Key Takeaways
- Group revenue increased by 3.1% to S$1.23 billion.- Earnings rose by 4.5% to S$526 million.- Strong performance in derivatives, particularly in currencies and commodities.- Capital raising in cash equity markets remained subdued.- Plans to invest in security system modernization and infrastructure upgrades.- Proposed final quarterly dividend of $0.09 per share, a nearly 6% annualized increase.- Adjusted expenses were 3% lower than reported, with growth expected at 2-4% excluding transaction-based expenses.Company Outlook
- SGX expects to achieve 6-8% revenue growth in the medium term, driven by its OTC FX and exchange-traded derivatives businesses.- The company plans to invest between $70-75 million in capital expenditures for FY 2025.- SGX aims to grow its OTC FX contribution to a mid to high-single-digit percentage of group EBITDA in the medium term.- The company is actively engaging with the broader ecosystem to gather feedback and improve its services.Bearish Highlights
- Capital raising activity in cash equity markets has been subdued.- No specific guidance was provided on equity derivatives growth levels.Bullish Highlights
- SGX saw growth in its derivatives franchise, with increased volumes and open interest in FX futures and commodities.- The company highlighted the success of its GIFT Connect platform and plans to deepen collaboration with the National Stock Exchange of India.- SGX is optimistic about increased IPO activity and aims to achieve mid-single-digit growth in dividends.Misses
- The company did not provide specific guidance on the expected growth levels for equity derivatives.Q&A Highlights
- SGX discussed their engagement with brokers and security houses for feedback and suggestions.- The company expects growth in the Nikkei and India franchises, as well as trading liquidity and volatility in the China franchise.- Executives stated that they aim to reward shareholders with a mid-single-digit CAGR over the medium term, with or without M&A.- SGX is focusing on pricing reviews in the market data and connectivity segment to potentially increase growth.SGX's commitment to its multi-asset strategy was evident throughout the earnings call. The company's plans to explore opportunities in regional equities and yield-focused products meet investor demand, and its intention to improve the liquidity of the stock market reflects a forward-looking approach. SGX's ongoing efforts to modernize its security system and upgrade infrastructure demonstrate a strategic investment in its future capabilities. The balance sheet strength and proposed dividend increase signal confidence in the company's financial health and its ability to deliver shareholder value. As SGX continues to leverage its position in the derivatives market and expand its offerings, it remains poised for growth in the dynamic financial landscape.Full transcript - None (SPXCF) Q4 2024:
Operator: All right. Good morning, ladies and gentlemen, and to also those who are watching this session via webcast, thank you for joining us today to discuss SGX FY 2024 Financial Results. The session today will begin with a presentation of our financial highlights by Yao Loong, our CFO, followed by a business update by Loh Boon Chye, our CEO. There will also be time for questions and answers thereafter, but please be reminded for those of you who are asking questions, do identify yourself. So it is now my pleasure to invite Yao Loong on stage to deliver our financial highlights. Yao Loong?
Ng Yao Loong: Well, a very good morning and thank you for joining us on the eve of National Day. So, our FY '24 performance, I would say it was stable in both revenue and earnings growth. So, Group revenue was up 3.1%, or about S$1.23 billion, driven by the strong growth of currencies and commodities. On an adjusted basis, our expenses increased 2.5% to S$604 million, while Group Earnings increased 4.5% to S$526 million. Our operating profit margins and earnings margins improved 0.3 percentage points and 0.6 percentage points, respectively. Let me run through the details of our financial performance. So as mentioned earlier, revenue growth was mainly driven by currencies and commodities, which collectively grew 23% year-on-year. Our derivatives franchise, which is the chart on the left, comprising equities, commodities and currencies, futures and options, and the associated Treasury Income or TI, is about 45% of total revenue. So the revenue from our derivatives suite grew about $12 million, or 2%, driven by an 8% growth in volumes. Lower revenue growth is in part due to how we account for the GIFT Connect fee arrangement. Royalty used to be paid in FY '23 and it was accounted for as an expense item. Subsequently, we replaced it with a fee arrangement, which is netted off against the trading and clearing revenue. TI or Treasury Income was marginally lower against a year ago. If we exclude that, our Group revenue growth would have been slightly higher at 3.6%. Contributing to the higher derivatives growth was clearly the growth in our trading and clearing revenue. So we saw Currency Futures DAV grew 35%, commodities DAV also increased by 50% given our efforts in broadening participation in our iron ore contracts. Equity derivatives declined in terms of DAV 7% mainly due to the lower Nifty volumes as we migrated our members and clients to the GIFT Connect. If we exclude the Nifty volumes, the DAV decline would have been 3%. Now, OTC FX business, we saw healthy growth. ADV increased 47%, to US$111 billion, which exceeded our target of US$100 billion early. The ADV increase was from higher swaps activities. We saw financial institutions managing their interest rate risks and enhancing their capital efficient, even the volatility in the markets. Now revenue wise, OTC FX grew 22%. It's now about S$92 million, 7.5% to our Group revenue, compared to 6.3% a year ago. Capital raising cash equity markets activity wise remain subdued as economics and uncertainty impacted investors' appetite for new investments. The SDAV declined 4% to S$1.06 billion on a year-on-year basis. Now, just a reconciliation between our reported earnings, which is almost S$600 million to our adjusted earnings, S$526 million. What you see in the middle is a bunch of noncash adjustments which I will highlight or elaborate. So first on the left, we saw a net fair value gain of just over S$100 million, mainly from our investment in a private equity fund managed by seven rate [ph], which holds one single asset, trading technology. So reflecting the continued strong operating performance of TT, our investment in this fund was revalued outwards by S$92 million this year. Previously -- in the previous FY, the investment was revalued outwards by S$40 million. And this fair value adjustment flows through our P&L, given its accounting classification. Now, second, the performance of scientific beta remains subdued relative to our expectations. Hence, we wrote back the accounting gain in our forward liability, which relates to a put and call option with [indiscernible] to acquire the 7% stake which we don't own. We also took an impairment charge of almost S$9 million this year, relating to the purchase in tangible assets in scientific beta relating to know-how and customers. Third, there were other impairment losses, including a S$10 million impairment for the cessation of operations of our fixed income trading platform, or Bond Pro. Now our fixed income focus is on short-term interest rates right now, as we launch the futures to support our customers' demand for more risk management tools in this area. So we launched the futures linked to SORA, which is the Singapore Overnight Rate Average, and TONA, Tokyo Overnight Rate -- Average Rate just recently. Finally, we also set aside S$8 million as a provision to fund a S$10 million initiative to improve the vibrancy of our securities market. The monies will be channeled to our industry partners for initiatives that can help and improve market vibrancy. This could include areas like growing distribution channels for investor outreach, new services to enhance or engage investors and support the expansion of our product shelf and regional connectivity. So this money set aside will be over and above our ongoing BAU investments in the securities market. Now back to revenue across our four operating segments which appears on our financial statements. So starting with FICC on the left, it now accounts for 26% of our total revenue. So it's comparable to the revenue contribution from both equity derivatives and equities cash. So I mentioned 2 years ago that we expect this segment to grow in terms of revenue at a mid-teens percentage range over the medium term. It has in fact grown more than 20% per annum in the last 3 years. So volume growth for all our key asset classes in this segment was very strong. As I mentioned, currency futures DAV was 35% growth; OTC FX was 47%, and iron ore grew 52% in terms of DAV growth. Now moving on to equity derivatives, revenue decreased by 8%. It still accounts for about 27% of total group revenue. And the decline in the T&C, or Trading and Clearing revenue was driven, as I said, by a decline in the derivatives volume from GIFT Nifty and also our Nikkei Futures, partially offset by higher volumes in our Taiwan Index Futures contract. And again, if we exclude Nifty, our Trading and Clearing revenues would have increased 0.5%. On a pro forma like-for-like basis, our average fee for all our derivatives in a decline marginally from $1.56 in FY '23 to $1.54. Again, this relates to the accounting adjustments I mentioned earlier. And so actually what you are getting is a like-for-like comparison. As for the cash market, revenue was down 2% due to a 4% decline in our securities traded volume. It continues to contribute 27% of our Group revenue. The decline was primarily driven by lower trading activity in the REITs and small and mid-cap stock segments. Overall, securities average clearing fee remained comparable at 2.49 basis points. Our platform revenue was up 6% due to growth across market data, connectivity, index, edge and others. This segment is about 20% of our total revenue. So we saw growth from a combination of volume, i.e. onboarding new subscribers of Colo [ph] and market data, and also repricing of these services. Now I wanted to share with you on a half on half basis, usually we just look at it from a year-on-year basis. So you can see there's actually strong double-digit percentage momentum in volumes across our major asset classes. And that has sustained in July as well. We released the monthly statistics today together to results. So on the left, the derivatives business saw a DAV of 1.17 million contracts in the second half of this financial year. It is actually the highest half-year DAV since our listing. We saw investors managing their risk exposures to Asia including China given a more volatile geopolitical and macro environment. So across derivatives the DAV growth was in the low to mid teens or in the high teens percentage. So in the equities DAV was up 11%, commodities 15%, and the exchange traded currency futures was up 17%. And then when we look at the OTC FX, the ADV grew 23%. So for the second half it was US$123 billion. Cash equities, likewise, as the ADV grew 21% to about 1.16 billion. As I said, in July we saw continued momentum in these numbers. Now, from FY 2025, we will implement an accounting change. So that doesn't affect what you see in terms of the fundamental or the underlying earnings. And this is how we look, and it's more aligned with how management looks at the underlying economics of our transaction businesses, especially in derivatives. So going forth, transaction-based expenses, or what we classify as processing royalties, will be moved from the expenses side to be netted off against operating revenue to derive net revenue. I think you can see the pro forma on the left using FY '24 numbers. This will actually facilitate better comparability with major global derivatives exchanges, as they also adopt a similar accounting practice. So with this change, the calculation of the securities and derivatives average fee per contract will also change. It will now reference net revenue instead of operating revenue, and naturally that will be lower. So again, I've given you an example of the FY '24 numbers. So the average clearing fee is $1.54, and just by virtue of this accounting change, the fee will be at $1.31. But nothing else changes. In fact, every line item still appears where you will see it, and you can form your own conclusion. So again, I emphasize this is how it reflects how we look at the net revenue after the royalties. On the expenses side, adjusted expenses was up 2.5%. It was lower than what I guided initially. So really increased from higher staff costs. Again, we’ve the merit increment and we also had a bit of an increase in our headcount around 4% to support the growth of our OTC FX business. Technology wise, it was up 3% in terms of expenses from higher system maintenance. Royalties declined 5%, but that's mainly due to the absence of GIFT Nifty royalties. We actually saw higher iron ore royalties in this segment. The adjusted expenses is about 3% lower than reported expenses because it excludes two items. One, the amortization of purchased intangibles. That's what we have been doing since we introduced this metric. And then the other one, which I've mentioned, the 8 million that we set aside to fund the securities market for our partners. Now looking at FY '25, in the near-term, we do expect the expenses to grow 2% to 4%. I've just mentioned about the accounting change. So, when we look at expenses wise, this will exclude transaction-based expenses, which is in part volume driven. So, I think that's a better reflection of our forecast of our expense base. And we'll manage this expense base by growing headcount at a more measured pace, and of course improving operational efficiency and realizing savings from the completion of the migration of our OTC FX data center. Going out a little bit longer over the medium term, I do expect that the organic expense growth to remain in the low to mid-single-digit percentage range. As for CapEx, we incurred $66 million in FY '24. I am guiding to a range of $70 million to 75 million in FY '25 as we invest in the modernization of our security system and also infrastructure upgrade. I have mentioned quite a few times that our CapEx would appear to be on uptrend, given the typical refresh cycle for major systems. We will continue to invest in the modernization of our exchange trading and clearing platforms and also our data center. But we expect CapEx over a cycle to remain below the historical average of 7% of Group revenues. The balance sheet remains strong. Healthy leverage ratios, if you look at the charts on the right and left, interest coverage ratio is not an issue. We have in fact reduced our gross debt by about $50 million when we refinanced our convertible bond, which mature in March 2024 and we issued a Sing-dollar [ph] corporate bond. And as a result of the refinancing, we do not have any debt maturing until FY 2027. The Board of Directors has proposed a final quarterly dividend of $0.09 per share. So if it is approved at our upcoming AGM in October, this would bring the total dividends for FY '24 to $0.345 per share. So this $0.05 increase in quarterly dividend from $0.085 to $0.09 represents an annualized increase of almost 6%. And this is in line with our stated aim to increase dividends per share by mid-single-digit percentage growth in the medium term, subject to earnings growth. Now with that, let me hand over to Boon Chye, our CEO, who will deliver the business update.
Loh Boon Chye: Good morning again. Thank you for joining us. As you heard from Yao Loong, overall the Group delivered a set of results that demonstrates the resilience of our business. As you can see from this slide, the two-pie chart, our multi-asset strategy has yielded positive results over the years. The diversified revenue profile of business today is the result of our strategic growth initiatives within the currencies and commodity space, combined with the resilience of our equities business. Back in FY 2016, when we first started building up various asset classes, the equivalent of today's FICC segment contributed a small proportion of our total revenues, as seen in a dark blue segment of the pie chart on the left. 8 years on, our FICC business has grown to account for about 26% or over S$320 million of revenues. Today, FICC equities, cash equities derivatives collectively made up 80% of our total revenues and each contribute an almost equal proportion to our business. Our platforms and other businesses which include revenues from market data, connectivity, Baltic Exchange, Energy Market Company, contributes a robust 20% to Group revenue. We remain well poised for further growth from our multi-asset strategy. Let me now unpack our FICC segment, which has delivered mid-teens percentage growth in the last 3 years. In SGX FX, our combination of listed FX futures and OTC FX across the full suite of workflow and matching services solidifies our position as a leading gateway to the global FX market. Since we embark on building an integrated FX franchise in FY 2021, our combined OTC and FX futures average daily volumes, or ADV, have increased two-fold. This year, we maintained the growth momentum for our currency derivatives, achieving 36% growth in total volumes. Open interest across listed FX futures gained 76% year-on-year and we retain our position as the leading venue of choice for both international RMB and the Indian rupee futures. In June this year, both our RMB and rupee futures achieved their highest single-day open interest record at almost US$22 billion and US$7 billion, respectively. We see this momentum continuing through the start of the new financial year. Just this week on Monday, amid market volatility across global markets, our RMB futures registered a single-day volume record of over US$35 billion in notional value, our highest ever.
A -: Our SGX commodities franchise continues to grow from strength to strength, as seen from the robust sustained growth over the past 3 years. Total commodities volume has more than doubled since FY 2021, while year-on-year growth has been a commendable 50%. In yet another record year for iron ore volumes, we saw wider client adoption across the U.S and Europe on the back of our efforts to enhance participation during U.S and European trading hours and provide round-the-clock trading. Iron ore has emerged as a global commodity given its high correlation with industrial growth and infrastructure development. As iron ore becomes a significant trade and economic indicator, much like oil, our iron ore derivatives will become an important part of the institutional investor's portfolio. Our deliberate efforts to deepen and diversify the ecosystem by including more financial market participants has resulted in an increasing proportion of screen trading for the contract. Today, volumes of our iron ore contracts have reached more than 3x that of the underlying physical seaborne market. We saw strong growth, volume growth in our freight suite too, which is another key barometer for global trade. As the world's largest dry bar FFA marketplace, we will strive to harness the synergies of integrated cargo and freight risk management. The increase in volatility and market risk arising from geopolitics and weather patterns have contributed to freight rates becoming more volatile than ever. This could increase risk management requirements using our freight in iron ore contracts, especially given that iron ore is the most commonly shipped dry bulk cargo worldwide. Beyond our flagship contracts, we have seen healthy volumes across the entire commodity suite. Rubber, rubber derivatives volumes were up more than 60% in FY '24, exceeding the size of the physical market for the first time at 3.5 million lots. This was largely driven by stronger hedging demand from improving market fundamentals, higher participation from financial traders, as well as growing interest from European and U.S clients. This marks the third year of our partnership with New Zealand Exchange. Together, we have expanded the ecosystem of physical and financial participants who recognize our dairy product suite as a benchmark for seaborne dairy market globally. FY '24, dairy derivatives volume were up 31% year-on-year with a steady annual growth rate of more than 30% for both volume and open interest. Moving on to our other derivatives products, notwithstanding the dip in total equity derivatives volume in FY '24, SGX is still the main international and efficient venue for accessing key Asian economies. Our Pan-Asian Equity Derivatives Suite provides global investors with a single gateway to access Asian economies. A shift in monetary policies, elections led volatility and the global AI semiconductor thematic have been driving investment flow. The latter led to record single day volumes for our flagship FTSE Taiwan contracts and we saw open interest growing 7% to 955,000 contracts. Open interest for our [indiscernible] futures also rose to 212,000 contracts, close to a record level last seen in October 2022. With a new global interest rate macro environment, we saw the potential to develop a short-term interest rate product suite. At the end of July, we launched interest rate futures linked to Singapore and Japan's overnight interest rates. This augments our existing shelves of Singapore and Japanese derivatives, enhancing our multi-asset proposition. The launch of our Tokyo Overnight Average Rate, or TONA futures has been quite timely, given the tightening of Japan's monetary policy and recent market volatility. There's been a good initial success in our TONA futures as well as an increase in activity in our mini-JGB futures. On the securities front, we further expanded our Thailand-Singapore depository receipt linkage with five new Singapore Dirs. Collectively, we now have 8 DRs with underlying Thai blue chip companies which make up more than 40% of the SET benchmark index. Retail interest in the DRs have been growing, with net inflows increasing 5x since the launch. The pipeline of DRs on the link is robust. Singtel's [ph] DR is the latest to list on the Stock Exchange of Thailand in April. We see healthy trading across the DRs listed in Thailand and are seeing further opportunities to grow the pipeline. Besides DR, we have also launched our first actively managed ETF in January this year, offering investors exposure to a diversified portfolio of Japanese companies. We are continuing enhancing our product suite, such as expanding our structure certificates to include other underlying markets. Turning to China, where we have a comprehensive and liquid suite of products, given our unique position as the nexus between China and ASEAN, along with our multi-asset offering, opportunities for us to capitalize on the cross-border fund flows and the internationalization of China's financial market. The revival in interest and growth prospects of China boosted open interest of our flagship FTSE A50 contract through the second half of FY '24, with open interest hitting an 18-month high of US$12 billion in May. Our FTSE H50 contract, which has a higher concentration in higher growth technology stocks, similarly saw volume growth of close to 50%. Combined, our A50 and H50 contracts offer broad capital efficient access for investors looking to calibrate their exposures across different sectors. Complementary to our Chinese equity derivatives are our RMB futures, which registered a significant increase in volumes and open interest by 50% and 65%, respectively. The ability for our customers to achieve capital efficiency across a comprehensive range of asset classes, including our I&O and freight offering, is one of SGX's competitive advantages. In the area of cross-market connectivity, our ETF links with the Shenzhen Stock Exchange and Shanghai Stock Exchange are one of the most successful mutual ETF product links between China and other international markets. To date, we have listed seven ETFs under the link with a combined AUM that has grown 9x to $6.290 million as at the end of July this year, compared to a year ago. We are exploring opportunities in regional equities or yield focused products in line with investors demand and interests. With the growth of the Indian economy in recent years, we are well positioned to build upon the success of our GIF Connect. The ability of GIF Nifty Futures, Indian Single [ph] Stock Futures and Indian Rupee Futures on SGX enhances capital efficiency for clients who want to manage their exposures in India through a single clearing house. Trading of our GIFT Nifty futures has grown steadily since the start of the full scale operation in July last year. I am pleased to share that open interest in our GIFF Nifty contracts has grown 39% since migration to now about 271,000 contracts, with notional open interest growing 73% to US$13 billion. We saw a healthy 16% growth in volumes on a half-on-half basis and are on track to achieve pre-migration volume levels in 2025. We will seek to deepen our collaboration with the National Stock Exchange of India and explore opportunities that will drive mutual success, including the development of new products for GIFT Connect. With rising interest in Indian stocks, our Indian Single Stock Futures suite also achieved new milestones, with notional open interest hitting a record of US$1.3 billion in June this year. We will look to facilitate risk management efficiency via our Indian Single Stock Futures and GIFT Nifty futures. Our Indian rupee futures contract complete the waterfront for India access. Against the backdrop of recent India elections, our rupee futures achieve a doubling of notional open interest. We expect to remain the venue of choice for international rupee futures going forward. Looking ahead, we aim to grow Group revenues excluding treasury income between 6% to 8% CAGR in the medium term, driven mainly by low to mid-teens percentage growth in our OTC FX and exchange traded derivatives businesses. Our revenue CAGR over the last 3 years was lower than our previous guidance of mid to high-single-digit due to a slower cash equity business coupled with the underperformance of scientific beta. As a multi-asset exchange, we remain committed to our cash equities and indices businesses. The stock market is an important peeler of Singapore's financial ecosystem. We will book with a review Group, established by MES [ph] on market and regulatory initiatives that could structurally improve the liquidity of our stock market. The success of our DR linkage with Thailand has laid the groundwork for greater collaboration with other ASEAN exchanges using depository receipts. We have INK MOUs with the Indonesian Stock Exchange and most recently with the Vietnam Exchange. SGX will continue to foster close ties with our regional partners to expand access to regional investment opportunities. We expect our commodities and currency franchises to play an important role in future growth. Leveraging on our market leadership in both iron ore and freight derivatives, we will assess opportunities to offer an integrated solution for clients to manage bulk cargo and freight risk on a single capital efficient platform. We will further tap on the growth opportunities in our integrated FX franchise. OTC FX currently contributes about 3% to our Group's EBITDA. We aim to grow this to a mid to high-single-digit percentage of group EBITDA in the medium term. Further upside in OTC FX contribution to our bottom line could come from our efforts on scaling, client acquisitions in Europe and Asia Pacific and cross-selling across geographies. At the same time, we optimize our expenses by integrating our distribution functions and technology platforms. We look forward to further advancing our position as an international multi-asset exchange. Thank you very much for your attention. With that, I conclude my presentation and invite my colleagues to join me for the Q&A.
A - Loh Boon Chye: Yes, Nick.
Nick Lord: Thanks very much. It's Nick Lord from Morgan Stanley. Two questions actually. The first is just on the MAS [ph] sponsored review of the equity market. I wonder if you could talk a little bit about, I mean you've had a lot of experience obviously in trying to get the volumes up on the Singapore Stock Exchange and it's obviously a difficult thing to do. So, I just wonder if you could give maybe your initial thoughts on what could be different with, as you say, a whole ecosystem approach as opposed to SGX trying to do it on its own. So I'd be interested if there's a silver bullet out there that you can think of. And then secondly, if you could just talk a little bit about trading technologies, because obviously quite a large part of your impact came from the revaluation of trading technologies over the surprise I guess in the [indiscernible]. So, what is it -- how are you valuing this? How is that sort of, you said it's an improvement in operating profit, but I'm just interested to know what exactly is driving the revaluation? And could you just talk a little bit about what trading technologies does? Is it primarily supplying stuff to you or is it sort of a broader sort of business and therefore again trying to work out sort of the basis for the revaluation, if you like.
Loh Boon Chye: Yes, so maybe I'll take the first question and then let my colleagues elaborate a little bit more on what does trading technology do and give you a sense of the upward revaluation. So look, first we will not and we can't preempt what the review group will do. If you look at the efforts over the last couple years, there has been obviously creation of pre-IPO fund to invest in IPO companies. There's obviously been efforts to broaden and deepen the research ecosystem and also our own efforts on regional retail outreach. So many initiatives have been done. I think what is important is for the overall ecosystem to come together. And this would not just involve a regulatory review, we will have to look at what makes the stock market more liquid. So I would reckon this is not just on the supply side. I think demand into -- for stocks on the stock market and that was the active constant price discovery, which would also enhance liquidity. But look, the group has just been formed. SGX will be part of the group and the work stream. And we also welcome feedback as we engage the broader ecosystem as inputs for consideration.
Ng Yao Loong: There's a link between, I suppose, the first and second question. In the first question, the reason the ecosystem is involved is because as exchanges, we're B2B2C businesses. So we need to make sure that the intermediary businesses are sufficiently well connected and sufficiently well lubricated so that we can connect fully to the end customer base, particularly the end institutional customer base. So what does TT do? TT is a pretty old business, couple of decades old. What's happened more recently is that as global users of futures products have become deeper, more universal, they've had to work with intermediary software providers to connect to a global network of quite different futures exchanges, Chinese exchanges, Indian exchanges, SGX as an example. And they typically want comprehensive coverage and they typically want software which works more as SaaS and possibly less as self-managed service. So we work with TT primarily and have done for a long time as a business partner. So they were literally the first for us to connect GIFT to our end customers. So the connectivity comes in two ways. They have to send data out reliably at high speed and they have to send orders in, right? So it made a great deal of sense when the deal came out, and it fell through because Goldman's tried to buy it. Every other bank in the world said, well, we can't have one person own this vital network. So [indiscernible] and SGX viewed as friendly, accommodative partners were asked to, I think, get involved in this one. So we've done many things directly with TT in the past, will continue to do so, but it's also turned out that their business has expanded massively and that accounts for their standalone revenue growth.
Loh Boon Chye: Any other questions? We'll come to you next.
Jovi Ho: Thanks for the presentation. I'm Jovi from The Edge Singapore. So three questions here. My first, could you just provide more color on the S$8 million one-time provision towards the securities market initiatives? What are these initiatives and could they become a recurring expense in the future? Yao Loong, mentioned certain partners earlier and are these initiatives related to the new review group in any way? And maybe my second question here, on the review group that was announced, there are concerns about the composition of the group and private sector representation. So should brokers and remisers have been a part of the group in your view? And finally, Yao Loong is transitioning to a new role as Co-Head of equities. Could you provide more color on this shift? What does SGX hope to achieve with having two equity heads and how are tasks divided and how is the search for the new CFO going? Thanks.
Ng Yao Loong: Is that share price sensitive? I'll let the CEO answer. But I think first, as I said, we’ve already -- we are already incurring a certain level of expenditure or expenses in investments to support our asset classes, including the securities market. So this S$8 million to form a S$10 million, because we have got a previous provision that we have set aside, forms that S$10 million. And it is over and above what we will spend. And for us, clearly, as Mike and Boon Chye talk about, it's an ecosystem. It's not just about us introducing new products. We need the ecosystem, the brokers, the financial advisors since long to be able to go up talking to the clients, talk to the customers, right? So this is our attempt to say look this is a broader ecosystem. Let us work with you to expand the product shelf, the product shelf that we have for distribution, connectivity and so on. So this is, in a sense, that is one-off. And why we have been able to do that is because when we look at our expenses growth this year, we have actually been able to grow at a pretty measured rate. We were 7% to 8% in the last two FYs and it has come off. And so we said, look, we could of course pay shareholders a little bit more, which we have done. Can we do something for our ecosystem? We were viewed towards enhancing the vibrancy of the entire securities market. And so we have been able to then channel that additional savings that we have into this one-off fund to support the broader ecosystem.
Loh Boon Chye: So think about this in terms of engaging the ecosystem to try and grow distribution channels, reach out to more participants, new services, expand our product shelf as Yao Loong has mentioned. I think you have a question around the composition, the representation of the review group. We at the SGX group are in constant conversation as part of our engagement, our business development, obviously with the brokers, with the security houses, and views and initiatives from them has always been in a constant dialogue engagement and I think the VV group will clearly also, I'm sure, have a wider engagement beyond just the composition and we will obviously represent what we hear, what is being suggested to us by the broader ecosystem. And your third question was?
Jovi Ho: Yao Loong will take [indiscernible].
Loh Boon Chye: Well, [indiscernible] we have Yao Loong's replacement in place to transition to the equity's role, which clearly work with the existing team, which has done a lot to try and grow the liquidity of our stock market. Over here in the middle. And then after this, we will take maybe questions from the participants online. Yes?
Timothy Goh: Hi. Timothy Goh from The Straits Times. I was just building on what Jovi had asked. So some stockbrokers that we have spoken to have expressed disappointment about the new review group, specifically concerns that the 12-month period is too long. What are your thoughts on this? And I guess you also mentioned something about -- you guys mentioned that SGX is constantly engaging with the review group to look at the feedback. Has SGX received any concrete feedback on the review group? If so, are you able to share what they are? The second question is, are you expecting more listings this year as compared to last year? If so, why? Third question, do you have updates to share on working with Anchor Fund @ 65, and is there a timeline for the nine companies to list?
Loh Boon Chye: Okay. On your first question, with or without the review group, with the review group obviously is a focal point to harness and garner views and suggestions. For us, I wouldn't say work has started, clearly work has started, but we have been continually engaging the market. Obviously now, there is a visible review group. We on our part, we clearly harness and engage with them in terms of what other ideas are there to try and improve the liquidity. And on the IPO front, I would say the following, look, it's been clearly very low base for us in FY '23, FY '24. With the change in macro environment, and what we have seen talking to companies, companies have started preparing for IPO on SGX. We clearly only had more catalysts in the last year, in FY '24. I would say we're now seeing main board potential listees making preparation, mandates given out to professional, and we hope market stays more favorable, more conducive, but since some of the U.S numbers in the last 1 week, so all things have to be aligned, particularly we’ve seen more mandates being actually booked up. With 65 equity partners, good partnership, constant dialogue. We meet companies, we introduce companies, vice versa, but they are really invested to those nine companies looking to them, so there is not much I can glean into to give you a view. Coming to you.
Dominic Lim: So, this question from Harsh Modi from JPMorgan. It's about our capital expenditure. So with CapEx moving up, likely we will get higher OpEx in the next couple of years due to depreciation. So how should we look at OpEx going forward into the medium term?
Ng Yao Loong: Okay, well I think, Harsh, thanks for the question. So that's why we gave a medium term expense guidance, low to mid-single-digit over that period of time. We will have to manage our expense growth overall, right? So staff costs, as I say, it's almost 50%. Then there'll be depreciation, there'll be the SMR expenses and so on. So we look at this in aggregate. Yes, OpEx -- sorry, depreciation is likely to increase as we spend more CapEx, but we just have to maintain that overall growth within the overall expense base.
Loh Boon Chye: Harsh, if I could -- you recall in FY '22, '23, our expense growth I think was in the 78%. And then FY '24 obviously came around as you just saw. And back then we also guided a mid-single-digit expense group. So we're managing through a cycle, you may get some changes year-over-year.
Dominic Lim: There's a follow-on question from Harsh. This is about our dividends. So how should we think about the extent of DPS increase over the next 12 to 18 months, is it going to be a gradual increase in absolute DPS or is there possibility of restoring payout closer to the payout ratio levels of about 80%?
Loh Boon Chye: As subject obviously to our revenue growth, our net profits growth, as they grow, we aim as we said before a mid-single-digit CAGR growth in our DPS. So we just increased it by half S$0.05 and obviously you can imagine as our impact and revenues growth of a bigger base and if we achieve that, you can expect a higher absolute dividend per share.
Loh Boon Chye: Any other question here? Yes. Over here.
Jayden Vantarakis: Thank you. This is Jayden from Macquarie. A couple of questions. So you crossed the FX ADV target earlier, which is great. I think I saw on the Slides S$123 billion of ADV. What's the new target and how fast can we get there? I think this is a really interesting growth part of the business. And secondly, just to follow-up on the securities market review. How engaged are the sovereign wealth funds? I think that's a key part of the whole sort of Singapore push on this. And I guess, how much do they sort of see this as an important holistic, part of creating value for the country overall? Those are my two questions. Thank you.
Ng Yao Loong: Yes on the FX I think many of you, Jayden you included was asking rightfully a couple of years ago, how will FX contribute to our bottom line on net profits. We have obviously grown the ADV quite substantially. It's important for us to now have that business also contribute to the bottom line. It's 3% of EBITDA in FY '24. On the medium term, we want this to get up to a mid to high-single-digit so that it flows directly through the bottom line. And ADV group will be part of that, but I think it's important for the revenue and the net profit contribution. On the second question, it's really more about demand, right. Yes, there has been a lot of write-up on sovereign wealth funds, but the mandate of the sovereign wealth funds are very clear. I think what we are trying to look at is not just supply, but how to have demand, very focused demand into the stock market.
Jayden Vantarakis: Thank you.
Andrea Choong: Hi, good morning. Hi, I am Andrea from CGSI. I have a question on treasury income 2024 versus 2023. It's been very stable year-on-year. How should we think about treasury income going forward in view of the rate cuts ahead? Thanks.
Michael Pratt: Yes, so I will take that. Okay, so that's one thing I learned in my CFO days that never sort of to provide the forward guidance because inevitably be inaccurate or wrong. So look, I think, again, I think it's hard to provide a forward guidance on this, because it's not just a function of the forward curve. We as a clearinghouse offer customers the flexibility to use different currencies, different sort of collateral cash versus non-cash. All this affect the overall [indiscernible] income. So it's not just a function of what's the spread between the different tenors of current account and fixed deposits. So I think in that sense, we prefer to focus again on growing the derivatives business, which then gives us the OI. That is within, I would say, at least something that we have greater control of, as opposed to all these exogenous factors. So we will continue to monitor all those things as part of our business, and we will provide that transparency on both the operating income with and without treasury income.
Ng Yao Loong: I should also point out that not all interest rates are going down. We have a very considerable Japanese franchise in equities, in JGBs, and just launched short-term interest rates. So that's one central bank which has started raising interest rates, and that speaks to the diversification that we have. Likewise, we have a very large pool of RMB. We are the world's largest RMB-based clearinghouse outside of China. The interest rates could go down, they could go up, but it's quite distinct from U.S or European interest rates.
Loh Boon Chye: [Indiscernible] thank you very much, because it's a good question and we get asked all the time. What we're trying to do going forward, which we started now, and [indiscernible] inferred from the results in prior years, to segregate TI and then the operating business. And if our operating business improves, we should get also more collateral. So that's one way to charge the business. But then, obviously, TI could perform differently based on the shape of the currency mix. So hopefully that gives you the ability to have a more holistic view of the group's businesses. Any more online questions?
Dominic Lim: Yes, so there is a question from Gurpreet from Goldman Sachs. Given that we have just articulated an overall growth target, can we zoom into equity derivatives and how this will grow and any guidance on its growth levels?
Ng Yao Loong: The half and half growth I think is the strongest indicator of the current trend and of course the past week's volume will also tell you something about the need in the market, the latent need in the market. I suppose what was most interesting in this past week and you could take this lesson forward is that equity derivatives weren't just one lump, right. As we see economic zones de-globalize, it's also become very clear that certain segments of equity derivatives are very idiosyncratic. So, Nikkei, we had down 10, down 15, up 10, which is very unusual. Taiwan followed very similarly. But India barely did anything. And this is after a year of extremely strong inflows and growth. What that tells you is the kind of leverage, carry-driven players in some markets are very distinct from benchmark, bogey-driven investors. And of course, in our A-share and H-share market, they were splendidly untouched by all of this. So, the forward look for what we have in equity derivatives is that almost every segment that we have built up for the Pan-Asia waterfront to the extent that we can, I think all that has independent growth drivers. Realized volatility has gone up. The amount of risk capital that's put into these markets has gone up. And I think just to focus on the slide that [indiscernible] had shown in India, the total amount of FPI that's sort of reported is something like S$800 billion and this covers bonds and equities, cash, into India by foreign portfolio investors. 2% of that is said to be used for overseas derivatives, P-notes, ODIs. Our open interest is the same size as the total ODI, right, S$13 billion, S$14 billion. And S$13 billion, S$14 billion is really not very much at all. So we fully expect that there are some areas where growth will continue. We think the Nikkei franchise will do well. We think the India franchise will do well. And I think there is tremendous upside in terms of trading liquidity and volatility for the China franchise as well.
Loh Boon Chye: And then [indiscernible] maybe -- are there any more online question? Yes. Then we take two question, or maybe one more. Yes, go ahead.
Tan Yong Hong: Thanks for the opportunity. This is Yong Hong from Citi. A couple of related questions. I think it's been a while since you talked about M&A and now you are raising dividends. Should we expect dividends raised instead of every 3 years to be an annual thing? And a related question is we know that SGX will obviously explore opportunities when it comes, but is there a shift in your strategy to grow? And how have you all been thinking about M&A change before and after all the last few acquisitions that you have made? And finally, also based on your derivative product suites, can you talk about whether the volume growth is driven by market share gain, or is it driven by the same market share, but a bigger pie? These are my questions.
Loh Boon Chye: Sorry, the third one again?
Tan Yong Hong: The volume growth in your derivative products, is it driven by market share?
Loh Boon Chye: Market share, okay. On your -- the dividend question, as I said earlier, we are aiming to reward shareholders with a CAGR of mid-single digit over the medium term. That is obviously taking into consideration medium term as best as we can in terms of M&A. And I would say that with or without M&A, we want to try and steer towards the mid-single-digit CAGR growth. And as I mentioned earlier, even when our revenue and net profits continue to grow, as a percentage, you can expect a percentage of the CAGR growth, you can expect a high absolute dividend per share. Building on our strength, you've seen the two standout that we have FX and commodities together with the platform businesses in particular data market connectivity that's grown. We'll try and build on that strength, in particular commodities. And back to the earlier question in terms of the equity derivatives growth, we had used and leveraged our strength in equity derivatives to cross-sell into FX futures in the last few years, right? And then we obviously boosted that with the OTC FX platform. The reverse of this now is we're also beginning to see FX futures client trading into equity derivatives market and yes there will be market levels and up and down but that cross-selling coin coverage is where we hope to also provide some of the volume growth. And in your question around the equity derivatives is really, if I strip out the market levels, I would attribute all of those to market share again. We are the preeminent Asian economy, Asian market access platform.
Tan Yong Hong: Maybe just one small follow-up. I think on your -- you used to call it the GCI. I think on the year-on-year, it was high single digits or 10%, but on the half-on-half, it was actually quite flat. So from here on, how should we think about growth for this segment?
Ng Yao Loong: Yes, so you're right. So as I said, the market data and connectivity was I think close to 9%, and that's driven both by price increase, and so that's why you don't see the half-on-half deviation because of the timing of some of these increases. For the platform business, I think we will manage it within the overall revenue guidance of 6% to 8%, excluding TI. I think historically, you would have seen that segment grow probably at a mid-single-digit percentage. And if we can do a little bit more, I think we will try and see whether we can grow that a little bit faster. And that will come from a combination of things like pricing, reviews and so on.
Tan Yong Hong: Okay, one last question.
Loh Boon Chye: Thank you. No more.
Ng Yao Loong: Similar question as what Yong-Hoon was just asking.
Loh Boon Chye: Okay. All right. Thank you very much. Thank you for your attendance.
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