- Turnover: EUR 67.2 million, +25.6% ·
- Operating profit: EUR 22.9 million, -0.9%
- Profit before extraordinary items, appropriations and taxes: EUR 24.2 million, -2.4%
- Net profit for the period: EUR 17.0 million, -3,2%
- HEX bought 95% of the shares of Sampo Custody Services Ltd
- HEX and Euronext enter agreement on easier cross membership
Consolidated turnover increased by 25.6 per cent to EUR 67.2 million (1-9/2000: EUR 53.5 million). Costs rose to EUR 44.3 million (EUR 30.4 million). The increase in costs was due to sustained business operations and investments in new business. Personnel costs increased the most, amounting to EUR 17.7 million (EUR 11.0 million), and other operating costs amounted to EUR 21.0 million (EUR 15.0 million).
Operating profit decreased by 0.9 per cent and was EUR 22.9 million (EUR 23.1 million). The operating profit corresponded to 34.1 per cent of the turnover (43.2%). Financial income decreased somewhat and amounted to EUR 1.2 million (EUR 1.6 million). Financial income was lowered by a reduction in value of fund investment. Profit before extraordinary items, appropriations and taxes amounted to EUR 24.2 mil-lion (EUR 24.8 million). Compared to the corresponding period last year, the decrease was 2.4 per cent. The profit for the period under review, EUR 17.0 million, was slightly lower than the corresponding period in 2000 (EUR 17.6 million). The financial performance was good despite investments required by business expansions and new businesses, as well as the slight slowdown in growth during the last quarter. This was continually supported by high sales of Finnish de-rivative products at Eurex and a strong demand for electronic market data.
Capital expenditure totalling EUR 13.1 million (EUR 5.6 million) were focused mainly on computer hard-ware and software, as well as office premises. Capital expenditure included the acquisition of the shares of Tallinn Stock Exchange and Sampo Custody Services. Earnings per share amounted to EUR 1.26 (EUR 1.30). Equity per share grew by 19.6 per cent and was EUR 5.35 (EUR 4.48).
On 28 September 2001, the HEX Group acquired a 95 per cent majority of the shares in Sampo Custody Services Group from Sampo Pankki Plc. The company changed its name to HEX Back Office and Custody Services Plc (HBO) on 16 October 2001. HBO's ba-lance sheet as of 30 September 2001 was included in the group's balance sheet on 30 September 2001. HBO's income statement will be included in the group's income statement from 1 October 2001.
On 7 September, the Helsinki District Court ruled that HEX Plc is entitled to be refunded for the value added tax paid by Helsinki Stock Exchange Ltd for ser-vices conducted in the exchange business, other public trading and settlement operations during the years 1995 and 1996. The ruling came into force on 9 November 2001. Extraordinary profit of EUR 8.8 million for refunded VAT for the years 1995-2000 has been entered in the financial statement for the year 2000. A corresponding sum has been entered as compulsory reserves in extraordinary expenses, to strain the year 2000 profit due to the insecurity related to further processing of extraordinary items. So far the reserve has not been cancelled.
All figures in this Interim Report are unaudited.
PERFORMANCE BY BUSINESS AREA
Trading
Turnover of Trading increased by 55.4 per cent from the corresponding period last year, to EUR 35.8 million, and the favourable profitability trend continued. Towards the end of the year, profitability is expected to fall somewhat short of that in the first half of the year.
Trading volumes for the period amounted to roughly EUR 153 billion, showing a year-on-year decline of EUR 16.5 billion. Trading in volume terms totalled 7,950 million shares, which is almost double that of the previous year (4,314 million shares). The trading volume in euro for the year 2001 is expected to re-main slightly below the level of 2000 (EUR 227 billion).
Remote broker members' share of the trading volume continued to grow and accounted for 37.8 per cent in September. The number of active stockbrokers was 35, and 17 of these were remote brokers.
In derivative operations, Nokia's stock options showed a continued favourable trend in trading. For the duration of the period, Nokia was the second most traded stock option on Eurex.
On July 2, HEX began the calculation of its HEXTech index, consisting of new technology shares, and trading in HEXTech forward contracts and options began on September 3.
The demand for exchange data (HEXfeed) continued at a good level. Demand for market data is predicted to increase further towards the end of the year. At the end of the reporting period, there were 102 vendors. Of these, real-time market data vendors numbered 33.
At the end of the period, on September 26, HEX signed a contract with Euronext for the purpose of facilitating crosswise memberships and technical access for the parties to each other's market places.
Settlement and Depository
The turnover for the Settlement and Depository business area was EUR 14.6 million (EUR 14.1 million), which was 3.5 per cent more than the corresponding period of the previous year. The value depreciation of issued capital in the book-entry security system and the decrease in transaction volumes had a negative effect on the profitability of the business area. Profitability will be affected by changes in market value, as well as the development of settlement transaction volumes. Profitability will probably fall short of the previous year's level.
The degree of settlement centrally followed in share settlement remained at a good level during the period under review. According to market place rules, 97.47 per cent of stock exchange deals were settled during the period January-September, and 98.54 per cent in September.
Issuer Services
The turnover of Issuer Services for January-September amounted to EUR 12.3 million (EUR 13.3 million). The continually low market value and small interest in listing decreased the turnover of the business area and weakened profitability compared to the corresponding period of the previous year. As the market situation is still unstable, it is likely that the entire turnover and profitability of issuer services will remain at a lower level than last year.
The market for warrants remained brisk during the third quarter. The amount of listed warrants almost doubled, from 45 warrants at the end of June to 80 listed warrants during the period July-September. HEX's goal is to start trading with index shares at the beginning of 2002. An index share is a listed unit of an index fund, which is traded on the exchange.
Securities Services
The turnover for the period amounted to EUR 5.1 million (EUR 4.1 million). Growth compared to the corresponding period last year was 24 per cent. Due to the one-time expenses and strong system development related to business acquisition, the profitability of Securities Services is expected to decrease by the end of the year.
A corporate acquisition, significant for the outsourcing services provided by HEX, was realised during the period. HEX Plc´s subsidiary HEX Securities Ser-vices Ltd Oy bought 95 per cent of the shares of Sam-po Custody Services Ltd from Sampo Bank Plc. Along with the deal, the Securities Services got the licences needed for operations, existing customers as well as a competent staff. The service package is intended to make the fluency of the settlement process more effective, at the same time decreasing the related risks. Simultaneously, the securities services are offering market parties the opportunity to outsource the entire back office function or part thereof.
eHEX
The eHEX business area continued its strong investments in development projects. The turnover was EUR 0.7 million, and operations continued in the red. eHEX will continue its investments in development projects, and the end of year result is predicted to be negative.
Competition in the eHEX business area is tightening. This applies to both the software offering in online trading, as well as to overall information services.
All four product groups within the Information Services business unit proceeded with product development during the period under review. By the end of the period, two clients had begun using the IR service designed for listed companies. Demand is expected to grow towards the end of the year. The sales of the Investment Services for hire-concept continued.
Baltic operations
The turnover of HEX's Baltic operations was EUR 0.5 million for the period April-September. The turnover for the whole year is expected to be higher than last year. One-time expenses weakened the profitability of the business area during the year. The TSE Group was included in the consolidated HEX bookkeeping on 30 April 2001.
The share turnover on the Tallinn Stock Exchange for the period January-September was EUR 0.2 billion. The TALSE index, describing the development on the stock exchange, was at 122.72 points at the end of September, which was 11.2 per cent lower than at the beginning of the year.
A market model between TSE and HEX, the technical operating environment and plans for implementing it, were completed during the period under review.
The Estonian government approved of the Pension Fund Act in September. According to the decision of the Estonian Ministry of Finance, the Estonian Central Securities Depository will function as a service provider for those investing in pension funds.
SHARES AND SHAREHOLDERS
The number of shares at the end of June was 13,471,728 and the number of registered shareholders amounted to 151. A total of 15.7 per cent of shares were nominee registered.
EMPLOYEE STOCK OPTION INCENTIVE SCHEME
The number of stock options and the number of HEX Plc shares subject to subscription based on the stock options, in accordance with HEX's employee stock option incentive scheme, is 1,400,000. In accordance with the subscription terms, the original subscription price of EUR 12.50 has been reduced to EUR 11.70 by the dividend paid on 29 March 2001. The scaled share subscription period based on stock options will begin on 1 November 2002, 1 November 2003, 1 November 2004 and 1 November 2005, and will expire for all stock options on 30 November 2007.
Through the stock-option incentive scheme, employee shareholding in the company may not exceed 9.4 per cent of shares and voting rights.
If the company is not listed on the stock exchange, the subscriber is entitled to compensation in terms of salary or wages equalling the value of the increase in shareholders' equity. For this purpose, a EUR 1.9 million entry, affecting the company's result, has been made in accruals.
SHAREHOLDER AGREEMENT
In connection with the formation of HEX Plc in 1998, major shareholders entered into a shareholder agreement under which the parties agreed on their pre-emptive rights to their shares in the Group and on their stand on the election of the Board of Directors, as well as on the limitation of liability pertaining to the operations of the Finnish Central Securities Depository. The agreement also sets objectives for developing the book-entry securities system.
Parties to the agreement include the State of Finland, the Bank of Finland, OKR issuers, Merita Group, OKO Group, Sampo Group and Aktia Savings Bank PLC.
HUMAN RESOURCES
At the end of the period under review, the Group employed 405 people. The corresponding figure for the same period last year was 274. There were 290 employees at the end of 2000. As of 30 April 2001, the Tallinn Stock Exchange's 23 employees are included in the Group's personnel, and as of 28 September, the personnel of HEX Back Office and Custody Services Oy, numbering 27, are included also.
EVENTS AFTER THE PERIOD
In early October, HEX announced its plans for bringing a new investment product into the derivative markets, the index share. The trading of index shares based on the HEX-25 index is estimated to begin in early 2002.
In October, HEX and the Tallinn Stock Exchange announced that securities listed in Tallinn will be traded on the HEX trading system, commencing 28.1.2002.
Two new remote members began trading on the HEX in October.
YEAR-END OUTLOOK
The growth in turnover depends on the development of the market situation, as well as the timetable for starting new services. Relative profitability will fall short of the previous year's level due to the investments caused by rapid expansion and the growth of new business.
