Euroclear annual report 2009 1 Contents Highlights 4 Euroclear, the world’s leading post-trade service provider 4 Performance highlights 6 Financial highlights 8 Strategy 10 Chairman’s statement 12 Chief executive’s review 16 Group management 22 Delivery 24 Achieving our objectives 28 Providing a fully integrated solution 28 Increasing efficiency in the post-crisis environment 31 Serving clients globally 36 Performing strongly across the group 38 Euroclear Bank 38 ESES CSDs (Euroclear Belgium, Euroclear France, Euroclear Nederland) 40 Nordic CSDs (Euroclear Finland, Euroclear Sweden) 43 Euroclear UK & Ireland 45 EMXCo 47 Xtrakter 48 Responsibility 50 People 54 Corporate responsibility 56 Risk management and internal controls 59 Inter-company Transaction Policy audit 68 Corporate governance 70 Finance 80 Financial review 84 Capital management 90 Annual accounts and auditor’s opinion 92 Directors’ report CD only Financial statements CD only Annexes 94 Board and Board Committees composition 94 Market Advisory Committees (MACs) 101 Euroclear group principal offices 103 Acronyms see back cover foldout 3 The economy will only thrive if it can rely on a stable infrastructure. And that is exactly Euroclear’s area of expertise: connecting markets, initiatives and people. Highlights trillion 20.2euro worth of securities holdings million 179.6transactions settled 513.5 trillion euro turnover 5 Euroclear, the world’s leading post-trade service provider Bonds • Equities • Funds • Derivatives Settlement • Custody • Collateral management • Issuer services In a fast-changing world, Euroclear offers the reliability and flexibility needed to support markets worldwide in reaching their full potential. Highlights Euroclear annual report 2009 Performance highlights • The value of securities held for Euroclear clients at the end of 2009 was a record €20.2 trillion, 12% higher than the €18.1 trillion at the end of 2008. • Turnover, or the value of securities transactions settled, was €513.5 trillion in 2009, an 8% decrease compared with the €559.8 trillion reported in 2008. This was largely due to lower overall trading activity. • The number of netted transactions settled in the Euroclear group increased by 14% to a record 179.6 million in 2009 compared with 157.3 million in 2008. • The combined daily value of collateral provision outstanding in Euroclear Bank and Euroclear UK & Ireland rose by 28% in 2009 to €544.2 billion from €424.3 billion at the end of 2008. 7 Turnover (in € trillion)1,2 Values of securities held (in € trillion)1,3 20.2 600 20 0.2 559.8 19.2 0.8 561.8 0.1 18.2 0.2 18.1 0.1 5.6 0.5 1.3 0.3 18 0.3 0.2 0.9 176.5 4.3 177.7 513.5 1.0 0.7 3.5 3.3 500 7.3 0.5 1.0 0.2 4.4 0.4 16 3.8 0.8 201.4 451.7 2.6 3.5 0.3 144.8 14 5.1 400 5.3 4.5 12 5.0 94.7 93.6 300 10 84.3 79.6 9.8 284.5 282.5 8 9.2 9.1 8.1 200 218.8 219.9 6 4 100 2 0 0 2006 2007 2008 2009 2006 2007 2008 2009 Euroclear Bank Euroclear Belgium Euroclear Bank Euroclear Belgium Euroclear France Euroclear Sweden Euroclear France Euroclear Sweden Euroclear UK & Ireland Euroclear Finland Euroclear UK & Ireland Euroclear Finland Euroclear Nederland Euroclear Nederland Number of netted transactions Daily collateral provision outstanding (millions)1,2 (in € billion)4 595.0 180 179.6 600 14.0 266.9 537.9 544.2 160 157.3 27.9 229.2 331.6 155.6 2.6 2.8 5.3 500 143.1 4.7 2.2 140 4.4 2.7 75.0 69.1 1.9 3.8 5.2 424.3 70.2 120 63.3 400 212.4 100 300 328.1 308.7 80 32.3 31.7 60 32.5 28.0 200 211.9 212.6 40 40.8 42.0 39.3 33.9 100 20 0 0 2006 2007 2008 2009 2006 2007 2008 2009 Euroclear Bank Euroclear Belgium Euroclear Bank Euroclear France Euroclear Sweden Euroclear UK & Ireland Euroclear UK & Ireland Euroclear Finland Euroclear Nederland 1 The data includes intra-group holdings/transactions, as relevant. 2 The data for Euroclear UK & Ireland excludes self-collateralising repos. The data for Euroclear France excludes ‘pensions livrées’ with Banque de France. The 2008 data for Euroclear Sweden and Euroclear Finland for turnover and number of netted transactions settled comprises the months of November and December 2008. 3 Securities in the United Kingdom are held through Euroclear UK & Ireland on the books of registrars. 4 The data for Euroclear UK & Ireland consists of Delivery By Value (DBV) and money-market instrument repo transactions. Not all are intermediated transactions. Highlights Euroclear annual report 2009 Operating income (in € million) Operating profit before tax (in € million) 1400 500 1,244.0 435.3 1200 418.2 1,138.1 1,085.4 400 367.3 364.2 1000 963.3 960.3 347.0 933.8 300 800 600 200 400 100 200 0 0 -0.5 2005 2005 2006 2007 2008 2009 2005 2005 2006 2007 2008 2009 UK GAAP IFRS UK GAAP IFRS Dividend per share (in € per share) Shareholders’ equity (in € million) 30 3250 3,241.1 3,133.4 3,125.9 3000 2,886.7 25.58 24.20 2750 25 2,627.9 2,557.3 2500 21.40 21.40 20.49 2250 20 2000 1750 15 1500 11.46 1250 10 1000 750 5 500 250 0 0 2005 2005 2006 2007 2008 2009 2005 2005 2006 2007 2008 2009 UK GAAP IFRS UK GAAP IFRS 9 Financial highlights The 2008 financial crisis, and the economic recession that followed, made 2009 a challenging year for all market players. Euroclear’s total operating income decreased by 18% to €934 million, of which €759 million was generated from the stable net fee and commission income and €98 million from the more volatile net interest income which was impacted by historically low interest rates. In this challenging context, the cost base decreased by 12% on a comparable basis (taking into account the impact of the acquisitions of the Finnish and Swedish CSDs and Xtrakter) to €749 million. This reduction is the result of a significant multi-year cost reduction programme started in 2008 that is built on a range of measures such as Lean (to increase efficiency and improve productivity and client service), automation and procurement spend management initiatives covering all non-personnel related expenses. The programme is aimed at reducing the operational cost base by about 25% by 2012 compared to 2008 plans. Against this objective, costs had been reduced by 18% by the end of 2009. Euroclear’s net loss amounted to €38 million, including a €185 million impair- ment charge on goodwill. The Board is proposing a dividend of €11.46 per share, compared to €20.49 in 2008. 2009 2008 Euroclear plc consolidated For the year ended 31 December (in € million) Operating income 933.8 1,138.1 Profit/(loss) for the year (38.4) 261.7 Net earnings per share (€) (10.0) 68.3 Dividend per share (€) 11.46 20.49 At 31 December Total assets 11,002.5 13,450.4 Subordinated liabilities 299.2 305.1 , Shareholders equity 3,133.4 3,241.1 , Shareholders equity/Total assets 28.5% 24.1% Strategy Tim Howell CEO of Euroclear SA/NV from 5 April 2010 To face the future confidently, you must be well prepared 11 Pierre Francotte CEO of Euroclear SA/NV until 4 April 2010 Sir Nigel Wicks Chairman Strategy Euroclear annual report 2009 Chairman’s statement I said in my report last year that 2009 would be a difficult year and this proved to be the case. Your company has faced challenging trading conditions. The fall in volumes in most of the securities markets in which Euroclear is active; the low level of interest rates earned on financial balances left with the company (net interest income in 2009 fell by €185.6 million compared to 2008); and the levels of the dollar and sterling, all continued to affect revenues adversely. Your Board has also considered the potential effects on the future profitability of the group CSDs of the European Central Bank’s TARGET2-Securities (T2S) project; the continuing difficult market conditions; and other specific market developments. As a result, it has concluded that it is prudent for the group to record an impairment of €185.0 million in the goodwill carried on the balance sheet in respect of the group’s CSDs. This impairment does not affect the valuation of Euroclear Bank, nor the group’s regulatory capital. Taking account of the impairment, the group recorded a loss of €38.4 million in 2009. Before impairment, group profits were €146.6 million. The 2009 result benefited considerably from a vigorous programme to reduce costs, with operating costs down by 12% compared to 2008 and the total internal headcount reduced by 221 full-time equivalents (excluding the employees from Xtrakter that joined the group in 2009). This programme to reduce costs will be maintained in 2010 and in future years. Market expectations suggest that trading conditions may not improve in the immediate future. The Board has proposed a dividend of €11.46 per share for 2009, representing a payment of €43.9 million. This represents a dividend payout ratio of around 30% of the pre-impairment profit, in line with previous years. The Board will continue in its mission to deliver value to its shareholders through these chal- lenging times in the market, and will consider the dividend recommendation each year in light of all relevant circumstances.