Deutsche Börse Publishes Preliminary Results for 2009

Based on preliminary figures published by the Company on Tuesday, Deutsche Börse AG generated earnings before interest, taxes and the impairment charge for US options exchange ISE of €1,053.4 million in 2009 (2008: €1,508.4 million). Including the ISE impairment charge of €415.6 million, EBIT amounted to €637.8 million. Sales revenue for the year was €2,061.7 million (2008: €2,455.1 million). The 16 percent decline was largely due to the reluctance of market participants to trade on the cash and derivatives markets as a result of the financial and economic crisis. Costs before the ISE impairment amounted to €1,264.4 million in 2009, down on the previous year (2008: €1,284.0 million). Net income for 2009 amounted to €496.1 million, as against the previous year’s €1,033.3 million. Adjusted for the ISE impairment, this results in a decrease in net income of 32 percent to €700.2 million.

The company’s Executive Board decided today to streamline the Group’s management structure and to implement further cost initiatives with sustainable cost savings totaling approximately €50 million per year. With these steps Deutsche Börse accelerates its ongoing efforts to further increase operational efficiency. At the same time, the Company will increase its expenses for growth initiatives in 2010 by more than 50 percent to around €100 million. The cost initiatives will be started with immediate effect and are due to be fully implemented by 2011. The Company expects implementation costs of around €40 million, the majority of which will be provisioned in the first half of 2010. The Company reduces its cost guidance for 2010 to a maximum of €1,250 million before taking into account provisions for the cost initiatives of around €40 million. The forecast includes a planned increase in expenses for growth initiatives of more than 50 percent to around €100 million in 2010. The Executive Board proposes a stable dividend of €2.10 per share. Beyond the proposed dividend, the company does not currently plan any distributions in the form of share buybacks.

Reto Francioni, CEO of Deutsche Börse AG, said, “Financial year 2009 was shaped by the effects of the financial market crisis on our clients. Nevertheless, we closed the financial year with a clear profit. This is primarily due to our diversified business model, which is already showing a return to growth in some areas and products. We will further expand our clear strengths in technology, risk management services and product innovation while maintaining our strict approach to cost management.”

Streamlining of management structure and further cost initiatives totaling around €50 million per year

The financial crisis will result in structural changes in the financial markets as well as new customer needs. We will increase expenses for growth initiatives in 2010 by more than 50 percent over the previous year, to around €100 million, in order to seize opportunities arising from the changing market environment. This will serve to expand the Company’s strengths in technology, risk management services and product innovation. At the same time, the Company continues its strict approach to cost management in light of a changing market environment.

In addition to reducing the number of managers, the cost initiatives also include a further structural reduction of non-personnel costs with sustainable cost savings totaling approximately €50 million per year from 2011. The planned measures therefore complement both the 2009 program to reduce discretionary fixed costs by €70 million a year and the restructuring and efficiency program launched in 2007 saving €100 million a year. In the context of the restructuring and efficiency program, Deutsche Börse Group already gathered positive experience with the build up of the Prague location, which already comprises around 250 employees. The possibility of relocating further positions will be analyzed as part of a new location concept. Based on that, the Company is considering further efficiency measures in the framework of an initiative to optimize operational processes and structures. The company’s Supervisory Board was informed of the cost initiatives and potential further steps today, and has expressed its support for the Executive Board’s plans.

Reto Francioni, CEO of Deutsche Börse AG, said, “By taking these steps, we are creating additional flexibility in order to seize market opportunities resulting from the financial crisis. This will serve our clients, our shareholders and the effectiveness and integrity of the markets we organize.”

Gregor Pottmeyer, CFO of Deutsche Börse AG, also responsible for HR, said, “Deutsche Börse Group shows strong cash generation despite recording a decline in earnings in 2009. The cost initiatives resolved today are a continuation of the strict cost discipline shown over the past few years. Our costs for 2009, adjusted for the ISE impairment, were €1,264.4 million, thus below our cost target for the year. We are reducing our cost guidance for 2010 to a maximum of €1,250 million without taking into account provisions of around €40 million for the cost initiatives announced today. This guidance already includes a planned increase in expenses for growth initiatives of more than 50 percent to around €100 million in 2010.”

Preliminary results for Q4 and full year 2009

Based on the preliminary figures published by the Company on Tuesday, sales revenue fell by 16 percent in 2009 to €2,061.7 million (2008: €2,455.1 million). The decline was largely due to the reluctance of market participants to trade on the cash and derivatives markets as a result of the financial and economic crisis. Consequently, sales revenue in the Xetra and Eurex segments declined considerably, whereas Clearstream’s post-trading activities and the market data business showed a relatively stable development. Overall, the level of revenue seen in record year 2008 was not achieved; nevertheless, Deutsche Börse Group considers this development to be further proof of the stability of its diversified business model. In addition to sales revenue, the Group generated a further €97.4 million in net interest income from banking business, 59 percent less than the previous year (2008: €236.8 million). The decline was a result of the drop in short-term interest rates, which fell to historic lows in 2009. The Company booked an extraordinary gain of €66.7 million in Q4/2009 in other operating income in the Corporate Services segment resulting from the termination of a financial loss liability insurance policy with capital formation. Post tax, this produces a positive effect on the net income in the amount of €47.3 million.

Total costs were significantly higher than the previous year at €1,680 million (2008: €1,284.0 million) due to the impairment charge relating to the International Securities Exchange (ISE) of €415.6 million. Adjusted for this extraordinary effect, total costs amount to €1,264.4 million, down 2 percent on 2008. In addition to the ISE impairment, total costs include further impairments in the amount of €17.8 million relating to different software components in Q4 2009. The result from equity investments at €–4.8 million was below that of 2008. An impairment of the equity investment in Direct Edge Holdings, LLC of €27.0 million in Q4 2009 had a negative effect on the “at equity” result.

Overall, Deutsche Börse Group thus generated EBIT (earnings before interest and taxes) of €637.8 million – a year-on-year reduction of 58 percent (2008: €1,508.4 million). Adjusted for the ISE impairment, EBIT amounted to €1,053.4 million, a decrease of 30 percent compared to the prior year. The net financial result for 2009 was €–79.7 million, reflecting in particular interest payments in connection with the financing of ISE concluded in 2008. The Group’s effective tax rate was reduced to 26.9 percent in 2009 (2008: 28.5 percent) due to the relocation of employees to Eschborn and adjusted for the tax credit in connection with the ISE impairment. Non-controlling interests, through which profit and losses of subsidiaries are shared with minority shareholders, increased from €–17.0 million in 2008 to €24.9 million in 2009. The increase was largely due to the fact that the ISE impairment was borne in part by SIX Swiss Exchange AG.

Net income for 2009 amounted to €496.1 million, as against the previous year’s € 1,033.3 million – a decrease of 52 percent. Adjusted for the ISE impairment, this results in a decrease in net income of 32 percent to €700.2 million. Basic earnings per share declined, based on the weighted average of 185.9 million outstanding shares, by 51 percent to €2.67 (2008: €5.42 with 190.5 million outstanding shares). Adjusted for the ISE impairment, this yields basic earnings per share of €3.77, which corresponds to a decline of 30 percent year-on-year. The Group’s basic operating cash flow amounted to €4.31 per share compared to €6.71 the previous year, confirming the sustained high earnings power of the Group.

In the fourth quarter 2009 Deutsche Börse reported a 17 percent decrease in sales revenue to €505.4 million (Q4/2008: €609.0 million). Due to the ISE impairment, costs amounted to €753.2 million (Q4/2008: €359.7 million). Adjusted for the ISE impairment, costs fell by 6 percent to €337.6 million. EBIT in fourth quarter 2009 stood at €–166.3 million compared to €322.5 million in Q4/2008. Adjusted for the ISE impairment, EBIT amounted to €249.3 million, a decrease of 23 percent compared to the prior-year period. Earnings per share in Q4/2009 stood at €–0.18 compared to €1.19 in Q4/2008. Adjusted for the ISE impairment, Q4 EPS stood at €0.92, a decrease of 23 percent compared to the same quarter the previous year.

The Executive Board of Deutsche Börse AG proposes a stable dividend for 2009 of €2.10 per share. After adjusting for the non-cash ISE impairment, this corresponds to a dividend payout ratio of 56 percent. Beyond the proposed dividend, the company does not currently plan any distributions in the form of share buybacks.

Segment reporting for financial year 2009

Uncertainty over economic development in 2009 caused institutional and private investor demand to slow. This resulted in a 51 percent decline in order book turnover on the Xetra electronic trading platform to €1,060.6 billion, and a 25 percent drop in volumes on the trading floor in Frankfurt to €60.0 billion. Trading volume in structured products on the Scoach platform declined by 34 percent to €43.0 billion. Thus, segment sales revenue declined by 37 percent to €251.0 million (2008: €399.4 million). EBIT in the segment fell by 57 percent to €94.2 million (2008: € 219.4 million).

Trading volume in the Eurex segment also declined in 2009. This was mainly due to decreasing volatility, lower trading volumes on the equity markets and constant low interest rates throughout the year. Thus, the number of contracts traded on Eurex and ISE sank by 17 percent to 2,647.4 million. On this basis, sales revenue in the Eurex segment fell by 20 percent to €804.0 million (2008: €1,010.1 million), and EBIT, adjusted for the ISE impairment, at €377.8 million was 37 percent below the previous year’s figure (2008: €597.5 million).

The average value of the securities held in custody at Clearstream decreased by 3 percent to €10.3 trillion. The slight drop is primarily due to declining equity market valuations in the first half 2009. The increase in international securities held in custody by 5 percent only partially offset this effect. The 11 percent decrease in the number of settlement transactions to 102 million is due to reduced trading activity on the cash markets. In contrast, average outstanding volumes in Global Securities Financing rose by 21 percent due to continued high demand for collateralized securities financing services. All in all, sales revenue in the Clearstream segment thus decreased year-on-year by 6 percent, to €720.8 million (2008: €769.3 million). In addition to sales revenue, the Clearstream segment generated a further €97.4 million in net interest income from banking business (2008: €236.8 million). This resulted in EBIT of €334.7 million for 2009, a 32 percent decline over the prior year (2008: €489.6 million).

Sales revenue in the Market Data & Analytics segment for 2009 was €188.5 million, 4 percent above that of the previous year (2008: €180.6 million). Decreases in the number of data package subscribers were largely offset by new products and the consolidation of the US financial news agency Market News International Inc. (MNI), which was consolidated in the first quarter 2009. Segment EBIT of €105.9 million was only slightly below that of the previous year (2008: €106.9 million).

Sales revenue in the Information Technology segment, which is comprised of internal and external business, rose slightly over the prior-year level to €506.9 million (2008: €488.8 million). This is partly due to the increased development activity for the Group’s business areas, and partly to the reallocation of revenues with SIX Swiss Exchange AG for the operation of the Eurex system from the Eurex segment to the IT segment. External revenue in 2009 stood at €97.4 million compared to €95.7 million in 2008. EBIT in the segment rose by 1 percent to €120.1 million (2008: € 119.2 million).

Beginning 2010, Deutsche Börse Group will be simplifying the structure of the Company’s segments. In this context, both the IT and the Corporate Services segments will be allocated to the Xetra, Eurex, Clearstream and Market Data & Analytics segments. As a result, the Company will only have four segments in financial reporting as of 2010.