Deutsche Börse AG, Q3/2009: Solid result despite continued weak market activity

Deutsche Börse AG, Q3/2009: Solid result despite continued weak market activity

05/11/09

Deutsche Börse Group in the third quarter 2009 once again generated a solid result. Market activity has stabilized at second quarter 2009 levels despite seasonally weaker activity in July and August. Clearstream’s post-trading activities also showed stable performance. Assets under custody rose quarter-on-quarter in both the international and the domestic business. Overall, it was not possible to achieve the level of revenue seen in record year 2008. Nevertheless, Deutsche Börse Group considers this development to be further proof of the stability of its broad based business model, even in weaker market phases.

Sales revenue for Deutsche Börse Group decreased slightly against the second quarter of 2009 to €500.9 million (Q2/2009: €515.6 million, –3%). The decline is largely due to price changes in trading of US options and in the settlement of German securities as well as effects caused by the weaker US dollar. In comparison to the extraordinarily strong third quarter 2008, sales revenue decreased by 19 percent (Q3/2008: €616.1 million). Net interest income from the Group’s banking business fell in the third quarter, particularly due to a continued decline in short-term interest rates to €21.9 million (Q2/2009: €25.9 million, –15%; Q3/2008: €55.7 million, –61%).

Total costs in the third quarter of €306.7 million were down slightly quarter-on-quarter (Q2/2009: €322.5 million, –5%), as well as year-on-year (Q3/2008: €311.2 million, –1%) due to the ongoing efficiency measures. The cost forecast of around €1,280 million for financial year 2009 remains unchanged. Overall, Deutsche Börse thus generated EBITA of €243.7 million in the third quarter (Q3/2008: €385.0 million, –37%). Net income for the period amounted to €158.3 million (Q3/2008: €257.3 million, –38%). Basic earnings per share stood at €0.85 based on the average 185.9 million outstanding shares in Q3/2009. This corresponds to a decline of 4 percent over the second quarter 2009 (Q2/2009: €0.89). In the prior-year quarter this figure amounted to €1.35 based on 190.5 million shares.

Sales revenue for the nine months to September 2009 amounted to €1,556.3 million (Q1-3/2008: €1,846.1 million, –16%). Despite an increase in organic growth investments, costs at €926.8 million remained stable compared to the previous year (Q1-3/2008: €924.3 million). This shows that the Group’s efficiency measures prove effective. EBITA amounted to €804.1 million (Q1-3/2008: €1,185.9 million, –32%). With a tax rate for the Group of 27.0 percent (Q1-3/2008: 28.9 percent), net income for the period amounted to €529.1 million (Q1-3/2008: €810.9 million, –35%). Basic earnings per share amounted to €2.85 (Q1-3/2008: €4.23, –33%).

For 2010, the Executive Board of Deutsche Börse AG plans to further increase the expenses for organic growth initiatives and at the same time aims at not exceeding 2008 costs and the 2009 cost guidance of around €1,280 million also in 2010.

Reto Francioni, CEO of Deutsche Börse AG, said, “Third quarter business activity stabilized at second quarter levels despite negative seasonal effects. As a result of our strict cost management, we achieved stable costs in the first nine months compared to 2008 despite higher expenses for organic growth initiatives. Overall, we once again generated a solid result in an environment which continued to be influenced by market participants’ reluctance to trade. Our ambition is to continue Deutsche Börse’s long standing track record for profitable growth. Against this background, the Executive Board plans to further increase the expenses for organic growth initiatives. At the same time, total costs for 2010 shall not exceed the level of around €1,280 million in 2010.”

Segment reporting

The reluctance of participants on the equity markets observed since the beginning of the year also continued in Q3/2009. However, Xetra trading volumes stabilized at the level of the first six months of 2009. The number of transactions on the electronic trading platform Xetra thus fell only slightly quarter on quarter to 41.7 million (Q2/2009: 43.2 million transactions, –3%). Single counted order book volume remained stable at €266.2 billion (Q2/2009: €265.0 billion). As trading volumes were significantly below the record levels of 2008, third quarter sales revenue decreased to €63.1 million (Q3/2008: €99.9 million, –37%). As a result, EBITA also fell to €23.3 million (Q3/2008: €56.7 million, –59%).

Eurex trading activity in Q3/2009 declined against the previous year (–22%), as well as against the previous quarter (–10%), with 636.8 million contracts traded. The quarter-on-quarter decline is largely due to significantly lower volumes in European equity derivatives (–47%). These volumes declined as expected after the end of the German dividend season. The decline was partially compensated, however, by a rise of volumes in index and interest rate derivatives (+3%). Due to the higher profitability of both these product groups, sales revenue declined only slightly to €191.5 million quarter-on-quarter (Q2/2009: €201.0 million, –5%). The fall in sales revenue is also due to a weaker US dollar in relation to the International Securities Exchange (ISE) contribution and a price change in trading of US options. Overall, a decline of 26 percent in sales revenues was recorded compared to the strong third quarter 2008 (Q3/2008: €257.5 million). The segment’s EBITA fell to €92.6 million (Q3/2008: €153.0 million, –39%).

The post-trading segment Clearstream once again contributed in the third quarter 2009 to Deutsche Börse Group achieving a solid overall result. The average value of securities held in custody stood at €10.5 trillion, which corresponds to a rise over the previous quarter (Q2/2009: €10.2 trillion, +3%) and a decline compared to last year’s strong third quarter (Q3/2008: €10.8 trillion, –3%). Of the third-quarter custody volumes, €5.5 trillion was attributable to international securities, a 3-percent increase, and €5.0 trillion to German securities, a 9-percent decrease compared to the third quarter of 2008. The primary reason for the decrease in German securities was lower equity indices compared to the prior-year period. The number of settlement transactions in Q3 stood at 25.5 million, a stable development quarter-on-quarter (Q2/2009: 25.4 million) and a slight decline year-on-year (Q3/2008: 26.7 million,

–4%). Of this number, 5.5 million settlement transactions were attributable to international securities traded off-exchange in the third quarter – a rise of 10 percent over Q3 of the previous year. Average monthly outstanding volumes in the Global Securities Financing (GSF) business of €483.7 billion represented stable quarter-on-quarter development (Q2/2009: €484.8 billion) and a 23-percent year-on-year increase (Q3/2008: €394.1 billion). Despite stable business performance compared to the second quarter 2009, sales revenue of €176.6 million in the Clearstream segment declined slightly (Q2/2009: €181.1 million, –2%). This decline is largely due to a price change for settlement of German securities with effect from 1 July 2009. Sales revenue declined by 7 percent over last year (Q3/2008: €189.2 million) because of the more favorable market environment in 2008. Average customer cash deposits of €5.7 billion for the third quarter decreased from the previous quarter (Q2/2009: €7.9 billion, –28%), as some major clients reduced their deposits. Due to this decline and new lows in short-term interest rates, net interest income of €21.9 million was generated in the third quarter (Q2/2009: €25.9 million, –15%). As a result, third-quarter EBITA in the Clearstream segment amounted to €78.1 million (Q3/2008: €118.9 million, –34%).

In the Market Data & Analytics segment, third-quarter 2009 sales revenue of €45.4 million was comparable to that of the previous quarter and previous year (Q3/2008: €46.1 million, Q2/2009: €46.6 million). Decreases in the number of data package subscribers were largely offset by new products as well as the consolidation of the US financial news agency Market News International Inc. (MNI), which was acquired in the first quarter 2009. EBITA in this segment of €24.6 million stood below that of the same period in 2008 (Q3/2008: €30.5 million, –19%). The drop in operating income is largely due to a particularly low cost level in Q3/2008.

Third quarter 2009 external sales revenue in the Information Technology segment of €24.3 million charted a positive development (Q3/2008: €23.4 million, +4%). EBITA in this segment declined year on year to €30.3 million (Q3/2008: €31.9 million, –5%), which was largely because of higher costs in this segment as part of the investments in growth initiatives.