JTC PLC (2N9.F) Earnings Call Transcript & Summary

Hello, and welcome to the JTC PLC 2022 Interim Results Presentation. My name is Luke, and I'll be your host for today's event. Please note that this conference is being recorded. [Operator Instructions] I will now hand over to your presenters for today.

Good morning, everyone. Welcome to the presentation of JTC PLC's interim results for the period ended 30th of June 2022. I'm Nigel Le Quesne, the Group CEO; and presenting with me as usual is Martin Fotheringham, our Group CFO. If we can turn to Slide 1 and the agenda. In the next 30 minutes or so, I will present my CEO highlights for the first half of 2022, and Martin will run through the financial review. Then we'll follow up with a more detailed business review of the period, covering industry trends, the group and the 2 divisions before taking a deeper look at how JTC continues to demonstrate high levels of resilience despite the ongoing macro challenges we see in the world today. Later, we will also provide more detail on how our growth engine strategies work in practice to deliver long-lasting value to the group. Then finally, on to our key takeaways from H1, a summary of early progress in H2 and our outlook for the rest of this year and early 2023. We will then open the forum up for questions. We're very pleased with the results achieved in the first half of 2022, which carried through the momentum from a strong 2021, our 34th consecutive year of successful growth. Despite continued macro volatility, the business traded well, once again demonstrating the outstanding resilience of the JTC business model, more of which later in the presentation. Especially pleasing is that we achieved results in line with all of our well-established medium-term guidance metrics with period-on-period revenue growth of 38.8% and underlying profit growth of 40.1% delivered at a group margin of 33%. Our net organic growth remained strong at 9.5% or 16.2% gross, up 1.9 percentage points period-on-period. In addition, we substantially reduced our net debt by 0.7x to 1.6x underlying EBITDA, which is at the bottom end of our established guidance of 1.5 to 2x. Particularly pleasing from an organic growth perspective was an increase of 22% of annualized new business wins to GBP 12.6 million, marking our best 6-month period ever. With 2021 being a record year for M&A with 7 deals completed, the first half of 2022 has seen a natural period of consolidation with a focus on the smooth and thorough integration of the businesses acquired last year onto the JTC platform. As noted in our July trading update, all integration programs are nearing completion and have settled in well. Post period end, we were delighted to announce the acquisition of New York Private Trust Company based in Delaware, subject to regulatory approval. This acquisition will complete an attractive multiple, is strategically important and will take us into a position where we are recognized as one of the top independently owned trust company groups in the United States. More generally, we continue to maintain a pipeline of potential M&A opportunities that span both divisions. The ICS division has had an outstanding 6-month period driven by recent acquisitions and building upon incremental improvements made to the operating model. The division now accounts for over 2/3 of group turnover and increased revenue by 59.7% and underlying EBITDA by 72.9% period-on-period. It also enjoyed new business wins of GBP 8.5 million, up 77%. Pleasingly, the margin increased by 2.4 percentage points to 31.5% driven by further incremental gains in ICS operations driven by the Blueprint initiative. We're particularly pleased with the performance of the JTC Employee Solutions business, the former RBC cees, and the SALI Fund Services business in the United States. These 2 acquisitions epitomize the resilient growth engine that sits at the heart of JTC and in particular, they demonstrate our ability to add substantial long-term value to the group through client contracts that are measured in multiple decades. The PCS division on the face of it has been relatively quiet but once again has posted a strong performance, maintaining its position as the preeminent global trust company business. The division delivered revenue and EBITDA growth of 8.4% and 3.5%, respectively, at a margin of 36.3%, well within our guidance range, as well as recording strong new business wins of GBP 4.1 million. These results are particularly pleasing when taking account of the ongoing investment in the division to retain our market-leading position together with the upfront investment and the onboarding of the Amaro mandate, which you'll recall was the largest ever won by the group for white label services to a U.S.-based global banking institution. It's worth noting that the Amaro win, which was secured in 2021, will be revenue-generating from early Q4 at an increased annualized rate of $3.95 million, a 28% uplift from original estimates. To give an indication of the scale of the mandate, it will deliver over an additional 2,500 new entities onto our platform. Amaro, together with other related projects, suggest a particularly strong H2 for the division. And with the addition of NYPTC to follow, we should see further acceleration in 2023. You will recall our current business plan is to double the size of the business in the Galaxy era, which commenced on the 1st of January 2021, setting a target of GBP 230 million of revenue and GBP 78 million of EBITDA. With an accelerated start to our M&A activity in 2021 and good organic growth throughout the period, having anticipated a journey of up to 5 years initially, we are currently estimating that Galaxy will complete in closer to a 3-year time frame, absent of any further M&A, which is very pleasing progress to report at this stage. Finally, I would like to conclude my CEO highlights as a reminder of the shared ownership program we introduced 25 years ago on the most recent distribution of GBP 20 million in JTC stock to our global team. These latest awards were fully deserved by the team that I remain incredibly proud to lead, and I wanted to take this opportunity to thank each and every one of them for their contribution to our ongoing shared success. So let's turn now to Slide 4 and the financial highlights. Our revenue grew to GBP 93 million and underlying EBITDA rose to GBP 30.7 million, delivered at a group EBITDA margin of 33%. Pleasingly, our net organic growth was 9.5% or 16.2% growth with an attrition at 6.7%. As mentioned, our annualized new business wins were a record GBP 12.6 million, up 22% period-on-period, and with good impetus seen into H2. Win rates were strong across both divisions. And at the end of H1, we are running well ahead of the top end of our current target of 35% to 40% at 46%. Our new business pipeline at the end of H1 stood at an all-time high of GBP 52.2 million, up 15%, with again good momentum carried into H2. The lifetime value of work won in H1 was approximately GBP 124.8 million using the industry-based 10-year average client lifespan. This compared with GBP 94.4 million, putting us in a very strong position to beat the record total of GBP 200.8 million achieved in 2021. And finally, on to the interim dividend, which we have declared at 3.1p per share, up from 2.6p in 2021. Now over to Martin for a deeper look at the financials.

Thank you, Nigel. We started 2022 well. Our organic growth has continued to be at the top end of our guidance range. We've improved our underlying EBITDA margin, and strong cash collection has meant we've reduced leverage levels by 0.7x in the first 6 months of this year. Our financial highlights are set out on Slide 7 but can be summarized as follows. Revenue grew overall by 38.8% with organic growth at 9.5%. Underlying EBITDA improved to 33%. And this margin is now in line with our medium-term guidance range. Interest rate increases have not significantly impacted our cost of debt in H1. And as a result, our underlying EPS is 33.3% (sic) [ 35.3% ] higher than the same period for 2021. As is normal for our business, we've delivered a cash conversion result in H1 in excess of 100%. Whilst our net debt is significantly higher than the position 12 months ago, it has reduced by GBP 21.1 million in the first 6 months of 2022, and this has contributed to the material decrease in leverage. Our interim dividend of 3.1p per share is a 19% increase on the 2021 dividend. Let's now look at trading for the first 6 months in more detail and start with revenue, which is on Slide 8. The slide shows organic and inorganic revenue growth on an LTM basis. Gross new organic revenue was GBP 20 million, an increase of 22% from 2021. The proportion of the organic growth coming from existing clients was 56% and new clients 44%. Both of these are consistent with H1 2021 levels, which were 54.7% and 45.3%, respectively. Net organic growth in H1 2021 was 7.6%, and we've improved this in half 1 2022 to 9.5%. We're confident of continued strong performance in H2 moving into 2023. Attrition was GBP 8.2 million in the year. 97.9% of non-end-of-life revenue was retained. We increased our LTM new business wins by 19.7% to GBP 23.1 million. And of that, GBP 11.4 million has not been recognized to date in our results. We're still to recognize any revenue from Project Amaro but will now do so from the first of October. We've seen material new business wins in the second half of 2022. Our pipeline at the end of the period was GBP 52.2 million, a 9% increase from the position at the end of 2021. Let's move to Slide 9 to look at the net organic growth in more detail. You may recall we were comfortably within our guidance range for the full year 2021, and we indicated we expect a continuing improvement through 2022. We stand behind this. Looking at the divisions. PCS organic growth fell to 4%. We expect a strong rebound in H2 as Project Amaro finally comes on stream and other recent wins also start to make meaningful contributions to revenue. Amaro is now confirmed at an annual value of GBP 3.2 million against our initial estimate of GBP 2.5 million. This excludes additional opportunities for us, whereby the bank are keen to transfer the administration for their clients with AUA of less than $50 million. We increased the number of PCS clients generating more than GBP 100,000 per annum from 77 to 84. Our 3-year average organic growth for PCS was 8.6%. This is well within the medium-term guidance. ICS organic growth was 14.1%. 2/3 of this growth was volume-driven with the biggest contributions coming from Luxembourg, the Channel Islands and the U.K. We're very pleased to see double-digit growth in our employer solutions business. Additionally, with material growth opportunities in the U.S.A. for ICS. You'll see that in ICS in the last 12 months, we've increased the number of clients generating revenues in excess of GBP 500,000 per annum from 19 to 34. We're starting to see real momentum build in our cross-selling initiatives. Our banking and treasury solutions will make meaningful contribution to growth in 2023. We've also had real success in securing fund administration work out of the core SALI book. We currently contracted close to $3 million of additional revenue from this source. Turning now to EBITDA on Slide 10. The underlying margin in the period increased from (sic) [ by ] 0.3% to 33%. This is now within our medium-term guidance range and is consistent with what we said would happen as we integrated the 2021 acquisitions. We've been really pleased with the progress we've made with all of the acquisitions and particularly with RBC cees and SALI. The ICS margin improved again, coming in at 31.5% against 30.2% in 2021. This is a result of the revised operating model as well as the impact of the 2021 acquisitions. We do continue to invest in the business and have made meaningful investments in areas of the business which have yet to generate a material revenue contribution, such as our funds license in Ireland, our ESG practice and our operational due diligence business. The PCS margin was 36.3%, which is at the same level that we had in half 2 2021. The delay in realizing any Amaro revenues has adversely affected the margin. And yet despite this, the division has delivered margins that our competitors would be proud of. We announced the acquisition of the New York Private Trust Company in late August. That is a deal that's taken a long time to get regulator approval due to the fact that we'll be the first nonbank and non-U.S. business to be granted such a license. We'll pay $50 million in consideration and acquire in excess of $2.9 million of EBITDA on revenues of $9 million. We have recruited ahead of that acquisition and have been carrying $600,000 of annual costs that will be associated with that business. This cost has been carried in the reported PCS margin. Without this cost, the PCS margin would have been close to the top of the guidance range. We do continue to devote significant time and cost to maintaining strong relationships with local regulators and ensuring that our staff are comprehensively trained in an industry that's dynamically evolving. I said 6 months ago, I expected margins would stay at the lower end of guidance. Clearly, there are strong inflationary pressures globally. We've reviewed the impact of these and are confident that we'll be able to absorb them. We've been able to grow successfully for many years, and that is because we've never stopped investing in the business. We remain committed to this approach. I'm going to wrap up now looking at cash, net debt and leverage. So on Slide 11, you can see that we had a 101% cash conversion in the first 6 months of 2022. The comparable for 2021 was 108%. Trading momentum has built up steadily through half 1 of this year, and June was our best-ever month, and this explains a drop in cash collection from 2021. I'm happy to say that July and August cash collections have been really strong and are ahead of budget on both divisions. We are very confident of delivering full year results within our guidance range of 85% to 90%. Moving on to net debt on Slide 12. At the end of 2021, we had net debt of GBP 113.3 million. By the end of the period, this stood at GBP 92.2 million, a decrease of GBP 21.1 million. There were no acquisitions or deferred consideration in the period. Our cash balance did benefit from high U.S. dollar cash balances that we held and from the strengthening of the U.S. dollar. We now have debt facility of GBP 225 million, which was secured on October 21 and the GBP 69.3 million currently undrawn. The facility expires in October 24. And currently, we're in the process of extending it by 1 year and expect to ultimately extend the expiry to October '26. The margins we pay are based upon leverage levels as follows: where leverage is greater than 2x, 190 basis points; where leverage is greater than 1.5x, 165 basis points; if leverage is greater than 1x, 140 basis points; and where leverage is less than 1x, 115 basis points. On Slide 13, you can see that our leverage now stands at 1.61x, and that is well within our guidance range of 1.5 to 2x. We've reduced leverage by 0.73x in the last 6 months, clearly demonstrating that without any acquisitions, we'll generate a strong free cash flow. We'll pay for NYPTC out of cash, thereby increasing leverage, but remain well within guidance by the end of 2022. And now back to Nigel.

Thank you, Martin. I will shortly provide a deep dive into both the resilient performance of the group over our 34 years, navigating periods of macro uncertainty and how we combine our organic and inorganic growth strategies to consistently generate long-term value. But before that, we'll look at industry trends, the performance of the business, and in particular, the 2 divisions for the first half of the year. Starting at the group level. When presenting our full year '21 results back in April, I highlighted 2 important themes: the ongoing macro uncertainty and industry consolidation. The uncertainty we were experiencing has continued into the ensuing period with inflation and rising interest rates a feature. As a result, we appear to be seeing the early signs of a slight slowing of the hitherto rapid consolidation within our sector with pricing expectations of vendors still holding at 2021 levels on the one hand, but with the cost of debt rising, buyers naturally becoming more discerning about the pricing and quality of deals, creating a temporary hiatus in the market. I believe the slowing up is only short-lived and in the medium term, the consolidation will continue with renewed impetus. Inflation is something we're also monitoring closely, particularly in the context of employment costs, which account for 51% of turnover. We anticipate that we will need to increase salaries to combat the inflationary pressures at the year-end. We do, however, have several levers to mitigate our exposure here. Most importantly is our ability to pass this on to the clients in the form of higher charge-out rates and embedded contract indexation. In addition, our shared ownership credentials and the progress towards achieving our Galaxy goals earlier than anticipated will also assist in managing staff turnover, a historic strength of the business. Interest rate rises are also a consideration for the group, as Martin has mentioned. But as in the slide, our newly developed group banking revenues improve as rates rise to provide some assistance with their own interest exposure. On that subject, it's particularly pleasing to see the time and investment we have made in the development of our group banking platform and our international tax compliance practice coming to fruition as profit centers in their own right, with both making meaningful financial contributions to the group this year. Turning now to the 2 divisions. As I've mentioned, both have performed strongly in the first half of the year but are at different stages of their investment cycles. The ICS division has been the star performer with significant revenue and profit growth as the quality of the acquisitions made in recent years becomes evident. The incremental margin progression seen last year has continued, and the margin for H1 improved by 2.4 percentage points to 31.5% of underlying EBITDA. The employee solutions business continues to reveal itself as one of the best acquisitions we have ever made with good growth and strong margins. In the U.S., the SALI, Segue and EFS businesses are all performing as expected, and the work to bring them together alongside existing platform has progressed well. We remain very excited and ambitious for our ICS business in the United States. SALI, in particular, as anticipated, has introduced opportunities from a number of the top U.S.-based global private equity houses, which we are very excited about. And these will begin to generate revenues in H2 and into 2023. The quality of these client introductions will assist in providing the platform for and underpin the integrity of our U.S. funds business for the future. Closer to home and just after period end, we were delighted to receive our fund administration license in Ireland. This means that through a combination of legacy JTC business, plus the acquisitions of INDOS and Ballybunion, we have now a compelling and comprehensive offering in Ireland that spans corporate fund, depository and ManCo services, all delivered within a 3-year time frame. Turning to our PCS division, who by comparison and on the face of it had a quieter H1, the team have delivered solid revenue and profit growth and an impressive GBP 4.1 million of new business wins. The H1 margin was 36.3% of underlying EBITDA, well within our target range. The investment in the Amaro mandate and related opportunities are poised to start delivering, which leaves the division very well positioned for a strong H2 and into 2023. The acquisition of NYPTC in Delaware is a key step to establishing the main platform for our move into the U.S. domestic market, and we are excited to add this business and jurisdiction to the group, subject to that final regulatory consent. And finally, as anticipated, as a result of our recent M&A activity, the group service mix has now shifted to 76% fund and corporate services from 71% and 24% Private Client Services from 29%. There is no doubt that during the last 2.5 years, the world has experienced several natural and man-made disasters, which in turn have led to significant macro challenges. Like any business, we are focused on finding the best way to navigate challenges of this nature, and what is evident from our performance over 3.5 decades is that JT enjoys an extremely resilient business model with the obvious follow-up question being why. On the left-hand side of the slide, we have our investment case, which was put together for our IPO in 2018 and which in reality has existed for most of the lifetime of the group with the 8 component parts being consistent throughout, all of which you will be familiar with. Supporting this is the fact that the demand for our services is created by long-term market trends, which include increasing regulation, a growing propensity to outsource, globalization and rising global wealth, all accelerated by underlying sector consolidation with no one business having more than a 5% share of the estimated global addressable market of GBP 12 billion per annum. On the top right-hand side of the slide, we have tracked the major market disruptions from 1987, the year JTC was founded, to the present day. These run from Black Monday through to Russia's recent invasion of Ukraine. Beneath these market disturbances, we have plotted JTC's revenue and profit growth measured as underlying EBITDA since 1987. What is hopefully evident is the fact that JTC is a business which has historically not been adversely affected by market volatility, achieving 34 consecutive years of revenue growth and profitability almost irrespective of the macro environment. And based on the current outlook, we are well set in 2022 and 2023 to continue this trend. To further outline this point, the final graph demonstrates the enhanced lifetime value of the JTC book and the typical life cycles we are now enjoying. As you can see, post system, we have delivered consistent growth to the value of the client book from GBP 400 million to GBP 1.27 billion, and we have also increased the typical client life cycle from 12 to 14 years, well above the market benchmark of 10 years that I alluded to earlier. We're understandably proud of our track record and these results, but they are no accident. They have been achieved by creating a well-constructed and incredibly resilient platform that's been meticulously maintained and carefully nurtured year after year, all underpinned by our powerful culture of ownership for all staff. This is not to say that sustaining this resilience and consistent growth has been simple as market trends, competition and global expansion among the ongoing challenges to navigate. However, our ability to adapt, innovate and accelerate to meet an ever-changing environment has been essential as is the delivery of entrepreneurial insight and the design and maintenance of a resilient growth engine. Having explained why JTC is so resilient, I now turn to how we achieve our growth. I mentioned on the previous slide that our industry remains a hugely competitive and challenging environment in which to continually deliver returns. In this regard, only a small proportion of what goes into our successful model is surfaced in the form of our results with all the ingredients that go into maintaining a growth engine requiring a holistic delivery in all aspects of the business, carefully nurtured by an experienced and entrepreneurial management team. As demonstrated on the slide, there is a complexity in the mechanism with the key to success being multifaceted with a need to carefully synchronize all of the components to operate in unison with others to deliver forward impetus, enabling us to accelerate success over time. Firstly, as you would expect me to say, underpinning everything at JTC is a well-established group culture, which is primarily supported by the ownership for all employees in the group. Whilst our culture is undoubtedly a key strength, it can never be taken for granted. Work is constantly required to retain the essence of who we are, and it goes into all aspects of developing our most valuable asset, the JTC team. Thanks to this, we enjoy very low staff turnover compared to others in our industry. The next layer is our global platform and client base with 10,000 clients from over 150 countries with over 50 service lines delivered by 1,400 professionals housed in 30 offices and in 20 jurisdictions all carefully developed over time, resulting in repeat revenues of around 98% year-on-year. In addition, the client base provides us with regular feedback on the market by exploring and understanding their challenges and creating a valuable feedback loop where we've been able to develop new services and capabilities. In addition to this, we layer challenging business plans onto the group, currently our Galaxy era, to set out our clear ambitions to drive and accelerate growth. Last of all but absolutely key to driving that growth is the ability to bring entrepreneurial insight to the business by capitalizing on our experience and expertise. By tracking trends in the market and client appetite, we are able to develop new capabilities for which we already have a captive client base. For example, over the past 3 years, we've introduced services and capabilities that we historically outsourced and created new sources of group revenue as a result, including group banking from which we anticipate high-margin revenues of over GBP 7 million this year with an even greater contribution anticipated in 2023. We've also developed a multi-jurisdictional international tax compliance practice capable of providing tax compliance reporting and related services across our whole platform. And it's worth noting that this team were an essential component in our ability to land the Amaro mandate and would generate approximately GBP 5 million in 2022. In both cases, the addition of these services has led to our winning new clients in their own right and have increased the value and longevity of our existing client relationships. They also allow us to view M&A opportunities through a different lens, applying the cross-sell potential to our considerations on pricing. To accelerate our group performance, our approach of encouraging the surfacing of ideas, enabling and fostering talent has created an innovative and entrepreneurial environment, which we call advantage through insight. What this ultimately amounts to is a client book where the average mandate size, overall quality of the client engagement and relationship lifespan are all increasing over time, an ever-growing suite of best-in-class services that facilitate and drive organic growth with both existing and new clients. JTC becomes an even more attractive home for other businesses due to the wider range of services available as the sector continues to consolidate, all resulting in a growing platform and client base that enables economies of scale to be realized as we invest in our talent, operational capabilities and technology with a top-quality service suite. To summarize, our entrepreneurial approach is often overlooked as a vital component of our resilient growth engine. It enables us to remain successful in both good and bad times and creates the opportunity to shape our own future and add long-term value to the group. Finally, on to our key takeaways. First half of 2022 has seen a strong performance across the group, delivering within all of our well-established guidance metrics, providing good acceleration in the Galaxy era and the doubling of the business achievable in closer to 3 years. The business continues to demonstrate exceptional levels of resilience. And with our proven business model and understanding of the sector drivers and tailwinds, combined with some JTC secret sauce, we remain confident about future performance even in times of macro volatility. Organic growth remains strong with record new business wins in the period and a healthy pipeline carried into H2. The integration programs of the 7 acquisitions made in 2021 have all progressed well towards completion. We continue to see opportunities for further M&A across both divisions, and we were pleased to announce the NYPTC deal post period end. The Board is confident that the group will deliver very strong full year results with good impetus into 2023. Finally and importantly in this environment, we maintain our well-established guidance metrics. So thank you for listening and for your ongoing support. We'll now be happy to take your questions.

[Operator Instructions]

Great. Thanks very much. Good morning to everybody. We can see some hands raised. So if we could go to Calum Battersby from Berenberg.

Three questions for me, please. So firstly, can I just please ask about the new trends you're seeing in terms of client behavior in the first half? What jumps out is that it looks as if client attrition is continuing to come down. I just wonder if that's something that fits to how kind of do you think clients are currently behaving. I'm kind of wondering how that compares to how clients paid in other periods of macro uncertainty. Then secondly, I wanted to ask about the Amaro contracts. Firstly, is it expected that the $4 million of revenues come through in fall in '23? Or will there be a bit of a lag there? And then do you have any update on the ultimate opportunity that comes from this relationship given what you said in terms of potentially the ability to evolve other clients onto that platform in time? And then final question. Just because you mentioned that you have bank revenues directly tied to interest rates, I just wonder if there's anything more that you could say to approximately state the size of those revenues and kind of how direct that relationship is.

Thanks, Calum. It's Nigel Le Quesne speaking. I'll deal with Amaro. Martin wants to pitch it on the new trends piece. Yes, we should see $4 million in 2023 to answer that question directly. And then with related revenues, you'll recall perhaps that there's a possibility for all clients that have less than $50, 5-0, million worth of revenue to be transferred to an alternative service provider with JTC put forward as the option. We're beginning to see some traction from that, which is separate and distinct from Amaro itself, which is sort of the white label end of the services. So a bit early to say how successful or otherwise that might be. But there's potential for between $1 million and $2 million there as well, I think. And no doubt, as we go through the process, other things will develop. I think we've had 28% just in scoping the Amaro contract uplift in scoping Amaro alone. So it tends to be something where you get busier rather than less busy with regard to those mandates, and they're probably there for decades in all honesty. Martin, do you want to pick up that new trends piece?

Calum, so on the attrition point, I think if you look at Slide 16 in the deck, you'll see that we've done some work about the longevity of the book. And so last year, we bought the cees business and also the SALI business, and they've got 30- or 40-year contracts. And with those, clearly, there is much less attrition because of the really sticky nature of them. So I think that in time, what we'll see is that attrition number should trend downwards, and we're starting to see that. So I think that's what you're probably seeing in the numbers this time around. And I think that that's something that we'll probably see a bit more of going forward as we've increased the longevity of the book. You asked as well about the interest -- the bank interest income and if there was a direct relationship with the cost and rates. I don't think there is. I think that it's a separate income stream in its own right. So there isn't a straight one-to-one relationship there. That's a revenue stream that we've generated and that -- as Nigel said before, the whole banking services is something that we've been really developing and we're starting to see some real traction on that.

Yes. I don't think we've got the precise delta between them. But the reality is, for example, with our banking platform at the moment, one of the banking partner, HSBC, I think any interest rates we get from that, we get the whole uplift at the moment. So there definitely is some sort of compensation there, but as I say, it's quite difficult. And as Martin says, we sort of tend to lump it in with banking revenues more generally, which are looking like sort of GBP 7 million this year. That will include FX and other elements there, but with more to follow.

Could we go to David Brockton from Numis, please?

May I ask 2 questions, please? Firstly, you touched in the presentation there about cost inflation. And I just wondered how easy that is to automatically pass back through contract structures, to what extent is the split between sort of embedded contract indexation and to what extent is the revenues derived from fee rates where it's more of a negotiation? That's the first question. The second question relates to M&A. You touched on some of the reasons why there might be -- there has been a pause in short-term activity, but you expect that to be short-lived. When M&A resumes, where should we now view the sort of the priority for growth? Is it still the U.S. in terms of expansion?

Thanks, David. Yes, I think on the cost inflation and wage inflation in particular side, I think it is -- the work we've done within the business, which we're looking at the last few months, we should be able to pass the vast majority of it back to the client base. Obviously, we're a time and materials business. Therefore, charge-out rates of individuals go up and expected indexation now. I think we all expect to see a little bit more on every bill that we receive as a -- as individuals as well as an organization. And then there are contracts that have got indexation in them and others where that isn't specific, then those conversations we had. But generally speaking, we feel very comfortable actually around that particular thing. Yes, back on the M&A front, I think it is short-lived. The hiatus is just a sort of rebalancing of pricing. And I do think probably when things -- the impetus comes back, I think that we will see perhaps more reasonable pricing that we were beginning to see back in '21. And for us, U.S. remains a priority, but it's not necessarily the only market we're looking at. Obviously, U.K., Ireland, Luxembourg, those sort of locations are also important to us. So -- but I would say U.S. is probably a priority for us to answer the question directly.

Can we go to Rob Plant from Panmure next, please?

Last year, you mentioned in PCS the need for some investment in areas like compliance and technology. That statement is repeated in today's announcement. Has the pace or scope of that investment changed?

Thanks, Rob. No, I think it was an ongoing thing. The -- certainly, the regulatory regime, as I think I highlighted last time, are getting more difficult and the expectation of more investment in terms of people and technology is expected. So what we have been doing is sort of bolstering that over a period of time. I haven't actually got the percentages with me. But I think the PCS -- probably behind that, the PCS margin has obviously been affected also by what is a huge onboarding exercise on the Amaro mandate as well. So we're really well poised there in H2 just with Amaro coming through and 1 or 2 other sort of long-term bits of work actually falling in, in H2. So I think we should see the PCS margin actually improve in the next 6 months or so.

Could we go next to Dan Cowan from HSBC, please?

Can you hear me okay?

Yes.

Yes.

Excellent. I was wondering if you could talk a bit about SALI and how that is developing. It sounds like things have come on quite a bit since April and you were -- when you were sounding perhaps a little bit more cautious on the -- on those revenue synergies in fund admin. Can you talk a bit about that, please, how that's shaping up? I think the target was $7 million annualized revenues. I was just wondering where that's tracking now. And the second thing is on competitive behavior in the sector. I know things have been reasonably sensible in terms of pricing and other things. But I was just wondering how you see your peers behaving in the current environment, please.

Dan, just on SALI, yes, really, really pleased with how it's going. They're picking up some big, if you like, organic growth within the core business itself. But I think the question is probably more related to the, what we call the Apple exercise of converting fund accounting from the SALI book. We're about GBP 3 million as we stand, which is a big acceleration from where we were at the beginning of the year. And that was really nothing more than us just making sure we've got all the right ingredients in place to go after the clients' success rate. It's about 90%. So I think we've converted 34 of 38. And to give you a bit of an idea, we're talking about top private equity names, global private equity, U.S.-based firms, which have to talk about off-line in terms of that. So we've seen plenty there. We've got, I think, 300,000 new IDFs as well where the administration is coming straight in. And there's other elements that sort of widen that out into, as I call it, new incentive fee calculation revenue for the group where we do that for them. And there's an opportunity for us to cross-sell our operational due diligence work as well, chasing a big mandate in relation to that. So there's also sort of U.S. tax compliance opportunities with us there as well. So really, really pleased with the acquisition, the people and the opportunities it's creating for us. In terms of competition, Dan, was that more in relation for M&A? Or is that sort of just generally?

Pricing point of view?

Well, I think in terms of uplift in charge-out rate and rates more generally, what we're hearing is that, that is being priced into their client relationships, be they time and materials business or otherwise. So everything we're hearing is that if we were going to meet our inflation, wage inflation, by going back to clients, everybody is doing exactly the same thing, some actually more aggressively than others.

I see about a couple more that want to ask questions. Can we go to Michael Donnelly, Investec Bank please?

Can you hear me, okay?

Can. Thank you, Michael.

So just 2 quick ones from me. Nigel, could you comment, please, at a high level on the activity you've seen around new fund launches in the industry over the first half, specifically on alternative funds? I'm thinking about the sort of pause in activity that we saw affect your peers back in year 1 of COVID that was pretty well flagged at that time. And then secondly, on that -- one for Martin perhaps. On the 14-year average contract length slide that you showed us, do you expect that, that number will continue to track off as long-term growth trend? And is it likely or possible that we'll get to sort of 20-year duration in due course?

So I'll go first, Michael. With the activity on new fund launches, obviously, we're having a really strong patch of new business wins and new business wins across the platform generally. I don't think we're as correlated to the sort of alternative new fund launches market as others might have been in our space historically. So -- but I suspect in this sort of environment, it's obviously having an effect on new, new fund launches. But we tend to find a couple of things compensate for that. One is there's a longer hold on existing funds normally because it's not a market into which you want to be selling. You can sometimes get distressed assets, so you get more activity around our existing books. And probably the last one from our perspective, which is sort of where we're beginning to place ourselves, you probably see people seek that lighter operating model, which was a feature of COVID for us in terms of the sort of larger mandates that have been coming, some of which are coming to fruition now, and I suspect we'll see even more of that. So I think the answer is probably affecting, Michael, although I haven't got that segmented, but we're having a very strong run. So I think we're slightly positioned differently in the market than others who might have been adversely affected by it in the past.

On the question about the average length of the contracts, I think 14 years is that -- that's a good reflection of what the book looks like today and how that moves in the future will be dependent on where the growth comes. I think if we see more growth in SALI and in the RBC cees business, the employer solutions, then I'd expect to see it tick up slightly. And what we've seen so far is good strong growth in SALI, and the employer solutions has done really well. We're really starting to see some good growth in that as well. So it may tick up. I'm not sure it will get to 20 years, but I wouldn't be surprised if it might be 15 years in 12 months' time. And the other thing that would obviously impact it would be if we bought another business of the SALI or cees type where the contracts are very long term.

Can we go to Vivek Raja from Shore Capital.

A couple of areas I wanted to explore, please. The first one is just your comments on forecast, just to nail some of those down. So let me deal with that one first and probably more appropriate for Martin on this one. So you're expecting -- your revenue expectation for the current year have increased. And I just wanted to understand what has changed there. So obviously, there's the Amaro piece, which impacts in the second half. It sounds like some of the fund accounting conversion from SALI has improved, your expectations have improved there. Is there anything else that's driving the sort of increased revenue expectation? And in terms of how that's going to impact profits, consensus has got 34.2% in terms of EBITDA margin for the current year. Is that still appropriate in terms of translating that uplift in revenue? So that was the first question on revenues. The second thing I wanted to explore was staff turnover. So could you just tell us what your staff turnover is? I know you've mentioned this in the past relative to the industry. But has it ticked up recently? What are sort of trends there? So those are the 2 areas I wanted to explore.

Vivek, so on the revenue side, we've had better growth, I think, in the employer solutions and the SALI business than perhaps that we budgeted for. So they've been really strong performers. The organic growth generally in the core business has been better than we expected, and we're expecting that to continue into half 2 and into '23 as well. There's been a bit of an FX tailwind as well. I think that by -- we bought businesses now that are dollar-generating in terms of revenue and profit. I think there was about $60 million worth of annual revenue now that comes in through the U.S. dollar. And with the way the exchange rate has been in the first half, there's a small impact. But I think by the time we get to the end of the year, it might be as much as GBP 5 million of impact on the top line and maybe GBP 1 million impact, 20% impact on EBITDA. So I hope that deals with the -- what's been going on in the revenue side. It's just generally across the piece.

Just to add to that, the banking and tax practices that we've developed from sort of a side of the desk activity into something more now to business units in their own right. I think between the 2 of those, we're into GBP 12 million of revenue this year, which there would have been some the year before and the year before that, but it's significantly different now. These are also business units in their own right with more to go for. So I think those are the other ingredient I'd add to Martin's answer to that. In terms of staff turnover, I think it has gone up marginally. So a couple of reasons for me for that. We were at 9%, I think, 6 months ago. We're just over 10% at the moment. A combination of -- actually, JTC people are very sought after in our market. So that's always a bit of a challenge in terms of hanging on to our people. But in general terms, I think that's still probably half where the rest of the market is. And of course, the reason for that is the shared ownership piece, which we've only just paid the second half of our Odyssey distribution out in July, and we're making great progress towards Galaxy. So people will have that in mind with regard to longevity with the firm, our people are our most important asset, and we work really hard at hanging on to the most important people in our business.

Super. Thanks very much. We don't have any more hands raised so unless anyone wants to jump in quickly, I think that will conclude it. So thank you very much. Appreciate everybody dialing in, and that concludes the call today. Thank you.