Based on the assumptions regarding the development of the operating environment and on flexible planning and control systems, Deutsche Börse considers itself well prepared to react to a changing market environment: - After achieving savings of over €50 million in the year under review under the restructuring and efficiency program announced in September 2007, the Company plans to make additional cost savings of €25 million each year in 2009 and 2010 and annual savings of €100 million thereafter.
- Already in February 2009, the cost guidance for the current year was reduced to a maximum of last year’s (2008) level, without factoring in any changes in volume-related costs and while retaining key growth initiatives.
- In June 2008, around half of the employees located in Frankfurt-Hausen moved to neighbouring Eschborn. This will reduce the tax rate for 2009 still further and thus improve after-tax earnings. The Company expects a group tax rate of around 27 percent for 2009. The plan is for the main part of the remaining staff in Frankfurt-Hausen to move to Eschborn in mid-2010. The Company therefore expects a group tax rate of between 25 and 27 percent from 2010. The concrete tax rate for 2010 will in particular depend on the exact time of the move.
Xetra segment Sales revenue in the Xetra cash market segment will continue to depend on equity market trends, equity market volatility, and structural and cyclical changes relating to trading activity. Structural changes in the equity market stem primarily from the increasing use of fully computerized trading strategies, known as algorithmic trading. The Company continues to expect a high proportion of algorithmic trading in Xetra trading volumes. Volatility was at a very high level over a longer period from the third quarter of 2008. Continued high volatility could provide the Xetra segment with additional momentum for growth, as trading is particularly brisk during such market phases. However, the continued uncertainty and caution of market participants in the first two months of 2009 have overshadowed the positive effects of volatility, which is still high, and as a result the overall number of traded transactions has fallen sharply compared to last year. In addition, the lower index levels resulted in a strong decline in volumes traded in euro. Despite the intact structural drivers, which in principle influence business development in a positive way, the Company does not expect a noticeable recovery on the cash market until stability and confidence have returned to the global financial markets. The Company is not only developing its own cash markets but is also closely monitoring events as they occur in the competitive environment of the European cash markets. It considers itself well positioned to retain its status as market leader in the trade of German blue-chip shares and to offer its customers across the globe an attractive range of products and services for cash trading and equities clearing.
Eurex segment Volume trends last year revealed that the general development of the financial markets has a less significant impact on the Eurex derivatives segment than it does on the cash market. The Company therefore continues to expect structural growth factors to have a strong influence on all product segments. The structural growth drivers are as follows: - Traditional investment funds are increasingly including derivatives in their portfolio strategies as a result of the European legal and administrative framework (UCITS III).
- Due to the high significance of risk management, more and more OTC transactions are shifted to Eurex Clearing for settlement so that the counterparty risk can be eliminated through centralized clearing.
- Banks and investors are increasingly applying fully automated trading strategies (comparable to algorithmic trading on Xetra).
In addition, the US equity options exchange ISE, which belongs to Eurex, offers potential for growth through the cross-selling of existing products and the joint development of new products. Deutsche Börse and ISE are currently developing a new global electronic trading system which is scheduled to start operations at the beginning of 2011. In the context of the ISE acquisition, intangible assets (net of related deferred tax liabilities) in the amount of €1,623.1 million, including goodwill in the amount of €862.2 million, were included in the consolidated balance sheet for 2007. In the event of a clearly negative business development at ISE – and an impairment test held in that connection – a need to write down the intangible assets and/or goodwill either fully or partially could arise. Despite the positive competitive position and growth perspectives of ISE, there is a higher risk of this being necessary in the forecast period due to great uncertainty as to further developments on the financial markets.
Clearstream segment The Clearstream segment will continue to generate the majority of its sales revenue through the settlement and custody of international bonds. Deutsche Börse predicts that the volume of bonds issued internationally will continue to grow faster than that of fixed-income securities issued nationally. The Company also expects the number of new issues to increase compared with last year, which would have a positive effect on Clearstream’s business. In the wake of the financial crisis, a number of governments, including those of the United States and many European countries, put together financial rescue packages and will now issue bonds to finance the increase in government debt. With regard to its customer structure, the Company continues to expect consolidation in the financial sector to persist and customers in Clearstream’s domestic and international business to merge. These larger customers would receive larger rebates, which could lead to a decline in average fees. As Deutsche Börse faces especially intense competition in the areas of settlement and custody of international bonds, loss of market share and a consequent reduction in Clearstream’s sales revenue could occur. For the forecast period, however, the Company does not expect any loss of market share. As part of the Clearstream segment’s upgraded product and service offering, the Company’s plan for the forecast period is not only to implement the pan-European Link Up Markets initiative but also to extend its collateral management, liquidity and risk management services, while taking advantage of the synergies offered by Deutsche Börse Group, such as the clearing house operated by Eurex. Deutsche Börse also expects net interest income from banking business to be significantly lower in the current financial year than in the year under review. The Company does not expect a sustained increase in income until short-term interest rates rise in the relevant markets. This assumption is based on the expectation that the relevant short-term interest rates in the main currencies, the euro and US dollar, will generally be at a historic low in 2009. In an effort to counter negative interest rate trends, part of the expected customer cash balances were hedged at higher interest rates than those valid at the time the consolidated financial statements were prepared.
Market Data & Analytics segment Sales revenue in the Market Data & Analytics segment is largely dependent on the demand for market data in the financial sector. If this demand should fall off as a result of the financial crisis, there will be a delayed effect on the segment’s sales revenue. Momentum for growth may, however, result throughout the segment from the intended extension of the product portfolio.
Development of pricing models Deutsche Börse continues to anticipate sustained price pressure in some of its business areas, such as Xetra’s electronic trading activities and the clearing business, during the forecast period. The Company’s objective is to mitigate this price pressure by continually improving its products and services and offering selective incentives for price-elastic business. Despite reducing costs, Xetra and Eurex for example increased their system capacity significantly in the year under review. In addition, both segments offered price incentives for algorithmic trading and special clearing products in the cash market as well as for over-the-counter transactions in the derivatives market. When volumes are low, particularly in the cash market, the phased pricing model may cause a short-term increase in the average sales revenue per chargeable unit. In spite of this, it is to be expected that average sales revenue per chargeable unit will decline slightly over the long term in some areas.
Regulatory framework Large parts of the existing regulatory framework are subject to political review as a result of the current financial market crisis at a national, a European and at a global level. It is to be expected that the regulatory reform of the financial markets will include alterations in the years to come that will also affect Deutsche Börse Group. The result cannot be predicted with any certainty at this time. On the whole, however, Deutsche Börse, with its regulated markets and its central counterparty, could be strengthened in its endeavour to ensure market transparency and integrity. At the end of last year, a voluntary industry commitment to establish a central counterparty (CCP) for credit default swap (CDS) clearing came to nothing. At the time the consolidated financial statements were prepared the European Commission therefore sought to regulate the market for credit default swaps via legislation to extend the capital requirement rules for banks. Deutsche Börse considers the clearing of credit default swaps through a central European clearing house required by the regulatory activities as a means of extending its service portfolio and at the same time of stabilizing the market for credit derivatives previously traded over the counter. The aim of a central clearing service is to improve risk management and the capital efficiency of the parties involved and to minimize the existing counterparty risk. The targeted range of clearing services can only then positively affect Deutsche Börse’s business when the relevant market participants actively use these services. At the time of the preparation of these consolidated financial statements, there have not yet been any clear commitments from key market participants on the use of clearing services for business transactions previously executed off-exchange. Deutsche Börse does not expect TARGET2 Securities, the European Central Bank’s securities settlement platform planned for the year 2013, to have an adverse effect on the result of operations in the forecast period.
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