Annual Report 2017 Infrastructure Annual Report 2017 Infrastructure Infrastructure 4 SIX Annual Report 2017 Dr. Romeo Lacher and Dr. Urs Rüegsegger Foreword 5 Dear readers e are celebrating an important year for SIX: 2018 marks the tenth anniversary of our company. W Four distinguished well-wishers feature in this Annual Report. Their contributions (starting from page 23) demonstrate how greatly SIX is appreciated in the sector, and underline the importance of our centralized financial market infrastructure to the entire Swiss economy. When SIX was created, two themes stood out. First, the merger of three very different businesses in the Swiss financial center, and second, the conviction that this same financial center had great potential to add value through improving the cooperation between banks and infrastructure. No one could have predicted the major financial crisis that started in ­­­ “I thank Urs Rüegsegger Sep tember 2008, posing unprecedented challenges for the for ten successful years entire sector. Since then, new technologies, new providers, and constantly as CEO. SIX has laid increasing costs and margin pressure, combined with evermore strong foundations under stringent regulatory requirements, have not made the chal- his leadership, and I am lenges any easier. The environment in which SIX operates has been changing ever more rapidly over the course of the last con fident that we can build ten years. This naturally means that the banks’ needs and on them and continue to the demands they place on the financial market infrastructure develop SIX successfully.” have changed too. In November 2017, the Board of Directors formulated a Dr. Romeo Lacher, realignment for SIX in order to create added value for the clients Chairman of the Board of Directors and shareholders of SIX. You can read about the main features of this realignment in the Group report on page 10 and the interview with Romeo Lacher starting on page 32. Syste mati cal ly developing the company will make SIX and the Swiss financial center more competitive over the long term. We would like to thank our employees for all their hard work and dedication. Our thanks also go to our clients and share hold ers for their trust and loyalty. Dr. Romeo Lacher Dr. Urs Rüegsegger Chairman of the Board of Directors Group CEO Contents 7 SIX Group 8 Report on the business year SIX remains strong operationally in an environment that continues to be challenging. This, together with a solid balance sheet, enables SIX to invest in a successful long-term future. Business areas Focus 12 Swiss Exchange 23 How important is the The Swiss stock exchange recorded infrastructure to the Swiss brisk trading and six IPOs. Recognition financial center? of equivalence by the EU for a period Four Swiss economic of one year allows European securities leaders give their views. traders access to the Swiss market in 2018 as well. Responsibility 14 Exchange Regulation and organization Trading in 2017 was conducted in accordance with the rules and without 36 Corporate responsibility any serious incidents. Issuing activity 38 Risk and security was buoyant for bonds and derivatives. management 40 Management structure 16 Securities Services and shareholders The business area profited from the favorable market environment and 41 Internal organization invested in new applications and and competency rules services for the benefit of its clients. 44 Board of Directors 47 Group Executive Board 18 Financial Information Tax and risk data attracted increased 49 Strategic and organizational interest from clients in 2017. Demand realignment for detailed regulatory information will continue to rise. Annual financial 20 Payment Services statements Two acquisitions as well as strong organic sales growth in the acquiring business 50 Consolidated balance sheet and income statement strengthened the market position of SIX in card-based payments. Infrastructure 8 SIX Annual Report 2017 SIX is investing in the future and writing the next chapter of its success story 2017 was an eventful year for SIX. In an environment that remained challenging, operating income was up 5.8 % . SIX strengthened its market position through strategic acquisitions. Its operating performance and solid balance sheet allow SIX to continue systematically developing the business and boost the long-term competitiveness of the financial center. n the 2017 financial year, but fiercely competitive, card-based SIX posted operating income payment transactions market. Sales I of CHF 1,94 4.6 million, which in the financial data business came represents an excellent growth in slightly below expectations owing of 5.8 % compared with the previous to the delayed launch of important year. This was mainly attributable financial market regulations. They to the good level of revenues from were nevertheless more or less stable stock exchange trading, securities compared with the previous year. SIX posts solid custody, and rising turnover in SIX Swiss Exchange regained annual results the acquiring business. market share in Swiss blue-chip Various special factors had an trading, achieving 68.3 % compared in a challenging impact on the annual result. The sale with its major competitors (2016: environment. of a property in 2016, for example, 64.6 %). In addi tion, SIX Swiss accounted for a year-on-year effect Exchange successfully expanded its of CHF 26.0 million in operating index business and completed initial income, EBIT, and Group net profit. public offerings for six com panies. Excluding this special effect, operat- SIX Securities Services main- ing income rose by 7.3 % , EBIT by tained the strong operating perfor- 0.8 %, and Group net profit by 6.2 % . mance of recent years. The slight fall Strategic investments, primarily in operating income was due to the made to strengthen the market mentioned sale of a property in 2016, position in payment transactions, the comparison year. SIX Securi ties led to a decline in operating profit by Services capitalized on its own op- 2.3 % to CHF 280.5 million. At the erational strength and invested in new same time, favorable conditions on applications and services. It began the capital markets enabled SIX operating the only Swiss trade re- to achieve a considerably higher fi- pository approved by FINMA, and nancial result than in 2016 (+ 52.7 %) reached a milestone in the structural thanks to positive valuation effects trans formation of the Swiss pay- on assets. Overall, SIX can look back ment system: By the end of the year, on a successful year in which it posted virtually all Swiss banks were con- solid annual results in a challenging nected to the new ISO 20022-com- environment. patible infrastructure provided by SIX Interbank Clearing. Performance of the business areas SIX Payment Services replen- The securities business benefited ished the strong organic growth in from brisk trading on stock markets the acquiring business with two and high index levels worldwide. acquisitions in 2017: SIX acquired the At the same time SIX was once again Frankfurt-based girocard network able to profit from the expanding, operations business from a subsidiary Report on the business year 9 of Deutsche Postbank AG and pur- SIX is obliged to meet demand- chased the acquiring and terminal ing regulatory and technical require- business of the Aduno Group in ments and was kept particularly Switzerland. In order to concentrate busy with the implementation fully on expanding and developing of the new rules in the run-up to its B2B services, SIX withdrew the launch of the European financial from its only B2C business area: market reform MiFID II. This led the commercial issuing business to higher costs than in the previous (issuing of credit and prepaid cards) year, especially in the SIX Swiss For more detailed information in Austria. Exchange business area. In order about the business areas in the to enable all stakeholders to imple- year under review, see the segment reports starting on page 12. Operational strength and a ment the new rules as easily as solid balance sheet make p o s s i b l e SIX Securities Services long-term investment possible also invested heavily in various Thanks to its operational strength infrastructure projects and services. and careful handling of the balance However, the extraordinary differ- sheet, SIX remains able to make ence in EBIT in this business area substantial investments and realize was caused by the above- mentioned ambitious projects. A high level special effect from the property of cost discipline was once again sale in 2016. exercised in the day-to-day business. SIX Financial Information was The increase in operating expenses able to reduce its costs by around (+ 7.3 %) is largely attributable to 9 % in the year under review, system- the above-mentioned acquisitions atically pursuing the rigorous cost and investments in new services. discipline of recent years. Overview of key figures in CHF million 2017 2016 Change in % Figures Total operating income 1 1,944.6 1,838.6 5.8 Total operating expenses –1,664.0 –1,551.5 7.3 Operating profit 280.5 287.1 –2.3 Share of profit of associates –23.2 –0.3 n/a Net financial result 15.8 10.4 52.7 Earnings before interest and tax (EBIT) 1 273.2 297.1 –8.1 Group net profit 1 207.2 221.1 –6.2 Balance sheet total as at 31/12 10,301.5 10,279.5 0.2 Workforce as at 31/12 (full-time equivalents) 3,755 3,807.1 –1.4 Ratios (in %) Return on equity 2 7.9 9.0 –12.3 Equity ratio 3 80.0 76.7 4.3 1 2016 includes CHF 26.0m from sale of real estate. Adjusted operating income growth is + 7.3 %, adjusted EBIT growth + 0.8 %, and adjusted net profit growth + 6.2 %.