ambition - Opportunities and expectations
We develop values
Deutsche Börse Group has set itself a clear goal: over the coming years, we want to become the partner of choice for our clients worldwide, achieving a top position in all the business areas we are active in. That is the qualitative goal. Expressed in figures, this means that until 2018, we want to grow revenue by 5 to 10 per cent – every year. Thanks to economies of scale built into our business model, costs will rise to a lesser extent than revenue. This is because our platforms permit higher business volumes at relatively minor additional costs. The bottom line is that we want to boost profits by 10 to 15 per cent every year.
A very ambitious target indeed. How are we going to achieve that? By consistently exploiting the opportunities we have identified – and by exploring new areas of business, further diversifying our products and services. Allow us to provide some examples by way of explanation:
Exploring foreign exchange
The foreign exchange trading platform 360T® has been part of Deutsche Börse Group since the summer of 2015.is a young, dynamic business with a start-up mentality, which has added an entire asset class – foreign exchange, or FX – to Deutsche Börse’s offering. Being a member of Deutsche Börse Group has provided 360T with access to our global sales network, opening doors which were previously closed to a ‘small’ start-up. With our support, 360T can in turn expand its range of services, evolving into the only foreign exchange provider offering a variety of traded products – from illiquid FX instruments right through to highly liquid futures contracts, plus the entire range of trading mechanisms and post-trading services such as clearing and collateral management. Moreover, the shift from off-exchange trading towards transparent, electronic multi-bank trading platforms benefits 360T. Overall, we expect around €100 million per annum in additional revenue from this business by 2018.
Expanding the funds business
We have expanded our service offering in the funds business with the takeover of Citco's hedge fund franchise. This means clients can now usefor settlement and custody of their entire funds portfolio, from traditional investment funds and index funds to hedge funds. During 2015, we acquired a number of renowned clients who have already transferred their portfolios to Clearstream. We anticipate a significant amount of new business over the years to come, leveraging our services which guarantee maximum security. Over a medium-term horizon, we expect additional revenue per annum to the tune of €50 million.
Growth in the energy sector
Business with power and gas products is booming. European Energy Exchange (), in which Deutsche Börse Group holds a majority stake via Eurex, successfully explored new markets in 2015, also winning market share from over-the-counter trading. This trend is set to continue, given that clients increasingly appreciate the transparency and efficiency offered by an exchange market. Our declared long-term goal is to create a single European power market. The energy business is scheduled to contribute additional revenue of around €50 million per annum over the next years.
Global index business
STOXX Ltd., which has been a wholly owned subsidiary of Deutsche Börse Group since the summer of 2015, is making excellent progress towards becoming a global index provider.continues to expand its index portfolio, especially in Asia and the US. Banks and fund management companies use indices as underlying instruments for the creation of financial products. Investors have increasingly come to prefer passively managed investments for some time now. This is evident, for example, in the constantly rising flow of funds into index funds – in which STOXX participates in the form of licence fees. STOXX will grow revenue from this business by around €30 million per annum between now and 2018.
These factors are structural – meaning that they are caused by the continuous development of financial markets – and thus sustainable. We can anticipate these developments, creating the right offers to match the structural changes.
Increase in key interest rates
There are also cyclical factors which we cannot influence, and which may have a positive or negative impact on our business. In particular, this includes monetary policy measures by central banks. Key interest rates, which have been low for many years, are burdening parts of our business. If global interest rates were to rise by 1 percentage point on average, this would translate into a revenue increase of approx. €100 million per annum. Whilst the US Federal Reserve raised interest rates (for the first time since 2006) at the end of 2015, we do not yet anticipate a similar move in Europe.
We have also launched numerous initiatives designed to generate growth in our various business areas. All told, we anticipate additional revenue of at least €400 million until 2018 from structural opportunities, plus at least €100 million from cyclical opportunities – this is equivalent to the growth target of 5 to 10 per cent per annum.