Executives: Jan Strecker – Investor Relations Carsten Kengeter – Chief Executive Officer Gregor Pottmeyer – Chief Financial

Officer
Analysts: Kyle Voigt – KBW U.S. Peter Lenardos – RBC UK Daniel Garrod – Barclays Capital UK Arnaud Giblat – Exane UK Martin Price – Credit Suisse UK Johannes Thormann – HSBC Germany Anil Sharma – Morgan Stanley

UK
Operator: Good afternoon, ladies and gentlemen, and welcome to the Deutsche Boerse AG Conference Call regarding the Q4 and Full Year 2016 Preliminary Results. At this time, all participants have been placed on a listen-only mode and the floor will be opened 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 preliminary fourth quarter and full year 2016 results. With me are Carsten Kengeter, CEO; Gregor Pottmeyer, CFO; and Eric Mueller, GMC Member. Carsten and 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, Carsten.

Carsten Kengeter: Welcome, ladies and gentlemen. I would like to use the opportunity today to give you an overview of the progress we have made in 2016, our expectations for 2017 and an update on the planned merger with the London Stock Exchange Group. After that Gregor will take you through the preliminary results and our financial projections for 2017 in more detail.

Finally, we will be happy to take some questions. In addition to the progress we’ve made last year in the project to merge with the LSEG, we maintained the pace in implementing our growth strategy called Accelerate. We launched a number of new growth initiatives and planted the seeds of further innovation to benefit from the change in the financial sector. We also continued to streamline our project portfolio and optimize the shareholdings of the Group. This for instance resulted in the divestiture of ISE in the summer of last year.

We’ve also made progress in our efforts aimed at cultural change across the Group to become even more client centric. In combination with structural and cyclical growth, this resulted in the yet another year of very positive revenue performance. At the same time, we continue to improve our operating efficiency for a number of sustainable measures. This has led to net income growth at the upper end of our 10% to 15% target range. In the fourth quarter, we achieved the strongest revenue performance since 2008.

This was driven by the ICSD business at Clearstream, double-digit growth in derivatives volumes especially in fixed income products, and the best quarter ever in the commodities business EEX. As a result of the performance in 2016 and in line with our distribution policy, we are proposing to raise the dividend to EUR2.35 per share. This still requires formal approval by our Supervisory Board, which has already expressed support, and by our shareholders at the AGM in May. For 2017, we expect continued progress in our structural growth initiatives, positive cyclical effect for instance in an expected increase in U.S. rates, and a further improvement of the operating efficiency.

Thus we are targeting 10% to 15% net income growth again for 2017. With regards to the planned merger with London Stock Exchange Group, we’ve recently filed the final remedy proposal with the European Commission after careful consideration, we’ve come to the conclusion that this proposal addresses the relevant core of the antitrust concern they have outlined last year. We will of course remain in a constructive dialog; on that basis we are confident concerning the further progress of the approval process. The current deadline for the antitrust decision is April 3rd. After that our local exchange regulator the Hessian Exchange Supervisory Authority will review the merger.

Finally, completion of the merger needs to take place before 30th of June 2017. With this let me now hand over to Gregor to present the results in detail.

Gregor Pottmeyer: Thank you, Carsten. Welcome, ladies and gentlemen. Let me start with the full year financials on the group level.

On the one hand, some of our businesses experienced headwind in 2016. The uncertainty in Europe as a result of the UK has referendum for instance led to outflows from European equities and fund. On the other hand, this being overcompensated by continued structural growth in commodities, spike of equity-market volatility, the rise of U.S. interest rates and the consolidation of 360T. On this basis, net revenue increased by 8% to EUR2.4 billion.

At the same time, adjusted operating costs were up 1% only, despite the consolidation of 360T. On a like-for-like basis, operating costs were even down 1%. In total, the net income increased by 14% and the earnings per share amounted to EUR4.34. This brings me to the results of fourth quarter on Page 3. Net revenue increased by 12% to EUR619 million.

As part of net revenue, the net interest income increased to EUR22 million because of a significant increase of the net interest income at Clearstream. Operating costs, adjusted for exceptional items increased by 3% to EUR343 million. This was mainly due to increase of the variable compensation as a result of the strong fourth quarter. Exceptional items totaled EUR42 million, which was mainly driven by the LSE merger, M&A integration and disposals. The adjusted EBIT increased substantially by 26% to EUR276 million.

Besides the exceptional cost items the EBIT is adjusted for EUR37 million at equity result from the sale of one third of our stake in BATS. Adjusted for exceptional items fourth quarter EPS grew 24% to EUR0.97. I am now turning to the quarterly result of individual segments starting with Eurex on Page 4. The Eurex development was mainly driven by the strong interest rate and index derivatives volumes as well the commodity performance at EX. In total net revenue in the Eurex segment totaled EUR268 million.

And adjusted EBIT amounted to EUR122 million. In the cash market, we saw a decline of the order book turnover by 8%, which was broadly inline with other European exchanges. As a consequence, net revenue in the Xetra segment declined to EUR41 million and EBIT on an adjusted basis stood at EUR8 million. Part of the drop in transaction related net revenue has been offset by a slight increase of the listing revenues. At Clearstream, total assets under custody were slightly down at EUR13.2 trillion.

This was driven by a decline in the domestic German CSD business while the international ICSD business in Luxemburg was flat and the IFS Investment Fund Service business was increasing. The increase of the ICSD net revenue was a result of double-digit growth in settlement activity with sustainable reduction of volume related costs and one-off effect from a fee reimbursement. Outstanding in the collateral management business of GSF continued to be negatively affected from Central Bank Monetary Policies, which reduced the need for secure transactions. Due to a more favorable business mix, the growth in the higher margin securities lending business GSF net revenue increased by 19%. The cash balances at Clearstream adjusted for blocked accounts increased by 7% to EUR11.7 billion.

In addition the higher rates in the U.S. dollar and the mark-up on negative rates introduced mid-2016, resulted in a substantial increase of the Clearstream net interest income. In total, net revenue in the Clearstream segment amounted to EUR206 million, and the adjusted EBIT stood at EUR91 million. Net revenue in the market and data services segment increased by 11% year-over-year, this was mainly driven by the increase of index revenue in light of the higher derivative trading activity on Eurex as well as an increase of data revenue. Total net revenue in the MD+S segment amounted to EUR104 million and the adjusted EBIT stood at EUR55 million.

This brings me to our dividend proposal for 2016 on Page 8. As part of our long-standing distribution policy, we in general aim to distribute 40% to 60% of the adjusted net income to shareholders in form of the regular dividend. In some of the years, this lower net income levels, the payout ratio stood at the upper end of this range. Since the earnings of the group has been growing and we are expecting further growth we are now targeting a pay-out ratio more in the middle of the 40% to 60% range. For 2016 the proposal of the Executive Board combined a reduction of the pay-out ratio to 54%, this increase of the dividend per share to EUR2.35.

I am now turning to the details of our guidance for 2017 on Page 9. Just to remind you this guidance applies to Deutsche Börse group on a standalone basis only. On the one hand we expect to see a further increase of contribution from our structured growth opportunities. Amongst others this includes further growth in commodities, the migration from OTC to on exchange trading across different asset classes. The increase in OTC derivatives clearing, revenues synergies as part of the 360T acquisition, market share gains at Clearstream due to the recent and very successful connection to T2S as well as further proliferation of passive investments.

On the other hand, despite the weak start of the year in equities and equity related derivatives. We see upside effect this year arising from speculation and interest rates and potential further rates increases in the U.S. In addition, we would also expect equity market volatility to increase from time-to-time in 2017. As a result, we are targeting once more 5% to 10% net revenue growth. Operating costs on an adjusted basis will be managed dynamically in the 0% to 5% growth range.

To ensure full scalability of the business model. With this net income is anticipated to grow between 10% and 15% in 2017. This concludes our presentation. We are now looking forward to your questions.

Operator: [Operator Instructions] And the first question comes from Kyle Voigt, KBW U.S.

May we have your question please.

Kyle Voigt: Hi, yes. My first question is for Carsten. My first question is on the concession made on the antitrust review. Could you just provide some more clarity on why you decided to move forward with only Clearnet SA as concession.

From an outsider, it seems like a relatively bold move, but I’m just wondering that move also signals something about your confidence in receiving antitrust approval?

Carsten Kengeter: Thank you Kyle. We can’t go and anticipate the outcome of the antitrust process. Of course, but you can assume that we have had a depth of conversations, analysis and also analysis of the market situation around this topic and after months of deliberation, it seemed that jointly with the LSE Group that this is the right move and that this is addressing the core of the concerns that have been outlined to us, and therefore we took this step. Again, I don’t want to prejudice in anyway the outcome, but you can assume that this is a result of strong long deep deliberations on the part of the teams that we’re dealing with this particular element of the EU process.

Kyle Voigt: Yes thank you.

And then just one follow-up, obviously, you were very close to the antitrust review process as well as working with the state of Hesse officials simultaneously and both of those are requiring a lot of effort, I’m sure, but with you being so close to the situation, could you just help investors understand which of these two approval processes you’re spending more time on, and if there is one that you feel more confident in receiving? Thank you.

Carsten Kengeter: So, the EU process is in its decisive phase market testing has come to a close or is coming to a close right now. And then the ongoing deep analysis within the commission follows, and they will come to a conclusion during the month of March to be announced on the April 3, as further timeline. So this is a process where we are – our contribution has largely been made and we might be called again to have conversations, but it’s largely been made and therefore the work that has gone in and we are kind of – the workload has declined now in this particular area, at the same time, while we have of course been providing been providing information to the state of Hessian and the Supervisory Authority there. The formation of judgment and the arriving as a view in the state of Hessian has not begun yet, so they will start as they have always said, they will stop this once the EU process has drawn to a close, because they want to be sure that they are absolutely analyzing, judging, and reviewing and making a decision on a stable basis that has already taken full consideration of the EU process.

So I think the answer to your question is therefore the deep work with the state of Hessian hasn’t begun yet, but they have received a lot of information of course, but they are looking at this only after the process with the EU has been concluded.

Kyle Voigt: Thank

you
Operator: The next question comes from Peter Lenardos, RBC UK. May we have your question please.

Peter Lenardos: Good afternoon, gentlemen. It’s Peter at RBC in London.

I just had a question on the balance sheet. Could you please just give us some metrics on your net interest coverage, please, at the year-end, since this wasn’t disclosed yet, and on your gross debt to EBITDA? Thanks.

Gregor Pottmeyer: Yes, Peter. One of the key number is across that EBITDA, so we achieved the target of 1.5, so we are at that threshold level with regard to the double-A rating. The interest cover ratio is 25, so clearly above…

Peter Lenardos: Great.

Gregor Pottmeyer: Six times.

Peter Lenardos: Great. Thanks Gregor.

Operator: The next question comes from Daniel Garrod, Barclays Capital UK. May we have your question please.

Daniel Garrod: Yes, good afternoon gentlemen, Daniel Garrod Barclays here. I had a question on the part of the Accelerate program targeted EUR300 million to EUR500 million [ph] of incremental revenue opportunities after 2018, given where we sit now and if you could provide an update on that obviously it was quite a wide range that EUR300 million to EUR500 million [ph], any change in your view on the size of that within that range any changes in the timing of it. Particular, I’m guessing things like the sort of the OTC clearing proportions benefit delayed whether there are any other moving parts that you would highlight. Thank you.

Gregor Pottmeyer: Yes thanks for the questions Daniel.

So far we are fully on track to deliver our 5 to 10 revenue growth every year, so we have delivered that in 2016 you have read out for 2017 and for 2018, it’s basically – it’s the same, so we want to achieve the 5% to 10% net revenue growth rate and a 10% to 15% earnings growth. Where does it come from? So we see that the structural elements where we can grow will increase over time compared to the cyclical elements, so we expect growth in the OTC clearing space unchanged our view that we want to achieve some EUR50 million in 2018. So in 2017 it is going to be a double-digit million euro number but clearly below that level as the transformational phase. So we expect double-digit growth rates on our commodity business, European energy exchange, were we increased our revenues up to EUR216 million, now so we see continued trend from off-exchange to on-exchange, our market on-exchange is now about 30% and we expect that this increase of on-exchange will continue to increase over the next year. FX business 360T so basically its same this year or move, we expect from off-exchange to on-exchange, mid of that year we repair and we will implement our central limit order book functionality including a clearing solution.

So we are convinced that market participants will benefit from that development, we increase efficiency for the market here. Therefore, our view is changed that we expect double-digit growth rate in the FX base. Unchanged view with regard to the index business double-digit growth rate here in this – in our MD+S business. At Clearstream, we are also right on track to targeted securities we have now connected beginning of that month. We are convinced that within the next two to three years, we will increase our market share here to get more into settlement and custody business, specifically in the investments funds service business and we also expect already in 2017 a double-digit growth rate.

And last but not least in the collateral management we also expect to grow here. So these are just the examples for our structural growth initiatives. And you now in addition, we have – we expect some tailwind out of cyclicality specifically in the interest rate and space if the fact, we’ll do another increase in 2017 and maybe over the next two to three years even in Europe, could haven’t done things. So these are additional element and for equity volatility, we also expect from time to time a pickup here.

Daniel Garrod: Thank you, very clear.

Thank you very much.

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

Arnaud Giblat: Good afternoon, could you – just a follow-on on the targets, specifically you’ve added any target that’s you’re going to go to revenues by 5% to 10% in 2015, partially structural, partially cyclical I’m wondering what that target would look like if we assumed that there was no cyclical tailwind this year and that next net interest income was not going up because of fed run rates going up, so would you still be looking at adding 5% revenues. And secondly for 2017, which if you could perhaps highlight a couple of the very big contributors in terms of structural growth for this year, that would be helpful? Thank you.

Gregor Pottmeyer: Yes.

In 2016, the 8% revenue increase roughly 2% came out of the consolidation impact and the rest is basically half structural growth and half cyclical growth. So for 2017, we expect that the structural growth should be in the range of 5%, so without additional cyclical impact. And we see that growth in the areas I already mentioned so double-digit growth rate in the index business, double-digit growth in the – X double-digit growth in the commodity space, some double-digit growth in the OTC clearing space including some new product what we introduced and implemented specifically in the securities lending businesses and in the Clearstream area investment fund services is a structural growing business double-digit growth. So that is up roughly to a 5% increase from our structural initiatives.

Arnaud Giblat: Okay.

Thank you. And you also mentioned that you – connected to targeted securities and you show scope to gain market share. Are you talking to any clients that could be looking at switching right now?

Gregor Pottmeyer: It’s a continued process before our customers decide to switch here but with regard to targeted securities. So we see also some chances to get out of the CSD business as customer has now the opportunity to connect to Clearstream and to pool all their collaterals and cash at Clearstream to get benefit to settle in Central Bank money or to settle in Commercial Bank money, so there are additional benefits for our customer and also out of our IFS business. So we really customer reach us back together today in the hedge form or in the mutual fund processing business and they are now even intuitive to settlement or custody business with us.

So it will continue to increase our market share and without that even a big IDB we are move like UBS move to their other opportunity for us.

Arnaud Giblat: Okay. Thank you.

Operator: The next question comes from Martin Price, Credit Suisse UK. May we have your question please?

Martin Price: Good afternoon, so just a quick question on Clearstream.

I was wondering if you could provide some detail on the changes you intend to make to settlement fees this year following connectivity to the T2S platform. I think you flagged a one-off fee reimbursement in the ICSD business in the fourth quarter. Just wondering if you could provide some detail on this and how significant it was please. Thank you.

Gregor Pottmeyer: Maybe Martin on the first question to targeted securities has launched early February, we are going to roll out a new fee schedule, which combines the CSD, ICSD business as per first of March.

As you mentioned due to the fact that the ECB is now charging for settlement of domestic securities, this part of the revenue stream will drop away at Deutsche Börse. But we believe part of that decline can be compensated with the changes in the fee schedule and then the other part will be over compensated by winning a business over time. So increasing our market share in continental European custody, so that net over net by 2018 this is really a growth opportunity for us. On the ICSD revenues in the fourth quarter, they were roughly EUR10 million above the proceeding quarters it’s almost equally split. So, one-third is pickup of settlement activity that has grown 17% in the fourth quarter.

So this will obviously depend on the future development, the second part roughly one-third is sustainable, so this is a reduction of volume related costs. So the fees we are paying to sub-custody providers for instance and one-third roughly of that increase is a one-off effect from a fee reimbursement which we wouldn’t expect to reoccur.

Martin Price: That’s very helpful. Thank you.

Operator: The next question comes from Johannes Thormann, HSBC Germany.

May we have your question please?

Johannes Thormann: Good afternoon everybody. Johannes Thormann, HSBC. Question on Eurex please, you spoke about the double-digit growth at the 360T in the future, but performance in 2016 seems behind the plan from the time of the acquisitions. Can you elaborate a bit on the reasons for that? And secondly, if you could give us an update on the OTC clearing revenue outlook for 2017 and 2018 please? Thank you.

Gregor Pottmeyer: So with regard to 360T, yes, the revenue – we’re flattish and behind plan.

The reason for that is that we were faced with headwind from market volume overall. So due to the uncertainty in the market, the market volume really dropped and lead development in all our competitors too. The good thing is that 360T gained some market share. So, we were able to even increase our trading volumes, despite the other decrease. So, our view looking forward is unchanged, so we see the general trend from OTC to on-exchange, our concrete offer is to implement central limit order book facility mid of 2017.

We will link that with the clearing solution, so we will make attractive offers to our customers and we expect that we really see double-digit growth rates on 360T.

Carsten Kengeter: Yes. On OTC clearing, I think you are following all the news flow on the various delays that we have been facing. The most recent debate is obviously the delay around category three clearing in Europe with just adds to the previous delays of three years we have seen after clearing obligation in Europe, compared to the U.S. So I would characterize what Gregor said in terms of ambition level, yes, this remains the ambition, but clearly we had last year on the very low single-digit million revenue from that area and there is in that category a risk of underperforming depending on the regulatory outcome, but Gregor did mention that we have other areas where we can make up, so securities lending is one of those areas, collateral fees, et cetera were overall I think I would concur with Gregor’s confidence on the target but the composition specifically I think we have to be realistic and honest about as being behind in the OTC clearing area.

Johannes Thormann: Okay, understood. Thank you.

Operator: The next question comes from Anil Sharma, Morgan Stanley UK. May we have your question please?

Anil Sharma: Hi guys, just two questions please. So firstly on the balance sheet, you’ve been very clear on the dividend policy but as to deal with NSE on successful and given the free cash flow of the group and some of the excess you’ve got post asset disposals, how should we be thinking about the use of that capital? Is it sensible for us to think management would prioritize M&A over capital return? And if so, where are sort of areas where DB1’s arguable not a number one or number two player? And then my second question just on NII.

My understanding was that within Clearstream there were some interest expenses – quarter which marks the underlying run rate. So just wondering if you give us what the clean number for the quarter will be and then how has that changed sort of what’s the current run rate in Q1. Thanks.

Gregor Pottmeyer: Yes. So with regard to the NII, so there was roughly a EUR3 million to EUR4 million one-time effect, so the unaffected number in Q4 would be in the range of EUR20 million and that’s also our expected run rate for 2017 on a quarterly basis and not assuming that the FX do another increase, so another increase would result in higher run-rate than the EUR20 million.

With regard to the balance sheet of the new combined company, so our guidance is unchanged, but we published and so far. You see that London Stock Exchange is more in the range of a payout ratio of 25%, Deutsche Börse is more in the 50% range, and we communicated that it’s in between this bandwidth, but the [indiscernible] the merger takes place and it’s implemented, it would be definitely one of the first task to make a final decision what exactly is the dividend policy and what is the distribution policy, and how do we want to deal with M&A.

Anil Sharma: Sorry, my question was more on a Deutsche standalone basis, so assuming the deal [indiscernible] yes?

Gregor Pottmeyer: Then I misunderstood that. Sorry for that. So far 50% dividend payout ratio, so in the middle of the 40%to 60% to bring it slightly down on a 50% level, so assuming that our earnings, they grow double-digit what we guide for, and yes, so that we have.

In addition, you could ask what do we do with the EUR1 billion liquidity, what we have specifically out of the ISE transaction, so far no decisions are made with this regard to that, on LSE side, the other comparable liquidity number available, but both sides said, we don’t make a decision here right now, but in principle from a Deutsche Börse perspective, as we want to grow, so we want primarily invest our money in close initiatives.

Anil Sharma: That’s helpful. Thank you.

Jan Strecker: All right. There are no further questions in the pipeline, so we would like to conclude today’s call.

Thank you very much for your participation and have a nice day.