Oct 29, 2014
Executives
Jan Strecker – IR Gregor Pottmeyer – CFO Eric Mueller – Group Treasurer, Managing Director Group Strategy
Analysts
Jillian Miller – BMO Capital Markets Arnaud Giblat – UBS UK Daniel Garrod – Barclays UK Chris Turner – Goldman Sachs US Johannes Thormann – HSBC Germany Bruce Hamilton – Morgan Stanley UK Richard Perrott – Autonomous UK
Operator
Welcome to the Deutsche Boerse AG conference call regarding the Third Quarter 2014 Results. (Operator Instructions).
Let me now turn the floor over to, Mr. Jan Strecker.
Jan Strecker
Welcome, ladies and gentlemen, and thank you for joining us today to go through Deutsche Boerse's third quarter 2014 results. With me are Gregor Pottmeyer, CFO and Eric Mueller, Group Treasurer and Managing Director Group Strategy.
Gregor will take you through the presentation. After the presentation, we will be happy to answer your questions.
The presentation materials for this call have been sent out via email earlier today and can also be downloaded from the investor relations section of our website. As usual, this conference call will be recorded and is available for replay.
Let me now hand over to you, Gregor.
Gregor Pottmeyer
Yes, thank you, Jan. Welcome, ladies and gentlemen.
The higher equity market volatility towards the end of the third quarter cyclically these supported our derivatives and cash activities. At the same time Clearstream and Market Data + Services continued the positive performance we saw already earlier in the year.
As a result, net revenue increased to €496 million and adjusted operating cost increased as planned to 266 million. Adjusted EBIT amounted to 234 million and adjusted earnings per share increased to €0.85.
In the first nine months, net revenue increased to around €1.5 billion and adjusted earnings per share increased to €2.75. Based on the financial development in the first nine months and the very strong volume development in October, we are confirming our full-year guidance, and are now expecting to meet roughly the mid-point of our €1.9 billion to €2.1 billion net revenue guidance.
Our cost guidance remains unchanged at €1050 million excluding around €30 million restructuring and merger-related costs and around €15 million consolidated effects. The consolidation effects arise from the Citco transaction, which we completed at the beginning of the fourth quarter and the acquisition of Cleartrade and Impendium earlier this year.
Since the beginning of the year we made further progress towards achieving our strategic goals with the rollout and development of new infrastructure and our key strategic growth initiatives like OTC clearing, collateral management, TARGET2-Securities and the expansion in Asia. In the first nine-months of 2014, net revenue increased by 4% to around €1.5 billion.
Operating costs on an adjusted basis increased by 8% to €759 million. The main reasons for the cost increase are the consolidation effects from EEX and Scoach as well as the increased investment in growth and infrastructure.
Adjusted for one-offs, earnings per share amounted to €2.75, up 1% against the previous year. In the third quarter, net revenues stood at €496 million, an increase of 8% against the previous year.
The increase was driven by the consolidation of EEX as well as the favorable development in equity index derivatives and in the Clearstream and Market Data Services segment. Operating costs increased as expected year-over-year and sequentially and amounted to €266 million.
They are adjusted for €8 million exceptional items which mainly relate to restructuring and merger-related costs. The result from equity investments amounted to €10.6 million and included two opposite moving one-off effects.
First, there was a €10.6 million one-off gain relating to a retroactive adjustment to the fair value of the consideration, and further as part of the EEX acquisition. Second, there was a €3.9 million impairment charge for Zimory, our subsidiary for cloud based services.
The tax line item also included a one-off effect of €4.6 million, mainly relating to a tax reimbursement at ISE. In the earnings per share the different one-off effects largely offset each other.
Reported EPS stood at €0.87 while adjusted EPS amounted to €0.85, a 2% increase year-over-year. I'm now turning to the quarterly result of the individual segments, starting with Eurex on page 4.
In financial derivatives, the number of traded contracts overall was stable compared with the previous year. The strength in high margin index derivatives compensated the decline in equity and fixed income derivatives.
In commodities, power products of European energy exchange, which account for roughly two-thirds of the commodities net revenue, increased by 22% while the gas products saw a spike of more than 200%. In order to further increase the commodities contribution within Deutsche Boerse Group, we last week announced that EEX will become the majority shareholder of the French provider Powernext from January 1, 2015 onwards.
This is a logical development over the successful longstanding cooperation in power and gas starting in 2008. The transaction will be implemented by an exchange of share.
After the transaction, EEX will hold 56% of the shares in Powernext. The repo business saw a decline of the volumes outstanding by 5% mainly as a result of the decline in the Swiss franc market.
As a result, net revenue in the Eurex segment stood at €191 million and adjusted EBIT amounted to €81 million In the cash market, we saw an increase of the order book turnovers across Xetra, Frankfurt and Tradegate Exchange by 5% in the third quarter. Net revenue in the Xetra segment decreased to €38 million as a result of a less favorable product mix in trading, higher internal settlement fees in clearing and the weaker development at Eurex Bond and Tradegate, EBIT on an adjusted basis increased to €21 million.
Clearstream continued its positive development over the last couple of quarters in the third quarter. Assets under custody increased by 6% year-over-year to an average of €12.2 trillion, this was a result of higher index levels and market share gains in the international business.
Settlement activity increased by 2%, mainly driven by the growth in OTC bond settlement activity. In the collateral management business, global security financing or GSF, we saw continued positive development.
Volumes outstanding were up by 9% year-over-year reaching an average level of €622 billion, the second highest quarterly level ever. The cash balances at Clearstream, adjusted for blocked accounts, increased by 17% to €10.5 billion, and the net interest income amounted to €9.6 million.
The increase year-over-year despite lower interest rates is due to a one-off effect of around €2 million. In total, net revenue in the Clearstream segment amounted to €175 million, the adjusted EBIT stood at €89 million.
On a different matter you probably all followed the publication of the ECB stress test results last Sunday. The Luxemburg entity of Clearstream, Clearstream Banking SA, was included in the assessment exercise.
Clearstream passed the stress test with very good results in all scenarios. The extensive assessment included an examination of the balance sheet and a verification of equity capital coverage levels which led to a confirmation by the ECB of the institution's high resilience.
Under the standard guidelines of the stress test, Clearstream Banking SA managed to achieve a Core Tier 1 quota of close to 20%. Net revenue in the Market Data + Services segment increased by 4% year-over-year in the third quarter.
The index business was the best performing part of the MD+S segment with a 16% increase of net revenue. The information business also showed solid growth year-over-year, but the tools and market solutions areas saw a small decline of net revenue.
Total net revenue in the MD+S segment amounted to €93 million and the adjusted EBIT stood at €43 million. The growth areas of the Group continued to build traction in the third quarter.
At Eurex, for instance, the volume in fixed income derivatives on Italian and French government bonds broadly doubled. Those products now account for almost 10% of all fixed income derivatives.
In total, volumes in innovative Eurex products increased 36%. At the European Energy Exchange, volumes in power and gas products increased 46%.
At Clearstream in the investment funds services business, the settlement transactions increased by 15% and the assets under custody by 27%. Complementary to this existing fund business, the acquisition of Citco's hedge fund custody unit, announced in April will help us to become the leading global fund market infrastructure for all types of funds.
The transaction was completed on October 3, and the business will be fully consolidated in the fourth quarter of this year. On page 9 of the presentation you can see the volume development in derivatives and cash in October until the end of last week.
After equity market volatility reached multi-year loads in summer this year, overall macroeconomic uncertainty resulted in a significant spike of volatility in October. The volatility stock for instance reached levels of above 30, which we have not seen for more than two years.
This development confirms our view that volumes in general are not structurally depressed, but that cyclical drivers such as volatility are the main drivers for the volume patterns over the last couple of quarters. Let me now give you a brief update on two of the three strategic priorities, growth and capital management, summarized on page 10 of the presentation.
With our Eurex OTC clear offering we have achieved substantial progress. Our market leadership in listed derivatives in combination with unique products such as Euro GC Pooling under a single legal framework provides an ideal basis to deliver unparalleled capital efficiency to our clients.
At the same time we are increasing safety through our unique market-tested clearing model, real-time risk management and access to central bank liquidity. As an important step in the underlying technology for our Eurex OTC clearing offering, we rolled out the first release of our new clearing technology C7 in June.
After Eurex successfully migrated to the new trading technology T7 last year, the new C7 clearing technology introduces greater flexibility, shorter lead time for new services and new functionality. These elements put us into an excellent position to be successful in OTC derivative clearing.
As announced, we have already signed up 36 major global sell-side banks as clearing members. And many buyside firms are in the on-boarding process.
The EMIR authorization for our clearing house received in April was an important milestone, and confirms full compliance of our clearing services with the applicable rules. We are pleased that at this stage Eurex clearing can provide its clients and members with the clarity and reassurance needed to undertake their readiness training and to prepare for the upcoming clearing mandate in Europe.
The phased approach of the introduction of the OTC clearing obligation which has been proposed by the ESMA earlier this year will now be implemented. However, the phases will be shorter than initially proposed for some clients.
Clearing members already admitted will still have to start clearing six months after the final regulatory technical standards are effective, which is expected for early 2015. The timeline for the second group, financial counterparts including small and mid-tier banks as well as asset managers and hedge funds, has shortened and they are now expected to start clearing around 12 months after the RTS are effective.
While the phased approach could have some impact on the timing of the ramp-up of clearing volumes, we currently do not expect any material impact regarding our volumes and revenue expectations for 2017. This is also due to the so-called front-loading requirement.
In order to properly capture systemic risk, the counterparties included in the first two phases that have to front load those IRS contracts that have concluded between the date of publication of the RTS in the official journal and the respective starting date of the clearing obligations. With the global liquidity hub at Clearstream, we’re in a unique position to provide best practice solutions for our customers in the new regulatory landscape.
In the new landscape, collateral will become a scarce resource and we enable customers to mobilize collateral and use it in the right locations at the right time in the most efficient way. We have already established access to global liquidity pools by working with international strategic partners like Cetip in Brazil, ASX in Australia, Strate in South Africa, Iberclear in Spain and the custody business of BNP Paribas.
Partnerships with Citi and Standard Chartered will go live this year and further developments are underway with CDS in Canada, SGX in Singapore and VPS in Norway. Another significant opportunity for Clearstream is the TARGET2 securities initiative by the European Central Bank.
T2S is a pan-European platform for settlement in Central Bank money that will replace the existing domestic models until 2017. We believe that T2S will bring about a structural transformation of our industry.
It will commodify [Technical Difficulty] wide settlement, substantially strengthen capital market harmonization and thus in the long run increase the growth potential of this market. While most central securities depositories in the Eurozone have joined T2S, only a few have the means to become the preferred access partner to T2S.
We believe Clearstream will be one of these deferred access points. And thus be one of the main T2S winner, the reason for this is that clients benefit from our offering across various dimensions, cash pooling and securities pooling across their accounts, access to pan-European collateral pool, also collateralization, intraday settlement efficiencies and lower total costs for their settlement activities.
In a recent study, we’ve jointly conducted with Oliver Wyman, the efficiencies in using Clearstream as a central access point to T2S are estimated to be in the €40 million to €70 million range per client per annum. Our portfolio of unique assets also enable us to further increase our geographic coverage.
As you are all aware, our special focus lies on the Asia markets. This is mainly driven by the increasing importance of the region on global financial markets.
The growth in Asia over the past decade has significantly exceeded the development in Europe or the Americas and we’re expecting this outperformance to continue for the foreseeable future. We have already built a very solid revenue base with Asia products and clients reaching more than €100 million in 2013.
With initiatives like the derivative clearing house in Singapore, the strategic cooperation with Bank of China, the market data partnership with the Shanghai Stock Exchange, and the partnership in derivative and postdating services we have further accelerated these functions. Overall, we believe the opportunities for Deutsche Boerse as a group to grow over the next couple of years are very significant as summarized on slide 15 of the presentation.
This slide illustrates the three different categories in which we expect incremental net revenues, new products, structural cost initiatives and ultimately also cyclical improvements as currently witnessed in equity related products and derivatives in cash markets. Due to our scalable and cash flow generating business model we are able to combine a strong rating profile with attractive distributions to our shareholders.
In the first nine-months of 2014, the interest coverage ratio has improved further to 26 times due to the favorable refinancing completed in 2013. The gross debt to EBITDA ratio, which is the primary leverage ratio the rating agencies are looking for Deutsche Boerse, stood at the target level of 1.5 times.
In the summer Standard & Poor's have removed the negative outlook for Deutsche Boerse AG and we are now rated AA stable again. Now Fitch Ratings has the firm's Clearstream Banking SA's rating at AA with a stable outlook.
This concludes our presentation and we’re now looking forward to your questions.
Operator
(Operator Instructions). And the first question comes from Jillian Miller, BMO Capital Markets.
May we have your question, please.
Jillian Miller – BMO Capital Markets
So you said that you're expecting to become a preferred access point for TARGET2-Securities and that makes sense to me just given the positioning of Clearstream. But I'm hoping that maybe you can help us size that opportunity just in terms of your potential revenue and profit generation.
What I'm having trouble figuring out is, yes, I understand you're going to be a preferred access point but what does that mean in terms of generating excess revenue and your P&L going forward?
Gregor Pottmeyer
Obviously, T2S is one of our key drivers for our structural growth opportunity. We overall summarized it on our net revenue guidance slide for 2017 with a number of €100 million.
So that's the combined number out of T2S and additional collateral management services and both are very important for our strategy. So the T2S, as our market participants have to adapt to that, and obviously our liquidity up, our collateral management, so with these two together, we can create additional efficiencies for our customers.
And with regard to T2S, we show now to our customers it's a €40 million to €70 million cost-saving opportunity on a yearly basis, and that's a very strong and very convincing agreement for our market participants, and therefore we think we’re very prepared until 2017 to get another €100 million for Clearstream out of that.
Jillian Miller – BMO Capital Markets
And then just one other quick regulatory question, there's been a lot of debate lately around the safety of CCPs and the discussion around whether clearing houses need even more skin in the game and whether covering the largest two-player member defaults is sufficient. I just wanted to get your thoughts on the CCP regulatory landscape in Europe.
How do you think the regulators are viewing these issues that have been raised? And do you think there's going to be any changes to your clearinghouse capital structure?
Gregor Pottmeyer
In principle, we are very supportive of what regulators intends to do, so in principle, if they want to have stable integral and transparent markets, and then they want to reduce the risk, and therefore the idea to do so is to install these clearing obligations for the market participants. So that is the basic idea to reduce the risk here, because the clearing house is obviously neutral in taking any risk provisions, compared to other banks.
Clearing houses, and especially Eurex Clearing, is well advanced to have very good risk management processes and systems, and therefore, regulators really tend and already have decided that today OTC-traded derivatives have to be cleared via CCP. In U.S., you already see this in March 2013.
In Europe, unfortunately, it takes at least two or three years longer, but the clearing obligation will come. Obviously, the regulators, when they look at the risk management of the clearing houses, for them, it's important how the risk management works.
What about the clearing funds? What about the lines of defense or the clearing waterfall?
That's important. The equity contribution, so that is at the end of the waterfall, what's currently €294 million for Eurex Clearing, is not the most important point from them.
Obviously, from the market participants, there's a discussion around the topic, how big should be the skin in the game. So before you use the clearing fund of the clearing members, so what is the skin in the game?
So far, we’re on a level of €50 million for Eurex Clearing, but I'm convinced that there will be still further discussion with market participants, but that's the current status.
Operator
The next question comes from Arnaud Giblat, UBS UK. May we have your question, please.
Arnaud Giblat – UBS UK
One question from me, I was wondering what you've seen as an impact on demand for collateral management services since the ECB has allowed cross-border transfer of collateral. I suspect probably not much, given the impact of QE and low interest rates, but I'm wondering how material this approval from the ECB is towards achieving an increase in long term forecast for management services.
I think this is one of the major necessary conditions that was required to meet the phase two of your collateral management development plan. I'd welcome any thoughts on there.
Thank you.
Eric Mueller
We certainly are in intense discussions with clients, and all clients agree that, number one, additional amounts of collateral will be needed in the new world of regulation, and Gregor just outlined the discussion around the clearing houses and the clearing obligation. That alone will trigger various studies out there north of $2 trillion in additional collateral that might be needed in the system.
So at Clearstream, our objective is to help clients mobilize collateral that is otherwise today not accessible. You’re absolutely right in pointing out that the full effects are not yet visible for us because of all the liquidity provision that you have in the system by the central banks globally.
But secondly, also as Gregor pointed out, that the obligation, for example, for the clearing is not yet effective in Europe. So we are using the time in preparing us but mainly our clients for this new environment, and that's why we think that collateral management will be such a key and important driver going forward, and we welcome all steps by regulators and central banks that go into the direction, and I think it's fair to say that we are a thought leader in that area.
Operator
The next question comes from Daniel Garrod, Barclays UK. May we have your question, please.
Daniel Garrod – Barclays UK
Just one quick question from me on the October volume environment that you commented on. Obviously, it's pretty spiked the activity around the 15th and 16th, when volatility hit its peak.
Interested in what you've seen last week as that volatility died down. In particular, when I look at the open interest on Eurex, that's received far less of a boost in October compared to the absolute volume of training of the euro stocks and the fixed-income contracts in that month.
What does analysis of that suggest to you about the sustainability of this volume surge we've seen in October and the potential for a cyclical recovery?
Gregor Pottmeyer
Obviously, what we observed was high volatility. We saw an increase in the equity index products of up to 80% in the first 15 days.
So far, over the last five days, it reduced, as you correctly described. But as far us, we do not have a crystal ball like you have what happens over the next quarters, but it's a proof for us that our reduced volume are mainly cyclical driven and not structurally driven.
When there is some uncertainty in the markets with regard to when the interest rates increase, when there are different estimations when it will happen and how much it will happen and the same on the equity side, so we have seen for four weeks, roughly, very high volatility. But I cannot forecast that this is now the basis for us as far as the next 8 to 9, 10 weeks, until year-end, but again most importantly for us, it's the proof that cyclicality can come back and that gives us confidence with regard to our midterm guidance until 2017 that there are cyclical opportunities for us.
Daniel Garrod – Barclays UK
Can I ask the question in another way? Do you think we can have a cyclical volume rebound without the open interest significantly growing?
Are the two not connected in your view?
Gregor Pottmeyer
No. They are not as strongly connected.
So months before, we have seen that when the open interest did not decrease in the same way like the transactions and now we see just the opposite, that though the volatility on the open interest is lower, that's what we have seen in the past.
Operator
The next question comes from Chris Turner, Goldman Sachs US. May we have your question, please.
Chris Turner – Goldman Sachs US
You've been pretty clear about the growth you're trying to build, both from new products and new partnerships. In respect to the former, you launched, I think, a suite of new FX derivative products at the start of this quarter Can you just give us a little color on the traction you've seen in those products and any observations you have now that those products are live?
And then secondly, in terms of the partnerships, if I cast my mind back to I think 2006, 2007, you signed a memorandum of understanding with MICEX, the Russian exchange, and I am happy to be corrected on this, but it never seemed to move the dial in terms of earnings, and I'm wondering what you learned from those kind of early partnerships and what you can do, using that knowledge, to make more of a success from your recent partnerships with Thailand, Shanghai and so on. Thank you.
Gregor Pottmeyer
Yes. As you rightly mention, Chris, so we introduced our FX futures and options and started with fixed-currency players, and it's a physical settlement via CLS.
We started in July this year. So far, we see good progress here, so market participants use our products, but it's far away to be a material number, as explained.
But we see progress here, and it was a quarterly increase over the next month. In parallel, as you also mentioned, we introduced different new products, so the most important ones are covering -- that we want to cover the whole curve of the interest rates with the euro swap features with one-month euro-secured funding futures and with Euribor midcurve options, so that's also very positive, and there we see also some gradual growth here.
With regard to your questions of MICEX, what we see is here with regard to the other cooperation's with the Korean Exchange, for instance, or the KOSPI, or with the Taiwanese Future Exchange, so the TAIEX Index, that these cooperation's are very productive and very positive. And obviously, we use all these kind of experiences when we develop new products together with our partners.
Operator
The next question comes from Johannes Thormann, HSBC Germany. May we have your question, please.
Johannes Thormann – HSBC Germany
First of all, could you comment a bit on the weakness of the external IT business in market data and services? I know it's a bit lumpy, but this decline, can you elaborate on that a bit?
And secondly, what are the risks in your view for your dividend payment this year? What could cause a lower than expected or poorer than expected dividend payment?
Thank you.
Gregor Pottmeyer
Starting with the second topic, dividend payment, obviously, you know our distribution policy of 40% to 60% dividend payout, and last year, it was 61%, 62%, so we understand in our talks with our investors that a constant dividend is even in some challenging times important, and that will be reflected in our decisions with regard to dividend. So far, the dividend discussion will be done when we see our final numbers, but with regard to the development in the fourth quarter, going in October and with our full-year guidance, where we are in the mid of the range of our guidance, so that gives me confidence that we could stay in the range where we were until.
With regard to your first questions, the weakness of the external IT business, so that depends on how much new business do we get? So far, it is the existing business, and for us, it's important to what we call alliances on our IT technology basis that we do some cooperation with other partners.
Obviously today, the most biggest part is the Vienna Stock Exchange, but what we currently target for is to find new market infrastructure providers or exchanges that are much interested in our T7 or T7 technology -- or even in our risk-management processes and services, and there we are in good discussions with different exchanges. And that's what we are targeting for from a strategic perspective, and so far we are good on track there.
Operator
The next question comes from Bruce Hamilton, Morgan Stanley UK. May we have your question, please.
Bruce Hamilton – Morgan Stanley UK
I guess two questions. Firstly, just on the collateral management opportunity, how should we think or how do you think about the risks from a Euroclear DTCC joint venture?
Because presumably, the natural assumption would be the person who's got the biggest liquidity pool has the best opportunity to provide efficiencies, so I guess that's question one. And then secondly, just on the cost guidance of €1.065 billion, including consolidation effects, given Citco-only impact Q4, and I think the cost is around €6 million, if I'm thinking about the run rate of cost for a full year, should we be thinking about €1.085 billion.
Is that the right start point as we think about 2015 costs? Thank you.
Gregor Pottmeyer
Okay. I will take the cost question.
So far, our guidance is unchanged with €1050 million a consolidation comparable basis. Now we said, in addition to these €1050 million, we have some €15 million additional consolidation effects out of the acquisition of Cleartrade, out of Impendium and out of Citco, what we include now in our consolidated numbers since October 1st.
So these three elements add up to €15 million, so that means €1050 million. And in addition, as we have already announced, there are onetime effects of €30 million out of the efficiency implementation of the efficiency program, and also for the integration of this Citco transaction, so as the main components.
So you can add these all up and you’ve the number what would be from today's perspective the as reported number.
Bruce Hamilton – Morgan Stanley UK
But sorry, just to understand, the €15 million consolidation effects, what would that be if you had owned Citco for the full year? So if we think about a full year impact.
Gregor Pottmeyer
So that's roughly €25 million.
Eric Mueller
On your question with regards to collateral management, you are absolutely right and we share that view, that it's important to tap other liquidity pools around the world where you can find quality collateral and this is why we are very glad, for example, to see the developments we've done with Australia. It's a big and high quality market that you see out there.
So it's an important addition to our global liquidity hub. Now, the U.S.
obviously is still the largest capital market in the world, but you have to understand about the U.S. market infrastructure that the DTCC is actually home to all U.S.
equities, plus the corporate bonds. But if you think about what high quality collateral and what clearing houses might be after, then obviously the government bond market is important and that in the U.S.
sits with custodians such as the Bank of New York and JPMorgan. So while we’ve seen the plans and announcements, our endeavors in the U.S.
are not limited to connecting to DTCC but to the, let's say, custodians where the U.S. treasuries are placed.
And in that way we’re thinking about the market in the U.S.
Operator
The next question comes from Philip Middleton, Merrill Lynch UK. May we have your question, please.
Philip Middleton – Merrill Lynch UK
Just in the same lines as what Bruce is asking about really, could you also talk through about what the implications of Powernext are for the cost base? And secondly, both of these presumably then have revenue impacts, as well, so could you give us some idea about what the revenue impacts of Citco could be on a full year basis and ditto Powernext?
Gregor Pottmeyer
All right. So the consolidation effects -- so for the full year 2015 are roughly in the revenues, roughly €80 million, so some €60 million out of Powernext and some additional €20 million for Citco.
So, that's some €80 million in addition compared to 2014 on the revenue side, and on a comparable cost number, it's roughly €70 million for both, again for Powernext and for Citco.
Philip Middleton – Merrill Lynch UK
So basically Powernext and Citco between them, in a full year basis add €80 million of revenue, €70 million of cost.
Gregor Pottmeyer
No. It would be €85 million on the revenue basis, above €25 million revenues for Citco and I explained it now, as we already consolidated in Q4 some €6 million, €7 million for Citco.
So the full consolidation effect is then €80 million, but if you want to know the number of both, then it's closer to €85 million.
Operator
The next question comes from Richard Perrott, Autonomous UK.. May we have your question, please.
Richard Perrott – Autonomous UK
Just a follow up on the EX and Powernext transactions, I was just wondering if you could talk through why you're practicing an opportunity from combining these two businesses and also in particular, maybe add a few more details on the revenue mix of the combined business.
Gregor Pottmeyer
Yes, obviously, it's a strategic very important step for us to create an energy exchange on a Continental European basis, so we were already strong here in Germany and now, we’ve the chance to be also strong in France and potentially if our interest is to do some more consolidation, we are already in Italy and we are already in Spain. So it's important for us to be here a strong strategic partner for the energy and power customers.
In addition, it was interesting for us to strengthen the basis specifically in the gas business, where we now combine the gas activities in the Powernext organization that we can create additional synergies, so then we have two strong legs, not just power. Even gas is now another strong leg and based on that.
We think we can strategic develop very positive from here on. With regard to the numbers, I already mentioned the additional revenues we get out of that.
Powernext will be in the range of €60 million, so it's comparable to the level we have on EX. So overall on a combined basis, it's roughly €120 million, so we double our basis here on the revenue side.
Richard Perrott – Autonomous UK
And does the Powernext part add a greater proportion of gas related revenues? Or is that a similar mix?
Gregor Pottmeyer
Yes, yes, exactly.
Richard Perrott – Autonomous UK
And do you have an idea just in terms of on that €120 million basis what proportion is power versus what proportion is gas that you can give us?
Gregor Pottmeyer
So the power is clearly the bigger part, but the gas part has more perspective. We see higher growth rates on the gas and we assume over three years that gas will come very close to the power level.
Jan Strecker
With this we would like to conclude today's earnings call. Thank you very much for your participation and have a good day.