Executives: Jan Strecker - Investor Relations Gregor Pottmeyer - Chief Financial Officer Eric Mueller - GMC

Member
Analysts: Kyle Voigt - KBW Arnaud Giblat - Exane UK Richard Repetto - Sandler O'Neill & Partners Daniel Garrod - Barclays Capital Martin Price - Credit Suisse UK Roland Pfander - Oddo Germany Peter Lenardos - RBC

UK
Operator: Good afternoon ladies and gentlemen, and welcome to the Deutsche Boerse AG Conference Call regarding the Q1 Results 2016. At this time, all participants are have been placed on a listen-only mode and the floor will be open for questions following the presentation. Let me now turn the floor over to, Mr. Jan Strecker.

Jan Strecker: Welcome, ladies and gentlemen, and thank you for joining us today to go through our first quarter 2016results.

With me are Gregor Pottmeyer, CFO and Eric Mueller, GMC Member. Gregor will take you through the presentation. After the presentation, we will be happy to answer your questions. The presentation materials for this call have been sent out via email earlier today and can also be downloaded from the investor relations section of our website. As usual, this conference call will be recorded and is available for replay.

Let me now hand over to you, Gregor.

Gregor Pottmeyer: Welcome, ladies and gentlemen. I would like to use this opportunity today to give you an overview of the development in the first quarter. This is the best quarter ever. Eurex was the main driver for the results in the first quarter.

In particular, net revenue performance was strong index derivatives at Eurex and commodity product at EEX. In total, net revenue increased by 8%. Adjusted operating costs increased only due to consolidation effects. As a result, the adjusted EBIT increased by 9% and adjusted EPS stood at €1.25. On this basis we are confirming our guidance for double-digit earnings growth for the full year.

Due to the earnings cost gross debt to EBITDA improved to 1.5 times which is in line with the AA credit rating metric of Deutsche Börse. We have also made progress in implementing our growth strategy accelerate. In addition to these various organizational changes that entered into effect his year, we have further optimized our portfolio of initiatives and shareholdings. In March, we entered into an agreement with NASDAQ regarding the sale of ISE for US $1.1 billion and we sold our stake in Infobolsa to BME for €8.2 million. We will hold our Annual Shareholder Meeting on May 11.

The dividend for 2015 will be paid the day after. The proposal to shareholders is to increase the dividend by 7% to €2.25. We have also made good progress with preparing all the necessary approvals for our merger with the London Stock Exchange Group since the announcement of the transaction on March 16 and as for your understanding that we will not go into detail on the merger during today's call. I am now turning to group financials on Page 2. Net revenue in the first quarter increased by 8% to €649 million.

As part of net revenue the net interest income increased significantly. This is mainly because we included the Eurex NII from cash collaterals in May last year. But although the Clearstream NII increased by almost 40% due to higher rates for [indiscernible] in U.S. dollars. Operating costs adjusted for exceptional items increased by 7% to €301 million.

This increase is entirely due to the conservation [ph] of FX in the second quarter and 360T in the fourth quarter last year. Exceptional items totaled €39 million which was mainly driven by the LSE merger process and the divestiture of ISE. This was not included in our full year forecast and we are planning to give you an update on this number with our second quarter results. The adjusted EBIT increased by 9% to €350 million. As per out guidance, the tax rate increased from 26% to 27%.

Apart from the higher contribution from German based businesses like EEX and 360T this relates to an increase of the city tax at the headquarters. Due to an FX gain of €18 million in the first quarter last year, net income and EPS growth was lower compared to the EBIT growth. Adjusted for the FX gain and exceptional items, first quarter EPS grew 7% to €1.25. Before I turn to the quarterly result on a segmental level, I would like to go through a couple of changes to the financial reporting in the first quarter. In the Eurex segment, ISE is now classified as discontinued operations in accordance with the requirement of IFRS files.

This means that it is excluded from the consolidated income statement this year as well as last year. For reasons of comparability and modeling, we included ISE and the numbers in this presentation and the explanations in the quarterly statement. From next quarter onwards we will only calculate the financials excluding ISE. Also in the Eurex segment we reallocated the revenue with Eurex Repo to the other line item. In the Xetra segment we will now on show revenues from listings separately.

Previously these were included in the other line item. In the Clearstream segment we have changed the reporting methodology from being service based to a product and market view. Previously settlement and custody have been the main line items. Now it is the ICSD business which is international business in Luxembourg and the CSD business which is the domestic German business in Frankfurt. This change is due to the introduction of Target2-Securities.

This T2S we expect a shift from settlement to custody revenues to occur. The new reporting methodology will help to avoid the problems the volatility in revenue development. Furthermore we are now definitely showing the fast growing Investment Fund Service business to increase its visibility. For those three line items the assets under custody are the major business drivers for modeling purposes. The remaining line items are unchanged.

The Market Data and Services segment has merged the two and market solutions business segments into infrastructure services. And the information business segment has been renamed Data Services. The segments overlapping change was real filing of EEX connectivity revenues from MD & S to Eurex. I am now turning to the quarterly results of individual segment starting with Eurex on Page 4. The Eurex development in the first quarter was mainly driven by the strong commodities performance at EEX, inclusion of FX net revenue from 360T since the fourth quarter of last year and high double-digit growth of the index derivatives business.

In total, net revenue in the Eurex segment stood at €314 million and adjusted EBIT amounted to €176 million. As announced on March 09, we have entered into an agreement regarding the sale of our International [ph] segment for a total cash consideration of US $1.1 billion. This excludes ownership interest in Bats Global Markets, which recently had their IPO and Digital Asset Holdings. Because the goodwill from the ISE acquisition has been allocated to the Eurex segment as a whole most of it will remain on the balance sheet post divestiture. Therefore we are expecting a high triple digit million euro disposal gain at the time of the closing of the transaction.

The transaction has received antitrust clearance already and is now still subject to the approval of supervisory authorities. This is anticipated for mid-2016. For modeling purposes, we included ISEs first quarter financials on the right hand side of Slide 5. In the cash market, we saw a decline of the order book turnover by 12% at Q1, 2015 has been the strongest cash market quarter since 2011. Net revenue in the Xetra segment declined to €43 million and EBIT on an adjusted basis stood at €25 million.

At Clearstream, the total assets under custody decreased by 1% year-over-year to €13 trillion. This was driven by a decline in the domestic German CSD business. While the international ICSD business in Luxembourg and the IFS investment fund service business were growing. Outstanding’s in the collateral management business GSF, continued to be negatively effective on Central Bank monetary policies which was due to the need for secure transactions. The cash balances at Clearstream, adjusted for blocked accounts, decreased by 4% to €11.4 billion.

In total net revenue in the Clearstream segment amounted to €187 million and the adjusted EBIT stood at €94 million. Net revenue in the Market Data and Services segment declined by 5% year-over-year. This was mainly a result of an exceptional high level of audit related net revenues in the first quarter last year. Adjusted for that, MD&S net revenue increased by 1%. Total net revenue in the MD&S segment amounted to €104 million and the adjusted EBIT stood at €55 million.

This brings me to Page 9 of the presentation where we benchmarked the first quarter results against our full year guidance. With organic net revenue increase of 4% in Q1, we are slightly below our full year guidance of 5% to 10% net revenue growth, but adjusted for the exceptional high level of audit revenue at MD&S in the third quarter last year organic net revenue growth was slightly above 5%. The main reasons why we concluded the quarter at the lower end of our full year guidance range were cyclical influences at Xetra and Clearstream as well as weaker than expected performance in some of our gross businesses. At 360T, the first quarter 2015 was difficult to compare with the first quarter this year because the Swiss National Bank had unpacked the Swiss franc from the Euro in January last year which had cost considerable increases in trading volume on the FX market. In our Investment Fund Services business we saw a more difficult environment in the first quarter this year due to the decline of settlement activity as the consequence of the equity market environment.

In addition, Q1 last year had been very strong and also driven by the positive effects from the just completed acquisition CGSF. At STOXX we saw similar effect, index levels this year were almost 20% below the first quarter last year, but this was compensated by net inflows into ETFs as the trend towards passive investment is intact. In all three businesses, we continued to expect double-digit growth this year. Once the comparables are becoming more favorable and/or the cyclicality is improving. In order to achieve scalability of the business model we delivered stable organic operating costs.

On that basis 4% net revenue growth translated into 8% EBIT growth. Therefore, we are confirming our full-year guidance for double-digit earnings growth. As we go through the remainder of the year, lower than anticipated net revenue growth could be offset by a bundle of short term cost measures. We have already identified and prepared for execution. The final item on the last slide of today’s presentation is our dividend proposal.

As announced, there is a full-year decided in February we are proposing to increase the dividend by 7% to €2.25. This would translate into a payout ratio of 55%. The dividend is still subject to shareholder approval at our AGM on May11 and the dividend then to be paid on the day, thereafter. Before we take your questions, I would like to take the opportunity to invite you to a Q&A session for analysts and investors with Carsten and myself on June 1, in London. This event is a one-time replacement for our Annual Investor Day in light of the ongoing merger project.

We will send out the invitations soon. This concludes our presentation; we are now looking forward to your questions.

Operator: [Operator Instructions] And the first question comes from Kyle Voigt, KBW USA. May we have your question please?

Kyle Voigt: Hi, thanks for taking my question. I was just wondering, net of taxes paid for the ISE gain; can you tell us what the net cash you expect to bring in is for the sale? And then also, can you give us any update with respect to what you expect to use that cash for? Thank you.

Gregor Pottmeyer: So far no decisions made with regard to the proceeds we get out of the sale of ISE. So, as I mentioned, we expect that we receive the closing and the mid off of the year and then we will make the decisions how to use the proceeds.

Kyle Voigt: Okay, and just a follow-up. Can you give us any update on the expected shareholder vote or tender dates for the LSE shareholders, or Deutsche Boerse shareholders, for the merger?

Gregor Pottmeyer: No, we are currently in the process to prepare all the documents we need for the Exchange of Deutsche Boerse side and the same for the Annual General Meeting of the London Stock Exchange and we will inform you when we had prepared all the documents and when this voting will take place.

Kyle Voigt: Okay, thanks.

I'll get back in the queue. Thank you.

Operator: Next question comes from Arnaud Giblat, Exane. May we have your question please?

Arnaud Giblat: Hi, I've got a question on Eurex. I was wondering if you could give us an update on the status of your proposal for profit and margining, and whether that's getting traction with your clients [indiscernible] trading into your clearinghouse.

As well, at 360T, could you maybe explain the lack of progress on a sequential basis, on a quarter-on-quarter basis? I understand that Q1 was a tough comp, but maybe if you can compare it to Q4 that would be helpful? And finally, EEX has made very, very strong progress in Q1. Could you maybe break out what is structural versus what is cyclical there? Thank you.

Gregor Pottmeyer: I can start with the EEX and 360T and Eric will give you an update on the Eurex gain. EEX its, what you see here is that we still are in the process to get a higher market share on exchange. So, three years ago about roughly 10% was traded on the exchange 90% OTC.

Today we are in the range of roughly 30%. So though that’s the structural reason why we are able to show strong growth rates at EEX. 360T, yes as I already mentioned, so Q1 was a very strong quarter. As we are all aware of the action of the Swiss National Bank and was exchange Swiss Franc and euro [ph] and that was the reason for the very strong Q1 quarter. Overall on 360T and we were able to gain some market share, but due to the effect that, the markets are compared to Q1, 2015 lower, the net revenues slightly decreased.

Eric Mueller: Yes, on the OTC clearing front, as you know the clearing obligation will finally kick in, in Europe in June this year, but there was also this element of having a staggered approach to the introduction. So, if you remember the ambition of our OTC clearing offering is in the dealer to client space in particular and that will be what is called category three under the phased-in approach and that won't come into effect until summer 2017 and that’s why the excellent performance of Eurex in the first quarter really is in the listed space, the revenue from OTC clearing for this year is as expected negligible.

Arnaud Giblat: Okay. Thank you.

Operator: The next question comes from Richard Repetto, Sandler O'Neill US.

Go ahead with your question please.

Richard Repetto: Yes, good morning, Gregor. The question I have is on the Bats position that you maintained, or will maintain in the ISE sale. I was just trying to see it looks like, at least marked right now, US$200 million. Is this a long-term holding for you? And I know there's a restriction period from the time of the IPO, but what are your intentions? And then, the second part is just when do you intend to file the merger announcement, the official merger announcement, or is there a target date?

Gregor Pottmeyer: Yes, thanks Richard for the question.

So we like our holding in Bats and so far, no decisions are made whether we want to change that.

Richard Repetto: And is there any update on when the target date to file the merger announcement officially with the LSE?

Gregor Pottmeyer: No, as I mentioned a few questions ago, so we are in the process to prepare all the necessary documents and when we have finalized that, we will inform you immediately.

Richard Repetto: Understood. Okay, thank you very much.

Operator: The next question comes from Daniel Garrod, Barclays UK.

You may ask your question please.

Daniel Garrod: Good afternoon, Gregor. Couple of quick ones from me. The Accelerate program identified €300 million to €500 million worth of structural revenue opportunities out to 2018. I was wondering if you could comment, are there any of those within that that you already feel you're delivering on in 2016, any color on in what areas that's already coming through? Second question, you took full ownership of STOXX obviously last year.

Can you identify what you're doing there under full ownership that you wouldn't have been able to do in a joint venture? Are there sort of product launches? Are there plans for others that it required the full ownership? Thank you.

Gregor Pottmeyer: Yes, with regards to our Accelerate program, as you can see in our numbers, we made great progress on the EEX side. I think I already covered that. With regard to the Index business, so we are very confident to achieve here double-digit growth as we see inflow in our stocks asset under management and there's a clear trend to passive investments. So we are delivering continuously on that side.

There are other areas what we also covered, OTC clearings, so you will see full impact here in 2018, so starting mid of 2017. With regard to our collateral management activities at Clearstream, so one of the key drivers is T2S and Clearstream will go live in February 2017 next year. So you will see the main impact 2017 and 2018. So was just some examples. Overall, we are right on track on the clear path to deliver our mid-term growth targets.

With regard to STOXX, so the integration takes place as planned. There are some IT technologies activities what we are currently implementing here. On the other hand side, we prepare to strengthen our STOXX offering, bring the STOXX family more on a global basis.

Daniel Garrod: Thank you.

Operator: The next question comes from Martin Price, Credit Suisse UK.

You may go ahead with your question please.

Martin Price: Good afternoon. I have a quick question on the regulatory landscape. ESMA recently recommended that its open access for derivatives should apply from 2018, which I think is a couple of years earlier than was the case previously. I was just wondering if you could share some thoughts on this recommendation and how you see it potentially impacting your kind of longer-term revenue growth targets? Thank you.

Jan Strecker: Hi Martin, this is Jan speaking. So first of all, if you look at the timetable for MiFID-MiFIR, we are currently faced with one-year delay. So that might have influenced the ESMA thinking. Secondly, the ESMA recommendation has to now be analyzed by the European Commission. So we have to see what they think and whether they might engage into broader consultation on this matter.

So it’s too early to tell whether this will actually happen, but obviously if introduced Deutsche Boerse Group will comply with all regulatory requirements and as we’ve always said in the past, there are positive effects, so opportunities besides potential risks for the business. So we would obviously also try to pursue the opportunities once there are regulatory changes.

Martin Price: Understood. That's great. Thanks, Jan.

Operator: The next question comes from Roland Pfander, Oddo Germany. You may go ahead with your question please.

Roland Pfander: Yes, good afternoon. Could you elaborate a little bit on your GSF business? Do you think you see a flaw here, going forward, or any further development each way? Secondly, could you also share your thoughts on the development of net interest income within Clearstream? It was trending up in the first quarter. Will this continue, or will it move sideways from here? Thank you.

Eric Mueller: Yes so on, it’s Eric. So on the GSF business, what we are seeing is that really the negative rates have been affecting our product set in that area and the Central Bank funding has become the primary source really of market influence in that area. So the demand for some of the secured products that we have including the GC pooling product, or the Repo products that we have out there have been on the decline. Now we are seeing that there is some flaw to that development. We are seeing also that once you would expect those policies to go back to normal that the money market and the secured money market in particular will not go back to how it was before.

So before you had a situation where many banks and also the corporates were very comfortable to put their money into other institutions on an unsecured basis. So definitely ploying [ph] the collateral and the products that we have on the GSF are the way forward in our view and the money market once it goes back to normal will be more of a secured money marked and in unsecured money markets. So we have the right product set, but I think we should expect further cyclical pressures on that line item for the foreseeable future until those policies change back. NII, and maybe to complete that one, indeed you mentioned the pickup we have seen in the Clearstream area. The pickup in the Clearstream area is because we have seen a 25 basis point rate move in the U.S.

end of 2015, so that directly benefits us as out of these $11.4 billion in customer cash that Gregor mentioned roughly 48% are U.S. dollar based. So we do get a direct benefit from that and we expect the level we have seen in Q1 to be certainly sustainable if rates stay where they are. If there is another rate move in the U.S. then obviously we will see another pickup in that line item.

Roland Pfander: Thank you.

Operator: The next question comes from Peter Lenardos, RBC UK. You may go ahead with your question please.

Peter Lenardos: Good afternoon, gentlemen, it's Peter Lenardos from RBC in London. I just had a question on is there still a criminal investigation pending with regards to Clearstream in the U.S., and if there's been any update whatsoever on that matter? Thanks.

Gregor Pottmeyer: So far there are no news on that side, so we are still cooperating with the U.S. States Attorney. We're preparing all the documents and answering the questions what they ask. So far, nothing new to report.

Peter Lenardos: Okay.

Thank you, but still pending, thanks.

Jan Strecker: All right. If there are no further questions in the pipeline, we would like to conclude today’s call. Thank you very much for your participation and have a good day.