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Report on expected developments – future development of results of operations
Given its diversified business model and multiple sources of revenue, Deutsche Börse Group continues to consider itself very well positioned and expects to see a positive trend in results of operations over the medium and long term. This expectation is based on, among other things, the structural growth opportunities that the company intends to exploit. The Group expects net revenue to increase further in the forecast period. This assumption is essentially based on a further increase of the contribution from its structural growth initiatives as well as from new growth opportunities (for details, please refer to the report on opportunities). Moreover, market speculation on future interest rate developments in the US and Europe may boost trading activity in interest rate derivatives at Eurex derivatives exchange in 2019 – while higher or potentially increasing US interest rates could lead to a further increase in net interest income from banking business in the Clearstream (post-trading) segment. Statements on the further development of equity market volatility, which increased significantly in the past financial year, are difficult to make at the beginning of 2019. On the one hand, the company continues to anticipate high uncertainty on the markets, among other things, due to numerous unresolved political issues. On the other hand, past experience has shown that too much uncertainty can also lead to market participants taking a very cautious stance, thus resulting in low trading volumes. The company expects a slightly more reticent market environment in the 2019 financial year compared to 2018, due to the slowdown in global economic growth, increased economic risks, and political uncertainties, especially in Europe.
As in financial year 2018, Deutsche Börse Group expects net revenue growth of at least 5 per cent from structural opportunities. This growth is driven by the Group’s investments which follow the objective to transfer market share from OTC to on-exchange trading and clearing and to further expand its positions in existing asset classes by introducing new products and functionalities (for details, see the report on opportunities). In comparison, the development of the business areas depending on cyclical factors largely depends on the degree of speculation regarding future interest rate developments in Europe and on the level of equity market volatility, potentially resulting in further positive or in a negative impact on the Group’s net revenue growth. Net revenue growth expected during the forecast period is based on adjusted net revenue of €2,770.4 million achieved in 2018.
Even if, contrary to expectations, the operating environment turns out to be worse than described above, and clients were to significantly scale back their business activities (particularly in the business divisions which depend upon the development of trading volumes), Deutsche Börse Group believes it is in a position to continue to do business very profitably thanks to its successful business model and cost discipline.
Within the scope of its growth strategy, Deutsche Börse Group pursues clearly defined principles for managing operating costs. The core element of these principles is to ensure the scalability of the Group’s business model. To this end, the Group continuously manages operating costs adjusted for exceptional effects relative to the development of net revenue. Essentially, the Group achieves the necessary flexibility in managing operating costs through two different initiatives designed to enhance operating efficiency. Firstly, the Group has implemented a continuous process to improve operating efficiency by focusing even more on client needs in order to further enhance the quality and efficiency of the services offered. At the same time, this results in simplifying Group-internal processes and saving costs. Secondly, the Group resolved a series of structural cost reduction measures in 2018, and has already commenced the implementation of said measures.
As at the publication date of this combined management report, the company expects that operating costs will be affected by exceptional effects of some €100 million during the 2019 financial year. The majority of these effects are attributable to costs incurred for restructuring and efficiency measures, costs incurred in connection with existing criminal proceedings, and to the integration of already acquired companies.
Given the expected increase in net revenue driven by structural factors of at least 5 per cent, and also given the scalability of the Group’s business model and its efficient cost management, the Group anticipates a growth rate of approximately 10 per cent for (adjusted) net profit for the period attributable to Deutsche Börse AG shareholders during the forecast period. Provided that stock market volatility does not decline significantly compared with 2018, growth of adjusted net profit for the period could also be somewhat higher. At the same time, growth of adjusted net profit for the period could amount to slightly below 10 per cent in the event of less stock market volatility than in 2018 – despite the possibilities of taking countermeasures with regard to operating costs. This assumption is based on an adjusted figure of €1,002.7 million for 2018. In addition, within the scope of its “Roadmap 2020”, the Group confirms its medium-term growth targets of between 10 and 15 per cent on average per year for the adjusted net profit for the period attributable to Deutsche Börse AG shareholders.
Forecast for results of operations 2019
Based on 2018 €m | Forecast for 2019 | |
Net revenue from structural opportunities (excluding exceptional effects) | 2,770.4 | + >5% |
Exceptional effects impacting operating costs | 244.2 | ~€100 million |
Net profit for the period attributable to Deutsche Börse AG shareholders (excluding exceptional effects) | 1,002.7 | + ~10% |
Changes in pricing models
Deutsche Börse Group anticipates sustained price pressure in some of its business areas during the forecast period. The company’s objective is to cushion this price pressure by continually improving its products and services and offering selective incentives for price-elastic business.
Over the long term, the average net revenue per unit (e.g. trading or clearing fees per transaction, or fees for custody services) is expected to decline slightly in all areas of the Group. This is a result of laddered pricing models that lead to a decline in income per unit as customers’ business activities increase.