFs and derivatives and admitted more stocks. The number of equity and fixed income instruments traded at morning and evening session reached 220 and 547, respectively, reflecting growing demand for extended market hours. Specifically, equities, bonds and derivatives markets combined saw some 20% of their volumes coming from extended market hours since the beginning of the second quarter '25. MOEX introduced 15 indices, including 3 that track new topics, crypto-assets, climatic impact and shareholder value creation. BookBuilder, our proprietary digital platform that facilitates bond placements, processed 80-plus percent of corporate primary market volumes in Q2 '25. [Foreign Language] Third, we are developing our client base and partnerships. The number of retail clients on the securities market approached 37.8 million as of the end of July '25. Nearly 2.7 million new clients have onboarded since the beginning of this year already. The total number of individual investment accounts amounted to 6.1 million. On the primary bond market, 135 corporates, including 13 newcomers, placed 299 bond issues, raising our RUB 2.67 trillion in the second quarter. Ozan Pharmaceuticals successfully completed its RUB 2.8 billion SPO on MOEX. Digital Habits an IT developer raised RUB 900 million by MOEX Start as the pre-IPO platform continues to develop, admitting more venture companies with mining licenses. And finally, Moscow Exchange completed dividend payments for '24, distributing a total amount of RUB 59.4 billion, which is DPS of RUB 26.11 or 75% of '24 IFRS net profit. [Foreign Language] Let's move on to Slide #3, a summary of second quarter '25 financials. Operating income decreased by 12% year-on-year on the back of a declining NII. Although fee income grew 15% year-on-year, NII declined by 33% following a reduction in client balances. In our previous call in May '25, midway through the second quarter, we reiterated that balances at that point had stabilized at about half of the average level observed in 2024. Today, we have full data for second quarter '25 and see that client balances were slightly insignificantly down Q-on-Q on the back of a layer which carried interest expense. Beyond that, client balances, which have no associated interest expense stood practically unchanged. The second quarter NII contains a positive one-off amounting to some RUB 1 billion, plus RUB 0.7 billion effect of a more favorable client balance structure that we've just described. Net of these 2 factors, the second quarter NII would have ended up in line with the adjusted first quarter '25 that consensus forecast had suggested back in May. Thus far, in third quarter '25, we don't see any improvement in either client balances or interest rate on the investment portfolio. Therefore, third quarter '25 NII will most likely end up between the reported figures for Q1 and Q2 this year. Current split of money market instruments versus bonds in our ruble investment portfolio is roughly 50-50 with a slight tilt towards bonds. The HTM part of the bond portfolio is practically unchanged since we announced that we were done putting together this part of the portfolio at the second quarter '24 earnings call. You can see this on the balance sheet. Operating expenses decreased by 5% Q-o-Q and 2% year-on-year. The decline is mainly explained by the reduction in personnel expenses. We will dissect OpEx dynamics later in the presentation. Cost-to-income ratio amounted to 37.9%, improving on a Q-o-Q basis. Adjusted EBITDA was down 15% year-on-year, but up 25% Q-o-Q and stood at a margin of 67.9%. Adjusted net income decreased by 24% year-on-year but improved by 28% Q-o-Q and adjusted return on equity amounted to 23.2%. [Foreign Language] Slide #4, diversified fee and commission income. Fee income grew by 15% year-on-year and its structure remains well diversified. The single largest custodian was the money market, which accounted for 26% of the total. Let me now go line by line. [Foreign Language] On the money market, fees grew by 21% year-on-year on the back of a nearly identical increase in trading volumes of 22%. The increase in the share of value added CCP repo, including GCC in the volumes mix supported the effective fee. The decrease in repo terms affected negatively. The average unexchange repo term was down 35% year-on-year to 2.98. The GCC repo term decreased by 50% year-on-year to 2.28. The strong accumulated position in Russian [ oil ] money market supports the GCC repo segment. [Foreign Language] Fee income on the equities market added 17% year-on-year, while volumes were up 20%. Extended market hours trading accounted for 30% of volumes in the second quarter. Trading velocity amounted to 71% in the second quarter compared to 51% in the second quarter '24. Over 3.6 million retail clients were active every month during the quarter. [Foreign Language] On the derivatives market, fees improved by 22% year-on-year and trading volumes increased by 35% year-on-year. The discrepancy between fees and volumes is explained by the change in the trading volumes mix. It shifted away from commodities and towards index contracts, creating a negative effect on the effective fee. Specifically, index derivatives volumes surged by 200%, while commodity contracts added only 7%. The share of options in the volumes mix stood at 2.5%. [Foreign Language] Fees and commissions from the depository and settlement decreased by 6.7% year-on-year. Average value of assets on deposit was down 0.3%. The discrepancy between dynamics of fees and assets is the result of business lines beyond safekeeping, primarily clearing and collateral management services, i.e., money market operations at the NSD. The latter demonstrated negative financial performance. [Foreign Language] On the fixed income market, fees surged by 78% year-on-year, while trading volumes added 64%. This is explained by the activity at both primary and secondary markets. Primary market volumes, excluding overnight bonds were up by 64% year-on-year, driven by fixed coupon bonds. Secondary trading volumes surged by the same magnitude, 64%-on-year. [Foreign Language] Finuslugi revenue improved by 150% year-on-year and 25% Q-o-Q. [Foreign Language] The ITSLOFI line includes IT services, listing and other fee income. Sales of software and technical services added 7% year-on-year. Sales of information services practically halved as major foreign clients exited this market. Listing and other services improved by 44% year-on-year as activity on the primary bond market was strong during the quarter. [Foreign Language] Slide #5, operating expenses in second quarter '25, excluding provisions. Operating expenses in the second quarter decreased by 2.1% year-on-year, largely due to the reduction in personnel expenses. On a quarterly basis, OpEx declined by 5.2% Current personnel expenses were up only 8.7% year-on-year due to the unwinding of full year '24 bonus accruals in second quarter '25. Long-term incentive provisions declined by 92% year-on-year amid the high base effect of LTIP provisions in second quarter '24 and share price decline. The employee headcount added 24.5% year-on-year and 2.6% Q-on-Q. New hires are related to the overall strengthening of the IT function and strategic projects. [Foreign Language] Advertising and marketing costs grew by 41% year-on-year to stimulate further growth of the Finuslugi client base. The increase in taxes other than income tax is related to VAT on marketing, IT and consulting services. Market makers' fees added 45% as trading activity improved across markets. D&A and IT maintenance was up 48% year-on-year, while the D&A alone added 45%. IT maintenance costs increased by 55% due to the implementation of the software and hardware renewal program. [Foreign Language] Full year '25 OpEx growth guidance remains in the range of 20% to 30%. The approximate split of OpEx growth rate is as follows: quarter relates to personnel expenses, 1/3 to IT maintenance and other G&A. The rest is allocated to marketing. The acceleration of marketing spend is driven by the development of Finuslugi platform. CapEx explains the IT maintenance component. Personnel expenses growth is linked to strengthening of existing business lines and new hires on strategic projects. Net of marketing expenses, 2025 OpEx growth range in the mid- to high teens area, which is broadly in line with historical levels adjusted for CPI. [Foreign Language] Second quarter '25 CapEx amounted to RUB 4.1 billion and was spent on purchase of software and equipment as well as software development. 2025 CapEx guidance remains at RUB 14 billion to RUB 16 billion. The actual spend depends on the implementation of the software and hardware renewal program. [Foreign Language] This concludes the overview of our results. We are now ready to take questions. [Foreign Language]

[Operator Instructions] [Foreign Language] We will first take the verbal questions. [Foreign Language] Our first question comes from Svetlana Aslanova. [Foreign Language]

[Foreign Language] I will translate this question. My first question is on staff costs growth. And the question is what growth in staff costs do you target in 2025? What should we include in our models? What do you think? [Foreign Language] And my second question is on commission income. You target in your strategy, the average growth of more than 13% per annum and the current growth of commission income is post this strategy target. What challenges or what support do you think for your strategy in commission income growth in the nearest term in 2025, 2026?

Starting with your question number one, unfortunately, I cannot give you a direct answer to that question. But let me try to elaborate on that subject and maybe give you an indirect answer. So we only provide. So your question is about the breakdown, basically the guidance breakdown. So you say that given the guidance is 20%, 30%, maybe you can specify ranges for personnel and other G&A. We simply do not have that because that's the entire point that we have this still uncertainty over the dynamics for the second half, and we intentionally did not narrow the guidance range to allow for possible changes in different components. And therefore, we cannot give you this breakdown. But what I can say that -- so basically, we still have this -- the guidance range and everything that happens in the second quarter will still fit the guidance range regardless. And then maybe if I can also say that we did discuss internally narrowing of the guidance towards maybe 20% to 25%, but we decided not to do this because these are the LTIP, you remember from previous quarters and from the -- specifically the second quarter of '24, that LTIP component can be very volatile. So this quarter, I mean, second quarter '25, in particular, it was subdued because of the oil price and because of the decline in the risk-free rate in key rate, but it might as well rebound if markets go up. So therefore, we'll still keep the guidance range in 2030, but we could have narrowed it down to 2025 and personnel would have played a role in that. [Foreign Language] So your second question is about the fee income that is progressing broadly now in line with our strategy in '25, '26 and the drivers for future, basically, what might impact, what might be the factors, the drivers for this growth rate to change. So first of all, I would like to point out that our fee income performance, I'd say, is visibly ahead of the strategy. We were running at 20% plus. And although the growth rate was 15% in Q2, but you're already seeing trading volumes for July. Soon enough, we'll report trading volumes for August. And you basically see that markets were subdued in Q2. And therefore, we might see some acceleration in fees and commissions in Q3. And that comes hand-in-hand with your question basically about the factors. So the factor will be the increase in asset prices because it's really hard to maintain growth of fees and commissions against a declining market against declining asset price levels. So we see that key rate is going down, and that might support the markets, and that might drive some revaluation in the markets. And so therefore, if asset prices go up, this will provide significant support to our fees and commissions performance. As you can see, let's say, from the next slide, where you see the composition of our markets, most of these markets will be beneficiaries if price levels go up. [Foreign Language]

Our next question comes from Olga Naydenova, PJSC SKB-Bank. [Foreign Language]

Congratulations with the beat. My question relates to your OpEx guidance. It suggests that most -- like around 40% of the cost growth, which is guided that at least 20% comes from marketing spend -- from the increase in marketing spend, which technically suggests you would have to accelerate your marketing in the second half of this year. Am I right to understand that -- is my understanding correct? And why do you plan to accelerate -- if so, why do you plan to accelerate marketing? And whether we will soon see any indications of why are you happy with the outcome of your -- of what you are marketing? [Foreign Language]

So first, let's just have a quick glance at the slide you see on the screen. Marketing is sitting inside the remaining admin expenses. The line of remaining admin expenses is comfortably within the guidance range. And basically, all the components you see are fitting the guidance. So the only laggard when you talk about our OpEx growth is the personnel. So -- and therefore, there's no indication that marketing spend, let's say, in Q2 '25 is at the subdued level if you take the full year spend into account. And we've never really communicated any sort of statement that marketing spend will be loaded towards the end of the year. We've never said that. So I think we can -- it's fair to say that our marketing and advertising is coming at a specific amount every quarter. And I don't know, and I don't think that our numbers suggest that it should accelerate towards the end of the year if we talk about any meaningful acceleration. And then to the point of your question, obviously, as we keep saying over and over again, marketing is associated with the growth of Finuslugi client base. And that just comes down to the fact that team in Finuslugi, they see the growth in number of clients, how this client base is expanding day by day, like how many hundreds or thousands or millions of clients are already using certain services. And during this trend, the team can evaluate whether the marketing spend is still effective. If the trend suddenly starts to reach saturation, the rate of spending needs to be reassessed. The main focus here is on the building up the audience. The client base is the priority. And then you also see that the performance, the underlying performance of Finuslugi is quite sound. And then if you look into the -- in our financial statements, you'll see segment reporting there. And you'll basically see that the pretax loss we have on the Finuslugi unit is not really growing, and it's actually -- I think it declined Q-o-Q as a percentage of pretax profit. So this basically means that if you also look into the nominal amounts, if you imagine that we basically stop marketing, then Finuslugi almost turned profitable. So that suggests that the marketing load is proportional. And then there are some effects that -- anticipated effects that we already observed. So therefore, finalizing the answer to your question, I don't think we should see any dramatic rise in marketing in the second half. At least that's not what we've communicated. And at the end of the day, the guidance range remains intact. [Foreign Language]

[Foreign Language]

Well, these are rough. Let's put it this way, these are rough proportion. The proportion is quite rough, just to give you like a broad feel for the items that this growth will be allocated at. So just don't really tie yourself too much to this. It's just to give you a broader feel. [Foreign Language]

[Operator Instructions] [Foreign Language] Our next question comes from [indiscernible] [Foreign Language]

[Foreign Language] I have 2 questions. Please tell me how was the reduction in personnel costs achieved in this quarter? And how do you see interest rate decreasing further? How it will impact Finuslugi in your opinion?