Q4 2024 Marex Group PLC Earnings Call
Good day and thank you for standing by. Welcome to the Marex Q4 and fully year 2024 conference call and webcast.
At this time, our participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised.
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Good morning everyone, I'm Robert Coates, Global Head of Investor Relations for Marex. Thank you for joining us today for our results conference call. Speaking today are Ian Lowitt, CEO and Rob Irvin, CFO . After the formal remarks we will open the call up for questions.
Speaker Change: Before we begin, I would like to highlight that certain matters discussed on today's conference call are forward-looking statements relating to future events, and management's plans for the witness.
and the future financial performance of the group, which are all subject to risk and uncertainties. Actual results could differ materially from those anticipated in the forward-looking statements. The risk factors that may affect these results are referred to in the company's press release and our previous perspectives followed with the SEC.
Speaker Change: The forward-looking statements made today are as of the date of this call and the company does not undertake any obligation to update these forward-looking statements.
Speaker Change: Finally, the speakers may refer to says and adjusted non-ipers financial measures on this call.
with that I'll hand over to Ian.
Ian Lowitt: Good morning and welcome to our fourth quarter and full year 2024 Earning School.
Speaker Change: I'm delighted to present Marex's first set of annual results since our IPO lost April and I'm proud of all we have accomplished in our first year as a public company.
Speaker Change: Our performance demonstrates that we are successfully executing our strategy and it is delivering value for our shareholders, clients and other stakeholders.
Speaker Change: As of your end, I'll share price that risen by around 64% putting us in the top quartile of US IPO performance in 2024 with further price appreciation since then.
Speaker Change: During the year we have taken opportunities to grow both organically and inorganically, broadening our product offering and geographic reach.
Speaker Change: As a result, we have increased our relevance to a larger and growing client base, enabling us to gain market share.
Speaker Change: We have built a platform that is both diversified and resilient when we believe can deliver growth across a range of market environment.
Speaker Change: As I've said before, we are grateful for the enthusiastic response we've received from the market and for the time investors and analysts have spent engaging with us to understand the Marex story.
Speaker Change: Moving now to Slide 4 and a summary of our performance highlight.
Speaker Change: Our fourth quarter performance was strong in what is typically a slowest quarter seasonally. We saw a continuation of the themes we experienced throughout the year, a supportive market backdrop, continued market share gains, and momentum across all of our businesses.
Speaker Change: We continue to strengthen our position in the market with Marex outpacing growth in overall volumes in the markets in which we operate.
Speaker Change: This was particularly the case in our securities business, where we are now benefiting from the integration of TD Cowan's Prime Services business and the extension of this capability on balance sheet.
Speaker Change: Plant activity levels remain robust as average balances grew to $15.5 billion in the fourth quarter.
Speaker Change: This resulted in Q4 net interest income of $63 million, broadly in line with Q3 2024.
Speaker Change: We delivered record full year adjusted profit before tax of $321 million at 40% year-over-year.
Speaker Change: As the acquisitions we completed in 2024 were very small bolts on, the preponderance of the $91 million increase in profits was due to organic growth.
Speaker Change: The first shareholder sell down post IPO was very well received by investors, demonstrating strong levels of institutional support for Marex, an increasing liquidity in our stock as our free flow to increase to 52%.
Speaker Change: and we diversified our funding sources and liquidity headroom to support future growth of our platform through a $600 million issuance of senior unsecured notes.
Speaker Change: Finally, consistent with the capital allocation policy set out at IPO, we'll be paying a dividend of 14 cents per share this quarter.
Speaker Change: Slide 5 shows the key metrics we are focused on, namely growth, margins and returns, productivity and quality of earnings.
Speaker Change: In 2024, revenues grew 28% to $1.6 billion, and our adjusted operating pre-tax margin increased to 20% delivering the 40% growth in adjusted profit before tax year-over-year.
Speaker Change: A reported return on equity was 25% up 6%age points year over year. When you exclude non-operating items the majority of which are not expected to occur now that we are a public company adjusted return on equity was 30% for 2024.
Speaker Change: In terms of productivity, profit per FTE was $99,000 up 16% Euro per year.
Speaker Change: and our adjusted sharp ratio of monthly PVT was an extraordinary 5.2 reflecting the high quality of our earnings in 2024.
Speaker Change: Looking now at exchange volumes on slide six, the aggregate markets in which we operate have grown at a double digit rate since 2021, supported by secular growth trend.
Speaker Change: In 2024, Exchange Volumes grew 11.5% with commodities growth of 20% outpacing financials of 10% driven by strong metals and energy market volumes during the year.
Speaker Change: Financials now make up around 40% of our revenues across our segments helping to diversify our earnings.
Speaker Change: We believe this product diversification makes us more resilient, increasing our confidence in being able to continue to deliver profit growth through a variety of macroeconomic and market conditions.
Speaker Change: As we look at the operating environment on slide 7, the modern prices and volatility were lowering 2024, with the exception of the elevated metal's market conditions in the second quarter that we referenced on earlier calls.
Speaker Change: Rates have reduced and although the Fed funds forward curve is higher than it was pre the US election, it is predicting three rates cuts this year.
Speaker Change: Against this backdrop, our business continue to grow strongly and we are confident that the platform we have built and the business we have made will result in structural growth through the cycle.
Speaker Change: It is clear from the data on slide 8 that there is increasing client activity on our platform and we are gaining share
Speaker Change: For example, in 2024, market volumes in clearing were up 12%, while Marex volumes were up 30% and revenues up 25%.
Speaker Change: Within Agency and Execution, Energy Market Volumes rose 22% while our volumes were up to 27% and revenues up to 30%.
Speaker Change: In securities, market volumes rose 10% while our volumes rose 23% and our revenues are up 27%
Speaker Change: Market-baking volumes are up 20% in the market, while Marex volumes are up 44% and Revenue's up 34%.
Speaker Change: When you look at our various businesses on the spaces, it is clear that we are consistently gaining market share with all our business segments growing faster than the market, which itself is growing at a healthy rate.
Speaker Change: On slide 9 you can see how we have delivered another year of sequential growth and maintained a 35% tagger in adjusted profit before tax over the last 10 years.
Speaker Change: We have demonstrated our ability to grow through a variety of market conditions and our continued momentum.
Speaker Change: We are delivering on our strategy ensuring that we have sufficient structural growth through product and geographic diversification to offset cyclical headwind.
Rob Irvin: I'll now hand over to Rob for a more detailed review of our financials.
Thanks Ian, and good morning everyone.
Rob Irvin: Turning to slide 11. As Ian said, we had another strong quarter. Q4 revenues grew 28% to $416 million, reflecting a strong level of plant activity and favourable market conditions.
Adjusted profit before tax, Group 55% to $81 million.
Rob Irvin: On a full year basis, we grew revenues by $350 million to $1.6 billion. Over 70% of this growth was organic.
Rob Irvin: Total costs increased 28% as we continue to invest in both our front office and our control and support functions to support future growth.
Rob Irvin: Adjusted profit before taxes, $321 million ahead of the guidance range we gave at Q3 earnings of $300 to $305 million.
Rob Irvin: Adjusted profit before tax margin, increased 200 basis points to 20 percent, demonstrating our platform's ability to deliver a scale benefit.
Rob Irvin: As I've said before, our non-operating adjustments of $25 million were primarily related to our IPO, and historic fees paid to our private equity shareholders.
Rob Irvin: As a result, we would expect minimal adjustments between our adjusted and our reported profit before tax metrics going forward, as seen in the third and fourth quarters.
Rob Irvin: Adjusted return on equity rose to 30% while adjusted diluted EPS was $3.7 per share, up 33% year-over-year.
Rob Irvin: As you can see on slide 12, all of our business segments delivered strong, double-digit revenue and adjusted profit growth for the full year.
Rob Irvin: Contracts cleared increased by 27%, well above the market volume growth of 7%, demonstrating again the market share games that Ian highlighted.
Rob Irvin: Adjusted profit before tax margin was 53% for the quarter in line with the full year.
Rob Irvin: Agency and execution revenue grew 22% to $192 million with a strong performance in both our security and energy businesses.
Rob Irvin: Securities revenue growth of 25% reflected the impact of the TD Cowan acquisition and organic growth within our rates and FX businesses.
Rob Irvin: Revenue in our energy business, Group 17%, reflecting continued high activity levels in European energy markets, strong demand for environmental offering and the benefit of our bolt-on acquisitions.
Rob Irvin: Our adjusted profit before tax margin within this segment improved to 19% as we continue to optimize and integrate our acquisitions.
Rob Irvin: Market-making revenue grew 19% to $45 million with strong growth across agriculture, securities and energy, more than offsetting a weaker quarter for metals.
Rob Irvin: Hedging and investment solutions revenue grew 20% to $40 million as a business benefited from our investment in growing our sales team and onboarding of new clients.
Turning now to Slide 14
Rob Irvin: Average balances in the fourth quarter increased to $15.5 billion, up from 10.9 billion in the fourth quarter of 2023. We have grown average balances every quarter this year.
Rob Irvin: As a reminder, these are daily average balances which we think are a better reflection on what drives our net interest income.
Rob Irvin: Q4 net interest income was $63 million. Take your full year net interest income to $227 million.
Rob Irvin: The full year in that interest income growth reflected a number of drivers.
Rob Irvin: Higher Average Fed Front Rates, which increased the 5.2% for the year.
Rob Irvin: Growth and average balances from 12.9 billion to 13.5 billion dollars, including the addition of TD Cowan's Prime Service business within agency and execution.
Rob Irvin: and in 2023, we carried some fixed investments in US Treasuries which have subsequently rolled off and been reinvested at higher rates.
Rob Irvin: It is important to note that net interest income does not just impact our clearing business.
Rob Irvin: Within Agency and Execution, Prime Services will be a growing contributor to their interest income as we continue to build out this capability.
Rob Irvin: and our market-making and investment solutions businesses incur interest expense as they use funding to support their activities.
Rob Irvin: As before, with given you our illustrative rate sensitivity, which indicates that a hundred basis points decrease in rate across a full year, would reduce adjusted profit before tax by around $20 million.
Rob Irvin: This is a course assuming a statically earned balance sheet and ignoring any future book growth. Taking this into account and our adjusted profit before tax increase of $91 million this year, we would see this as very manageable.
Rob Irvin: Turning to our balance sheet on slide 15, total assets increased from $17.6 billion at the end of 2023 to $24.3 billion at year end 2024.
Rob Irvin: This growth was primarily due to higher client activity levels and as we continue to grow and diversify our sources of liquidity.
Rob Irvin: As you can see, the majority of our balance sheet consists of high quality liquid assets which support client activity.
Rob Irvin: Looking by activity type, we can isolate buckets of assets and liabilities that net off against each other.
Rob Irvin: Once netted, we're left with a corporate balance sheet which can corporate cash and other assets against group liabilities, including our structured notes portfolio and senior note issuance.
Rob Irvin: It's important to emphasise that we maintain very low levels of net debt and leverage as our residual corporate balance sheet is relatively modest.
Rob Irvin: As you can see on slide 16, we continue to maintain prudent levels of surplus capital and liquidity, we support our investment-grade credit regions with both S&P and STH.
Rob Irvin: Our total capital ratio of 234 percent will above the minimum required levels and liquid headroom of over $1 billion, ensure that we're well positioned for periods of market term or
Speaker Change: And as you heard from Ian, we've announced a quarterly dividend of 14 cents per share to be paid on the 31st of March 2025 to share holders on record as at close of business on the 17th of March.
Speaker Change: Turning to slide 17, as usual, I will conclude with a view on risk.
Speaker Change: We have a proactive and involved risk management approach at Marex. In market making, we are a client, flow driven business, and do not take a directional view on prices. However, we do carry a small level of inventory to source client demand and capture the trading spreads.
Speaker Change: Average daily var, or value at risk, has increased slightly to $3.2 million in 2024, reflecting growth in our market-making business. However, it remains at a very low level.
Speaker Change: During 2024, we wrote off seven specific historical provisions which have previously been fully provided for.
Speaker Change: Within the P&L, we had a release of $1.7 million reflecting our proactive credit risk management approach, which has resulted in partial recoveries of provisions we'd previously taken.
Ian Lowitt: Now I'll hand you back to you for an operational update.
Thanks Rob.
Ian Lowitt: Nearly one year on from our IPO, we thought it would be helpful on slide 19 to remind you of the things we said we would do when we came to Market lost April and what we have delivered since then
Ian Lowitt: I've covered many of these already, so I will spend some time on the next few slides on how we are executing our growth strategy and gaining market share.
Ian Lowitt: In 2024, we continue to diversify our revenue base, increasing our presence in our growth markets.
Ian Lowitt: As you can see on slide 20, Amir is our largest market, generating 56% of Marrix's revenue and growing at a 34% Kager.
Ian Lowitt: Within a year, we announced the acquisition of UK-based FX Specialist Hamilton Court Group. This acquisition will expand our FX offering and complement our existing solutions business adding around a thousand corporate line.
[inaudible]
Ian Lowitt: We also announce the acquisition of Arna Capitol and Abu Dhabi-Bates Kering firm to expect it to add 135 new clients, posting $330 million of cash balances.
Ian Lowitt: The Middle East is an important market for us, and this acquisition will accelerate our growth while expanding our international fine base.
Ian Lowitt: The America is our next largest market, growing at 58% Kager.
Ian Lowitt: and now a significantly larger portion of our revenue total at 36%.
Ian Lowitt: During 2024, we fully integrated the prime services and outsourced trading business we acquired from TD Cowan, which generates around 70% of its revenue from the U.S.
Ian Lowitt: This contribution to growth in our securities business particularly in the second half of the year.
Ian Lowitt: While APAC is our smallest region, it's just 8% currently, is growing the fastest at a 69%
Ian Lowitt: We continue to see significant growth opportunities here with the clearing memberships of ASX and SGX that we added at the end of 2023 helping to expand our platform in the region.
Ian Lowitt: Turning to slide 21, our strategy has been highly successful in bringing new clients onto our platform with a total number of active clients increasing to over 5,000 by the end of 2024.
Ian Lowitt: It is also enabled us to increase the amount of business we do with our largest clients.
Ian Lowitt: The number of clients that generate more than $1 million of revenue has increased 17% around 270, while the clients that generate between $250,000 and $1 million has increased 16% to around 620.
Ian Lowitt: We see many more opportunities to offer more products to our clients that they experience the full value of propositions from the Marex platform.
Turning to 2025.
Ian Lowitt: We've made a strong start to the year with positive momentum continuing into the first two months of the quarter, reflecting strong levels of client activity on our platform, consistent with higher market volumes as reported by the exchanges.
Ian Lowitt: We expect to close the two acquisitions I mentioned over the next few months and continue to make selective, inorganic growth investments in line with our strategy.
Ian Lowitt: In terms of organic initiatives in 2025, as you've heard, we have momentum across all our business segments.
Ian Lowitt: In clearing, we continue to onboard new clients and expand our asset classes, including crypto futures and single stock options.
Ian Lowitt: As you are in 2024, we are ranked the number one non-bank FGM and 8 overall, are performing a number of banks, including BNP, Mizzouho, and UBS.
Ian Lowitt: In agents in execution, we continue to grow our presence in the securities market, allowing us to diversify our asset cost coverage and complement our strength in commodity.
Ian Lowitt: Our investments in prime services and capital markets, product lines have created additional growth opportunities for us as we can bring a wider range of complementary services to our
Ian Lowitt: In market making, we continue to see growing demands for our renewables and environmental offerings and to support our clients as they seek to meet their sustainability goals.
Ian Lowitt: and demand for hedging solutions in commodities and FX markets remain strong as we continue to make investments in our technology and expand our product and geographic coverage.
Ian Lowitt: These four closely interconnected services reinforce one another, produce multiple entry points for clients, and increase cross-selling opportunities for Marex across our platform.
Ian Lowitt: In conclusion, our diversified and resilient business delivered strong performance in 2024.
Ian Lowitt: We remain proud of the sequential growth we have generated over the past 10 years across a variety of market conditions.
Ian Lowitt: The scalable platform that we have built has also resulted in continued margins and return improvement.
Ian Lowitt: Our performance underpin the investment thesis we outlined and discussed at our IPO.
Ian Lowitt: We're also making progress with both our organic growth initiatives and inorganic investments to add new clients to the platform and expand the products offered to these clients and grow our market share.
Ian Lowitt: Finally, we are planning to host an investor day on the second of April in New York. We intend to use this as an educational session for investors with the aim of providing a deeper understanding of Marex and its businesses and allowing you to meet our management team.
Ian Lowitt: Just one year on from our IPO, you wouldn't expect any change in strategy, which as you've heard today we are successfully executing and it's delivering value for our shareholders.
Ian Lowitt: I look forward to seeing many of you there if not before and with that I'd like to open for questions.
Speaker Change: Thank you. Have a reminder to ask a question. Please press star one and one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press style 1 and 1 again. Once again, please press style 1 and 1. To register your question, to withdraw your question, please press style 1 and 1 again. Please, then, Bob, will we compare the Q&A roster? This will take a few moments. Thank you.
We are now going to proceed with our first question.
Speaker Change: The questions come from the line of Ben Budish from Barclays, please ask a question.
Ben Bredish: Hi, good morning, and thanks for taking the question. Maybe just to start, Ian, could you talk a little bit about the Q4 results? I'm specifically curious about the big step up in collateral balances. How much was due to onboarding new clients? How much was due to the kick up in volatility that might have driven collater requirements at the exchanges? How do those two pieces sort of factor in? And then, you know, we're a little over two months into Q1. Curious if you can give us an update in terms of what you're seeing quarter to date as well. You know, we're a little over two months into Q1. We're a little over two months into Q1.
Sure, Ben. Thanks for the questions.
Ben Bredish: So I think you know, as you sort of identified, I think that the...
Ben Bredish: You know, the increase in balance is a function of those two things that you've identified. So we are adding sort of clients to our platform.
Ben Bredish: and we're also sort of seeing average balances sort of increasing partly through an increase in business but also as a result of sort of increases in margin rates.
Ben Bredish: You know, it's hard for me to sort of separate it out into, you know, precise percentages for each of those. So, as you'd expect within clearing, there isn't.
Ben Bredish: It takes a while for clearing clients to come on to the platform so that the lead time is actually quite long and is measured in months or even in quarters.
Ben Bredish: So, you know, what you saw in the fourth quarter wasn't sort of the effect of just a very large number of clients coming onto the platform It was sort of part of a steady increase of clients through the course of the year which is continuing
Ben Bredish: You know, into this year. So more of it, I think, would be a function of sort of more activity and higher balances.
Ben Bredish: and that would be what we would be seeing, you know, continuing into this year. I mean, the one thing that I think I have referenced, you know, a few times as well, we are seeing is
Ben Bredish: us winning competitive mandates for some of the largest clearing clients, and so we're certainly seeing the impact of...
Ben Bredish: adding in not just small and mid-sized farms but some of the larger mandates and that will continue in a slow and steady way through the course of the year.
Ben Bredish: You know, your second question was around the first quarter. I mean obviously, you know, we're, you know, only two and a bit months into that.
Ben Bredish: So we don't know how the whole quarter will turn out. But the end.
Ben Bredish: I'm sure you and your colleagues will have seen, you know, exchange volumes have been...
Ben Bredish: It has sort of elevated both year-on-year as well as quarter-to-quarter, and we're certainly seeing the effect of that.
Ben Bredish: You know, the world is a more volatile place and you should see that in the volatility of underlying asset classes. And again, you know, that's sort of combination of increased volumes and higher volatility is clearly. Thank you very much.
Ben Bredish: The environment that is helpful to a business like Marex and represents the right kind of backdrop to the more structural trends which are adding clients and doing more business with them.
Speaker Change: Got it helpful. Maybe just one more kind of like in-the-weeds questions on the securities revenues within agency and execution. Those jumped quite a bit quarter over quarter as well as year over year.
Speaker Change: Yeah, maybe a similar question. Can you kind of unpack what's going on there? And you sort of talked about making progress with the legacy calendar, fine brokerage business and a customer base. Can you speak a little bit more to what's going on there? What specifically happened to you for it? And similarly, you know, how you see that opportunity into 25. [inaudible]
Speaker Change: You have, unfortunately, we have Paulo with us who runs that business, so actually I'll pause that one on to Paulo.
So I think what you're seeing is a growing momentum.
Thank you.
[inaudible]
It's a relatively high cost.
Speaker Change: High Cost Base, so the profitability increases quite significantly as you sort of get to scale.
Speaker Change: Thank you for having a second half of the year. So we really, you know, only in the second half of the year, did we really, I think, start adding the full, the full range of products and the full set of capabilities, which include capabilities around stock lending.
and Paul Contreras-Jones.
Speaker Change: Actually, when we talk about being on balance sheet, it's predominantly being able to provide that sort of, you know, that full range of foul and stock lending stock.
Speaker Change: The second half of the year is when we started winning Client Mandate.
Speaker Change: Quite a stable business, so in the second half we saw the impact of high levels of permissions and higher asset balances with those clients and it was quite progressive so through the second half we have seen improvements almost every month.
Speaker Change: And I think sort of just drawing on a theme, we've talked a lot about how part of what we look for in acquisitions is an opportunity to raise its underlying level of profitability by making it part of the Marex platform and offering clients a broader.
Speaker Change: in a set of services or capabilities that they had sort of previously, and I think that you know what we're seeing in...
Speaker Change: You know, this acquisition is completely consistent with that which is, you know, a good, underlying business, that business is continuing to perform well.
Speaker Change: But we're seeing lift as you make that a part of the Marex platform and broaden the set of things that are available to the clients that come over as part of those acquisition.
Thanks for watching!
Speaker Change: Okay, got it. I thank you and looking forward to seeing you in New York next month. Good, we look forward to seeing you.
We are now going to proceed with our next question.
Speaker Change: And the questions come from the line of Patrick Moley from Pipe Sandler, please ask a question.
Speaker Change: Yeah, good morning. Thanks for taking the question. Ian, you sort of mentioned it in your response to the first question you got there. But when you think about the just overall market share games you're seeing specifically in
Speaker Change: The Trading Business. You've talked about taking share from clients that the banks are just finding it harder and harder to service.
Speaker Change: As well as from smaller competitors that are finding it harder to compete so when you look ahead to the to the rest of this year and just going forward Where do you see the most opportunity in terms of those two parts of the market when it comes to market share games?
Thank you. Bye-bye.
Speaker Change: I mean, I suspect that the market check gains are going to be more...
Associated Wither
Speaker Change: sort of winning mandates with larger clients which is not to say that we don't you know look to add
Speaker Change: sort of mid-sized clients. But I think that as I sort of reflect on who it is that are coming on to the platform.
Speaker Change: You know, I think we're gaining share with, you know, small and mid-sized clients, but I think that...
What's distinctive at the moment is…
Speaker Change: Some of those logic lines coming on to the platform and that's probably the bigger driver of share So it's not to say that the other isn't it's just to say that I think that it's the it's the logic lines coming on to the platform that will be driving the the market sure [inaudible]
Speaker Change: Okay, great. And then just as a follow-up, you know, it's great quarter not much to nitpick, but if I was going to pick one I think it would be in the market making. [inaudible]
Speaker Change: Segment particularly in the metals market making looks like revenues dropped off pretty significantly there.
Speaker Change: So he's wondering, you know, I understand that there was some elevated activity around the middle of the year.
Speaker Change: But what drove the week's fourth quarter and how should we think about kind of a normalized level as we head into 2025?
Speaker Change: Rob, why don't you take that? When I start, so when you look at the performance versus the second and third quarter we saw significantly lower levels of volatility in the market after really strong levels of activity in the first part of the year and when you look at the fourth quarter versus the fourth quarter of last year we recorded a fair value adjustment.
Speaker Change: to reflect the open risk positions at year end, which we hold to service client demand, and compared to an immaterial adjustment in the prior year.
Speaker Change: So I think it's less a sort of indication of underperformance in the business and more a function of almost sort of technical accounting that drives that particular number talk.
All right. Yeah.
Speaker Change: Great, well congrats for the strong coordinate that's it for me guys.
Thanks, Patrick.
We are now going to proceed with our next question.
Speaker Change: And the questions come from the line of Kyle Voigt from KBW, please ask a question.
Kyle Voigt: Hey, good morning, everyone. Maybe a question on the on the margin profile of the business. Obviously, you're able to deliver 20% margins, adjusted margins in 2020.
Kyle Voigt: for maybe there's some puts and takes with that you had some benefits there from a stronger year overall from market making. Just wondering if you can think if you think you can continue to expand margins in 2025 off of the 2024 base.
Speaker Change: and within that, I think, agency and execution specifically has been a big driver of that margin expansion, margins are up 300 basis points year on year for the full year. Maybe you can also just comment how you feel about being able to drive additional operating leverage in that business so you can look into 25.
Kyle Voigt: Yeah, look, I mean, I think it's a great question. We've...
Kyle Voigt: I mean, here are some of the components of it. I mean, obviously
Kyle Voigt: As we grow, we would expect to see some amount of operating leverage we...
Kyle Voigt: It depends a little on how you grow and as you grow in a diversified way, you tend to add new products or new capabilities and new geographies and if you're in that circumstance you typically have to do quite.
Kyle Voigt: A lot of investment in your support and control areas to ensure you're growing in a safe way.
and if you're growing through.
Kyle Voigt: An increase in scale in an existing activity, then you are going to see some written scale, but I think that you know what you've seen and what you should anticipate is we're going to continue to make investments in our support and control infrastructure in a way to ensure that even as we grow, we're going to be able to do that in a very controlled way.
in a most of our...
Kyle Voigt: Competition cost is sort of very variable, and so again, as we grow we would expect that cost to continue to move. But there will be, you know, summer turns to scale. And when we think about the level of investment that we operate with, I think over some period of time, you know, that...
Kyle Voigt: Normalizer's out. So the combination of all those things, I think.
Kyle Voigt: What I think is the spot where we would expect margin expansion, you should not expect it to be dramatic.
Kyle Voigt: Bud, which you should expect, and we would hold ourselves to...
Kyle Voigt: You know, some slow margin expansion, you know, as we continue to grow.
Kyle Voigt: And I think exactly as you've identified, the place where...
Kyle Voigt: I expect that margin expansion to occur will be in, you know, the agency and execution space in capital market in particular. Where we're seeing the benefits of, you know, sort of restructuring. [inaudible]
Kyle Voigt: where there have been a series of acquisitions and we needed to integrate those effectively into the platform, where there's sort of contractor restructuring things of that kind. And so we believe that we'll continue to be an area where margins will continue to expand.
Kyle Voigt: That's great. And just for follow-off, the biggest reference slide 16, the capital requirement, that's on that chart there.
Kyle Voigt: of 309 million, it stepped up from 235 million that was shown as of last quarter. Can you just get a bit more color as to what drove that? I wasn't sure if that's that kind of gets re-evaluated once per year. And then also to remind us as P.D. Cowan and the prime business.
Kyle Voigt: So you're totally right, Kyle. We re-evaluate it on an annual basis. The firm is got bigger over the course of 23-24 and the step-up in capital requirement reflects that.
Thank you very much.
Kyle Voigt: Just a heads up, we can't really hear Paolo if he's
We're speaking.
Speaker Change: I was just saying that in relation to the second part of your question about the prime services business, it's relatively low capital intensity. So the impact of that business growing has been quite limited in terms of the capital requirement. The client activity is quite low leverage and it uses relatively little balance.
Great. Thank you.
We are now going to proceed with our next question.
Speaker Change: And the questions come from the line of Dan Fannon from Jeffries, please ask a question.
June: Hi, thanks for taking my question. This is June on behalf of Dan.
Speaker Change: Could you maybe just provide us with some thoughts on your M&N strategy going forward? The last deal was five, almost five months ago and so just looking ahead are there any specific product capabilities or maybe geographic coverage that you might be focusing on? Thanks.
Tillig, I think that we're... [inaudible]
As we sort of describe, we're looking at
Speaker Change: You know, number of things. I think so. The broad, the broad theme here is that...
Speaker Change: You know, a number of sellers, a limited number of buyers and what that does is it throws off, you know, a lot of opportunities, you know, sort of for us.
You know, add capabilities and add sort of regional coverage.
Speaker Change: I don't think there's anything specific that I would want to call out at this point, but I can say that we have an extremely active pipeline, it includes.
Speaker Change: You know, potential acquisitions in a number of different geographies, it includes things that are across, you know, a number of our businesses.
and Broadlead.
Speaker Change: We look for things that are across all of our segments, so we're not just focusing on one, so we're seeing opportunities in clearing, we're seeing opportunities in agency and execution, we're seeing opportunities in market making.
Speaker Change: Then if and when we get them to a point where, you know, we're in a position to sort of find an SBA. I don't know what you're that's that palo. Yeah, there are, there's no, there's been no, um, you know, slow down in activity. I mean, anything.
Speaker Change: by their nature going to be somewhat unpredictable in terms of signing and closing dates, but we have been very active.
Speaker Change: Okay, thank you. And then as a quick follow-up, the fixed investment that was reprised higher, are there any more tailwinds to yield from that sort of fixed reprising to come?
Speaker Change: Now, so this was a bunch of US treasuries that we had invested in sort of 22 which created a little bit of tailwind, sort of headwind as we went into 23. As those rolled off, we re-invested them at higher rate. You can see when you look at the yield, returned in the fourth quarter, we're much closer to Fed funds than we have been historically, and that's the benefit of those re-investments.
Okay. Thank you.
We are now going to proceed with our next question.
Speaker Change: And the question comes from the line of Alexander Blostein from Goldman Sachs, please ask a question.
Speaker Change: Hi, good morning everyone. This is Anthony Allen for Alex. I wanted to give a sense on your view of the current market environment, given the volatility and a lot of areas you can what has been your experience in previous periods of market volatility in terms of both market share and climate behavior.
I think that this is… [inaudible]
Speaker Change: This is an attractive market for Marex. You know, we're seeing higher levels of volatility across pretty much every asset class. We're seeing higher levels of sort of client activity because it's.
Speaker Change: Sort of more difficult for people to anticipate exactly where things are going to go in a variety of different views that is affecting the level of activity appliance.
Speaker Change: You know, an interest rate, at least, you know, for now seem, you know, still, you know, sort of quite high, obviously lower than the levels that we experienced last year, but they're quite high. So, you know, this sort of general matter, this is an attractive market for Marex. I mean, it's not.
Speaker Change: Disruptive in the way that we saw for the COVID quarter or for the Ukraine invasion quarter, so we're not seeing those kinds of dislocations. It's just a sort of general elevated level of...
Speaker Change: Volumes and a generally elevated level of volatility that's playing out across all our segments and all asset classes, so that's...
Speaker Change: An attractive sort of environment for firms like ours, and I think we're a firm that's built to take advantage of those, you know, those opportunities.
Speaker Change: and just just just to add to that because I think it's not some of this in the execution space is clearer, but you know, certainly it's
Speaker Change: It sort of helped with the level of activity, but, you know, as you see the growth in market share that's driven by adding clients.
Speaker Change: by adding capabilities by adding products and by adding people. So a lot of what we see in terms of increase in the agency and execution spaces is actually not just the benefits of more volatile markets, but the fact that we've added people and products.
Speaker Change: Great, that's helpful. And maybe just to follow up on M&A, what are your expectations on the piece of M&A in 2025 and whether you'd pursue large-scale M&A opposed to bolt-ones.
Thank you very much.
Speaker Change: It's difficult to do more than that but we will look to achieve something like that over the course of the year.
Speaker Change: and the more transformative transactions typically are a little bit less predictable in terms of when they come and how they progress, but there are more transformative opportunities that we're currently looking at.
Great. That's helpful. Thanks.
Speaker Change: Thank you. As a reminder to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. Do we grow your question, please press star 1 and 1 again? Once again, please press star 1 and 1 on your telephone and wait for your name to be announced.
We are now going to proceed with our next question.
Speaker Change: And the questions come from the line of Carlos Gomez, Lopez from HSBC, please answer the question.
Thank you everybody.
Speaker Change: and less scrutiny, less pressure than they have been in the past. Do you foresee any change in that competitive environment going forward? Second, could you give us some guidance about your tax rate in 2020? Thank you so much.
Speaker Change: Sure, so what's your guide for some of the first question? I think that
Speaker Change: You know, it's obviously one that we've thought about, you know, a fair amount and also are sort of quite attentive to. I guess my preliminary review on this, which is born out by existing experiences, you know, to the extent that US banks...
You know, I have a feeling that...
You know, they can sort of take on more.
Speaker Change: You know, it's unlikely that the way in which they're going to choose to do that is to expand out into the set of services that we provide I mean if you decide that you want to get bigger in clearing
Speaker Change: You know, that's more a matter of investing in your systems.
So updating how you're engaging with exchanges. Thank you.
Speaker Change: If your alternative is to allocate more capital, not to clearing, but to allocate that capital to creating opportunities or lending opportunities, I think it's more likely that banks are going to choose to
Speaker Change: You know, go down that path rather than try to build out businesses like clearing which they've been de-emphasizing in one form another for a while. And similarly, you know, agency and execution, you know, building that out.
Speaker Change: When you've been retreating from it for a while and you've done that for reasons that you know consistent with your strategy It's not obvious to me that they're gonna reverse that so
Speaker Change: You know, I think you'd probably write that banks will particularly in the US be more ambitious, they'll have, you know, a different way in which, you know, Rick Capitalist potentially assessed against various risks.
Speaker Change: You know, regulations may be applied in a sort of differential way, but I think it's much, much more likely that the way they respond to that is by, you know, increasing the amount of trading they do and the amount of lending they do than anything else and broadly if they increase. [inaudible]
Speaker Change: You know, talk potential clients for us and many of our largest clients are, you know, the largest financial institutions in the US who look to us.
Speaker Change: to help them gain the sort of access to market and market liquidity. So that's certainly the way it appears to be playing out at the moment. I mean obviously, what never knows, and you don't know what's going on within each institution, but that certainly feels to us to be...
Speaker Change: the way that it's likely that the banks respond and it's consistent with our current experience.
Speaker Change: With regard to tax rate ones, you'll take that on the road.
Speaker Change: Thanks Ian, so our tax rate in 2024 is 26.3% is exactly where we expected it to come in. It's down versus 23, primarily due to the decrease in the number of non-detects.
Speaker Change: deductible items and where I'd expect it to go going forward, it's expected to be between 25 and 26 but it will depend a little bit on the geographical split of profits each year.
Ian Lowitt: Very good, thank you and look forward to seeing you in here.
Thank you very much. Thank you.
Ian Lowitt: Thank you. We have no further questions of this time. I will lie ahead and back to you for closing remarks.
Speaker Change: Well, thank you all for joining the call. I mean, obviously we're very proud of what we accomplished in our first year as a public company. We're proud of what we did in the fourth quarter and what we delivered in 2024, and I think as you hopefully got a sense.
Speaker Change: You know, from our response to many of your questions, you know, we're very excited about 2025. We've had a strong start to the market environment.
Speaker Change: It's certainly one that is supportive for our particular services and we're certainly seeing a great deal of engagement with our clients So
Speaker Change: You know, obviously, still, you know, early days was regard to the year, but it's certainly.
Speaker Change: in a very good start to the year. I will look forward to.
Engaging with some of you at our Investor Day.
and Ed as we indicated in the remarks.
Speaker Change: You know, it's really an opportunity to get to know our management team a little bit better for us to go into our businesses.
Speaker Change: You know, there's no big change in strategy, there's no big reveal but it is
Speaker Change: An opportunity for us to engage with investors and analysts and have you understand, Marex, to an even greater extent than what you currently do. So thank you.
Speaker Change: for your attention and engagement and questions, and we look forward to seeing you all over the course of 2025.
Speaker Change: This concludes today's conference. Thank you all for participating. You may now disconnect your lines because please stand by. Thank you.