Euroclear group CEO
"Our key business metrics reached new record levels throughout the year, demonstrating the attractiveness of our product proposition to customers."
Q. Euroclear achieved record levels of financial performance in 2018. What was behind this better-than-expected growth?
Lieve Mostrey. 2018 was a very strong year for Euroclear. We saw revenue growth of 9% as we captured the benefit of positive market conditions. Business income grew by 4%, as we benefited from the consistent implementation of our strategy and position at the heart of the financial market ecosystem.
Our key business metrics reached new record levels throughout the year, demonstrating the attractiveness of our product proposition to customers.
In total, the Euroclear group settled 230 million transactions, up 7% compared to 2017, which is the equivalent of €791 trillion! Assets under custody peaked at a record €29.2 trillion before ending the year at a similar level to 2017, while average collateral outstanding grew over 6% to reach €1.2 trillion at year end.
We also saw the benefit of a substantial increase in net interest earnings, up 39%, predominantly due to the benefit of US interest rate rises at this point in the economic cycle.
Revenues are only one half of the story. While we continue to invest at elevated levels in both regulatory-driven and business initiatives, expenses plateaued in 2018 in line with our plans.
Given the strong revenue growth and close management of costs, Euroclear delivered adjusted operating profit of €514 million, an increase of 27% compared to the prior year.
Q. 2018 also marked a special anniversary for the Euroclear group. Can you tell us more about this milestone year?
LM. Yes, we celebrated Euroclear’s 50th anniversary this year so it was especially pleasing that our business performance was something to celebrate too!
As the Chairman noted in his statement, 2018 was extra special as we completed a number of important corporate evolutions. These required tremendous focus from both management and the teams involved, as well as active engagement with shareholders and our regulators.
Reaching a milestone age is often a time to consider and celebrate the journey so far. That Euroclear is a systemically-important element of the world’s global financial market infrastructure is testament to the trusted relationships we have built with our clients, under the supervision of our regulators, and thanks to the efforts of our people over the years.
We have grown to become a company in a privileged position. Being a socially-responsible company is very important to us and, on behalf of all our people, Euroclear decided to gift an additional €1 million to 20 charity projects this year to celebrate our anniversary. This is in addition to the regular contributions we make to charity partners in each of our locations as well as at corporate level. Through these projects, we will make a tangible difference to many people who are less fortunate than ourselves.
A major birthday is also a time to look at what we can become in the future. As you will read on page 15 of this report, our strategy seeks to build on our already strong European foundations, to continue to grow internationally, and to explore how to reshape our network as a global collateral and liquidity hub.
I believe that implementing this vision positions Euroclear for continued growth and opportunities in the years to come.
Q. What are your top business highlights from 2018?
LM. There has been a lot of progress, but I have to highlight the launch of our Single Central Securities Depository (CSD) model. This is a business initiative that really strengthens our core European network. Global investors can now choose to access pan-Eurozone security settlement either on the European Central Bank’s TARGET2-Securities (T2S) settlement platform via ESES or through Euroclear Bank.
Meanwhile, we have been upgrading our core systems in a number of our CSDs, including steps to meet the more stringent regulatory standards required under Central Securities Depositories Regulation (CSDR) and to strengthen our business’s cyber resilience. These investments reinforce the foundations of our business model which is to provide safe, efficient post-trade services that meet our regulatory requirements.
I would also certainly highlight the progress made in collateral management. In addition to the growth in the business line, we were very proud that clients once again named Euroclear as their provider of choice in the Global Custodian Magazine Tri-Party Securities Financing Survey.
Q. How well is Euroclear prepared to navigate Brexit?
LM. We have been monitoring Brexit closely ever since the referendum in June 2016. With operations in both the United Kingdom and Europe, we believe that Euroclear is well placed to navigate Brexit with only minimal impact on day-to-day operations. This position was strengthened by the domiciliation of the group’s parent company in Belgium, as the Chairman outlined in his statement.
We continue to work with a wide group of stakeholders to secure continuity of settlement for Irish corporate securities post-Brexit. This includes ensuring Euroclear UK & Ireland can continue to service the Irish market in the period immediately following the UK leaving the European Union, as well as to provide a long-term solution.
We welcome the temporary equivalence decision of the European Commission allowing Euroclear UK & Ireland to continue servicing the Irish market in a no-deal Brexit scenario.
Q. Aside from Brexit, what do you expect from 2019?
LM. It is hard to escape the uncertainty for the financial markets that come from issues like Brexit, and I wouldn’t like to make a prediction for 2019 from this perspective.
The way we approach the future is therefore to look at the areas we can control and where we can add increased value to financial market participants. We will therefore continue to invest for growth and in the resilience of our services, while keeping close control of our costs. This will make us well-placed to continue to deliver positive financial performance through-the-cycle.
With our open philosophy, Euroclear is well placed to work with a range of participants to bring continued innovation and efficiencies to the markets we serve.
Q. Closing thoughts?
LM. Of course, I would like to say a big thank you to our people for their continued dedication during a time of change for our industry and our company.
We are continually striving to make Euroclear a better performing organisation. Our actions include strengthening colleagues’ level of risk-consciousness and to implement more efficient ways of working, such as introducing an agile approach to software development. It’s our people’s energy and efforts that make these programmes successful.
I would also like to say thank you to our partners from outside Euroclear. We remain grateful to our clients for entrusting their business with Euroclear, to suppliers for their contribution and to our regulators as we strive towards our shared goal of making financial markets a safer place.
And finally, I would like to welcome those new investors who have an interest in the company’s direction. This includes both new equity shareholders in the company, and those investors who participated in our successful debt issuances this year.