Deutsche Boerse AG ADR (OTCPK:DBOEY) Q1 2018 Earnings Conference Call April 26, 2018 8:00 AM ET
Jan Strecker - Investor Relations
Theodor Weimer - Chief Executive Officer
Gregor Pottmeyer - Chief Financial Officer
Benjamin Goy - Deutsche Bank
Arnaud Giblat - Exane
Aron Jones - Citigroup
Anil Sharma - Morgan Stanley
Philip Middleton - Merrill Lynch
Mike Werner - UBS
Johannes Thormann - HSBC
Roland Pfander - Oddo BHF
Martin Price - Credit Suisse
Chris Turner - Berenberg
Gurjit Kambo - JP Morgan
Good afternoon, ladies and gentlemen, and welcome to the Deutsche Boerse AG Analyst and Investor Conference Call regarding Q1 and Financial Year 2018 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.
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.
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 roadmap, what we call roadmap 2020, which are the strategic cornerstones of the next three years until the end of 2020. I would like to take the opportunity to read you through the key pillars of the strategy, but again we should focus today on the first-quarter results, and on May 13 when we do our Capital Markets Day, where you have got the opportunity to listen to us and to raise questions on this topic on a very special event.
Our roadmap 2020 has three main pillars. The first pillar is to improve the 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 exchange and the growing importance of the [buyside]. The most important initiatives are the generational opportunity to grow our OTC’s 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 external 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 five 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 in this direction by announcing the full acquisition of [indiscernible] for 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 four focus areas will be [indiscernible], technology, big data and advanced analytics, improvement in the 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 cost. Therefore we are planning to reduce our annual operational cost until the end of 2020 by around €100 million. For this we expect one-off costs of around €200 million, which will mainly occur in 2018. Altogether 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 profit 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 roadmap. So I ask you for your understanding that we cannot answer all your questions today. We want to keep something open for May 13. Having said so, we will have more time for that at the Investor Day. Looking forward to seeing you on May 13 in London, and with this I move and hand over to Gregor again.
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 four segments, we are now reporting nine segments. This improved 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 US 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 until 2020. The main contributors to secular growth in the first quarter were Eurex, including new products and our [indiscernible] OTC clearing activities, 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 addition to provisions for valuable and share-based compensation in light of the business and share price development. On that basis, adjusted net profit 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 €692 million. As part of the net revenue, the net interest income across the group rose significantly to €41 million. Operating cost, 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 €21 million. This among others included restructuring charges, M&A integration costs and legal expenses.
The adjusted EBITDA increased by 15% to €438 million. The adjusted net profit improved by 17% to €271 million, and the adjusted EPS amounted to €1.45.
I’m now turning to the quarterly results of the new financial reporting segment, starting with Eurex on Page 4. Eurex now comprises our financial derivative 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 higher contribution of net revenue with new products. In total, net revenue in the Eurex segment stood at €237 million, which is an increase of 10%. The adjusted EBITDA amounted €166 million and the EBITDA margin stood at 70%.
Our commodities business, EEX, was driven by favorable development in power spot markets, as well as in test 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 price zone change has therefore almost entirely faded. In total, net revenue in the EEX segment stood at €62 million, which is an increase of 15%. Adjusted EBITDA amounted to €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 buyside client onboarding. In total, net revenue in the 360T segment stood at €18 million, which is an increase of 7% as well.
Adjusted EBITDA amounted to €8 million and 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 this market share gain. On the one hand, we attribute this to the more profit oriented entered approach of our peers. On the other hand, this is a consequence of our improvement in technology with the introduction of the T7 system for our cash market.
In total, net revenue in the Xetra segment stood at €62 million, which is an increase of 16% over the same period last year. The adjusted EBITDA amounted to €39 million and the EBITDA margin stood at 64%. At Clearstream, the custody net revenue increased slightly to €95 million. The settlement revenue declined to €21 million because of the discontinuation of domestic settlement charges due to our participation in TARGET-2 securities, starting in February last year.
This was largely compensated through fees from new reporting service in the other line item. Despite a decline of the cash balances, net interest income improved significantly due to higher US rates and a further increase in US dollar cash balances. In total, net revenue in the Clearstream segment stood at €179 million, which is an increase of 9%. The adjusted EBITDA amounted to €116 million and the 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 €39 million, which is an increase of 12%. The adjusted EBITDA amounted to €19 million and the EBITDA margin stood at 48%.
Repo outstanding in the global securities financing business continued to be negatively affected by Central Bank monetary policy, which reduced the need for secured money transaction. In the first quarter, outstandings in securities lending also decreased slightly because of the huge lending demand at the beginning of the year. Therefore net revenue in the [EFS] segment stood at €19 million, which is equivalent to a decrease of 9%. The adjusted EBITDA amounted to €10 million and the EBITDA margin stood at 52%.
In the index business, stocks on the one hand, was driven by cyclical growth of the number of exchange licenses sold primarily through [indiscernible]. On the other hand, we saw continued secular increase of assets under management in ETFs. Together, these trends boosted net revenue in the stock segment by 35% and made them reach €34 million. Adjusted EBITDA amounted to €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 [indiscernible] new immediate requirements. We expect continued growth in this area. In total, net revenue in the data segment stood at €43 million, which is an increase of 6%. Adjusted EBITDA reached €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 cost 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 versus the structure and market share gains I have already mentioned. In addition, a more favorable cyclical environment especially in the equity market and the further increase in US 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. Inflation as a [Indiscernible] that largely compensated by efficiency gains out of the continuous cost improvements process and delay.
With that, we ensure the full scalability of the business model and delivered earnings growth outreaching our revenue gain. Before we start with the Q&A session, I would like to briefly make you aware of the upcoming Deutsche Börse events.
Our annual general shareholder meeting will take place on May 16, in Frankfurt. The agenda consists mainly of housekeeping item. We would very much appreciate it if you could all cast your votes with the established channel. 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 13, in London. The day will be hosted by Theodor and myself, and we will present our strategy and the roadmap 2020 in more detail.
The representatives for the different business segment will then present their areas of responsibility. The presentations will be followed by 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 Instructions] The first question comes from Benjamin Goy.
Yes. Hi, good afternoon. Thanks for the new segment reporting. Now with more transparency on your nine segments, just wondering on the businesses that has below group EBITDA margin, this include SG&A number of secular growth opportunities namely EEX 360T and IFS. Why you are more confident that you can reach or is it impossible to reach the group, EBITDA margin in these business and all of our time-frame? Thank you.
Thanks Benjamin for the question. I think we are confident to increase our EBITDA margin in all of the three business, because specifically in EEX and 360T we will benefit from the general trend from OTC to on Exchange, so we are quite advanced here already at EEX, where we have market share on Exchange and our platforms of even more than 30% and we expect that they will continuously increase and that will also had to increase our revenues and also our margin.
The same for 360T, we then finalized our technology and our processes for offering central limit order book functionality clearing solutions and so that we can start kind of business in the second half year of 2018.
So and here we do not expect a jump start, but we expect over the next three years that we will continue to improve our performance here, increase revenue and also our margin.
Investment and service it's a great business. So it's already to date -- increase in network revenues. We have strong customer pipeline. You have seen our recent acquisitions around this control that there’s other strength in our business. We have good opportunities to increase our efficiency specifically in the hedge fund business, so we are also quite confident that Investment Fund Services will be also able to increase margins over the next year.
Thanks for the comparative [ph] answer. Maybe one short follow up on EEX dimension mode and 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 product/OTC in this area here?
Yes. So we will see what does the market needs? 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 to our customers here so that we have still good opportunities to further grow on our market share.
Next question comes from Arnaud Giblat from Exane.
Hi. I have got a question and a quick follow-up. Firstly on targeted securities. That's the regulation in intangible few quarters with everybody right now. Yet we have 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 and CSDs could start shifting?
And my follow-up, sorry if I missed it, is on the cost cutting. You indicated $100 million of gross cutting, cost cutting which will be partially be offset by investments. So what is your guidance in terms of net cost growth we should be looking for over the next two years? And is the shape of the net cost growth still tied to how revenue growth shapes up as it used to be?
Yes. I know and the first question targeted to the [Indiscernible] maybe you have seen our announcement that in point of view, we live now. There’s five new markets. So we went live with the market in front, in Italy, in Belgium and Netherlands and in Luxemburg. So that is now the good start for us and we are the only one who really offers now cross border opportunities and into settlement processes and we expect that overtime we are able to gain additional market share. As you know, we own 40% of the liquidity and the target to security for our competitor on 20% to 25%, so we are talking about the remaining 30% to 35%.
So we do not expect the chance to start here, but it will take some time. But we are convinced that over the next three years we will get additional market share specifically in these markets.
Second question with regard to our cost cutting of €100 million. So just to repeat and to make it clear, again, so we want to reduce our business as – request structurally, so that we have more financial flexibility to invest in new growth areas and to invest in new technology. So it’s a shift of costs.
In [Indiscernible] we won’t give precise on cost guidance, so the cost guidance that we give you is with regards as the scalability of our business model. And -- again if revenue increased by up to – increased by 10% then operating expenses can increase up to 5%. If revenues increase by 5% then cost will be flattish. So that's basically our guidance and our commitment from the management in perspective as we do here proactive cost management and I think with the announcement of the structure and cost saving program [Technical Difficulty] what's definitely here but it did not over the last year, so we will get even additional financial flexibility.
And the next question comes from Aron Jones from Citigroup.
Good afternoon, thank you. I had a question on the Europe segment. With the OTC Clearing now being reported part of your Act. I was just curious what is the -- given the nature of the sharing arrangements and the incentive scheme that you put in place, how should we think about the underlying margin that your [Indiscernible] particularly within the quarter, such as the first quarter where you have slightly significant increases in trading. What's the value to the impact of the OTC arrangements? And given that the EBIT sharing arrangements? So how should we think about the underlying margin and, at what point do you think the initiative would stop being so dilutive?
Okay. So maybe if you have seen our very successful numbers here. So in March, we had €18 billion ADV on the Euro clearing denominated interest rate spot business. So we exceeded by far the threshold what we defined when our program was successful of €35 billion.
So very successful and this was €80 billion translated in the market share of roughly 8%. So we said our general target is 25% and that would translate in additional net revenues in 2020 of €70 million. So for this year, we expect some net revenue of €20 million to €25 million and with more than €5 million in the first quarter, and we are perfectly on track. So that's very very positive. So your specific question in this regard, when is it dilutive with regard to the sharing arrangements. So at no point of time, dilutive, so the more we do, the better it is. So we have a certain threshold on to cover our cost and on top there is a proposition of sharing of additional revenues with our clients.
Okay. So what's the reason, so I guess the other way to think about it is what's the reason for the reason for the flat margin quarter-on-quarter given the performance of the segments?
What do you mean by specific margin for the Eurex business in general or?
Yes. Sorry. So the 70% EBITDA margin that you reported Q1 it came with the same as last year, just do you think given the nature of the cyclical revenue of the cyclical up-tick in trading. I would have thought that you would have been able to capture more of that activity as a margin benefit.
Yes, part of that is all based on 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 projects, whether it’s depending on the margin, we have in the different quarter more or less -- it is. So the product mix is also important I mentioned here.
And the reason we have mentioned for group cost development obviously also apply to the Eurex segment, so the amount of variable and share based compensation for instance has also gone up in the Eurex segment.
To be along which adds as the CEO [ph], we are operating here with a 70% margin which shows this scalability per se and of course you could argue, at the end of the day, meet risk, we need to get up to 100% EBITDA margin which is not seasonal. So, we are almost the out mix with 70%. We have to be verifying here.
Okay. Thank you, very much.
And the next question here is Anil Sharma from Morgan Stanley. Please go ahead.
Hello. Just a couple of questions, please. Just on the index business, the stocks business, I just wanted to check, I think in the last couple of quarters you talked about repricing activity in that segment. I just wanted to check is that done now, and in the run rate registered a bit more to come.
And then, on the OTC clearing, I believe the revenue number increased 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 spread or even considered an absolute return depending on the right curve.
So, could you just help us think about that? And final one, if I could be so cheeky, and just in terms your EBITDA margins the 70% that you're talking about there. What's the risk that the investment banks and the clients just pushed back now and stop saying "Well, this is you know the profit base here is too high and they want to pay a lot of fees. Thank you.
So, your first question when look at what we got is the reprising index as thought. Well, that's now part of the run rate. So, overall it was a double digit million euro month for in that index business but that's now included in the run rate here.
With regard to the NII, I'm at the Eurex. So overall, we have currently €25 million on customer cash balances. And so far we get some 10 basis points out of that. And we increased our pricing with approved shot by another 10 basis points. So, that translates in another €20 million €25 million.
So, that's the sensitivity and also the impact of our pricing measure. Operating cost, 2018. With regard to the EBITDA margin and risk of push back of customers. Yes, you're right. And that's also the reason what you do as the -- mentioned, that's a peak of 70% match in the debt destroy, awaken our index business, I think very good.
And matching and so we head through friendly compute of that, when we talk about potential pricing measures.
And to be also very clear from my side. Ladies and gentlemen, it's very clear we are and now reached a level of EBITDA, which shows that our model is scalable. On the other five, we need to focus on growth and they will and we will show during the Capital Market's Day write-up, we want to grow, will, we will show you where we want to grow, either even if it come across a bit of EBITDA margins, we actually got the code, at least as important as EBITDA.
Okay, that's helpful. Thank you. And just since it's to confirm that you're saying there's still another 25 million of revenues to come through in the OTC from NII alone on an annual basis. Is that right?
Yes, that's true.
Okay. Alright, thank you.
The next question comes from Philip Middleton from Merrill Lynch. -- Please go ahead. Mr. Middleton, your line is open now.
Thanks. So, it's really helpful. Could you talk a little bit more about 360T please, because up till now you've talked about other product enhancements, whether it's offering center limit order book trading?
You now, since you're focusing on center limit order book, trading there in the medium term or do you intent to broaden outlook products there too?
No. we're really focused on getting something out of the OTC market. The OTC market is doing 90% and for 10% is related on MTS and 90% is OTC. And specifically with this clearing solution, we can offer better risk management solution for our customers.
And we expect over the next years to get additional market than we are able to move business from OTC to iX range and clearing that's here really will be key as we learned that in the interest rate book as we learned in the commodities here and that won't be different on the FX side.
Okay. Thank you.
And the next question comes from Mike Werner from UBS. Please go ahead.
Thank you. I got two 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 for by about 600 basis points. And I was just wondering if the rising cost in that division is tied to the investments in terms of the listed two related services that you're offering. And or is that cost increase going to be a 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's the Trifacta for Deutsche Borse is in terms of the net debt plus cash position and as well what the that the current buy back of 400 million. How much of that has been executed today? Thank you.
Okay. So, with regard to the data business: Yes, it's right, EBITDA margin was is which used and the reason for that an additional cost out of building up our Regulatory Reporting Hub and that is investment with them and also into an interest order and maybe also still in the second quarter, as we have to step a light over the processes.
So, there will be huge demand from our customers. So, that's a good thing. But from operation and 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 cost 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 cost will disappear in 2019 and '20.
With regard to our Trifacta, so we have roughly €1 billion as available in cash. So, we and this review obviously with you kindly do know our dividend and the inclusion of around €450 million. And this that we also refused a €200 million share buyback what we will do until end of the year.
But every month obviously we get some roughly €50 million business and cash as we generate cash out of our operational business.
With regard to the buyback, so the first €200 million are finalized end of March and 2018. So, and our until year end 2018, we will do another €200 million.
Okay. Thank you, thank you very much.
And the next question here is Johannes Thormann from HSBC. Please go ahead.
Good afternoon everybody. I'm Johannes Thormann, HSBC. Two questions from my side. First of all regarding your restatement, the stocks revenues which you have presented for Q1, '17, '18, look different to the indicative new segment reporting you sent out before.
What have been driving those changes? And secondly, could you also probably send out a restatement for 2016 as other German corporates do and then if they restate. So, we could have a little more track record or time period from what you did.
And secondly, regarding your restructuring cost. We have a multiple of two times for your restructuring cost. Despite the increasing headcount, what is driving or the planned increase in income, what is driving these higher restructuring cost? Are you killing any systems or what is causes higher multiple. Just some more details, please.
Yes. With regard to the second question. So, we plan to do structural cost improvement of a €100 million and for doing that we need €200 million, so, for that kind of restructuring. So far we have a certain view what we want to achieve but the details measure are so far not finalized.
And therefore we still have to do two to work now and to do the details and; we will cover all cost categories; we'll look at our personal cost; we will look in our IT operating cost; we will look on IT consulting; and we 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 two times for restructuring cost and the majority of that will go into for personnel cost.
And the first question -- yes?
And with regard to the new segment structure, you're right. That a few numbers differ from what we sent out four weeks ago and that's because of decisions that were taken as part of the closing process. So, we've I've changed a few details and we are planning to provide you with a history also going back to 2016 round about at the time of the Investor Day.
Okay, thank you.
The next question comes from Roland Pfander from Oddo BHF. Please go ahead.
Yes. Thanks, good afternoon. Two 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 set up. Are there any business units you could think of disposing in the future, reorganizing this in any way. Thank you.
Yes. Starting with the second part. Yes, we are constantly considering our portfolio. And if we identify 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, so I would not expect something spectacular. On that side, it would be smaller adjustments that we are able to reconsider that.
With regard to the index business and the competitive situation here, and so far we see a general trend to passive investments and there is a strong need. So, that's a clear trend we see on our side but we see a comparable development on the other index providers. But when we look at the numbers, so then we are at least as good and in most cases we have even better performances when you compare.
We add it under management from euro stocks expected in a specifically in Europe. So, that's the general trend what we continue here.
Okay, thank you.
The next question comes from Martin Price from Credit Suisse.
Good afternoon. If I think back a couple of years, I guess one of the opportunities you are most excited about was collateral management and the Global Liquidity Hub. I was just wondering if you give a voice with some more detail on how that's going, whether it's contributing much to start your growth at Clearstream.
As is -- because it's just not anything put down, so it's a little bit difficult to know what's going on there. Thank you.
Yes Martin, you're absolutely right. So, collateral management is currently under pressure and the main reason is I quickly go reading through the Central Monitory Policy. So, if you're basically flooded with money from the Central Bank, then there is less means to have an efficient views of your collaterals.
And we expect that immediately change when there is some discussion this ECP and changing the Central Monitory Policy. And but in general, we also think there is a demand for HQLAX 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 ECP monitory policy and we will see nice increase here if that changes.
And is it? Thanks, Gregor.
Next question comes from Chris Turner from Berenberg.
Yes. Good afternoon, thank you. You saw a good revenue growth in your FX business, 360T; in the first quarter. But we also stock large new engine into the market. We have the CME acquiring one of the largest bought FX platform. How do you see that changing and shaping the competitive dynamics? Is that an opportunity or threat to 360T?
And then also, secondly if I can turn over to the efficiency savings, a key part of that or key aim of that is to increase the financial flexibility of Deutsche Borse. But from downside looking, then I guess your maintenance rate financially, is this holding company leverage constraints the 1.5 times gross that to EBITDA.
Is that something you have looked at, have you considered? - While I sit, thanks.
Obviously, we strongly consider what our competitors are ordering and if not completely under threat, that's CME have approached now on that. In general, with regard to our M&A strategy, we are very much augmented to in any statement or where we mention it very clearly. We have five segments where we also want one to two M&A and FX is definitely part cut off it.
So far, there's roughly €70 million and 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 pick up. With regard to and efficiently your financial flexibility around some 1.5 times cost that EBITDA number?
Yes, obviously if you're able to increase our EBITDA and our cash earnings. Obviously we increase our financial flexibility to where the cost of EBITDA is currently at a level of 1.1 in the first quarter or that's clearly below the 1.5 and just it's obviously true and right.
That this helps us and that's the positive impact that we are also able to reincrease our financial flexibility and if we increase our efficiencies, that will also have to increase our financial flexibility and that's part of your whole strategy.
Convinced here, thank you.
So, the last question here for now is Gurjit Kambo from JP Morgan. Please go ahead.
Hi, good afternoon everybody. This is Gurjit, JP Morgan. Just have one question. In terms of [indiscernible] businesses that you think perhaps it temporarily benefitted it all big disadvantage by the implementation of Merger to and MENA. Have you seen that perhaps in inclined behavior?
Yes. Obviously, there are many positive and hedged for that to bear that out of Merger to -- I trust in earlier on call. So, I refer to the regulator reporting hub. So, there the increased need for our transparency and that obviously helps Deutsche Borse and we welcome all of these initiatives.
Another point admitted to is the trading obligation for OTC to either derivatives or that it's a same level playing fees back like in the event of fine in Europe we just have the obligation to use it see to before to see to whether there are over throws and beginning on 2020 and a review also on the needs to use organized trade and facilities also called OTFs for that.
And obviously, Deutsche Borse will also benefit from on that development. With regard to potential risks, so hope my access obviously has if it's one of the elements, here I think you're aware that or the markets used opt out. Option not to introduce open an access for towards 30 months now. And we understand the regulators you that they allowed to opt out of this open exits from progression.
Because first and regulators one, two, three, what is the final political decision with regard to EU and correct the negotiation and after the political decision is clear, then we can talk about that provision like I'm for us it's also very important and interoperability rule is not part of merger too and that's clearly stated.
And so far, on a net basis, we be seeing more benefits of what Deutsche Borse will order, merger two.
Okay, thank you.
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.