Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total income for the second quarter increased by 48% compared to the same period a year ago, reaching EUR76.2 million.
- EBITDA for the second quarter was EUR21.1 million, a sixfold increase compared to the same period last year.
- Flow Traders Ltd (FLTLF, Financial) maintained its position as a leading liquidity provider in ETPs in Europe amidst a muted market environment.
- The company achieved strong margins in the first half of the year, with a 40% EBITDA margin compared to 27% in the same period a year ago.
- Flow Traders Ltd (FLTLF) received market access to begin trading commodity futures in China, reflecting its expanding global footprint.
Negative Points
- Volatility remained subdued, down 15% compared to the same period last year, impacting trading opportunities.
- ETP Value Traded decreased by 15% compared to the last quarter, indicating a decline in trading activity.
- The company suspended regular dividend payments to increase retained earnings, which may disappoint income-focused investors.
- Market share in EMEA dropped in the ETP business to 25%, down from 27% at the end of Q4 2023.
- The cost of the additional EUR25 million bank loan is slightly below 10%, which could impact profitability if not managed effectively.
Q & A Highlights
Q: In your statement, you mentioned increasing retained earnings to boost trading capital. However, retained earnings have risen by 8% since 2020, while trading capital has declined by 24%. How will suspending dividends change this dynamic?
A: (Mike Kuehnel, CEO) We have paid EUR746 million in dividends since IPO. By retaining more earnings and attracting external capital, such as the EUR25 million bank term loan, we aim to capitalize on emerging trading opportunities. This strategy should drive profitability by allowing us to deploy more capital effectively.
Q: What is the upper limit of debt you are comfortable taking on to increase trading capital?
A: (Mike Kuehnel, CEO) We intend to remain conservative. The EUR25 million is just a start, and we may upsize this tranche or explore other financing options. A prudent leverage would be up to half of our trading capital, but we will ensure any increase in leverage directly impacts profitability positively.
Q: What proof points will you disclose to show that the strategy of increasing trading capital is delivering results?
A: (Mike Kuehnel, CEO) We will focus on the return on trading capital as a key metric. We aim to demonstrate that increased capital leads to attractive returns. We are also bringing back regional breakdowns to enhance transparency without revealing competitive intelligence.
Q: What do you think is a reasonable through-the-cycle return on trading capital?
A: (Mike Kuehnel, CEO) Historically, we have demonstrated returns slightly above 50%, with peaks well above 80%. With more capital, we expect to capture more opportunities and maintain strong returns, leveraging our broadened infrastructure and talented trading team.
Q: Do you expect a recovery in market share in EMEA with the additional EUR25 million in trading capital?
A: (Coen Van Sevenhoven, Global Head of Trading) Yes, having more capital allows us to be active in more areas simultaneously. This will help us maintain our leading position in Europe and support our global diversification strategy.
Q: What is the cost of the additional EUR25 million in trading capital?
A: (Mike Kuehnel, CEO) The cost is slightly below 10%. Given our expected return on trading capital, this is highly accretive. We aim to decrease interest rates on debt facilities over time, benefiting shareholders.
Q: How do you view the competitive environment as you move into multi-asset market making?
A: (Coen Van Sevenhoven, Global Head of Trading) Increasing our trading capital levels the playing field with competitors who have larger capital bases. This is a positive development, and we are confident in our growth strategy and trading capabilities.
Q: Why did you change the vesting period of the remuneration pool from four years to three years?
A: (Mike Kuehnel, CEO) We constantly review our competitiveness. This change ensures we remain attractive to talent, especially in competitive markets like New York. Today’s announcement of increased trading capital has also boosted morale and excitement among our staff.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
