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

Thank you, and good morning, everyone, and thank you for dialing in today. 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 you all know, the first 6 months of this year has been dominated by the outbreak of COVID-19. From the outset, we took swift action to adapt our business in order to protect the well-being of our employees and ensure continuity of service to our clients. As a result, we were well placed to ride a wave of volatility and volume that peaked in March and to play a crucial role in helping global markets remain open and liquid. Our agility enabled us to achieve record income with higher revenue in all 4 of our business divisions. We have also taken steps to ensure our balance sheet remains strong, and that we have sufficient cash as well as access to incremental liquidity. Importantly, despite the turbulent backdrop, we were still able to start implementing the growth strategy I outlined in March, though at a more measured pace than originally intended. We also sustained dividend payments, reflecting the resilience of our business and the importance of dividends to investors. So let me start with the financial highlights. The first half was a tale of 2 quarters. In the first quarter our revenues were up 17% year-on-year as we capture a disproportionate share of high volumes in volatile markets. By way of contrast, the second quarter was much quieter, with revenues down 2% as volatility and volumes declined. As a result, first half revenue grew 7% on both a reported and constant currency basis to a record GBP 990 million. Updating you on our underlying reporting numbers, I think it's very important to note that there include an additional GBP 10 million accrual for unused leave that will reverse by the year-end. And Robin will talk about this in more detail later. On this basis, operating profit was up 1% at GBP 159 million. Operating profit margin was 16.1%. Profit before tax was up 1.5% at GBP 136 million. Earnings per share increased 3% to 19.9p, and we have declared an interim dividend of 5.6p, in line with our interim dividend of last year. So overall, a resilient performance. Before I hand over to Robin, I want to talk in more detail about the way in which we have responded to COVID-19. Our approach during the pandemic has been driven by two principles: keeping employees safe; and continuing to provide our clients with a high-quality service they need and expect from us. To do this, we fundamentally reengineered our operations using new technology and workflows. This involved transferring more than 2,000 private telephone lines to the cloud to create new client connections, and installing desktop software to create digital dealer boards for more than 500 brokers. We also embedded a robust workflow to manage operational and credit risk without any issues. And our surveillance technology allows us to meet all our regulatory and compliance obligations. This work has enabled around 80% of our brokers and the vast majority of our support staff to work from home. This has freed up space to socially distance for brokers who need to remain in the office. Given that we operate in 26 countries globally, we had to adapt the working practices for each office to align with local guidance. All this was done rapidly, and at the same time as managing periods of extremely high volatility and activity in the market. Despite these challenges, all desk continued to be fully operational and our clients benefited from continuous global coverage across all asset classes. During this time, we have not followed any stuff. We have not reduced our permanent workforce due to COVID-19, or requested any Government aid in any of our locations. We have also been mindful of our responsibilities to the communities where we operate during this time of uncertainty. We redirected our Disaster Relief Fund to global and local initiatives, supporting those affected by the pandemic. And colleagues around the world have supported those in need. For example, our U.K. employees took part in the 2.6 Challenge to raise money for charities, who have experienced a significant reduction in donations. I am extremely proud of the way that TP ICAP has met the challenges that we have faced. Our readiness and resilience reflect both my colleagues' commitments to our clients, to each other, but also to our communities. I will now hand over to Robin, who will take you through the financials.

Thanks, Nico, and good morning, everyone. As you've heard, we delivered a resilient performance in the first half. Global Broking had a strong first quarter, though market conditions normalized in the second. And our other 3 business divisions all generated strong revenue growth as we benefited from increasing diversification. I'm using numbers at reported exchange rates today, except for revenue and costs, which are on a constant currency basis. And I'll focus on the underlying performance of the business before exceptional one-offs and acquisition-related items. So starting with the income statement. Revenue grew 7% on both the reported and constant currency basis to GBP 990 million. Underlying operating profit was up 1% to GBP 159 million, and operating profit margin was 16.1% as higher revenue was offset by some one-off COVID-19 related expenses and a change in revenue mix. Net finance costs were down 4% to GBP 23 million, and profit before tax increased 1% to GBP 136 million. The tax rate was 25%, in line with last year and our full year guidance. Net income before exceptional items increased 3% to GBP 111 million, and underlying earnings per share were up 3% at 19.9p. As you heard from Nico, these numbers include an additional GBP 10 million accrual for unused annual leave as employees did not take holiday during the first half due to COVID-19. This accrual will reverse by the year-end as group policy states that no more than 5 days can be carried over to the next calendar year. Excluding this accrual and on an underlying basis, operating profit was up 7% to GBP 169 million, with a margin of 17.1%. Profit before tax increased 9% to GBP 164 million, and earnings per share increased 11% to 21.4p. Turning now to revenue, where we are reporting on a constant currency basis to give you a more accurate picture of our performance. Revenue in Global Broking was up 2% to GBP 656 million. I will talk about performance by asset class in a moment. Energy & Commodities grew 15% to GBP 217 million. This was driven by higher volumes in all our major product lines, including oil, power and gas. We also benefited from additional hires in the ICAP oil team. Institutional services, our agency execution business, grew 50% to GBP 57 million, with a strong performance in all its core product areas as it benefited from increased client appetite and a greater capacity to serve new clients. Data & Analytics revenue grew 8% to GBP 70 million, driven by the ongoing expansion of our data sets and client base. Looking at Global Broking revenue by asset class in the middle pie chart. The rates business grew 6% to GBP 290 million, with volumes surging on the back of high levels of volatility in March. Conditions normalized at the beginning of the second quarter. Equities and Credit were up 1% and 2%, respectively, while foreign exchange and money markets and emerging markets declined as a result of macroeconomic factors, including a slowdown in global growth. Looking at revenue by region. EMEA grew 6% to GBP 488 million. The Americas grew 9% to GBP 376 million, and Asia Pacific grew 2% to GBP 126 million as the business experienced a decline in volumes following the busy first quarter. Moving to the next slide. As you mentioned at the full year, we are now reporting operating profit by business division, as this is now how we run the business. This includes the impact of the sale of data from our broking businesses to Data & Analytics. You can see at the top of this slide, revenue of GBP 9 million for data in Global Broking and GBP 1 million in Energy & Commodities. Front office costs grew 10% to GBP 615 million as a result of increased revenue and higher broker compensation as Energy & Commodities was a larger proportion of the revenue mix. Looking at contribution, which is revenue less direct costs. Overall group contribution increased 4% to GBP 375 million, and excluding the holiday accrual, was GBP 20 million higher than last year. Contribution margin decreased 37.9% as revenue growth was offset by the higher broker compensation, I just mentioned. We are also showing the allocated management and support cost by division to give you a full understanding of operating profit and margin. Net management and support costs increased by GBP 12 million to GBP 216 million. Looking at underlying operating profit margin. This decreased slightly in Global Broking from 20.7% to 20%, driven by higher broker compensation as well as an increase in headcount, third-party clearing costs and IT investments. In Energy & Commodities, operating profit margin increased from 12.2% to 14.7% on the back of strong revenue growth. Institutional Services delivered operating profit margin of 14%, up from 8.1% as it started to generate the necessary scale to benefit from strong revenue growth and higher productivity. In Data & Analytics, operating profit margin was 40%, down on last year as we increased investment in new sales and product development capabilities. The next slide shows movements in management support costs year-on-year. This bridge shows an overall increase of GBP 9 million on a constant currency basis. We benefited from a further GBP 6 million of synergy savings in the P&L, the final delivery of cost synergies from the ICAP integration. Net costs increased GBP 4 million due to an increase in support staff headcount, mainly in technology, risk and compliance, but also business change and strategy. There was a charge of GBP 3 million for the unused annual leave accrual I mentioned earlier. And we invested GBP 3 million in the cloud technology, Nico referred to earlier, which allows our brokers to work from home. At the full year, we said we would invest an additional GBP 45 million in 2020 to support our long-term growth plans, of which GBP 15 million will be operating expense and GBP 30 million will be capital expenditure. We remain committed to our strategy, but have decided to take a prudent approach to resource allocation, given the uncertain outlook, and we slowed down our investment during the first half. As a result, we invested an additional GBP 6 million in technology through the P&L. We also spent a further GBP 6 million on other planned projects such as cybersecurity, surveillance and data centers, allowing us to strengthen the resilience of our technology. Finally, we benefited from a foreign exchange gain of GBP 6 million. Moving on to look at operating profit and margin by region. As I said earlier, overall operating profit grew 1% to GBP 159 million, and operating profit margin was 16.1%. In EMEA, profit was down 3% to GBP 93 million as increased revenue was offset by the additional unused annual leave accrual, higher broker compensation, third-party and support costs. This resulted in a margin of 19.1%. In the Americas, profit grew 14% to GBP 56 million and margin increased from 14.4% to 14.9% as higher contribution more than offset slightly increased support costs. In Asia Pacific, operating profit decreased from GBP 13 million to GBP 10 million, and margin reduced from 10.5% to 7.9%, reflecting the impact of COVID-19 in the region for the entire period from January onwards. I'm going to turn now to exceptional one-offs and acquisition-related items that are not included in the underlying performance. These amounted to GBP 57 million after tax. With the integration of ICAP complete, we did not book any integration costs in the first half of the year. In total, GBP 41 million of exceptional items were noncash. This includes GBP 20 million for the amortization of acquired intangible assets arising on consolidation, which relates to the value of brands and customer relationships. There was a further noncash charge of GBP 21 million for the impairment of goodwill allocated to Asia Pacific. This was driven by the decline in operating profit I just spoke about. There was also a charge of GBP 9 million for costs related to our proposed redomiciliation. Moving now to the next slide. Underlying earnings increased to GBP 111 million, which translated into underlying earnings per share of 19.9p. On a reported basis, earnings per share decreased to 9.7p as a result of the impact of exceptional and acquisition-related items. We intend to pay an interim dividend of 5.6p on November 6 this year. Turning to cash flow. Cash generated from operations amounted to GBP 176 million, up from GBP 80 million in the first half of 2019. Depreciation of right-of-use assets reflects the reclassification of lease depreciation as an interest expense under IFRS 16. There were no outflows from net initial contract payments this year compared to GBP 2 million in the prior year. And the working capital outflow of GBP 24 million was down from GBP 112 million, reflecting significantly lower settlement balances at the end of June compared with last year. Capital expenditure of GBP 23 million was up from the GBP 19 million last year due to the fit-out of our new office in the city of London and increased IT spend. Interest payments decreased to GBP 24 million as we did not issue any new debt in the period. And tax payments were GBP 37 million. The resulting underlying free cash flow was GBP 92 million, up significantly from the first half of 2019. Moving on to look at the balance sheet. Our balance sheet remains strong and has not been impacted by COVID-19. I want to comment on 2 areas here: cash and IFRS 16 lease liabilities. Cash and financial assets increased by GBP 62 million to GBP 886 million after the payment of the final dividend for 2019. This includes a drawdown of GBP 40 million on our revolving credit facility. 90% of this cash is held in our regulated entities, and you will recall that we need to set aside GBP 25 million each year to comply with the terms of our waiver from the consolidated supervision test under CRD IV. The composition of IFRS 16 liabilities has changed because of the 3 additional leases on our new office building in the city of London. Looking at debt. The group's gross debt before IFRS 16 lease liabilities increased to GBP 730 million, mostly because we drew down GBP 40 million of our GBP 270 million revolving credit facility for general corporate purposes. This facility matures in December 2022. Our IFRS 16 lease liabilities increased to GBP 216 million due to the 3 leases I just mentioned on our new office in the city of London. These liabilities are excluded from our banking covenant calculation. So moving on to look at net funds. The group had net debt of GBP 60 million at the half year compared to GBP 5 million at the end of 2019. This was driven mainly by the change in IFRS 16 liabilities associated with the new leases I just mentioned. As I said, our banking covenants are not affected by IFRS 16, which is why we show net funds, excluding lease liabilities of GBP 156 million. I'd like to close with guidance for the full year. Activity in July slowed and was below 2019 levels. So despite a resilient performance in the first half, we maintain our guidance of low single-digit revenue growth, assuming no significant change in market conditions. We expect broker compensation to remain at about 54%. Net finance costs to be around GBP 50 million, and the effective rate of tax to remain at 25%. We will continue investing prudently in the business in the second half to generate long-term growth. We now expect to invest GBP 15 million in total during the year, significantly less than we indicated in March. GBP 7 million was invested in the first half, of which GBP 1 million was capital expenditure. We anticipate investing GBP 8 million during the second half, almost all of which will be capital expenditure. We will, of course, adjust our investment spend, depending on macroeconomic conditions. Finally, we intend to make a dividend payment of not less than 16.85p in 2020. So in summary, we delivered a resilient performance in the first half as we benefited from heightened volatility in the first quarter as well as the increasing diversification of our business. We have a strong balance sheet with sufficient cash and liquidity, and we are continuing to invest in our strategic growth plans, albeit at a more moderate pace. Thanks very much. I will now hand you back to Nico.

Thank you, Robin. As you know, TP ICAP is a leading provider of market infrastructure, and we operate from a position of strength. Yet our industry is constantly changing. Clients want more effective and efficient ways to discover prices and to access liquidity. Regulation is driving demand for new services. So in March, we outlined a new strategy in order to take advantage of market evolution and drive medium-term growth. 3 themes will enable us to capitalize on these market trends, aggregation, electronification and diversification. On aggregation, we plan to provide our clients with access to liquidity across all our brands. By doing so, they find the best price while we grow our market share. On electronification, we plan to grow the amount of business we do, we deliver electronically to improve broker and client connectivity and deliver efficient workflows and grow our post-trade services. And on diversification, we plan to broaden our revenue streams and client base through our 3 faster-growing businesses as well as post-trade services. As you heard from Robin, we took the prudent decision to slow investment during the first half, given the level of uncertainty caused by COVID-19. Where we have invested, we are seeing good progress. We have brought new solutions to market, developed our global footprint as well as grown and diversified our client base. You will hear this reflected in my comments as I talk about each of our 4 business divisions. We have also increased average broker headcount by 2%. With the integration now complete, our access to the largest liquidity pools and investment in new digital tools positions us as an employer of choice. Looking ahead, we will continue to assess where and when it makes sense to invest. Where we see opportunities to acquire assets that would accelerate and further our strategic ambitions, then we will consider them carefully. So let's start with Global Broking. Global Broking is the largest provider of OTC marketplaces, including voice, hybrid and electronic platforms. It's a mature business that grew revenues 2% to GBP 656 million. There was extreme market volatility in the first quarter, and we benefited from increased volumes as clients adjusted their positions. However, trading activity called off in May and June as investor appetite subsided, and the U.S. Fed changed it states on interest rates and global quantitative easing searched. During a period of uncertainty, we saw clients turn to us as a provider of high-quality service, reflecting the trust they have in TP ICAP. Our strategy in Global Broking is based around building electronic hubs that create a seamless experience for our clients. These offer a single point of liquidity for clients across our brands, from screens with a common look and feel, providing a choice of hybrid or pure electronic execution, together with first-class connectivity and solid post-trade processing. In rates, we have been developing an interest rate options hub, which goes live in September as well as the sterling hub, which will be ready for the year-end. Both of these solutions will eventually form part of an overall rate hub for which there are more projects in the pipeline. Turning to FX. I told you in March about the launch of our FX options hub. This has had an excellent response, and we are seeing a good number of top-tier banks already streaming liquidity. In credit, we have increased electronification by launching the MATCHBOOK Rebalance platform. This is a pure electronic platform that enables traders to clear up and wanted odd-lot risk on their books through auctions. In Equities, where the market is much more [ desperate ], we have completed the Lewis Capital Markets acquisition, I told you about in March. This brings expertise and scale in cash equities and equity derivatives as well as strengthening our consistent European franchise. So we're making good progress in all major asset classes in Global Broking. I'll move on now to Energy & Commodities. TP ICAP is the leader in OTC Energy & Commodities markets with an especially strong position in oil. Energy & Commodities had another excellent 6 months as we continue to outperform our peers. Revenues grew 15% year-on-year, supported by higher market volumes and volatility, with double-digit growth across all our major product lines, including power, gas and oil. Our numbers were also helped by strategic hires, especially in the ICAP brand, where we continue to rebuild the old team. It's important to remember that our Energy & Commodities business earns commission-based on volumes traded, not just on price. So these revenues are less price-sensitive than some people realize. Pleasingly, we saw contribution and operating profit margin improve as we benefited from economies of scale. Our goal for Energy & Commodities is to consolidate our global leadership position by increasing aggregation and electronification. We're extending our hub strategy to Energy & Commodities with an oil hub called Nova Oil. This will enable clients to view aggregated liquidity across our competing brands, ICAP, TP and PVM and execute electronically via range of low-touch protocols. In the first half, we rolled out Nova to our desks in Norway and Asia Pacific. In the second half, we will accelerate Nova's deployment by onboarding our remaining desks, onboarding clients and building a new front end. Over time, we believe Nova will deliver greater efficiencies, stronger margins and better client retention. I've also spoken before about Darwin, our machine learning tool. We trialed this successfully during the first half, and it will be rolled out to all desks in September. Darwin mines all kind of market data to help brokers anticipate client needs better, but also improve productivity. In addition, it will provide our Data & Analytics business with fast, real-time information. Moving on now to Institutional Services. Institutional Services trades under the Coex brand and provide agency execution services to the buy side. It's an important part of our diversification strategy, bringing in new revenue streams from a different and substantial client base. This includes hedge funds and asset managers. This division focuses on liquid markets, providing clients with best execution by seeking liquidity from multiple dealers and venues. The first 6 months of the year has underlined that the agency execution model has become an established and valued component of the market ecosystem. This progression is reflected in the very strong revenue growth of 50% year-on-year. Growing scale has also resulted in higher margins despite the early stage of the business. The growth came across all our core products, FX, exchange trading, traded derivatives, Government bonds and cash equities as well as particular strategy relative value. Our strategy for IS is to add more asset classes, broaden our reach and invest in further electronification. During the first half, the business grew its asset coverage by offering more interest rate swaps and equity derivatives. We've also added new brokers in Singapore and in New York. And we focused on an area of vital importance, the pre-trade client connectivity. Our emerging markets order book now as a gateway to thousands of buy-side clients via the Bloomberg's interface T stocks. Let's move now to Data & Analytics. Data & Analytics is a high-margin business, that's largely subscription-based, so it offers excellent earnings diversification and sustainable growth opportunities. Revenues were up 8% against a strong comparator, and we outperformed the market where revenues are expected to shrink 2% this year due to COVID-19. We continue to invest in this high potential business and grew headcount 15% to drive future revenue generation. Some contracts were not renewed in the first half due to reduced client spending as a result of COVID-19. However, revenues continue to grow as new product sets were launched, and we signed new mandates with clients. Data & Analytics has a clear strategy to grow by developing its data asset offering, broadening its distribution network and moving up the value chain to provide insight as well as data. During the first half, we launched 4 new data products, bringing our total offering to more than 50. We've also expanded our distribution channels. For example, in April, we launched a new direct data feed called Surfix. This enables us to distribute real-time market data for all security types from all brands. We're also developing a web store that will enable clients to buy our products direct in the same way that consumers shop online. Increasing our distribution enables us to drive more revenue at higher margins. In addition, we launched new products via new distribution partners, such as Amazon Web Services Data Exchange. But perhaps the most exciting development was the launch of our first-ever information product, which takes us up the value chain. It's called bond-evaluated pricing. It was developed in response to the need for clients to meet stricter regulatory requirements for fixed income pricing. It helps them manage their internal risk management processes for exposure to Government or corporate or supranational bonds. By using machine learning, this solution provides clients with frequent and regular updates on a very large number of bonds rather than just indicative pricing on a single bond at a single point in time. As a result, clients have better insight into the price formation process. So you can see that Data & Analytics is building momentum and breaking new ground, more data assets, more distribution channels and true solution innovation, meaning we move up the value chain. As we move in the second half, we remain cautious. We will continue to focus on what we can control, providing our clients with excellent service, investing in innovation whilst keeping cost discipline and continuing to deliver solutions for our clients that help us grow market share and improve margins. As far as Brexit is concerned, we believe around 90% of our business will be unaffected, and we are prepared for all outcomes. We remain committed to the process of incorporating a new group holding company in Jersey, but this has been slightly delayed by COVID-19. This move will create greater financial flexibility for the group, and we now expect to post-show the documentation by the year-end. So let me conclude. We have posted a resilient performance. We have a clear strategy to develop and grow. And despite a challenging backdrop, we're executing this strategy to good effect across all 4 business divisions. Now before we open up for questions, let me invite you all to put Thursday, the 8th of October in your diaries. This is when we will hold our investor update, originally planned for June, but postponed due to COVID-19. We intend to discuss our strategic growth initiatives in more detail in October and outline divisional targets. Thank you very much. We're happy to take any questions. Would you please tell us your name and organization before asking your question. Thank you.

[Operator Instructions] The first question comes from Ben Bathurst from RBC.

I've got 2 questions, please, if that's okay. Starting with one for Robin on costs. Just referring back to the Slide 12 and the cost bridge there, Robin. You roughly GBP 6 million as previously guided planned cost increases in the first half? I just wondered if you could potentially just clarify what the guidance for that movement will be for full year 2020. And if you take, it's fair to assume sort of double that as an increase for the full year in that area. And then secondly, on the sort of broader market environment, I think one of your peers reported last week and talked about how industry volumes and rates and FX have been impacted by QE and lower interest rates. I wondered if you could comment on whether this could develop into a concern for TP ICAP in the second half from a revenue perspective. Or maybe put another way, all things equal, is there anything about the fact that interest rates and expectations for interest rates are now lower that you would expect to impact expectations for industry volumes or other things equal?

Okay. Just a lighting on your first question, in terms of planned investments, yes, we guided that the planned investment number will be almost double that for the full year, but it will be a very different mix. And so most -- we anticipate that most of that planned new investment will be CapEx in the second half and minimal OpEx. If that helps you on that one.

Can I just follow-up on that, Robin? Because just looking at that cost bridge because you've got -- you do have -- you've got planned new investments, and then you've got a planned increase of GBP 6 million, above GBP 6 million. And I think it's very clear on the planned new investment side. But I'm just wondering about that other element of the increase in cost. Just [indiscernible] second [indiscernible]?

Yes. I see what you mean. It won't necessarily be double, but we will continue to incur costs on those planned increases, particularly in things like cybersecurity and other governance -- risk and compliance-related aspects. So they are indeed recurring. A lot of the H1 costs were on data centers. It won't be double.

Regarding the outlook, I mean, I could start and Robin jump in. But I think we see issue very similar to the contrasted H1 with a tale of two quarters, very, very strong and a more normalized Q2. I think we see in July, the 7th month, which are usually very quiet month that we have -- first, we are below last year in July, but I think we are looking at a very strong competitor in 2019. And speaking to our clients, almost on a daily basis. I've realized that a lot of practitioners have decided to take some time off after a long period of lockdown. So we anticipate these quarters, summer quarter to be slow, but it is traditionally a very slow quarter in our cycle. And we are very reactive to macroeconomic events. So we know that there are things lined up for the rest of the year. There will be sovereign bonds issued, a lot of them. We know that there is Brexit at the end of this year. We know that there's a U.S. elections and potential other macro events around the Energy & Commodities. So let's say, we are cautiously optimistic.

The next question we have comes from Gurjit Kambo from JPMorgan.

So I apologize I dropped off. If you had [ done this already ], I do apologize. But just on the kind of the guidance around, not guidance, just the outlook into July, where we've seen, I guess, a tough environment. I guess that's been seen in -- more specifically to the Global Broking business? Or is that across other businesses like Data & Analytics, Institutional Services, et cetera?

You drop for speak second during your question, but I think your point is about the outlook across divisions. If I understood properly.

Right. Yes.

I mean we think that if I take a reverse order, I think that the general Data & Analytics industry has been impacted because clients generally reduce their spending. Also, for us, it's been difficult. So we have seen a slight increase if you want our -- on the redemption rates. But at the same time, we continue to grow. We would have grown faster without COVID, obviously, because we would have -- it would have been easier to sell licenses on new products that we have launched. We continue to, as you know, to check and audit our clients to make sure that they use data in accordance with licenses, and we had to stop that. And so I'm fairly optimistic that we will sustain a high level of growth in data analytics in H2 because also, we are going to monetize the benefits of our distribution, direct distribution on Surfix, but also the web store, I mentioned, and we have a few more things in the pipeline. On Energy & Commodities, again, relatively optimistic on our capacity to continue to grow in H2 compared to H1, absolutely. In institutional Services, we believe that after a pause over the summer, a lot of our clients will come back and trade more actively in September. And we also see the benefit of hires that we've made in Asia Pacific and in New York. So I'm positive about the growth compared to '19 as well. If we look at Global Broking, it is a more mature business for sure. And we will react positively if we see some macro events during H2. Now what we have observed is that if we have a prolonged COVID situation, we tend to be the broker of choice because we, as you know, being the largest liquidity provider in the market at a time where clients are operating from home, they not necessarily have the luxury of having many brokers in their boxes. So they will choose the brokers commanding the largest liquidity pools. And we have undoubtedly benefited from that in H1 and grew our market share. And I think that will continue in H2.

The next question comes from Vivek Raja from Shore Capital.

Can you hear me?

Yes.

Yes.

I've got 3 questions, if I may, please. The first one is about capital and the FCA waiver. I just wonder whether you can give us a sense of when you expect to get that judgment from the FCA. And to the extent that, that does unlock capital that was otherwise trapped. Could you give a sense what you plan to do with that? Are you planning to reinvest in the business? Are you planning to return it to shareholders? A bit of both? And then the next question is about costs. So the broker compensation ratio obviously has been creeping up roughly 1% a year since 2018 through '19. And then this year, you're guiding 54%. So that guidance is obviously deteriorated from the position at the full year point. What's driving that really? And how long do you think it will take to get a handle on that? Because obviously, that is constraining the operating profit growth? And how quickly you can get a handle on that brick compensation ratio to start delivering the operational gearing through that line?

If I may, I will start with the broker compensation question, and let Robin answer about the positive impact of our redomiciliation, et cetera. Yes, broker compensation is increasing mainly as a result of the evolution of our business mix. You've seen this large push in Energy & Commodities, where we have a higher broker compensation ratio. Reason being, it is a more fragmented industry, less regulated for -- some players are not regulated. And they -- on average, this is an industry that commence around 60% payout for the brokers. And we still see a lot of competition in the traditional IDB in Global Broking. And we want to be very, very strong in making sure that we retain and attract the best talent in the market. So this is why I said before that for me, we don't want this to run on control, but this is not the KPI I am focusing on the most. And I am looking more specifically at the contribution rate. So if you look at that, we have increased it by 6% if you take away the accrual for the holidays. But -- so it means that it has gone up GBP 20 million between 2019 and 2020. And that's, I think, important because broker comp is, in my view, an outcome of the strategy. So it's not something that I could just decide to reduce because if I do that, I will lose some revenues quite quickly. So this is why we are rolling out this growth strategy where we embed more technology and we aggregate liquidity because, over time, it will give us the capacity to have a better broker compensation ratio. We, as you know, focused primarily on completing our integration, having the right management team in place, putting a risk framework in place, working on our capital, working on our redomiciliations because it's very important for the future. The second phase is rolling out more electronic solutions, aggregating our liquidity. And this will have a beneficial impact on broker comp. Unfortunately, we had to slow down the pace of investments. But nevertheless, we've made some significant progress. When we detail -- when we will detail in October at our Investors Market Day, the initiatives in each business line, you will see the benefit. And one of the benefits is to reduce broker comp over time. But it will be a result of that strategy.

Just on the capital question. There's 2 parts to capital for the group, just -- which I'll just outline. One is in respect to the question you raised on, I suppose, consolidated capital and the waiver. And just to be clear, we would hope to get some beneficial outcome from redomiciliation in terms of our regulatory -- our consolidated regulatory capital position. And whilst we will still be subject to consolidated capital supervision, it hopefully will be maybe not to the entire group. Now what that does, the restriction, which I mentioned earlier when I was talking was that we currently have an obligation under the waiver to set aside around about GBP 25 million per year of tangible capital. And so to the extent we have any alleviation of the obligations under the waiver, what we would be doing potentially is to not have to retain future additional capital in the organization. Because the reality is that the capital that we actually hold within our legal entities is a requirement of solo capital regulation, and that won't change. So each operating entity in the territory that it operates has minimum and also management buffer capital calculations and requirements. So there's a different program going on in respect of that capital, which you may recall where we are looking to embed our risk framework and strengthen our governance around our operations, which may alleviate some of the capital obligations at a solo level in the U.K. entities. They are 2 different things. Just also so you know in terms of the redomiciliation, the delay in that process is not through any sort of delay that we have here. It's fundamentally due to the delays in getting the approvals from regulators. And the 2 main outstanding approvals that we're waiting on are in France and the U.S. and we -- because we are subject to the time frames that they're giving us under COVID-19, we would anticipate getting those approvals through by the end of Q3 this year.

Okay. Could I follow-up? When do you expect to hear back from the FCA?

On which...

On the consolidated capital waiver.

So I -- we're not anticipating to have any further approvals from them other than we're pretty good with the FCA. Its non-U.K. regulators. We're waiting for approvals from.

I see. Okay. And Nico, if I could come back to your first answer, please, and maybe I'm pushing my luck here, but the -- where would you like that broker compensation ratio to get to in 2 or 3 years' time? And I appreciate there's lots of moving parts there, and you're trying to do it through the revenue line and not necessarily focusing on the compensation item itself. But where would you expect that to be in 2 or 3 years' time?

I'm going to ask you to wait for the Investment Markets Day because, as you say, it's a lot of moving parts. When we -- you will see when we invest in technology in Energy & Commodities, you'll see some benefits, which are different from some segments of the Global Broking. And I will not announce a number because I know that will start a rebellion in the -- with my brokers. So that would not be the right thing to do, but there will be some benefits, and we'll go through them, not at this stage.

[Operator Instructions] And we have a question now from Piers Brown from HSBC.

I just want to -- it's just a question really related to Slide 14, on the exceptional cost items. I mean I guess as the ICAP integration fell off, maybe there was an expectation of some of these charges would start to taper off? And I guess what we've seen in the first half is that previous charges have been replaced by new charges. I just wonder if you could give us a little bit of steer on 2 specific items, the Intangible asset impairment and the redomiciliation charge as to whether we should think there is to our discrete exceptional items that will only impact the first half or whether there could be some residual drive from those 2 items as we move into the second half?

Okay. So taking the first of those 2, which is the impairment of intangible assets of GBP 21 million. That's an impairment we've taken on the goodwill that is allocated to the Asia Pacific group, which I mentioned earlier. That's really because the -- I suppose that cash-generating unit is very sensitive to movements in its operating profit forecast. Now I would hope not to take any further impairments of that, but it's really dependent upon, I suppose, how H2 turns out. And more importantly, how our forecasts for 2021 in terms of how we look forward for the business in the future. We inevitably are required to do an impairment review at the end of each accounting period. So we'll see how that one turns out. In respect to the business redomiciliation. That is, we would hope a cost that we only see in 2020. There may be some minimal costs to come in the second half, but also all the leave some more costs to come in the second half, but I don't anticipate it to be at those levels. And just being clear -- just to be clear on the first one, I talked about the impairment of intangible assets, just reiterating, that's it's a noncash charge.

[Operator Instructions] It seems there are no more questions. I'll hand back to the management team.

Well, I want to thank everybody for their time. And remind everyone that we will speak again on the 8th of October.

Thank you very much.

Thank you very much. Bye-bye.