Marex Group plc

Good morning, everyone. I'm Robert Coates, Global Head of Investor Relations for Marex. Thank you all for joining us today for our first half of 2024 results conference call. Speaking today are Ian Lowat, our CEO, and Rob Irvine, our CFO. After our formal remarks, we will open up the call for questions. Before we begin, I would like to highlight that certain matters discussed in today's conference call are forward-looking statements relating to future events, management plans and objectives for the business and the future financial performance of the group. These are subject to risks and uncertainties. Actual results may differ from those anticipated in the forward-looking statements. The risk factors that may affect these results are referred to in the company's press release issued today. and also in our prospectus with the sec back in april the forward-looking statements made today are as of the date of this call and the company does not undertake any obligation to update these forward-looking statements finally the speakers may refer to certain adjusted or non-ifrs measures on this call a reconciliation of the non-ifrs financial measures to the most directly comparable ifrs measures is available in the company's press release issued today A copy of the press release and the investor presentation can be found on the investor relations page of Marex.com. With that, I will now hand over to Ian.

Welcome, everyone. Thank you for joining us today. As the CEO of a public company, one is well aware of the desirability of delivering strong results, particularly early on when one is looking to build credibility with the markets. And so it is with a small dose of relief and a much larger dose of pride that Rob and I can share with you our very strong performance in our first quarter as a public company. And what is so pleasing to me, beyond the record numbers, is what I see driving the performance. You will see evidence that we are gaining share. I hear this anecdotally in the conversations we have with clients who report on their positive experiences dealing with Marek. I can feel the positivity and enthusiasm of our staff as they describe the progress they are making growing their business or function. So we're certainly off to a robust start as a public company, and I'd like to once again thank all of those investors who have put their trust in Marex. Turning to materials on slide three. I want to start out with a reminder of how and where we participate in the financial market ecosystem. Slide three illustrates how we play a critical role in connecting clients to markets and how our four services of clearing, agency and execution, market making, and hedging and investment solutions fit together. We provide connectivity to producers and consumers of commodities as well as asset managers and hedge funds and act as an essential layer between our clients and the markets they need to access. At the heart of the firm is clearing. which provides the essential infrastructure to connect clients to exchanges and clearinghouses. We also provide clients with access to market liquidity, either through agency and execution or market making. And if there is no on-exchange instrument that meets their needs, we provide bespoke hedging services through our hedging and investment solutions business. In combination, these four services reinforce one another, produce multiple entry points into the firm for our clients, and increased cross-selling opportunities for Mareks. We are increasingly relevant in this connective layer by adding clients and growing the amount of business we do with them in the provision of these interconnected services. Turning to slide four, you can see our strong track record of double-digit growth and our continued momentum. We believe we are on track for a 10th year of sequential growth, having delivered a 34% CAGR in adjusted operating profit over the last nine years. We are delivering on our strategy, which is to ensure we have sufficient structural growth to offset cyclical headwinds. By executing on the strategy, we've been able to grow through a variety of different market conditions through a combination of organic and inorganic growth. We continue to add clients and do more business with them, with around 5,000 active clients at the end of the first half, up from around 4,100 at the end of 2023. Moving now to slide six. We have delivered extremely strong performance in H1, having grown our earnings and also grown our market share. We have seen growth in all our business segments. As you can see in our earnings release, the second quarter saw an exceptionally strong performance with record revenue of $422 million and operating PBT of $92 million. Our second quarter profitability is over 50% higher than the average quarter in 2023, and 35% higher than the first quarter in 2024. Reported ROEs for the second quarter was 29%, and excluding one-time items related to the IPO, ROE was 37%. During the second quarter, we were able to take advantage of the opportunities presented in the unusual conditions in the metals market. In this period of heightened market activity, we were able to provide consistent service to our clients, as we continue to make markets and to provide ongoing access to liquidity while keeping well within our risk parameters. Considering now our first half, we delivered strong growth with revenue up 27% year on year to $788 million and adjusted operating profit also up 28% to $159 million with reported ROE of 25%. Thanks to our strong performance in the first half, positive momentum in all our businesses, and the continued execution of our growth initiatives, we have a positive outlook as we anticipate full year adjusted operating PVT of between around $280 million and $290 million, assuming more normalized market conditions and the likely impact of lower interest rates in the fourth quarter. Lastly, consistent with the capital allocation policy set out at IPO, we have announced a progressive dividend policy with a quarterly dividend of 14 cents per share, demonstrating our confidence in the outlook for the group and commitment to shareholder return. As referenced in our previous earnings call, slide seven shows the key metrics that we as a management team are focused on. growth, margins and ROE, productivity and quality of earnings. In terms of growth, what we are most focused on is increasing adjusted operating profit off the tax to our common shareholders. In the first half, we delivered strong double-digit growth in all these metrics, with revenue up 27%, adjusted operating PBT up 28%, and a 28% increase in operating PAT up to $116 million. In terms of margins and ROE, our operating PBT margin remained at 20%, and our reported ROE was 25% of two percentage points year on year. And the increase in return on adjusted operating PAT attributable to common equity was even stronger, up to 32% from 30%. In terms of productivity in our business, operating PAT attributable to common equity holders per FTE was up to $101,000 on an annualized basis, up 3% year-on-year. With regard to quality of earnings, our Sharpe ratio is a healthy 3.3. You may be aware that there are limitations in the Sharpe ratio metric as growth, as well as unusually profitable months, as we had in the second quarter, have the counterintuitive impact of reducing the Sharpe ratio, although investors would not see this as a negative in terms of quality of earnings. On slide eight, you can see that overall, the market in which we operate continues to grow at around 8% to 9%, which is consistent with historic averages. Within that, though, you can see that there's been a positive skew to commodity markets, which have grown at 22% year-on-year, a much faster rate than financial securities markets. Turning to slide nine, 2022 was characterized by elevated volatility and higher commodity prices following the Ukraine invasion. In 2023 and so far this year, volatility in commodity prices have returned to more normalized levels. The Fed funds rate increased dramatically in 2022, and the forward curve now reflects rate cuts through 2025. While since June, the forward curve was reflecting a higher for longer outlook, as at the end of July, market expectations have returned to a similar level as at the start of the year. On slide 10, we show the positive market dynamics in metals during the second quarter. The quarter presented opportunities due to updated guidance on restrictions placed on the trading of Russian metal on the London Metal Exchange. We saw an increase in prices, an increase in market volume, and an increase in client activity, which was beneficial to our metals franchise. We were able to support increased activity while staying within our strict risk parameters without increasing VAR and maintaining our historic positive profitability distribution. These market dislocations are important not just because of the opportunity they present to increase profitability, but critically by supporting our clients through such events, we cement our reputation as a reliable partner, which enables us to gain share over time. Moving on to slide 11. We're committed to find ways to describe our results to investors in ways which make our progress transparent and links to metrics that are intuitive and can be tracked against publicly available information, which for our business is exchange volumes. When you look at our various businesses on this basis, it's apparent that we are gaining share. We see increased market volumes across each service segment, while Merit's own volumes, and importantly revenues, are growing at a faster rate. Market volumes in clearing, for example, are up 9% in the first half of 2024 versus the same period last year. While at Merit, we saw our volumes up 28% and revenues up 16%. Within agency and execution, in the energy markets, volumes rose 25% while our revenue was up 42% on volumes that were up 66%. In the securities markets, volumes rose 6% in the market while our volumes rose 16% and our revenues were up 25%. Market making saw volumes up 22% in the market, while Merrick saw revenues up 32% on volumes up 27%. This is a consistent picture of Merrick's growing faster than the market, which itself is growing at a healthy clip. Turning now to slide 12. Our growth is powered by the addition of new clients, and the increase in the business we do with our existing clients. In 2024, we have added 900 or so new clients, both through the Cowen acquisition and our ongoing onboarding efforts. The number of clients paying us more than a million dollars on an annualized basis has also increased to 259. Now I'll pass on to Rob to talk you through the financials.

Thanks, Ian, and good morning, everyone. I'm really pleased to be with you today presenting for the first time our half-year update. Picking up on slide 14, you can see that we've had a strong start to 2024. We have grown our revenues by 27% to $788 million, in part reflecting the impact of the Cowan acquisition, but notably due to strong organic growth, which contributed over two-thirds of the increase in revenues. This enabled us to grow operating profit to $159 million for the first half, up 28%. The second quarter was particularly strong, and our adjusted operating profit increased by 35% compared to the first quarter to $92 million. We saw strong contributions from all our business segments, as well as exceptional activity in the metals market, which benefited our market-making business. Our adjusted operating margin reached 22% compared with 19% in the first quarter, demonstrating our platform's ability to deliver scale benefits. Historically, we've had minimal adjustments between our adjusted operating profit and our reported profit before tax. For the first half of 2024, these non-operating items were just over $20 million, and there were four main components of this. Firstly, we incurred $8.3 million of costs associated with the IPO, predominantly legal and accounting costs to support our US listing. Secondly, we incurred $2.2 million of tax expense relating to the vesting of our gross shares, which were connected with the IPO. Thirdly, we incurred $2.3 million on the fair value of the cash settlement option on the gross shares. This is a technical accounting booking, and as the gross shares were all settled in equity, there was an offset in retained earnings. Fourthly, we incurred $2.4 million of owner fees that we used to pay to our private equity shareholders, which was a function of profitability. These fees ceased at the point of the IPO and will not resume. Going forward, now we have completed the IPO, we would expect minimal adjustments between our adjusted operating profit and our reported profit before tax. Given this, a measure that we focus on as a management team is our return on adjusted operating profit after tax attributable to common equity holders. As a reminder, this return is calculated as follows. We tax effect our adjusted operating profit and then deduct the post-tax cost of our 81 dividend. Whilst the equity is the firm's total equity excluding our 81 capital. For the first half of 2024, our return on operating profit after tax attributable to common equity holders was 32%, up from 30% in the first half of 2023. The tax rate for the first half of 2024 was 26%, reflecting the number of adjusting items which were not tax deductible. Over the medium term, we would expect our effective tax rate to be 25%. As part of the IPO, we also reorganized our share capital. This included doing a share consolidation. As a result, at the end of June, we had 70.3 million ordinary shares. This excludes 1.9 million treasury shares. Our adjusted basic earnings per share was 96 cents for the second quarter and $1.70 for the first half of 2024. On slide 15, you can see that we have achieved double-digit revenue and operating growth across all of our business segments. In clearing, revenues grew by 16% during the first half of 2024, reflecting growth in both commissions and net interest income. This was due in part to heightened market activity in the metals market, which increased margin requirements at exchanges and transaction volumes, but also due to the benefit of our growth initiatives in Australia, Singapore, and in our prime services offerings. In agency and execution, revenues grew by 32%, reflecting market share gains, positive market sentiment in the energy market, and the benefit of recent acquisitions, primarily Cowen, which increased our capabilities in financial securities. In market making, Revenue was up 23% driven by market sentiment and metals trading, which benefited from heightened market activity across copper, aluminium, nickel, following revised guidance related to Russian materials on the LME. And in hedging and investment solutions, revenue growth occurred across all regions and was driven by favourable market conditions, stemming from volatility in cocoa and coffee, more financial products benefited from positive investor sentiment and equity market performance, as well as the benefits of our growth initiatives, which resulted in strong client trade flows in the first half of 2024. So in summary, a strong performance across all four of our business segments during the first half of 2024. Moving to slide 16, As you can see, average client balances in the second quarter were 13.6 billion, up from 13.2 billion for the first quarter of 2024. Please be aware that the average balances for the quarter are based upon the month end. If we'd used daily average balances, our balances would have been up around 10% versus the first quarter, which was a key driver of the increase in net interest income during the quarter. As a result, Net interest income rose to $101 million the first half of 2024. The growth in net interest income primarily reflected three factors. Higher average fed fund rates, the impact of the Cowen Prime Services transaction, which we completed in December 2023, and reinvestment of maturing assets at higher yields. These factors were partially offset by high interest payments to clients. It's important to remember the net interest income does not just impact our clearing segments. For example, the interest earned by the Cowan Prime Services business is included within the agency and execution segment. And our market making and hedging and investment solutions incur interest expense as they use funding to support their activities. Clearly, the fact that rates have remained elevated in the first half of 2024 is beneficial to the business. As Ian mentioned, we do expect rate cuts late this year and into next year. We estimate that 100 basis points decrease in rate will reduce operating profits by around $20 million. This is based upon the current book and does not take into account any future growth which would partially mitigate the impact. On slide 17, our capital allocation framework looks to balance a strong capital position supporting both organic and inorganic growth opportunities with disciplined returns. We can build this out into four key areas. Firstly, we will maintain a strong capital position to support our investment grade credit rating. Secondly, On organic growth, our investment will focus on targeted areas of our underlying business where we can earn an attractive return. Thirdly, on dividends, we have announced today an initial dividend of $10 million or 14 cents per share. This will be paid to shareholders off record on the 30th of August and is expected to be paid on the 16th of September 2024. And fourthly, with surplus capital, we will continue to make an active approach to selective M&A, focus on complementary businesses that support our current businesses while delivering attractive returns. As you can see on slide 18, we continue to maintain prudent levels of surplus capital and liquidity, which underpins our investment grade credit ratings from both S&P and Fitch. These levels of surplus capital and liquidity also ensure that we are well positioned in periods of market turmoil. At the end of the first half of 2024, our total capital ratio was 276%, and we had liquidity headroom of $1.2 billion. Turning to slide 19, I will conclude with a view on risk. We have a proactive and involved risk management approach at Marex. In market making, we are a client flow-driven business and do not take a directional view on prices. However, as the business is a market maker, we do carry some inventory. The VAR, Value at Risk, has remained at around $2.5 million. As Ian said, we were able to support our clients during this period, providing ongoing access to liquidity while keeping well within our risk parameters. without increasing VAR and without increasing trading losses. Although we did have one week where we made a small loss, the number of positive trading days has remained consistent at 87%. During the first half of 2024, we wrote off five specific historical provisions which have been fully provided for in 2020 and 2022. Within our P&L for the first half of 2024, we had a release of around $2 million, reflecting our proactive credit risk management approach, which has resulted in partial recoveries of provisions we'd previously taken. We maintain a very prudent approach to monitoring credit risk. Now I'll hand you back to Ian for an operational update and some concluding remarks. Thanks, Rob.