Q1 2024 Marex Group PLC Earnings Call
Cold speech.
Speaker Change: Speaking today are a lot of Ceos and Robert <unk>, our CFO.
Speaker Change: After our formal remarks, we will open up call for questions.
Speaker Change: Before we begin I would like to highlight that certain matters discussed in today's conference call are forward looking statements relating to future events management's plans and objectives for the business and the future financial performance for the company.
Speaker Change: That is subject to risks and uncertainties.
Speaker Change: Actual results could differ materially from those anticipated in these forward looking statements.
Speaker Change: The risk factors that may affect results are referred to in the company's press release issued today and our prospectus, which was filed with the SEC on April 26.
Speaker Change: The forward looking statements made today are as of date of the call and the company does not undertake any obligation to update these forward looking statements.
Speaker Change: Finally, the speakers may refer to certain adjusted or non <unk> financial measures on this call.
Speaker Change: A reconciliation of the non <unk> financial measures to the most directly comparable <unk> measures is available in the company's press release issued today.
Speaker Change: A copy of today's release and the Investor presentation can be found on the Investor relations pages at <unk> Dot com.
Speaker Change: With that I will now hand over to Ian.
Ian: Hello, and thank you for joining us for our results. This morning, where we will discuss both our full year results for 2023, and our update for the first quarter. This is our first earnings call as a public company. Although we were still a private company in the periods, we're reporting on today.
Ian: While our 2023 numbers were included in our IPO prospectus because of the reporting restrictions around the IPO, we haven't disclosed our full year numbers directly to the market through our press release, we have various stakeholders, who may not have read the prospectus and so for ease of reference and full disclosure we are providing an update on our full year numbers.
Ian: For 2023, and our press release today, alongside an update on the first quarter.
Speaker Change: We expect many of our new investors will be listening to this call and we'd like to thank them for the work they do to understand our firm and for their support and we're committed to delivering for them as a public company.
Speaker Change: I wanted to start out with a description of how and where we participate in the financial market ecosystem.
Slide four illustrates how we play a critical role in connecting clients to markets and how our four services are clearing agency, an execution market, making and hedging and investment solutions fit together.
Speaker Change: We provide connectivity to producers and consumers of commodities as well as asset managers and hedge funds and act as the essential layer between our clients and the markets they need to access.
Speaker Change: At the heart of the firm is clearing which provides essential infrastructure to connect clients to exchanges and clearinghouses.
Speaker Change: We also provide clients with access to liquidity either through agency in execution or market, making and if there is no on exchange solution we provide.
Speaker Change: <unk> hedging services through our hedging and investment solutions business in combination. These four services reinforce one another and produce multiple entry points for our clients.
Speaker Change: We are looking to become more and more relevant in this connective layer by adding clients and increasing the amount of business, we do with them in the provision of these inter connected services.
Speaker Change: Turning to slide five you can see the evolution of the firm and the journey we've been on to create the company. We are today and it also highlights our continued momentum.
Speaker Change: As you can see we have maintained our record of sequential growth over the past nine years with compound annual growth of adjusted operating profit at 34%.
Speaker Change: We have seen this positive trend continuing into the first quarter of 2024.
Speaker Change: We continue to add clients to our platform with active clients up over 10% at around $4 five at the end of the first quarter from the end of 2023.
Speaker Change: Over the past nine years, we have grown through a variety of market conditions through a combination of organic and inorganic growth.
Speaker Change: Our intention is to ensure we have sufficient structural growth to offset cyclical headwinds.
Speaker Change: 2023, with an exceptional year for the firm confirming our strong investment proposition and demonstrating our successful growth strategy.
Speaker Change: We have had a strong start to 2024, we've seen good levels of client activity on the platform and I am pleased to say that positive momentum has continued into the second quarter.
Speaker Change: The talent acquisition is performing well.
Speaker Change: We are pleased with the progress we've made and we're excited about the opportunities that this acquisition, which completed in December last year provides us.
Speaker Change: Our environmental business continues to be an area, where we see significant growth opportunities.
Speaker Change: As we expand the services, we provide and the geographies recover in this important area in 2023, we saw revenues increased 77% to $47 million.
Speaker Change: We are obviously delighted to have successfully completed our IPO in April as you know, we raised $75 million of primary and we are actively looking for ways to deploy this that will create value for our shareholders.
Speaker Change: Slide seven shows exchange volumes for the exchanges, we participate on as reported by FIA.
Speaker Change: <unk> for 2023 versus 2022 was positive, but not overwhelmingly so we sold three 6% growth in the whole market.
Speaker Change: In 2023, and three 5% in Q1 from the end of last year.
Speaker Change: Within the total exchange volume commodity contracts grew faster with a 13% increase in 2023 and a 9% increase in the first quarter of 2024, which is obviously helpful for our business.
Speaker Change: I would characterize the market environment is essentially average rather than positive.
Speaker Change: In 2023, and continuing into 2024, we've seen a reduction in volatility in commodity prices and a lower level of commodity prices relative to the exceptional levels that were caused by the invasion of Ukraine in 2022.
Speaker Change: This has resulted in a somewhat less support of trading environment for our market, making business in 2023 and continuing into 2024.
Speaker Change: Interest rates, however, rose significantly from the second half of 2022 and these have remained elevated through 2023 and year to date. This has a positive tailwind for our clearing business, where we have significant client balances.
Speaker Change: We see a higher for longer operating environment for interest rates, which again is helpful for our business.
Moving on to slide nine against this market environment of average increases in volumes lower commodity volatility in prices, we delivered very strong performance across all of our segments in both 2023 and increased revenue in every segment in the first quarter of 2024.
Speaker Change: The clearing business has benefited from significant growth in client volumes on our platform as well as higher interest income.
Speaker Change: Our agency execution business has benefited from recent acquisitions, which are performing well.
Speaker Change: Our market, making business rose, 10% in the first quarter of <unk> 24 versus Q4 of 'twenty three notwithstanding the reduction of volatility and our hedging and investment solutions business continues to deliver solid double digit revenue and is an important source of organic growth and funding.
Speaker Change: Turning to slide 10 and.
Speaker Change: In 2023, the <unk> acquisition transformed the scale of the firm, which makes our year on year comparisons less useful.
Speaker Change: Within clearing in the first quarter of 2024 market exchange volumes are up 4% Maris volumes are up 16% and <unk> revenue was up 10%.
Speaker Change: In agency and execution in energy market volumes are up 9%.
Speaker Change: <unk> volumes are up 10% and <unk> revenues are up 16%.
Speaker Change: In securities market volumes are up 1% Max volumes are up 17% and revenues are up 11%. We see this as evidence that we are gaining share and outperforming the market.
Speaker Change: We continue to make good progress on our growth initiatives in 2024.
Speaker Change: We are making significant progress in our Asia Pacific business.
Speaker Change: After becoming clearing members on ASX and SPX last year, we have brought new clients onto our platform and see this as an important driver of growth and margin improvement in the region.
Speaker Change: In the first quarter of this year, we became the first non bank Fcs to become an LCA swaps clearing member.
Speaker Change: And this is an area that we're particularly excited about.
Speaker Change: We continue to add new teams to increase our capabilities in select markets, including building up coverage of U S power and physical oil broking as we expand our capabilities in the energy market.
Speaker Change: The recently acquired Prime services and outsourced trading business is performing well we are onboarding new clients into this business and it's contributing to growth in our agency execution segment.
Speaker Change: We have a pipeline of potential M&A opportunities as our industry continues to consolidate.
Speaker Change: I'll now hand over to Rob who will talk you through the financials.
Rob: Thanks, Ed and good morning, everyone.
Rob: As you can see 2023 was a very strong year for America.
Rob: We grew revenues by 75% to 124 5 billion.
Rob: Reflecting in part the full year effects of the transformational EDF transaction, which we completed in the fourth quarter of 2022.
Rob: And also strong organic growth, which contributed just over a third of the revenue increase.
Rob: This enabled us to grow operating profit to $230 million for the year.
Rob: 89% and our adjusted operating profit margin increased to 18%.
Rob: 100 basis points on 2022, as we continued to drive scalability from our platform.
Rob: Historically, we've had minimal adjustments between our adjusted operating profit and reported profit before tax.
Speaker Change: In 2023. These nonoperating items grew to just over $33 million and there are three main drivers of less.
Speaker Change: Firstly.
Speaker Change: We incurred $10 million of costs associated with the ipi predominantly legal costs and Reorders in 2021, and 2022 to U S. <unk> standards to support our U S listing.
Speaker Change: Secondly, we took a $10 $7 million impairment on our volatility performance fund within our capital markets business.
Speaker Change: Although the business performed well in 2022.
Speaker Change: Poor market conditions in 2003 meant that it made a loss given the current outlook for the business.
Speaker Change: And they took an impairment on the asset.
Speaker Change: Thirdly.
Speaker Change: We incurred $6 million of owner phase that we pay to our private equity shareholders, which is a function of profitability. This east at the point of the IPO.
Speaker Change: Going forward after the second quarter, we would expect minimal adjustments between our adjusted operating profit and our reported profit before tax.
Speaker Change: Given this a key measure that we focus on as a management team as our return on adjusted operating profit after tax attributable to common equity holders.
Speaker Change: This return is calculated as follows.
Speaker Change: We tax effect, our adjusted operating profit and then deduct the post tax cost of our 81 dividend.
Whilst the equity is the firm's total equity excluding R. A T one capital.
Speaker Change: In 2023, our return on adjusted operating profit after tax attributable to common equity holders was 26%.
Speaker Change: Turning to slide 14.
Speaker Change: So, let's update where I provide a comparison to the fourth quarter of 2023.
Speaker Change: There were no comparable numbers for the first quarter of 'twenty three because as a private company, we were not required to do a substantive close.
Speaker Change: We started this process from June last year in preparation for our U S listing.
Speaker Change: Thus, we will provide comparisons for the first half of 'twenty, three as well as the third and fourth quarters.
We had a strong start to 2024 and are reporting revenues of $366 million for the quarter up $40 million on the fourth quarter of 2023.
Speaker Change: Of that 70% was organic growth and 30% was inorganic notably from the recently acquired Prime services business.
Speaker Change: Our adjusted operating profit was $68 million up.
Speaker Change: $15 million in the fourth quarter, primarily reflecting our strong revenue performance.
Speaker Change: Our adjusted operating profit margins increased to 19%.
Speaker Change: 100 basis points on the full year 2023, as we continued to drive scalability from our platform.
Speaker Change: In the first quarter, we incurred $8 $8 million of adjusting items primarily relating to.
Speaker Change: Further IPO related costs, which totaled $3 7 million and secondly, $1 $7 million of O&M phase that we pay to our private equity holders.
Speaker Change: We expect to incur additional cash expenses in connection with the IPO in the second quarter 2024. For example, we expect our national insurance tax expense related to the issuance of growth shares in connection with the IPO and costs for our offer related insurance to total six.
Speaker Change: <unk>.
Our return on adjusted operating profit after tax attributable to common equity holders was <unk>, 29% for the quarter.
Speaker Change: Moving to slide 15.
Speaker Change: As you can see average client balances have grown both year on year and from the fourth quarter last year to the first quarter of 2024.
Speaker Change: As a result, net interest income rose to $122 million in 2023 and $36 million for the first quarter of 2024.
Speaker Change: The growth in average client balances reflects strong organic growth in the <unk> business as well as the impact of the EDF transaction in 2023.
Speaker Change: It's important to note that a high proportion of card balances have a fixed interest payout, which limits our exposure to changing interest rates.
Speaker Change: On approximately 60% of the balances we shared at the interest that we earn with our clients and typically earn a spread between 100 and 120 basis points.
Speaker Change: On the remaining 40% of balances we retain all of the net interest income.
Speaker Change: Our exposure to interest rate movements.
Speaker Change: 40% of balances, where we keep all of the net interest income.
Speaker Change: We estimate that a 100 basis point decrease in rate were to Adjace adjusted operating profit by $20 million and this is before any management actions like hedging and the expected future growth in the book.
Speaker Change: Let's now move to the balance sheet on slide 16.
Speaker Change: Our balance sheet remains broadly stable for the first quarter of 2024 with total assets up 2% to just over $18 billion.
Speaker Change: Our balance sheet is simple and made up of highly liquid securities and cash.
Speaker Change: Approximately 85% of our assets and liabilities support client activity and net down to a small net exposure.
Once netted off we're left with a small residual balance sheet, which primarily consists of house cash and other assets against crude liabilities, including the structured notes portfolio.
Speaker Change: The key message is that the group is not highly leveraged and has a low level of net debt.
Speaker Change: Turning to slide 17.
Speaker Change: We continue to maintain prudent levels of surplus capital and liquidity, which supports our investment grade credit ratings from S&P and Fitch.
Speaker Change: We hold significant surplus capital and liquidity to ensure that we're well positioned in periods of market turmoil.
Speaker Change: Our excess liquidity headroom over and above the regulatory threshold does move around depending upon our house decisions and initial margin calls.
Speaker Change: Although it decreased at the end of the first quarter it remains well within our normal operating range.
Speaker Change: As part of our successful IPO, we raised primary capital that will support the future growth aspirations of the firm.
Turning to the next slide.
Speaker Change: I'll conclude with a view on risk.
Speaker Change: We are a proactive annual bulk risk management approach of <unk>.
Speaker Change: Market, making where our client flow driven business and do not take directional view on prices or indices.
Speaker Change: We have demonstrated a strong track record of managing risk with a 100% positive trading months in the last three years and improving positive days.
Speaker Change: The percentage of profitable trading days improved in the first quarter within market, making to 94%.
Speaker Change: Up from 88% in the prior year.
We've also materially growing the business, while keeping the vol value at risk and around two and a half million dollars.
Speaker Change: The last three years.
Finally, our credit risk is well managed with it representing a fraction of our revenue given careful monitoring and risk management.
Speaker Change: Thank you I'll now hand, you back to Ian for some concluding remarks.
Ian: Thanks, Rob.
Ian: Turning to slide 20 now.
Ian: In terms of key metrics.
Ian: Things that we as a management team are focused on our growth margins and Roe.
Productivity and returns and lastly quality of earnings.
Speaker Change: In terms of growth what we are most focused on is increasing profit after tax to our common shareholders.
Speaker Change: In the first quarter, we delivered $49 million of operating.
Speaker Change: In terms of margins or operating PBT margin is up to 19% continuing the steadily improving trend since 2021 and as Rob described to our reported ROE.
Rob: Is 23% and our ROE adjusted for Nonoperating items is 29%.
Speaker Change: In terms of productivity in our business operating <unk>.
Speaker Change: Attributable to common equity holders per FTE is up to $87000 on an annualized basis.
Speaker Change: Additionally, I'd like to highlight the improved quality and stability of our earnings with an increased monthly operating profit Sharpe ratio, which is now up to $5, one, reflecting our increasingly diversified business and reliable monthly operating profit.
Speaker Change: Moving to slide 21.
Speaker Change: I hope that we've provided you with useful insight into our performance in 2023, and the first quarter of 2024.
Speaker Change: And the good momentum within our business, we continue to be very proud of the scalable platform. We have built at <unk>. We're excited about the opportunity we have to grow the business by growing our products, our clients and our geographic reach.
Today's results are another example of our track record of delivering organic growth combined with highly accretive value enhancing acquisitions.
Speaker Change: Our diversified business offering coupled with our client driven model and prudent capital management, <unk> resilient and able to deliver a strong performance across a variety of market conditions.
Speaker Change: The successful IPO and additional capital raised increases our confidence and our ability to deliver future growth.
I'd now like to open for questions.
Speaker Change: As a reminder to ask a question.
Speaker Change: First one on your telephone.
Speaker Change: Hey, Matt.
Speaker Change: Withdraw your question Press Star one.
Speaker Change: Please stand by while we compile the Q&A roster.
Speaker Change: We will now take our first question.
Speaker Change: Please standby.
And the first question comes from the line of that is from Barclays. Please go ahead. Your line is now open.
Hi, good morning, Thanks for taking the question and congrats on completing the process and sort of being out there for your first earnings call.
Speaker Change: I was wondering maybe to start could you unpack some of the near term growth drivers you identified you talked about nuclear memberships in Australia, and Singapore, our new LC H clearing membership.
Speaker Change: Sort of like the path look like in terms of those opportunities ramping up what is the hiring process look like internally to put in the support staff you need how does should we expect that to unfold over say the next 12 months.
Speaker Change: Well I think that.
Speaker Change: As we think about how we want to set the firm up we want to ensure that the firm is setup. So that there's enough structural growth that we can offset.
Nicole: Nicole headwinds, we do anticipate that they will be cyclical headwinds.
Speaker Change: In the future predominantly as a result of rates coming down if the forward curve is sort of realized so we recognize that we need to ensure that were making sufficient investments to offset.
Speaker Change: Those anticipated.
Speaker Change: Cyclical headwinds.
Speaker Change: Yes.
Speaker Change: The example that you cited I think.
Speaker Change: The most relevant and important ones in terms of.
Speaker Change: Ensuring that we can continue to grow and.
Maintain that that track record of sequential growth each year. So.
Speaker Change: We've seen.
Speaker Change: Sort of good take up from clients around S Jackson and ASX.
Speaker Change: And so I think that we will be seeing the impact of that over the next series of quarters.
<unk> CH.
Speaker Change: Membership.
Speaker Change: There is likely to have some modest impact in the second half of the year, but.
Speaker Change: But we think will be an important driver in sort of 2025.
And we have a large number of additional investments probably smaller in scale and scope, but all of which are designed to improve the resilience and the.
Speaker Change: Diversification of our business and increase the number of services, we can provide to our clients as well as sort of our geographic diversification and the combination of those things are the reason that we have confidence. So we can continue to deliver growth.
Speaker Change: Got it.
Speaker Change: And then maybe on a similar topic just in terms of near term growth you've talked about.
Speaker Change: A healthy pipeline of potential M&A opportunities can you unpack that a little bit more what sort of assets are you looking at or are you thinking about product expansion asset class geographic expansion.
Speaker Change: And any other color there would be helpful. Thank you.
Speaker Change: With not a lot that I can.
Speaker Change: Providing some detailed guidance I mean, what what I can say, though is.
Speaker Change: <unk>.
Speaker Change: We're quite excited by the set of things that we're seeing.
Speaker Change: Yes.
Speaker Change: Ongoing evidence that there is consolidation going on in our industry and there are a lot of.
Speaker Change: Sort of attractive.
Speaker Change: Properties that we could acquire that would.
Speaker Change: Sort of augment our business.
Speaker Change: What I would say is that we are interested in geographic expansion and so some of the things that we're looking at would accomplish that.
Speaker Change: We're interested in.
Speaker Change: In clearing businesses, often sort of where the geographic.
Speaker Change: You mentioned geographic diversification dimension.
Speaker Change: We're also looking at things in sort of which would support our agency and execution.
Speaker Change: Segment.
Speaker Change: By sort of adding products.
Speaker Change: And those are sort of the predominance of the things that we're looking at but we remain in a.
Speaker Change: Very.
Speaker Change: And excited about what that means we will obviously remain extremely disciplined around any acquisitions, we do.
Speaker Change: <unk>.
Speaker Change: But we are confident that it'll be an important driver of growth for us.
Speaker Change: Got it thanks, so much for taking my questions.
Speaker Change: Alright, well. Thank you thanks for asking them.
Speaker Change: Yeah.
Speaker Change: Thank you.
As a reminder to ask a question you will need to press star one one on your telephone keypad and wait for your name to be announced.
Speaker Change: As there are no further questions. This concludes today's conference call. Thank you for participating you may now disconnect.