The finance executives of blue-chip German companies face tighter oversight and governance requirements following the overhaul of the German DAX index of top companies, which will be expanded to 10 companies this month.
The changes were sparked by the scandal surrounding electronic payment company Wirecard AG, which was kicked from the index last year after revealing a $ 2 billion accounting hole. The overhaul of the index comes a few months after the entry into force in Germany of the law aimed at strengthening the integrity of financial markets, which tightened regulations for companies and external auditors.
The DAX index, which has a market value of around $ 1.2 trillion, will be expanded to include a wider range of companies, including more pharmaceutical and retail companies. Deutsche Börse changed its admission criteria by going for market capitalization only as opposed to market capitalization and trading volume before the overhaul.
New entrants must also hold a minimum liquidity of € 1 billion, or $ 1.19 billion, or 20% of their annual market capitalization.
Deutsche Börse said on Friday that Airbus SE,
Porsche Automobil Holding SE,
Qiagen NV, Sartorius AG Vz, Siemens Healthineers AG,
Symrise AG and Zalando SE would join DAX.
Trade with the new range will begin on September 20.
Under the new rules, which were first announced in November, DAX applicants must report positive operating income – or earnings before interest, taxes, depreciation, and amortization – for two full years before joining the ‘index, its owner Qontigo, the unit of Deutsche Börse that manages indices and financial data, said.
This makes the German index more aligned with its international peers, for example the United States, where potential members of the S&P 500 are expected to post four consecutive quarters of cumulative earnings.
Deutsche Börse has also clarified the time limits within which companies must file their financial reports, allowing the index operator to kick out companies that do not submit their reports on time.
While some of the changes took effect in December, others took effect in March. Some requirements apply from this month.
DAX companies must declare that they have an audit committee, which follows the recommendations of the German Code on Corporate Governance. The code specifies that the committee must be chaired by an independent director who is not also the chairman of the supervisory board.
Deutsche Börse decided not to add criteria related to the environmental, social or governance performance of companies due to the lack of support from market players, he said.
The addition of new members could result in dilution for the existing companies represented in the index. “If in the future the available funds are distributed among 40 companies instead of 30, then corresponding reallocations will be necessary,” said Helen Giza, CFO of Fresenius Medical Care. AG
& Co. KGaA, a medical practice already present in the DAX. The company, whose shares have depreciated by around 5% since the start of the year, does not expect any noticeable price swings, however, Ms. Giza said. Fresenius Medical Care shares closed at 65.16 euros on Friday, down 0.58%.
CFOs of index companies have generally welcomed the changes. “In our opinion, the DAX 40 better reflects the German business landscape, which is good for investors,” said Marcus Kuhnert, CFO of science and technology company Merck KGaA.
The increased emphasis on transparency and the quality of results benefits the reputation of the index and that of its members, according to Marc Spieker, CFO of energy company E.ON SE. Greater alignment with international standards could improve the visibility of DAX, said Thomas Toepfer, chief financial officer of German specialty chemicals company Covestro. AG
Deutsche Börse last August facilitated the removal of components from the index after Wirecard languished in the index for more than a month after filing the German equivalent for bankruptcy. “Wirecard was not the reason, but the trigger” for the redesign, said Stephan Flägel, Chief Product Officer at Qontigo.
Under the new rules, bankrupt or insolvent companies can be removed from the index within days, said Alexander Foltin, finance, treasury and investor relations manager at semiconductor company Infineon Technologies. AG
. New requirements for minimum liquidity, profitability and a higher frequency of inspections should also bring improvements to the index, Foltin said.
“It goes without saying that the most important index in Germany not only includes the biggest and most important companies, but also takes into account their profitability and therefore the future viability of their business model,” said Ralf Thomas. , CFO of technology company Siemens AG.
Write to Nina Trentmann at [email protected]
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