Facts and Figures. Profile. Result before taxes and annual profit

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2 Facts and Figures Profile Steubing AG is an independent securities trading bank based in Frankfurt am Main. Founded in 1987 under the name of Wolfgang Steubing GmbH Börsenmakler, the company changed its legal form to that of a German stock corporation in January Trading and electronic order routing in listed shares, bonds, certificates and warrants form the core of the company s business activities. Steubing AG operates on all German stock exchanges and, in addition, has direct online access to around 50 international trading centres. The company s other core operations include keeping stock records (for around 1,000 domestic and international shares), Structured Products, Derivatives, Designated Sponsoring, Sales and Research, along with Equity Capital Markets and Corporate Advisory. Steubing AG supports small and mid-sized enterprises in an independent capacity with its expertise and competence in equityrelated matters. Moreover, SDB Steubing Derivatives Brokerage GmbH, which was founded together with IDC AG in 2007, offers independent expertise in structured products. Result before taxes and annual profit (in k) 2008/ /2010 Gross profit before cost of trading 28,107 22,720 Gross profit after cost of trading 23,910 18,587 Result before taxes 6,095 1,864 Annual net profit 4,072 1,167 28

3 Preface Dear Shareholders and Business Partners, After two financial years that were marred by the crisis in the financial markets and its impact on the global economy, we had hoped to bring you once again a report on a normal year. Unfortunately, however, the situation in the financial markets in the 2009/2010 financial year was still far from normal. There will be no change until market participants can reach unanimity on the direction in which the major economies of this world are likely to develop in the near future. So far this is not the case: Are we going to see a double dip in the USA as the nation slips back into recession? What is happening in China, the new driving force in the global economy? Should we fear a currency war between major economic powers such as the USA and individual developing countries such as China and Brazil, that is to say, will these countries attempt to use their knowingly undervalued currencies as a tool to secure a competitive advantage for themselves in the export markets, at the risk of provoking protectionist countermeasures? And again, which is the more likely scenario: Will the massive expansion of sovereign debt as a consequence of the economic crisis lead us into inflation or deflation? One of the outward signs of this uncertainty has been the performance of the Dax which has oscillated in a range between 5800 and 6300 points over a period of months, despite the fact that in Germany in particular the fundamental economic data have been predominantly positive. Five times this year the Dax has tried to break through the 6300 barrier, but failed to hold its ground. In this environment, the majority of capital market participants have been decidedly reticent in their exposure to equities, and turnover on the stock markets has been correspondingly low. As a company that sees its role as a securities service provider rather than an own-account trader, we are naturally suffering in the face of this abstinence on the part of investors. There will be no noticeable increase in stock market turnover until the majority of market participants perceive a clear trend, in one direction or the other. The sixth and this time successful spurt in mid October that saw the Dax not only pass the 6300 and 6600 marks but even break through the 6700 barrier by the beginning of November, may presage a more positive assessment of future developments. Yet even though the possibility can no longer be excluded that the Dax may reach the 7000 mark by December, the rally has not thus far been underpinned by any notable increase in market turnover. In addition to the uncertainty that still prevails in the markets, the global financial and economic crisis has also led to a sustained upheaval and structural change in the financial industry. On the one hand a process of consolidation is taking place among our clients, the banks and capital investment companies; while on the other hand the sharp increase in regulatory requirements is posing major challenges for small and medium-sized institutions in particular. The EU financial markets directive MiFID in particular has been a major factor in these structural changes and has dramatically increased the competition for order flow. Where once the competition was between traditional participants in the field of conventional brokerage, there is now also a battle being fought between traditional stock markets and a continuously increasing number of alternative trading platforms (MTFs). As a part of the process, automatic und algorithmic stock trading has increased still further. While this competitive pressure is leading to a welcome reduction in trading costs, it is also eroding earnings margins. Unfortunately we were unable to escape this development in the markets in our financial year 2009/2010. Despite reducing our costs, our pre-tax earnings at k 1,864 were some 69 percent down on the preceding year ( k 6,095). Net income for the year at k 1,167 fell similarly short of the previous period ( k 4,072). On the other hand, to arrive at a realistic comparison of our operating performance in these two financial years, it is necessary to strip out exceptional effects and make allowance for the impact of historically low interest rates on our interest earnings. Having made these adjustments, the pretax result for 2009/2010 is accordingly no longer 69 percent, but only barely 40 percent down on the adjusted figure for the year before. The competition for order flow between all of the participants in the market will continue to increase, as a result of which the process of concentration in the financial industry will likewise continue. Not least as a consequence of the steeply rising requirements imposed by the regulatory authorities, the small and medium-sized players in the markets will be hardest hit. In addition to strictly managing our costs, we shall therefore continue to purse our income-oriented strategy of growth and diversification with a particular focus on services which offer our clients genuine value added. We expect that conditions will remain difficult, however, we are convinced that with our broad-based business model and our extremely sound equity position, we shall be able to profit from the processes of change in the market. Not least on the basis of this assessment and in continuation of our traditional shareholder-friendly dividend policy, the Management Board and Supervisory Board plan to propose a dividend of 0.30 per share at the Annual General Meeting scheduled for 14 December 2010 in Frankfurt. We would like to take this opportunity to thank our shareholders and business partners for their loyalty and solidarity. A particular word of thanks is also due to our staff who once again has displayed great commitment and professionalism in their efforts to achieve a respectable result in this extremely adverse environment. However, we save our sincerest thanks of all for our clients who have continued to place their trust in us despite the huge upheavals in the financial industry. The Management Board 29

4 Balance Sheet as of 30 June 2010 ASSETS EUR EUR EUR Prior Year EUR k 1. Cash reserve a) Cash on hand 28, b) Balances at central banks thereof: at Deutsche Bundesbank EUR c) Postal giro balances , Public-sector debt instruments and bills of exchange eligible for refinancing with central banks a) Treasury bills and treasury discount notes as well as similar public-sector debt instruments thereof: eligible for refinancing with Deutsche Bundesbank EUR b) Bills of exchange thereof: eligible for refinancing with Deutsche Bundesbank EUR Due from banks a) Payable on demand 21,479, ,667 b) Other amounts due 13,604, ,084, , Due from customers thereof: secured by real property liens mortgages EUR Public-sector loans EUR thereof: from financial services institutions 5. Debt securities and other fixed-income securities a) Money market securities aa) Issued by the public sector 11,362, ,005 thereof: eligible as collateral with Deutsche Bundesbank EUR ab) issued by other borrowers ,362, thereof: eligible as collateral with Deutsche Bundesbank EUR b) Bonds and debt securities ba) Issued by the public sector thereof: eligible as collateral with Deutsche Bundesbank EUR bb) issued by other borrowers thereof: eligible as collateral with Deutsche Bundesbank EUR c) Own debt securities ,362, Nominal value EUR Shares and other variable-yield securities 2,830, , Equity investments 157, thereof: in banks EUR thereof: in financial services institutions EUR 0.005, Shares in affiliates 55, thereof: in banks EUR thereof: in financial services institutions EUR Trust assets thereof: trust loans EUR Equalization claims on the public sector including debt securities resulting from their conversion Intangible assets 208, Property and equipment 389, Unpaid contributions to subscribed capital thereof: called EUR Treasury shares 650, Nominal value/ accounting par value EUR Other assets 4,537, , Prepaid expenses 338, Capital deficit Total assets 55,642, ,139 30

5 Balance Sheet as of 30 June 2010 LIABILITIES AND EQUITY EUR EUR EUR Prior Year EUR k 1. Liabilities to banks a) Payable on demand 725, b) With an agreed term or period of notice , Liabilities to customers a) Savings deposits aa) with an agreed period of notice of three months ab) with an agreed period of notice of more than three months b) Other liabilities ba) repayable on demand thereof: to financial services institutions EUR bb) with an agreed term or period of notice thereof: to financial services institutions EUR Securitized liabilities a) Debt securities issued b) Other securitized liabilities thereof: money market securities EUR own acceptances and promissory notes outstanding EUR Trust liabilities thereof: trust loans EUR Other liabilities 2,526, , Deferred income Provisions a) Provisions for pensions and similar obligations 631, b) Tax provisions 532, c) Other provisions 1,127, ,291,656, Special item with an equity portion Subordinated liabilities Participation certificate capital thereof: due within two years EUR Fund for general banking risks Contribution for the capital increase Equity a) Subscribed capital 22,700, ,675 b) Capital reserves 24,604, ,629 c) Revenue reserves ca) statutory reserve cb) reserve for treasury shares 650, cc) reserves required by articles of incorporation and bylaws cd) other revenue reserves 442, ,092,456, d) Net retained profit 1,702, ,099, ,108 thereof profit carryforward: EUR 45,000.00) (prior year EUR 60,000.00) Total liabilites and equity 55,642, ,139 EUR EUR Prior year EUR k 1. Contingent liabilities a) Acceptances and endorsements b) Guarantees c) Assets pledged as collateral security for third-party obligations Other obligations a) Commitments arising out of sale and repurchase transactions b) Placement and underwriting commitments c) Irrevocable loan commitments

6 Income Statement for the Period of 01 July 2009 to 30 June 2010 EUR EUR EUR Prior year EUR k 1. Interest income from a) Lending and money market business 73, b) Fixed-income securities and governmentinscribed debt 359, , Interest expenses 9, , Current income from a) Shares and other variable-yield securities 138, b) Equity investments 95, c) Shares in affiliates , Income from profit pooling and profit and loss transfer agreements Commission income 13,504, , Commission expenses 7,892, , Net income or net expense from financial transactions a) Income from financial transactions 17,411, ,377 thereof: aa) Securities EUR 13,047, (prior year EUR 15,527,805.42) ab) Futures EUR (prior year EUR ) ac) Options EUR (prior year EUR ) ad) Price differences from name-to- EUR 4,364, follow transactions (prior year EUR 5,849,597.06) 7. b) Expenses from financial transactions 5,539, ,872, ,772 thereof: ba) Securities EUR 5,348, (prior year EUR 5,573,687.97) bb) Futures EUR (prior year EUR ) bc) Options EUR , (prior year EUR ) bd) Price differences from name-to- EUR 186, follow transactions (prior year EUR 198,628.87) 8. Other operating income 448, , Income from the release of the special item with an equity portion General and administrative expenses a) Personnel expenses aa) Wages and salaries 7,570, ,390 ab) Social security, pension and other benefit costs 897,988,93 8,468,452, thereof: for old-age pensions EUR , (prior year EUR.07190,420.44) 10. b) Other administrative expenses 7,637, ,105, , Amortization, depreciation and write-downs of intangible assets and property and equipment 334, Other operating expenses 236, amount carried over 1,914, ,155 32

7 Income Statement for the Period of 01 July 2009 to 30 June 2010 EUR EUR EUR Prior year EUR k amount carried over 1,914, , Write-downs of and allowances on receivables and certain securities as well as allocations to provisions for possible loan losses 0, Income from write-ups of receivables and certain securities and from the reversal of loan loss provisions 0, Write-downs of equity investments, shares in affiliates and securities classified as fixed assets 0, Income from write-ups of equity investments, shares in affiliates and securities classified as fixed assets 0,00 0, Expenses from loss absorption 0, Allocations to the special item with an equity portion 0, Result from ordinary activities 1,914, , Extraordinary income Extraordinary expenses 50, Extraordinary result -50, Income taxes 695, , Other taxes not disclosed under item 12 1, , Income from loss absorption Profits transferred under profit pooling and profit and loss transfer agreements Net income/net loss for the year 1,167, , Profit carryforward from prior year 45, Appropriation of the capital reserves Appropriation from revenue reserves a) Of the legal reserve b) Of the reserve for treasury shares c) Of the reserves required by the articles of incoporation and bylaws d) Of other revenue reserves 490, , Appropriation of participation certificate capital Allocations to the revenue reserves a) To the legal reserve b) To the reserve for treasury shares c) To reserves required by the articles of incoporation and bylaws d) To other revenue reserves Replenishment of participation certificate capital Advance distributions Net retained profit 1,702, ,108 33

8 Notes to the Financial Statements as of 30 June 2010 of Wolfgang Steubing AG I. General Information on the Financial Statements and the Accounting and Valuation Policies The period under review is the fiscal year from 1 July 2009 to 30 June Securities trading banks must comply with the supplementary regulations for certain types of businesses in accordance with Sec. 340 et seq. HGB [ Handelsgesetzbuch : German Commercial Code]. These financial statements have been prepared in accordance with these regulations, in particular Sec. 340 (4) and Sec. 340a HGB. Reference is made to the RechKredV [ Verordnung über die Rechnungslegung von Kreditinstituten : German Bank Accounting Directive] dated 11 December 1998 regarding the forms mentioned in Sec. 340a (2) Sentence 2 HGB. It was chosen not to apply the BilMoG [ Bilanzrechtsmodernisierungsgesetz : German Accounting Law Modernization Act] voluntarily. The regulations of Sec. 252 et seq. HGB were applied in determining the carrying values of assets and liabilities. Items were valued at acquisition or production cost unless a lower value had to be stated in accordance with commercial or tax law. Cash reserves, receivables from banks, fixed-income securities and other assets are stated at nominal value. No write-downs were necessary. Shares and other variable-yield securities held for investment purposes were valued in accordance with Sec. 253 (2) HGB. Securities held for trading were valued according to the strict lower of cost or market principle pursuant to Sec. 253 (3) HGB. Equity investments and shares in affiliates were carried according to the modified lower of cost or market principle, being stated at either cost or, in case of permanent impairment, at the lower market value on the balance sheet date. Depreciation on fixed assets subject to wear and tear was charged over their useful lives on a declining-balance or on a straight-line basis. Details of depreciation can be found in the enclosed statement of changes in fixed assets. Low-value assets acquired in 2009/2010 were written off immediately in accordance with Sec. 6 (2) EStG [ Einkommensteuergesetz : German Income Tax Act]; this amounted to EUR 2, Pursuant to Sec. 6 (2a) EStG, a collective item was recognized for low-value assets costing between EUR 150 and EUR 1,000. This item will be depreciated on a straight-line basis over a period of five years. Prepaid expenses contain expenditure before the balance sheet date that relates to the next reporting period. Liabilities are stated at the amount repayable. Provisions for uncertain liabilities are set up in the amount likely to be required according to prudent business judgment. Pension commitments were valued on the basis of Prof. Klaus Heubeck s 2005 G mortality tables. Assets and liabilities denominated in a foreign currency are disclosed using the reference rates of the European Central Bank on the balance sheet date. They are valued in accordance with Sec. 340 h (2) HGB. The regulations in Secs. 340 f and 340 g HGB were not applied. 34

9 Notes II. Notes to the Balance Sheet 1. Receivables from banks The receivables include prorated interest as of 30 June They are due in less than three months. Time deposits of 3,562k are pledged as collateral for the rental and exchange guarantees issued by banks. To protect the claims under the clearing and settlement agreements, the Company granted CACEIS Bank Deutschland GmbH a contractual right of lien on the trading and custody accounts maintained by this bank. 18,965k was kept on these accounts as of the balance sheet date. 2. Shareholdings Sec. 285 No. 11 HGB Mars Siebenundreissigste Vermögensverwaltungs AG, with registered office in Frankfurt am Main: Share of capital held % Share capital 50, Book value 55, Result as of 31 December , SDB Steubing Derivates Brokerage GmbH, with registered office in Bad Homburg v.d.h.: Share of capital held 49.90% Capital stock 150, Book value 152, Result as of 30 June , Statement of changes in fixed assets The statement of changes in fixed assets as of 30 June 2010 was prepared in accordance with Sec. 268 (2) HGB and Sec. 34 (3) RechKredV. The statement of changes in fixed assets is attached as an exhibit. 4. Breakdown of listed and unlisted securities in Balance sheet item Listed Unlisted Shares and other variable-yield securities 975, ,855, Equity investments 157, Shares in affiliates 55, All but 157, of the securities held can be traded on a stock exchange. 5. Valuation of negotiable securities at the lower of cost or market The entire item shares and other variable-yield securities was valued according to the strict lower of cost or market principle. 6. Property and equipment Office equipment, furniture and fixtures are valued at 389, Treasury shares On 10 December 2009, the shareholder meeting, pursuant to Sec. 71 (1) No. 7 AktG [ Aktiengesetz : German Stock Corporation Act], authorized the Company, following the commencement of trade in the Company s shares on a German stock exchange, to buy and sell treasury shares for trading purposes at prices that do not exceed or fall below 10% of the share s closing price as quoted by the electronic trading system of the Frankfurt Stock Exchange (Xetra closing price) or a successor system on the three previous trading days. The shares acquired for this purpose 35

10 Notes may not exceed 5% of Steubing AG s capital stock at the end of any calendar day. The authorization was issued for a period of five years, beginning on the day the resolution was passed. This authorization was not used during the fiscal year. Furthermore, the shareholder meeting authorized the Company (in accordance with Sec. 71 (1) No. 8 AktG) to buy and sell treasury shares at market conditions for other purposes. At market conditions means that once trade in the Company s treasury shares has commenced on a German stock exchange, the purchase or sale prices on the three previous trading days may not be more than 10% above or below the share s average closing price on XETRA. At market conditions before the commencement of trade means that the shares may be bought or sold at prices in line with a valuation system developed by a recognized auditing firm, and that these do not exceed or fall below such prices by more than 10%. The shares acquired for this purpose may not exceed 10% of the Company s capital stock at the end of any day. The aim is to put the Company in a position to acquire, when appropriate, businesses or investments by making a payment in kind (Company shares) rather than by paying cash. For this reason, the shareholders right to subscribe was excluded. No shares were bought or sold in accordance with Sec. 71 (1) No. 8 AktG in the period under review. A total of 50,000 shares pursuant to Sec. 71 (1) No. 2 AktG are still disclosed at a total price of 650, These shares account for 0.88%, or 200,000.00, of the capital stock. The necessary reserve for treasury shares in accordance with Sec. 272 (4) HGB, which was set up from revenue reserves, amounts to 650, Other assets Other assets comprise: EUR k Life reinsurance claims 1,976 Corporate income tax refund 1,295 Trade tax refund 808 Receivables from other investees and investors 95 Other receivables 363 Total 4, Statement of changes in provisions A statement of changes in provisions is enclosed as an exhibit. 10. Other liabilities Other liabilities are as follows: EUR k Securities buy-in obligation 392 Bonus liabilities FY 2009/2010 1,510 Received security deposits 3 Prepayment received 0 Liabilities to suppliers 519 VAT 102 Wage tax 0 Total 2,526 36

11 Notes 11. Capital Stock The Company s capital stock is held solely in the form of bearer shares. It is divided into 5,675,000 no-par shares. On 10 December 2009, the shareholder meeting resolved to increase the capital stock by 17,025, out of company funds without issuing new shares. The capital stock of 22,700, is fully paid in 12. Shares per class At the balance sheet date, the Company s capital stock was divided into 5,675,000 no-par bearer shares. 13. Allocations to and appropriation of reserves in EUR k 01 July 2009 Allocations Appropriation 30 June 2010 Capital reserves 41, ,025 26,604 Revenue reserves Legal reserve Reserve for treasury shares Total 43, ,515 25, Schedule of times to maturity Sec. 340 d HGB in conjunction with Sec. 9 RechKredV in EUR k The time to maturity breaks down as follows: Total Up to three Three months One to five More than months to one year years five years Other receivables from banks 13,605 13, Receivables from customers Foreign currency The total amount of receivables from banks denominated in foreign currency is 185,280.17; foreign currency liabilities to banks amount to 712, The carrying values are calculated using the exchange rate on the balance sheet date. The total amount of other assets denominated in foreign currency is 8.85; other foreign currency liabilities amount to 1, The carrying values are calculated using the historical exchange rate. Where commercial or tax law requires a lower carrying value to be stated, items are translated using the exchange rate of the balance sheet date 16. Proposal for the appropriation of profit Proposal by the Management Board to the Supervisory Board for the appropriation of net retained profit in accordance with Sec. 170 (2) AktG: The Management Board proposes that the Company s retained earnings of 1,702, be appropriated as follows, subject to the resolution of the shareholder meeting: Distribution to the shareholders ( 0,30 per share) 1,702, Less dividend on treasury shares 15, Allocation to the revenue reserves in accordance with Sec. 58 (3) Sentence 1 AktG 0.00 Profit carryforward to new account 15, Net retained profit as of 30 June ,702,

12 Notes 17. Derivatives The Company had no derivatives as of the balance sheet date. 18. Contingent Liabilities There are no contingent liabilities pursuant to Sec. 251 HGB. III. Notes to the Income Statement 1. Amortization, depreciation and write-downs Amortization and depreciation are disclosed in the statement of changes in fixed assets attached as an exhibit. No write-downs were charged. 2. Other significant items Other operating income and other operating expenses do not contain any significant items. 3. Breakdown of income taxes All taxes on income are attributable to ordinary business activities. 4. Auditor s fees The auditor s fees for the fiscal year break down as follows: a) Audit services k 82 b) Audit-related services k 21 IV. Other Notes 1. Management Board The following individuals are members of the Company s management board: Dr. Jochen Grossmann, economics graduate, Haibach Alexander Caspary, information technology graduate, Frankfurt am Main Kai Jordan, banker, Neu Isenburg Dr. Jochen Grossmann is a member of the supervisory board of the following companies: Tosca, Tosca Opportunity, Tosca Mid Cap, Tosca Asia/Africa (formerly Tosca Asia), Tosca Metriks, Tosca Infrastructure, Tosca Focus, Tosca Investments Mauritius Limited, Tosca Opportunity Mauritius Limited (formerly Tosca Long Mauritius), Tosca Asia Mauritius Limited. Mr. Kai Jordan is the general manager of SDB Steubing Derivatives Brokerage GmbH. In addition, Mr. Jordan is a member of the management board of the Federal Association of Securities Trading Firms at the German Stock Markets [ Bundesverband der Wertpapierfirmen an den Deutschen Börsen e. V. ]. The total remuneration of management in the fiscal year amounted to 1,351k. Severance payments and pension obligations totaling 831, for former members of the management board were accounted for in the financial statements. 38

13 Notes 2. Supervisory Board The following individuals are members of the supervisory board: Wolfgang Steubing, banker, Frankfurt am Main (Chairman) Frank Wiebols, former attorney/notary, Frankfurt am Main (Chairman) Ernst J. Neumeier, tax advisor/legal counsel, Maintal Christoph Bokelmann, Managing Partner of Christoph Bokelmann GmbH, Frankfurt/Main Wolf-Dietrich Martin, banker, Karben (until 10 December 2009) Achim Vandreike, former mayor, Frankfurt am Main Dietmar Schmid, Chairman of the Supervisory Board of BHF Bank AG, Frankfurt/Main, since 10 December 2009 Total remuneration for fiscal year 2008/09 paid in the reporting year was 292, Off-balance sheet obligations pursuant to Sec. 251 HGB: As of balance sheet date, there were no liabilities as defined by Sec. 251 HGB that had not been accounted for in the balance sheet. Other off-balance sheet obligations: As of 30 June 2010, there were obligations from rental agreements for office space and garages, as well as from leases. As of the balance sheet date, the total obligation was 457, The contracts have an average term of 11 months. There are severance pay obligations under agreements with former employees. They are limited to 200,000 per year and a total of 300, Average Number of Employees 67 persons were employed on average in fiscal year 2009/ Equity investments requiring disclosure There are no equity investments requiring disclosure as defined under Sec. 160 (1) No. 8 AktG. Frankfurt am Main, Germany, August 2010 Management Board of Wolfgang Steubing AG: Dr. Jochen Grossmann Alexander Caspary Kai Jordan 39

14 Statement of Changes in Fixed Assets as of 30 June 2010 (Gross) Acquisition and Additions Reclassifications Accumulated Amortization, Book value Book value production costs Disposals amortization, depreciation and depreciation and write-downs write-downs Write-ups from 01 July July June 2010 to 30 June June June 2009 EUR EUR EUR EUR EUR EUR EUR Software 221, , Vehicles 117, , , , , Office equipment, fixtures and fittings 1,241, , , , , , , Office equipment, fixtures and fittings formerly Hamburg 4, , , , IT equipment 752, , , , , , , IT equipment formerly Hamburg 13, , , Standard software 969, , , , , , , Leasehold improvements 1,047, , , , , Low-value assets 16, , , , , Low-value assets up to EUR 410 Hamburg 1, , Low-value assets collective item 17, , , , , , Shares in affiliates 55, , , Equity investments 157, , , Profit-sharing securities 1,005, , ,005, ,005, ,622, , ,609, , ,665, ,034, ,

15 Statement of Changes in Provisions in Fiscal Year 2009/ July 2009 Utilization Reversal Allocation 30 June 2010 EUR EUR EUR EUR EUR 1. Pensions provisions 610, ,993,00 631, Tax provisions Trade tax 363, , , Corporate income tax 331, , , , , , , , Other provisions Bookkeeping expenses 60, , , , , EDW allocation 5, , , , Other expenses, London Branch 10, ,00 5, , Vacation entitlements 79, , , , Other 433, ,896,48 22, , , Audit and financial statement costs 187, , , , , , , , ,099, ,127, ,081, , , ,120, ,291,

16 Management Report on the Financial Statements as of 30 June 2010 in accordance with Sec. 264 (1) HGB I. General The Company was established as Wolfgang Steubing GmbH in Its name was changed to Wolfgang Steubing AG Wertpapierdienstleister (Steubing AG) by notarized deed dated 28 January This change of legal form became effective upon entry in the commercial register on 25 May 1999 under HRB The Company has qualified as a securities trading bank since January In the broker ranking compiled by Deutsche Börse AG, Steubing AG has always had a top place. The Company s core business is the broking of German and foreign securities. This includes trading as a broker (or name-to-follow broker) on the major German stock exchanges, executing orders on XETRA, providing services such as execution services and volatility brokerage on the EUREX financial futures exchange, order book management, acting as a specialist on the Scoach derivatives exchange, international trading, research, sales and sales trading as well as own-account trading and electronic order routing. The Company has commenced underwriting and consulting activities and engages in financial portfolio management to a limited extent. In its brokerage operations, the Company acts as a broker between market participants admitted to the exchanges in Hamburg, Hanover, Berlin, Düsseldorf, Frankfurt am Main, Munich and Stuttgart, and on the over-the-counter (OTC) market. The Company brokers all shares traded on these exchanges, e.g., DAX shares, MDAX shares, second-tier stock, foreign shares, warrants, bonds and OTC securities. As a lead broker on the Frankfurt Stock Exchange, the Company determines prices for the securities allocated to its order book in the General Standard, Prime Standard and open market segments. Furthermore, since December 2008, Steubing AG has acted as a specialist on the Scoach derivatives exchange, where it quotes the prices of products offered by a number of issuers. Since 5 August 2004, the Company has also been authorized to trade in securities, with the exception of warrants, using the electronic trading system XETRA on the Vienna Stock Exchange. Steubing AG has been a member of the London Stock Exchange since July Membership of Euronext was acquired in February The Company has a dependent branch office in Frankfurt am Main, Börsenplatz 7-11, which is not registered in the commercial register. II. Business Performance The stock markets were in a state of flux in fiscal year 2009/2010. Following significant gains in the first half of the fiscal year, most stock indices fell slightly or were flat at best. Whilst experiencing slight fluctuations, the DAX, which started the fiscal year with 4,805 points, reached a high of 6,332 points on 26 April On 30 June 2010, the DAX was at 5,965 points, approximately 24% higher than at the beginning of our fiscal year. All the other major German indices also improved significantly (MDAX %, TecDAX %, C-DAX Banks %). However, these gains must not distract from the fact that investors were extremely reticent about investing, causing turnover on all German stock exchanges to fall some 18% to 3,750b. This reluctance was also reflected in the IPO business. Although there were around 1,000 IPOs worldwide from 1 July 2009 to 30 June 2010 with a volume of USD 200b, while in the prior year there had only been 370 IPOs with a total volume of USD 27.4b, it was the Asian markets that were primarily responsible for this increase. The European (and above all German) small and midcap segment, the focal point of Steubing AG, was not part of this development. Our Equity Capital Markets/Corporate Advisory department was also affected by smaller German companies shying away from the capital market. However, it was involved in the successful capital increases of JenOptik AG (as selling agent) and ItN Nanovation AG (as lead manager) and also provided advisory services for a medium-sized corporate group regarding the feasibility of an IPO on a foreign stock exchange. 42

17 Management Report As a result of the structural developments in our core area of equity trading (high pressure on margins, competition between traditional stock exchanges and alternative trading platforms) triggered by the MiFID, we diversified our service offerings in this segment. The effect this had was two-fold. Firstly, we set up a small trading team as a way of offering our institutional customers certain services relating to the broad range of EUREX products, for which execution services (execution of transactions on the EUREX in accordance with customer instructions) and volatility brokerage (brokerage of larger option transactions) are currently the key areas. Secondly, we increased our striking power in fixed-income trading. As key building blocks, this involved expanding institutional bond trading in the OTC sector, putting the Bondinvest platform ( into operation as well as operating as a XETRA specialist for fixed-income trading. The latter segment was stopped by a temporary injunction initiated by two companies which were not awarded mandates by Deutsche Börse AG. Steubing AG expects a decision on how to proceed in fall As of 30 June 2010, the Company was still responsible for the order books of some 1,000 securities on the Frankfurt stock exchange. The Structured Products division performed steadily. Steubing AG currently serves six issuers as a specialist on the Scoach derivatives exchange and quotes around 50,000 products, which equates to a market share of 12%. In the Designated Sponsoring business, Steubing AG succeeded in maintaining the service quality it has provided in the past. Since the concept was launched by Deutsche Börse in October 1998, we have always achieved the top AA rating. As BB Medtech AG, which we provide services for, was restructured into a fund in the reporting period, we currently serve one more customer in the form of BB Biotech AG. The Sales and Research area continued to perform well. The second Steubing Investors Conference was every bit as successful at the Steubing Stahl Round Table which we held for the first time. A total of 13 companies (including DAX, MDAX and TecDAX members) presented themselves to our institutional customers at our two events in April. Complementary to our sales activities, we have expanded our research portfolio considerably, which now comprises some 25 stocks and focuses on renewable energies, automobiles, mechanical engineering and steel. We are also concentrating on special issues such as a study on Biomass/Biogas, response to which has also been very positive. After a good start to our fiscal year, Steubing Derivatives Brokerage GmbH, a joint venture of Steubing AG together with IDC AG, Bad Homburg, began to suffer as the year went on as a result of stagnating volumes on the German certificate market. This remained virtually unchanged between October 2009 ( 102b) and April 2010 ( 106b). As a result of this stagnation, which SDB GmbH was unable to defy, SDB adjusted its cost structures to match the change in the situation as a way of maintaining a positive result of operations. III. Economic Situation Financial position Fiscal year 2009/2010 was shaped by the extreme uncertainty of market players concerning the future development of the global economy and financial markets. This uncertainly can be seen in the sharp fall in turnover on the world s stock exchanges in comparison to the prior year. We have not been able to escape the effects of this development. For this reason, we generated significantly lower income this fiscal year than in the prior year, despite reducing our expenses. The financial position of Steubing AG was excellent and in order at all times. As of the balance sheet date, the Company had cash and cash equivalents of 35,113k and equity of 50,099k. This makes Steubing AG one of the financially strongest financial services institutions/securities trading banks in Germany. 43

18 Management Report Results of operations While net commission income increased slightly by just under 3%, interest and investment income was some 68% down on the prior year due to the continued sharp decline in interest rates. The result from financial transactions was also down by just under 24% in the fiscal year. Other operating income fell by around 67%. In the prior year, this item mainly comprised reserved provisions. Although we were able to lower general administrative costs by some 6.5% on the prior year, the operating result was down by just under 69% on the prior year. Net income for the year fell by some 71% to 1,167k. Net assets Assets and liabilities were valued in accordance with the relevant legal requirements. The lower of cost or market principle as defined by German commercial law was observed. Nearly all assets can be liquidated at short notice. As of 30 June 2010, the Company reported capital stock of 22,700k, capital reserves of 24,604k and revenue reserves of 1,092k. Equity, including net retained profit, totaled 50,099k as of 30 June This translates into an equity ratio of 90.0% as of the balance sheet date. Based on the net retained profit of 1,703k, the management and supervisory board plan to propose to the shareholder meeting due to take place in Frankfurt in December 2010 a dividend of 0.30 (prior year: 0.90) for fiscal year 2009/2010. IV. Employees Personnel expenses decreased from 9,153k in the prior year to 8,468k in fiscal year 2009/2010 (down 7.5%). By contrast, the number of employees, including the management board, increased from 64 to 66 following the creation of the new team responsible for EUREX products. As of 30 June 2010, 25 persons were employed in trading and broking, and 8 in sales and sales trading; there were 13 back office employees and 4 IT staff members. Four employees worked in research and one in investor relations/public relations. Two employees worked in internal auditing and three in each of the areas of equity capital markets/corporate advisory as well as OTC derivates (EUREX ). Training was offered and provided to all employees. V. Risks As a securities trading bank and lead broker, Steubing AG is subject to external supervision by the BaFin [ Bundesanstalt für Finanzdienstleistungsaufsicht : Federal Financial Supervisory Authority] and Deutsche Bundesbank. The Company has set up various control mechanisms in order to manage and control limit compliance and the risk structure of its positions at all times. To meet its organizational duties, the Company has set up an internal audit function to monitor the various areas and appointed an anti-money laundering officer. Credit risk Credit risks can arise from own positions held as well as from receivables from customers or counterparties. Since Steubing AG settles transactions quickly, the notional credit risk in the trading book in accordance with the SolvV [ Solvabilitätsverordnung : German Solvency Ordinance] is regularly less than 3% of capital. The credit risk in the banking book is limited by the fact that only positions with a good rating are entered into. Moreover, management continually monitors the positions and their development. 44

19 Management Report Market price risk Market price risk in trading can arise as price risks in proprietary trades or own positions from name-to-follow transactions. These risks are monitored by the risk management team during trading hours and kept to a minimum. The notional market price risk in accordance with the SolvV in the trading book at the close of daily trading therefore averaged only 3% to 4% of capital Liquidity risk Liquidity risks are continually monitored by risk control and taken into account in calculating capital requirements. 56% to 70% of Steubing AG s assets regularly comprise receivables from other banks which themselves have ratings ranging from good to very good. Liabilities due within one year, on the other hand, only amount to 13% of total liabilities and equity. The liquidity ratio in accordance with the LiqV [ Liquiditätsverordnung : German Liquidity Ordinance] is on average around 12, i.e., the sum total of cash and cash equivalents is on average 12 times greater than the payment obligations. As long as these ratios are maintained, the liquidity risk is mathematically insignificant. Risk management The Company uses modern IT technology to monitor positions. Limits are set for each trader. Positions are monitored several times a day and are reduced immediately if the limits are exceeded. General market risks, which exist at all times even in highly volatile markets, are minimized and mitigated by means of the specified limits and fast execution times. The aggregate risk is limited by continuous controls by the management board. Where banking book positions have been taken, the corresponding securities are subject to continual evaluation in the form of an analysis of the quarterly reports and general information on the respective companies. Contingency planning Several backups are made of all data, and in some cases data are also stored externally. Alternative equipment is available for use at all times in the event of a disruption to the computer systems. Operating risk Given the Company s good human and technical resources, provision has been made for internal operational risks. The main external risks are failures of stock exchange systems, which have occasionally occurred in the past. The Company also avoids risks as far as possible by having a diversified customer base. Derivative financial instruments In the reporting period, several test transactions involving options and futures were executed. No overnight positions were kept and the strictest limit and risk controls were applied. 45

20 Management Report VI. Anticipated Development of the Company The German economy recovered significantly in the first half of After the first quarter was still negatively affected by the winter months' climate, the second quarter presented a positive picture. Along with catch-up effects in the construction sector, this particularly reflected strong industrial growth. New orders, production and sales were up by more than 5% compared with the first quarter. This was due to very good export demand trends, particularly strong demand from non-eu states. Although production and sales continue to lag new orders, since high demand was initially satisfied by destocking, the dynamic production growth that is meanwhile evident suggests that stocks have now largely been cleared. Seasonally-adjusted capacity utilization was still at only 70.5% at the end of the first quarter of last year. This figure recovered to 82.9% at the end of the second quarter of this year (Source: ifo Institute for Economic Research), by contrast, and is only 1.1 percentage points below the long-run average ( ). This trend can only be described as extremely positive from a German perspective. This is because investments in new production plants are made from a capacity utilization of 83%, which in turn are followed by employment expansion, and, with it, stronger domestic demand. Precisely this trend got underway in the third quarter of this year. Investors are nevertheless clearly questioning the durability of this upturn. There is no other way to explain capital markets trends. Equity markets responded with restraint to good figures, or ignored them. Fixed income markets, by contrast, fear continued weak growth, or even a double-dip recession. The trend in the USA is the reason for the skepticism, where the labor market is benefiting to only a very slight extent from industrial recovery. US industry comprises only 11% of GDP value-creation. The services sector dominates, by contrast. Employment planning remains negative in this area, however (Source: Institute for Supply Management). This is also the reason why the slight real estate market recovery that was meanwhile observable has slid into reverse. New home sales marked a new historic low in May of this year. Due to this development, most investors anticipate a renewed recession in the USA, from which the rest of the world would also suffer, but particularly export-spoiled nations such as Germany and Japan. This view nevertheless fails to take into account more recent trends. China has now assumed the role of the locomotive of global economic growth. Germany currently exports around EUR 4.5b of goods to China every month. This represents somewhat more than 80% of the goods volumes shipped to the USA. Germany is one of the few industrial states that has maintained a trade surplus (albeit small) with China for several months. The dynamics of this process suggest that China could replace the USA as Germany's most important trade partner outside the EU 27 over the course of this year. As a consequence, the well-proven rule of thumb When the USA catches a cold, Germany suffers a heavy flu no longer applies. Germany produces precisely those goods and industrial services that are most heavily in demand in the world's growth regions. In addition, the Chinese central government is conducting a targeted stimulation of domestic demand, and particularly consumption, in order to free itself from its high export dependency. This, in turn, benefits German companies that have operated production locations in China for many years, and develop and produce goods for the domestic market jointly with Chinese partners. These companies are now reaping the benefits of this strategy. Entrepreneurs from other countries, by contrast, have always regarded China only as an extended workbench for goods that were ultimately intended for re-export. Their sole aim was to exploit the low costs of labor as a production factor. The capital markets are not yet ready to reflect these global economic shifts in their investment policy. It will nevertheless occur, although such fundamental adjustments require a certain length of time. The relative strength of German equities within a global context, however, already sends a signal about such a change in perspective on the part of investors. For this reason, we take a fundamentally positive attitude to equity markets, particularly, however, to the German equity market, where the China story can best be played. We continue to anticipate an ambitious environment in the equity business area for the new financial year. Volumes will not return to markets until most participants have formed a clear opinion about future global economic trends. It could take quite a long time until this occurs, however. In addition, increasing regulation could present ever-new challenges, particularly to institutions that are oriented towards medium-sized companies. Since the coming into 46

21 Management Report force of the MiFID, competition for order flow is no longer occurring simply among traditional participants in the classic brokerage business, but a constantly growing number of German and international trading locations are meanwhile also entering the fray. This is not only resulting in a compression of trading costs, but also, on the other hand, in an erosion of profit margins. Along with stringent cost management, it is more essential than ever in order to achieve satisfactory results in such a difficult environment that is characterized by fundamental shifts to offer services that provide our customers with genuine added value. A high degree of clearing and settlement expertise, and regulatory know-how, will gain greatly in significance in this context. In line with these aims, we have further developed our international order routing product range, and designed the Integrated Order Flow Management (IOM) service for the international retail business. A key characteristic of the IOM is the integrated management on a one-stop shop basis of the entire order process all the way through to clearing and settlement. The individual concept of cost-optimized cross-border settlement processes is an important additional competitive factor in this area. Having already acquired several smaller customers for the IOM, we have recently signed agreements for the management of the entire foreign retail business of a major bank. Operations are expected to commence before the end of We are currently in the process of joining the Tradegate Exchange in order to further boost the attractiveness of the network of trading locations that Steubing AG already serves. The Berlin-based trading platform that was founded in 2001 as an off-bourse MTF (Multilateral Trading Facility) has enjoyed the status of a securities exchange since December Deutsche Börse AG holds 75% plus one share in Tradegate Exchange, which is particularly aimed at private investors, and currently occupies second position after Frankfurt among regional and floor stock markets. As a consequence, Steubing AG can continue to offer order flow management for all German stock markets. In October/November 2010, we are expecting a decision concerning the further development of our activity as an XETRA specialist for bond trading. This project, which was launched on 1 December 2009, was temporarily halted by an interim order on the part of two companies that were unsuccessful when the specialist mandates were distributed. The Frankfurt Higher Regional Court will hold consultations concerning the expedited proceedings in early October. The Regional Court will then hold a meeting concerning the main action proceedings. Despite the difficult environment, our sales team s activities report gratifying progress. In the current financial year, we will place a particular emphasis on the marketing of our research services with the aim of further expanding our contacts to institutional clients both in Germany and abroad. In doing so, we will continue to focus on the area of small & mid caps, as well as special topics. The market environment is also brightening for the Equity Capital Markets/Corporate Advisory area. This area is currently working on specific mandates that might be realized over coming months given favorable market circumstances, and subject to positive due diligence results. The long-running Phoenix/EdW story will continue to accompany us. Since the EdW is planning to levy a special payment, a hearing of the member companies is currently being held. With the special payment, the EdW aims to repay the first installment of the loan granted by the federal government as part of the Phoenix compensation case. This loan has a total volume of EUR 128m. Steubing AG has issued a corresponding opinion as part of the hearing. We have formed a provision for the instance of the special payment in line with the prudence concept. The year 2011 is also expected to mark a watershed for floor trading on the Frankfurt Stock Exchange. Were all lead brokers to agree to this early migration, and were the Frankfurt Stock Exchange Council to pass a corresponding resolution at its 29 September 2010 meeting, the discontinuation of floor trading planned for 2012 would be brought forward by one year, and floor trading would be replaced from 28 March 2011 by electronic trading on the continuous auction trading model with specialists on an XETRA infrastructure. In view of its activities as a specialist on the Scoach derivatives exchange, Steubing AG is already outstandingly prepared for such a move. 47

22 Management Report VII. Significant Events (after 30 June 2010) No events of significance for the Company occurred after the balance sheet date. VIII. Other The MiFID (EU financial market directive) triggered considerable structural changes in traditional equity trading, boosting automatic and algorithmic trading, for example. This also gave rise to unparalleled levels of competition between traditional stock exchanges and alternative trading platforms. These changes are occuring at unprecedented speed. Combined with ever increasing regulatory requirements, this development is making it all the more difficult for medium-sized companies in the financial services industry to compete with significantly larger competitors. The MiFID is therefore indirectly contributing to an undesired consolidation process within the industry from a competition policy perspective and in promoting the concentration of risk for large market participants. This is leaving us with no choice but to invest even faster and more intensively in new technologies to keep on top of the competition. Our solid capital base, strong cost awareness and dedicated and qualified personnel will certainly be of great help. However, despite this, falling margins and revenue levels on the markets are making it increasingly difficult to generate good results in our core business area of equity trading. Although we are staving off this trend by constantly expanding our service offerings and creating new and complementary business areas, these activities need time before they can have any kind of significant impact on the result. We therefore expect fiscal year 2010/2011 to be a difficult one. 48

23 Audit Opinion We have audited the annual financial statements, comprising the balance sheet, the income statement and the notes to the financial statements, together with the bookkeeping system, and the management report of Wolfgang Steubing AG Wertpapierdienstleister, Frankfurt am Main, for the fiscal year from 1 July 2009 to 30 June The maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with German commercial law are the responsibility of the Company s management. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and the management report based on our audit. We conducted our audit of the annual financial statements in accordance with Sec. 317 HGB [ Handelsgesetzbuch : German Commercial Code] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with [German] principles of proper accounting and in the management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Company and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accountingrelated internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual financial statements and management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the annual financial statements comply with the legal requirements and give a true and fair view of the net assets, financial position and results of operations of the Company in accordance with [German] principles of proper accounting. The management report is consistent with the annual financial statements and as a whole provides a suitable view of the Company s position and suitably presents the opportunities and risks relating to future development. Eschborn/Frankfurt am Main, 4 October 2010 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Müller-Tronnier Wirtschaftsprüfer (German Public Auditor) Heist Wirtschaftsprüfer (German Public Auditor) 49