Euroclear Investments SA Debt investor presentation
March 2018 Disclaimer
NOT FOR DISTRIBUTION TO OR USE BY ANY U.S. PERSON OR ANY PERSON IN THE U.S., ITS TERRITORIES OR POSSESSIONS THIS DISCLAIMER MUST BE READ BEFORE CONTINUING This presentation is not a prospectus or offering memorandum and investors should not subscribe for or purchase any securities referred to in this presentation except on the basis of information in the prospectus. The information, statements and opinions expressed in this presentation (the “Content”) do not constitute and shall not be deemed to constitute: (i) any offer, invitation or inducement to sell a security or engage in investment, financial or other similar activity; or (ii) a solicitation of an offer to buy any security; or (iii) any recommendation or advice in relation to any investment, financial or other decision. Persons considering making any investment or financial decision should contact their qualified financial adviser. The Content contains financial information regarding the businesses and assets of the Group. Such financial information may not have been audited, reviewed or verified by any independent accounting firm. The Content includes certain financial metrics which constitute alternative performance measures (“APMs”), which are non-IFRS financial measures. The APMs, as defined by the Company, may not be comparable to similarly titled financial measures as presented by other companies. Further, these APMs should not be considered as alternatives to profit after tax, operating profit or other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities as a measure of the Group’s activity. The Content may include forward looking statements, in particular, in relation to future events, growth, future financial performance, plans, strategies, expectations, aims, prospects, competitive environment, regulation and supply and demand. Words such as “anticipates”, “believes”, “estimates”, “expects”, “intends”, “plans”, “projects”, “may” and similar expressions are used to identify these forward-looking statements. Such forward looking statements contain inherent risks and uncertainties and actual outcomes may differ materially from those expressed or implied in the forward looking statements. To the maximum extent permitted by law, no warranty or representation (express or implied) including, but not limited to, accuracy or completeness is made in relation to the Content, including, but not limited to, any projections or statements about the prospects of Euroclear. Any forward-looking statement contained in this presentation speaks only as of the date of this presentation. Euroclear makes no commitment to update Content and expressly disclaims, to the extent lawful, liability for any errors or omissions in it. This presentation is confidential and is being submitted to selected recipients only and may not be reproduced (in whole or in part), distributed or transmitted to any other person without the prior written consent of Euroclear. The Content is not directed at, or intended for distribution to, or use by any person or entity where such distribution or use is restricted by law or regulation. Persons into whose possession the Content comes should inform themselves about and observe any such restrictions. In particular this presentation is not intended for distribution in the United States or to U.S. persons (as defined in Regulation S) under the United States Securities Act of 1933, as amended. In the United Kingdom this presentation is being made only to and is directed only at persons who have professional experience in matters relating to investments who fall within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) and other persons to whom it may otherwise lawfully be communicated in accordance with the Order. In Belgium, this presentation is being made only to and is directed only at qualified investors within the meaning of Article 10 of the Belgian Law of 16 June 2006 on the public offering and the admission to trading on a regulated market of investments instruments. Past performance, historic financial information and/or historic distributions should not be taken as an indication of current or future performance, results or distributions.
2 Executive Summary
Terms of the offering Credit rating
• Offering size: €700mm dual tranche issued by Euroclear • Issuer ratings: AA-/AA (S&P/Fitch) Investments: • Existing senior unsecured debt ratings: AA-/AA (S&P/Fitch) • A €300-400mm, Euro denominated, 12-year fixed rate • Expected issue ratings: senior unsecured debt instrument • Senior unsecured debt: AA- / AA (S&P/Fitch) • A €300-400mm, Euro denominated, 30-year fixed rate corporate hybrid debt instrument with a non-call period of • Corporate hybrid: A / A+ (S&P/Fitch) 10 years
Transaction rationale Business overview
• Reinforce recovery capacity in the group in the context of the • Established in 1968, Euroclear is a leading central securities Bank Recovery and Resolution Directive (BRRD) applicable depository providing post-trade services mainly to Euroclear Investments’s principal subsidiaries, i.e. Euroclear Bank SA/NV and Euroclear SA/NV • Provides settlement and related securities services for cross- border transactions involving domestic and international bonds, • The anticipated proceeds of €700mm will be downstreamed into equities, derivatives and investment funds Euroclear Bank SA/NV and Euroclear SA/NV in the form of instruments that would include MREL and other loss absorption • Offers transaction settlement, asset servicing and collateral features management services
3 Content
Euroclear at a glance
Euroclear strategy
Group consolidated financial performance
Liquidity and capital management
Transaction overview
4 Euroclear at a glance
• Trusted provider and leader in post-trade services to the global 6 CSDs* financial markets serving 7 markets Euroclear Belgium Euroclear Finland • Founded 50 years ago Euroclear France Euroclear Nederland • Mission to assist our diversified client base to: Euroclear Sweden - Ensure securities transactions are processed safely and efficiently Euroclear UK & Ireland - Reduce complexity, lower costs and mitigate risks + • Open and resilient financial market infrastructure operating under strong regulatory oversight 1 ICSD** • Double-A rating: AA/AA+ (S&P/Fitch) for Euroclear Bank and AA-/AA Euroclear Bank Gateway to the world (S&P/Fitch) for Euroclear Investments SA
More than 1.7 million securities worldwide
(*) Central Securities Depository, (**) International Central Securities Depository 5 An industry-leading provider of financial market infrastructure
Key figures (end 2017)
• Post-trade industry leader with €28.6 trillion assets under custody (end 2017) • We offer a global service: - To clients in over 120 countries - In 16 languages - Across 50 major markets - In 50 settlement currencies • Our international client franchise includes: - Over 2,000 clients - Over 100 central banks - 90% of the world’s 50 largest banks • Robust regulatory framework as a financial market infrastructure, with high levels of capitalization and strong credit ratings
6 Source: Euroclear plc 2017 Annual report, subject to shareholders approval in May 2018 Group performance highlights
1 Leading operator in global post-trade sector, ideally positioned to benefit from changing operating and regulatory environment
2 Resilient, stable and well-diversified business
3 2017 financial performance ahead of expectations, underpinned by strong business metrics driving positive revenue growth
4 Increased investment levels in regulatory-driven, cyber security and growth initiatives, with cost base expected to stabilise in 2018
5 Disciplined risk management framework with resilient risk profile, solid capitalisation and limited leverage
7 Group structure
Shareholders 130 shareholders 84% Sicovam Holding 16%
CH Operating income by entity
Euroclear plc
100% - LUX Issuing entity S&P: AA-/A-1+ Euroclear Investments SA Bond Fitch: AA/F1+ investors
100% (- 1 share) - BE
Euroclear SA/NV Other entities 100% (- 1 share) 100% • Euroclear Properties France SA (BE) (FR, BE, NL, UK, F, S) • Euroclear Re 50% UK • Calar Belgium
Euroclear DEGCL* CSDs
Bank SA/NV Consolidated oversight by the National Bank of BelgiumBankof Nationalthe by oversight Consolidated S&P: AA/A-1+ Fitch: AA+/F1+
Directly supervised activity by National Bank of Not directly regulated by Belgium and other local regulators National Bank of Belgium
Source: Euroclear plc consolidated figures as of year-end 2017, subject to shareholders approval in May 2018 * DTTC Euroclear Global Collateral Limited 8 Prudent approach to managing Brexit-related risks
• Euroclear remains committed to serving the U.K. post-Brexit • Solutions identified to overcome areas of Brexit-related risk
1. Corporate restructuring 2. Ireland • Strategically important to have • We plan to establish a new Irish top holding company inside EU CSD using the CREST system • Intend to propose a new group • Sustainable solution to continue structure, with parent holding supporting Irish securities market company in Belgium • Proposed restructuring subject to shareholder approval
9 Content
Euroclear at a glance
Euroclear strategy
Group consolidated financial performance
Liquidity and capital management
Transaction overview
10 Our vision: remain a leading partner to participants in global capital markets
Consistent strategy, building on client focus and our business expertise
Continue to strengthen our well-established European Core One-stop shop providing safe and efficient post-trade sector services • Settlement, Safekeeping, Asset servicing
Expand growth initiatives Enhancing liquidity in cash, collateral and financing markets • Collateral management solutions • Funds servicing • Global Reach: International markets
Explore innovation Innovation to bring new efficiency and trading opportunities to capital markets • FinTech partnerships to support core business • Data services and solutions 11 Well-established, resilient European core Settlement, Safekeeping, Asset servicing
Main activities
Issuance & settlement Asset servicing - Fast, efficient, low risk processing of securities - Covers all steps in the life cycle of a security - Direct access to the broadest range of investors across - From distribution of a new issue to timely and accurate multiple jurisdictions custody-related services - Leader in automation and delivery-versus-payment - Automates complex corporate actions while improving settlement which ensures that cash and securities are efficiency and reducing risks exchanged simultaneously - Remunerated via yearly fee based on asset value
- Remunerated via a fee per instruction
Establishing a gateway to pan-European securities, providing choice between central and commercial bank money
- >50% of European capital market securities serviced through Euroclear Bank and 6 Domestic CSDs
- Asset Servicing, Funds and Collateral Management services
- Launched Single CSD service providing access to T2S for international investors
Continued investment in our European presence to maintain safe and efficient capital markets
- Investing to implement CSD Regulations Euroclear ESES - Establishing a new Irish CSD to ensure continuity of service post-Brexit Bank
- Building new Nordic CSDs IT infrastructures
- Enhancing cyber security resilience
12 Expand growth initiatives
Collateral management solutions
We support clients in meeting evolving regulatory demands. From East to West, we connect Global Collateral Pools, providing a diversified range of innovative Collateral Management Solutions
• OTC derivatives: continue to support clients as they transition to new regulatory regime
• GlobalCollateral Ltd: launched Inventory Management Service; moving to client onboarding stage
• Collateral outstanding +7% to €1.150 trillion, benefiting from innovative and diversified product offering
Fund servicing Euroclear FundsPlace assets under custody up 13% to €2.1 trillion in 2017
• Single access point to cross-border, offshore and domestic funds
• Expanding network of funds markets with links to over 900 fund administrators
• Automated trade and post-trade processing solutions for order routing, settlement and asset servicing
International ETF structure growth benefits from rise of passive management
• Integral part of the industry: approximately 40% of European ETF industry is now international
• Innovation continues: ETF asset class increasingly used for collateral management purposes
13 Expand growth initiatives (cont’d)
Global Reach: International markets Euroclear connects domestic markets to global investors through ‘Euroclearability’:
• Assisting governments in developing capital market practices to meet global investor requirements • Strong traction in Latin America: Chile and Peru became ‘Euroclearable’. Argentina issued further ‘Euroclearable’ sovereign bonds after returning to capital markets in 2016
• Continue to work with growth economies, including China, to connect to Euroclear and increase breadth of domestic securities available through our CSD links
Explore innovation Data & Information Solutions
Data and insights: new revenue growth opportunities to complement our core value proposition
• Euroclear Information Solutions aims to provide clients with insights to manage liquidity in a smart way
• Differentiated client offering by combining data offering with existing Euroclear solutions
14 Regulatory reforms are changing the landscape in trading and post-trading activities in Europe
EU CSD Target 2 Other Regulation Securities regulations
• Definitions of CSD • Single Settlement System • Recovery & Resolution Financial stability activities of commercial for “euro” Central Bank regimes for banks/FMIs Safety Money DVP settlement bank money settlement • MREL and bail-in • Capital & liquidity • Basel III (LCR, Leverage, NSFR)
• Dematerialisation • Settlement and Corporate • Capital Markets Union Cross-border efficiency Actions (integration of Europe’s • T+2 settlement Harmonisation • Market practices capital markets) • Settlement Discipline
• MiFIR/EMIR access between trading venues, CCPs and • Allowing EU CSDs to • CSDs incentivised to CSDs compete on a consistent move ‘up the value chain’ EU Single Market regulatory playing field • Securities Financing Competition Transaction Regulation Consolidation • CSD passport (Transparency) • Freedom of choice for issuers
• Euroclear is well advanced with CSDR implementation. Having submitted initial applications for each Euroclear CSD in line with official timelines, Euroclear continues dialogue with regulators in each jurisdiction to complete authorisation process
• Well positioned to take advantage of business opportunities resulting from EU regulations that reinforce the role of financial market infrastructures
15 Euroclear’s leadership team
Marc Antoine Autheman Lieve Mostrey Frederic Hannequart
Chairman Chief Executive Officer Chief Business Officer
Yves Dupuy Bernard Frenay Peter Sneyers
Chief Information Technology Officer Chief Administrative Officer Chief Risk Officer
Referenced from Fitch report on Euroclear Bank (September 2017) “Risk controls are very strong and investments in risk management, including cyber resilience, are a management priority. Management teams have a high degree of depth and relevant expertise for the bank specialized business. Euroclear Bank has a strong corporate culture with high risk awareness”
16 Content
Euroclear at a glance
Euroclear strategy
Group consolidated financial performance
Liquidity and capital management
Transaction overview
17 Revenue growth underpinned by strong operational performance
Securities held in custody Value and volume of securities Average daily collateral € trillion equivalent, year-end transactions settled outstanding +7% +10% € billion +3% 250.0 1,214.0 1,150 215 1,068 1,072 1,000.0 30.0 28.6 191 196 1,014.0 27.5 27.7 182 200.0 887 28.0 170 26.0 787 800.0 +12% 733 814.0 26.0 670 655 24.2 623 150.0 24.0 573 600.0 614.0 22.0 100.0 20.0 400.0 414.0
18.0 50.0 200.0 214.0 16.0
14.0 - - 14.0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Value of securities transactions settled (EUR trillion) Number of transactions after netting (million)
• Securities held in custody increased by 3.1% to €28.6 trillion between 2016 and 2017 • Significant increase in value (12%) and volume (10%) of securities transactions netted in 2017 compared to 2016 • Average daily collateral in 2017 reached €1,150 billion (7.2% increase) compared to 2016
Source: Euroclear plc 2017 Annual Report, subject to shareholders approval in May 2018 – figures have been rounded 18 Financial performance in 2017 ahead of expectations
€ million 2017 FY 2016 FY Y-o-Y
Business income1 1,039 999 4%
Interest, banking & other income 184 163 13%
Operating Income 1,223 1,162 5%
Administrative expenses3 -809 -744 -9%
Share of result in joint venture -10 -7 -41%
Operating profit before tax 403 411 -2%
Provisions 5 -35 38%
Taxation and impairment -172 -78 38%
Profit for the period 236 298 -21%
Earnings per share2 (€/share) 84.6 83.7 1%
Dividend per share 39.0 37.0 5%
• Better than expected 2017 financial performance, with strong revenue figures
• Net Interest Earnings uptick, as interest rates begin to rise
• Year-on-year dividend per share up 5% and adjusted net earnings per share up 1%
• Profit for the year of c. €270m when adjusted for one-off deferred tax asset impairments on losses carried forward in ESA and DEGCL, in line with last year when excluding the one-off tax benefit in 2016 related to the IP termination with the Bank (see adjusted EPS figures)
1 Business income corresponds to Net fee and commission income excluding liquidity lines costs considered as non business related items 2 EPS adjusted for deferred tax assets impairments in 2017 and IP one-off tax benefit in 2016 3 Administrative expenses as presented in the 2017 Euroclear plc annual report include the « Provisions » line item presented in this table as a a separate line item
Source: Euroclear plc consolidated figures as of year-end 2017, subject to shareholders approval in May 2018 19 Operating profit levels stable, despite planned investments
Business income* and Operating margin Operating profit before impairment and taxation € million € million 1,100 50.0%
1,050 1,039 45.0% 450.0 411.0 997 999 40.0% 400.6 [VALUE] 1,000 400.0 359.2
350.0 326.1 35.0% 950 938 35.4% 35.4% 300.0 33.0% 30.0% 250.0
900 890 34.6% 200.0 25.0% 150.0 33.0% 100.0 850 20.0% 50.0
800 15.0% 0.0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Business Income Operating margin • Business income increased in 2017 by 4% compared to 2016 • Operating margin decreased slightly following increase of operating expenses • Operating profit before impairment and taxation at stable levels, despite planned investments in regulatory and cyber initiatives
* Business income corresponds to Net fee and commission income, excluding liquidity lines costs considered as non business related items
20 Source: Euroclear plc 2017 Annual Report, subject to shareholders approval in May 2018
Underlying RoE and adjusted EPS consistent with prior year levels
Adjusted return on equity Adjusted net earnings per share €/share
100.0 10.0% 87.0 8.7% 8.7% 90.0 83.7 84.6 9.0% 8.3% 78.6 7.7% 80.0 8.0% 7.5% 69.3 70.0 7.0% 60.0 6.0% 50.0 5.0% 40.0 4.0% 3.0% 30.0 2.0% 20.0 1.0% 10.0 0.0% 0.0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
• Adjusted ROE in line with last year, demonstrating resilience with regards to capital requirements as a Financial Market Infrastructure supported by strong issuer credit ratings
Source: Euroclear plc 2017 Annual Report, subject to shareholders approval in May 2018 21 Euroclear Investments SA’s stand-alone historical performance
Income statement Balance sheet € million € million
2016 2015 2014 2016 2015 2014
Net interest income / expenses 0.2 0.2 0.2 Cash & cash equivalent 121 5 10
Other income 0.9 1.2 0.9 Loans and advance 505 16 18
Dividend income 90.1 212.2 251.1 Other assets and accrued income 2 1 1
Operating income 91.2 213.6 252.2 Participations in group company 581 589 581
Operating expenses -1.5 -1.4 -1.3 Total assets 1,209 611 610 Long-term debt 595 – –
Operating profit 89.7 212.2 251.0 Other liabilities 2 0 0
Tax 0.1 0 0 Shareholders’ equity 613 610 610
Net profit 89.8 212.2 250.9 Total liabilities 1,209 611 610
• Cash flows and P&L are mainly driven by recurring dividend upstreaming from group operating entities
• At the end of 2016, assets mainly comprised financial participations (€581 million), cash at banks (€121 million) and loans (€505 million)
* Source: Euroclear Investments unconsolidated financial statements as of and for the years ended 31 December 2016 and 31 December 2015 22 Content
Euroclear at a glance
Euroclear strategy
Group consolidated financial performance
Liquidity and capital management
Transaction overview
23 Strong credit ratings for both issuer and instrument
Euroclear Investments Existing senior debt New senior issue ratings New hybrid issue ratings Euroclear Bank Rating agency (“the Issuer”) ratings ratings (expected) (expected) ratings
A / XX S&P AA- / A-1+ AA- / A-1+ AA- / A-1+ AA / A-1+
Fitch AA / F1+ AA / F1+ AA / F1+ A+ / XX AA+ / F1+
Both rating agencies rated the issuer one notch lower than Euroclear Referenced from S&P report on Euroclear Bank (November 2015) Bank, which is mainly due to Euroclear Investments being: “Strong risk-management controls and track record of very low losses arising • A non-operating holding company from operational and credit risks.”
• Not directly supervised by the group regulator (NBB) Referenced from Fitch report on Euroclear Bank (October 2016)
“Risk controls are very strong and investments in risk management are a management priority. To date, the track record of avoiding operational losses Rationale for strong issuer credit rating: has been strong”
1. Projected cash flow ratios remain consistent with minimal financial risk Referenced from Fitch report on Euroclear Bank (October 2016) profile assessment “The bank franchise is sufficiently strong and diversified to generate sound 2. Euroclear group will maintain its: profitability while maintaining their current low risk profile” • Low risk profile • Satisfactory underlying profitability Referenced from S&P report on Euroclear Bank (November 2017) • Strong capitalisation “Exceptional current liquidity position, aided by good cash flow generation and • Leading position in its business on-balance-sheet liquid assets”
3. Strong capacity to service the debt issue
24 3 main types of risk in Euroclear activities
Key risks Mitigating actions Operational risk Risk of loss resulting from inadequate or failed internal processes, people Euroclear operates a robust group-wide operational risk management and systems, or external events. Includes custody risk, model risk, fraud framework that focuses on the identification, assessment, management, and cyber, business disruption, system failures and model risk monitoring and reporting of operational risks and issues
Banking risks (Euroclear Bank only)
Credit risk Risks arising from the default or failure of a participant or counterparty to Credit risk is borne mainly by Euroclear Bank as a single-purpose meet their agreed upon financial obligations to Euroclear settlement bank. Credit risks are closely monitored both intra and inter day. Other operating entities have a very low financial risk appetite with settlement services offered in central bank money
Liquidity risk Risks arising from being unable to settle a cash or securities obligation Liquidity is key to Euroclear Bank’s business model. We operate a robust when due resulting from inappropriate and/or insufficient liquidity sources framework for managing intra and inter day operations with a high level of preparedness for unexpected and/or significant liquidity shocks
Market risk Risks to Euroclear (on or off balance-sheet) positions arising from Euroclear Bank has a low level of market risk derived primarily from interest movements in market prices. Market risk arises from possible changes in rate and foreign exchange exposures resulting from investment of its capital foreign exchange rates, interest rates, equity or commodity prices and future earnings. No trading activity takes place. A hedging strategy is in place to mitigate this risk
Legal and compliance risk Risks arising from applicable or upcoming laws, regulations, market rules A group-wide ethical and compliance framework aims to adequately and prescribed practices in all relevant jurisdictions, enforceability of identify, monitor and manage legal and compliance risks. The risk areas contracts, conflicts of laws between jurisdictions monitored include, inter alia, fraud, market abuse and money laundering, and also consider the risks arising from upcoming regulations
25 Group operational risks are managed tightly
• Low operational risk profile of Euroclear Bank and group Risk Weighted Assets – operational risk & loss history CSDs is demonstrated by its loss history, with very few loss cases observed over the past 10 years 2.50% 4,500 • Firm commitment, dedicated resources and adequate insurance 4,000 policies to ensure business continuity and operational risk 2.00% 3,500 3,000 management 1.50% 2,500 • Scenario analysis is used to assess operational risks at very 2,000 1.00% high confidence levels, combining internal loss history and 1,500 external loss data 0.50% 1,000 500 • Implementation of Lean management philosophy in 2008-2009 0.00% 0 (together with other measures) reduced operational risks 2015 2016 2017
• 3 data centres provide business continuity RWA - operational risks (€ million) (2 synchronous data centres in France, 1 asynchronous data Operational losses / operating profit before taxation (%) centre in Belgium enabling same-day resumption of business critical services) • 4 operational centres further support business continuity (2 operational centre in Belgium, 1 in Poland, 1 in Hong-Kong)
Source: Euroclear plc consolidated figures as of year-end 2017, subject to shareholders approval in May 2018 26 Conservative approach to credit risk
Clients credit exposures Risk Weighted Assets – credit risk € billion • More than 99% of credit to clients is extended on a very short term and secured basis 25 • More than 99% of secured credit is granted to investment grade clients and is backed by investment grade collateral 20
• Unsecured credit only granted to exempt entities, in accordance 15 with regulation 10 Treasury credit exposures 5 • Treasury exposures arise principally from cash balances left on account by Euroclear Bank’s clients (c. €17 billion end 2017) - 2015 2016 2017 • Largest part of treasury exposure engaged on an overnight basis Total assets RWA credit risk • More than 85% of treasury activity conducted on a secured basis
• 98% of treasury counterparts (secured & unsecured) are investment grade and predominantly A- rated or better
As a result of our conservative risk profile and credit exposures, which are almost entirely short-term and secured, Risk Weighted Assets (RWA) only represent a very low fraction of total group assets (<10%)
Source: Euroclear plc consolidated figures as of year-end 2017, subject to shareholders approval in May 2018 27 Liquidity risk and group cash flows
Financial assets portfolio: liquidity risk carefully managed
According to investment policies, group own cash is invested: • In AA/AAA government or supranational EUR-denominated and ECB eligible securities, with very short term maturities for Euroclear Bank
• For all other entities of the group (incl. CSDs) in a combination of: • EUR term deposits or similar products with maturity not exceeding 3 years and counterparties rated A or better • EUR government bonds qualifying as High-Quality Liquid Assets (HQLA) and corporate bonds with an average A rating (duration of portfolio below 2 years)
• High degree of investment granularity: maximum exposure to a single counterparty of 10% of group regulatory capital
Group cash flows demonstrate strong liquidity levels
• Debt proceeds will increase recovery capacity in the group • Debt repayment can be funded by group operating cash flows, while distributions can be accommodated to ensure repayment at maturity
28 Industry-leading capital position
Capital ratio and regulatory own funds (€ billion)
• Euroclear SA/NV is subject to prudential supervision by the National Bank of Belgium (NBB) and minimum Pillar 1 – CET1 capital requirements (under CRD IV)
• As of December 2017, the group capital position was around five times the minimum CET1 capital required under CRD IV (including the O-SII buffer and the capital conservation buffer)
• Euroclear SA/NV consolidated has been designated by the NBB as a domestic systematically important institution and is required to satisfy a Supervisory Review and Evaluation Process (SREP) capital requirement mostly linked to operational and credit risks. This requirement is larger than average bank requirements (given the very low RWA density). As at December 2017, the group CET1 ratio was close to double the overall requirement
• Group capital ratios are expected to reach 40-45%, following group distribution policy
• Self-financing of the EU CSD regulation implications
Source: Euroclear plc consolidated figures as of year-end 2017, subject to shareholders approval in May 2018 * Combined Capital conservation buffer (1.9%) and O-SII buffer (0.7%) reach about 2.6% on top of the SREP requirement (buffers applicable in 2017) 29 Constant dividend payer with growing shareholder’s equity
Dividend per share Total group shareholder’s equity at year end € € million +5% +3% 4,000 3,671 39.0 3,476 3,560 3,500 3,212 3,244 36.3 37.0 3,000
31.5 2,500 29.6 2,000
25.4 1,500 1,000
500
0 2012 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
• Proven track record of commitment to delivering long-term value to shareholders, while preserving significant shareholder’s equity
Source: Euroclear plc Annual reports – 2017 report subject to shareholders approval in May 2018
30 Content
Euroclear at a glance
Euroclear strategy
Group consolidated financial performance
Liquidity and capital management
Transaction overview
31 Rationale for the transaction
Senior unsecured bond EUR 300-400mm – 12 yrs Bond • Proactively build MREL capacity in advance of the Euroclear Investments SA investors final Minimum Requirement for own funds and Eligible Corporate hybrid bond EUR Liabilities (MREL) being communicated 300-400mm – 30NC10 yrs
• Reinforce recovery capacity in the group in the Proceeds downstreamed context of the Bank Recovery and Resolution Directive (BRRD) applicable mainly to Euroclear Investments’s Proceeds downstreamed principal subsidiaries, i.e. Euroclear Bank SA/NV and Euroclear SA/NV Euroclear SA/NV
• Downstream anticipated proceeds of €700mm into Euroclear Bank SA/NV and Euroclear SA/NV in the Euroclear form of instruments that would include MREL and other Bank loss absorption features SA/NV
32 Summary Senior and Hybrid Terms
Senior Notes 30 NC 10 Hybrid Notes Issuer • Euroclear Investments SA Issue Date • [ 2018] Currency • EUR Proposed Offering • Senior Notes (the “Senior Notes”) • Subordinated Resettable Fixed Rate Notes (the “Hybrid Notes”) Issuer Rating • AA- (stable) / AA (stable) Expected Rating* • [AA-] / [AA] • [A] / [A+], typically 2 notches below the senior ratings • Direct, unsubordinated, unsecured and unconditional obligations, pari passu among themselves and at least pari passu with all other present and future • Direct, unsecured and subordinated obligations, senior only to Junior Securities, pari passu to Ranking unsubordinated and unsecured obligations, save for such obligations as may be Parity Securities, without preference or priority among themselves preferred by provisions of law that are both mandatory and of general application Maturity Date • [] 2030 (Year 12) • [] 2048 (Year 30) Issuer Call Option • None • At Par on [ 2028 (Year 10)] (“First Call Date”) and any Interest Payment Date thereafter • (a) From the Issue Date (including) to the First Call Date (excluding): at a fixed rate of []% per • The Senior Notes bear interest from (and including) [•] 2018 at the rate of [•] per annum, payable annually in arrears (ACT/ACT) Interest Rate cent. per annum, payable annually in arrear on [•] in each year and for the first time on [•] 2019 • (b) Thereafter: resets at the First Call Date and every 5 years thereafter to the prevailing 5 Year Euro Mid-Swap plus the initial credit spread of []% payable annually in arrears (ACT/ACT) • Optional interest deferral at the Issuer’s discretion. Deferral cumulative and compounding (cash settled) • Optional settlement of deferred interest at any time Interest Deferral • None • Mandatory settlement of deferred interest upon: (i) a distribution on, or repurchase or redemption of, Junior or Parity Securities, (ii) redemption of the Notes (iii) upon the occurrence of an Enforcement Event (including winding-up, etc.) (all subject to customary carve-outs) • Issuer Call Option from First Call Date Early Redemption • Withholding Tax Event or Substantial Repurchase Event (>80%), each at Par • Taxation reasons, Make-whole redemption or following an Event of Default Events • Rating Methodology Event or Tax Deductibility Event, each at 101% until the First Call Date, then at Par thereafter • Non-payment, Breach of other obligations, Cross-default, Insolvency, Winding-up Event of Default • None etc., Analogous event, Change of ownership or Unlawfulness • Yes, in case of a Withholding Tax Event, Rating Methodology Event, Tax Deductibility Event Exchange/ Variation • None subject to certain conditions including not materially prejudicial to the hybrid Noteholders • Yes, subject to certain conditions including not materially prejudicial to the Senior Issuer Substitution • Yes, subject to certain conditions including not materially prejudicial to the hybrid Noteholders Noteholders Replacement Language • None • Intent-based replacement language (subject to customary carve outs) until maturity • S&P: ‘Intermediate’ (50%) until the First Call Date ([ 2028) / Fitch: 50% until Year [ 2043 (Year Equity Credit • None 25)] Listing / Docs • Irish Stock Exchange / Standalone prospectus (RegS) Denominations • EUR 100,000 Governing Law • English law • English law, except for subordination provisions governed by Luxembourg law IFRS Treatment • Liability • Liability
This information has been prepared solely for information purposes – the summary of any proposed transaction described herein is incomplete and subject to change without notice. It is neither meant to be, nor should it be construed as, an attempt to define all the terms and conditions regarding a proposed issuance of securities. Summary terms should be read in conjunction with full Terms and Conditions and Prospectus 33 *A security rating is not a recommendation to buy, sell or hold securities and should be evaluated independently of any other rating. The rating is subject to revision or withdrawal at any time by the assigning rating organisation. Hybrid Structural Comparison
Issuer Euroclear Investments Deutsche Börse Alliander Total Allianz
Issue Date [Mar-2018] Jul-2015 Jan-2018 Oct-2016 Jan-2017 Size / Coupon [€300-400mn / ] €600mn / 2.748% €500mn / 1.625% €1,500mm / 3.369% €1,000mm / 3.099% Re-offer Spread [] ms + 226.3bps ms + 95.2bps ms + 310bps ms + 235bps Equity Credit (M/S/F) - / 50% / 50% - / 50% / - 50% / 50% / - 50% / 50% / - 25% / 100%(2) / 100%(3) S&P Equity Cliff [Mar-2028] Feb-2021 Jun-2025 Oct-2026 Jul-2027 Tenor [30NC10] 25.5NC5.5 PerpNC7.4 PerpNC10 30.5NC10.5 Senior Debt Rating (M / S / F) - / AA- / AA - / AA / - Aa2 / AA- / - Aa3 / A+ / - Aa3 / AA / - Instrument Rating (M / S / F) - / [A] / [A+] - / A+/ - A2 / A / - A2 / A- / - A2 / A+ / - Notching - / [2] / [2] - / 2 / - 3 / 2 / - 2 / 2 / - 2 / 2 / - [2028], and on every 2021, and on every 2025, and on every 2026, and on every 2027, and on every Issuer Call Option IPD thereafter IPD thereafter IPD thereafter IPD thereafter IPD thereafter
Interest Rate Fixed until the first call date, then Fixed until the first call date, then Fixed until the first call date, then Fixed until first call date, then Fixed until first call date, then (Initial interest rate, reset, resets every 5 yrs to € 5 yr ms + resets every 5 yrs to € 5 yr ms + resets every 5 yrs to € 5 yr ms + reset every 5yrs to € 5 yr ms + floating 3m EURIBOR + ICS + and step-ups) ICS ICS + relevant step-up ICS + relevant step-up ICS + relevant step-up relevant step-up 25bps in yr 5.5 25bps in yr 12.4 25bps in yr 10 Step-ups None 500bps if a CoC Call Event occurs 100bps in yr 10.5 75bps in yr 27.4 100bps in yr 30 and the Notes are not called Optional Interest Deferral Cumulative Cumulative Cumulative Cumulative Cumulative Insolvency Event, Regulatory Mandatory Interest Deferral None None None None Prohibition, Solvency Capital Event Pusher / Stopper Pusher Pusher Pusher Pusher Pusher WHT (100), T(101*), R(101*), SR WHT (100), CoC (100), T(101*), WHT (100), T(101*), R(101*), A WHT (100), T(101*), R(101*), A WHT (100**), R(100**), A(100**), Special Redemption Event [>80%] (100) R(101*), SR [>75%] (101*) (101*), SR [>80%] (101*) (101*), SR(1) T (100**), Reg (100**) Replacement Language Intention based Intention based Intention based Intention based n/a Ranking Subordinated Subordinated Subordinated Subordinated Subordinated Listing Ireland Luxembourg and Frankfurt Amsterdam Paris Luxembourg IFRS Treatment Liability Liability Equity Equity Liability Denominations €100,000 €1,000 / €1,000 €100,000 / €1,000 €100,000 / €1,000 €100,000
IPD = Interest Payment Date; ICS = Initial Credit Spread; WHT = Withholding Tax / Gross-Up Event; T = Tax Event; A = Accounting Event; R = Rating Agency Event; SR = Substantial Repurchase Event; CoC = Change of Control; Reg = Regulatory Event; *Redemption price changes to 100 after first call date; ** Subject to replacement with other own funds regulatory capital of at least the same quality if redemption occurs prior to Jul-2022; (1) 101* for Premium Substantial Repurchase Event (≥90%), 100 for Par Substantial Repurchase Event (<90%, ≥75%); (2) Provided within headroom limits; (3) 100% credit for Capital Adequacy Ratio; included in Fixed Charge Coverage and Financial Leverage Ratio; Source: Companies’ offering circulars, Bloomberg 34 This information has been prepared solely for information purposes. Summary terms should be read in conjunction with full Terms and Conditions and Prospectuses Summary
Euroclear's robust financial performance:
• 2017 results ahead of expectations despite planned investments in cyber, regulatory and innovation initiatives reflecting resilience of business model • Operating model can absorb higher volumes of activity with limited increase in costs • Conservative balance sheet and capital strategy reflected in our strong ratings
Rationale for debt issuance in Euroclear:
• €300-400 million senior debt and €300-400 million corporate hybrid issuance to increase recovery capacity in the Group • Strong repayment capacity supported by stable cash flow generation
Euroclear capital position will remain extremely solid post issuance:
• Target 40-45% fully loaded common equity Tier 1 ratio
35 Bernard Frenay Charles Meeus Group Chief Financial Officer General Manager Euroclear Investments SA T + 32 2 326 23 06 T + 352 27 48 50 84 F + 32 2 326 14 49 F + 352 27.48.50.60 [email protected] [email protected]
Martine Deroanne Baudhuin Douxchamps Head of Corporate Financial Advisory Head of Corporate Finance T + 32 2 326 12 08 T + 32 2 326 94 70 F + 32 2 326 14 49 F + 32 2 326 14 49 [email protected] [email protected]
euroclear.com