U.S. Markets closed

Edited Transcript of DB1.DE earnings conference call or presentation 27-Apr-17 12:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Deutsche Boerse AG Earnings Call

Frankfurt May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Deutsche Boerse AG earnings conference call or presentation Thursday, April 27, 2017 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Erik Muller

Deutsche Borse Aktiengesellschaft - GMC Member

* Gregor Pottmeyer

Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board

* Jan Strecker

Deutsche Borse Aktiengesellschaft - IR

================================================================================

Conference Call Participants

================================================================================

* Arnaud Giblat

Exane BNP Paribas, Research Division - Research Analyst

* Chris M. Turner

Goldman Sachs Group Inc., Research Division - Executive Director

* Daniel R. Garrod

Barclays PLC, Research Division - MD and Head of the European Diversified Financials

* Gurjit Singh Kambo

JP Morgan Chase & Co, Research Division - Head of Diversified Financials Research

* Johannes Thormann

HSBC, Research Division - Global Head of Exchanges and Analyst

* Kyle Voigt

Keefe, Bruyette, & Woods, Inc., Research Division - Associate

* Martin Price

Credit Suisse AG, Research Division - Research Analyst

* Owen E Jones

Citigroup Inc, Research Division - Analyst

* Peter K. Lenardos

RBC Capital Markets, LLC, Research Division - Analyst

* Philip David Middleton

BofA Merrill Lynch, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen, and welcome to the Deutsche Borse AG Conference Call regarding the Q1 2017 Results. (Operator Instructions) Let me now turn the floor over to Mr. Jan Strecker.

--------------------------------------------------------------------------------

Jan Strecker, Deutsche Borse Aktiengesellschaft - IR [2]

--------------------------------------------------------------------------------

Welcome, ladies and gentlemen, and thank you for joining us today to go through our first quarter 2017 results.

With me are Gregor Pottmeyer, Chief Financial Officer; and Erik Muller, 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 e-mail 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, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [3]

--------------------------------------------------------------------------------

Welcome, ladies and gentlemen.

Let me start today's presentation with an overview of the development in the first quarter. Despite the fact that equity market volatility hit 3-years low at the beginning of the first quarter, we achieved solid net revenue performance. Weaker development in equities and index derivatives was overcompensated by double-digit growth in fixed income derivatives, net interest income, our ICSD business as well as Investment Fund and Global Securities Financing services.

In total, net revenue increased by 2%, while the adjusted operating costs have been managed to remain flat. On this basis, the adjusted net income increased by 5%. We have adjusted first quarter results for exceptional cost items, which included the final cost for the LSE merger and a gain relating to the sale of the remaining stake in BATS. Including those effects, EPS amounted to EUR 1.50, an increase of 40% year-over-year. As part of the Accelerate growth strategy, we introduced new P&L responsibilities in 2017.

From an internal view, our business is now split into 50 different products with dedicated product and IT responsibilities. This has also resulted in smaller changes to some external reporting line items, as you can see in this presentation. The previous-year numbers were adjusted accordingly.

As announced already in February, we proposed to increase the dividend for 2016 from EUR 2.35 per share, a payout of 54%. The dividend will be paid shortly after our AGM on 17th May. In addition, we are planning to implement a share buyback program with a volume of EUR 200 million in the second half of 2017. With this program, we are pursuing a balanced approach regarding the use of the proceeds from the sale of ISE of around EUR 1 billion. Apart from the share buyback, we are planning to primarily use those funds for organic growth as well as targeted M&A activity where the value is closely aligned to the strategic focus area and is clearly accretive and where execution risk is manageable. We believe that Deutsche Borse, after the prohibition of the LSE merger due to antitrust concerns, is still very well positioned on a standalone basis.

We have continued to pursue the initiatives and our standalone growth strategy throughout the entire merger process. We will now further strengthen our innovation capabilities and serve market and customer needs even better to create value for our shareholders. Industry trends and political development, like the Brexit, creates additional cross-opportunities that fit well with our strength and are a unique opportunity to extend our leading position in Europe. While we are running slightly below our full year growth target in the first quarter, we remain fully committed to achieving 10% to 15% earnings growth every year. This is driven by the expectation that we will see further structured growth in areas such as EEX, OTC Clearing, 360T, IFRS, T2S and STOXX.

Furthermore, a cyclical improvement in equity markets and further tailwind from interest rates could contribute very positively to our results. Lastly, while operating cost at Deutsche Borse is largely fixed, in some areas, discretionary decisions could be taken in order to incrementally improve earnings growth. We will hold an Investor Day on 14th June in London to present existing and new growth opportunities for Deutsche Borse Group in more detail. The invitations will be sent out shortly.

This brings me to the details of the results of the first quarter on Page 2. Net revenue increased to EUR 623 million. As part of net revenue, the net interest income rose to EUR 30 million because of a significant growth of the net interest income at Clearstream. Operating cost adjusted for exceptional items stood at EUR 280 million, and we are flat against the previous year. This was a result of efficiency measure, which compensated inflationary elements in our cost base.

Exceptional items totaled EUR 29 million, which was mainly driven by the LSE merger process, M&A integration, litigation and restructuring. The adjusted EBIT increased by 4% to EUR 345 million. Besides the exceptional cost items, the EBIT is adjusted for EUR 117 million at equity results from the sale of the remaining stake in BATS. Adjusted for exceptional items, net income grew 5% to EUR 232 million.

I am now turning to the quarterly results of the individual segments, starting with Eurex on Page 3.

The Eurex development was mainly driven by cyclically weaker activity in index derivatives, in line with the lower equity market volatility at the beginning of the year. This was only partly offset by the continued double-digit growth in interest rate derivatives. In commodities, we also saw a cyclical weaker start to the year, mainly in the higher-margin powersports business.

In March, we saw double-digit growth, again, and would also expect a growing business during the remainder of 2017. In total, net revenue in the Eurex segment stood at EUR 267 million and adjusted EBIT amounted to EUR 150 million.

In the cash market, we saw a decline of the order book turnover by 6%, which was partly in line with some of other European exchanges. Therefore, net revenue in the Xetra segment declined slightly to EUR 43 million and EBIT, and on an adjusted basis, stood at EUR 20 million.

At Clearstream, total assets under custody increased by 4% to EUR 13.4 trillion. This was driven by a 2% growth each in the domestic and international business while the Investment Funds Service business was growing by 16%. The increase of ICSD net revenue was a result of double-digit growth in settlement activity and the sustainable reduction of volume-related costs. The slight decline in the CSD net revenue was due to the introduction of TARGET2-Securities in early February.

For Clearstream, this marks the beginning of a new era. The goals of T2S are to increase efficiency and reduce cost of settlement by centralizing settlement via the ECB's new platform. Clearstream is taking this concept a step further, with harmonized connectivity channels, a streamlined custody network and improved asset servicing as well as collateral management services. Over the time, we expect to overcompensate the discontinued settlement fee by growth in custody and the value-added services.

Outstandings in the collateral management business of GSF continue to be negatively affected from Central Bank monetary policies, which reduced the need for secured money transactions. Due to a more favorable business mix, with growth in the higher-margin securities lending business, GSF net revenue increased by 23%. The cash balances at Clearstream adjusted for blocked accounts increased by 19% to EUR 13.6 billion. In addition, the higher rates in the U.S. Dollar and a markup on negative rate on EUR balances, introduced mid-2016, resulted in a substantial increase of Clearstream's net interest income. In total, net revenue in the Clearstream segment amounted to EUR 221 million, the adjusted EBIT stood at EUR 120 million.

Net revenue in the Market Data and Services segment declined by 6% year-over-year. This was mainly driven by the index business. On the other hand -- no, on the one hand, index derivatives trading activity on Eurex was weaker. On the other hand, we slightly changed the revenue accrual methodology last year. Assuming that index derivatives trading activity is picking up during the remainder of the year, we would expect the business to return to its growth path.

Total net revenue in the MD&S segment amounted to EUR 93 million, and the adjusted EBIT stood at EUR 56 million. Despite the weaker start to the year, we continue to be fully committed to achieve 10% to 15% earnings growth every year. On the one hand, we expect to see a further increase of the contribution from our structural 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, revenue synergies as part of the 360T acquisition, market share gain at Clearstream due to the recent and very successful connection to T2s, as well as the 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 on interest rates and potential further rate increases in the U.S.

In addition, we would also expect equity market volatility to increase from time-to-time in 2017. In April for instance, equity market volatility and volumes have increased substantially as a result of the French elections. In addition, we will continue to manage operating cost on an adjusted basis dynamically to ensure full scalability of our business model.

This brings me to our dividend policy on Page 8. Capital allocation is an important objective under the Accelerate program. On the one hand, we will be valuing our business portfolio and shareholdings on an ongoing basis in order to focus on the most promising initiatives in the future. On the other hand, the objective is to maintain a sound balance sheet structure and attractive distribution policy. As part of our longstanding distribution policy, we generally distribute 40% to 60% of the adjusted net income to shareholders in the form of the annual dividend. Since the earnings of the group have been growing, and we are expecting further growth, we are targeting a payout ratio in the middle of the 40% to 60% range. For 2016, the proposal to our shareholders combines a slight reduction of the payout ratio to 54%. This is an increase of the dividend per share to EUR 2.35.

The last page of today's presentation provides an overview of the agenda for our Annual General Shareholder Meeting taking place on 17th May in Frankfurt. The agenda consists mainly of housekeeping items, like the prolongation of existing capital and share buyback authorizations. The most important proxy adviser for Deutsche Borse's shareholders, IFS, has recommended to vote in favor of all agenda items. This concludes our presentation. We are now looking forward to your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And the first question comes from Kyle Voigt.

--------------------------------------------------------------------------------

Kyle Voigt, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [2]

--------------------------------------------------------------------------------

I guess the first is this press report that says around the Nodal business in the U.S., and I believe EEX agreed to buy this business in March. Just wondering if you can give us some strategic rationale, any color on the financial impact and potential for synergies for this business as well.

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [3]

--------------------------------------------------------------------------------

Yes, thanks for the question. So we announced that we want to buy the -- to acquire the Nodal Exchange located in -- close to Washington, and that's part of our global commodity strategy. So far, we are very strong in Europe, we are already the leading power exchange in Continental Europe, and we want to expand. And we see here also from a regional perspective, good opportunities to enhance our products and service in the U.S. market. And here, we found a partner that perfectly fits together as we can offer our great expertise on building exchange products, offering good risk management process and clearing solutions and that we can bring to the table. And there, obviously, the Nodal Exchange creates safe activity, great products where they really got nice market shares from the incumbent over the last years. And combining these 2 efforts, we think that should be really a great success. With regard to the approval process, we expect that we can announce very soon that the transaction will close.

--------------------------------------------------------------------------------

Kyle Voigt, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [4]

--------------------------------------------------------------------------------

Okay. And Gregor, if could I just follow up on the commodities business. The revenues fell on a year-on-year basis for the first time in a while. Just wondering if you could give a progress update on the structural shift that's happening from OTC to on-exchange. And are you still seeing positive trends there? Or is there something that's slowed the growth more recently?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [5]

--------------------------------------------------------------------------------

Yes, so from a strategic point of view, nothing changed. The Deutsche Borse will strongly benefit from this fundamental change from moving from OTC to on-exchange. In some asset classes, we -- like our power business at the European Energy Exchange, we already have some 30% on-exchange market share, and we gained that starting 3 years ago, so roughly 10%. So we're already there in the power derivatives and even lately in the gas market, so that's great success here, and we expect that this will continue over time. With regard to FX, so we will start that process in the middle of the year. We have currently in our [pure] model, we just said that we have implemented an ECM model, and in the summer, you will see our central limit order book functionality including a clearing solution. So that's another way where we think over time we will get something out of this OTC. And obviously, the most prominent one, interest rate swaps. So I think I can hand over to Erik as he's the guy who manages that business for us. So what's your view on that?

--------------------------------------------------------------------------------

Erik Muller, Deutsche Borse Aktiengesellschaft - GMC Member [6]

--------------------------------------------------------------------------------

Yes, I think the transition from OTC to clear is, obviously, in full swing, with the clearing obligations and the nonclear margin rules now effective in their various phases. I think the broader question here is we have a very function-ready model out there that's based on very solid and state-of-the-art technology and risk management systems. And now, obviously, with the uncertainty delivered by the exit of the U.K., there is a lot of demand that we are getting for a continental European clearing solution. So I think over time, we'll be able to benefit from that.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

So the next question comes from Chris Turner.

--------------------------------------------------------------------------------

Chris M. Turner, Goldman Sachs Group Inc., Research Division - Executive Director [8]

--------------------------------------------------------------------------------

It's Chris Turner from Goldman Sachs. I've got one question on your capital allocation strategy, but it's in 2 parts. Firstly, can you tell us what metrics you used to decide on the size of the share buyback? What investors -- what should they look for to understand how you arrived at EUR 200 million and say not EUR 400 million or EUR 600 million? And then secondly, related to that your gross debt-to-EBITDA, I think was 1.3x this quarter, which is also a little below the rating agency requirements. But I guess in seasonally weaker quarters like Q3, there is a risk this could narrow again. So are you not tempted to use your surplus cash position to give yourself a bit more flexibility here and more of a buffer to the rating agency minimums?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [9]

--------------------------------------------------------------------------------

Yes, thanks, Chris. So currently, we have roughly EUR 1 billion cash available. And the first thing we do is a EUR 440 million dividend distribution. We will do that shortly after our AGM, then you have seen our announcement that we will do another EUR 200 million share buyback, so at EUR 640 million. What we do here, I think, that's a very attractive distribution policy. And so we think and we wanted to balance that, the ISE proceeds we got, so the EUR 1 billion and that's basically the reason for -- why we have this cash. So we wanted to find a balanced view here. In principle, our target is unchanged here. We want to invest in organic growth initiatives and even in M&A activities. But for M&A activities, we want clearly to make sure it's clearly accretive and that the executional risk is manageable. So that's our view. With regard to the gross debt-to-EBITDA. So that's our provisional number, what we have to manage. Yet you see in Q4 normally the rate as we have increased cost here is a little bit lower, so the 1.3x I think is perfectly in line. And if you are able to grow double digits on a yearly basis, obviously, that number would go further down and would increase our financial flexibility.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

The next question comes from Arnaud Giblat.

--------------------------------------------------------------------------------

Arnaud Giblat, Exane BNP Paribas, Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

Just one question on the balance sheet, again, in 2 parts. I was wondering if you could come back to Nodal, are you giving the financial impact Nodal will have in terms of balance sheet and P&L. I think that could be quite useful. And secondly, just going back to the capital allocation question. I'm wondering how you measure up a buyback versus an acquisition, what should we read into your EUR 200 million buyback. Do you compare the multiples on your shares versus the potential deals that are out there? Do you have a WAC threshold maybe you can give us for deals? I'm just trying to gauge a bit a sense of the potential pipeline for deals that are out there for you to do?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [12]

--------------------------------------------------------------------------------

Yes. So with regards to Nodal, so let's first close this transaction, and then in Q2, we will give you an update. So there's also the need to do purchase price allocations, all of these things are not final. So we will give you an update later in our Q2 call. Your capital allocation question, maybe we are not as sophisticated as you. So it was just a balanced approach what we want to achieve here. So in addition to our regular dividend, we want to show that we have capital management discipline here, and we think that this EUR 200 million, we did it in a reasonable way. But in addition, I would like to state that in principle our -- that the majority of available cash should be invested in organic and inorganic initiatives.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

The next question comes from Johannes Thormann.

--------------------------------------------------------------------------------

Johannes Thormann, HSBC, Research Division - Global Head of Exchanges and Analyst [14]

--------------------------------------------------------------------------------

Johannes Thormann, HSBC. First of all, a follow-up on your commodity business. With the acquisition of Nodal, you now are going from Europe to Americas, what is your stance in Asia Pacific? Are you also looking at acquisitions or due to market structure, is a partnership more likely as we have several larger listed commodity exchanges there. And what we think is the regulators are not so welcoming takeovers, could you elaborate on this? And secondly, can you elaborate a bit more on the revenue improvement at GSF. What has been driving this uplift despite the reduction of volumes? Why the smaller pieces were so -- had so much higher margins?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [15]

--------------------------------------------------------------------------------

Yes. So starting with the second element, the GSF, they are basically 2-core products. So the one is collateral management services. For that product, we currently have, again, strong headwind out of the ECB policy. So there's no need when the markets are flooded with this liquidity. That's the reason why the collateral management activities are more or less flattish currently. So -- but we see that market participants like our Product Securities Lending, so that's the reason where the increase come from, and so that is driven by the need of the market. With regard to the commodity strategy, Asia Pacific, yes, in principle, we are also open to grow in the Asian timezone. We already have here some activity here with a subsidiary of Cleartrade, what is currently a smaller business. But we don't want to restrict ourselves not to grow into Asia, so we are also open and flexible here. But on a short-term basis, there's not something in the pipeline/what I would expect that it could happen shortly.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

Next question comes from Peter Lenardos.

--------------------------------------------------------------------------------

Peter K. Lenardos, RBC Capital Markets, LLC, Research Division - Analyst [17]

--------------------------------------------------------------------------------

It's Peter Lenardos from RBC in London. I had a question on your M&A strategy. I guess previously, we were led to believe that M&A would be a key component of your growth strategy going forward. Now you've launched a buyback program. Therefore, is it safe to assume that you're only going to use the EUR 800 million in surplus cash for M&A, and not your shares for potential acquisitions going forward given you've decided to buy back shares?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [18]

--------------------------------------------------------------------------------

Yes. So our view with regard to M&A is unchanged. So we want to grow our business and, therefore, we look for also inorganic initiatives, and that's what we are currently looking for. So one of the lessons learned is that the consolidation of the core exchange market seems to be a little bit difficult and politically not supported. And therefore, we have to consider in which areas we could grow, and where we could do some M&A. And have seen what we did in the past, over the last 2 years, so there was some investment in the index business and where we acquired 50% of stocks. There was investment in other asset classes like FX or the OT expansion in the commodities area. And these are all areas where we are still interested to do some investments and specifically in the index, data and analytics business, we are very open to do something. But again, it has to make sense for the shareholders so it has to be clearly accretive. And secondly, the execution risk should be manageable. And that's what we are looking for and what we are analyzing.

--------------------------------------------------------------------------------

Peter K. Lenardos, RBC Capital Markets, LLC, Research Division - Analyst [19]

--------------------------------------------------------------------------------

But I guess, Gregor, does that mean that these are going to be cash-financed transactions, given and I would assume you wouldn't be buying back shares if you plan to use them for M&A purposes?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [20]

--------------------------------------------------------------------------------

Yes. So we have to be flexible, and we have to find the right format. So obviously, we could do it with cash, but we could also consider doing some joint ventures. So we are open, with regards to the format.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Next question comes from Daniel Garrod.

--------------------------------------------------------------------------------

Daniel R. Garrod, Barclays PLC, Research Division - MD and Head of the European Diversified Financials [22]

--------------------------------------------------------------------------------

Daniel Garrod from Barclays here. Quick ones from me. I wonder if you could jump in the cash balance at Clearstream at the end of February and end of March, any more color on the reasons for that. Is it associated with move to TARGET2-Securities; thoughts on future direction there? And then secondly, I just wondered if you could provide an update on your thoughts around the plans for 360T in terms of central limit order book and central clearing.

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [23]

--------------------------------------------------------------------------------

With regard to the cash balance, so we said it's roughly 50% of U.S. dollar denominated, and here we have seen the strongest increase. So, overall, it was 19%; U.S. dollar cash balances increased even more by roughly 30%. So, and as compared to the eurozone and the U.S. zone, we are close to 1% what we get here. So there's a positive impact on the one hand side on the cash balances volume and on the other hand side on the interest rate. And the cash balances volume are driven by the settlement activity, what really, clearly increased in the ICSD business so that was the main driver for the cash balances increase. With regard to the plan for 360T, and so we are from an IT and operations process perfectly on track to deliver our products to the market. We are in close customer consultations, and so we see strong interest here in our new product. And so we just said that our new ECN structure, we found the first customer, so that's good. And after introducing our central limit order book functionality, including clearing, so we are currently preparing that, finding the market makers, offering that product. And so far, we see good support here. So we are prepared on one hand side from IT and operations perspective and are also in good discussions with regard to our customers and are still convinced that's the right strategy and we will benefit from that.

--------------------------------------------------------------------------------

Daniel R. Garrod, Barclays PLC, Research Division - MD and Head of the European Diversified Financials [24]

--------------------------------------------------------------------------------

Does on track mean anticipated launch of the central clearing over the summer?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [25]

--------------------------------------------------------------------------------

Yes, that's our target.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

And the next question comes from Philip Middleton.

--------------------------------------------------------------------------------

Philip David Middleton, BofA Merrill Lynch, Research Division - Analyst [27]

--------------------------------------------------------------------------------

Yes, I wondered if we could turn to the ICSD for a minute. Where you see that assets under custody have only grown a little bit whereas the revenues have grown quite sharp. In other words, the yield has gone up. You mentioned this in the call. Could you though talk about whether you think that increase in yield is sustainable, what lies behind that and how we should we think about yields here for the rest of the year, please?

--------------------------------------------------------------------------------

Jan Strecker, Deutsche Borse Aktiengesellschaft - IR [28]

--------------------------------------------------------------------------------

Yes, I mean, there are 2 factors. So first of all, and this is what we have already discussed on the fourth quarter call, we have renegotiated the fees Clearstream is paying to its service provider, so for sub-custody services, so volume-related costs last year have decreased and therefore, net revenue has improved and therefore, we see this improvement in the yield. So that's going to reoccur also in forthcoming quarters. Secondly, and this is something we are not putting out in terms of headline numbers anymore. The settlement activity has been very strong in the first quarter. So settlement volumes in the ICSD increased 30%, which by the way, also had a positive impact on the cash balance. So if there's more settlement activity, there's more funding of the accounts necessary. That can, obviously, fluctuate as we go through the year, but generally, we are observing more activity in bond market, so that's good. And then lastly, and this has also been explained, the shift of revenues that occurred from the market data services segment or infrastructure services into the ICSD. So that's broadly EUR 4 million to EUR 5 million per quarter, but we've adjusted previous-year numbers. So if you compare those, there shouldn't be any significant impact on the yield.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Next question comes from Owen Jones.

--------------------------------------------------------------------------------

Owen E Jones, Citigroup Inc, Research Division - Analyst [30]

--------------------------------------------------------------------------------

Just to pick up on your comments around the areas in which you are looking to develop your inorganic strategy. And to take it back to your -- the merger with the LSE, would you be open to launching any strategic relationships and partnerships with them specifically, either within those areas of index and data and analytics, particularly given current market multiples and some that we've seen from you as well. Would you extend that? Would you consider extending that to a clearing relationship as you originally put forward as part of the structure? So trying to derive some of the benefits that you've previously spoken about with regards to cross margining, for example?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [31]

--------------------------------------------------------------------------------

So with regard to your first question, so in principle, we are open for different formats and -- but currently, I don't want to comment on any specific item and therefore, as I mentioned with regard to M&A, we have to find the right format and we are open for that.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

And the next question comes from Gurjit Kambo.

--------------------------------------------------------------------------------

Gurjit Singh Kambo, JP Morgan Chase & Co, Research Division - Head of Diversified Financials Research [33]

--------------------------------------------------------------------------------

It's Gurjit Kambo from JPMorgan. Could you just remind me of the changes that were made to the revenue accruals within the index business? And just broadly, is the split broadly sort of 1/3, 1/3, 1/3 between asset-based revenues, subscriptions, and licensing still?

--------------------------------------------------------------------------------

Jan Strecker, Deutsche Borse Aktiengesellschaft - IR [34]

--------------------------------------------------------------------------------

Yes. So on the revenue accruals, in the licensing business to exchange traded fund issuers, we don't get real time reporting on the levels of assets under management. So that's coming in with the time delay. So therefore, for every financial period, we have to take certain assumptions and basically accrue revenues. And in the fourth quarter last year, we have accrued a little bit more, which is why we've seen a EUR 30 million level of net revenue in the quarter. So that was the change. And therefore, the year-over-year comparisons now Q1 '17 to Q1 '16 where we had a different methodology, provide basically for this gap. But as we go through the year, this should definitely normalize. And yes, you're right, so the EUR 100 million to EUR 120 million of annual net revenue in the index business overall, roughly is split into 1/3, which is driven by Eurex derivatives, index derivatives trading activity, 1/3 driven by licensing to issuers of ETS, so that's asset based and then 1/3 is a more fixed component, licenses to fund managers, licenses to issuers of structured products like options and certificates in the German market here.

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [35]

--------------------------------------------------------------------------------

Overall, our view is unchanged that that's a business where we expect double-digit revenue growth, and we expect already to see that in Q2 and for the following quarter. So there's really some periodic adjustments what lead to that result. And if you've already seen the increase of roughly 30% in the equity index business in April, so that will also trigger positive development on the index side in principle.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

And the next question comes from Martin Price.

--------------------------------------------------------------------------------

Martin Price, Credit Suisse AG, Research Division - Research Analyst [37]

--------------------------------------------------------------------------------

I was wondering if you could provide a quick update on your organic growth plans in Asia. And I think some of these initiatives were put on hold as a result of very difficult market conditions and the LSE merger. But I was just wondering if the plan is to ramp these up again this year?

--------------------------------------------------------------------------------

Gregor Pottmeyer, Deutsche Borse Aktiengesellschaft - CFO and Member of the Executive Board [38]

--------------------------------------------------------------------------------

Yes, Asia is in principle from a strategic point of view an important region. And as you rightly mentioned, from our prioritization point of view, there was a introduction of the exchange and the clearing house in Singapore was postponed. So -- but in principle, we think we also want to be in Asia, we want to expand our position here. We are very strong at Clearstream already here. We have also good sales activities at 360T, and I already mentioned smaller activities even in the commodity space. So we want to grow in Asia, and we also plan to do business more with these Asian customers by extending our trading hours to this Asian market over time. So there are some good ideas how we can improve our activities and initiatives in Asia.

--------------------------------------------------------------------------------

Jan Strecker, Deutsche Borse Aktiengesellschaft - IR [39]

--------------------------------------------------------------------------------

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 good day.