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

Ladies and gentlemen, welcome to the Moscow Exchange Third 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's Conference Call on the Third 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 material from these projections. The company does not intend to update these statements prior to the next conference call. By now, you 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, delivering on strategic initiatives in third quarter '25 and beyond. The Exchange continues to add new products, 5 new Russian-law ETFs made up of bonds, equities and money market instruments have begun trading on MOEX since our previous conversation, bringing the total count of these ETFs to 101. MOEX added 16 nonlisted equity to CCP-based OTC trading, resulting in a total of 190 such equities. The derivatives market also has some new things to present. 13 new futures contracts have been launched since our previous call, including contracts on silver, bitcoin, Ethereum and Russian equities. Total number of derivative instruments is now RUB 254 million. In Q3 '25, 2 companies placed 9 digital credit issues on the MOEX, raising a tunnel of RUB 29 billion. Finuslugi broadened access to asset management services, giving it a total of seventh authored mutual funds. [Foreign Language] Second, we continue to work on new services. Responding to client activity, MOEX launched weekend trading on the derivatives market and evening training on the money market. The number of securities available for weekend trading is approaching 300, more than 300 are available for morning trading and 3,000-plus are available for evening trading. MOEX introduced 46 indices since our previous call, including indices on Ethereum and OFZ. CCP-cleared OTC trading in precious metals became available, expanding the range of solutions for clients. MOEX released its compliance tool platform to help issuers and market participants, monitor insider activity and established best practices in compliance. [Foreign Language] Third, we are developing our client base and partnerships. The number of retail clients on the securities market reached 39.4 million as of the end of October 2025. Nearly 4.3 million clients have onboarded since the beginning of this year already. The total number of individual investment accounts amounted to 6.2 million. On the primary bond market, 140 corporates, including 21 newcomers, placed 371 bond issues, raising RUB 3.2 trillion in third quarter. On the equities market, 4 issuers held ECM deals, there are 2 IPOs and 2 SPOs – accounting for more than RUB 122 billion. [Foreign Language] Next slide, #3. Summary of Q3 '25 financials. Operating income decreased by 16% year-on-year on the back of the declining NII. Although fee income was up 31% year-on-year, NII declined by 44% year-on-year following a reduction in client balances. At our previous call in August '25, midway through third quarter, we said that ruble client balances were slightly insignificantly down Q-on-Q. This statement is valid for the full third quarter of '25. The overall Q3 '25 ruble investment portfolio was still down Q-on-Q since MOEX paid dividends out of its own funds. The Q3 '25 NII includes a positive one-off amounting to some RUB 0.8 billion plus RUB 0.6 billion in additional interest income thanks to a more efficient portfolio allocation. Net of these 2 factors, the Q3 '25 NII would have ended up between the reported NII figures for first quarter and second quarter of this year – just as we outlined during our previous conversation. Thus far in Q4 '25, we have not seen any improvement in either the value of the investment portfolio or the interest rate. Therefore, the Q4 '25 NII will most likely end up once again between the reported NII figures for first quarter and second quarter of this year. The current split of money market instruments vs bonds in our ruble investment portfolio is roughly 50/50. The HTM part of the bond portfolio has stood practically unchanged since we announced that we had finished putting together this part of the portfolio at the earnings call for the second quarter '24. You can see this on the balance sheet. [Foreign Language] Operating expenses decreased by 7.2% Q-on-Q and 1.2% year-on-year. The decline is mainly explained by the reduction in personnel expenses. We will dissect the OpEx dynamics later in the presentation. The cost-to-income ratio amounted to 34%, improving on a Q-on-Q basis. Adjusted EBITDA was down 19% year-on-year but up 11% Q-on-Q and stood at the margin of 72%. Adjusted net income decreased by 30% year-on-year but improved by 11% Q-on-Q and adjusted return on equity amounted to 27%. [Foreign Language] Slide four, diversified fee and commission income. Fee income grew by 31% year-on-year and its structure remains well diversified. The single largest constituent was the money market, which accounts for 25% of the total. Let me now go line by line. [Foreign Language] On the money market, fees grew by 28% year-on-year on the back of a nearly identical 26% increase in trading volumes. The increase in the share of value added CCP repo, including GCC in the volume mix supported the effective fee. On the other hand, the decrease in repo terms had a negative effect. The average on-exchange repo term was down 24% year-on-year to 2.6 days. The GCC report term decreased by 35% to 2.2 days. The strong accumulated position in Russian-law money market ETFs supports the GCC repo segment. [Foreign Language] Both fees and volumes on the equities market were virtually unchanged, increasing by about 1% year-on-year. Extended market hours trading accounted for 27% of volumes in the third quarter. Trading velocity amounted to 69% in the third quarter compared to 67% in the third quarter '24. Over 3.6 million retail clients have traded MOEX market every month during the quarter on average. [Foreign Language] On the derivatives market, fees improved by 42% year-on-year and trading volumes increased by 39% year-on-year. The share of interest rate and index derivatives in the volume mix increased while that of commodities derivatives declined. Specifically, the volumes of index derivatives shares surged by 84%. The volume of interest rate contracts improved by 183%. The trading volumes of FX derivative contracts increased by 41%. Trading volumes of commodity contracts trading grew by 13%. Single-stock contracts were flat. [Foreign Language] Fees and commissions from the depository and settlement increased by 9.4% year-on-year. The average value of assets on deposit was up 5.8% year-on-year. 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 90% year-on-year, while trading volumes increased by 76%. This is explained by the activity on both the primary and secondary markets. The discrepancy between fees and volumes is due to corporate bond placements. Primary market volumes excluding overnight bonds were up by 40% year-on-year. Secondary trading volumes surged by 124% year-on-year. [Foreign Language] Finuslugi revenue improved by 132% year-on-year and 10% Q-on-Q. [Foreign Language] The ITSLOFI line includes IT services, listing and other fee income. Sales of software and technical services increased by 23% year-on-year. Sales of information services were down by 5% year-on-year. Listing and other services improved by 45% year-on-year as activity on the primary bond market was strong during the quarter. [Foreign Language] Slide #5, operating expenses in Q3, excluding provisions. Operating expenses decreased by 1.2% year-on-year in the third quarter, largely due to the reduction in personnel expenses. On a quarterly basis, OpEx declined by 7.2%. Current personnel expenses were down by 21% year-on-year on the back of lower bonus accruals following the year-on-year decline in profit. Long-term incentives provisions were partially reversed amid reductions in the share price and the key rate. The employee head count increased by 24% year-on-year and by 5.7% Q-on-Q. The new hires are related to the overall strengthening of the IT function and to strategic projects. [Foreign Language] Advertising and marketing costs were up by 53% 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 grew by 46% as trading activity improved across markets. D&A and IT maintenance was up 33% year-on-year, while D&A alone increased by 42% year-on-year. IT maintenance costs increased by 13% due to the implementation of the software and hardware renewal program. [Foreign Language] The updated guidance range for full year '25 OpEx growth now stands at 10% to 15% year-on-year, down from 20% to 30% year-on-year. Q3 '25 CapEx amounted to RUB 3.2 billion, and was spent on the purchases of software and equipment as well as on software development. The updated '25 CapEx guidance range now stands at RUB 13 billion to RUB 15 billion, excluding the new office building, down from RUB 14 billion to RUB 16 billion. The actual spending will depend on the implementation of the hardware and software renewal program. [Foreign Language] This concludes the overview of our results. We're now ready to take questions. [Foreign Language]

[Operator Instructions] [Foreign Language] Our first question comes from Olga Naydenova, Sinara Bank. [Foreign Language]

[Foreign Language] Congratulations on a good set of results. My questions are about your OpEx. First, regarding marketing expense, which is much higher than what we've seen in the past. And second is about cash costs, staff cash costs, which have gone down despite the staff increase. What to expect in both of those articles?

Thank you very much for your congrats and your good questions. So I'll try to respond to your first one on the marketing expense. Well, we don't have a very decisive answer to that question because that would basically imply some early guidance for the next year because if we say you can just multiply it by 4 and understand what's going to be for the next year, but we don't have the next year's figure yet. As you know, we'll come up with the guidances next year. Maybe just share some observations basically that our marketing expense are between RUB 2 billion and RUB 3 billion a quarter. And of course, you would point out that marketing expenses don't really go down in our recent history. But at the same time, we have the seasonality factor towards the end of the year when we normally start spending a little bit more, and that was the case in previous years as well. So I would honestly not read too much into that figure. But if you need to put something in the model, I would probably look at something between previous quarters and third quarter this year for the normalized spending figure. But again, we'll have to wait for the guidance for the next year.

Sorry for interrupting. But maybe there is some logic between -- behind this spike specifically this quarter, maybe there is -- any specific reason why it is so high in the third quarter this year?

Well, there are no specific reasons apart from the need to build the client base and really propel the business line forward. The usual reason, the usual explanation we've had in previous quarters, nothing new really to add here. [Foreign Language] Now on your next question on personnel expenses that were down quite substantially. Well, you see there are a few reasons on the slide. So -- and these reasons are really the main ones. So the much lower bonus accruals in current expense section because of the low profit and the reversion of the LTIP provision because of the much lower share price and a reduction in the key rate, these are really the main ones. Then you have like a family of other smaller ones, like we had high base in Q3 last year as well, we reclassified some of the IT personnel spending to CapEx as we became more kind of skilled in measuring their workload. So that allowed us to allocate some spending to CapEx, but the other figures you see -- the reasons you see on the slide are really the main ones. [Foreign Language]

[Foreign Language] Anything you can guide if you have guided the CapEx excluding the new office building, anything you can comment at this stage regarding what we should model for this new building, the amortization, the overall size of the CapEx, anything that would make our life easier.

Yes. Okay. So first, we can confirm that the deal is indeed done. You can see this information is disclosed in our Q3 financials, and it was previously covered in the media together with estimates of the value of this transaction, but it will be accurately reflected in Q4 financial statements, which is next reporting quarter. And this will enable us to provide more meaningful comments but I would like to emphasize that we had accumulated a cash cushion for such long-term investment. And we repeatedly discussed in the previous conference calls. Therefore, this acquisition should not impact the dividend payout for the full year '25. As your real estate expert say, these transactions has favorable terms for us, and we view it as a sound investment. In terms of the figures, you can just Google it up, it's like mid-teens in terms of billions of rubles. [Foreign Language]

Our next question comes from Andrey Akhatov Sber CIB. [Foreign Language]