Deutsche Boerse AG

XETRA:DB1

Earnings Call Analysis

Strong Q1 Results and Strategic Progress

In Q1 2024, Deutsche Börse reported a 16% net revenue growth, driven largely by the integration of SimCorp, which boosted annual recurring revenue by 15%. The company achieved a 6% organic net revenue growth, bolstered by new client acquisitions in software solutions and commodities. Fixed income products saw a double-digit growth forecast, while overall financial performance exceeded initial expectations. The company confirmed its full-year guidance of over €5.6 billion in net revenue and more than €3.2 billion in EBITDA. SimCorp's performance and strategic hires in North America were notable highlights. Despite low market volatility, the diversified business and high recurring revenues proved resilient.

Progress with Horizon 2026 Strategy

In the first quarter of 2024, Deutsche Börse AG made significant strides in the implementation of their Horizon 2026 strategy. After acquiring SimCorp Software Solutions in September last year, the first quarter saw a robust post-merger integration, marked by synergy delivery and a 15% increase in annual recurring revenue from SimCorp. This progress was driven by new client acquisitions, including a large European bank, and continued expansion with existing clients【7:0†source】 .

Revenue Growth and Organic Performance

The quarter's net revenue grew by 16%, primarily due to the inclusion of SimCorp. However, the company's organic net revenue growth also stood out at 6%, driven by secular initiatives and sustained client wins, particularly in software solutions and commodities. The company expects this positive momentum to continue with double-digit growth in fixed income products throughout the year【7:0†source】 .

Diversified and Resilient Business Portfolio

Despite lower volatility in equity markets, Deutsche Börse's diversified business model showcased its resilience. The company effectively leveraged its robust portfolio and significant recurring revenues to offset cyclical headwinds. This diversification was particularly evident in the growth of the commodities segment and the core Security Services business, which saw record levels in custody【7:0†source】 .

Guidance on Financial Performance

For the full year, Deutsche Börse reaffirmed its guidance with projected net revenue exceeding EUR 5.6 billion and EBITDA over EUR 3.2 billion. This optimistic forecast is supported by expectations of stable interest rates and a strategic focus on maintaining high levels of recurring revenue. Interest rate developments and market volatility will be key factors influencing financial performance for the remainder of the year【7:2†source】 .

Operational Cost Management

Operating costs increased by 25% in the first quarter, largely due to the consolidation of SimCorp, which contributed EUR 92 million in additional costs. Despite these costs, organic operating costs were well-controlled, aligning with forecasts. The company also managed to mitigate exceptional costs through reduced share-based compensations【7:5†source】 .

Strategic Leadership Transition

Stephan Leithner was appointed as the successor to Theodor Weimer as CEO. The transition plan includes both leaders working together until year-end, focusing on the Investment Management Solutions segment and ensuring a smooth succession. This leadership change is expected to maintain continuity and further strategic progress for Deutsche Börse【7:2†source】 .

Client and Market Position

In the trading and clearing segment, Deutsche Börse saw a strong performance in equity-related products and power derivatives, achieving over 70% market share in European power markets. This growth is attributed to liquidity pool deepening and the onboarding of algorithmic traders. The company also continues to attract significant interest in its offerings, as evidenced by active client engagements and an expanding pipeline of potential deals【7:0†source】【7:5†source】.

Capital Management and Shareholder Returns

The company completed a EUR 300 million share buyback program and plans to cancel the acquired shares. Together with the proposed dividend, total shareholder distributions for the year will approximate EUR 1 billion. Additionally, the company's balance sheet deleveraging is on track, further improving its financial stability and credit metrics【7:2†source】 .

Growth in Fund Services and Security Services

In the Fund Services segment, Deutsche Börse experienced a marked improvement in market conditions, leading to a 10% increase in custody volumes and achieving record levels. Similarly, the Security Services segment saw continued growth, benefiting from higher equity market valuations and an increase in global debt【7:2†source】 .

Continued Success with SimCorp

SimCorp's revenue is on track to meet the full-year forecast of EUR 600 million. The company's strategy focuses on SaaS client acquisitions and upselling for recurring revenue growth. With seven new clients added in the first quarter and continued momentum, the synergy between SimCorp and Axioma is yielding positive results【7:2†source】【7:10†source】.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Deutsche Börse AG Analyst and Investor Conference Call regarding the Q1 2024 results. [Operator Instructions] Let me now turn the floor over to Jan Strecker.

[Jan Strecker, executive]

Welcome, ladies and gentlemen, and thank you for joining us today to go through our first quarter 2024 results. With me are Theodor Weimer, Chief Executive Officer; and Gregor Pottmeyer, Chief Financial Officer. Theodor and Gregor will take you through the presentation today. And afterwards, we will be happy to take your questions.

The link to the presentation material for this call has been sent out via e-mail and can also be downloaded from the Investor Relations section of our website.

As usual, this conference call is recorded and will be available for replay afterwards. With this, let me now hand over to you, Theodor.

[Theodor Weimer, executive]

Thank you, Jan. Welcome, ladies and gentlemen. In the first quarter, we made further very good progress in the implementation of our Horizon 2026 strategy, and it's the second reporting period after the consolidated SimCorp Software Solutions business at the end of September last year.

After seasonally strong fourth quarter at SimCorp, we saw further progress in this business in the first quarter. On the one hand, we are very well on track with regards to winning new clients and expanding the contracts with existing clients. Amongst them, in the first quarter are a large European bank, an important Middle East and sovereign wealth fund and a large U.S. investment bank.

This has resulted in a step-up of the annual recurring revenue or ARR growth to 15% at the end of the quarter, Q1, which is exactly the middle of our guidance range. On the other hand, the post-merger integration project is well advanced, and we are fully on track with regards to synergy delivery.

It is great to see the positive team spirit in this project and that we can increasingly leverage the combined SimCorp and Axioma offering. We also expect to make further progress in North America over the coming months with this healthy pipeline of potential significant deals.

To underpin the growth in that region, we have recently hired a new Head of Americas at SimCorp, who joined us from a close competitor. The consolidation of SimCorp was the key driver of the 16% net revenue growth in the first quarter, but also in a way overshadows the very organic growth performance of our business.

The organic net revenue growth of 6% was mainly driven by secular initiatives across the group. With this, we successfully continued our multiyear track record for consistent levels of organic growth. We made especially good progress with client wins in software solutions, another extremely strong quarter in commodities to further build out of our fixed income road map in Financial Derivatives and continued growth in the core Security Services business with the recent new all-time high in custody.

On the cyclical side, the positive effects from higher interest rates for the net interest income in securities and fund services have been largely offset by lower equity markets volatility, which had a fairly big impact on index derivatives.

It is very encouraging to see such a good overall organic development despite such low levels of volatility. We think this is proof how well our diversified portfolio of different businesses works, how robust we are and how significant the share of recurring revenues have become.

The operating cost in the quarter were also mainly driven by the SimCorp consolidation. The organic operating costs were tightly managed and developed fully in line with our expectations. Exceptional costs including inflation and additional investments were partly offset by lower share-based compensation.

As a result, we achieved good operating leverage on an organic basis. With this, the financial development so far this year is slightly exceeding our expectations. But since there are still 9 months remaining in the year, we confirm the guidance we issued in February of more than EUR 5.6 billion of net revenue and more than EUR 3.2 billion of EBITDA for the full year.

One of the important factors for the financial performance during the remainder of the year will be the interest rate development. Since the market currently only expects around 2 interest rate cuts this year instead of initially 5 to 6, we probably will see higher for longer scenario now.

Therefore, our internal net interest income forecast has also increased. But at the same time, we have to assume that market volatility on average will remain on lower levels this year compared to our initial expectations. So I have to admit that this year, in the second quarter, the volatility levels are elevated. So it's a pretty good development over the last couple of weeks.

Aside from the financial development in the first quarter, the delayed deleveraging of our balance sheet is well-on-track by now. We have fully redeemed all the short-term financing for the SimCorp acquisition and expect a further improvement of the rating metrics during the year. Last week, we also completed our EUR 300 million share buyback program that we started in January and we are planning to cancel the acquired shares in the second quarter.

Together, with the proposed dividend, we will distribute after our Annual Shareholder Meeting on May 14 total shareholder distributions this year will amount to around EUR 1 billion.

Last, but not least, end of March, the Supervisory Board of Deutsche Börse appointed Stephan Leithner, as my successor. I'm very pleased about this because he's an excellent choice. Stephan has played a significant role in the strategic development of the company, and I'm very confident that Deutsche Börse will continue to develop successfully under Stephan's leadership.

I will remain at the helm of Deutsche Börse until late summer, after which I will share responsibilities with Stephan until year-end. Aside from the day-to-day business, our joined key focus will be on achieving further progress with our new Investment Management Solutions segment and the succession of Stephan in the Executive Board. So there is still plenty to be done, and I'm very much looking forward to making further contributions to the success of the company.

With that, let me now hand over to you, Gregor.

[Gregor Pottmeyer, executive]

Thank you, Theodor. On Page 2, we show the details of the first quarter results. Despite the cyclical headwinds or market volatility, which declined to pre-pandemic levels during the quarter and the seasonality of the Software Solutions business, we achieved a strong set of results.

In addition to the key aspects of the results, Theodor just outlined, let me comment on some of the further income statement line items. The result from financial investments amounted to EUR 13 million and was mainly driven by valuation effects from some of our direct and fintech fund investments as well as the creation of the new Investment Management Solutions segment.

Depreciation amounted to EUR 118 million in the first quarter. We expect a continuous increase throughout the year, but we might stay slightly below the EUR 540 million guidance for the full year. The financial result benefited from the faster-than-expected redemption of the commercial paper issued for the SimCorp acquisition, but we continue to expect a level of up to EUR 40 million per quarter for the remainder of the year.

Let me now walk you through the operating cost development in the first quarter on Page 3. The operating costs overall increased by 25%, which includes mainly the consolidation of SimCorp that added EUR 92 million cost in the first quarter. The remaining 4% organic cost growth was driven by around EUR 11 million cost to achieve the IMS synergies, the inflation as well as higher investments into growth and infrastructure.

This was partly offset by lower share-based compensations compared to the first quarter last year. For the full year, we expect an organic operating cost growth similar to the first quarter.

I'm now turning to the results of the segments, starting with the new Investment Management Solutions segment on Page 4. The segment is split into 2 parts. The first part is software solution, which is the combination of SimCorp software business and Axioma's analytics business. This part benefited from new clients and contract renewals with very good momentum in the quarter, especially in analytics. The development is fully in line with our expectations after a seasonally strong fourth quarter.

The annual recurring revenue for software solutions increased at a rate of 15% at the end of the quarter, which is a further improvement compared to the rate at the end of last year. The second part of the segment is the combination of the ISS ESG business and the STOXX Index business.

The main headwinds for this business continued to materialize in the ISS Market Intelligence business, where clients are most sensitive in light of the market environment in the asset management industry. The ESG business stabilized and saw solid mid-single-digit net revenue growth.

More importantly, the revenue run rate in ESG increased by 8% at the end of the quarter with higher growth pockets like climate data and corporate ESG advisory. Therefore, we are also expecting some improvement of the net revenue growth throughout the year.

Overall, client retention rate for the business remained high at a level of around 92%.

Let me turn to Slide 5, the Trading & Clearing segment. In financial derivatives at Eurex, we slightly changed the composition of the reporting line items. We are now bundling all products and margin fees in the respective 2 asset classes, equities and fixed income. In equity-related products, we saw a significant headwinds from lower market volatility, which on average stood more than 30% below the previous year.

In fixed income-related products, we made further progress in the implementation of our Horizon 2026 road map. In fixed income futures, we saw some net revenue headwinds from, first, incentives for building initial liquidity in short-term interest rate derivatives and second, lower margin fees. This was compensated by a continued strong performance in the Repo business with 40% net revenue growth.

For the full year, we continue to expect double-digit net revenue growth in fixed income products. In commodities at EEX, the growth was mainly driven by power derivatives in Europe. We saw record activity levels in the first quarter in those products and net revenue increased by 77%. This was driven mainly by market share gains from OTC and business from new clients.

In our foreign exchange business, 360T, new buy-side clients and faster growth in regions like the U.S. and Asia Pacific helped to offset the lower volatility we observed since mid-last year.

In the Fund Services segment on Page 6, the market environment has somewhat improved this year. While cyclical headwinds continue to rise from the trend away from active equity funds into passive and fixed income, higher equity market valuations were supporting the business.

Together with the continued onboarding of new clients and funds, we achieved around 10% growth in custody volumes and reached a record level of EUR 3.6 trillion fund assets under custody.

In our Funds Distribution business, we saw similar growth and reached more than EUR 450 billion of assets under administration. The first quarter of 2023 included one-off net revenue of around EUR 2 million. Adjusted for this effect, net revenue and funds distribution increased by 9%.

Our Security Services segment on Slide 7 saw further strong performance in the first quarter. Custody and settlement continue to benefit from the ever-increasing amount of global debt outstanding and higher activity in fixed income markets. In addition, custody also benefited from higher equity market valuations.

As a result, assets under custody reached a record level of EUR 14.9 trillion in March. Net interest income and securities services amounted to EUR 176 million. This excludes the EUR 16 million net interest income that is reported in the Fund Services segment.

On a combined basis, the NII increased by 27% to EUR 192 million. This is driven by higher average interest rates, which overcompensated a 7% decline of cash balances. Since the market now anticipated fewer interest rate cuts this year, we currently expect to reach a net interest income for the full year that is in the range of last year's level.

This concludes our presentation. We are now looking forward to your questions.

[Operator]

[Operator Instructions] And the first question comes from Johannes Thormann from HSBC.

[Johannes Thormann, analyst]

Johannes from HSBC. A quick question on the SimCorp deal. The revenues do not really show much progress versus last year, at least what we can see in the public space. Can you provide more details how your ARR story has -- will translate into better revenues this year? Is there any bridge you can show us? And probably also one more question on the OTC trading, power trading, what's your current market share in Europe now?

[Gregor Pottmeyer, executive]

Yes, starting with the second question. The market share in European power derivatives is more than 70%. So continued increase here. The reason for that is that the additional client group, specifically algo traders are now joining our platform here. And this is really a secular trend, and that's the main reason for, again, this 18% growth in Q1 after a strong growth [Technical Difficulty].

[Operator]

Ladies and gentlemen, just a moment, please. We need to reconnect the speaker. Please stay connected.

[Unknown Executive]

Apologies, Johannes. We had interruption in the line, but we'll continue now.

[Gregor Pottmeyer, executive]

Then I will repeat my answer, I do not know how far you get it. So with regard to the OTC power derivatives market share, so we have now increased market share of more than 70% in the European power markets. Again, that's a secular growth as we have deep liquidity pools and the new client group around the algo traders are joining our platforms and we expect this will continue to increase over the next time.

With regard to your first question, SimCorp revenues. So we are fully on track, and I would like to remind us that there's a high seasonality in our SimCorp business or the far -- by far strongest quarter is Q4, where we have shown close to EUR 200 million last year.

And therefore, the EUR 128 million we showed in Q1 is fully in line to achieve our full year guidance of EUR 600 million net revenues. From a client perspective, we make tremendous progress. We did win 7 new clients in Q1. We had 11 upselling clients. So it's fully right on track.

Also, the same is true with regard to the synergy levels. And the ARR, what is the real number for the software business, so it's 15%. That's where you can see where the growth is coming from. It's higher than the 14% we reported in Q4. So you've seen continued increase that we do with new clients.

The GAAP revenue number is always a little bit tricky, specifically on a quarterly number, and it really depends. Is it an on-premise contract? Is it a SaaS contract? Is it a renewal? Is it a conversion? So that's why we really focus from a business dealing perspective on the 15% of ARR, and that's fully in line with our guidance.

[Theodor Weimer, executive]

Johannes, if I may add to what Gregor has mentioned, we did win 7 new clients in the first quarter. Five of those are stemming from United States, so which is our target market, which is exceptionally good to coming from the EMEA side. And out of the 7, if you take a different cut, right, 6 are SaaS clients, yes? Six are SaaS clients and just 1 on-prem and therefore, it underpins that our strategy works both in terms of SaaS as well as in terms of the regional focus. So it was a pretty good year for SimCorp.

[Operator]

And the next question comes from Mike Werner from UBS.

[Michael Werner, analyst]

Two quick questions, if you don't mind. First, with regards to the NII and the Fund Services business, do you provide the average cash balances there? Or is that still included in the Security Service space? And just trying to understand maybe if there's a different currency mix between the cash balances that are generating the NII in Fund Services versus Security Services, that would be helpful?

And then second, any update with regards to the short-term euro interest rate contracts that you've launched last year and in terms of how you're sitting from a market share perspective?

[Gregor Pottmeyer, executive]

So thanks, Mike, for the question. With regard to NII Fund Services, we have a logic behind it, so which client is delivering what as we are -- also split our custody and our settlement volumes according to the different client group. As Fund Services is more European focused or the higher share in the cash balances comes from the Eurozone. But it follows the same logic like the NII and the securities services space.

Second question, STIR. We really made great progress here. So from a market share perspective, we are now on high level with the other 2 or it's ISS and CME. So we started from 0, but past the 1 and therefore, very positive development here.

Unfortunately, the €STR market is low compared to the Euribor market. So €STR market is still in the range of 2%, 3%, 4%. And the big one is still the Euribor. We think this will change over time. But today, we are where we are.

And that's why we did this incentivation program to make good incentives for the clients to use also our platforms for the short-term interest rates. That is also the part from a European perspective that they want to see more use of European CCPs, not just in the long and midterm but also in the short-term interest rate. So that why we see us very well positioned as a home of the whole euro curve. And with regard to that, we will benefit from that development.

[Operator]

The next question comes from Arnaud Giblat from BNP Paribas Exane.

[Arnaud Giblat, analyst]

My question is on interest rates. You highlighted that you're on plan still to grow double digit this year. I'm just wondering which areas are specifically working as well? You talked a bit about the €STR, which isn't making much of a revenue contribution. So I'm just wondering what should we be monitoring to see that double-digit emerge? What are the products that are going to drive that growth?

And secondly, since interest rates is such a big part of the plan for growth. I'm just curious as to why you chose to combine and reduce the disclosure to combine all rate futures, OTC, repo altogether. It's a bit less transparent for us now. So I'm just wondering what the logic is there?

[Gregor Pottmeyer, executive]

So starting with the second question, we don't want to lose transparency or reduce transparency. We just want to focus on the right things. And therefore, equities development is different from the rates of fixed income development and it's quite a standard approach here, what you see also in other market infrastructure providers where there's a split between equities and fixed income.

So therefore, we followed also that benchmark. And I think it's very helpful, as you see completely different developments, specifically this year. So equity markets are really down due to the fact that there is high headwind and low volatility.

And you see just the opposite on the interest rate market, where we see high tailwinds here and just in April. So we've seen a very strong increase of more than 70% with regard to our fixed income product. So I think it will help you and it's even better to have that kind of transparency compared to the transparency we had last year.

With regard to the first question, yes, we are very confident to grow our fixed income business at Eurex on a double-digit basis, even if it's flattish in the first quarter. So first, the comps will also be lower in the Q2, Q4.

And secondly, the incentives we pay here for getting the short-term interest number is also a real number, right? And therefore, we are really focused from a strategic perspective that we get significant market shares over the next years, specifically this year, and you have also seen that in Q4 that I mentioned it in my notes at the increase specifically in the repo business by 40%.

This will continue to happen due to central bank policy. And you will continue to see high volatility with regard to interest rates. So we just mentioned, and it's even more important for the NII, but also relevant here for the Eurex business. At the beginning of the year, there were 5 to 6 rate cuts assumed. Now in U.S., it's -- maybe 1 in December, right?

It changed completely. And that's obviously good for our fixed income business as Eurex as there are different expectations in the markets and expectations change very fast. And so that's why we are quite optimistic here.

With regard to our fixed income road map 2026, we are also very positive with regard to our OTC clearing initiative because all around this active account discussion. So even it's not published, but it looks very promising what we are hearing here from the market.

And just want to remember you, out of our 660 clearing members we have today, just 30% are active. In the definition, we expect 70% are not active at all. So if we can get this potential of 70% clearing members activated, right, so that would be a big jump for Deutsche Börse.

Again, this active account topic will not happen this year, it will be in 2025 and 2026 exercise. But therefore, we are still very confident to achieve our EUR 300 million additional net revenues fixed as part of the fixed income road map in 2026.

[Operator]

So the next question comes from Andrew Coombs from Citi.

[Andrew Coombs, analyst]

If I could perhaps clarify one of your previous answers, and I have a fresh question. So first, on the clarification, I think you reiterated the EUR 600 million revenue guidance, and can I just confirm that is for SimCorp's stand-alone, whereas the ARR number that you provide is for SimCorp and Axioma combined. Is that correct?

[Theodor Weimer, executive]

That's correct.

[Andrew Coombs, analyst]

Okay. Perfect. And then my broader question is on costs. If you go back at your quarterly run rate over time, historically, Q1 has been between anywhere between 22% and 24% of your annual cost base. If you take your costs in Q1 you use that same 22 to 24 percentage run rate. You come out slightly below the EUR 2.6 billion in your implied guidance as per your targets. So is there any reason to think there should be additional cost spending Q2, Q2 through Q4 this year compared to previous years?

[Gregor Pottmeyer, executive]

So Andrew, just as with regard to the cost. So yes, there is obviously a seasonality in our cost, as you can always see -- and yes, the biggest part is always in the Q4. So there is the usual, let's say, EUR 30 million to EUR 50 million cost increase in Q4 compared to the other ones.

In 2023, so we had this specific events that we had to consider. And that obviously is the SimCorp transaction where we had additional costs in Q3 and Q4 with the cost to achieve and with some transactional costs. So taking just a proportionality out of what is the seasonality last year, so that does not fit exactly to this year. Therefore, our guidance is on an organic basis, so excluding the SimCorp consolidation cost effect.

So we expect that the cost will increase in the range you have seen in the first quarter. And so that's, I think, a very clear guidance. And that's obviously not the EUR 2.6 billion what you mentioned, it's obviously below EUR 2.5 billion. And yes, so that's the guidance we gave you.

[Operator]

The next question comes from Enrico Bolzoni from JPMorgan.

[Enrico Bolzoni, analyst]

One on IMS, actually, a couple. With respect to ESG & Index that was a bit slower -- lower growth. Can you just provide some color in terms of what do you see out there in terms of the key market trends? One of your U.S. competitors that reported earlier this week indicated that they were seeing a slowdown in sales cycle. They also mentioned aspects such as the consolidation within asset managers and hedge fund community that was having a negative impact on indices. So I would be keen to hear from you on this topic.

Second question, just a technicality, but if I think about the residual cost for the integration for this year, shall we assume that they're going to be evenly split over the next 3 quarters or maybe more front-loaded or back-loaded?

And then finally, I wanted to ask you actually 3 questions on IMS. So if I think about the on-premises, clearly, we know that is very seasonally strong in Q4, but how should we think for the modeling over the next 3 quarters? If you write new contracts, are these typically eventually booked in the last quarter of the year or could we see a big uptick, for example, in the second and the third quarter? I was just keen to know how we should model those over the year?

[Theodor Weimer, executive]

Let me pick the first one. Enrico, thanks for the questions. So what is the situation on the ESG side? Firstly, you have to differentiate ESG as such, it's a blend of businesses, right? Our stewardship business, our G business is doing exceptionally well. It's always a, let's say, 7% to 9% growth business, right? No reason to believe that it is not robust as such.

Secondly, with regards to the E part, we call it the climate part right? It's still a solid double-digit business rate, solid double-digit business, a great growth rate, which is there.

And by the way, the business, which is in FX denominated is doing even better than in the euro basis. So the denomination you lose a little bit on the revenue side. But nevertheless, we have the situation that the ESG business is doing pretty well, overall 8% for the group.

And if I look into what we are producing on the IMS, ISS side is doing even better. What are the main headwinds we have to struggle with? That's predominantly on the market intelligence business side where we have a business that's roughly EUR 100 million business, where the growth is not there, period, right?

And therefore, the blend on the ISS stock side, is a blend of the still strong ESG business, but heavily burdened by the market intelligence business, right? And we have started to do cost containment in a very effective way. We have laid out some 200, 300 people in the first quarter of the year.

By the way, in terms of synergy realization, we are on the level of 65% roughly. On ISS stock side, we have carved out Axioma and the level of synergy realization on the cost side it's way higher than the 65%.

So we have a situation. Two years ago, ESG, the climate part, the ESG part was booming like hell, this was not sustainable. It has now come down to more, let's say, muted levels, still a good business. we are still exceptionally well positioned there. So no reason to believe that there is a big issue, of course, people tend to be -- clients tend to be more cautious, more awaiting what's going to happen in the United States, what's going to happen with the election, right?

Is Trump going to make it or not? And therefore, a postponement right, is the name of the day. That's the reason why we have seen a softened business here, and we do react on the cost side. But nevertheless, you can assume that we will target, still a pretty solid high-digit growth number on ISS stock side.

[Gregor Pottmeyer, executive]

Yes. And in addition, so some comments on the index business, what you also specifically asked is, yes, it's shown on a flattish basis here in the deck or just a plus 2%. You have to take into consideration that the index business also depends on the equity Eurex market as there's a payment from Eurex to the [indiscernible] ISS STOXX business out of that.

And the comps comparable to the equity markets are very high compared to last year. So we expect that the index business will also benefit from that kind of development. And in addition, there is no reason from our perspective that the index business has a chance to grow double digit as it has continued the trend to positive investment.

And yes, for Europe, it's a little bit more challenging compared to the U.S. market. And you know that the Euro STOXX is the most important product here. Yes, we are a little bit behind U.S. But in principle, no change from a secular perspective with regard to the index business.

Then your second question with regard to the cost to achieve. So in Q1, we booked some EUR 11 million. So that fits into the guidance of EUR 50 million for the full year. And for me, it was not a surprise that Q1 is a little bit below a linearized approach here because we tried to book everything in Q4. So there was not much to book in Q1 and still the integration will take some time. So it's reasonable from my perspective, and it's in line with the EUR 50 million we guided for the full year.

With regard to your third question, with regard to seasonality and SimCorp development, so far, yes. The EUR 128 million you have seen in Q1 is fully in line with the EUR 600 million we guide. There's a strong seasonality, specifically in Q4, the more than 50% of the contracts are finally signed.

And therefore, that is always in the software business Q4 by far the most powerful quarter. And again, with regard to the GAAP revenues, it's always a little bit tricky because it depends on, is it on-prem, is it a SaaS? And is there other point in time revenue, yes or no. And so far, that to steer the software business on a quarterly basis based on U.S. GAAP or IFRS revenues is not the right steering mechanism. Overall, we expect double-digit growth as guided even on a revenue basis, but the more important number is the ARR, the annual recurring revenue, and that's 15%, that's even above that revenue number.

[Operator]

The next question comes from Bruce Hamilton from Morgan Stanley.

[Bruce Hamilton, analyst]

I just had a follow-up question on the fixed income subdivision within Trading & Clearing. So I get it that there's some mix effects going on. But with contracts up sort of 14% year-over-year and revenues per contract down 12%, you're flat. So within that volume of EUR 246 million, what's the proportion of short-term volumes that are attracting no fees or very low fees?

And what time frame are you going to normalize pricing? Or is -- or are there other factors, is it more to do with sort of repo volumes being very elevated in the quarter? Just trying to understand, back to Arnaud's question, why the revenue momentum is, well, there is none despite the growth in volumes.

[Gregor Pottmeyer, executive]

Maybe I can start, and Jan can even add some comments. So again, why is the fixed income revenues flattish and the volume increased by 14%? So -- and therefore, the main 2 reasons are: first, the incentivation program for the short-term interest rate, what we show is volume-related costs are deducted from the gross revenue.

And the second what I mentioned was the decreased margin level as in summer last year, we changed our risk model. So to the benefit from the client and that was a reduction of EUR 10 billion to EUR 15 billion capital efficiency for the clients, but also reduced our cash level, and therefore, it had an impact on our cash margin level.

So that were the 2 specific reasons. And obviously, we had a very high comp also in Q1 last year. So if you would take just product by product, so there is no change from a revenue per contract basis. Anything to add from you Strecker?

[Jan Strecker, executive]

Not really. So like we said, repo is up 40%. OTC clearing is flattish, but we saw volume growth and it was also a decline driven by lower margin requirements. And then within interest rate derivatives, so the pure futures business, we saw flat trading revenues because of the factors Gregor has outlined and the margins went down essentially EUR 6 million against the first quarter 2023.

So this is really the key driver, lower margin requirements because of the different risk methodology, right? And in the end, this is, I think, also the benefit for our clients, right? The pooling of more business, futures, OTC clearing and then also repo this year helps them to reduce their collateral requirement and in turn is expected to attract new business for us. So we see this basically working already.

[Operator]

Next up is Hubert Lam from the Bank of America.

[Hubert Lam, analyst]

I just got 2 quick questions. Firstly, you mentioned it, but can you talk a bit more about the headwinds in the ISS Market Intelligence business? What's driving these headwinds? How long do you think it will persist and what would drive a turnaround in that?

And the second question is regarding the EUR 600 million target for SimCorp revenues this year. How many clients do you need to get to this target? I know you got 7 in Q1, so just wondering on more clients you need for the rest of the year to get to it?

[Theodor Weimer, executive]

It's very easy on the Market Intelligence business. The simple and most important root cause is that clients are becoming more and more cost sensitive in light of the market environment in the asset management industry. That's the single most important driver.

[Gregor Pottmeyer, executive]

Yes. And to your second question, so the number of clients would not really help you would give you guidance because it depends how big is the amount we get out of the clients, right? And so for some clients, you get some EUR 100,000 additional revenue; for other clients, it's EUR 3 million EUR 4 million, EUR 5 million. And therefore, it would not help you. But Theodor and myself, I think we already gave you the guidance with the 7 new clients. And out of these were 3 bigger ones, what we mentioned also in the speech beforehand. And so far, we do not steer and say this number of clients we need.

[Operator]

Next up is Ian White from Autonomous Research.

[Ian White, analyst]

Just one short follow-up, please, on IMS. I'm just interested, of the 15% ARR growth, how much came from SaaS upsells, completely new customers and clients switching from your competitors. And I'm interested in how those dynamics were in 1Q '24? And also, sort of how that picture compares to maybe where things were a year ago, 1Q '23 as well, please, if possible?

[Gregor Pottmeyer, executive]

Yes. Obviously, the increase in ARR is a mixture out of new clients and what we call upselling, so it's both elements. And therefore, I think we mentioned it. So it's a mixture out of both. And specifically with regard to SaaS, so therefore, we have seen in the ARR. So out of the 15% ARR growth in general, so 40% is the ARR growth for Software-as-a-Service. So that is the key driver.

And when we are able to increase our ARR number then it is mainly driven by SaaS and whether it's new clients or upselling, both accounts for that and it is mix of both.

[Ian White, analyst]

Okay. Maybe just slightly more bluntly. Have you seen a change in terms of your competitive position versus some of the incumbents? Are you winning clients directly from competitors in a way that you weren't a year ago, for example?

[Gregor Pottmeyer, executive]

Yes, we are very well positioned here and just taking our client event we made in April in London. So more than 1,000 market participants we have seen here, it was an overwhelming success and of big interest. And you can be sure that we have a very close look in always in the pipeline, and the pipeline number increased compared to last year. So that gives us high confidence to achieve our targets.

[Theodor Weimer, executive]

And I can only reiterate, Ian, we upsell on the SimCorp stand-alone side, we win new clients on the SimCorp as stand-alone side. We win new clients on the Axioma side and last but not least we win on the combined side new clients -- that is the most important topic. So in all 4 dimensions, we are pretty well underway, quite frankly.

[Operator]

The next question comes from Roland Pfänder from ODDO BHF.

[Roland Pfänder, analyst]

I would like to come back to Energy Trading. You mentioned that you have, so to say, a new client group being algo traders and power trading. Could you indicate what share of the business they already have in or whether that could grow? And you mentioned that a small regulatory [Technical Difficulty]

[Operator]

Sorry to interrupt, we cannot hear you anymore.

[Roland Pfänder, analyst]

Hello?

[Operator]

Yes. Now you're back, I think. Could you please ask your question again?

[Roland Pfänder, analyst]

So first question was on algo trading, what share and power trading, this is already accounting for and if there's possible push for regulatory scrunity...

[Operator]

I'm sorry to interrupt again, sorry, it's the operator, we have to reconnect the speakers. So if you could wait a moment, we will be back in a moment.

[Unknown Executive]

Roland, apologies, we did not want to avoid your question. So please go ahead.

[Roland Pfänder, analyst]

Okay. Let's give it a new try. I'm interested in algo trading share of business in power derivatives trading. And if there is a threat of regulatory scrunity looking at this?

And secondly, I would be interested in an update on the second quarter regarding power trading and gas trading, which you see in the market?

[Gregor Pottmeyer, executive]

Yes. Thanks, Roland. So the very strong uptick we have seen in Q1 and that continued to happen also in April. Market share in the European power derivatives market is more than 70%. With regard to your view, is it from a regulatory perspective? Okay, I think that's a very normal thing that in 1 asset class you have very often a very dominant player with market shares or liquidity up to 100%.

So take our example at [ bubble shots ] future, where we have basically 100% market share, so same is true for CME in the 10-year treasury, right? So -- and that's a normal thing because market participants want to have the lowest spread so the reduced cost base and you get it on that platform who is the deepest liquidity pools.

And with regard to the power derivatives market, now we have much deeper liquidity pools compared to 3 years ago. And that's the reason why the algo traders now join the platform because they can do also their business much better on where you have deep liquidity pools and that's basically the logic behind that. And that's -- and you see quite often in the market.

[Jan Strecker, executive]

All right. Now we would like to officially conclude the call. Apologies for the technical issues. Thank you very much for your participation, and have a good day. Thank you.