TP ICAP Group PLC (TCAP) Earnings Call Transcript & Summary

Hello, and welcome to the TP ICAP preliminary results for the 12 months ended 31st of December 2019. Please note that this conference is being recorded. [Operator Instructions] And I will now hand the call over to our host, Nicolas Breteau, Chief Executive Officer; and Robin Stewart, Chief Financial Officer, to begin today's conference. Thank you.

Thank you. Good morning, everyone, and thank you for dialing in. We are announcing our full year results by conference call this morning because of concerns about the spread of COVID-19. This is our agenda for the morning. I will start with a brief introduction. Robin will take you through the financial performance. And after that, I will talk in more depth about our 4 business divisions before we open up for questions. As we have announced that we will hold an Investor Day on June 17, our main focus today is on our performance over the last year and the outlook for 2020, though I will also share some insights about our future strategy. I'll start with the financial highlights on the next slide. And as a reminder, this is the first full year that we report under IFRS 16. We delivered a resilient performance in 2019. Global Broking experienced mixed market conditions. But we benefited from increasing diversification as our other business divisions, Energy & Commodities, Institutional Services and Data & Analytics, all generated double-digit revenue growth. Overall, revenue grew 4% on a reported basis or 1% on a constant currency basis to just over GBP 1.8 billion. Underlying operating profit increased 1% on a reported basis to GBP 279 million, including a negative impact of GBP 8 million from exchange rates. Underlying operating profit margin was 15.2% and profit before tax was GBP 230 million. Earnings per share for the full year were 33.8p, and our total dividend for the year is in line with our guidance at 16.85p. Turning to the next slide. This time last year, I told you that we had 4 immediate priorities: delivering integration, strengthening our management and governance, creating a risk framework appropriate for the size of the business and putting in place preparations for Brexit. I'm pleased to say that we have now largely accomplished these priorities. And this gives us a strong foundation from which to deliver growth. Before I hand over to Robin, I'd like to remind you briefly of the extensive work we've done to achieve these, starting with integration. I'm very pleased to report that the integration is now complete. We have delivered synergies of GBP 80 million and the total cost of integration was GBP 164 million, above guidance by delivering recurring synergies that are GBP 5 million above our revised target. We would not have achieved this without relaunching the process under our new Chief Operating Officer, Martin Ryan, who put in place a detailed implementation plan with proper governance. We have integrated our management structures, consolidated our offices, largely completed the systems integration and built out our shared service center in Belfast, where we now have 300 people. We are on track to move most of our London employees into one building in Bishopsgate towards the end of this year. The major benefit of the integration is that we have now consolidated both businesses onto a common platform that is scalable, capable of innovation and which enables us to increase efficiency and reduce operational risk. In other words, it gives us the infrastructure we need for future growth. Now let's turn to management and governance on the next slide. My first priority when I took up my role was to put in place a senior management team that could meet the immediate needs of delivering the integration and stabilizing the business. But we also had to create a team capable of implementing our future growth plans. In total, we have 12 new people in the 15-strong senior team. I'd like to single out the 2 most recent appointments, a new Head of Global Strategy and a new Chief Transformation Officer, which signal that we intend to take an equally rigorous approach to our strategic development execution as we have to the integration. At the same time, we have put much stronger governance and better controls in place. First, we moved responsibility for the P&L from the regions to our 4 business divisions which are more closely in touch with client needs. Our new regional CEOs are now responsible for risk management, control and support functions as well as managing our relationship with local regulators. This creates much clearer lines of accountability and stronger governance. You will see this new structure reflected in the way we report our performance by business division for the first time today. Second, we continue to reduce the number of legal entities in the group in order to simplify our business, reduce governance costs and make the flow of funds to group more efficient. We've made good progress so far and reduced the overall number by about 80. And third, subject to regulatory and shareholder approval, we are proposing to incorporate a new group holding company in Jersey, given the size of our business in the U.S. and Asia after the acquisition. Together with the reduction in legal entities, this gives us more financial flexibility, greater ability to compete and effective governance. We expect to issue a prospectus and circular in the second quarter. Moving to the next slide. Another essential building block we put in place last year is a new risk framework that takes into account the larger scale and greater diversity of the business. We designed and implemented our new risk management framework in 2019, and we're now embedding this within the organization. This framework is an important enabler for managers to discharge their responsibilities under the senior manager’s regime, which came into force at the end of 2019. It's also a key factor in the assessment of regulatory capital. On the basis of the work we've done so far, we've been able to release about 1/3 of the increased capital requirements of GBP 87 million imposed by the FCA in 2018. Now let's move on to Brexit. Putting plans in place for Brexit to ensure we can continue to serve our clients under all scenarios, including no deal, has been a significant operational challenge. But let me remind you that about 90% of our current broking revenues are largely unaffected. Over the last year, we've put measures in place to protect 2 business streams that are affected by Brexit. The first, it's a business we carry out in the EU for EU clients. And the second is the work we do for EU-based clients through our broking desks in the U.K. As a result of our preparation for these 2 business streams, we now have a much stronger footprint in Europe. We've set up a new legal entity in Paris called TP ICAP Europe, along with 3 new venues that are MiFID II-compliant. We've also relocated i-Swap, our electronic MTF, to Amsterdam. Last December, we announced our proposed acquisition of Louis Capital. Louis Capital specializes in cash equities, equity derivatives, fixed income and small-cap advisory services. It has a strong customer franchise in Continental Europe. It adds over 70 brokers to our business and offers the breadth of products that complement our existing offering. We expect this deal to complete during this quarter pending regulatory approval. Ultimately, the eventual distribution of brokers across the EU and the U.K. will depend on our clients' requirements, though we expect the U.K. to remain our largest market. So as I look back over the last 12 months, I believe we've made significant progress. The ICAP acquisition has given us greater scale, more liquidity as well as a platform from which to attract new talents, incubate new products and accelerate our entry into the buy side. With the integration complete and all the necessary building blocks in place, we are now in a position to take full advantage of these benefits and to focus on delivering future growth. I'd like to hand over to Robin now to take you through the numbers.

Thanks, Nico, and good morning, everyone. As you've heard, we delivered a resilient performance in 2019. Global Broking experienced mixed trading conditions, and our other 3 divisions all generated double-digit revenue growth as we benefited from increasing diversification. We are also pleased to report that the integration is now complete and has delivered GBP 80 million of synergies, GBP 5 million above our revised targets. I'm using numbers at reported exchange rates today, except for revenue, which is on a constant currency basis. And I'll focus on the underlying performance of the business before exceptional one-offs and acquisition-related items. We are also reporting today for the first time a breakdown of operating profit by business division, which includes the cost of data acquired by Data & Analytics from our broking businesses. So starting with the income statement. Revenue grew 4% on a reported basis or 1% on a constant currency basis to just over GBP 1.8 billion. Underlying operating profit was up 1% to GBP 279 million. And operating profit margin was 15.2%, 50 basis points down from last year, mainly as the result of adverse foreign exchange rates. Net finance costs were GBP 49 million. And this includes an increase of GBP 11 million as a result of IFRS 16, which we told you about at the half year. This resulted in profit before tax of GBP 230 million. The tax rate was 23.9%, slightly lower than our guidance. Net income before exceptional items was GBP 189 million, and underlying earnings per share were 33.8p. And this includes an adverse impact of 0.5p as a result of IFRS 16. There's more detail on the impact of IFRS 16 on the income statement in the appendix. Turning now to revenue, where we are reporting on a constant currency basis to give you a more accurate picture of our performance. We're reporting revenue for the sale of data transferred between Global Broking and Energy & Commodities and our Data & Analytics division for the first time today. In effect, this is what Data & Analytics would have to pay to acquire this data from an external provider. You can see in the chart at the top of this slide, revenue of GBP 18 million for data in Global Broking and GBP 3 million in Energy & Commodities. Revenue in Global Broking was down 3% to just under GBP 1.3 billion. I'll talk more about the performance by asset class in a moment. Energy & Commodities grew 11% to GBP 382 million, and this was driven by 3 factors. There was strong growth in oil, power and gas. We made additional hires during the year as we built out the ICAP oil business and we benefited for the first full year of ownership of Axiom. Institutional Services, our agency execution business, grew 21% to GBP 75 million with a strong performance in all of its core product areas: foreign exchange, listed derivatives, relative value execution and cleared interest rate swaps. The Global Broking relative value business from Rates is now included in Institutional Services, where we acquired a relative value debt with Coex. Data & Analytics revenue was up 11% to GBP 135 million as it leveraged proprietary data to launch many more new products in 2019. It also enlarged its sales force and grew its client base during the year. Looking at Global Broking revenue by asset class in the middle pie chart. The Rates business grew 1% to GBP 537 million with a weaker performance in the first half, offset by increased volatility and stronger volumes in the third quarter. This was triggered by political uncertainty of a Brexit, the U.S.-China trade war and the first rate cut from the Fed in 11 years. Market conditions in other asset classes were challenging. Foreign Exchange & Money Markets, Emerging Markets and Equities all declined as a result of subdued market volumes. Credit was down 10%, reflecting increased competition. Looking at revenue by region. EMEA grew 1% to GBP 900 million. The Americas grew 3% to GBP 687 million. And Asia Pacific was down 1% to GBP 246 million as we closed loss-making operations in Singapore and Korea and lost some brokers in our Hong Kong office. Moving to the next slide. Nico told you earlier that the business divisions now have responsibility for the P&L rather than the regions. So we're reporting operating profit by business division for the first time today. This includes the impact of the sale of data from our broking business to Data & Analytics that I just spoke about. And you can see here, GBP 18 million of revenue in Global Broking and GBP 3 million in Energy & Commodities, alongside a cost of GBP 21 million to Data & Analytics reported under front-office costs. You can also see an equivalent elimination figure of GBP 21 million in Corporate Centre in both the revenue and cost line to ensure overall group numbers are accurate. Front-office costs grew 2% to just over GBP 1 billion as a result of an increase in revenue, higher broker compensation in Global Broking, together with a larger proportion of revenue and higher broker compensation in Energy & Commodities. Looking at contribution, which is revenue less direct costs. Overall group contribution increased GBP 15 million to GBP 694 million, and contribution margin was 37.9% compared to 38.5% in 2018, reflecting the change in revenue mix I just mentioned. We have shown the allocation of management and support costs by division for the first time to give you a full understanding of operating profit and margin. Management support costs grew 2% to GBP 431 million. And this includes an adverse impact of GBP 8 million from foreign exchange rates. Looking at the underlying operating profit margin. This decrease in Global Broking from 19.9% to 17.5%, driven by higher broker compensation and increased third-party clearing costs. Operating profit margin in Energy & Commodities increased from 9.6% to 12% on the back of strong revenue growth. Institutional Services is our newest and smallest business division and have delivered operating profit margin of 4% as the business continues to scale. Data & Analytics benefits from a high operational leverage and an improved margin from 41.9% to 43.7%. The next slide shows movements in management and support costs year-on-year. This bridge shows an overall increase of GBP 9 million on a constant currency basis. We recognized a further GBP 10 million of synergy savings in the P&L in 2019. And this brings the total annualized synergy savings achieved from the integration to GBP 80 million. Net cost decreases related to lower costs for support staff, offset by some ongoing legal costs in the U.S. We told you last year that we were planning to invest an additional GBP 15 million in the business during 2019. In fact, we invested GBP 13 million, of which GBP 7 million is shown here in management and support costs, with the remaining GBP 6 million invested in the front office in Data & Analytics, which is reflected in their contribution. Planned costs also increased by GBP 13 million, slightly less than our guidance of GBP 15 million. And this included cost to improve cybersecurity, risk management and compliance as well as preparations for Brexit. We incurred a foreign exchange loss of GBP 8 million. And this arose from the retranslation of cash and financial assets on the balance sheet as a result of sterling strengthening over the year. And finally, there was a GBP 7 million reduction in the cost of operating leases as a result of IFRS 16. So moving on to look at operating profit and margin by region. As I said earlier, overall operating profit grew 1% to GBP 279 million and operating profit margin was 15.2%. Profit was down 5% to GBP 164 million in EMEA as higher revenues were offset by increased investment costs and adverse currency movements. And this resulted in a margin reduction from 19.5% to 18.2%. In the Americas, profit grew 16% to GBP 94 million, and margin increased from 12.7% to 13.7% as revenue grew and costs reduced year-on-year. In Asia, operating profit of GBP 21 million was 5% lower than 2018, and margin fell to 8.5% as reduction in management and support costs was more than offset by its revenue decline. I'm going to talk now about exceptional one-offs and acquisition-related items that are not included in the underlying performance. These amounted to GBP 122 million after tax. Integration costs of GBP 34 million comprised running the integration work streams and staff severance costs. The total cost of the 3-year integration was GBP 164 million, GBP 4 million higher than our guidance, with the benefit of delivering annualized synergies that were GBP 5 million above our revised target. There was also a recurring noncash charge of GBP 42 million for the amortization of acquired intangible assets arising on consolidation. This relates to the value of brands and customer relationships. We took a further noncash charge of GBP 24 million for the impairment of goodwill allocated to Asia Pacific, driven by the decline in operating profit that I spoke about on the previous slide. A net charge of GBP 10 million for legal fee -- legal settlements includes a fine of GBP 15.4 million paid to the FCA during the second half for historical issues relating to broker conduct, together with the true-up of a settlement with U.S. regulators reported in the first half. These items were partially offset by a GBP 9 million credit arising from the settlement of employment litigation with a competitor. Many of these items will not recur with the exception of the amortization of intangible assets. But we expect to incur additional one-off costs in 2020 related to our proposal to create a new group holding company in Jersey. Moving now to the next slide. Underlying earnings increased to GBP 189 million, which translated into underlying earnings per share of 33.8p. On a reported basis, earnings per share more than doubled from 5.7p to 12p. We committed to pay a total dividend of 16.85p each year throughout the integration period. A final dividend of 11.25p will be paid in May in addition to the interim dividend of 5.6p paid earlier in 2019. Turning now to cash flow. Cash generated from operations amounted to GBP 319 million, up from GBP 278 million in 2018. Depreciation of right-of-use assets reflects the reclassification of depreciation on leases as an interest expense under IFRS 16. And this is offset by higher interest payments shown at the bottom of the table. There was a net outflow of GBP 2 million from initial contract payments compared to GBP 10 million in the prior year. And the working capital outflow of GBP 21 million was down from GBP 29 million in 2018. Capital expenditure of GBP 33 million decreased from GBP 73 million. This is considerably lower than our guidance of GBP 70 million due to a delay in taking over the lease on our new office in Bishopsgate. As a result, some of the CapEx we expected in 2019 will now be made in 2020. Interest payments increased to GBP 53 million as we refinanced some of our debt during the first half and reclassified depreciation on leases as an interest expense under IFRS 16. Tax payments increased to GBP 73 million against the low comparator, mainly driven by the full utilization of U.S. federal tax losses in the prior year and a payment for tax losses to mitigate a prior liability. The resulting underlying free cash flow was GBP 160 million, up from GBP 130 million year-on-year. Moving on to look at the balance sheet. I want to comment on 3 areas here: pension assets, deferred tax and the impact of IFRS 16. We no longer carry a GBP 52 million pension asset on the balance sheet relating to the defined benefit pension scheme in the U.K. This is a result of our instruction to the pension trustee to wind up the scheme after they bought a bulk annuity policy from Rothesay Life. As part of this windup, we incurred GBP 5 million of exceptional costs, which are reported in the income statement. When the windup completes, which we think will be around the end of this year, we expect the residual assets net of deferred tax of around GBP 30 million to be returned to the company as cash. The removal of this pension asset has reduced our deferred tax liability from GBP 123 million in 2018 to GBP 83 million in 2019. There was also an impact from IFRS 16 as we moved operating lease commitments on to the balance sheet. This resulted in the recognition of right-of-use assets of GBP 91 million and lease liabilities of GBP 140 million. Looking now at debt. We issued a GBP 250 million sterling note last May at 5.25%, which matures in 2026. The proceeds from this, we used to refinance the GBP 80 million bond that matured at the end of June, pay down the outstanding drawing on the revolving credit facility and buy back GBP 69 million of our GBP 500 million bond that matures in 2024. As a result, our debt has increased to GBP 689 million. Total debt of GBP 829 million includes GBP 140 million of lease liabilities as a result of IFRS 16. This liability is excluded from our banking covenant calculation. You can see on the next slide that our total cash, cash equivalents and financial investments increased from GBP 800 million to GBP 824 million. GBP 723 million of this is held in 61 regulated entities, GBP 76 million is held in nonregulated entities for working capital purposes and GBP 25 million is held in corporate entities. So moving on to look at our net funds. This slide shows you the movement in total funds and debt that I've just taken you through. You can also see that the impact of IFRS 16 has moved our net funds position of GBP 135 million to a net debt position of GBP 5 million through the recognition of GBP 140 million of lease liabilities. I repeat, this is excluded from our banking covenant calculations. Before I close, I'd like to remind you of our obligations under CRD IV. When we completed the acquisition of ICAP, the FCA granted us a 10-year waiver from consolidated capital supervision test, in line with other limited license firms like ours. Instead, the group only has to comply with the financial holding company test. We currently have a deficit under the consolidated supervision test as goodwill is not eligible capital under CRD IV. The only eligible capital is net tangible capital. And the group is eliminating its capital deficit through retention of earnings. We need to set aside around GBP 25 million a year to be compliant by the time the waiver expires at the end of 2026. In July 2019, the allowable deficit reduced for the first time by 25%, in line with our agreed plan with the FCA. But we remain well within that allowable deficit. I'd like to close with some guidance for the current financial year. We continue to expect low single-digit revenue growth, assuming no significant change in market conditions. We anticipate broker compensation of at least 53%, net finance costs of around GBP 50 million and the effective rate of tax to be 25% in 2020. We continue investing in the business to generate long-term growth, and we'll provide a detailed outline of our growth plan at our investor update in June. We intend to invest an additional GBP 45 million in 2020, of which GBP 15 million will be operating expense and GBP 30 million will be in the CapEx line. Nico will talk later about some of the projects we are currently undertaking. We anticipate total capital expenditure for 2020 of around GBP 80 million, which includes this additional investment as well as taking up the lease on a new building in Bishopsgate. Finally, as we continue to invest in the future growth of the business, we expect to grow the dividend over the long-term within the framework of these ambitions. We will set out our capital allocation policy at our investor update in June. For 2020, we commit to at least maintaining our dividend of 16.85p. A note on current trading before I hand back to Nico. Whilst many companies are reporting subdued levels of activity as a result of the coronavirus epidemic, increased volatility has been positive for our business. And the year has started well, especially in Energy & Commodities. So in summary, we delivered a resilient performance in 2019 in mixed market conditions. We've increased the transparency of our reporting today in order to give you a better understanding of the profitability of our business divisions. And we're pleased that the integration is now complete. We are now in a position to focus on driving future growth. I'll hand over to Nico now to talk more about that.

Thank you, Robin. We're now moving to Slide 27. As you know, TP ICAP is the world's largest interdealer broker. We are also a leading intermediary in Energy & Commodities, we are building a strong buy-side agency franchise and we are the largest provider of OTC data. But we operate in an industry going through enormous change. Market structures are evolving. Clients are looking for more efficient ways to discover prices, access liquidity and get their trades confirmed. Regulation is increasing and driving demand for new services. Our 3 strategic themes, which I've talked about before, will enable us to capitalize on these trends. The first theme is aggregation of liquidity. Putting Tullett Prebon and ICAP together has given us leadership in almost all the markets in which we operate. Tullett gives us leadership in foreign exchange and money markets. ICAP gives us leadership in rates and equities. Together, they give us the deepest liquidity pools in the industry. We want to continue to operate using both brands because they are brands that our clients relate to. But we also want to give clients access to the liquidity of all our brands so that they find the best price while we grow our market share. My second theme, electronification, is closely linked to this. Our ability to offer our clients access to aggregated liquidity via a single user interface depends on technology. But we also want to increase the amount of business we deliver electronically to improve client connectivity and also to facilitate efficient workflows and post-trade processing. Third is diversification. We are already seeing the benefits of diversification as our 3 fast-growing business divisions delivered double-digit growth in 2019. They now represent about 1/3 of our revenue and contribution. But there is scope to diversify our offering further in order to serve the buy side in all tool markets, maximize the value of our data and grow other non-broking revenues through both pre- and post-trade services. As I said earlier, we have announced an investor update on June 17. In advance of that, I want to give you some insight into how we are taking TP ICAP forward now that the integration is complete. So I will elaborate further on these themes as I talk about each of our 4 business divisions, starting with Global Broking in the next slide. Global Broking is our largest division, operating more than 10 regulated venues around the world and is a core component of the OTC market infrastructure. As a leading provider, Global Broking enjoys long-running relationships with all the major investment banks. But our biggest clients in Global Broking face cost and balance sheet pressures, which are driving changes in their business model, and we must respond. We need to deliver our services both more efficiently to meet their needs and more profitably to meet ours. At the same time, we want to leverage our most precious assets in Global Broking, which is liquidity. Our Global Broking strategy is based around electronic hubs that create a seamless experience for our clients. These hubs offer a single point of liquidity for clients across our brands, from screens with a common look and feel, together with robust post-trade processing. Our plan is to create a rates hub and FX hub and eventually bring these together into a macro hub. So our execution will be global, multi-product and multi-brand across several years. To give you some early examples on how we are increasing electronification and aggregation in Global Broking. Last week, we successfully launched a foreign exchange options platform with both requests for quote functionality and a central limit order book. This platform enables real-time, low-cost execution for all strategies. And we already have live streaming from top-tier market participants. We also launched a single sign-on portal in Asia last year, giving clients access to both Tullett Prebon and ICAP liquidity in rates and FX products in specific currencies. Our strong market share in major asset classes positions us very well to deliver hubs, offering liquidity across all our brands in an efficient, low-touch manner. The key organic earnings drivers for Global Broking will be increasing the share of low-touch execution, broadening our range of pre- and post-trade services to help our customers achieve better costs and balance sheet outcomes and making our services relevant to a wider range of bank customers. I'll move on now to Energy & Commodities. TP ICAP is a leader in the OTC energy markets with an especially strong position in oil, where we have an estimated share of around 70% of the OTC market. Commodities markets have always been all-to-all with a wide range of market participants. You can see from the pie chart on the right that commodity producers and consumers and physical commodity trading firms represent the largest share of our activity. As in Global Broking, we're also a valuable service provider for banks. And we have a growing number of buy-side customers, though they are a relatively small portion of activity today. Commodity markets are evolving. Buy-side activity continues to grow as financial market participants seek diversification away from traditional asset classes. And much of the OTC market is now clear, which has helped asset managers and hedge funds to get more involved. The themes of aggregation, electronification and diversification are all evident in our strategy for this division. We operate 3 main brands in Energy & Commodities: Tullett, ICAP and PVM. I've spoken before about our electrification strategy for oil. We're in the process of introducing an electric whiteboard for order management system that will be used, first, for brokers and then rolled out for clients. This order hub will eventually allow clients to view the aggregated liquidity offered by our competing brands and to execute electronically via a range of low-touch protocols. I've also spoken about the machine learning tool we are developing. This will help our brokers anticipate client activity more easily and also improve productivity across broker teams. In addition, we are diversifying our sources of revenue by product, by geography and client base. For example, last year, we launched a new ICAP Weather Derivatives desk. We have announced a new joint venture in China called Enmore Commodity Brokers, offering services in iron ore, LPG and naphtha. And we plan to diversify our client base further by developing our offering for the buy side. We think there's also an opportunity to make bolt-on acquisitions since the business on Energy & Communities is still highly fragmented, especially in the U.S. Moving on now to Institutional Services, which is a key example of diversification. This division provides agency execution to the buy side. And our clients here are large hedge funds and asset managers. We focus on liquid markets and provide clients with best execution by seeking liquidity from multiple dealers and venues. The role of an agency broker is to help clients with every stage of the trade life cycle, from trade selection and optimization to order management and routing to trade performance and post-trade analytics. Clients trust us to act impartially on their behalf to achieve the best outcomes across venues because we are not engaged in principal trading or market-making activity ourselves. We offer execution across a range of products, including foreign exchange, exchange-traded and cleared derivatives, government bonds and cash equities. The strategy for Institutional Services is very much about continuing to grow and also to diversify. We're adding more asset classes to our coverage, we are broadening our geographic reach and we also plan to invest in further electronification. Let's move now to Data & Analytics. Data & Analytics is our highest margin business and its revenue is subscription-based and sticky, so it provides us with excellent earnings diversification. TP ICAP is a leading provider of OTC data. We have long-time series of order and trade data across a wide range of asset classes. And we distribute our data through third-party vendors as well as directly. Our client base has historically been dominated by banks. But we now have a growing number of other customers. There are several reasons why demand for our data is growing. This include growing risk management requirements as well as regulatory drivers. Clients need data to meet the demands of mandatory pre- and post-trade reporting. We expect our growth over the next few years to derive from a number of areas. We plan to continue increasing the number of datasets we make available to our clients. This includes our own datasets but also third-party content. We are progressively adding more diverse clients. We see an opportunity to move further up the value chain in order to provide insight as well as data. You remember, we recruited talent in risk products, benchmarks and indices last year in order to help us do this. And importantly, we are managing our distribution channels more efficiently as well as targeting new distribution partners. For example, last year, we launched our first product with Amazon's cloud-based data exchange, AWS. Growing our Data & Analytics division not only improves our margins and diversifies our revenue streams, it also supports the development of our broking businesses by feeding data back to them. So let me conclude. I told you when we last met that 2019 was a pivotal year as we put the foundations in place for the next stage of the company's development. The integration is now complete. We have a common infrastructure that is scalable, flexible and capable of future innovation. We have much stronger governance and controls in place. And we have a senior team focused on delivering future growth. Aggregation, electronification and diversification will be key themes as we implement our growth plans. We will talk in more detail about these plans at our investor update and show how they will help to improve our operating margins, drive earnings growth and strengthen the quality of earnings over the medium term. Thank you very much. We're happy to take any questions.

[Operator Instructions] We currently have no questions coming through. [Operator Instructions]

We have a question from Shore Capital, Paul McGinnis. Under the new structure, there appears to be both regional CEOs and heads of business divisions. Can you explain the reporting lines under this new arrangement?

Yes. Of course. So as I explained, we changed the governance, creating -- splitting the roles, where the business division heads are responsible for the P&L for the revenue because they are closely aligned with the clients, and the regional CEOs are really in charge, making sure that we deploy the right resources to support and control the business. Both 4 heads of divisions and 3 regional CEOs report directly to me.

Thank you very much. Another question from Shore Capital, this time from Vivek Raja. How might the move in holding company impacts capital requirements, and in particular the GBP 25 million you've been retaining annually? If you can't give clarity now, when would you expect to be able to do so?

We can't give you that clarity today. We absolutely will give you full clarity at our investor update in June. Just reminding people that there is a circular and prospectus to go out in the next few weeks. And the transaction that we're looking to do requires both change of control consent from regulators globally, but it also needs shareholder approval at the AGM in May. And that's why we'll wait until June.

Thank you, Robin. Just a follow-up question to that, so same, Vivek Raja from Shore Capital. As we grow the Institutional Services business, how are you managing the tension with your traditional IB clients?

That's a very good question. We are specifically focusing on the agency execution, IS. We are focusing on all tool markets, primarily. This is why we started with listed futures and options. So there is no conflicts with our traditional client base because they are all tool markets. And for other asset classes, the way we operate is to concentrate -- consolidate liquidity from a variety of venues and sources. So we are actually channeling volume to the banks. And that works very well as a semi-complement to their sales forces.

Thank you. I'm going to pass you back to the conference line. I believe we've got some questions there from some callers.

So the next question comes in from the line of Justin Bates calling from Canaccord.

Thank you for just flagging that it's been a good start to the year. I wonder if you could just provide a bit more color on which asset classes in particular, oil versus rates, et cetera.

Thanks for the question, Justin. I think it's fair to say that you'll recall that the energy markets were buoyant at the back end of last year. And it's fair to say that, that buoyancy has continued into this year through both months of trading that we've had. And more so, you've seen some interesting activity on the oil markets yesterday. On the Global Broking side, a different story. You -- as we said -- as I've said earlier, we had a bit of a sluggish H1 last year, a very buoyant Q3 and then a slowdown in Q4, certainly in volumes or you obviously saw lots of activity or lots of improvement in the banking results. But that was more about asset class revaluation, not coming from flow. That slow flow continued into January. But we've seen a huge pickup in February, and that continues today. And that's across all asset classes in Global Broking.

The next question comes in from the line of [ Ryan Gandy ] calling from Charles Stanley.

I just wanted to know what -- if you could define specifically what areas do you think the future innovation would be, if you could give a bit more detail on that. And also since the acquisition, are you now in a stage of reducing broker headcount or are you actually growing broker headcount?

So regarding the areas for investments, we will give you more details in June. But as I said before, we want to primarily work on the electronification of our business, and we want to develop solutions to pull the liquidity together from our various brands and deliver that to our clients. So a big part of our investments in broking areas will be around platforms to be able to consolidate liquidity and deliver that in an efficient manner to our clients. We're also looking at areas in pre-trade connectivity but also post-trade services to make sure that we deliver a very efficient, straight-through processing to our clients. In the areas of Data & Analytics, as I briefly mentioned, we have the capacity to develop ourself organically by sourcing more datasets from our existing broking business. We will acquire external third-party datasets as well. We're working on our distribution to improve distribution through third parties but also develop direct distribution solutions. We're also looking at opportunities to increase the value of our products going up in the value chain. So we have a very exciting set of initiatives that will be rolled out gradually. We've started in 2020 with around 30 major projects. So it's -- but we will give you more color in June about that.

One question online again from Lakshay Thakur at Merian Global Investors. With the brokers potentially working from home, have you seen any disruption so far from the virus? And do you need to invest further to enable your brokers to have the right resources to be able to perform their work?

So we have rolled out a global plan about the virus. It's a plan with information. It's a plan with a gradual travel ban. So we started with several regions in the world, and now we've gone through a full world travel ban. We're limiting contacts with external parties, clients or third-party providers. We are indeed facilitating work from home but not for brokers, for non-brokers exclusively. So management, support functions and control functions could work from home. We are, regarding the brokers, delivering a different strategy. It's a strategy of splitting the teams and containment. So we are taking the benefit of operating from various sites. In London, for instance, we have an office at Broadgate with 2 floors. We have another office on Bishopsgate with 2 floors. We have Victoria, we have Jermyn Street. And our strategy is to contain. So we are splitting the population by floor. And we're also sending people to operate from our Farnborough disaster recovery site. So we want to, if you want, multiply the options to have up and running teams, split from one another.

[Operator Instructions] We do have one final question coming through from the line of Vivek Raja calling from Shore Capital.

Sorry to bombard you with questions today. I've got a couple of questions, please, if I could. The first one relates to, Nico, you talked a lot about aggregating the liquidity across the different brands. And obviously, that makes sense. But I thought that was a key part of obtaining regulatory approval for the consolidation in the first place. So I just wondered if you could comment on that. And the second question I had was about the broker compensation ratio. And I appreciate there are moving parts to this. But if I could push you in, if you could give us a steer on what -- where you think you can get that ratio down to? And particularly in the near term, if revenues are flat, what can you do to sort of manage that number?

Okay. I start with the aggregation question. So there was no constraint in terms of regulatory approval regarding the separation of brands. But we decided to keep separated brands because we think it's the best way for our brokers and for our clients, so -- and we intend to keep separated brands. But what I want to develop is the ability for the clients to have access to liquidity from 2, sometimes 3 brands. If I take the energy market, we have Tullett, we have ICAP, we have PVM. While we're keeping the brokers separated and the brands separated, we want to give the opportunity for the clients to access the best price and the best liquidity at any given time. So that's important because it will guarantee best execution for the clients. But also it's a cross-selling exercise for us. When we have a leading brand that will -- this brand will help the others to catch up, if you want. So that's why I believe that it's strong benefit of having done this acquisition, it's by having built the largest pools of liquidity. And we want to monetize, we want to leverage that. Regarding the compensation ratio, we are implementing a strategy with a view to grow our low-touch business. A bigger portion of our revenue will be made from electronic venues. But as we execute that strategy, we still have to protect our revenue stream. And our industry remains ferociously competitive for talent. So we think that our 2 closer competitors have higher compensation ratio than we do. We compensate that by offering technology to our brokers but also having largest pools of liquidity. If I take the euro swap, for instance, it is clear. So our target is to control the compensation ratio. And as an output of that strategy, it gradually reduce that in the medium term.

There are no further questions coming through.

Thank you very much. And I think that puts the presentation to a close. Goodbye.