Jtc PLC

Hello and welcome to the JTC PLC 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 panelists. I will now hand you over to your presenters for today.

Good morning. Welcome to the presentation of JTC PLC's full year results for the year ended 31st December 2023. I'm Nigel McCain, the Group CEO, and presenting with me as usual is Maarten Fodringen, our Group CFO. If we can turn to slide one and the agenda. In the next 30 minutes or so, I present my CEO highlights for the year, and Maarten will run through the financial review. I will then give an update of the external environment as it relates to the group and two divisions. We will then look in more detail at how we use multi-year plans or eras to guide growth at JTC before taking a specific deep dive into our US journey to date. Then finally, we will summarise our key takeaways and expectations for 2024. We will then open the forum up for questions. 2023 was our 36th consecutive year of revenue and profit growth since inception, and having achieved our galaxy goal two years early, it is difficult not to be very satisfied with the significant progress made in the year. In particular, our net organic growth at 19.9% has been spectacular, up 7.9 percentage points on 2022, with gross growth of 25% and client attrition of just 5.1%, an improvement of 1.3 percentage points, year on year we've also recorded new business wins of 30.8 million pounds up 25.2 percent group revenue was up 28.7 percent ebitda was up 30.1 percent delivered an ebitda margin of 33.4 percent a 0.4 percentage point improvement over 2022 and within our guidance range These results reflect exceptional growth and great impetus, which we balance with appropriate investment in the group infrastructure as we grow. Both of our divisions have made meaningful contributions, supported by our successful group commercial office, driving the delivery of new services, enhancing the client experience, and bringing a particular focus on organic growth to the group. Having made several acquisitions primarily for the ICS division earlier in the Galaxy era, our focus in 2023 was on the enhancement of our PCS business in the U.S. with the acquisition of South Dakota Trust Company in August. When combined with our existing and established U.S. PCS business, this result now becoming the largest independent provider of private trust company services in the United States. SDTC was a strategically important purchase, providing a platform from which the group can grow in the world's largest private client services market, with the ability to serve the U.S. domestic and international markets and to provide a wider range of services to both. Taken together with acquisitions made earlier in the Galaxy era, this gives us a significant presence in the United States from which to drive further growth in the Cosmos era for both institutional and private client services. 2023 was the year of focus for the institutional client services division, one in which we increased global brand recognition for our expertise and quality of service, particularly in the fund space. The division has now established a regional model, mirroring its sister, Private Client Services Division, and made some top-quality hires, whilst at the same time increasing overall employee retention rates to 95%. The delivery of an outstanding 19.4% organic growth, along with record new business wins of £20.6 million, are particularly satisfying results for the team. The Private Client Services Division delivered record organic growth of 20.9%, significantly ahead of both our medium-term guidance range and, more importantly, industry norms. The team has secured some significant new client wins and introduced further new services, bringing a more innovative approach to the market, where we have continued to be recognised as a standout market leader by large family offices, ultra-high net worth individuals and institutions for the delivery of services to the private client market. A combination of great performance from the divisions, which are recognised for their quality across the competitor landscape, with the ability of the Group Commercial Office to act as a catalyst for growth, has led to exceptional organic growth in the year. These new revenues are embedded and recurring and have been delivered from banking, tax and regulatory compliance reporting and strategic transformation services, as well as new client wins that include mature structures won from competitors. Finally, and most importantly, none of our successes in 2023 and the Galaxy era would have been achievable without the top quality JTC team. Our annual employee survey for the year had a fantastic 89% response rate, with 85% of our people saying they value being an employee owner, 86% saying that they understand our plans for future growth, and 83% agreeing that it is a positive workplace culture at JTC. When coupled with our industry-leading employee retention figure, for the group of 96%. These are outstanding results and I'm privileged to lead our global team into the Cosmos era. Let's turn to slide four and the financial highlights. Our revenues have grown to £257.4 million and underlying EBITDA was £85.9 million, delivered at an underlying group EBITDA margin of 33.4%. As previously highlighted, our net organic growth was 19.9%, up 7.9 percentage points from 2022. New business wins were a record of £30.8 million, up 25.2%, as the group continues to benefit from excellent win rates of around 50% across both divisions, implying we win at least half the business we pitched for, a great performance in a very competitive market. The new business pipeline remains strong and stood at £54.9 million at period end, up one-fifth year-on-year. The lifetime value of WorkOne was a record of £421.1 million. Based on the 14.3-year average lifespan of our client book, and a 25.3% increase on the 2022 figure of £336.1 million. This gives us visibility of a total of circa £2 billion of forward revenues from our existing client book. i.e. what the business would generate, without the addition of any new mandates from this point forward. These figures bring home the long-term and compounding value of the group. And finally, on to the total dividend, which for 2023 has been proposed at 11.17 pence per share, up from 9.98 pence in 2022. Now over to Martin for a deeper look at the financials.

Thank you, Nigel. We're delighted to present an exceptional set of financial results which show continued trading momentum and strong returns on capital. Our financial highlights are set out on slide seven with our underlying performance showing revenue growth of 28.7%, driven by record organic growth of 19.9%. This is significantly above our medium term guidance range. Our underlying EBITDA margin increased by 0.4 of a percentage point to 33.4%. Earnings per share increased by 11.9%, a third consecutive year of double digit growth. Cash conversion was well above guidance at 106%. Net debt has increased by £18.5 million, driven by additional drawdown to fund the SDTC acquisition. At the year end, leverage had fallen to 1.43 times EBITDA, just below our medium-term guidance range. Our final dividend of 11.17 pence per share is an 11.9% increase on the prior year. And finally, return on invested capital was 12.3% for the year, an improvement from 11.5% in 2022. Let's now look at the results in more detail, starting with revenue. Gross new organic revenue was £49.6 million, a significant increase from £23.9 million last year. Much of this was driven by growth from existing clients, in particular from Treasury and Banking, with 73% of gross new revenue coming from existing clients compared to 56% in the prior year. Gross attrition was £10.1 million, which is 5.1% of annual revenues, down from 6.4% reported in the prior year. £6.6 million of this attrition was end of life, and therefore 98.2% of non-end of life revenue was retained. Revenue recognised so far on new business wins was 59% and is in line with our expectations. Our pipeline at the period end was a healthy £54.9 million, a 20% increase from the position at the end of 2022. Let's now move on to slide 9 and look at our net organic growth with a focus on the divisions. Net organic growth was a record 19.9%, with the three-year average now increasing to 13.8%. Such has been the consistency of our growth alongside a strong pipeline that we've updated our guidance to be at least 10% net organic growth per year during the Cosmos era. PCS recorded 20.9% net organic growth and benefited from the successful onboarding of Amaro in Q4 2022. which is now our largest single mandate. ICS recorded organic growth of 19.4%. with the division now delivering double-digit growth for three successive financial years. 2023 saw particularly strong growth in the US, Channel Islands and UK, and Luxembourg. Focusing on the drivers of organic growth, as a largely time and materials business, our pricing growth is dependent on our ability to pass on increases in fee rates, and we're pleased to report pricing growth of 6.4% in 2023. That is 80% of the inflationary staff costs that the business incurred and demonstrates our ability to recover increased costs of doing business. On the revenue bridge slide, I refer to 73% of growth coming from existing clients, which was a significant increase on the prior year. This was driven by strong volume growth, the reasons of which are many fold and included the launch of our treasury and banking services, resulting in an exceptional but embedded increase to the organic growth, the continued development of our tax compliance service offering and continued high new business win rates. Concluding on revenue, let's look at the geographic profile 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. As you can see from the trend chart, we've increased our US revenue base significantly since IPO, with the region posting annual revenue growth of 70.5% in 2023, driven by net organic growth of 24.7%. In 2018, when we IPO'd, our US revenue was $3.7 million per annum, and in 2023, it was $80.6 million. We move now onto EBITDA margin on slide 11. The underlying margin in the period increased by 0.4 of a percentage point to 33.4%. This sits within our medium-term guidance range and is consistent with our previous messaging on our performance during periods of heightened revenue growth and uncertain macroeconomic conditions. Delivering margin improvement at a time of record growth is always a challenge, and it's a credit to the JTC team that we've achieved this. We are committed to continued investment in the business and whilst this may dilute margin improvements, our priority is always to nurture the continued longevity of our client relationships. The PCS margin was 36.5%, a 0.2 percentage point increase from 2022. With both NYPTC and SDTC integrating well, the division continues to perform strongly and at the top end of our guidance range. The ICS division improved again, coming in at 31.6% against 31.5% in 2022, and we're pleased to see the division build from the foundations previously laid. We maintain our medium-term guidance range of 33-38%. Let's now look at cash and working capital. Slide 12 focuses on our cash conversion which reflects how well we're managing our working capital cycle. As you can see and already touched on, cash conversion was an exceptional 106%. This was driven by several factors. An increased US exposure, where we see a shorter working capital cycle. The uptake of our treasury and banking services. An improved collection of aged debtors. And this has resulted in a reduction in net investment days of 21 days. and it now stands at 89 days. Our business fundamentals remain unchanged, and so we maintain our existing medium-term guidance range for annual cash conversion of 85% to 90%. Next to look at is net debt and leverage. At the end of 2022, our reported net debt was £104.8 million, and by the year end, it stood at £123.3 million, an increase of £18.5 million. This was driven in the main by a £180 million drawdown in August, which funded our SDTC acquisition. albeit this is offset by the June equity fund raise of £62 million that supported the financing of the acquisition. Excluding acquisitions, net debt decreased by £36.1 million, evidencing our capacity to deleverage through strong cash conversion and effective working capital management. We successfully refinanced our debt facility in Q4 and this has resulted in increased facilities of £400 million with an accordion for an additional £100 million. On the 4th of December, we also hedged to £180 million of our drawn facilities at 4.237% for a two-year period. A reported leverage now stands at 1.43 times underlying EBIT data, which is below our medium term guidance range. You can see from the graph that we've gone up to 2.34 times previously, but that we quickly delevered back into the guidance range. This guidance range continues to be up to two times underlying pro forma EBIT data. but with continued appetite to go up to 2.5 times for the right deals. As at 31 December 23, the group had undrawn funds of £176.3 million, excluding the accordion, and this combined with the current leverage levels leaves us well positioned to capitalise on inorganic growth opportunities. The next slide summarizes our capital allocation strategy and how we've approached this during the Galaxy era. To recap, we prioritize both organic and inorganic growth, but we also maintain a progressive dividend policy. During the last three years, the Galaxy era, We've raised or generated a total of £477.4 million of cash, with one third coming from organic means. £313.9 million has come through fundraisers and debt drawdowns to finance acquisitions, which allowed us to complete nine deals. There's been a significant focus on the US market with £280.5 million invested here. just under 90% of our acquisition spend. This was a conscious decision to focus our strategic efforts on the region and demonstrates a significant shift from our previous Odyssey era, where we spent only £3.6 million in the US, less than 5% of our total M&A spend. Let's now look at return on capital in more detail on slide 15. The return on invested capital in 2023 was 12.3%, an improvement from 11.5% in 2022. As you know, we've a resilient long-term business model characterised by contracts that now last on average 14 years. We take a duration-adjusted approach to returns on capital. whereby we also take into account client duration, attrition rates, and the potential for the acquisition to be an accelerator. In the last two years, we've made two platform acquisitions in the US, in Sally and SDTC, where the immediate return on capital has been diluted. We believe that the capital allocation decisions we've taken are for the good of the long-term business for the following reasons. Both have long-term annuity-like revenue streams. Sally has client duration of 30 to 40 years. Both acquisitions are important platforms for growth in the US. Sally brings significant cross-selling revenues. The US ICS business is now fully integrated into one reporting model. SDTC brings cross-selling opportunities and also makes us the preeminent and largest independent private trust business in the US, and the only one that has licenses to operate in both Delaware and South Dakota, the two key US trust jurisdictions. 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, and I'll now hand back to Nigel.