Reto Francioni, CEO of Deutsche Börse, said: "The preliminary results mark 2005 as the most successful year in the company's history. In 2006 we will set the course and continue to build momentum for Deutsche Börse. We are confident about the future." CFO Mathias Hlubek added: “The outstanding revenue and results performance was achieved through significant growth across the company's core businesses and continued cost discipline. The results prove one more time the strength of our business model. The promising start to the year shows sustained growth across the company's core business."
Strong performance in the fourth quarter made a significant contribution to the record results achieved in financial year 2005: At €408.8 million, sales revenues were around 12% higher than in Q4 2004 (€364.4 million). Profits from the sale of subsidiaries and investments of around €13 million compensated some exceptional cost items in the fourth quarter. EBITA thus amounted to €178.9 million – an increase of 48% (Q4/2004: €120.7 million). Earnings per share rose to €0.96 in the fourth quarter (Q4/2004: €0.49).
Deutsche Börse’s Executive Board proposes a threefold increase of the dividend from €0.70 to €2.10 per share. This proposal means that, as indicated in May 2005, Deutsche Börse is substantially increasing the dividend payout ratio. This represents another key step in the systematic implementation of the capital management program presented in May of last year.
With this program, Deutsche Börse will distribute funds not required for the Group's operating business to shareholders, subject to specific investment needs and capitalization requirements. In 2005, net tangible equity was defined as the key indicator to manage capital requirements going forward. A minimum amount of around €1 billion was defined in order to safeguard the strong credit ratings. Net tangible equity stood at €1.1 billion as at 31 December 2005 (2004: €1.4 billion). In the period between 1 January and 20 February, 1 million shares were bought back for a total of €94.5 million. The Company plans to cancel 3.9 million shares in April 2006, thus reducing its number of shares outstanding to 102 million.
Stock exchange consolidation
Deutsche Börse also announced cornerstones of its strategic review on Tuesday. Referring to a possible stock exchange consolidation, CEO Reto Francioni said, “A combination of Deutsche Börse and Euronext is by far the most attractive among a large number of relevant options – for customers and shareholders, as well as for the financial centers involved. A transaction must be economically compelling, strategically attractive, and politically viable.” Deutsche Börse continues to be in favor of a dialogue with a view towards a combination of two partners.
Deutsche Börse sees three clear requirements for the organizational concept, the structure and the business model of a combined exchange group:
- The organization and structure of a European stock exchange group must take into account the interests of the respective financial centers, while being both efficient and clear. Management of the business areas of the combined group should be divided between Deutsche Börse’s and Euronext’s existing locations in such a way that a fair balance is achieved between the participating financial centers within the framework of a European location concept. National operating companies for the respective cash markets represent a key element of this concept. Considerations with regard to efficiency and practicability, and experiences drawn from other European projects show that it is necessary to focus the central functions of the group in one location. The European location concept envisages Frankfurt as the location of such headquarters, among other functions.
- Deutsche Börse intends to take a fundamentally pragmatic approach to consolidation without giving up material parts of its business portfolio. Clients value Deutsche Börse Group’s products and services both in trade and post-trade functions; the business model has played a key role in the Group’s economic success of recent years. The trade and post-trade functions in the German cash market have been integrated in an end-to-end process chain for a long time. The structure is based on a joint initiative of trading participants and Deutsche Börse for the continued improvement of the German equity market, and will not be extended beyond Germany. The vast majority of Deutsche Börse Group's settlement and custody activities relate to the off-exchange bond business, itself subject to intense international competition in which the Company is successfully positioned. The latest decisions by the UK Competition Commission and the German Federal Cartel Office with regard to the London Stock Exchange confirm the view that this model does not stand in the way of consolidation. Deutsche Börse’s pragmatic approach includes participating in a discussion on different formats of a single European equity clearinghouse. In the context of a combination of Deutsche Börse and Euronext, such a move could be another key contribution towards the creation of a European trading and clearing infrastructure.
- Information technology would be vital in a combination of Deutsche Börse and Euronext. The considerable synergies for the exchange and its clients could only be realized quickly and reliably if the new company is responsible for the integration of the trading infrastructure. The new company’s management team must be directly responsible for controlling and implementing such integration.
Segment reporting for 2005
Segment reporting shows Clearstream maintaining its position as the strongest segment in terms of revenues again in 2005. Total revenue, including net interest income from banking business, rose from €655.9 million in 2004 to €743.2 million. This was driven by international custody business and settlement. Custody volumes rose by 15% year-on-year to €8.8 trillion, with international securities displaying disproportionately high growth, increasing by 20% to €3.9 trillion. Settlement instructions rose by 8% to 53.9 million (2004: 50.0 million instructions). EBITA in the segment grew by 31% to €233.4 million in the year under review (2004: €177.5 million).
With revenue growth of €96.1 million to €503.5 million, Eurex achieved the highest absolute growth of all segments in 2005 (2004: €407.4 million). In addition to the 17% increase in contract volumes, the revision of profit allocation between SWX Swiss Exchange and Deutsche Börse contributed to this development. With effect from 1 January 2005, Deutsche Börse receives 85% of the profits from Eurex, compared with the previous 80%. EBITA for the Eurex segment was €253.9 million, as against €174.9 million the previous year.
In the Xetra segment, sales revenue rose by 15% to €247.7 million, as a result of increased trading activity both on the Xetra trading system and in floor trading (2004: €216.3 million). The number of transactions on Xetra rose by 17% to 81.3 million (2004: 69.4 million transactions). The number of contract notes in floor trading climbed by 14% to 27.7 million (2004: 24.2 million contract notes). EBITA grew by 31% to €112.6 million.
Sales revenue in the Market Data & Analytics segment increased by 7%, reaching €130.0 million (2004: €121.7 million). This was driven by increased demand for real-time trading data. The segment generated EBITA of €45.5 million, compared with €45.1 million in 2004.
When examining the results recorded by Information Technology, it is necessary to take into account the structural changes in the segment as against the previous year. With effect from 1 October, entory, together with its subsidiaries, was sold to Softlab, a member of the BMW Group. The deconsolidation of entory in the fourth quarter of 2005 meant that the revenue generated by the segment with business partners outside of the group fell slightly by 4% to €119.8 million in 2005 (2004: €125.4 million). The internal revenue generated with other segments within Deutsche Börse Group was stable year on year at €340.6 million (2004: €340.0 million). EBITA in the Information Technology segment saw slight growth (+1%), reaching €91.1 million in 2005 (2004: €89.8 million).
