Deutsche Boerse AG

XETRA:DB1

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Deutsche Borse AG analyst and investor conference call regarding Q1 2018 results. [Operator Instructions] 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 2018 results. With me are Theodor Weimer, CEO; and Gregor Pottmeyer, CFO. Theodor and Gregor will take you through the presentation. After the presentation we will be happy to answer your questions. The presentation materials for today's call have been sent out via email 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, Theodor.

[Theodor Weimer, CEO & Member of Executive Board]

Thank you, Jan. Welcome, everybody, ladies and gentlemen. Today's focus is of course, as announced, on the first quarter results; were actually pretty good.But I would like to take the opportunity given we had to do an ad-hoc yesterday evening on the road map, what we call Roadmap 2020, which are the strategic cornerstones of the next 3 years, until the end of 2020. I would like to take the opportunity to lead you through the key pillars of the strategy, but again we should focus today on the first quarter results. And on May 30, when we do our Capital Markets Day, you've got the opportunity to listen to us and to raise questions on this topic on a very special event.Our Roadmap 2020 has 3 main pillars. The first pillar is the improved and accelerated implementation of the existing secular and cyclical growth opportunities. The secular growth opportunities are mainly based on industry trends, political developments and new client needs. Amongst them are the expected shifts from the OTC to on-exchange and the growing importance of the buy side. The most important initiatives are the generational opportunity to grow our OTC clearing offering, the further expansion of our commodities and the FX business and improvement of our [ fund market ] through our IFS services, as well as further growth of our STOXX business, which is our index business.The second pillar is strong growth with a programmatic approach. In an industry of scale such as ours, only a combination of both organic growth and external growth yields best results. With a more focused and disciplined approach, as well as better M&A processes, we would like to improve our track record significantly. Our main goal for external growth is the expansion of selected existing assets in 5 areas. First, fixed income; second, commodities; third, FX; fourth, Investment Fund Services; and last but not least, as well as our data and index offering.On Monday, we already took a small step into this direction by announcing the full acquisition of Swisscanto Funds Centre for a higher-double-digit-million euro amount. This acquisition will complement our Clearstream fund services by distribution, contract management, fee management and data provision services, which we then can also distribute to our existing clients.The third pillar of our Roadmap 2020 consists of higher investments in technology to tap into revenue opportunities and further increase the efficiency. The 4 focus areas will be blockchain and distributable ledger, technology, big data and advanced analytics, improvement in economies of scale through the use of software, Cloud, as well as robotics and artificial intelligence. We are already covering all areas with our existing initiatives, but in order to make progress we need to step up investments by a reasonable amount.We will fully finance the additional investment needs for the accelerated implementation of the growth opportunities and the development of new technologies through the reduction of structural costs. Therefore, we are planning to reduce our annual operation cost until the end of 2020 by around EUR 100 million. For this, we expect one-off costs of around EUR 200 million, which will mainly occur in 2018.All together, we are now aiming at an organic increase of net revenue from secular growth opportunities of at least 5% per year until 2020. Furthermore, we expect higher market volatility in the long term and, as a consequence, positive cyclical effects on net revenues every year in our planning period.Because of the scalability of our business model and an efficient management of our operating cost, we expect net profits to grow by an average of around 10% to 15% annually until 2020. To be very clear, we think we can grow and we can manage the secular growth, and on the cyclical side we are more dependent on the market but we think we expect a certain tailwind.We are still refining and defining some of the elements of the road map. So I ask you for your understanding if we cannot answer all your questions today. We want to keep something open for May 30. Having said so, we'll have more time for that at the Investor Day; looking forward to see you on May 30 in London.And with this, I move and hand over to Gregor again.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Okay. I would like to start with the key points regarding the first quarter results, on Page 2. As announced, during the full year 2017 earnings call in February, we have introduced a new system of financial segment reporting. Instead of previously 4 segments, we are now reporting 9 segments. This improves transparency regarding net revenue and profit contribution of our key Roadmap 2020 initiatives. It also helps to further increase accountability within our organization.In the first quarter, secular net revenue increased by 7%. This is slightly above our guidance of at least 5% secular growth. In addition, the cyclically influenced net revenue benefited from stronger market volatility and higher U.S. rates and, therefore, grew by 4%. I think we all agree that the first quarter saw a significant improvement of cyclicality compared to last year. Nevertheless, secular net revenue performance was better than cyclical performance. This is also what we would expect in terms of the average development [ under ] 2020.Main contributors to secular growth in the first quarter were Eurex, including new products and our fast-growing OTC clearing services; our commodity business, EEX; the index business of STOXX; Clearstream; and Investment Fund Services. Index derivatives and the net interest income from the banking business, on the other hand, benefited from cyclical growth. As a result, total net revenue increased by 11%.At the same time, adjusted operating costs rose by 4%, which was mainly driven by additions to provisions for variable and share-based compensation in light of the business and share price development.On that basis, adjusted net profits grew by 17%. This excellent result demonstrates the scalability of our business model.Now I come to Page 3 to show you the group financials. Net revenue increased by 11%, to EUR 692 million. As part of net revenue, the net interest income across the group rose significantly, to EUR 41 million.Operating costs, adjusted for exceptional items, were up 4% as a result of higher variable and share-based compensation consolidation effects. Inflationary pressures were largely mitigated by efficiency gains. Exceptional items totaled to EUR 21 million, which among others included restructuring charges, M&A integration costs and legal expenses.The adjusted EBITDA increased by 15%, to EUR 438 million. The adjusted net profit improved by 17%, to EUR 271 million. And the adjusted EPS amounted to EUR 1.45.I am now turning to the [ quarterly ] side of the new financial reporting segments, starting with Eurex, on Page 4. Eurex now comprises our financial derivatives trading and clearing activities, including the OTC clearing offering. Eurex development was mainly driven by a cyclical rise in equity market volatility, which resulted in double-digit growth of index and equity derivatives net revenue. We also achieved good secular growth in the first quarter; for instance, by more than doubling the OTC clearing net revenue and by a higher contribution of net revenue with new product.In total, net revenue in the Eurex segment stood at EUR 237 million, which is an increase of 10%. The adjusted EBITDA amounted to EUR 166 million, and the EBITDA margin stood at 70%.Our commodities business, EEX, was driven by a favorable development in power spot markets as well as in gas markets, mainly relating to market share gains. In power derivatives, the consolidation of Nodal resulted in an increase of net revenue against the previous year. Underlying power derivatives in Europe saw a small volume decline. However, it is encouraging to see that the market share has returned almost to the level of the previous year. The temporary effects relating to the [indiscernible] change have therefore almost entirely faded.In total, net revenue in the EEX segment stood at EUR 62 million, which is an increase of 15%. Adjusted EBITDA amounted to EUR 30 million, and the EBITDA margin stood at 48%.In the FX business, 360T, average daily volumes grew by around 7% against the previous year. This was mainly driven by the continued process of buy-side client onboarding. In total, net revenue in the 360T segment stood at EUR 18 million, which is an increase of 7%, as well. Adjusted EBITDA amounted to EUR 8 million, and the EBITDA margin stood at 45%.In our cash market, Xetra, order book turnover rose strongly, by 33%. In addition to higher market volatility, we saw an increase of our market share, from 64% to 68%, compared to previous year. This is now the second consecutive year of these market share gains. On the one hand, we attribute this to the more profit-oriented approach of our peers. On the other hand, this is the consequence of our improvement in technology, with the introduction of the [ P7 ] system for our cash market.In total, net revenue in the Xetra segment stood at EUR 62 million, which is an increase of 16% over the same period last year. The adjusted EBITDA amounted to EUR 39 million, and the EBITDA margin stood at 64%.At Clearstream, the custody net revenue increased slightly, to EUR 95 million. The settlement revenue declined to EUR 21 million because of the discontinuation of domestic settlement charges due to our participation in TARGET2 securities starting in February last year. This was largely compensated through fees from new reporting service in the Other line item. Despite the decline of the cash balances, net interest income improved significantly due to higher U.S. rates and a further increase in U.S. dollar cash balances.In total, net revenue in the Clearstream segment stood at EUR 179 million, which is an increase of 9%. The adjusted EBITDA amounted to EUR 116 million, and the EBITDA margin stood at 65%.In the Investment Fund Services segment, both assets under custody and settlement transactions rose by double digits. The main driver was the growing number of mutual and hedge funds on the platform. In total, net revenue in the IFS segment stood at EUR 39 million, which is an increase of 12%. The adjusted EBITDA amounted to EUR 19 million, and the EBITDA margin stood at 48%.Repo outstandings in the global securities financing business continue to be negatively affected by central bank monetary policy, which reduces the need for secured money transactions. In the first quarter, outstandings in securities lending also decreased slightly, because of reduced lending demand at the beginning of the year. Therefore, net revenue in the GFS segment stood at EUR 19 million, which is equivalent to a decrease of 9%. The adjusted EBITDA amounted to EUR 10 million, and the EBITDA margin stood at 52%.In the index business at STOXX, on the one hand, was driven by a cyclical growth of the number of exchange licenses sold, primarily [indiscernible]. On the other hand, we saw a continued secular increase of assets under management in ETFs. Together, these trends boosted net revenue in the STOXX segment by 35% and made them reach EUR 34 million. Adjusted EBITDA amounted to EUR 23 million, and the EBITDA margin stood at 69%.The primary driver of the Data segment was an improvement of net revenue from regulatory reporting services. Most of those services address new MiFID requirements. We expect continued growth in this area. In total, net revenue in the Data segment stood at EUR 43 million, which is an increase of 6%. Adjusted EBITDA reached EUR 27 million, and the EBITDA margin stood at 63%.This brings me to our explanation of the year-over-year changes in net revenue and operating costs, on Page 13 and 14. With our secular initiatives, we generated around 7% net revenue growth across the group in the first quarter. This was slightly above our guidance of at least 5% secular net revenue growth for the full year. The main contributors were Eurex, including OTC clearing and new products; the commodity business; the index business; Clearstream; and the cash market with the structure and market share gains I've already mentioned. In addition, a more favorable cyclical environment, especially in the equity markets, and the further increase in U.S. rates were driving around 4% growth of net revenue in cyclical areas. Operating costs in the first quarter increased by around 4%. Excluding the consolidation of Nodal in May last year, operating costs were up around 3%. The main reason for the cost increase was higher variable and share-based compensation due to the strong business performance and the rising share price. Inflationary pressures were largely compensated by efficiency gains out of the continuous cost improvement process and delayering.With that, we ensured the full scalability of the business model and delivered earnings growth outreaching our revenue gains.Before we start with the Q&A session, I would like to briefly make you aware of the upcoming Deutsche Borse events. Our annual general shareholder meeting will take place on May 16 in Frankfurt. The agenda consists mainly of housekeeping items. We would very much appreciate it if you could all cast your votes through the established channels. If you have any questions, please do not hesitate to contact our IR team.Furthermore, as Theodor has already mentioned, we will hold our annual Investor Day on May 30 in London. The day will be hosted by Theodor and myself, and we will present our strategy and the Roadmap 2020 in more detailed. The representatives of the different business segments will then present their areas of responsibility. The presentations will be followed by a question-and-answer session and lunch. If you have not registered yet, please do contact us.This concludes our presentation. We are now looking forward to your questions.

[Operator]

[Operator Instructions] The first question comes from Benjamin Goy.

[Benjamin Goy, Research Analyst]

Thanks for the new segment reporting. Now with more transparency on your 9 segments, just wondering on the businesses that have below-group EBITDA margin, these include actually a number of secular growth opportunities; namely, EEX, 360T, and IFS. Why you are most confident that you can reach, or is it even possible to reach, the group EBITDA margin in these businesses and over what time frame?

[Gregor Pottmeyer, CFO & Member of Executive Board]

I think we are confident to increase our EBITDA margin in all of the 3 business because, specifically, in EEX and 360T, we will benefit from the [indiscernible] trend from OTC to on-exchange. So we are quite advanced here already at EEX, where we have a market share on on-exchange on our platforms of even more than 30%, and we expect that will continuously increase and that will also help to increase our revenues and also our margin.It's the same for 360T. We will finalize our technology and our processes for offering [indiscernible] limit order book functionality clearing solutions, and so that we can start that kind of business in the second half-year of 2018. And here we do not expect a jump-start, but we expect over the next 3 years that we will continue to improve our performance here, increase revenue and also our margin.Investment Fund Services, it's a great business. So it's already today double-digit increase in net revenues. They have a strong customer pipeline. You have seen our recent acquisition around Swisscanto that will further strengthen our business. We have good opportunities to increase our efficiency, specifically in the hedge funds business. So we are also quite confident that Investment Fund Services will be also able to increase margins over the next years.

[Benjamin Goy, Research Analyst]

Thanks for the comprehensive answer. Maybe one short follow-up. On EEX, you mentioned more than 30% market share again. Do you think there is -– or is there a target market share? Or what's your feel on the need for these bulk products/OTC in this area here?

[Gregor Pottmeyer, CFO & Member of Executive Board]

So we will see what does the market need, but our expectation is that it won't end at that 30%. So whether it's 50% or 60%, we do not know. It depends on the market needs. But in general, we think that we can provide good services on a standardized basis for our customers here so that we have still good opportunities to further grow in our market shares.

[Operator]

The next question comes from Arnaud Giblat, from Exane.

[Arnaud Maurice Andre Giblat, MD & Research Analyst]

I've got a question and a quick follow-up. Firstly, on TARGET2 securities, the regulation has been in place for a few quarters [indiscernible] now. Yet we've seen very little cross-border settlements in play. So why do you think that is? And when do you think that, well, that market share in CSDs could start shifting?And my follow-up, sorry if I missed it, is on the cost cutting. You indicated EUR 100 million of gross cost cutting which will partially be offset by investments. So what is your guidance in terms of net costs growth we should be looking for over the next 2 years? And is the shape of the net cost growth still tied to how revenue growth shapes up, as it used to be?

[Gregor Pottmeyer, CFO & Member of Executive Board]

The first question, TARGET2 securities. Maybe you have seen our announcement that in [indiscernible] we went live now with 5 new markets. So we went live with the market in France, in Italy, in Belgium, in Netherlands and in Luxembourg. So that is now the good start for us, too, and we are the only one who really offers now cross-border opportunities and into settlement process. And we expect that over time we are able to gain additional market share.As you know, we own 40% of the euro liquidity in the TARGET2 securities, whereas our competitor owns 20% to 25%. So we are talking about the remaining 30% to 35%. So we do not expect a jump-start here. So it will take some time, but we are convinced that over the next 3 years we will get additional market shares, specifically in these markets.Second question with regard to our cost cutting of EUR 100 million. So just to repeat and to make it clear again, so we want to reduce our business-as-usual cost structurally so that we have more financial flexibility to invest in new growth areas and to invest in new technologies. So it's a shift of costs.In principle, we won't give precise cost guidance. So the cost guidance we give you is with regard to the scalability of our business model. And to say it again, so if revenue increased by 10%, then operating expenses can increase up to 5%. If revenues increased by 5%, then costs will be flattish. So that's basically our guidance and our commitment from a management team perspective that we do here a proactive cost management. And I think with the announcement of the structural cost saving program was definitely new, but it is not over the last years. So we get even additional financial flexibility.

[Operator]

And the next question comes from Owen Jones, from Citigroup.

[Owen E Jones, Analyst]

I had a question on the Eurex segment. With the OTC clearing now being reported as part of Eurex, I'm just curious what is the -- given the nature of the sharing arrangement and the incentive scheme that you put in place, how should we think about the underlying margin at Eurex, particularly within quarters such as the first quarter where you have fairly significant increases in trading? What's the valuative impact of the OTC arrangements given that it's an EBIT-sharing arrangement? So how should we think about the underlying margin? And at what point do you think the initiative would stop being so dilutive?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Okay. So maybe you have seen our very successful in [ numerous ] years. So in March we had EUR 80 billion ATV on the euro-clearing denominated interest rate swap business. So we exceeded by far the threshold what we defined when our program is successful, of EUR 35 billion. So very successful. And with more than EUR 80 billion translate in a market share of roughly 8%. So we set our general target of 25%, and that would translate in additional net revenues in 2020 of EUR 70 million. So for this year we expect some net revenues of EUR 20 million to EUR 25 million, and with more than EUR 5 million in the first quarter we are perfectly on track. So that's very positive.So your specific question with regard when is it dilutive with regard to the sharing arrangement, so at no point of time dilutive. So the more we do, the better it is. So we have a certain threshold to cover our costs. And on top, there's a proportional sharing of additional revenues with our clients.

[Owen E Jones, Analyst]

Okay. So what's the reason for -- I guess the other way to think about it is what's the reason for the flat margin quarter-on-quarter, given the performance of the segment?

[Gregor Pottmeyer, CFO & Member of Executive Board]

What do we mean by flat margin? For the Eurex business, in general?

[Owen E Jones, Analyst]

Yes. Sorry. So the 70% EBITDA margin that you reported Q1 '18 was the same as last year. Just thinking given the nature of the cyclical revenue and the cyclical uptick in trading, I would have thought that you would have been able to capture more of that activity as a margin benefit.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Part of that is also some investments we still do in that kind of business. So that is one of the reasons. And then you have between the products some mix in our products, what is depending on the margin we have in the different products more or less favorable. So the product mix is also important, I mention here.

[Jan Strecker]

And the reason we've mentioned for group cost development obviously also applied to the Eurex segment. So the amount of variable and share-based compensation, for instance, has also gone up for the Eurex segment.

[Theodor Weimer, CEO & Member of Executive Board]

And allow me to add as the CEO we are operating here at a 70% margin, which shows the scalability, per se. And of course you could argue at the end of the day we need to get up to 100% EBITDA margin, which is not feasible. So we are already out-maxed with 70%, to be very frank here.

[Operator]

And the next question here is Anil Sharma, from Morgan Stanley.

[Anil Kumar Sharma, Equity Analyst]

Just a couple of questions, please. Just on the index business, the STOXX business, I just wanted to check. I think in the last couple of quarters you've talked about repricing activity in that segment. I just wanted to check, is that done now and in the run rate? Or is there still a bit more to come?And then on the OTC clearing, I believe the revenue number includes net interest income. Could you try and give us a sense as to how much of that revenue is net interest income? What yield are you earning on that? Is it -- are you making a spread or are you making sort of an absolute return depending on the rate curve? So if you could just help us think about that.And the final one, if I could be so cheeky, just in terms of your EBITDA margins, the 70% that you're talking about there, what's the risk that the investment banks and the clients just push back now and start saying, well, the profitability here is too high and they want to pay lower fees?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Your first question with regard to the repricing index of STOXX, well, that's now part of the run rate. So overall, it was a double-digit-million euro amount in that index business, but that's now included in the run rate here.With regard to the NII at Eurex, so overall we have currently EUR 25 billion customer cash balances, and so far we get some 10 basis points out of that. And we increased our pricing with [indiscernible] by another 10 basis points. So that translate in another EUR 20 million, EUR 25 million. So that's the sensitivity and also the impact of our pricing measure, [indiscernible] 2018.With regard to the EBITDA margin and risk of pushback of customers, yes, you are right, and that's also the reason why Theodor has just mentioned that a figure of 70% margin that that is for Eurex and our index business I think are a very good margin. So we have to strongly consider that when we talk about potential pricing measures.

[Theodor Weimer, CEO & Member of Executive Board]

And to be also very clear from my side, ladies and gentlemen, it's very clear we have now reached a level of EBITDA which shows that our model is scalable. On the other side, we need to focus on growth, and we will show during the Capital Markets Day why that we want to grow. We will show you where we want to grow, even if it's going to cost a bit of the EBITDA margins, because growth is at least as important as EBITDA.

[Anil Kumar Sharma, Equity Analyst]

Okay. That's helpful. And so, just to confirm, you're saying there's still another EUR 25 million of revenues to come through in the OTC from NII alone on an annual basis. Is that right?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes, that's [ good ].

[Operator]

The next question comes from Philip Middleton, from Merrill Lynch.

[Philip David Middleton, Analyst]

Could you talk a little bit more about 360T, please, because up till now you've talked about other product enhancements as well as offering [indiscernible] order book trading. Are you now simply focusing on [indiscernible] order book trading there in the medium term? Or do you intend to broaden that with [ product set, too ]?

[Gregor Pottmeyer, CFO & Member of Executive Board]

We are really focused on getting something out of the OTC market. So the OTC market has been 90%. And so 10% is traded on [ MTS ] and 90% is OTC. And specifically with this clearing solution, we can offer a better risk management solution for our customers. And we expect over the next years to get additional market shares and we are able to move business from OTC to on-exchange. And clearing [indiscernible] key, as we learned that in the interest rate swap, as we learned that in the commodities area, and it won't be different on the FX side.

[Operator]

And the next question comes from Mike Werner, from UBS.

[Michael Joseph Werner, Executive Director and Equity Research Analyst]

I've got 2 questions, if you don't mind. One, on the Data segment, we saw revenues up 6% year-on-year and yet we saw the EBITDA margin fall by about 600 basis points. And I was just wondering if the rise in costs in that division is tied to the investments in terms of the MiFID II-related services that you're offering? Or is that cost increase going to be prolonged over the next couple of quarters, if not years?And then, second, on M&A, just if you could just remind me kind of where, what the dry powder for Deutsche Borse is in terms of the net debt/cash position and, as well, what the current buyback of EUR 400 million, how much of that has been executed to date.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Okay. So with regard to the Data business, yes, that's right: EBITDA margin is reduced. And the reason for that are additional costs out of building up our regulatory reporting app. And that is investment-driven and also in the first quarter and maybe also still in the second quarter, as we have to stabilize all the processes. So there will be huge demand from our customers. So that's a good thing, but from operational perspective we still have to invest here and to make sure that we can offer the quality what our customers expect.So there will be additional costs for the full year 2018, but I would expect that we won't have the same level within the next year. So I expect that these additional costs will disappear in 2019 and '20.With regard to our dry powder, so we have roughly EUR 1 billion as available cash. And this will be obviously reduced when we do now our dividend distribution of around EUR 450 million, and this will be also reduced by a EUR 200 million share buyback, what we will do until end of the year. But every month, obviously, we get some roughly EUR 50 million additional cash as we generate cash out of our operational businesses.With regard to the buyback, so the first EUR 200 million are finalized end of March 2018, and until year end 2018 we will do another EUR 200 million.

[Operator]

And the next question here is Johannes Thormann, from HSBC.

[Johannes Thormann, Global Head of Exchanges and Analyst]

Johannes Thormann, HSBC. 2 questions from my side. First of all, regarding your restatement, the STOXX revenues which you have presented for Q1 '17 and '18 look different to the indicative new segment reporting you sent out before. What has been driving those changes? And secondly, could you also probably send out a restatement for 2016, as other German corporates do if they restate, so we have a little more track record or time period from what you did?And secondly, regarding your restructuring costs, we have a multiple of 2x for your restructuring costs, despite the increase in headcount. What is driving -- or the planned increase in headcount. What is driving these higher restructuring costs? Are you killing any systems? Or what is the [ for the time ] multiple? Just some more details, please.

[Gregor Pottmeyer, CFO & Member of Executive Board]

With regard to the second question, so we plan to do a structural cost improvement of EUR 100 million. And for doing that, we need EUR 200 million for that kind of restructuring. So far, we have a certain view what we want to achieve, but the detailed measures are, so far, not finalized. And therefore, we still have to work now and to do the details, and we will cover all cost categories. So we'll look at our [indiscernible] cost, we will look in our IT operating cost, we will look on IT consulting, and we'll also cover all the potential cost levers.So we still have to work on that topic to come up with a detailed plan, but our basic assumption is that we need roughly 2x for restructuring costs and the majority of that will go into for [indiscernible] costs.And the first question --.

[Jan Strecker]

And with regards to the new segment structure, you're right that a few numbers differ from what we've sent out 4 weeks ago, and that's because of [ decisions ] that were taken as part of the closing process. So we've changed a few details. And we are planning to provide you with a history also going back to 2016 around about at the time of the Investor Day.

[Operator]

The next question comes from Roland Pfander, from Oddo BHF.

[Roland Pfänder, Research Analyst]

2 questions from my side. Coming back to the index business, could you speak about the competitive situation there? Maybe also about alternative index providers? Are they increasing the competition landscape out there? Any information on this would be very helpful.Second question, looking at your business setup, are there any business units you could think of disposing in the future or reorganizing this in any way?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Starting with the second part, yes, we are constantly considering our portfolio. And if we identify a business and do not perform as they are promised and do not have the margins we expect, then we also consider that to stop or even to sell some kind of businesses. But on the first hand, I would not expect something spectacular on that side; it would be smaller adjustments where we are able to reconsider that.With regard to the index business and the competitive situation here, so far we see a general trend to passive investments, and there's a strong need. So that's a clear trend we see on our side. But we see a compatible development on the other index providers. But when we look at the numbers, then we are at least as good and, in most cases, we are even better performance when you compare the assets under management from EURO STOXX perspective, specifically in Europe. So that's the general trend what will continue here.

[Operator]

The next question comes from Martin Price, from Credit Suisse.

[Martin Price, Research Analyst]

If I think back a couple of years, I guess one of the opportunities you were most excited about was collateral management and the global liquidity hub. I was just wondering if you could provide us with some more detail on how that's going, whether it's contributing much to structural growth at Clearstream, because it's just not something you split out. So it's a little bit difficult to know what's going on there.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Martin, you're absolutely right. So collateral management is currently under pressure, and the main reason are cyclical reasons due to the central monetary policy. So if you're basically flat [indiscernible] money from the central banks, then there is less need to have efficient use of your collateral. And we expect that that will immediately change when there is some discussion with the ECB in changing the central monetary policy.But in general, we also think there is a demand for HQLA, high-quality liquid assets. And therefore, there's a constant demand what will also not disappear. But the main driver for that business is basically the ECB monetary policy, and we will see a nice increase here if that changes.

[Operator]

The next question comes from Chris Turner, from Berenberg.

[Christopher Myles Turner, Analyst]

You saw good revenue growth in your FX business, 360T, in the first quarter, but we also saw a large new entrant into that market, with CME acquiring one of the largest spot FX platforms. How do you see that changing and shaping the competitive dynamics there? Is that an opportunity or a threat to 360T?And then, also, secondly, if I can turn over to the efficiency savings, a key part of that or a key aim of that is to increase the financial flexibility of Deutsche Borse. But from the outside looking in, I guess your main constraint financially is this holding company leverage constraint, the 1.5x gross debt to EBITDA. Is that something that you have looked at, that you've considered?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Okay. Obviously, we strongly consider what our competitors are doing, and it's not completely [indiscernible] that CME has approached now NEX. In general, with regard to our M&A strategy, we are very much open and clear, too; in a statement, already mention it very clearly we have 5 segments where we also want to do M&A, and FX is definitely part of it. So far, with roughly EUR 70 million net revenues, we are too small in that business. And therefore, we are interested in doing M&A here to make our FX business more scalable and bigger.With regard to efficiency of financial flexibility around the 1.5x gross debt-to-EBITDA number, yes, obviously if you are able to increase our EBITDA and our cash earnings, obviously we increase our financial flexibility. So, the gross debt to EBITDA is currently at a level of 1.1 in the first quarter. So that's clearly below the 1.5 and, yes, it's obviously true on track. This has [indiscernible], and that's a positive impact that we are also able to increase our financial flexibility. And if we increase our efficiency, that will also help to increase our financial flexibility, and that's part of the overall strategy.

[Operator]

So the last question here for now is Gurjit Kambo, from J.P. Morgan.

[Gurjit Singh Kambo, Head of Diversified Financials Research]

It's Gurjit, J.P. Morgan. Just 1 question. In terms of MiFID II, are there any businesses that you think perhaps have temporarily benefited or been disadvantaged by the implementation of MiFID II? Have you seen that perhaps in client behavior?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes, obviously there are many positive impacts for Deutsche Borse out of MiFID II. I just in an earlier answer I referred to the regulatory reporting [indiscernible]. So there's an increased need for transparency, and that obviously helps Deutsche Borse and we welcome all of these initiatives.Another point in MiFID II is the trading obligation for OTC-traded derivatives so that it's the same level playing field like in the U.S. So far in Europe we just have the obligation to use a CCP for OTC-traded derivatives. And beginning in 2020, there will be also the need to use organized trading facilities, so-called OTFs, for that. And obviously Deutsche Borse will also benefit from that development.With regard to potential risks, open access obviously is one of the elements here. I think you are aware that all the markets used the opt-out option not to introduce open access for [ 30 ] months now. And we understand the regulators view that they are allowed to opt out of these open access provisions because, first, regulators want to see what is the final political decision with regard to E.U. and Brexit negotiation. And after the political decision is clear, then we can talk about that open access provision again.For us, it's also very important that the interoperability rule is not part of MiFID II, and that's clearly stated. So far, on a net basis, we see more benefits for Deutsche Borse out of MiFID II.

[Jan Strecker]

Thank you, Gurjit. With this, we would like to conclude today's call. Thank you very much for your participation, and have a good day.