Euronext N.V. (OTCPK:EUXTF) Q3 2022 Earnings Conference Call November 4, 2022 4:00 AM ET
Company Participants
Stephane Boujnah – Chairman and Chief Executive Officer
Giorgio Modica – Chief Financial Officer
Simon Gallagher – Head of Cash and Derivatives
Conference Call Participants
Arnaud Giblat – BNP Paribas
Matt Moon – KBW
Haley Tam – Credit Suisse
Bruce Hamilton – Morgan Stanley
Ian White – Autonomous Research
Tobias Lukesch – Kepler Cheuvreux
Andrew Coombs – Citi
Mike Werner – UBS
Operator
Hello, and welcome to the Euronext Third Quarter 202 Results Call. My name is Laura, and I will be your coordinator for today’s event. [Operator Instructions].
I will now hand you over to your host, Stephane Boujnah, the CEO and Chairman of the Managing Board of Euronext to begin today’s conference. Thank you.
Stephane Boujnah
Good morning everybody and thank you for joining us for Euronext third quarter 2022 results conference call and webcast. I am Stephane Boujnah, CEO and Chairman of the Management Board of Euronext.
I’d like to start by briefly taking you through some of the highlights of the third quarter before handing over to Giorgio Modica, the Euronext CFO who will further develop the main businesses and financial highlights of the quarter.
Moving to slide four, as you have seen, Euronext reported a solid performance in the third quarter of 2020. This quarter was marked, as everybody noticed it, by challenging macro environment and lower trading volume. But this quarter demonstrated once again, the resilience of our diversified business model and the strength of our non-volume related activities combined with our trademark discipline. Euronext consolidated its position as the leading trading venue in Europe this quarter again, providing market participants with unrivaled market quality and market depth. In addition, we consolidated auditing position in equity listings in Europe, with 18 listings this quarter, but let’s start with revenue.
Underlying revenues were stable compared to Q3 2021, a 350.3 million euro, as a result of all based on lead diversified revenue stream. It was first non-volume related revenue had a strong performance of its own with enlisting in advanced data services, industry and in technology solution. In particular, this technology solutions revenue included for the first full quarter the contribution of the new core data center revenues following the migration report as [indiscernible] in June 2020. But second, our trading businesses, none related to equity markets, truly performance as well with double-digit growth year-over-year in commodities, derivatives, in forex trading, in power trading. So, on a reported basis, we clearly announced, as we announced it during the Q2 results last July, revenues were negatively impacted by a capital loss in net treasury income of 49 million pre-tax representing 35 million prospects. These results from the partial portfolio disposal at Euronext Clearing will neutralize any future impact of interest rate variations on net treasury income are clear in the account.
Non volume related underlying revenues accounted for 59% of the total revenue and cover 138% of underlying operating expenses including D&A. On the cost side, the reported increase in underlying expenses excluding D&A mainly reflects the normalized level of marketing and travel expenses post-pandemic. But this cost performance this quarter also reflects our continuing cost discipline, despite inflationary pressure. Treasury costs are in line with usual seasonality and we confirm our 612 million cost guidance for the year, which means that we are confident in our ability to continue to control the impact of inflation on our costs in 2022, although we reported an adjusted EBITDA of 199.9 million and an adjusted EBITDA margin of 57.1%. This led to a slight decrease in adjusted EPS to 1.21 euro per share and adjusted net income to 129.5 million.
Please keep in mind that we receive in a Euroclear dividend in Q3 2021 last year, whereas this year the interim dividends of Euroclear will be received in Q4 2022. On a reported basis, EPS for this quarter third quarter reached 0.71 euro. I would like to reiterate that today as already announced during our Q2 results, we intend to neutralize to offset the negative impact of this capital loss on the dividend that will be proposed for 2023 Annual General Meeting.
Moving to slide five. This third quarter was very significant for the integration of the Borsa Italiana. At the end of the third quarter 2022, we reached the 24.4 million of cumulated run-rate EBITDA synergies in relation to the targeted synergies related to Borsa Italiana group integration. In total, by the end of Q3 2022, we have now spent 37.9 million of cumulated implementation costs, with 1.2 million incurred this quarter.
Moving to slide six, as you remember it, we delivered in June 2022, the successful migration of [indiscernible]. The next few quarters will see the delivery of major milestones and the continuation of the Borsa Italiana integration. First, a significant project was delivered recently with the successful implementation of a new listing framework in Italy. This framework is harmonized with Euronext and global listing standards and it will significantly benefit Italian issuers, as it will further enhance the competitiveness of the Italian capital markets ecosystem. Second, the Italian ecosystem will also benefit from the upcoming first phase of the migration of Borsa Italiana cash market in March 2023 on to Optiq, the Euronext state-of-the-art operatory trading platform. This migration would provide Euronext and Borsa Italiana in Italy, but also market participants across other geographies, with significant benefits while retaining a strong local footprint. Such a migration into the Euroclear to the liquidity pool, into the Euroclear [indiscernible] book, into the Euroclear single technology platform will bring significant benefits as it did with the two previous successful migrations in Ireland and in Norway. This migration would create the largest integrated liquidity pool in Europe and the largest order book in Europe. It will also allow us to align trading fees in Italy for global players with the European printing. Third, we confirm the execution of the first phase of the European expansion of the Euronext Clearing with the expected launch of the equity clearing offering by Q4 2022. This move will be the first milestone of the transformation of Euronext Clearing. Our role is clearly to create the Euronext Clearing house of choice for the Euronext cash equity market. This will ensure strategic alignment with Euronext and its clearing house. This internalization of clearing operations will unlock further development opportunities in various fields, such as derivatives.
I now hand over to Giorgio Modica for the review of our second quarter performance.
Giorgio Modica
Thank you, Stephane, and good morning, everyone. I would like to start the session with a quick reference to the cash equity trading educational session held in October. For those of you that missed it, the replay is available on our website. I presented the progress Euronext has made since its IPO in 2014 evolving significantly from the cash equity exchange it was. In 2014, 36% of our revenue was related to cash equity trading and today only 19.2%. During the last year, you Euronext transformed itself into a fully integrated exchange and achieved significant diversification of its revenues away from cash equity trading. Furthermore Euronext not only diversified on volume-related activities, but also within its trading business. The different businesses we are operating in trading has no or limited correlation one with the other. This quarter illustrates this quite clearly with the strong performance of effects our trading and derivatives despite softer cash equity volumes. Diversification made our business model more robust across the different market cycles and allowed us to achieve stable underlying revenues this quarter, despite lower volumes.
Let’s have a look at the performance of our business in the third quarter of 2022. I am now on slide nine. The third quarter of 2022 demonstrated the robustness of Euronext diversified business model in a more challenging environment for cash payments. Euronext underlying revenue and income was stable compared to the third quarter of 2021 revenue and income, driven by strong results from non-volume related activities and the good performance of derivatives, effects and power trading activity. On a reported basis, revenue and income was down 14% to 301.4 million Euros reflecting the 49 million Euros of non-underlying loss related to the sale of part of Euronext leading fixed income portfolio. With that, the impact is 35 million Euros. Trading revenue was at 117.8 million Euros, down 5.2% resulting from lower cash, equity and MTS cash volumes, partially offset by the good revenue capture and strong quarter for FX, derivatives and power trading.
Post-trade revenue excluding net treasury income grew 3.7% to 86.2 million Euros driven by the positive performance of clearing Custody and Settlement businesses. Advanced Data service revenue increased to 53 million Euros, up 6.3% due to a good performance across the offering. Listing revenue grew 6.3% to 54 million Euros confirming Euronext’s number one position for equity listings in Europe.
In terms of revenue mix, the third quarter 2022 non-volume related revenue accounted for 59% of total group revenue versus 67% in the same quarter last year; thanks to the growth of our non-volume related activity. Lastly, non-volume related revenue covered 138% of our underlying operating costs, excluding D&A compared to 142% last year.
Moving to the next slide for listing. In the third quarter of 2022, listing revenue was 54 million Euros, with an increase of 6.3% compared to the third quarter of 2021. This growth reflects a good performance of annual fees, corporate services, as well as the positive impacts of IFRS 15, which allow us to continue benefiting from the exceptional equity listing activity of 2021. During the third quarter of 2022, Euronext maintained its leading position in Europe for primary equity lifting, accounting 18 new listings in a challenging environment. In the third quarter of 2022, 143.8 million Euros was raised on Euronext’s primary market compared to a very strong third quarter 2021 with 5.3 billion Euros. As far as secondary issues are concerned, 4.8 billion was raised this quarter. Euronext also enforced its position as the leading brand for one listing worldwide with over 52,500 bonds listed across all Euronext markets. In the third quarter of 2022, 172.8 billion Euros in debt was raised on Euronext markets. Overall, this brings us to a total of 177.7 billion Euros raised in equity and debt on Euronext’s markets this quarter. Lastly, Corporate Services continued its growth trajectory, slightly offset by lower Webcaster activity.
Let’s have a look now at our trading business. I’m now on slide 11 and I will start with cash trading. In the third quarter of 2022, we observed this lower cash equity trading volume which was partially offset by a good revenue capture. This led to cash trading revenue of 67.3 million Euros this quarter, with a decrease of 10.2% compared to the same quarter last year. Euronext recorded average daily volumes of 9.6 billion Euros, a volume decrease of 11.6% compared to the third quarter of 2021. Despite the more challenging selling environment, Euronext has confirmed its position as the largest, deepest and most stable single liquidity pool in Europe, offering the highest quality of execution to its market participants. Average revenue capture of the quarter increased to 0.53 basis points and the market share averaged 65.9%, in line with the pre-COVID level, both values include the Borsa Italiana. Like for like, cash trading revenue was down 10.2%.
Moving on to derivative trading. Derivatives trading revenue was up 3.3% to 14 million Euros as a result of the strong traction of index derivatives and commodities derivatives trading combined with an enhanced revenue capture. In the third quarter of 2022, average daily volumes on financial delivery were down 12% year-on-year reflecting a decrease in equity future and option trading, which decreased mainly due to a base effect linked with exceptionally high level of activity of the third quarter of 2021. This quarter, commodity average daily volume increased 1.9%. Overall, revenue capture for derivatives reached 0.35 euro per lot, this is 16% up, mainly linked to a volume mix impact. On the like for like basis, derivative trading revenue was up 3.2% compared to the third quarter 2021.
Lastly on fixed income trading. In the third quarter of 2022, fixed income trading reported revenues at 21.4 million Euros, minus 9.8% compared to 23.8 million Euros in the third quarter of 2021. MTS reported overall good performance in markets dominated by increasing interest rates. In the third quarter of 2022, MTS cash generated 13.1 million Euros of revenue and MTS Repo generated 5.4 million of revenue. The third quarter saw a strong traction in Repo trading with term adjusted ADV, up 14.7% to 323.2 billion Euros. This partially offset lower MTS cash average daily volume down 34% to 15.4 billion Euros compared to a very strong third quarter of 2021. On the like for like basis, fixed income, trading revenue was down 9.8% year-over-year.
Continuing with trading on slide 12. The third quarter of 2022 saw the strong performance of Euronext FX in terms of both revenue and average daily volumes benefiting from volatility, geographic expansion and product diversification. Euronext reported average daily volumes of $21.7 billion in the third quarter of 2022, up 24.2% compared to the third quarter of 2021. Further, FX trading revenue increased 30.1% compared to the third quarter of 2021 at 7.3 million Euros. On the like for like basis, FX revenue was up 11.2% compared to the third quarter of 2021. This quarter, power trading reported 7.8 million in revenue, a growth of 23.5% year-on-year, driven by strong volumes, increased footprint of Nord Pool in central Europe, UK and Ireland and a strong performance in the Nordics. In the third quarter of 2022, average daily day-ahead power traded was 2.39 terawatt hour, an 18.5% increase compared to the third quarter of 2021, and average daily intraday power traded was the 0.10 terawatt hour, up 76.8% compared to the same quarter last year. On the like for like basis, power trading revenue was up 20.2% compared to the third quarter of 2021.
Moving to slide 13, revenue from our first date activities excluding net treasury income increased 3.7% to 86.2 million Euros. In the third quarter of 2022, clearing revenue was up 5.5% with 29.1 million due to the strong bond derivatives trading activity. On the like for like basis, clearing revenue was up as well, 5.5% As announced in the second quarter of 2022, we have disposed our loan-term Euronext Clearing fixed income security portfolio maturing after the first May 2023 in order to neutralize impacts of interest rates variation are our net treasury income. This led to a one-off pre-tax loss of 49 million Euros, 35 million post tax. Adjusted for the one-off impact, net treasury income was at 10.7 million Euros this quarter, in line with the guidance provided in the second quarter of 2017. As a result of the disposal, our surplus regulatory capital for Euronext is expected to increase. The decrease of regulatory capital requirements for Euronext clearly linked to the investment portfolio will more than compensate the negative impact on available capital of the one-off loss resulting from the deposit.
As a reminder, we expect a lower level of net treasury income marking at around 10 basis points in the fourth quarter of 2022 and in the first quarter of 2023, before normalizing at around 20 basis points from the starting of the second quarter of 2023. Finally, as the sale of the portfolio will have no negative impact on the available capital of the group, Euronext confirms the decision that the dividend for the fiscal year 2022 will be adjusted to neutralize any negative impact deriving from these operations. Moving back to the third quarter performance, custody, settlement and other post-trade revenue encompassing the activity of the four verticals we operate under the Euronext brands was up 2.8% to 57.1 million Euros. Like for like, custody and settlement and other post-trade revenue was up 0.5%.
Moving to slide 14, I would like to use this opportunity to have a look at the seasonality of Euronext security activities. It is important to properly assess the performance of the board. During the last three years, we can observe a seasonal dip of CST revenue between the second and the third quarter. The explanation for the seasonality is three fold. Firstly, very few general meetings had dividend payments occur in the third quarter, leading to lower revenues related to issues services and issuance. Secondly, we observed the usual summer slowdown as experienced in other markets like the cash equity market. Thirdly, some specific services are charged twice a year, in the second year in the fourth quarter, and this further contributes to the seasonality. In addition, the seasonality in this slide allow us to illustrate the progress we’ve made over the last three years in growing and diversifying our Euronext Security business which resulted in a CAGR of 7.3% between the third quarter of 2019 and the third quarter of 2022.
Moving on to slide 15, Advanced Data Services revenue was up 6.3% to 53 million Euros, driven by a strong fraction of our core data business, solid index activity and good momentum of the advanced data solution franchise. On a like for like basis, Advanced Data Services revenue was up 6.5% compared to the third quarter 2021. Investor service revenue was at 2.5 million this quarter, up 16.3% reflecting continued commercial expansion of the business, partially offset by mild reductions in stock. Like for like, investor service revenue was up 1.2%. Lastly, on technology solution, revenue was up 6.7% compared to the third quarter 2021 to 26 million Euros, reflecting the first full quarter of revenue of the new core data center following their migration on 6 June 2022. On the like for like basis, Euronext technology and other revenue was up 6.5% compared to the third quarter 2021.
Let’s move to slide 17. I would like to convey two message. The first one is that Euronext costs, as you can see in the graph are seasonally lower in the third quarter compared to the fourth quarter. Second, in the third quarter 2022, we reported 150.4 million of underlying costs, excluding D&A, an increase of 6.3% compared to the third quarter 2021. Please note that this increase is not related to inflation, but to the post-pandemic context that would need with more travels and more marketing expenses and higher cleaning expense related to the higher cleaning activities.
Thanks to our continued costs discipline, despite the inflationary environment, we confirm our underlying cost guidance for 2022 at 612 million Euros. This brings us to the next slide with the EBITDA bridge. Euronext adjusted EBITDA for the quarter was down 4.4% to 199.9 million Euros resulting from stable underlying revenue and the 6.3% increase of underlying operational expenses, as we just discussed. The adjusted EBITDA margin decreased 2.6 points compared to the third quarter 2021 to 57.1%. On the like for like basis, EBITDA margin was at 57% this quarter and adjusted EBITDA decreased 5.2%. Finally, I would like to remind you that non-underlying costs, excluding D&A, are mainly related to the integration of Borsa and us.
Moving to slide 19 to net income. Adjusted net income this quarter was down 5.5% to 129.5 million Euros resulting from the following elements. First D&A was broadly stable year-over-year; second, net financial expenses decreased the 10 million, due to positive FX impact with the revaluation of foreign currencies balances and results from equity investments decreased 10.1 million Euros as in the third quarter of 2021 will shift the dividend Euroclear and [indiscernible], as Stephane just discussed, which will be paid in the fourth quarter this year. I would like to highlight that the non-underlined items in the future mainly represented by the loss on the sale of the fixed income portfolio and D&A mainly the PPA amortization of our acquisition.
Lastly, income tax for the third quarter 2022 was 27.9 million. This translated into an effective tax rate for the quarter of 26.2%. Reported net income was 75.8 million and adjusted EPS is down 3.2% to 1.21 euro per share this quarter. As a reminder, we completed our rights issue in the second quarter of 2021. So even though now the number of shares were realized, we will have check out effect on EPS for the next quarter.
Moving to the next slide, slide 24, cash flow generation and leverage, net operating cash flow post tax amounted to 318.1 million and the cash conversion from EBITDA was in excess of 100%. Excluding the impact on working capital from Nord Pool and Euronext Clearing, CCP activities net operating cash flow accounted for 179% of EBITDA. In addition to the working capital impact from CCP, we had the 148 million impact from other operating activities mainly reflecting accrued VAT payables and receipt of refundable VAT. At the end of the quarter, our net debt to LTM EBITDA ratio was at 2.3 times compared to 2.4 times in the second quarter of 2022. Excluding the non-underlying one of loss on NTI, net debt to EBITDA reported LTM was at 2.1 times.
Moving to slide 21 for the evolution of our liquidity position over the quarter. As illustrated, our liquidity position remains very strong about 1.4 billion, including the unrolled SDF of 600 million Euros and excluding the cash in transit at Nord Pool.
And with this, I would like to give back the floor to Stephane.
Stephane Boujnah
Thank you, Giorgio. Once again, I would like to emphasize that, for 2022, dividends will not be impacted negatively by the change in our investment portfolio policy, as Giorgio said. But in a nutshell, we delivered a solid quarter in a challenging trading environment; thanks to our very diversified business model. The Borsa Italiana Group integration and the delivery of our cost guidance are both on track. We are very confident in our ability to continue to control inflation in order to meet our 2022 cost guidance. And looking forward to 2023, our diversified business model combined with our continuous cost discipline gives us the confidence to face the macroeconomic challenges ahead of us and to continue creating value for clients and for shareholders.
I’m now available for your questions together with the Giorgio Modica, Anthony Attia and Simon Gallagher.
Question-and-Answer Session
Operator
[Operator Instructions] We’ll now take our first question from Arnaud Giblat of BNP. Your line is open, please go ahead.
Arnaud Giblat
Yeah. Good morning. I’ve got three questions, please. And firstly on net interest income, you mentioned here that, essentially, the net interest margin has come in and the cash balances have stayed stable and that’s why we’ve seen a decline in NI. I’m just wondering if you could talk a bit more about the outlook and how that’s likely to evolve in the coming quarters.
My second question is, with regards to market data. Historically, you have been able to put up prices, we’ve seen a bit of inflation come through in some of your peers in market data, although it’s not, I mean, pricing more in other areas. But I’m just wondering whether you can apply some re-pricing there in 2023.
And my final question is on M&A, I’m just wondering, how you’re viewing M&A under your framework of royalty is greater than VAC [Phonetic] in the context of calling the cost of debt, the equity risk premium generally going up, how has your VAC evolved, and how you’re thinking about M&A versus the opportunity perhaps in the longer term of buying back your Euroclear.
Stephane Boujnah
Thank you, Arnaud. So I’ll take the question on M&A and just will compliment on the balance sheet outlook for the company and Giorgio will also cover your first question on the NCI and market data pricing. On the M&A front, as everyone appreciate it, we are in the moving environment where valuations are being reassessed by market that are across the board. So all stock prices are under the pressure, the valuation of some of the targets that everyone is looking at is also under pressure. So, we are in a very, very challenging environment.
The usual competition in the M&A environment from private equity players is also changing, access to leverage for some of them were usual, competing bidders in some asset is evolving. Some of them who are owners of assets that might be of interest to us to diversify our revenue streams are also not necessarily under pressure, but has to revisit their exit options. So the overall environment for rotation of assets is changing both for potential buyers and for potential sellers. In this environment, clearly, the cost of debt is changing, the parameters to return on capital employed are moving, and we are monitoring all of those but what I’m trying to convey I’ll know is that the world environment is changing above and beyond the cost of debt. I’ll leave the floor to Giorgio to be more specific on how we are approaching this environment in particular in a situation, in a context where the deleveraging of Euronext is continuing.
What I want to say is that on the share buyback approach, because this issue was raised by some investors, for the moment, we take the view that retaining balance sheets flexibility, retaining the optionality to deploy capital for acquisitions. Retaining the means that are needed to further grow is probably a better use of capital than the share buyback for the moment. Giorgio?
Giorgio Modica
Debt, I mean, three comments on my side on balance sheet and leverage and then I will talk to the question on NPI and market data. The first element is that with the shares down of the portfolio of Euronext Clearing, formerly CC&G, we are as well reducing and improving the creditworthiness of the group that we hope will translate into better rating and for higher financial flexibility which means that to a certain extent, our profile is slightly better than what the 2.1 time net leverage would suggest. This is the first comment.
The second comment I would like to make is that clearly when we’re looking at the cash on our balance sheet, we are looking as well at the cost opportunity of the cash and clearly now it is much different from what it was even a few months ago, considering that the debt financing rates that we will incur, should we again increase our leverage or secure new debt. When it comes to the NPI, just to be clear, what is going to happen is the following. We’ve disposed the long-term part of our portfolio, and therefore, we have reduced the interest rate mismatch in our clearing business.
Before we had 100% of our liability that were indexed on variable rate, but only 75% of the assets; now, we have reduced that to 10%. And from today to the first of May next year, we will progressively let the portfolio of CC&G mature and reinvest in ECB. This is what explains the fact that for two quarters we will have a lower level of NTI at 10 basis points but then starting from the second quarter next year, at that point, we will have 100% of the asset and liability indexed on variable ECB rates and therefore the further evolution of interest rates will have no impact on our stressed net treasury income and we assess that 20 basis points is the level that we can maintain, again, despite the underlying input.
Then with respect to your question on market data, the answer is yes. So the price increase in line with inflation was already communicated to the client. And more specifically, the main price changes per market data are communicated around the middle of the year, June, July and reflect the inflation of the previous year. For next year, inflation in prices is going to be around 5% and this is a process that we’ve always followed. So by the same token, next year, in June, we will revise prices taking into consideration that the actual inflation of 2022 and in 2024 the inflation of the [indiscernible].
Arnaud Giblat
That’s great, thank you.
Operator
Thank you. We’ll move on to our next question from Matt Moon of KBW, your line is open. Please go ahead.
Matt Moon
Hi, good morning, maybe a couple of questions on expenses. First question, you’ve done a nice job at containing inflationary pressures this year. But as we look out towards next year, I’m just wondering if you’re seeing any signs of those inflationary pressures beginning to ease at all or have those been relatively persistent? And second question on expenses, you highlighted good resilience in your revenues in the third quarter with revenues flat year-on-year. However, if the macro environment continues to worsen from here, and we’re in a scenario where revenues begin to decline year-on-year, can you remind us how much flexibility there is to pull back on the cost base maybe naturally in terms of variable expenses? And then would there be other levers that you have to pull in terms of a more challenging — managing through in a more challenging revenue environment, if that were to come to fruition?
Stephane Boujnah
I’ll give you the big picture and if Giorgio wants to elaborate or complement, he is welcome to do it. You have to understand that cost management has been the fundamental feature of the development of Euronext since 2015, 2016. And we are not waiting for pressure on top line or for changing macro environment to deploy those sorts of mechanism internally to create extreme reactivity on cost management. So we are not surprised by the current environment and we already in the process of finalizing the budget for 2023 and as you can imagine, we take appropriate measures. So for us, cost management in difficult macro environment is not something new because it’s just cost management, or stress testing on the cost front.
Every unit in the organization is part of business as usual. It’s not like in other organizations that factor the panic mode development, it’s just the ordinary course of business. And I want to insist on that because effective cost management is not intellectually complicated, it’s culturally complex. Organizations that are strong at managing costs are organizations with a culture of efficiency and cost discipline is deployed everywhere. And it’s very long to put in place, and it’s very effective as it exists. So that should be very, very clear. So we have all sorts of measures for adjusting cost based events.
Now, when it comes to your first question about persistent inflation, it’s clear we have some areas where our cost base is more impacted by inflation than in other areas, I mean, clearly, energy, which is an issue for all data centers, but in most cases, we can pass two or three clients with users, the cost of energy to our clients. For buildings, it is marginal compared to our cost base. We have increased the prices in technology, in hardware and software, in some professional services, and insurances or these types of areas and, clearly, we have to manage very, very carefully the pressure on labor costs.
We are doing that in a very differentiated granular manner, there would not be any thumb downs in case of labor costs. And clearly we have to do it in a very differentiated manner, because our themes are spread across Europe and the inflation rates in Europe are very different. As you know, in countries like France is between 5% and 6% inflation, whereas in the Netherlands, it’s close to 17%. So, we have to address the impact of inflation on labor cost in a super differentiated manner, in a timely manner and that’s the best way to control it and to mitigate the impact for potentially to beat up the inflation — relation between inflation and labor. Giorgio, do you want to compliment or to add more specific comments?
Giorgio Modica
No. Just to comment, clearly, the inflationary environment gives us an opportunity as well if you look at inflationary trend on revenue as well. We discussed market data, but market data is not going to be the only area on which we will reflect the increased cost in revenue. In the second element, we said our cost base is largely fixed. Having said that, there is no fixed cost in the mid-term, which means that should there be anything above and beyond what we are expecting, arguably that we will have the opportunity to revise our fixed cost base to make sure that we will deliver in any scenario the target promised for 2024.
Matt Moon
Great. Thank you very much.
Operator
Thank you. We’ll move on to our next question from Haley Tam of Credit Suisse. Your line is open. Please go ahead.
Haley Tam
Good morning. Thank you very much for taking my questions. If I dare could I ask a question about revenue capture, please, and then also one about your synergies. In terms of revenue capture, obviously, your cash trading yield was high this quarter a 0.53 basis points. Thank you for the education session you did give us a few weeks away. Can you talk to us about the sustainability at this level and how much of the improvement in Q3 was due to the liquidity programs and the customer segmentation you’ve talked about? And if you could help me understand the possible uplift from a migration of the Borsa Italiana to Euronext rescheduled next March, could you tell us what the current yield is excluding Borsa Italiana?
And then if I can a question on synergies just to confirm the 24.4 million euro run rate that you have at the moment with the migration of Borsa to Optiq in March, should I expect that to account for or to better see most of the move to your original 60 million euro target, which I think was set excluding any Euronext excluding uplift. Thank you.
Simon Gallagher
Hi, this is —
Stephane Boujnah
Go ahead, Simon.
Simon Gallagher
Yeah, Simon Gallagher, I will answer your questions. So first of all, in terms of the yield performance in Q3, and the good yield performance, this was primarily due to the lower volume environment we witnessed over the quarter and as more volumes are going through the higher priced lower volume tranches of the fee grid. Secondly, in terms of outlook for the yield, I think we’re going into an era now where the pricing programs that we are going to roll out going forward will be slightly more focused on capturing incremental volumes at a slightly lower marginal yield. So some of the pricing schemes you’ve seen us rollout in recent months have involved subscription fees for the first time.
So these are very, very small volumes going through these pricing schemes at the moment, but I think — and, Giorgio, please correct me, but I think some of the yield numbers we saw over the last year with smaller trade sizes contributing significantly to the yield numbers; I think we’ve seen sort of the top end of the of the yield numbers. Going forward into next year, there will be a number of important points in yield management, notably the integration of the Borsa Italiana volumes onto the Euronext V grid, and the new Euronext V grids, which will apply at that point. And so there will be further opportunities at the end of March for further yield enhancement on segmentation on the legacy bolster business. I don’t know Giorgio in terms of any more — outlook, feel me to be any more precise, please tell me.
Giorgio Modica
Maybe a few comments on my side and just make a step back, before the integration of Borsa Italiana, we got it for the 0.50 type of sustainable margin. Now, we are running excluding Borsa Italiana in excess of 10% above that. And if you look at the combination between the market share and the revenue capture, this is still very positive. So clearly, we are not in the previous situation where we have an exceptionally high market share, an exceptionally high level of revenue capture, but the fundamental reasons for us benefit from higher revenue capture remains intact. Euronext remains the point of price formation and we are finally spending more and more time to client to make it even more evident.
So what I would say is the following that in terms of the long-term sustainable rate, nothing is changing and we are running above what we define as a long-term sustainable target. So if we adjust the 0.50 for the integration on Borsa Italiana, this would put us in a couple of basis points that 0.47, 0.48 and we’re running at 0.53. So before that the integration of Borsa Italiana, clearly, we are in a good spot, and there’s likely deputies measure will have a very, very limited impact on the overall revenue capture. So the key message is Euronext remains the point of transformation and we believe that in the long term we can sustain the level that we thought were sustainable in the long run at the level of around 0.50 basis points as we said.
On the second question on the synergies, I cannot — we will give more details in the fourth quarter, give to granular feedback, but what I can say is clearly in — by the end of 2023, most of the synergies communicated will be delivered on a run rate basis. So, this really something that we can confirm there.
Haley Tam
Thank you.
Operator
Thank you. Now we’ll move on to our next question from Bruce Hamilton of Morgan Stanley. Your line is open, please go ahead.
Bruce Hamilton
Thanks very much. Couple of questions from me. One, just going back to sort of the NTI or NII on clearing looking forward, so I think if I heard correctly you’re saying, think around sort of 20 basis points on the cash collateral. So are we saying that you’re pretty insensitive to rates moving higher or do you get any benefit as rates move higher, or — because Stephane, i.e. you’re paying overnight, but then investing in sort of one in three month, just to understand how that could sort of move in a high rate environment?
And then secondly, on the sort of opportunities on the revenue side, I think, in the past, you’ve talked about the potential to roll out MTS internationally. And I just wondered where you are on that, and how big an opportunity that is, or whether we shouldn’t be assuming too much from that. Thank you.
Stephane Boujnah
On MTS, I’ll make the point and on NTI, Giorgio will answer your question. Progress on MTS internalizations are happening. It’s a slow development. What I can tell you is that in certain countries, like for example, France, progress have been significant in terms of volumes already. But it’s a slow motion exercise, because it’s all about entering into detailed dialogues with debt management offices that do not use the MTS platform for secondary trading for the moment, convincing them that this is a solution that is complementary to the historical relationship they have with primary dealers, clubs, and human interactions with the primary dealers. It’s a long process, what we are observing is that in the context where interest rates are increasing, where secondary trading becomes more important and it used to be in a negative or very low interest rates environment. There is more opening and willingness by debt management offices across Europe to listen to the value added — the added value of MTS solutions. So it’s real, but it’s slow, but it’s starting to become — to materialize. Giorgio.
Giorgio Modica
Just maybe a quick comment on MTS, in the 15.4 billion of cash volumes, what we’re seeing is, for example, higher share coming from the trading of French government bonds, the level which is unprecedented. So we are starting to see some first sign of positive traction, but as Stephane said, it is something that needs to be developed. When it comes to NTI, just to be clear, the 20 basis points and the current strategy we are adopting would make us immune to changes of interest rate and therefore we will not benefit from an increase of interest rates. We would have assets at variable rates and liabilities at variable rates, we would have fixed spread between the two. Our strategies does not include, for the moment, any optimization to take advantage of the 20 billion of collateral that shipped with Euronext Clearing at the moment and those billion might further increase following the increase of activity of Euronext Clearing.
What would take for us to take a more a different stance would be I believe a few elements. The first one is a normalization of the environment, so an environment where interest rates are slightly more predictable than today; and second, really the assessment and the right balance between risk and reward of the investment of part of the collateral, but for the time being and to be going straight to your question is, with the strategy we’d be insensitive to interest rates, we’d make 20 basis point on collateral and we will not take any counterparty risk because our counterparty would be [indiscernible].
Bruce Hamilton
Great. Thank you.
Operator
Thank you. We’ll take our next question from Ian White of Autonomous Research. Your line is open, please go ahead.
Ian White
Hi. Good morning. Thanks for taking my questions. Just a couple from me, please. Firstly, just to sort of wrap up on cash equity trading. Have we seen all of the market share pressure there now? Can we expect stability or even growth in the market share again, from here? It sounds like again, you’re sort of reiterating that this is sort of a post pandemic anomaly. So, I just wanted to clarify that we’re kind of through that now.
Secondly, I just wondered if you could perhaps say a bit more about how taking ownership of the data center might benefit Euronext business over the medium term. Might it help you to increase volumes from some of the larger market makers, since you now owe directly the terms of service for high frequency trading firms, for example, or are there any other particular opportunities we should be thinking about in terms of how the data center feed back into the wider group. Thanks very much.
Stephane Boujnah
On the data center front, there are two areas of development. The first one will be clearly commented [Phonetic] by Simon in a minute but in addition to the impact on volumes, we are developing co-location services with the broader complimentary services offered to either market participants or to partners that are not necessarily market participants, but wants to be — to benefit from the quality of our co-location services for other purposes. So we have launched the new offerings and we are starting to see tractions that are not directly Optiq related co-location services. So we should think about the data center as a new avenue of revenues in terms of technology solutions, and as an enabler, to more volumes or developments in our cash, equity trading going on the other assets trading really. So, Simon, over to you.
Simon Gallagher
Thank you, Stephane. So firstly, on the market share questions, so there’s been no doubt since post COVID here that the level of competitive intensity on the core cash equities trading business has reverted to pre-COVID levels. So I think it’s very good to put the recent movements in context. It wasn’t too long ago that some of the big primary markets, including ourselves had market shares below 60% in — I think it was 2014. And so I think we have seen movements in recent months.
And as Giorgio has underlined previously on the call, we dispose off probably more tools in our box of pricing schemes and liquidity schemes than any other market. This week — and this is all public information, we rolled out a new version of our flagship blue chip [Technical Difficulty] scheme and we’re seeing very, very positive initial results on this with a positive effect on market share in the last three days, outperforming peers in particular. And so I think what we’re seeing is just a simple reversion to the competitive intensity which was part of everyday life pre-COVID and we’re well equipped to deal with that at Euronext.
Secondly, just to comment — Stephane comments on the data center, in addition to the incremental revenues from handling the data center ourselves from an operational perspective, we offer smart hands services, we offer lots of new value-added services, and we’re looking at offering non-co-located customers space in the building as well. The impact on this in terms of liquidity is going to take a longer, longer period to settle down. In immediate months since migration, the liquidity impact was surprisingly stable for Euronext, which was very, very good news. So obviously, there’s increased latency between ourselves and some of the technology setups of the big banks in London but all this went very, very smoothly.
And going forward, I think the big change we’ll see is a gradual shift of infrastructure, maybe from the UK environment by the big investment banks, to the triangle of liquidity, which is emerging between Zurich, Bergamo and Frankfurt. And so when these shifts of infrastructure’s happen from the big US investment banks, I think this is when we’ll start to see the center of sort of the liquidity in latency terms shifting to this new center of gravity in Europe, which will dominate volumes in Europe. So, it’s very early days to see the liquidity benefits, but it’s definitely going in that direction of travel. So hopefully that adds some color to Stephane’s answer.
Ian White
That’s very interesting. Thanks for those points.
Operator
Thank you. We’ll take our next question from Tobias Lukesch of Kepler Cheuvreux. Your line is open, please go ahead.
Tobias Lukesch
Yes, good morning. Thank you. Two questions on my side, both half answered, so bear with me, please. But I would like to, again, touch a little bit on the very positive integration Stephane you highlighted basically for that quarter. Looking into Q4, I was wondering, since we hardly saw any effects on the synergy side, and also integration costs wise, how we should think about Q4 in particular, and you just highlighted basically the outline for 2023, which is very helpful. And on the cost side, I mean, you said you’re now on the planning mode, there will be an update next year with a clear cost target. But I was wondering, it’s like if there’s a little hint we could use for basically next year, especially maybe Q1, Q2, on the underlying cost side? Thank you.
Stephane Boujnah
The only thing I can give you in terms of guidance is to reiterate our first guidance for 2022, which has been the number was revised and awards and that we confirm our cost guidance for 2022 despite inflationary pressure on 2022. The other thing I can confirm is overall guidance in terms of EBITDA growth for the end of before, as announced in November 2021. At this stage, we cannot provide you any guidance for cost in terms of fees nor more, specifically for Q1 or Q2. On the Q4 synergies, that quarterly reporting does not necessarily reflect the whole — the phase of significant milestones, clearly this quarter was relatively sound in terms of real milestones, in terms of run rate synergies.
Q4, we have more run rate synergies to be reported and 2023 will be a very significant in terms of run rate synergies in particular, it is not one thing but in particular because of the Optiq migration, which will have impact on cost, material impact on cost and the possibility of the transition service agreements with the [indiscernible] IT technology services provided by the London Stock Exchange Group to Borsa Italiana but also in terms of internal cost in terms of professional services that been deployed to organize this migration but also in terms of revenues as indicated earlier, with the harmonization of the feed rates for global players operating on the Italian market with the European fee environment, those requests were up. So 2023 will be very material, Q4 will be an active quarter in terms of synergies. I just want to highlight that what is important is that we confirm the overall ambition and target and objective to deliver by the end of 2024, 100 million of EBITDA expansion for the group compared to what it was in [indiscernible] is good.
Tobias Lukesch
Thank you very much. If I may ask again, on the outlook you gave for 2023, if I got that correctly, you said most of these 60 million revenue synergies you were expecting to realize by 2023. Did I get that correctly?
Giorgio Modica
So what I was saying is that most of the 100 million synergies are expected to be delivered in 2023, including cost management [Phonetic].
Tobias Lukesch
Sorry, I had a bad line. So it’s the underlying costs, so it’s more under 40 million side that you expect that full effect to it by the end of 2023.
Giorgio Modica
No, no. What I said is most of the 100 million, the total target, most of the total synergy target, on run rate basis, is expected to be delivered in 2023, revenues and cost, the two.
Tobias Lukesch
Okay, well understood now. Thank you very much.
Operator
We’ll move on to our next question from Andrew Coombs from Citi. Your line is open. Please go ahead.
Andrew Coombs
Good morning. I think most of mine have been answered. But perhaps I could just ask on financing. I guess three parts of the question. Firstly, you’ve actually had a positive move both year-on-year and QonQ in the net financing income expense, which you put down to FX translation, but perhaps you could elaborate on that. Secondly, if I look at the split of your gross debt, and you helpfully put in slide 31 as well, it all seems to be fixed, but if you could just confirm that there’s nothing floating rate in there. And then finally, given the move that we’ve seen in rates, does that impact on your thought process on M&A, how big you’d be willing to go your schedule, you want to keep flexibility, but the change in rates and potential implications for financing impact on your thought process as far as M&A is concerned? Thank you.
Giorgio Modica
Yeah. So to answer your question, yes, correctly, the reduction of net treasury income this quarter is mainly related to NFX wherein we have the revaluation of the stock in foreign currency that they have appreciated against the euro. But as a general trend, we are looking at the decrease, which is going to be recurring over time, because, more and more, we will be able to have a positive interest rate on our billion of cash. So this year, this quarter, that to certain extent, that is very specific FX impact but if we look at the next quarters, and into 2023, we might see as well, a positive trend coming from cashing in the cost opportunity of cash.
When it comes to your question, do we factor the cost of debt into M&A? The answer is clearly yes. The answer is clearly yes. Despite the fact that we have a very favorable rates today, our 3 billion have an average maturity is slightly higher than eight year with the rate of 1%. And we are very fortunate to have locked in for a very long time a good rate. Despite that, in assessing any opportunity in the financial structure, we do take into consideration that the prevailing market conditions which are very different from what they were even only 12 months ago. If you can remind me your second question, because I didn’t get it correctly, I want to make sure I get it right.
Andrew Coombs
I guess the other two parts, we’re just making sure that all of the gross debt is fixed, there isn’t a floating component within it and then, finally, just how you think about M&A in the context of more expensive financing now.
Giorgio Modica
Yeah, I can confirm that 100% of our debt is fixed, whereas, just as a reference, the same quarter last year, we had a swap in place that was terminated last quarter, and that allowed us to save money. So the decrease in terms of cost of financing is even higher considering that this quarter we are not benefiting from the hedge we have. And then when it comes to the side, again, I can repeat what I just said, in assessing any acquisition, we do consider that the new and prevailing financing condition, so this is what I can say. Then this is the part of the framework. So what we do consider and I can reiterate what we already said, is that our long-term objective is to remain strong investment grade, and financing costs are part of that equation. And the other element that I would like to underline, again, is that we have today more flexibility than we had just a few months ago because of the decision to reduce our fixed income portfolio because that fixed income portfolio was one of the important element triggering and not downgrade for clearing risks. So I believe that these contributors were to increase potentially the envelope available to us for future M&A.
Andrew Coombs
That’s very helpful. Thank you.
Operator
And we will now take our last question from Mike Werner of UBS. Your line is open, please go ahead.
Mike Werner
Thank you very much. I had a question regarding the Euronext Clearing opportunities. Can you just tell me where you are with regards to the potential opportunity to clear the derivatives that are traded within Euronext? I know, currently, you have a contract with LCH, it is for LCH Paris to clear that, I think, through 2027. Is there — when should we think about that from a timing perspective? When is your first opportunity to exit that contract? And if you could provide any color with regards to the cost of that exit and when that should feed through from a revenue perspective into Euronext? Thank you.
Giorgio Modica
So, few considerations. The first one is, unfortunately, for many reason, I cannot answer as precisely as your question would suggest. What I can say is, unfortunately, general is the fact that as Euronext, we are money minded to migrate and to extend the activity of Euronext Clearing to clear the derivatives of the whole Euronext franchise. However, to do that, this is a decision making process on timing, which is not concluded and, therefore, I cannot elaborate further. Once we will have completed this process, we will inform and follow the necessary steps and just to give you a very clear indication, it is clearly, we will need to — I mean, we will need to follow a number of very precise steps in the decision making process on the timing, it is not over yet. So, unfortunately, I cannot comment further.
Mike Werner
Thank you. And kind of just a quick follow up. So, you said that most of the 100 million of synergy opportunities should be delivered on a run rate basis by the end of next year. So I can presume that any impact coming from the internalization of derivative clearing is not included in that 100 million?
Giorgio Modica
Again, I cannot comment further and add any detail that might entail the date of a potential termination of our derivative clearing arrangement with the list.
Mike Werner
Okay, thank you very much.
Operator
Thank you. There are no further questions. I will now hand you back to your host to conclude today’s conference. Thank you.
Stephane Boujnah
Thank you very much for your time and wish you a very good day.
Operator
Ladies and gentlemen, this concludes today’s call. Thank you for your participation. Stay safe. You may now disconnect.
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