Third Quarter 2008 Earnings Presentation

Transcription

1 NYSE Euronext Third Quarter 2008 Earnings Presentation October 31, NYSE Euronext. All Rights Reserved.

2 Legal Disclaimer Cautionary Note Regarding Forward-Looking Statements This presentation may contain forward-looking statements, including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such forward-looking statements include, but are not limited to, statements concerning NYSE Euronext's plans, objectives, expectations and intentions and other statements that are not historical or current facts. Forward-looking statements are based on NYSE Euronext's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Factors that could cause NYSE Euronext's results to differ materially from current expectations include, but are not limited to: NYSE Euronext's ability to implement its strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk and U.S. and global competition, and other factors detailed in NYSE Euronext s reference document for 2007 ("document de référence") filed with the French Autorité des Marchés Financiers (Registered on May 15, 2008 under No. R ), 2007 Annual Report on Form 10-K and other periodic reports filed with the U.S. Securities and Exchange Commission or the French Autorité des Marchés Financiers. In addition, these statements are based on a number of assumptions that are subject to change. Accordingly, actual results may be materially higher or lower than those projected. The inclusion of such projections herein should not be regarded as a representation by NYSE Euronext that the projections will prove to be correct. This presentation speaks only as of this date. NYSE Euronext disclaims any duty to update the information herein. 2

3 Third Quarter Update Our Results The Market Executing our Strategy Q3 08 pro forma EPS from continuing operations of $0.72 vs. $0.75 in Q3 07 Q3 08 pro forma results exclude discontinued operations of $0.01 Pro forma fixed operating expenses down 9% 1 vs. Q3 07 Market volatility driving increased trading volumes Trading model/systems handled spikes without issue Outlook for volumes uncertain Pan-European cash equity initiatives on track Implemented NYSE s Designated Market Maker (DMM) model with new benefits and functionality Launched our U.S. futures business, NYSE Liffe LiffeClear to be operational by end of Q1 09 Announced launch of CDS indices on Bclear Advanced Trading Solutions (ATS) provides diversification Closed Amex acquisition on October 1 1. Percentage change represents fixed operating expenses from continuing operations (defined as operating expenses less merger expenses & exit costs, direct transaction costs and excluding regulatory fine income) excluding the impact of currency translation, acquisitions and dispositions of businesses and selected strategic initiatives. 3

4 Current Areas of Focus Launch of Universal Trading Platform (UTP) to provide seamless, high-performance trading across asset classes, global geographies and time zones Position our European cash markets in the face of changing competitive landscape Develop strategic control and flexibility of European derivatives Integrate our technology functions Establish a meaningful position in the U.S. futures industry through NYSE Liffe Achieve integration savings from NYSE Euronext merger and Amex acquisition Grow commercial technology business and add customers Optimize uses of cash for shareholder value creation 4

5 Cylinders of Growth Core Core Assets Assets Truly Global Franchise 7 Cash Exchanges 2 Options Exchanges 2 Futures Exchanges OTC Clearing Superior Technology Market Data & Information Global Listings Investment/Growth Investment/Growth Universal Universal Trading Trading Platform Platform (UTP) (UTP) Pan-European Pan-European Initiatives Initiatives Cutting-Edge Cutting-Edge Technology Technology Solutions Solutions (ATS) (ATS) Control Control of of Clearing Clearing Capabilities Capabilities New New Futures-Related Futures-Related Products Products and and Services Services CDS CDS Trading Trading and and Follow- Follow- On On OTC OTC Products Products Leadership Leadership Execution Execution Technology Technology Services Services Global Global Listings Listings 5

6 Cash Equities: Competitive Challenges Challenge US Response Europe Response Pricing Pressure Emergence of New Entrants/ Market Share Launched new pricing with competitive rates for every volume tier on both Tape A and C Launched global pricing initiative Transitioned to Designated Market Maker model (DMM) on NYSE Enhanced the capabilities of NYSE floor brokers Developing innovative solutions to attract block liquidity (New York Block Exchange and MatchPoint) Technology Rolling out UTP to US platforms in 2009 Latency to be reduced from 100 milliseconds to 10 milliseconds on NYSE in 2009 Revised pricing on Euronext cash markets and launched Pack Epsilon, a dedicated fee package for highfrequency traders Launched global pricing initiative Central orderbook enables cross-border trading of Euronext-listed stocks Launch of NYSE Arca Europe, a pan-european Multilateral Trading Facility (MTF) used to trade non-euronext listed shares Launch of SmartPool, a block trading facility for the most liquid pan-european stocks In-sourcing AEMS allows for better management and development of our trading platforms Rolling out UTP to European platforms in Q4'08 6

7 Pan-European Initiatives - Cash NYSE Arca Europe SmartPool Competitively priced Multilateral Trading Facility for high frequency trading Trading on UTP 400 microsec.) Pan-European securities excluding Euronextlisted stocks EuroCCP to act as Central Counterparty (CCP) Anonymous block trading for over 650 of the most liquid pan-european securities LCH.Clearnet to act as CCP for Euronextlisted stocks, and EuroCCP for non Euronextlisted stocks Partners include BNP Paribas, HSBC & JP Morgan Targeting November launch upon FSA approval Main Differentiators Leverage technology: UTP to become the trading platform of all cash markets of NYSE Euronext in 2009 Leverage client and infrastructure network: use of Secure Financial Transaction Infrastructure (SFTI), Common Customer Gateway (CCG) Multi-post trade solutions available 7

8 NYSE Liffe Designated Contract Market (DCM) application approved by CFTC in August 08 NYSE Liffe began trading on September 8 All-electronic platform offering futures and options on futures for gold and silver Over 1 million contracts traded since launch Average daily volume of approximately 30,000 contracts 198 members as of October 31, 2008 Supported by 10 committed market-making firms and liquidity providers OCC to become the clearing house of NYSE Liffe in 1Q09, transition complete in Q OCC is the world s #1 derivatives clearing house by volume Significant technology upgrade underway to provide market leading speed and functionality New products to be rolled out in Q2 2009, post clearing conversion and upgrade James McNulty, Chairman of NYSE Liffe Board of Directors 8

9 LiffeClear 1 Strategic Rationale Enhances competitive position Current situation Agreed future structure Liffe becomes central counterparty for London market - futures industry standard Trading fees LIFFE Operations Unchanged LIFFE Operations Trading fees Provides strategic flexibility Increased ability to develop new products and services Control of clearing technology and future development path Does not increase risk Default and guarantee management and liabilities remain with LCH.Clearnet Clearing Income LCH Liffe and crossmarket operations Risk management Banking Treasury management LiffeClear (LIFFE) Operations Risk Management Clearing services charge LCH Cross-Market Operations Risk management Banking Treasury management Clearing Income Economics Control of strong derivatives clearing revenue stream LCH Default Resources and Management Unchanged LCH Default Resources and Management 1. Subject to FSA approval and customary conditions 9

10 Amex Acquisition Closed on October 1 $260mm stock transaction (6.8MM shares issued at conversion price of $38.33) NYSE Euronext obtained a second U.S. option exchange license and is now the 3 rd largest options marketplace in the U.S. Launch NYSE Alternext U.S., our third U.S. cash equities exchange Strengthen NYSE Arca s leadership position in ETF listings and trading Offer a leading venue for listing and trading of closed-end funds and structured products Expect transaction to be accretive by end of

11 In-Sourcing of AEMS Solidifies Advanced Trading Solutions Portfolio Advanced Trading Solutions (ATS) is our commercial technology business unit comprising the software products and network services developed by TransactTools, SFTI, Exchange Solutions and Wombat Provides the investment community with leading electronic trading technology for liquidity center connectivity, trading applications, exchange solutions, market data management and low latency trade messaging Core Products Clients Operations Secure Financial Transaction Infrastructure (SFTI) Network & Community Market Data Platform Trade, Transaction and Market Data Messaging Exchange Solutions Global Investment Banks & Broker-Dealers Hedge Funds, Investment Managers Exchanges New York, Belfast, Chicago, London Tokyo, Hong Kong & Singapore 11

12 Advanced Trading Solutions TransactTools Managing Order Messaging SFTI Highway to NYX Markets Exchange Solutions Running the Trading Engines Wombat Market Data Distribution NYSE NYX Customers Investment Banks Broker-Dealers Sponsored Access Firms Orders Orders Orders SFTI Network & Co-Location Common Customer Gateway NYSE Arca Euronext LIFFE Market Data Traders Websites Investors Customers NYSE Alternext Market Data Feed Handlers Ticker Plant Management Other Exchanges 12

13 Financial Results and Integration Update 2007 NYSE Euronext. All Rights Reserved.

14 GAAP Financials ($ in millions, except per share data) Q3'08 Q3'07 % Total Revenues $1,205 $1,126 7% Operating Income from Cont. Operations $267 $291 (8%) Net Income from Cont. Operations $171 $257 (33%) Diluted EPS from Cont. Operations $ 0.65 $ 0.97 (33%) Diluted EPS from Discont. Operations $

15 Pro Forma Non-GAAP Financial Performance 1 ($ in millions, except per share data) 3-Mo. Ended September 30, 9-Mo. Ended September 30, % % Gross Revenue $1,159 $995 16% $3,297 $2,771 19% Liquidity Pmts and Routing & Clearing ($435) ($275) 58% ($1,098) ($700) 57% Net Revenues $724 $720 1% $2,199 $2,071 6% Fixed Operating Expenses ($428) ($417) 3% ($1,269) ($1,247) 2% Regulatory Fine Income $1 $10 NM $3 $19 NM Operating Income $297 $313 (5%) $933 $843 11% Net Income $192 $201 (4%) $626 $529 18% Diluted EPS from Continuing Operations $0.72 $0.75 (4%) $2.35 $ % NM = Not Meaningful 1. On a pro forma non-gaap basis, the results of operations of NYSE Euronext are presented as if the NYSE Euronext merger and the divestiture of the investment in GL Trade had been completed at the beginning of the earliest period presented. In addition, those results exclude the impact of activity assessment and Section 31 fees, merger expenses and exit costs, gains on sale of businesses and equity investments and other non-recurring items. 15

16 Highly Diversified Revenue ($ in millions) Q3 08 Net Revenues by Business Software and Technology Services 6% Listings 14% Market Data 15% Other 5% US Cash Trading 12% Derivatives Trading 24% European Cash Trading 22% Q3 08 Net Revenues by Geography Q3'08 Q3'07 % Cash Trading $634 $466 36% Derivatives Trading (6%) Listing % Market Data % Software & Tech % Regulatory 8 29 (72%) Other (14%) Total Revenues $1,159 $995 16% Liquidity Payments (358) (211) 70% Routing and Clearing (77) (64) 20% European Revenues 56% US Revenues 44% Net Revenues $724 $720 1% 16

17 Trading Volumes 4,000 US Cash ADV Shares in MM 1,800 European Cash ADV Trades in 000s 3,500 3,000 2,500 2,801 2,771 3,101 2,846 3,515 2,914 3,622 1,600 1,400 1,200 1,000 1,155 1,206 1,341 1,354 1,662 1,371 1,552 2, ,500 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 5,000 Derivatives (Liffe) ADV Contracts in 000s 2,100 US Derivatives (NYSE Arca Options) ADV Contracts in 000s 4,500 4,000 3,500 3,000 3,431 3,752 4,187 3,509 4,552 4,430 3,756 1,900 1,700 1,500 1,300 1, ,139 1,115 1,281 1,798 1,945 1,512 1,763 2, ,000 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 17

18 Net Revenue Analysis & Pricing Trends ($ in millions, except per share/contract data) Cash Equities Derivatives Q3'08 Q2'08 Q3'07 Q3'08 Q2'08 Q3'07 US Total Revenue $473 $356 $323 Total Revenue $39 $31 $21 Liquidity Payments (308) (205) (162) Liquidity Payments (15) (11) (4) Routing and Clearing (75) (64) (63) Routing and Clearing (2) (1) - Net Revenue $90 $87 $98 Net Revenue $22 $19 $17 Europe Total Revenue $161 $154 $143 Total Revenue $190 $199 $222 Liquidity Payments Liquidity Payments (35) (39) (45) Routing and Clearing Routing and Clearing Net Revenue $161 $154 $143 Net Revenue $155 $160 $177 European cash pricing impacted by: Pricing changes on Euronext platform implemented in September 2008 Launch of Pack Epsilon on July 1 Tiered pricing in NYSE Arca driving higher liquidity payments FX impact on revenues 18

19 Fixed Operating Expenses on a Non-GAAP Basis 1 ($ in millions) Fixed Operating Expenses 2 Q3'08 vs. Q3'07 Q3'08 vs. Q2'08 Current Quarter ($428) ($428) Incremental revenue stream realized from several key initiatives helped offset associated incremental expenses Comparable Quarter (417) (425) Increase in Fixed Op. Expenses ($11) ($3) Excluding Impact of: M&A 3 $21 $14 Capacity and Integration Initiatives Exchange Solutions $12mm Co-location $8mm Wombat $9mm NYSE Liffe Investment 3 2 FX Impact 6 (8) Total Adjustments $48 $18 Underlying Fixed Expense Savings $37 $15 1. On a pro forma non-gaap basis, the results of operations of NYSE Euronext are presented as if the NYSE Euronext merger and the divestiture of the investment in GL Trade had been completed at the beginning of the earliest period presented. In addition, those results exclude the impact of activity assessment and Section 31 fees, merger expenses and exit costs, gains on sale of businesses and equity investments and other non-recurring items. 2. Fixed operating expenses from continuing operations, defined as operating expenses less merger expenses and exit costs, direct transaction costs, and excluding regulatory fine income. 3. Includes Wombat, AEMS, and others. 19

20 Operating Efficiency Program Technology Integration Targeting $250 million of annual run-rate technology cost synergies by the end of 2010 Amex Integration Over $100 million annual run-rate cost synergies anticipated by the end of 2009 Other Exceeded $25 million of estimated non-technology annual run-rate savings Announced US VRIP in Q2 08: Estimated $6mm of cost savings in 2008, $20mm in 2009 and $30mm in 2010 European restructuring plan announced in October: Anticipate approximately 200 reduction in headcount (net) 20

21 NYSE & Euronext Technology Integration Update Platform Convergence ($90m) UTP Equities - Europe System Simplification Equities - US UTP Equities - US UTP Derivatives Data Centers ($40m) Replatform Data Center - US Consolidate into 2 main data centers - Europe Consolidate into 2 main data centers - US Others ($75m) AEMS Insourcing IT Support Functions Standardization - Contracts, Tools, etc. Corp. & Admin. Systems ($30m) Global Finance System Global HR System Infra. & Networks ($15m) Consolidate Data Networks - Global SFTI 2Q07-1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 $70m run-rate $120m run-rate $200m run-rate $250m run-rate Total Expected Annual Run-Rate Technology Synergies: $250mm Note: US$mm. Breakdown of annual run-rate technology cost savings are estimates and subject to change. Annual runrate cost savings of $250mm currently expected to be realized by end of Source: NYSE Euronext. 21

22 Amex Integration Business Integration Equities & ETFs migration: December 2008 Options migration: February 2009 Cost Savings Headcount reduced over 35% from announcement date figure of 471 Plans to decommission Amex platforms and exit facilities on track for March 2009 Expected run rate cost synergies of $120 million versus $100 million originally announced to be achieved by the end of 2009 Revenues Anticipated lower revenue due to market share loss and purchase accounting adjustments to be largely offset by savings initiatives 22

23 Capital Management Issued 6.8mm shares for conversion price of $38.33 per share Removed transfer restrictions on 41.8mm shares related to Arca transaction $1B share repurchase program launched on October 1; 4.7 mm shares purchased for $141.3 avg. price of $29.93 as of 10/29 $227mm of cash dividends paid to shareholders this year through Q3 08 Key Balance Sheet Indicators at September 30, 2008 ($ bn) Cash and Investment Securities $1.2 Total Debt $3.2 Credit Ratings (S&P/Moody's) AA / A1 23

24 Outlook Market uncertainty and global recession fears Margin compression in European cash businesses 2009 to be a transition year as we execute our major technology and cost savings initiatives CAPEX spending will increase as we focus on data center initiatives Foreign exchange exposure 1% change in Euro and Sterling rates would impact quarterly operating income by $1.3 million and $0.7 million, respectively 24

25 GL Trade Contribution to Pro Forma Non-GAAP Results Q3 '08 Q2 '08 Q1 '08 Q4 '07 Q3 '07 Q2 '07 Q1 '07 Revenues $82 $85 $81 $82 $72 $66 $59 Expenses (70) (73) (70) (67) (65) (58) (51) Operating Income $11 $13 $11 $15 $7 $8 $8 Net Interest and Investment Loss 0 (1) (1) 1 0 (1) 0 Other Income (0) (3) (0) (1) Income Before Income Taxes & Minority Int. $11 $9 $10 $15 $7 $7 $8 Income Tax Provision (2) (3) (4) (6) (2) (2) (2) Gain on Sale of GL Multimedia Minority Interest (7) (4) (5) (7) (4) (4) (5) Net Income $3 $2 $1 $2 $1 $1 $1 25

26 Use of Non-GAAP Financial Measures Reconciliation of non-gaap financial measures to GAAP measures To supplement NYSE Euronext's consolidated financial statements prepared in accordance with GAAP and to better reflect period-over-period comparisons, NYSE Euronext uses non-gaap financial measures of performance, financial position, or cash flows that either exclude or include amounts that are not normally excluded or included in the most directly comparable measure, calculated and presented in accordance with GAAP. Non-GAAP financial measures do not replace and are not superior to the presentation of GAAP financial results, but are provided to (i) present the effects of certain merger expenses and exit costs, and other non-recurring items, and (ii) to improve overall understanding of NYSE Euronext's current financial performance and its prospects for the future. Specifically, NYSE Euronext believes the non-gaap financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to financial condition and operating results. In addition, management uses these measures for reviewing financial results and evaluating financial performance. The non-gaap adjustments for all periods presented are based upon information and assumptions available as of the date of this presentation. 26

27 2007 NYSE Euronext. All Rights Reserved.