Moscow Exchange announces results for the second quarter of 2018

Moscow Exchange (MOEX) today announces its financial results in accordance with International Financial Reporting Standards (IFRS) for Q2 2018. Higher trading volumes on all markets and a favorable change in the product mix helped achieve record high fee and commission (F&C) income.

Unless stated otherwise, all figures below refer to performance in Q2 2018 and all comparisons are with the corresponding period last year.

KEY FINANCIAL HIGHLIGHTS FOR Q2 2018

• Record quarterly fee and commission (F&C) income of RUB 5.93 bln (up 16.7%).
• Best performing markets in terms of fees and commissions were Equities (+34.0%), Derivatives (+27.4%), and Money Market (+24.6%).
• Adjusted net income was RUB 5.37 bln, up 1.3%.

KEY BUSINESS & CORPORATE HIGHLIGHTS FOR Q2 2018

• The Bond Market continues to be the center for capital raising by Russian corporates with over
  RUB 1.20 trln placed in H1 2018. There were 127 bond issues by 79 corporates during this period.
• More corporates sought direct access to the FX and Money Markets, with 50 corporate connecting year-to-date and bringing the total to 87 across the two markets.
• Unified Collateral Pool project rolled out, a major enhancement to the market infrastructure facilitating a single trading and clearing account with unified collateral requirements, settlement netting and cross-margining across all markets.
• Continued expansion of the product line, including the launch of new derivative contracts on Light Sweet Crude Oil and the US500 index – thus allowing domestic investors to access global benchmarks.
• Final 2017 dividend paid. The total dividend pay out for the year was RUB 18.12 bln (RUB 7.96 per share).

EVENTS OCCURRING AFTER THE REPORTING PERIOD

• Growth of the domestic retail segment accelerated, with the number of Individual Investment Accounts reaching 400,000 as of 20 August and the number of brokerage accounts surpassing 2.2 mln.
• The company signed a statement of commitment to the FX Global Code, joining more than 100 other signatories, whose ranks include central banks, international financial institutions and trading platforms.

Alexander Afanasiev, Chief Executive Officer of Moscow Exchange, said:

"In the second quarter, we posted record fee and commission income on the back of increased client trading activity across all key markets. I would like to particularly highlight year-on-year growth in equity volumes and record quarterly fee and commission income from this market. In May, we completed the roll-out of our most significant market infrastructure initiative in recent years: clients can now enjoy a single trading and clearing account across our markets, unified collateral across all markets and cross margining. We expect these important enhancements will further boost client trading volumes. Russian retail investors continue to show strong interest in exchange-traded instruments; to date, 400,000 Individual Investment Accounts have been opened and over 2.2 million brokerage accounts registered. We are also working to create an online marketplace for financial services; we have built a prototype and plan to fully deploy the platform in the first quarter of 2019. This initiative will help MOEX to enter the new promising market of retail digital financial services."

Maxim Lapin, Chief Financial Officer of Moscow Exchange, said:

"I am pleased to report continued increase in the company’s fee and commission income during the quarter. It was driven by healthy trading volumes growth across all our markets as well as a shift in volumes towards higher fee products. Our F&C income set a new record during the quarter, advancing by 16.7%. NII excluding realized gains/losses on investment portfolio revaluation was RUB 4.14 bln, an increase of 4.1% over the previous quarter. Operating expenses net for non-cash changes in amortization schedules of 2018 added 6.3%. Adjusted net income was up 1.3% to RUB 5.37 bln.

In the second quarter, the company recognized a one-off, non-cash provision in the amount of RUB 873 mln. The provision relates to a lawsuit filed by a bankruptcy manager of a defaulted market participant. The litigation continues and the Central Bank of Russia has joined the case on MOEX’s side. The provision covers 100% of the amount claimed by the plaintiff. Management is confident in MOEX’s legal position in this case."

FINANCIAL HIGHLIGHTS

ANALYSIS OF Q2 2018 FINANCIALS

Fee and Commission Income

Securities (Equities & Bond) Market. Equities trading volumes increased by 23.7%, reaching RUB 2.89 trln. Fee and commission income grew by 34.0% and amounted to a record RUB 516.1 mln. As of 30 June 2018, total market capitalization of the Equities Market was RUB 38.97 trln (USD 621.11 bln).

Turnover of the Bond Market (excluding overnight bonds) was RUB 5.27 trln, up 29.1%. Primary placements (exclusive of overnight bonds) grew by 64.2% and amounted to RUB 2.17 trln, and placements of overnight bonds contributed a further RUB 2.49 trln. Bond Market fees and commissions totaled RUB 551.3 mln, up 9.8%.

Listing and other service fees were RUB 80.3 mln, down 30.3% due to larger average size of bond issues.

FX Market. Trading volumes on the FX Market grew by 0.2% to RUB 90.38 trln. Spot trading volumes rose by 22.2% to RUB 23.97 trln on the back of higher volatility. Volumes in the swap and forward segment decreased 5.9% to RUB 66.41 trln. Fee and commission income from the FX Market grew by 8.3% to RUB 1.04 bln due to a higher share of the spot segment in the market’s trading volumes.

Money Market trading volumes increased by 1.1% to RUB 91.70 trln. Fees and commissions of the Money Market were up 24.6% due to a higher share of repo with CCP, extension of the average repo term as well as lower market concentration and reached RUB 1.56 bln.

Derivatives Market. Derivatives trading volumes increased by 5.8% to RUB 21.84 trln. Fee and commission income of the Derivatives Market was up by 27.4%, reaching an all-time high of RUB 612.8 mln. This was due to growing trading volumes as well as a shift of trading volumes in favor of higher-margin commodity and equity derivatives.

Fees from Depository and Settlement Services totaled RUB 1.10 bln, up 9.8%. The growth was due to an increase in assets on deposit (average assets were up by 21.2% to RUB 42.54 trln).

Other fee and commission income increased by 23.1% to RUB 461.5 mln. Sales of information services contributed RUB 189.5 mln, down 0.8%. Income from sales of software and technical services grew by 6.7% and reached a record level of RUB 175.6 mln. Other fee and commission income, which includes income from the Commodities Market, grew five times to RUB 96.4 mln.

Interest & other finance income

Net interest and other finance income[2] declined 13.2% to RUB 4.11 bln. However, it was up 4.1% over the previous quarter and remained broadly flat year-on-year after adjustments for realized gains/losses on revaluation of the investment portfolio[3]. The average investment portfolio for Q2 2018 was RUB 733.41 bln (Q2 2017: RUB 801.49 bln).

Expenses

Operating expenses amounted to RUB 3.50 bln (up 9.0%). Personnel expenses grew 3.3% to RUB 1.53 bln. Administrative and other expenses totaled RUB 1.98 bln, up 13.8% on the back of growing amortization expenses (up 39.6%) and professional service costs (up 37.4%). The latter reflects increased spending on grain storage driven by accelerated activity on the Grain Market, particularly in grain swaps. Corresponding revenue is a component of other fee income line.

Cash and cash equivalents

The cash position[4] at the end of Q2 2018 amounted to RUB 78.98 bln. The company had no debt as of 30 June 2018.

Capital expenditures

CAPEX for the quarter was RUB 468.9 mln, all of which was spent on purchases of equipment and software as well as software development. CAPEX for H1 2018 totaled RUB 753.3 mln.

Moscow Exchange’s consolidated IFRS financial statements for Q2 2018 are available on the Investor Relations section of the company's web site.

The Q2 2018 IFRS Financial Results webcast is scheduled for 24 August 2018 at 4 pm (Moscow time).

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Contacts:

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NOTES TO EDITORS

About Moscow Exchange

Moscow Exchange Group manages the sole multifunctional exchange platform in Russia for equities, bonds, derivative instruments, currencies, money market instruments and commodities. The Group includes the central securities depository (National Settlement Depository), and a clearing center (National Clearing Centre), performing the functions of central counterparty on the markets, which allows Moscow Exchange to offer its clients the full spectrum of trading and post-trading services.

Moscow Exchange was formed in December 2011 as a result of a merger between Russia's two main exchange groups – MICEX Group, the oldest domestic exchange and operator of the leading securities, foreign exchange and money market platform in Russia; and RTS Group, at the time the operator of Russia's leading derivatives market. This combination created a vertically integrated public trading market across most major asset classes named Moscow Exchange. Moscow Exchange held the initial public offering of its shares on 15 February 2013 (ticker MOEX).

Disclaimers

Some of the information in these materials may contain projections or other forward-looking statements regarding future events or the future financial performance of the Company. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" the negative of such terms or other similar expressions. The Company wishes to caution you that these statements are only predictions and that actual events or results may differ materially. The Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in the Russian Federation, rapid technological and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations.