Gielda Papierow Wartosciowych w Warszawie SA

WSE:GPW

Q1-2025 Earnings Call

[Michal Kuzawinski, executive]

Good afternoon, and good morning, everyone, and welcome to Warsaw Stock Exchange Q1 2025 Results Call.

Let me introduce today's speakers. We have with us the CEO of Warsaw Stock Exchange, Tomasz Bardzilowski; we have our CFO, Marcin Rulnicki; and also the CEO of Commodity Exchange, Piotr Listwon. And I'm Michal Kuzawinski, Head of Strategy and Investor Relations.

[Operator Instructions]

And now without further ado, let me pass the line to Tomasz.

[Tomasz Bardzilowski, executive]

Hello, everybody, and welcome on our first Q earnings call.

We are very proud to say that first quarter 2025 was a record quarter in many areas. First, we have delivered record high revenues of the group, which amounted to PLN 132 million. This was an increase of almost 12% on a year-on-year basis. And this growth was driven by an exceptional performance of our financial markets segment with revenue growing by almost 15% year-on-year, but also with the solid performance of commodity segment with revenue growing by 9% year-on-year. The growth in financial segment was supported and driven by cash equity turnover. The cash equity turnover went up by 35% year-on-year in the first quarter and also was supported by record high performance of our main indices, which went up by over 20% year-to-date in the first quarter. And so you will see also this good performance continued in the second quarter so far.

In the first quarter, we had a good cost control. Operating costs in the group went up by 5% year-on-year, which resulted in a decline in cost income ratio to below 66% from almost 70% a year ago. You may notice a change in the accounting treatment of a fee to Polish Financial Supervision Authority the previous year, we booked the total fee in the first quarter. And now we evenly distributed -- we will evenly distribute the fee across all quarters. We obviously have adjusted the cost of the previous year. So you will see them on a comparable basis.

In terms of the growth of EBITDA, we reported over 25% of EBITDA to almost PLN 55 million and our consolidated net profit jumped by 28% to over PLN 50 million. A few weeks ago, our Board recommended to pay a dividend of PLN 132 million, which represents 89% of the consolidated net profit line and which translates into PLN 3.15 per share, a 5% increase on a year-on-year basis. The dividend will be voted on our upcoming shareholder meeting in June. In April, in terms of corporate events, we would like to note that in April, our Supervisory Board has appointed Ms. Dominika Niewiadomska-Siniecka as a Member of the Board responsible for legal and regulatory affairs.

Talking about what was driving our main engine of growth in the first quarter, i.e., turnover and cash equities, you see that the euro trends and the turnover was up 38% year-over-year basis and we've been a leading European exchange in terms of turnover growth. We're also proud to say that we are a leading exchange in Europe in terms of liquidity measured by velocity ratio, i.e., the turnover to market cap our velocity ratio amounted to 56% in the first quarter, which is a significant improvement compared to 40% in the fourth quarter of last year.

And here, we show the performance of our main indices year-to-date. You will see that the market rally has continued in April and so far in May with our main indices going up by over 30%. And we point out that this rally is not only limited to blue chips to big 20 index companies, but also right now, we also see a growth in stock prices in mid- and small-cap segment. Our mid- and small-cap indices are also joining the rally. And you see here that also with the help of a stronger currency, we are #1 market with 43% increase year-to-date in MSCI Poland. And we also point out that even despite such exceptional performance, the valuation of the market looks still relatively demanding with over 25% discount to MSCI emerging markets on a 1-year forward PE basis.

Let me now comment on the performance in the primary market. In the first quarter, we saw the continuation of a break through on the IPO side with IPO of health care diagnostic services provider Diagnostyka worth PLN 1.7 billion. We especially wanted to say that we are very happy with the aftermarket performance of Diagnostyka. The stock is up over 60% year-to-date since the IPO price. We hope that the more activity on the primary market will be visible in coming quarters in those equities.

In terms of our bond segment, we are pleased to see over 40% increase in the value of bonds introduced to our catalyst market, improvement in the corporate segment, still quite solid value of issuance of the municipal bonds and also a big improvement in the value of the secured mortgage bonds. Here, we expect a continuation of those increases going forward. And as I said, we expect a more active IPO market over next [indiscernible].

And now let me pass to Marcin, our CFO, to discuss in detail our financial results in the first quarter.

[Marcin Rulnicki, executive]

Good morning, and good afternoon to all.

As Tomasz said, it was a very solid, very good quarter, and we are very happy about the performance. The revenues went up 12%, and it was both due to financial market, exceptional performance as well as commodity market. Details will follow in the next few slides. So let me stop here.

In terms of operating expenses, also we are very pleased with 5.3% growth rate compared to Q1 2024. It shows a good control over operating cost and is in line with our expectations. Technically, we changed the approach to recognition of financial supervisor authority fee that is the annual fee and historically, it used to be booked in Q1 in the whole amount whereas from January 2025, we'll start recognizing it in monthly installments over the full year to reflect the nature of this cost. All data in this presentation, including historical numbers, have been calculated accordingly and is presented in a comparable form.

So due to very dynamic growth in revenues and then reasonable growth in operating expenses, we can see that our operating performance was very good and operating profit went up 28% and reached PLN 46 million in Q1 '25. EBITDA went up almost 26% and reached almost PLN 55 million. What happened below operating profit line, better performance from financial activity due to lower financial costs mainly. And also we had a significantly higher share in profits of our associated companies. And here, we mainly report the depository profit and they were much better in Q1 2025 than the year before mainly because of also very dynamic revenue growth together with good control over operating costs. So at the end, more than PLN 10 million contributed from our net results. At the end, our net profit for the period was over PLN 50 million and went up 28% compared to the same quarter of last year. So again, very solid, very good results, and we are happy about the report.

A few words about revenues and revenue mix. Here, we present trends per segment. And as we mentioned before, the most dynamic growth we observed in the financial market where the revenue from financial market grew by almost 15% mainly in the trading revenues from trading activities, and we'll show details on the following slide. But also the commodity market showed very good performance with more than 9% growth compared to Q1 2024. As a result of this, we see a slight change in our share of revenue, which is not dependent on turnover. In Q1 2025, it was 32.4%, and it went down by 1.5 percentage points compared to last year.

Speaking about trading activity in the financial market that was the biggest part of our financial market segment revenue. And you can see that in Q1, it went up to PLN 56.4 million. And the most dynamic growth was within the equity part of the trading activity. And it was following the record high turnover that we had in Q1 2025. It exceeded [ PLN 11 million ] in Q1, it was 35% higher than the year before. And following this, we had almost 29% growth in revenues from equities. In other classes of assets, we had a small decline in derivatives stable revenue from debt and other. In other areas of financial market segment, we saw reasonable growth in both information services, listing revenues and also in our Armenia and stock exchange. Without getting much details, I would say that in listing revenues, we saw a growth in both listing fees and also fees for introduction. And in Armenia, the growth is coming mainly from depository activity.

Now a few words about commodity market. I will ask Piotr, the CEO of Commodity Stock Exchange to comment on this.

[Piotr Listwon, executive]

Thank you.

Revenues from the market trades on the commodity market in the first quarter reached PLN 23.5 million, which represents an increase of over 11% year-on-year and 30% quarter-on-quarter. Apart from the electricity, we recorded double-digit revenue increases in each segment of fees both quarterly and year-on-year basis. The decrease in revenues on energy market is mainly due to the lower trading volumes on the forward markets, which running without trading obligations is more influenced by significant fluctuation in liquidity, which also translated into the lower contracting of yearly instruments in this period.

Natural gas trading in the first quarter amounted to 39% in total increase over 40% year-on-year and [indiscernible] quarter-on-quarter. This growth market had a large share in the higher trading volumes, reaching a record level of 12 terawatt hours, which is an increase of 77% year-on-year and over 25% quarter-on-quarter. So we are very happy with the activity of the gas market participants in the recent months and upward trend that we are also observing in the current quarter.

Regarding the property rights market, we noted year-on-year increase in the trade of renewable energy property rights by over 30%, which should be connected to the increased obligation to redeem green certificates to 8.5% in 2025, in 2024 was 5%. Going next to the clearing segment's revenue, we recorded in the first quarter an increase year-on-year almost 9%, amounted to PLN 13.2 million and this is due to the higher trading volumes and transaction separately in our cleaning house so all the transactions which are executed on the HVP. We noted stable revenues in the registers when comparing year-on-year basis. In quarterly comparison, we see an increase in revenues, primarily related to the fact that revenue generation in autumn and winter period is lower than in first quarter and also trading companies and some large customers are in the process of purchasing green certificates and energy efficiency certificates in order to ramping them by 30th of June for the previous year.

[Marcin Rulnicki, executive]

Okay. Now let's have a look at the operating expenses. And the growth here was mainly driven by higher personnel expenses, which went up by 7.6% compared to Q1 '24. And 2 main reasons for that. The first reason is that the number of FTEs in the group went up by 13 full-time employees. And this growth is mainly coming from the stock exchange where we strengthened the teams mainly the teams which are involved in the IT-related operations. And the other reason is that we booked a higher provision for variable salaries in Q1 2025 as a result of better performance that we observed in the first quarter of this year. So 2 main reasons for this growth.

External services line and here, we maintain more or less the trend that we observed already in previous quarters. So stable services in IT with decline in advisory and other services in Q1 compared to the previous year. What is also worth mentioning here is the growth in depreciation and amortization line over PLN 1 million up here and the reason is additional software solutions, which we implemented end of last year in our commodity exchange. And also we started the amortization of the IT to our platform that is used by on of our subsidiary. This is the platform for dynamic investment management. So the 2 new assets which we generated additional amortization compared to the previous year.

Due to good cost control and good revenue growth that we observed in the last quarter, you can see that cost-income ratio went down to below 66%, and this is the lowest level for the last 3 years. So we are very happy about it. But it's fair to say that maintaining this growth rate in operating expenses in the following quarters maybe a challenge. We already know about additional expenses which we will have to incur in the remaining part of the year also related to big projects we are progressing with, including the war system and also the accounting system that we are implementing. Majority of costs around these systems are capitalized, but those which are not qualified for capitalization incur our operating expenses. So we should expect higher growth rate in operating expense in the coming quarters that's the message.

Capital expenditures, the number for Q1 '25 seems high, PLN 24 million, over PLN 24 million, about 62% up from compared to Q1 '24. This is something that we expected and we also communicated already in Q4 '24 conference because just to remind you, at the end of the year, we had a number of deliveries, especially of IT-related hardware, which were conducted before the end of the year, but not paid for. So practically, we paid for these deliveries in the first weeks of 2025 and this is something that, let's say, additionally increased capital expenditures for equipment in the first quarter of '25.

Intangible assets are pretty much in line with our expectations. And in this line, you can also find cost related to development, transaction development, which, let's say, goes in line with our expectations. Looking at a longer perspective, when you compare '24 to last 12 months ending in March '25, you can see right now the growth of 17% due to this higher CapEx in Q1. However, it's also fair to say that we expect the same trend in the remaining quarters of the year. So at the end, we expect that capital expenditures in 2025 should be significantly higher than in '2024.

And a few words about liquidity and cash flow. No surprises here in this table, we're also comparing the last 12 months ending March and the last full year. And in the LTM March '25, we had very strong operating cash flow almost PLN 160 million. And it represents more than 90% of our EBITDA. So our cash conversion of results is pretty high level. We had slightly higher CapEx because of the reasons that I mentioned on the previous slide. But still even after deducting this high CapEx, our free cash flow remains higher better than in 2024 full year and is almost PLN 93 million. Liquid assets on our balance sheet end of March were more than PLN 455 million. So pretty high number, pretty safe liquidity position. So it, let's say, also supports our dividend planning.

And about dividend, I will remind you on this slide. So in April, the Management Board recommended the distribution of PLN 132 million from capital to our shareholders. This translates to PLN 3.15 per share, so 5% up year-over-year and the dividend yield is at the date of announcement of 6.6%. This is a little bit more than we promised in our dividend policy because we are declaring basically 60% and 80% of consolidated net profit to be distributed every year. And here, you can see it's almost 89%, but we also mentioned that when communicating the strategic development directions that in the year when we will try to exceed this 80% common and this is the case. We prefer the dividend date 23rd July and the payment date on 6th October. The Supervisory Board positively reacted to our recommendation and right now, we are waiting for the shareholder approval.

Let me now comment on the outlook for the remaining quarters of this year. The outlook remains positive in terms of financial markets cash equities, we still see high activity in April due to increased volatility, our turnover on our main market increased by almost 15%. And also we see that so far in May in the first half of May, the year-over-year growth was over 20% turnover in cash equities.

Supporting market, let me pass to Piotr to cover briefly about the outlook for the coming quarters.

[Piotr Listwon, executive]

Sure. Having in mind the gas in the energy mix in Poland is growing, the role of the gas is growing. So we expect that the market numbers should be going up. And we see in our results in the first quarter, so we forecast that it should go up for the further months of this year. And the second thing we should have in mind that the first and second quarter of each year is seasonal higher contracting and redemption of the green certificates, so it should be also noted in respect of the revenues of the segment.

[Marcin Rulnicki, executive]

Thank you, Piotr.

In terms of operating costs, we expect higher year-on-year cost dynamics in the coming quarters due to several factors. First, we have higher development spending for the new trading platform, which will be launched on the 10th of November this year. And secondly, due to the new financial accounting system will launch this year, but also due to a base effect, just to remind you that we have started our selection program in the second quarter of last year. So there's a lower base of comparison.

In terms of CapEx, we have already talked about that, that this year CapEx is expected to be higher than last year. This is mainly related to the launch of the new trading platform, and we expect that in the following years, '26 decline to a more normal level. Also would like to point out, stress that we are quite positive in terms of midterm factors. We see a big focus in terms of the growth in our capital market, both on the European level and also on the domestic level, and we should be a beneficiary of those structural changes and structural long-term growth.

[Tomasz Bardzilowski, executive]

Thank you. With that, we're ready to take questions.

[Michal Kuzawinski, executive]

[Operator Instructions] We see our first voice question from Miguel from Wood & Co.

[Miguel Dias, analyst]

Congratulations on the strong results, and thanks for the presentation. I would like to start maybe with TG. So 2 questions for Piotr, if I may. Is there any particular reason why we are seeing record high turnover on the gas spot market? I also noticed that in April, forward transactions in gas were very high. So if you can just provide some color on this, it would be appreciated. Has this been like a consequence of any changes that you've implemented? Or this is just like pure market function?

[Piotr Listwon, executive]

You'd like to ask the 2 questions or you want me to answer the first one?

[Miguel Dias, analyst]

If you can answer that question, it will be appreciated.

[Piotr Listwon, executive]

So I just mentioned just a couple of minutes ago that the gas market is growing in Poland. We are expecting -- can you hear me well?

[Miguel Dias, analyst]

I also can hear myself typing. So yes, I don't know if you could...

[Piotr Listwon, executive]

Okay. So the growing role of gas in the energy mix in Poland is growing. So we -- this is the first thing. So there are a lot of plans for creating new power plant waiting on the gas. As you may know, basically, it takes about 3, 4 years to build the generation that was based on the gas. So changing -- having in mind that the lifetime of the coal power plants are -- is pretty short now within 3, 4, 5 years, they will be of their life. So the Polish government is looking for some new possibilities. And we found that very good and stable production would be from the gas. So we see a lot of contracts that are our major gas company in Poland, ORLEN is buying from the LNG.

And that might be also -- those contracts could be sold on the Polish market on TGE. So this is the case that we can see the growing numbers of trades on the forward contract, but also on the spot market, which is the record on the spot market level amounting to 12 terawatt hours in the first quarter. So it is because that is really good for TGE and for the market and the competition is that for those power plant that will be waiting or are already waiting on the gas market, on the gas source. Mostly they are contracting on the exchange and mostly they are contracting on the spot because now we are introduced -- now we are at the time when the renewable sources are generated, the power from renewable sources.

So -- but based on the weather conditions, when the sun is not shining and the winter -- sorry, the wind is not blowing, then we need to have something instead. So we find that the gas is really good example of the source that could be used. And most of the power plants are contracting on the gas market that we are running. So this is the case that we have bigger volumes, and we expect that the volumes will be -- will stay with us and will be also higher in the future.

[Miguel Dias, analyst]

Okay. Also in terms of revenues from property rights, would you say this is close to the run rate for the next quarters?

[Tomasz Bardzilowski, executive]

Yes. I mentioned that the second quarter is the time of redemption of the green and efficiency certificates. So it's seasonal that the second quarter is revenues in time in the revenues and also in the volumes. So I expect that second quarter will be as good as the last year or even more because we already have the obligation to -- for redemption of those green certificates a little bit higher than it was last year. So I expect that it will be also bigger volumes and also revenues coming out of those.

[Miguel Dias, analyst]

Right. And for the second half of the year, like do you see Q1 as sort of like the run rate for those quarters?

[Tomasz Bardzilowski, executive]

The second quarter will be the biggest one probably because of the period of redemption. However, in terms of trading, I expect that the volumes should be bigger than last year because of the obligation. In 2024, the obligation to redeem the green certificate was at the level of 5%. For 2025, the level was increased to 8.5%. So we expect that the volumes should be higher than in last year.

[Miguel Dias, analyst]

Got it. Now maybe in terms of OpEx, just a general question, like where would you say the yearly increase would land for 2025? I understand that moving forward, it's going to be a bit higher growth in the next quarters. So on a yearly basis, where would you see that OpEx is landing?

[Marcin Rulnicki, executive]

Let me take this one. I think in our strategic direction that we announced end of last year, we defined that our compound annual growth in OpEx should not exceed 6% in the period of 3 years, which were covered by this analysis. And I think we should maintain it. Yes, we don't have any reasons to change. However, I think 2025 can be the most challenging of the 3 years. So I would say that in the 3-year period, we should still maintain -- stick to this 4% to 6% growth rate that we assume. But in 2025, we have our challenges, as we mentioned.

There's maybe one more thing to consider here because in the same document, we also announced that our expected revenue growth rate is between 6% and 8%. Of course, we have limited control over it. So if our revenues allow us to spend a little bit more, I think we have good ideas how to invest in the development of our business and how to, let's say, maybe stimulate further growth in the future. So depending on the revenues, we may also in a controlled way, decide to increase the operating costs and invest in the business development.

[Miguel Dias, analyst]

Got it. And where -- like in which areas of the business would you consider spending a bit more if revenues allowed?

[Marcin Rulnicki, executive]

I think we should consider investing a bit more in business development, creating new products, also maybe in promotion and marketing around Warsaw Stock Exchange. So these are the areas where I can see potential to invest. And of course, we'll still maintain investing in IT-related teams and services. This is where we see also the need to increase spending at least short term.

[Miguel Dias, analyst]

Okay. And just one last question, this one a little bit more technical. But could you explain how the change in accounting policy related to the K&S fee changed the income recognized and booked coming from KDPW?

[Tomasz Bardzilowski, executive]

Yes. That's actually a technical one, but a valid one. Actually, the deposit they were recognizing this fee over time already in the past. And for presenting consolidated numbers, we had to adjust their numbers to our policy, okay? So what they were recognizing over time, we were changing and recognized in Q1 entirely. And now due to the change in our policy, we had to consistently present their results. So we, let's say, reverse what we did before. Yes. That's why you can see that this line changed as well in our comparable data. And looking for details or detailed impact of these changes on our P&L, you can either refer to a separate slide, which we shown in the appendix to this presentation. And we also have a dedicated note in our financial statement that describes the impact.

[Michal Kuzawinski, executive]

[Operator Instructions] Our next question is a text question from Usman Olubajo from Letko Brosseau. Could you provide insights on the expected IPO activity for this year? Please share an update on new ETF developments, including any plans related to rates and other products?

[Tomasz Bardzilowski, executive]

Of course, we are very happy with the extremely strong performance, aftermarket performance of the first IPO we had this year, Diagnostyka with the share price up over 60% and also with the record high level of our indices and so far this year was in addition to the best performing market in the world. And of course, this draws attention of potential issuers. We hope to -- that the IPO market will, therefore, be more active over the next few quarters. We expect one medium-sized IPO in this quarter and then several other IPOs, including hopefully a few larger ones by the end of this year. But I also would like to say that we are much more active right now in terms of contacts with the potential issuers with the contacts and our initiatives related to private equity funds and finds, candidates, which may think about listing and IPOs.

[Marcin Rulnicki, executive]

In terms of ETFs, we now have 13 ETFs listed on the market. We expect the new ETFs to come to the market over the next few months. Here, in particular, we have high hopes with the dividend ETF, which is based on our index of highest dividend bank companies, which will pay a cash dividend on a quarterly basis. We think that this could be very attractive for especially retail investors. We heard from our ETF providers that there are plans to introduce some other ETFs, including the ETF on Bitcoin, which we expect to be launched this year.

[Michal Kuzawinski, executive]

Usman Is also asking about any plans related to REITs.

[Tomasz Bardzilowski, executive]

In terms of REITs, we understand from various public statements by the government representatives that the legislation may be finalized this year. If so, we would expect first IPO of REITs next year on the Warsaw Stock Exchange.

[Michal Kuzawinski, executive]

[Operator Instructions]

[Tomasz Bardzilowski, executive]

There are no further questions, then thank you, everybody, for joining the call. Thank you for listening. Thank you for your participation, and we are looking forward to speak to you again during our Q2 results call in the summer. In the meantime, if you have any questions, please don't hesitate to reach out to us in Warsaw Stock Exchange Investor Relations team. Thank you, and goodbye.

[Marcin Rulnicki, executive]

Thank you.

[Piotr Listwon, executive]

Thank you.

[Michal Kuzawinski, executive]

Thank you. We are now closing the lines.