Deutsche Boerse AG

XETRA:DB1

Earnings Call Transcript 2020-Q4

[Operator]

Dear ladies and gentlemen, welcome to the Deutsche Börse Group Analyst and Investor Conference Call regarding the Q4 and Full Year 2020 Results. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Mr. Jan Strecker, who will start the meeting today. Please go ahead.

[Jan Strecker, Head of Investor Relations]

Good afternoon, ladies and gentlemen, and thank you for joining us today to go through our preliminary fourth quarter and full year 2020 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 presentation materials for this call have been sent out via e-mail today and can also be downloaded from the Investor Relations section of our website. As usual, this conference call will be recorded and is also available for replay. Let me now hand over to you, Theodor.

[Theodor Weimer, CEO & Chairman of Executive Board]

Thank you, Jan. Welcome, ladies and gentlemen. Let me be very brief today because the numbers speak for themselves. I will give you an overview on the results and the outlook. And afterwards, Gregor, as always, will present the details of the year 2020. What is my perspective on the year, why 2020 was an exceptional year for all of us? The resilience of our business model and our strategy helped us achieve very solid growth levels. Net revenue increased to EUR 3.2 billion and benefited from the continued secular growth of 5% and in line with our plan. With that and despite all challenges we all faced last year, we exactly reached our full year net profit guidance of EUR 1.2 billion, which we issued 12 months ago, by the way, prior to the pandemic. Based on these results, we are proposing to increase the dividend in 2020 -- for 2020 to EUR 3, which is an increase of 10%, which amounts to a payout ratio of 46%. This proposal reflects both a commitment to continue to pay an attractive dividend as well as to increase our firepower for M&A. With 2020, we also completed our last midterm plan and achieved our overall ambitious targets, 9% average annual net revenue growth and 12% average annual net profit growth are the key indicators for our success. Now as you perfectly know, we are all focused on the years ahead, and our new plan, Compass 2023, with its clear-cut growth formula of 10% average annual net revenue, EBITDA and EPS growth, driven by ongoing secular growth and accelerated M&A. With regard to the guidance for 2021, we all know that in the first quarter, we will be faced with very high comparables from the first quarter of the year 2020. But over the course of the year, we are expecting an improvement of the growth dynamics. For the full year, we are planning to reach around EUR 3.5 billion net revenue and our guidance for EBITDA is around EUR 2.0 billion. These are ambitious targets in light of the continued exceptional operating environment, but we are fairly confident to achieve them. Let me now hand it over to you, Gregor.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Thank you, Theodor. Let me start with the preliminary financials in the first quarter on Page 2 of the presentation. After some weakness in the third quarter, the fourth quarter was the second strongest quarter last year in terms of net revenue. This was due to good secular growth levels across all segments and some pickup of market activity, which both helped us overcompensate the much lower net interest income. In total, organic net revenue growth amounted to 6%. In addition, the consolidation of UBS Fondcenter and Quantitative Brokers added another 2% of net revenue growth. Operating costs amounted to EUR 334 million. It is adjusted for around EUR 46 million in exceptional items, which were mainly driven by financial restructuring charges out of our structural performance improvement program as well as M&A expenses. As anticipated, the operating costs were down compared to previous year. The equity valuation of Tradegate in the Xetra segment, which delivered a very strong business performance in 2020, again resulted in a positive effect on income from strategic investments, which increased to EUR 11 million. Depreciation increased to EUR 73 million on an adjusted basis. This is driven by around EUR 6 million of different smaller software impairments, i.e., one-off effects, and around EUR 5 million of additional regular depreciation, mainly relating to the purchase price allocation of UBS Fondcenter. The financial result amounted to minus EUR 26 million. The year-on-year decline was largely due to higher provisions for interest on potential tax back-payments. Altogether, we achieved 14% growth of the adjusted net profit of EUR 276 million. I'm now turning to the quarterly results of the segments, starting with Eurex on Page 3. The decline of the total numbers of derivative contracts traded by 8%. That was only driven by lower margin single equity products. Net revenue across the 3 main product categories remained flat compared to the previous year. Net revenue with clearing of OTC interest rates of swaps continued to increase and amounted to EUR 15 million. After we observed a continuous increase of market share in euro-denominated products over the last 3 years, we, for the first time, crossed the 20% threshold in January this year. Even more encouraging is the fact that our market share in long-dated euro interest rate swaps increased more than proportionally to level of 16%. While margin fees came down compared to the peak in the second quarter, we still saw a significant year-over-year cost. Other net revenue benefited from the consolidation of Quantitative Brokers at the beginning of December. In '21, we expect a quarterly contribution of around EUR 5 million to EUR 6 million from this business. In our commodity business, EEX, shown on Page 4, we saw a recovery of activity compared to the COVID-related headwinds in the third quarter. Particularly strong was the development in European power derivatives because of a significant increase of spot prices compared to the lows in the summer last year. Let me turn to Page 5 and the FX business. While the FX market volatility continued to decline in the fourth quarter, our business activity increased sequentially and year-over-year, mainly because of business generated from new clients. I'm now turning to Page 6 in our cash market, Xetra, where we continue to see growing activity and an increase in net revenue. Most of this was driven by equity market volatility, but there was also continued secular contribution from a further increase in market share. In addition, the strong growth in exchange-traded funds activity relating to the trend towards positive investments continue to contribute to the performance of the segment. The Xetra data line item included around EUR 20 million of other operating income relating to the sale of the regulatory reporting hub I already mentioned at the third quarter earnings call. We expect additional income from the sale also this year. The EBITDA in the Xetra segment benefited again from the higher equity valuation of Tradegate I mentioned earlier. The additional EUR 10 million we booked in the fourth quarter now reflect the very strong preliminary full year results of Tradegate. As you can see on Page 7, in our post-trading segment, Clearstream, we saw continued solid growth of custody and settlement activity. Together with the tight management of operating costs, this had offset some of the decline of the net interest income we are still faced with. The investment fund services segment, which you can find on Page 8, continue to show a strong organic performance. This was driven by both cyclical and secular factors. Settlement mainly benefited from higher market activity, while custody and other revenues were mainly driven by onboarding of new clients. In addition, we started to consolidate the fund distribution business from UBS in the fourth quarter, which added EUR 14 million of net revenue. For '21, we are expecting a contribution of around EUR 60 million. Slide 9 shows the Qontigo segment, which after 2 more muted quarters delivered a strong performance. In analytics, we saw some improvement of the sales and marketing activities after the negative impact of COVID-19 in the preceding quarters. Net revenue in the fourth quarter, among others, benefited from winning a significant new client. Some of these contracts has been booked at point in time net revenue. So not everything will be recurring. Similar to last year, the other licenses' net revenue benefited from some back filling, which is typical year-end exercise. Let us now come back to the group financials on Page 10. With the exceptional development in the first quarter, a solid second quarter performance, cyclical headwind in the third quarter and double-digit earnings growth in the fourth quarter, we exactly achieved our full year guidance of an adjusted net profit of EUR 1.2 billion. This was certainly not the business development pattern we expected when we set our guidance. But the fact that we reached it under such adverse circumstances is another excellent proof point for the resilience of our business model and the success of our growth strategy. On Slide 11, we provide an overview of the 3 components of net revenue growth in 2020. Consolidation effects resulted in additional net revenue of 2% or EUR 62 million. This was mainly driven by the addition of Axioma and UBS Fondcenter. Secular growth being the key component of our strategy to increase net revenue developed as planned and increased by 5% or EUR 165 million. All segments had achieved this. Thus Eurex being the largest absolute contributor, and 360T, IFS and Qontigo showing the higher secular growth rates. The cyclical growth contribution amounted to 2% or EUR 51 million and results from the balance of the volatility driven growth in the first quarter and a much lower net interest income thereafter. Adjusted operating costs shown on Page 12 totaled EUR 1,213 million in 2020. 5 percentage points of operating cost growth was a result of consolidation effects from M&A activities. Investments increased by 2% or EUR 28 million. This was primarily driven by the planned investments in growth and technology, an increase in personnel to support growth and by the cost of implementing regulatory requirements such as CSDR. Net inflation was flat as inflationary pressure on staff and other operating expenses was offset by savings from the structural performance improvement program. Due to the business and share price performance, variable and share-based compensation was almost flat as well. This brings me to our dividend proposal for 2020 on Page 13. As part of our long-standing distribution policy, we generally aim to distribute 40% to 60% of the net income to shareholders via the regular dividend. Within this range, the dividend payout ratio mainly depends on the business development and dividend continuity considerations. Since the earnings of the group has been growing, the payout ratio has come down over the last couple of years. For 2020, the proposal of the Executive Board combined a reduction of the payout ratio to 46%, with an increase of the dividend per share by 3% to EUR 3. We are planning to reinvest the remaining recurring free cash into the business to support our M&A strategy. Before we turn to our guidance for '21, let me remind you that our KPIs going forward will be purely based on our reported income statement. This helps simplify the reporting significantly and it's also addressing some of your criticism in the past. As the last page of today's presentation, we would like to explain our guidance for '21 in the context of the Compass 2023 midterm plan we presented at the Investor Day in November. We target net revenue growth of around 10% on average per annum until 2023. Secular initiatives are expected to contribute 5% growth, and the M&A contribution is expected to increase to 5% as well. In contrast to our last midterm plan, we are not expecting any significant cyclical tailwind across the group until 2023. This is mainly because of the more difficult COVID environment, which among others, resulted in an interest rate cut around the globe. However, to offset the lower net interest income at Clearstream, we expect modest increase of cyclical market activity across all asset classes over the next year. In order to support secular revenue growth and our technology leadership ambitions, we will continue with our investments and anticipate operating cost to increase. In the absence of cyclical growth, we expect the EBITDA margin to remain stable at current high levels. As a result, we expect 10% average annual EBITDA and earnings per share growth until 2023. Because of the high volatility in the first quarter 2020 and continued interest rate-related headwinds, the beginning of '21 is going to be challenging, but we are very confident that we continue to achieve secular net revenue growth of 5% and that overall growth rates will normalize starting in the second quarter. In addition, we are expecting significant inorganic contributions from UBS Fondcenter and ISS. The closing date for the ISS acquisition is still open, but we are targeting the March to April timeframe. In terms of modeling, please do keep in mind that there will be a few one-off effects from the consolidation in net revenue and operating expenses. The consolidation will also impact the depreciation from the purchase price allocation. The financial result from the debt financing and the minorities because we only own around 80% of the business. Including ISS, we expect overall net revenue to increase to around EUR 3.5 billion in 2021, which is expected to result in a reported EBITDA of around EUR 2.0 billion. This concludes our presentation. Thank you for your attention. We are now looking forward to your questions.

[Operator]

[Operator Instructions] Our first question comes from Michael Werner, UBS.

[Michael Joseph Werner, Executive Director and Equity Research Analyst]

The question I have is really around cost. As we think about 2021, given the ambitious targets that you have set, both for revenues [indiscernible] is there on the cost base after we saw certainly costs come down in Q4 and only grow by about 3% in full year 2020. And then also somewhat tied to that, we have seen exceptional cost range, I think, from just under EUR 100 million to over EUR 200 million per annum in each of the past 4 years. Assuming the base of 2020 in terms of exceptional costs of just under EUR 150 million, should we expect these exceptionals to grow in line with the rest of the cost base? Or is it going to be more lumpy? And if that's the case, how should we think about 2021 exceptional costs given the ISS integration?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes. Thanks, Mike, for the question. So we gave you some guidance with regard to net revenues and EBITDA. So obviously, the difference is our operating expenses, and we just have to reflect what is our equity results, what is mainly driven by Tradegate. So starting with regard to Tradegate. So obviously, it's not a one-off, what you have seen here with the structure, that the retail business is significantly growing. So we expect also a significant contribution out of our Tradegate investment in '21. So basically then, the next question you have to answer is what is the impact out of our ISS acquisition and obviously, UBS Fondcenter. And so we don't want to give additional guidance with regard to that. But overall, you see how we were able to react in 2020. So in principle, we give you guidance that we said, in principle, we need some roughly up to 5% increased costs for our secular growth initiatives. So as a principle in statement. But you have also seen that we were able to react on that. So we have obviously a contingency case here in place, and we are immediately able to react on that if we see under the year -- over the year that we are not able to achieve our revenue growth. But overall, we are quite confident that we are able to achieve our growth rate on a revenue basis, what we have guided, as there will be a very significant portion out of the consolidation impact out of ISS, what we basically expect that we close that in Q1.

[Operator]

[Operator Instructions] Our next question comes from Andrew Coombs, Citi.

[Andrew Philip Coombs, Research Analyst]

Two questions. First, a very simple one. Given your hope in closing ISS by the end of Q1, can you just confirm the EUR 3.5 billion revenue and EUR 2 billion EBITDA guidance you are including 9 months' worth of ISS within that? So that's the first question. Second question, coming back to Qontigo. I think you mentioned that in analytics that there was a large single client win that was booked at a point in time, and therefore, isn't necessarily a recurring revenue. Can you just give us an idea of the quantity of that, please?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes. You're right. So our expectation is that we close it in Q1, and we will see finally when it will happen. So yes, we include now ISS for 9 to 10 months in that kind of forecast of the EUR 3.5 billion. With regard to your second question, Qontigo analytics point in time recurring revenue. So in principle, our expectation is -- and obviously, it was good to see that Qontigo performance in Q4 was much stronger than compared to the previous quarter. So our expectation clearly is, as always previously said, we want to grow double-digit in that kind of business. And we see all the opportunities here in place to benefit from secular trends, like passive investment, also high interest of buy side customers to use risk analytics. So overall, we are confident to achieve double-digit growth rate in principle. That can deviate from quarter to quarter. So that's obviously a little bit challenging. That can also deviate from a quarter-to-quarter perspective at some point in time, revenues and some recurring revenues. So the principal statement here is for Qontigo, we expect double-digit also.

[Andrew Philip Coombs, Research Analyst]

Just a follow-up there. What proportion of the Qontigo revenue base is point in time? I'd have thought the majority will be accrued over the subscription period, but be interested to know how big the point in time contribution is.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes. So the point in time is relevant for part of the risk management analytics business at Axioma, and it's in the smaller part.

[Operator]

Our next question is from Arnaud Giblat, Exane.

[Arnaud Maurice Andre Giblat, MD & Research Analyst]

I've got two follow-up questions. Firstly, on the cost side. Could you -- in the guidance, could you quantify what -- how much you're seeing as restructuring and M&A costs? And my second question is a follow-up on Tradegate. I think volumes have tripled there to be a big pickup in retail participation. I'm just wondering how sustainable this is in the context where, when lockdowns come back, people go back to normal life in the context of maybe some people losing money. Do you think that retail prospection will remain as elevated as it has been?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes. So thanks, Arnaud. And with regard to the cost, I think nothing to add from my side. So we gave you the overall net revenue and EBITDA guidance. And again, as a difference, you have the cost if you calculate our equity result in an appropriate way. So nothing to add, as we will not report anymore what is onetime effect, what is on an adjusted basis, that's exactly -- we will also do not give any guidance with regard to that. Your second question around Tradegate, so really, we see here that's a structural shift here. We see a strong increase in the retail business. And you are aware that we own 100% the Tradegate Exchange, where these trades are executed, and we own some 20% at the brokers of Tradegate. And so we benefit in our equity results from this 20%. And really, we see here that that's a secular shift here that we see increased volumes on the retail side. Also using new brokers that are here in place. So that is here as a secular element. So that's also why we expect that we will see from a Tradegate perspective also a double-digit million euro at equity contribution in '21.

[Operator]

Our next question is from Benjamin Goy, Deutsche Bank.

[Benjamin Goy, Research Analyst]

One question on OTC clearing, please. There was obviously no cliff edge effect in January. But still, there is some remaining uncertainty. You mentioned 20% market share. And I think that 25% is still the target. Maybe you can share some thoughts on discussion with clients and whether it is time to lift the 25% market share for clearing?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes. Obviously, our target is unchanged. We want to achieve that 25%. And we are also confident to achieve additional market shares here over the next weeks and months. So because -- and the reason is very easy. If you have 10, 20, 30-year terms of this long-dated interest rates for client business, then you have to think about it from a client perspective, do you want to put it in London, with all the uncertainty around Brexit and the EU and U.K. will come to an agreement or not, whether equivalent will be provided or not. So that's completely uncertain. And therefore, the safe haven for that euro clearing business is [indiscernible] with Eurex Clearing. And also the European regulators make very clear that they expect that U.K. would follow appropriate EU rules. And if not, obviously, then they would also consider to reallocate that business in Europe. And you are aware that we are the only one in Europe who has a license to clear euro interest rates and swaps. So that gives us some confidence, and that's also our understanding from market participants. And the best proof is that we already achieved some 16% market share in the long-dated interest rates for client business. So that was last year, a single-digit number, and now it's 16%. And we also have a lot of discussions with customers to switch existing portfolios. So that gives us the confidence that we will achieve our target of 25%. And if it will be more due to the discussions between equivalent of U.K. and EU, we will see. So we did not include that upside potential in our forecast. That's basically another optionality from our perspective.

[Operator]

Our next question comes from Bruce Hamilton, Morgan Stanley.

[Bruce Allan Hamilton, Equity Analyst]

Thanks, guys, for the presentation. Two questions. One, on Clearstream, and apologies if I missed this. I'm just trying to understand why custody fees have declined again. That's the second sequential decline despite custody assets going higher. Is there anything one-off in there? Or what am I missing? And in terms of the NII, I guess we're obviously running below the EUR 60 million run rate now. You're still sort of confident in that number. And more generally, I guess the hope around TARGET2-Securities that, that would be an opportunity for growth for Clearstream. And I'm just kind of struggling to see that playing through. Is that really just -- is that something you still believe in longer term? Or is it -- did it just take a while? And then secondly, on M&A. In terms of your bandwidth to do further deals, given you're about to close ISS and integrate it. Obviously, the press are talking about other possible sort of fund service-type things that could be out there. How do you think about management bandwidth to do more in the short term?

[Gregor Pottmeyer, CFO & Member of Executive Board]

So starting with your Clearstream questions. So yes, you see some, on average, custody fee reduction in Q4. That's usually driven by some year-end discussions around rebates. And therefore, it's a little bit difficult to look from a quarterly perspective. So overall message here is that we have that topic a little bit better under control than in the past. So we are able to deliver these great services, and people are also ready to pay for that. So yes, there's always pricing pressure in discussion with customers and some rebates we allow. But we are able to compensate to offer new services to our customers. So that's the first question. Second question, NII. Yes, it's last year, we -- in 2020, we have some EUR 100 million NII. Yes, this year, we expect in the range of EUR 60 million. But really, that depends on the customer cash balances, on the settlement activity, but that's our base case assumption. With regard to the more principal question, we expect that Clearstream will benefit from all these local and European support programs. So on the EU level, it's EUR 750 billion; in Germany, it's a 3-digit billion. And so we should get at least our reasonable market share of that. So that gives -- and the majority of these programs are even not started, right? So -- and so that gives us some confidence that we are also benefiting from that and that we can compensate the reduction on NII for Clearstream. With regard to your M&A questions. So overall, yes, you are aware of the 6 areas where we would like to do M&A. Yes, investment fund service is one of the areas where we are very interested. And due to our acquisitions we did over the last 3 to 4 years, we have even now more opportunities. And then we are now also in the funds distribution area. This UBS Fondcenter, so it's not just a settlement and custody, it's also in the funds distribution area. So that gives us further opportunities in the market. And as we always say, there are basically 3 different options for us how to [ deliver our ] customers' business with us so they can purely connect to our platform. They can outsource or they can sell their business. And we are open for all of these 3 areas as we have a superior process and IT solution. And if there are M&A opportunities, so we are certainly look at that. From a firepower perspective, so as our business cash pick up very quickly, so we do more than 1 -- generate more than EUR 1 billion cash every year. So we also expect that from that capacity perspective, we will have another EUR 1.5 billion end of '21 for M&A deals.

[Operator]

Our next question comes from Johannes Thormann, HSBC.

[Johannes Thormann, Global Head of Exchanges and Analyst]

Johannes Thormann, HSBC. First of all, question on Xetra. Just on the run rate for Tradegate benefits, is it a double-digit million amount per quarter or per year? And what is the impact of the regulatory reporting hub disposal on Clearstream? Do those 2 net each other out? Or should we still see some structural growth driving Xetra as is also the Frankfurt market is benefiting from better retail volumes? And then secondly, I have also to look at Clearstream. But we saw weaker settlement volumes also in -- stable settlement volumes in Q4 despite a much higher settlement activity or trading activity on markets. What has been driving this?

[Gregor Pottmeyer, CFO & Member of Executive Board]

All right. Thanks, Johannes. So starting with the Tradegate. I would love to have a double-digit on a quarterly basis. But unfortunately, it's a double-digit million euro amount on a yearly basis, right? So next question with regard to regulatory reporting hub. Yes, we had some EUR 20 million last year, and we expect also a comparable amount this year out of that transaction. And finally, that depends how many customers will migrate at the end of the day. But there will be also a significant portion in '21. In principle, Xetra will also benefit from additional retail activities, as I already said. We own the Tradegate exchange by about 100% and benefiting 20% out of our Tradegate area. But we think that also helps to increase market activity in Germany in general. So that's a positive trend, what we see here. And we also would expect that we see here a positive impact out of that. With regard to your last question around Clearstream and settlement activity. So overall, yes, in principle, you can say the more settlement activity you have, the higher the cash balance here is. But to follow up that on a quarterly basis, there can be some shifts, but on an annual basis that there should be a more direct dependency.

[Operator]

Our next question comes from Ian White, Autonomous Research.

[Ian White, Research Analyst]

Just a couple of questions from me on the revenue outlook, please. Can you just share a bit of your thinking around the trajectory for Eurex, particularly on the listed derivatives side over the course of 2021? So I noticed that the business looks to have quite a slow start to the year despite a reasonably high level of market volatility. So what are you seeing that gives you confidence that performance can improve significantly from the second quarter, I think you said in your opening remarks?And then just secondly on EEX. Is the fee capture there in 4Q '20 at a sustainable level? It looks like it was high in basically all of the products. I wondered if that was to do with a particular price change that you've made, or if it's kind of noise and an assumption in line with 2020 average levels. Might be more realistic looking forward.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes. So starting with the revenue outlook and specifically Eurex. Yes, we are convinced and also very confident that we achieved at least 5% secular growth also for Eurex, a lot of product initiatives, what we have here around dividend derivatives, MSCI derivatives, total return futures, OTC clearing opportunity, you are aware all of that. So high confidence that we continue to deliver on that side. With regard to the cyclicality, obviously, you have seen strong tailwind in '20. And that means, most probably, we have some headwind in '21. And that it's a little bit challenging to guide cyclicality around some quarters. So that, that we will see. But in principle, if the situation of providing [ back-end ] to all people, that obviously the faster that is, the more optimism is in the market. And if the markets do not talk about lockdowns anymore and are more positive, so that is our base case assumption that, that volatility will increase and market activity will increase again. And so that should happen later in the second half year and for '21. So this gives us some confidence here. And also the discussion around reinflation, right? And so as you see already, some inflation starts here. And it's interesting to see that in the first 5 to 6 weeks for our fixed income products to increase, right? So some market participants also see some concerns around inflation. And obviously, that triggers our Eurex product. Second question around EEX. Yes, we had some strong headwind in 2020 with regard to lockdown and lower energy consumption and even energy prices to negative territory. And now you have seen in Q4, so that's obviously a positive development. And we also expect if that kind of energy consumption -- and again, it's also connected with corona vaccine and lockdown, et cetera. But if we come over that kind of discussion, so that should be positive for EEX. Also our secular initiatives to increase our market share. So our European power derivatives, 40%. So that will continue to increase over the next years. We are confident on that. And some pricing questions you asked around -- so that's if some positive or some minus, so that's also a question of some product mix as power spot is different from power derivatives and U.S. power is different from European power. So here, you see also that this is influenced by some product mix.

[Operator]

Our next question comes from Gurjit Kambo, JPMorgan.

[Gurjit Singh Kambo, Head of Diversified Financials Research]

Just two questions for me. So firstly, just to clarify, in terms of your revenue guidance of EUR 3.5 billion, so that's about a 9% growth year-on-year. Is that 5% secular and then 4% M&A? And then just basically you're seeing flat on the cyclical side? That's just the first point of clarification. And then in terms of the clearing side. Are you building -- where are you in terms of building out other asset classes, whether it be FX or just other kind of products around the U.S. clearing? So any thoughts around that?

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes. So with regard to our revenue guidance, obviously, with the integration of ISS, and I told you so much around that. And then we will see whether it's 9 months or it's 10 months or whatever it is. And so the M&A impact is bigger than you assume. So really, it depends, but could potentially be that our secular growth, yes, obviously, is 5%. The M&A contribution could be in the range of 7%. So as a result, we see some cyclical headwind of 3%. So that is one way to look at that. But -- so obviously, from a cyclical perspective, it's not flattish. We expect some headwinds. And again, the headwind comes from the Clearstream NII from [ EUR 100 to EUR 60 million ] and also the comparison around Eurex and Xetra's very strong performance from a cyclical perspective in 2020. With regard to your second question around clearing and different asset classes. Yes, OTC clearing interest rate swap was what we started. But we have also a partnership agreement around our repo business. So that's obviously where we expect to see comparable across rates here. And obviously, we are always in discussion with these market participants where else there's a need to support here customer demand.

[Operator]

Our next question comes from Martin Price, Jefferies.

[Martin Gerald Price, Equity Analyst]

Just two quick questions for me, please. The first on EEX. I was just wondering if you could provide an update on plans for expansion outside the core markets in Europe and North America. It looks like the offering in Japan is off to a good start. Is that likely to be the focus this year in terms of new markets? Or do you have other geographies on the radar there, too? And then the second one is on the Eurex cash margin fees. The Q4 run rate was still fairly elevated. I was just wondering if you could provide some guidance on the level of contribution you'd expect for this year.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Okay. With regard to your questions about EEX. Yes, you mentioned Japan. Obviously, there will be opportunity for us as the market now asked to help here. So there's some kind of deregulation. But again, Japan is 10 years behind other markets. But nevertheless, it's an opportunity for us. And we also expect a lower single-digit million euros out of that in '21. So it will be not be significant for '21. But obviously, with the big opportunities because markets develop over 3, 4, 5 years. And if you miss the entry point, then you have no chance to benefit from that. Therefore, Japan is very interesting for us. And hopefully, we will see good opportunities here. And that's also true for other markets. Our ambition is clearly to be a global provider. We are now on top of Europe. We are also -- with this model, also good represented in the U.S. market, and we will continue to reinforce our activities here. But also, South America could be improved for us. But it's comparable with is Japan. In Japan, some markets have to deregulate. And if they have some needs and some help where we can support, we are obviously open for that. But again, you should not expect big or significant or material impacts out of this outside strategy for Europe and U.S., but it's strategically important in maybe 3, 4, 5 years later, it could be significant for us. Your second question, very detailed question on EEX cash margins. So obviously, that was also influenced by some COVID-related elements here as we have cash margins of more than EUR 100 billion on the highest level. Currently, it's below EUR 70 billion. So obviously, a significant decrease. And as this is the basis where we charge some 10, 15 or 20 basis points for that on cash on -- of the securities. So in principle, then you would expect that the margin level is lower than previous year, then this should be also a little bit lower.

[Operator]

Our last question comes from Kyle Voigt, KBW.

[Kyle Kenneth Voigt, Associate]

Maybe just two questions. First, on just the 5% secular growth. I'm wondering how much of that you expect to be related to pricing increases in 2021? And for Eurex specifically, are you contemplating any targeted pricing changes that could help revenue capture in the futures derivatives business? Second question is just also related to Eurex. But in the U.S., we've seen very strong growth from micro products and smaller-sized products with growth in retail. Just curious if you think there's demand for something similar in Europe or you're contemplating any new product launches in that segment to really address the growth in retail that we've talked about this fall.

[Gregor Pottmeyer, CFO & Member of Executive Board]

Yes, Kyle, thanks for the question. So the 5% secular growth, what is the pricing component? That's basically your question. So our focus is really to gain market share, to gain liquidity, and focus is not so on pricing. Some competitors or other trading venues have a different view here. But our view and our focus is really to have very attractive margins for our customers. And so as a consequence, the more liquidity you have, the more attractive is your offer. Nevertheless, we constantly review our products, our portfolio. And in the past, we had some roughly 1% out of this 5% to 6% secular growth was pricing-related, right? So therefore, when we introduced some cash securities, collateral fees, some rebate schemes, so we look at all of these things. But really, focus is on getting additional liquidity and market shares. Your second question with regard to this micro contract and what is basically strongly related to the retail business. Yes, we look at that. And also, we would consider to launch comparable products, but the impact wouldn't be as high as in other markets because our retail contribution in Europe is much lower compared to the U.S. market. But nevertheless, we are in discussions with market participants and also very open to launch that kind of product. But it's not our way to look at that, that we blow up our statistics around contracted numbers, right? So that's -- honestly, you can do very, very good because with this micro context, you're much, much less compared to the other contracts. But if there is a market there, if there's a demand there, what we can support, obviously, we would consider to do that, but with obviously lower impact than in U.S.

[Jan Strecker, Head of Investor Relations]

Excellent. This concludes our call today. Thank you very much for your participation, and we wish you a good day. Thank you.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.