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

Good day, ladies and gentlemen, and welcome to the TP ICAP Group's Interim Results Presentation. [Operator Instructions] I would like to remind all participants that this call is being recorded. [Operator Instructions] I will now hand the call over to Nicolas Breteau, the Group CEO, to start the presentation. Thank you.

Good morning, everyone, and thank you for joining us. This is our agenda today. I'll start with the highlights. Robin will take you through the financial results. I then look at the operational performance of each division and wrap up before we take questions. So let's start with the headlines where growth rates are in constant currency. We have delivered a strong first half. Group revenue increased 8% to GBP 1.3 billion with an excellent performance from Global Broking and disciplined execution across the group. Group adjusted EBIT grew 9% to GBP 196 million, and we are proposing an interim dividend of GBP 0.056, an increase of 8%. We have also announced another share buyback of GBP 30 million today. This takes total distributions announced since 2023 to around GBP 660 million, including GBP 110 million of buybacks this year. In addition, we have made good progress on strategic initiatives with the completion of our Vantage Capital Markets acquisition, which adds to our capabilities in Asia Pacific, the launch of our new dealer-to-client credit platform, RealQ, and excellent progress on transformation plan where we now expect to exceed our 2027 target a year early. This strong performance shows how we're benefiting from the successful execution of our 3 strategic priorities: diversification, transformation and dynamic capital management. This strategy has served us well, and we now plan to build on it with an emphasis on medium-term revenue growth. Over the next 5 years, we aim to capitalize on key competitive advantages. First, as an industry leader, we have a unique position at the heart of vast and growing over-the-counter markets. Second, we have built a diverse business. We serve a broad client base, including both the sell side and the buy side. We operate in every major asset class in each region across the world. Third, we've invested in technology to create a scalable market infrastructure platform. Fourth, our value proposition is compelling and is built on strong client relationships. Clients know they can rely on our impartiality along with deep liquidity, unique market insight and seamless execution. And fifth, despite our scale, we have additional opportunities to grow organically through products and geographic expansion or via acquisitions. Our ambition is to capitalize on this key strength to drive additional growth and operating leverage. This underpins our commitment to maximize shareholder value over the medium term. So now let me hand over to Robin to take you through the results in detail.

Thank you, Nico, and good morning, everyone. I'll start with the headlines in constant currency. We delivered a strong first half performance. Total revenue grew 8% to GBP 1.3 billion with excellent growth of 11% in Global Broking. Adjusted EBIT was up 9% at GBP 196 million as we maintain good cost discipline. And the group adjusted EBIT margin increased to 15.2% with a 3% uplift in productivity. Basic adjusted earnings per share grew 10% to GBP 0.193. And as you've heard from Nico, we've announced an interim dividend of GBP 0.056, up 8%, together with another share buyback of GBP 30 million. Turning to the group income statement. Net finance costs decreased slightly to GBP 16 million, and the effective tax rate was 27%. We delivered adjusted earnings of GBP 140 million before significant items, up 8%. Significant items were GBP 36 million as we accelerated investment in our transformation plan to unlock cost efficiencies. Let's turn now to the year-on-year movement in earnings before interest and tax. Adjusted EBIT increased from GBP 180 million last year to GBP 196 million this year. We have restated last year's results using 2026 exchange rates to give the basis for a like-for-like comparison without the impact of foreign exchange. Contribution increased by GBP 22 million, and we also benefited from GBP 2 million of front-office savings from our transformational plan. Back-office savings of GBP 4 million offset inflation, high national insurance contributions and ongoing investment in the business. As a result, net management and support costs are broadly unchanged. Turning next to the business divisions, where growth rates are shown in constant currency. Revenue in Global Broking increased 11% to GBP 783 million with our scalable electronic platforms driving higher levels of client engagement and trading activity in supportive market conditions. Adjusted EBIT increased 22% to GBP 159 million, and the margin improved from 18.4% to 20.3%. Revenue in Energy & Commodities of GBP 233 million, was up 2%. The adjusted EBIT margin was around 10% in the first quarter, but performance was impacted in the second quarter when conflict in the Middle East dampened activity. As you know, this business made a number of key hires and invested in broker retention in 2025. These additional costs impacted the division's adjusted EBIT, which decreased from GBP 26 (sic) [ 27 ] million to GBP 12 million. This investment positions the division well for future revenue growth. and we expect this to feed through when markets recover. In Liquidnet, revenue of GBP 194 million was broadly stable as growth in cash equities was offset by a decline in the multi-asset business against a strong prior year comparator. Adjusted EBIT was also stable at GBP 32 million with a margin of 16.5%. Finally, Parameta Solutions revenue grew 6% to GBP 102 million. The adjusted EBIT margin was 35.3%, reflecting planned investment with an improved trend in the second quarter, which we expect to continue in the second half. We are transferring certain agency and digital asset activities between divisions to better align and enhance performance. We'll update you on this at the third quarter. Now let's look at cash flow. There was an operating cash outflow of GBP 77 million compared with an inflow of GBP 24 million a year ago. Around 70% of this is due to a change in net settlement balances, which reversed immediately after the period end. Excluding this, the underlying cash flow from operations was around GBP 100 million. We had other working capital outflows of GBP 96 million, which reflects an increase in accounts receivable due to higher revenue and bonus payments. CapEx increased by GBP 6 million to GBP 42 million, largely due to office fit-out costs in our hubs in Manila and Belfast. We also acquired Vantage Capital Markets for a cash consideration of GBP 22 million, paid dividends of GBP 88 million and almost completed the GBP 80 million share buyback announced in March. The group's net cash balance was GBP 652 million at the end of June compared to GBP 903 million at the year-end. Turning now to our transformation plan. As you heard from Nico, we now expect to exceed our 2027 target a year ahead of schedule, delivering at least GBP 50 million in annualized savings by the end of this year. This acceleration is reflected in significant items, which I'll cover on the next slide. We've also identified around GBP 15 million of additional savings, which we expect to execute in 2027 at no more than 1x cost. We'll provide more detail at the full year. As a result of simplifying our business, improving efficiency and unlocking cash from the balance sheet, we are announcing another share buyback today. Any potential returns in the future will be supported by earnings generation. Turning to significant items. These are not included in our adjusted results, so we can measure underlying business performance and make more meaningful year-on-year comparisons. Significant items before tax increased by GBP 1 million to GBP 45 million. Almost half were noncash, including GBP 18 million for the amortization of intangible assets. Restructuring and related costs increased by GBP 5 million as we accelerated delivery of our transformation plan and disposals, acquisitions and investment reduced by GBP 9 million. Turning now to our 2026 outlook. We expect to achieve adjusted EBIT in line with current market expectations, subject to foreign exchange. We also expect group net finance expense of around GBP 35 million, an effective tax rate of around 27% and significant items of around GBP 80 million before tax, excluding legal and regulatory matters. This is around GBP 10 million higher than previously indicated, reflecting the accelerated delivery of our transformation plan. I'd like to conclude by looking at the medium term. You can see here how disciplined execution of our strategy has resulted in a strong track record of growth and increasing operating leverage. Since 2021, we have delivered compound growth in revenue of more than 5% and adjusted EBIT of 9%. Our priority now is to invest in growing our business and delivering against our medium-term ambition for mid- to high single-digit revenue growth. We will maintain the flexibility to pursue value-accretive acquisitions and we'll look to return excess cash not required for other purposes via share buybacks. With that, I'll now hand you back to Nico.

Thank you, Robin. So now let's look at the highlights for each division, starting with Global Broking, which delivered a strong first half. Revenue was up 11% to GBP 783 million and adjusted EBIT grew 22% showing that our scalable platform delivers significant operating leverage. Revenue growth was broad-based with a strong performance across equities, rates and credit. Asia Pacific was our strongest region. We further enhanced our presence in Asia Pacific with the acquisition of Vantage Capital Markets. And in June, we launched our new dealer-to-client platform brand, RealQ, which is an important step forward. RealQ brings together Neptune's pre-trade bond data with Liquidnet credit trading interest from buy-side clients. Looking ahead, Global Broking will continue to grow its franchise organically to pursue value-accretive acquisitions and to use tech and AI to improve efficiency and capture new revenue opportunities. Turning to Energy & Commodities. Revenue was broadly stable at GBP 233 million, while profitability was impacted by weak market conditions in the second quarter. Oil and related products account for over 50% of Energy & Commodities revenue and conflict in the Middle East led to a spike in activity in March when oil futures volumes increased 134%. These strong months was more than offset by negative market conditions in the second quarter. Market futures volumes in June were 1/3 lower than last year as the physical flow of oil was badly interrupted together with all related hedging activity. In other areas such as power, gas and other energy, we delivered good growth. Our Energy & Commodities business remains well positioned in the longer term. We have recently added new capability in areas of great demand such as agricultural products, freight derivatives and nuclear fuel derivatives. We've expanded our footprint in the UAE and Brazil, 2 fast-growing regions where physical and derivative activity plays to our strength. Finally, we have deployed Fusion Order Management and new workflow tools, enabling us to capture high-quality data more efficiently. This benefits clients in Parameta Solutions as well as Energy & Commodities. Liquidnet maintained its strong position during the first half. Revenue was stable at GBP 194 million, and adjusted EBIT margin remained robust at 16.5%. While Liquidnet had a strong first quarter, market conditions were impacted by the Middle East conflict in the second quarter and this reduced activity in the block trading. Our cash equities business demonstrated strong operating leverage with revenue growth of 6% and adjusted EBIT up 10%. There were strong performances in algorithmic trading, which grew 25%; cross-border trading which increased 13% and Asia Pacific which was up 21%. Growth in cash equities offset a 5% decline in revenues from our multi-asset business against a strong comparator last year when multi-asset grew 29%. Over the longer term, Liquidnet has a significant revenue and margin potential. First, we continue to diversify both in cash equities and other asset classes. Second, we continue to innovate. Our sales trading tool, First Mate is just one example. This complements the work of our brokers by using AI to help identify trading opportunities and coordinate execution. Third, we see an opportunity to increase operating leverage and margin further as we continue to scale greater volumes. Turning now to our Data and Analytics business, Parameta Solutions, where revenue increased 6% to GBP 102 million. EBIT margin was lower in the first quarter, as expected, due to planned investment, but we expect it to improve in the second half as the benefits from our investments feed through. This already started in the second quarter when new sales hires began to contribute and our opportunity pipeline strengthened. Our indices continue to gain traction, and we are expanding our award-winning Swap Rate Index franchise into additional currencies. With its new sales force now fully embedded, Parameta is expanding its client base, in particular with buy-side clients and in the U.S. It is also broadening its product offering, drawing on proprietary data from TP ICAP as well as third parties and using AI to accelerate bringing new products to market. So to conclude, we have seen today our successful execution of our strategy has resulted in a stronger, more resilient business. We're now building on this progress with an emphasis on medium-term growth taking advantage of our competitive strength. We are an industry leader in large and growing over-the-counter markets, which clients need help to navigate. We have a well-diversified business, placing us at the center of transactions across many products and services for multiple clients across the world. We have a well-invested scalable platform capable of supporting future growth and increasing operating leverage. We have a compelling client proposition with strong client relationships built on trust. And we have additional opportunities to grow both organic and inorganic. In short, we plan to deliver further growth, increase operating leverage and maximize shareholder value over the medium term by capitalizing on this strength. With that, I'll now hand back to the operator for questions.

In addition to the Group CEO and CFO joining us for the Q&A, we have the CEOs of Global Broking, Energy & Commodities, Liquidnet and Parameta. [Operator Instructions] Our first question today comes from Rae Maile at Peel Hunt.

It's Rae Maile at Peel Hunt. I wondered, Nico, can you help the market understand, obviously, a very strong first half performance, increased cost savings, but no change to full year guidance, but then this confidence in what you can do over the medium term. As you look at the business, how do you think about that medium-term objective compared with current market conditions?

Yes, absolutely. Thanks for your question. Robin, would you like to start?

Yes. I think for us, the medium-term ambition that we have is very much -- we see that predicated on the trend that we've had leading up to this -- to our results. We've seen very strong compound growth on the revenue of -- over the last [indiscernible] since 2021 of 5%. We've seen EBIT growth of 9% and in growing OTC markets and with all the work and effort that we're doing on transforming the business and creating a scalable platform that we have, we see that ambition as something which is very achievable over that medium term.

And maybe just to help the market think about what parts of the business do you think will generate most of that growth over the medium term?