Jtc PLC

Hello and welcome to the JTC PLC interim results presentation. My name is David and I'll be your host for today's event. Please note that this conference is being recorded and for the duration of the presentation your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the presentation. This can be done using the raise hand feature in the control panel on your screen. We will address as many questions as possible. When we come to answering your question, we will invite you to unmute and speak live to address our panellists. I will now hand you over to your presenters for today.

Good morning, everyone. Welcome to the presentation of JTC PLC's interim results for the period ended 30 June 2023. I'm Nigel O'Kane, the Group CEO, and presenting with me as usual is Martin Fotheringham, our Group CFO. If we can turn to slide one and the agenda. In the next 30 minutes or so, I will present my CEO highlights for the period and Martin will run through the financial review. We'll follow up with a more detailed business review covering the macro environment, industry trends, the group and the two divisions. We will then take an in-depth look and provide an insight into our plans for the Cosmos era, commencing from the beginning of 2024. And finally, we will summarise our key takeaways for the first half of 2023 and provide an indication of how we expect to close out the year and the Galaxy era. We will then open the forum up for questions. At JTC, the first half of 2023 will be remembered for the increased momentum delivered following an excellent 2022. In macro conditions that remain challenging, we've been able to make significant progress both organically and inorganically. In particular, our net organic growth at 21% has been spectacular, up 11.5 percentage points period on period, with gross growth of 26.7% and improved client attrition of 5.7%. We also had record new business wins of £14.6 million, up 15.9% period on period. Group revenue was up 30.6%, EBITDA was up 30.8%, delivered at an EBITDA margin of 33.1% within our guidance range. This reflects both great impetus and strong stewardship in both divisions, as well as a significant contribution to the success of each from our Group Commercial Office, which helps to drive our growth by the development and delivery of new services, and surfacing of cross-selling opportunities as well as enhancing the client experience and measuring client satisfaction across the group. On the inorganic side of the picture, we were delighted to have our seven-year-long relationship and courtship of South Dakota Trust Company come to a successful conclusion, resulting in our becoming the largest independent provider of private trust company services in the United States when combined with our existing and established business. SDTC is a strategically important platform purchase for the Group's future in private client services in the world's largest market. and leaves us well positioned to serve both the US domestic and international private client markets, and in time, to provide a wider range of corporate and family office services to both. Given that it was a strategic objective for the group to develop a meaningful presence in the United States in the Galaxy era, we are delighted with our success in this regard and the progress we have made to grow a significant platform for both divisions, and one from which we can build further scale in Cosmos. It's worth noting that the combined JTC US presence now has run rate revenues of over $85 million, more than 300 employees across eight states and representation in the key hubs for both marketing and delivery of our services. Looking to the future, we expect 50% or more of group revenues to be generated by our US business by the end of the Cosmos era. In combination, these latest examples of the successful execution of our growth strategies will ensure that we achieve our Galaxy goal this year and enter the Cosmos era confident we can double again in a three to four year period. In the Institutional Client Services division, the key acquisitions made in recent years, in particular the RBC SEAS business, now JTC Employer Solutions, and Sally Fund Services, both of which completed in 2021, have made significant contributions to our growth. The delivery of outstanding organic growth of 22.4% is a record for the division, together with record new business wins of £10.9 million, which are particularly satisfying results for the team. And in private client services division, The recurring organic revenues from strategic transformation projects such as Amaro, Campari and Ottawa have now all come on stream and are positively contributing to performance. And in spite of the attention demanded in the US towards the integration of NYPTC in Delaware and acquisition of SDTC in South Dakota, the division has delivered excellent organic growth of 18.6% period on period, significantly ahead of the industry norms. Altogether, the combination of great performance in the divisions, with the ability of the Group Commercial Office to act as a catalyst for growth, has led to unprecedented organic growth, which is over twice our medium-term guidance range. These revenues are embedded and recurring and have been delivered from increased revenues from banking services, tax and regulatory compliance reporting, a number of strategic transformation mandates commencing, good conversion of Project Apple mandates from the Sally book in the United States, as well as more new client wins, primarily mature structures from competitors. These together have created a purple patch of organic growth success, which is unprecedented, adding significant embedded and recurring core revenues. There has been a flywheel effect of delivery from a number of contributory factors simultaneously, with a large degree of the heavy lifting being contributed in the background earlier in the Galaxy era, resulting in the business rising to a whole new level of success. Finally, I would like to conclude my CEO highlights once again with a huge thank you to our excellent high quality JTC team of owners for their ability to deliver on our ongoing success. As we rapidly approach the end of 2023, I'm confident that our ambitious Cosmos plans to double again are well within our capability to deliver, and I look forward to leading the business in the next phase of its development. So let's turn now to slide four and the financial highlights. Our revenues period on period grew to £121.5 million and underlying EBITDA was £40.2 million, delivered at an underlying group EBITDA margin of 33.1%, at the low end of our range as we would anticipate in a high growth environment. As previously highlighted, our net organic growth was 21% period on period, significantly above guidance and up from 9.5% in H1-22. As also noted earlier, our new business wins were a record £14.6 million, up 15.9% period on period, as the Group continues to benefit from excellent win rates across both divisions. Our LTM win rate at the period end stood at 51.4%, well above the top end of our current target range of 35% to 40%, and implying that we continue to win at least half the business we pitched for, a great performance in a very competitive market. The new business pipeline remains strong. It stood at £47.1 million at period end and as of the 1st of September was at £54.1 million. The period on period lifetime value of work one was a record £195.1 million based upon our 14 year lifetime estimate of our client book. An increase of 16% on the H1-22 figure of £168.2 million. this gives us visibility of a total of circa 1.6 billion of forward revenues from our existing client book without the addition of any new mandates reflecting the long-term enhanced and compounding value of the entire book of business and finally onto the interim dividend which we've declared at 3.5 pence per share up from 3.1 pence in h122 so now over to martin for a deeper look at the financials

Thank you, Nigel. We're both pleased to report another strong set of interim results, which show continued trading momentum and exceptional revenue growth. Our financial highlights are set out on slide seven, with the underlying performance showing revenue growth of 30.6% and record organic growth of 21%, which is significantly above our medium term guidance range, with more to follow on this shortly. Underlying EBITDA increased by 30.8%, with the margin improving to 33.1%. Earnings per share increased by 11.9%, the third consecutive year of double-digit EPS growth. Cash conversion was very strong at 113%, where we continue to meet our expectation that the first half of the year delivers more than 100% cash conversion. Net debt saw a temporary but significant drop of £64.2 million, driven in large part by the June equity raise in advance of the SDTC acquisition. Our interim dividend was 3.5 pence per share and is a 12.9% increase on the prior year. On slide 8 we can see our trading in more detail, and starting with revenue and what's happened to the component parts of that in the last 12 months. Gross new organic revenue in the last 12 months was £44.1 million, a significant increase from £20 million at the same time last year. 76% of the growth came from existing clients, compared to 56% this time last year. Attrition was £9.3 million in the last 12 months, with £7.1 million of that being end of life, and therefore 98.6% of non-end of life revenue was retained. Revenue recognised so far on LTM New Business Wins was 53%. Our pipeline at the period end was a healthy £47.1 million, a 2.8% increase from the position at the end of 2022 and had increased further to £54.1 million as of last week. Let's move on to slide 9 and look at our net organic growth with a focus upon the divisions. PCS recorded 18.6% of organic growth and benefited from the successful onboarding of Amaro in Q422. This was a complex mandate but is now our largest client and currently generates $4 million of annualised revenues. ICS recorded organic growth of 22.4%, with the division now delivering record organic growth figures for three successive period ends. The current period saw particularly strong growth in the US, Channel Islands in the UK and Luxembourg. Our three-year organic growth for the group is now 12.7% and is above our medium-term guidance range. I'd like to explore this further and there are two principal drivers to organic growth, pricing and volume. As you may recall from last year, we said that empirically we've recovered at least two-thirds of inflationary increases through pricing growth. We've seen pricing growth of 5.5% in the last 12 months, which represents more than 75% of the inflationary staff cost that the business has incurred in the same period. On the revenue bridge slide, I referred to growth coming from existing clients of 76%, which is a significant increase on the prior year figure. This was driven by volume growth of 15.5%, which is 10.1 percentage points higher than this time last year. The reason for the increase is many fold and includes higher win rates than we've seen previously, the impact of the launch of our treasury services, these revenues now being embedded in our suite of services, resulting in an exceptional increase to the organic growth result for this year, the successful development of our tax compliance service offering, a service which is a significant component of the Amaro contract. Our expectation is that for the remainder of 2023, we will remain above guidance levels, but that it's unlikely to be at the current elevated level. In the medium term, we expect organic growth to revert to our 8% to 10% guidance range. To conclude on the top line, let's move on to the geographic profile of our revenues on slide 10. We saw all regions report positive net organic growth and the US continues to be our highest growth performer and is becoming an increasingly large part of the business. The US will now be further supplemented by the SDTC acquisition, which completed on the 2nd of August. we anticipate US revenues exceeding 30% of the overall group total in 2024. Let's now move on to the EBITDA margin on slide 11. The underlying margin in the period increased by 0.1 of a percentage point to 33.1%. This sits within our medium term guidance range and is consistent with our previous messaging on how we perform during periods of uncertain macroeconomic conditions. In addition to this, during periods of heightened revenue growth, the required upfront investment in human capital can inherently slow margin progression. It's therefore pleasing to see margins improve at a time of record growth and an increased inflationary environment. We're committed to continued investment in the business to support growth, margins and to ensure the continued longevity of our client relationships. The PCS margin was 36%, which is 0.3 of a percentage point drop from H1-22. However, excluding NYPTC, which was acquired in Q4-22 and is integrating well, the division would have delivered a 0.2 percentage point increase in margin, effectively 36.5%. The STTC acquisition is expected to be accretive to the EBITDA margin. both for the PCS division and the overall group. The ICS margin improved again, coming in at 31.6% against 31.5% in H1-22, and we're pleased to see the division continue improving on this key metric. We maintain our medium-term guidance range of 33-38%. We shall now look at cash, net debt and leverage. Slide 12 focuses on our cash conversion and how successful we are in managing our working capital cycle. As you can see, cash conversion was strong at 113%, which is the highest it's ever been in H1. This is due in part to continued discipline about cash collection, but it's also the result of the changing mix of our business, whereby there's a greater proportion of ICS revenues. At the end of the period, our pro forma net investment days has fallen in the last 12 months by 13 days to 83 days. As you'll note from our past results, we also always have stronger collections in H1 due to our billing pattern and the full year result consistently falls back into line with our guidance range of 85 to 90%. Moving on to net debt on slide 13. At the end of 2022 a reported net debt was £104.8 million and by the period end this stood at £28 million, a significant decrease of £76.8 million in the first six months of the year. This was the result of strong cash conversion and the gross proceeds of £62 million from the June equity raise which advance-funded the SDTC acquisition. In addition to this, we increased our existing bank facility by £50 million to an available £275 million, and £169.3 million of this was undrawn at 30 June. We withdrew £118 million from this on 1 August to fund the SDTC acquisition. The facility expires in October 25 and we have an option to extend it by one year, which we intend to exercise. In addition, we intend to obtain additional deck capacity by the end of H2, which will help support our future M&A activity in the Cosmos era. Slide 14 shows that our reported leverage now stands at 0.37 times EBITDA and this is a 1.22 times reduction from the 31st of December and sits below our guidance range of 1.5 to 2 times. This was an expected, albeit temporary, reduction in leverage as we completed the SDTC equity fundraise before the end of the period. Our guidance for leverage continues to be up to two times underlying pro forma EBITDA. Finally, turning to slide 15, I'd like to reiterate our perspective on capital allocation. As you know, we have a resilient long-term business model characterised by contracts that last at least 10 years and where 98.6% of revenues recur on a year-on-year basis. We take a long-term view on return on invested capital, and ideally when making an acquisition, we seek to cover our cost of capital within three years of that acquisition. In the last two years, we've made two platform acquisitions in the US, Sally and SDTC, where the short-term return on capital has diluted the overall group return on capital. The slide demonstrates that whilst in the short term there is dilution, that Sally is improving returns and will continue to improve these and we expect the same of SDTC. We believe the capital allocation decisions we've taken are for the good of the long term business for the following reasons. Both businesses have long-term annuity-like revenue streams which underpin multi-year growth and returns. Sally with a client duration in excess of 40 years and SDTC with 98.6% recurring revenue. Both acquisitions are important platforms for growth in the US. Sally has brought significant cross-selling revenues, currently over $4 million annual revenue value, and has also allowed us to acquire another business at a highly accretive multiple. SDTC gives us the opportunity to cross-sell existing JTC services into clients of the preeminent and largest independent private trust business in the US. We are one month into ownership of that business, but already we see opportunities to leverage off this platform business. These are businesses that both significantly enhance the overall JTC business, and despite the short-term dilution on return on capital, JTC still comfortably exceeds its cost of capital, and we expect that in the absence of any other large deals, that our return on capital will improve further as time progresses. Thank you for listening. I'll hand back now to Nigel.