TP ICAP : Interim Results 2023 - Presentation Transcript

TP ICAP

Interim Results Presentation

9th August 2023

Classification: Public

Speakers

Nicolas Breteau, Group, CEO

Robin Stewart, Group CFO

Daniel Fields, CEO, Global Broking

Andrew Polydor, CEO, Energy & Commodities Mark Govoni, CEO, Liquidnet

Eric Sinclair, CEO, Parameta Solutions Dominic Lagan, Head of Investor Relations

Questions

Stuart Duncan, Peel Hunt

Piers Brown, HSBC

William Regis, Peel Hunt

Vivek Raja, Shore Capital

Kim Bergoe, Numis Securities

James Lowin [?]

Stephen Hayde, Close Brothers

Chris Mills, Harwood Capital

Classification: Public

Introduction & Key Highlights

Nicolas Breteau, Group CEO

Good morning, everyone. Thank you for joining us both in person and online. This is our agenda for today. I will start with a short business overview, Robin will take you through our financial performance, and the heads of our four divisions, Dan Fields, Andrew Polydor, Mark Govoni, and Eric Sinclair, will report on their businesses. Then I will wrap up before we take your questions.

Let's begin with the headlines, where the movements are in constant currency unless I say otherwise.

The Group revenue increased 1%, or 5% in reported currency, while its contribution was up 8%, or 13% on a reported basis, as we focused on productivity, contribution, and tight cost management.

Our two largest business divisions are Global Broking and Energy & Commodities. Revenue in Global Broking decreased 1% but was up 3% in reported currency, against a strong comparator with exceptional volatility last year, caused by the start of war in Ukraine. The revenue per broker grew 6%, with broker contribution up 24%, including Russian provisions. This, again, reflects our emphasis on productivity and contribution, and a reduction in average broker head count.

Energy & Commodities performed very strongly across all its key asset classes, Oil, Power, and Gas. Revenue grew 12%, or 17% in reported currency, as energy markets recovered from last year's dislocation.

Liquidnet broke even in the first half, despite challenging equity market conditions and ongoing investment in our Credit platform. We have now delivered £38m of annualised integration cost synergies. This exceeds our £30m target, six months ahead of schedule.

Parameta Solutions revenue increased 5%, or 11% in reported currency. Overall, we generated an uplift in margin and profitability. Our Adjusted EBIT was up 7% to £163m, a margin of 14.4%.

We continue to manage our capital dynamically. We have freed up £100m of cash for debt reduction, six months ahead of schedule, and we have achieved this while continuing to invest in the business.

Our interim dividend is 4.8p per share, up 7%, and will be paid to eligible shareholders in November. We have also announced a share buyback of £30m, starting today.

Classification: Public

Moving now to our strategy guidelines. Our key strategy priorities are transformation, diversification, and dynamic capital management. In Global Broking, the roll-out of our electric platform Fusion is on track, and it is now live on 44% of in-scope desks. We are making good progress with client adoption. In Rates, for example, the number of unique client logins is up 43% over the past 12 months. We continue to diversity our business by client base, asset class, and non-broking revenue.

In Energy & Commodities, we are transforming the division in three ways. First, by deploying more technology in our Oil franchise. Second, by expending broking desks in carbon credits, biofuels, and renewables. And third, by monetising more energy-related data with our leading data business, Parameta Solutions.

Parameta Solutions was recently approved by ESMA as a benchmark administrator. We have already launched new indices for Liquified Natural Gas, and there are more to come. We are well progress in the consolidation of Parameta companies, which will enable it to develop more partnerships with third-party data providers.

In Liquidnet, we are diversifying Equities by growing Algorithmic, Programme Trading, and Inter- region execution. Our Credit platform is developing at pace. We completed the connection of two major investment banks on our Dealer-to-Client proposition, with a third bank in the final certification stages.

Turning now to capital management. Our approach to capital management has four components, investing for organic growth, reducing debt, a clear dividend policy, and returning capital where appropriate.

So, first, we are investing to grow the business with the deployment of Fusion in our broking businesses, the building of Liquidnet Credit, and the expansion of Parameta Solutions.

Second, we are reducing our debt by £100m. This will decrease our future net finance costs and increase our investment grade headroom.

Third, we have a clear dividend policy with a commitment to a 50% pay-out ratio of adjusted post-tax earnings for the full year.

And finally, we have announced a buyback of £30m, which starts today.

We continue to assess opportunities to free up more cash. Thank you very much. I now hand over to Robin, to take you through our financial performance.

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Financial Review

Classification: Public

Robin Stewart, Group CFO

Thank you, Nico, and good morning, everyone. As you have heard, we delivered a good performance against a strong comparator last year. I'll start with the income statement, where, as usual, my comparisons are in constant currency.

Total Group revenue increased 1% to £1.1bn. Adjusted EBITDA was up 2% at £200m, and the margin grew 0.6 percentage points to 17.7%. Adjusted EBIT increased 7% to £163m, and EBIT margin was 14.4%, up 0.8 percentage points.

Net finance costs of £17m were down 35%. This is due to a £10m increase in interest income, as we actively manage the yield on our cash to benefit from rising rates.

The effective tax rate increased to 27.4%. Taken together, this resulted in adjusted earnings before significant items of £117m, up 17%. Adjusted earnings per share also grew 17% to 15p. As Nico said earlier, we plan to pay an interim dividend of 4.8p, an increase of 7%.

Our policy targets a 50% pay-out ratio of full-year adjusted earnings. This typically includes 30 to 40% of first-half earnings, with the balance paid in the final dividend.

Let's turn now to the year-on-year movements in our earnings before interest and tax. Adjusted EBIT was £163m, compared with £142m reported for the first half last year. If you retranslate £142m using 2023 exchange rates, it results in EBIT of £153m, giving us the basis of a like-for-like comparison. Contribution increased by £32m, mainly driven by our focus on delivering more profitable revenue.

Management and support costs were £10m higher, driven by the impact of inflation, but this was largely offset by the delivery of a further £8m of Liquidnet integration savings in year. As Nico said, we have now achieved £38m of annualised synergy savings, above our £30m target and six months ahead of schedule.

Finally, the strengthening of sterling towards the end of the first half contributed to a £20m negative movement in Foreign Exchange on the retranslation of net financial assets.

Turning now to the business divisions, where again my revenue comparisons are in constant currency, to give you a clear picture of the underlying trends. I'll start with Global Broking.

Total revenue in Global Broking was down 1%, at £656m, against a strong first half last year with the exceptional volatility following the invasion of Ukraine. Rates is our largest and most profitable asset class, accounting for nearly half of Global Broking revenue. Revenue here decreased 1% to just under £300m. Credit revenue was down 3% to £60m. Foreign Exchange and Money Markets grew 3% to £159m, and Equities decreased 5% to £127m.

Classification: Public