Marex Group plc

Good morning, everyone. I'm Robert Coates, Global Head of Investor Relations for Marex. Thank you for joining us today for our results conference call. Speaking today are Ian Lowett, CEO, and Rob Irvin, CFO. After the formal remarks, we will open the call up for questions. Before we begin, I would like to highlight that certain matters discussed on today's conference call are forward-looking statements relating to future events, management's plans for the business, and the future financial performance of the group. which are all subject to risk and uncertainties. Actual results could differ materially 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 and our previous prospectus filed with the SEC. 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 non-IFRS financial 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. A copy of today's release and the investor presentation can be found on the investor page of Marex.com. With that, I'll hand over to Ian.

Good morning and welcome to our third quarter earnings call. It's been a very busy few weeks for Marex with our successful equity offering and debt raise, and it's been a great opportunity for us to spend time with investors, both those who have been with us since the IPO and new investors who are putting their trust in us. Both offers were significantly oversubscribed, seven times for the equity and four times for the debt offering, demonstrating strong institutional interest in Marex and support for the firm. We are grateful for this enthusiastic response and for the time people took to meet with us and understand the Merrick story. It is also particularly heartening to be able to follow those conversations with yet another strong quarterly performance. We provided an indicative range for our quarterly results in our F1, so not much of this will come as a surprise, but we aim to provide helpful commentary on today's earnings call. I believe these results, as well as the deals we have announced in the past month, demonstrate that we are delivering on what we said we would, at the time of our IPO. We are finding opportunities to grow both organically and inorganically, resulting in a platform that is resilient and we believe can deliver growth across a range of market environments. Turning now to slide three. Slide three illustrates how we play a critical role in connecting clients to markets and how our four interconnected services of clearing, agency and execution, market making, and hedging and investment solutions reinforce one another. Our clients include producers and consumers of commodities, as well as asset managers and hedge funds, and we provide an essential connectivity layer between our clients and the markets they need to access. At the heart of the firm is clearing, which provides an essential infrastructure to connect clients to exchanges and clearinghouses. We also provide clients with access to liquidity, either through agency and execution or market making. And if there is no on-exchange product to meet a client's requirements, we provide bespoke hedging services through our hedging and investment solutions business. In combination, these four services reinforce one another, produce multiple entry points for clients, and increase cross-selling opportunities for merits. We are looking to become more and more relevant in this connectivity layer by adding clients and increasing 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 over the past 10 years through a range of market conditions and our continued momentum as a growing business. We're on track for a 10th year of sequential growth, having delivered 34% CAGR in adjusted operating profit over the last nine years. Year-to-date, we have already surpassed our full year 2023 adjusted operating profit. We are delivering on our strategy, which is to ensure we have sufficient structural growth through product and geographic diversification to offset cyclical headwinds. We continue to add clients and do more business with them, with around 5,200 active clients at the end of the third quarter. Moving now to slide six, we've had another quarter of extremely strong performance with continued momentum across all business segments. These results were better than we had anticipated going into the often slower summer months and were supported by ongoing growth in exchange volumes in both commodities and financials. We have continued to strengthen our position in the market with Marex's growth, our pacing growth in overall volumes in almost all markets in which we operate. We have also been successful in expanding our client pipeline, converting that pipeline into new clients and deepening our relationships with existing clients to increase the amount of business we do with them. In the third quarter, we saw revenue growth across all of our business segments. Total revenue grew 32%. Reported ROE for the third quarter was 25%, notwithstanding the 70 million of primary issuance from our IPO that has yet to be deployed. Thanks to the continued strong performance, positive momentum in our core business, and the continued execution of our growth initiatives, We have upgraded our guidance for the full year 2024 and now anticipate adjusted operating profit to be between $300 and $305 million, up from the $280 to $290 million range that we provided last quarter. Please recognize that the fourth quarter is often our softest quarter, with more subdued activity in December. Over the past few months, we were pleased to have announced four growth investments and increase earnings resilience. These investments provide our clients with additional product capabilities in more geographies. We also successfully placed 9.7 million shares in a secondary follow-on transaction, which reduced the position of private equity shareholders and increased our public float from 38% to 52%. Due to the significant demand with seven times over subscription, we were able to upsize the deal to the maximum limit under our SEC filing. We were very happy with the outcome and want to thank all who participated. And we issued $600 million of five-year unsecured notes, further diversifying our funding sources and increasing our liquidity headroom to support future growth of our franchise and growing our client base, particularly in clearing and prime services. This deal also generated significant demand and was four times oversubscribed, leading us to upsize the issuance by $100 million. Consistent with a capital allocation policy set out at IPO, we will be paying a dividend of $0.14 per share this quarter, the same as last quarter. Slide 7 shows the key metrics we as a management team are focused on, growth, margins and ROE, and productivity and quality of earnings. In the third quarter, we delivered strong double-digit growth in all of our growth metrics, with revenue up 32%, adjusted operating profit up 52%, and a 66% increase in adjusted operating profit attributable to common equity. In terms of margin and ROE, our adjusted operating profit margin increased to 21%, and our reported ROE was 25%, up 7 percentage points year on year. and the increase in return of adjusted operating profit attributable to common equity also rose to 28% from 22%. In terms of productivity in our business, operating profit attributable to common equity holders per FTE was up to $97,000 on an annualized basis, up 37% year-on-year. With regards to the quality of earnings, our Sharpe ratio of monthly operating profit is a very healthy 3.8. On slide eight, you can see that overall, the markets in which we operate are growing at around 13%. You can see that there has been a positive skew to commodity markets, which have grown much faster than financial securities markets year on year, with commodity volumes up 22% year to date against 11% for financials. Turning to slide nine, 2022, as you see, was characterized by very elevated volatility and higher commodity prices following the Ukraine invasion. In 2023 and through 2024, volatility and commodity prices have returned to more normal levels. What is important to note is that at these normalized levels of volatility, we're able to perform strongly. Regarding interest rates, currently the Fed funds rate forward curve looks similar to how it did at the beginning of the year, Further rate cuts in Q4 and in 2025 are anticipated. On slide 10, we show how we perform using metrics that can be tracked against the market with reference to overall exchange volumes. When you look at our various businesses on that basis, it is apparent that we are gaining market share. We see increased market volume across each service segment, while Marex's own volumes are growing at a faster rate in almost all markets. Year-to-date, market volumes in clearing are up 14%, while at Marex we saw our volumes up 31%, while revenue is up 18%. Within agency and execution, in the energy market, volumes rose 24%, while our revenue was up 36% on volumes that were up 42%. In the securities markets, volumes rose 11% in the market, while our volumes rose 27%, and our revenues were up 28%. Market making saw volumes up 22% in the market, while Merrick saw revenues up 46% on volumes up by 46%. This is a consistent picture of Merrick's growing faster than the market, which itself is growing at a healthy rate. As we attract additional larger clients to grow share, we expect our volumes to grow somewhat faster than our revenues. I'll now hand over to Rob for a more detailed update on our financial position.

Thanks, Ian, and good morning, everyone. Turning to slide 12, as you can see, we've had another strong quarter. We have grown our revenues by 32% to $391 million, reflecting double-digit revenue growth in each business segment. This enabled us to grow adjusted operating profits to $80.5 million for the third quarter, up 52%. I want to highlight that 92% of this growth was organic. Our performance was supported by a positive market environment and exchange volumes. While the market dislocation we saw in metals in the second quarter did not repeat, we still saw strong volumes in this market. This, combined with the robust volumes in all businesses, led to a better than anticipated performance in the third quarter. Our adjusted operating margin reached 21% compared with 18% in Q3 2023, demonstrating our platform's ability to deliver scale benefits. The first nine months of the year were also strong, with revenues up 28% to $1.179 billion, and adjusted operating profit was up 35% to $240 million. We saw strong contributions from all business segments, as well as exceptional activity in the metals market, which benefited our market-making business in the second quarter, as discussed in the previous earnings call. Historically, we've had minimal adjustments between our adjusted operating profit and our reported profit before tax. As a reminder, our non-operating items grew to just under $22 million in the first nine months of this year. with the vast majority being in the first half for three reasons. Firstly, we incurred $8.6 million of costs associated with the IPO, predominantly legal and accounting costs to support our US listing. Secondly, we incurred $2.4 million of owner fees that we used to pay to our private equity shareholders subject to profitability. These fees ceased at the point of the IPO and will not resume. And thirdly, we incurred $2.2 million of tax expense relating to the vesting of our gross shares, which was connected with the IPO. Similar to this quarter, going forward, we expect minimal adjustments between our adjusted operating profit and our reported profit before tax. Given this, a key 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 dividends, whilst the equity is the firm's total equity excluding our 81 capital. Our return on adjusted operating profit attributed to common equity holders was 28% for the quarter. At the end of September, we had 70.3 million of ordinary shares outstanding. This excludes 1.9 million of treasury shares. Our adjusted basic earnings per share was 82 cents for the three months ended September the 30th, 2024, compared with 53 cents for the same period in the prior year, an increase of 55%. On slide 13, For the first nine months of the year, you can see that we have achieved double digit revenue and operating profit growth across all of our segments. We are very pleased with the strong momentum across the businesses this year. Now, let me dive into the third quarter in more detail. On slide 14, you can see that we continue to achieve double digit revenue growth across all of our business segments. Operating profits grew by double digits in all segments apart from hedging and investment solutions, which I will cover shortly. In clearing, revenues grew by 22% in the third quarter of 2024, reflecting growth in both commissions and net interest income. This primarily reflects higher customer balances. In agency and execution, revenues grew by 30%, to $170.4 million in the third quarter. This reflected, firstly, growth in security revenues of $25.4 million, or 34%, reflecting the impact of the Cowen acquisition, which we completed in December 2023, and growth within our rates business, reflecting higher volumes and the introduction of a new structured rates desk. Secondly, Revenues in our energy business grew by 25%, or $13.9 million, reflecting continued high levels in European energy markets, strong demand for our environmental offering as we continue to support our clients in the energy transition, as well as investments in new desks and capabilities. As you can see, we have grown our adjusted operating margin within the segment to 15%, as we've continued to optimize and integrate our acquisitions. Market-making revenues were up 102%, driven by metals trading, which continued to perform strongly and compared favorably to a more subdued performance in the three months a year earlier. Revenue from securities also grew, reflecting a stronger performance from equities, rates, and foreign exchange. In hedging and investment solutions, Revenue grew by 13% to $35.6 million for the quarter, reflecting growth in hedging solutions and financial products due to expansion of the sales team and onboarding of new clients. However, operating profits fell as we continue to invest in the business infrastructure and distribution network. So in summary, a strong performance across all four of our business segments during the third quarter of 2024. Moving to slide 15, as you can see, the average client balances in the third quarter were $13.8 billion and net interest income for the third quarter was $64 million. Year-to-date client balances were $12.9 billion and net interest income rose to $165 million. Please be aware that we have updated the balances to reflect daily average balances, which we think is a better reflection as to what drives net interest income. The growth in net interest income reflected three factors. Firstly, higher average Fed fixed rates in the first nine months of 2024 versus the prior year. Secondly, the impact of the current transaction that we completed in December 2023 And in the first nine months of 2023, we carried fixed investments, which had subsequently rolled off and have been reinvested at higher rates. Clearly, the fact that rates have remained elevated in the first nine months is beneficial to the business, but we do expect a gradual rate cut late this year and into next year. It is important to remember the net interest income does not just impact our clearing business. For example, the interest earned by the Cowan Prime Service business is included within the agency and execution business. As we continue to build this out, it will become a bigger driver of net interest income. And our market-making business and hedging and investment solutions incurs interest expense as they use funding to support their activities. We estimate that 100 basis point decreasing rates will reduce operating profits by around $20 million. This is before any management actions, including future growth of the book. As you can see on slide 16, we continue to maintain prudent levels of surplus capital and liquidity, which support our investment grade credit ratings from S&P and Fitch. Just last week, we completed a US senior unsecured notes issuance of $600 million, which comes due in 2029. This deal adds to our liquidity headroom, further diversifies our funding sources, and extends our maturity profile. These levels of surplus capital and liquidity also ensure that we're well positioned in periods of market turmoil. As Ian has already mentioned, we will be paying a dividend of 14 cents per share this quarter, consistent with our capital allocation policy. This is expected to be paid on the 10th of December 2024 to shareholders on record at close of business on the 25th of November 2024. Turning to slide 17, 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 a small level of inventory to source client demands and capture the trading spreads. The VAR value at risk has remained at around $2.5 million. During periods of volatility, we stay well within our risk parameters without increasing VAR and without increasing trading losses. During the first nine months of 2024, we wrote off seven specific historical provisions which had previously been provided for. Within our P&L for the first nine months of 2024, we had a release of $2.8 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.