TP ICAP Regulatory News (TCAP)

TP ICAP PLC

9 November 2020

TP ICAP plc (the "Group")

Trading Update for the nine months and third quarter ended 30 September 2020 (the "Period")

TP ICAP issues a scheduled trading update in relation to the Period. Commentary on year-on-year performance is on a reported and constant currency basis.

Nicolas Breteau, Chief Executive Officer said:

"Over a nine-month period of substantial economic dislocation, TP ICAP's business has been resilient. We have implemented a targeted cost efficiency programme that will provide further support to our earnings power in an operating environment that remains uncertain."

"TP ICAP has a clear strategy of electronification, liquidity aggregation and diversification, on which we have made meaningful progress over the course of 2020, and which our proposed acquisition of Liquidnet will accelerate."

"I am excited by the prospects for each of our businesses, and for the additional opportunities that Liquidnet will bring. Our franchises are strong, and our clients value our critical role in the global financial market structure. We look forward to updating investors on our plans at our 1 December 2020 Capital Markets Day."

Revenue by division for the first nine months

Revenue for the first nine months was £1,378m and only 1% lower than the prior year on a constant currency basis (2% lower as reported), which demonstrates the resilience of the TP ICAP franchise and the benefit of our diversification strategy.

- Global Broking revenue was 5% lower than the prior year on a constant currency basis (6% lower as reported) for the first nine months. This reflected weaker trading volumes in the third quarter compared with the strong prior year comparative and followed the strong H1 performance dominated by the unprecedented macroeconomic backdrop that was characterised by the emergence of the COVID-19 pandemic.

- Energy & Commodities revenue was 5% higher than the prior year on a constant currency basis (4% as reported) for the first nine months. The division continued to capitalise on its market leading position and delivered solid revenue growth from its oil trading activity.

- Institutional Services revenue was 28% higher than the prior year on both a constant currency and reported basis for the first nine months, reflecting both the growing size and strength of our buyside franchise and the supportive market conditions in H1 2020.

- Data & Analytics continued its trajectory of growth for the first nine months, with revenue 8% higher than the prior year on a constant currency basis (7% higher as reported).

Revenue for the third quarter

TP ICAP's broking revenue performance directly reflects transaction activity in the key asset classes in which we are active and was broadly in line with exchange-traded volumes in these segments. As expected, revenue for the third quarter was lower than the strong prior year comparative and was 16% lower at constant exchange rates (19% lower as reported). Revenue from our broking businesses was 18% lower in the quarter at constant exchange rates (20% as reported). Revenue in Data & Analytics, which is mainly subscription based, was 9% higher than the prior year at constant exchange rates (3% as reported) as growth accelerated towards the year end as a result of investments made in the business.

1. Inter-division charges have been made by Global Broking and Energy & Commodities to reflect the value of proprietary data provided to the Data & Analytics division. The prior year Period has been restated in line with the new-presentation format. The Global Broking inter-division revenues and Data & Analytics inter-division costs are eliminated upon the consolidation of the Group's financial results

Strategic update and announcement of 1 December Capital Markets Day

Despite the disruptions caused by Covid-19, the Group has continued to make good progress in executing on its three strategic pillars of electronification, liquidity aggregation and diversification, with a number of electronic broking platform launches and enhancements over the course of the year, together with additions to the Data & Analytics product suite and distribution capabilities.

- Global Broking. We have continued to invest in the electronification of our business, and the aggregation of liquidity across our brands. In particular, we have made strong progress with our hub strategy, through which we deliver a single sign-on to multiple linked products with a common visual layout. FXO Hub, the division's FX options platform launched earlier this year, has gained rapid traction, boosting our estimated market share in this segment by approximately 5 percentage points (an increase of c.30%). We have progressed on our Rates Hub strategy, by extending the ICAP brand's market-leading interest rates options ("IRO") platform to the Tullett Prebon brand. The IRO platform is highly sophisticated, offering clients innovative multi-level matching capabilities. Other electronic solutions within the division have also performed well in 2020, notably our eRepo platform (electronic repurchase agreements for EUR and GBP), CrossTrade (intra-fund crossing tool for asset managers) and our suite of Risk Management Services ("RMS"), designed to support post-trade portfolio optimisation.

- Energy & Commodities. TP ICAP is the world's leading broker of OTC oils products, and the division's Oils Hub strategy is focused on electronifying our end-to-end activity in this segment. Over the course of 2020, we have made substantial progress in rolling out an order management system to our broker teams across the division's brands, as well as in automating key post-trade processes. We have continued to expand the ICAP oils business, with a core team now in place for middle distillates, Singapore distillates and fuel oil. We have also recently entered the Japanese power market, a segment where we expect to see substantial growth in trading volume as a result of market deregulation.

- Institutional Services. Our buyside-focused agency execution business has continued to make good progress as it seeks to expand its increasingly global and multi-product franchise. Notably, the division has recently launched interest rate swaps capability in Singapore, leveraging the London-based team.

- Data & Analytics. Our subscription-based Data & Analytics business has performed well throughout the year. Although the pace of growth over 2020 year-to-date was slower than the prior year period, we returned to double-digit growth in September. In June, the division launched its Bond Evaluated Pricing ("BEP") service which allows clients to determine a bond's fair value at regular intervals throughout a trading day. This can be used for price verification, XVA calculations, stress testing, general pricing and valuations. The BEP service utilises our new Data Warehouse and Data Science capabilities and incorporates third-party data. Our TP ICAP WebStore has also gone live, which will allow customers to purchase data directly from the division and thereby bypass intermediated distribution costs. Lastly, we have strengthened our global sales team, appointing new heads of sales for the Americas and APAC.

Proposed acquisition of Liquidnet

The proposed acquisition of Liquidnet remains a unique opportunity for TP ICAP. The acquisition accelerates delivery of the three pillars of TP ICAP's strategy - electronification, liquidity aggregation and diversification, and is expected to transform TP ICAP's earnings profile and growth trajectory. The enlarged group's earnings mix will progressively reflect the contribution from higher growth and higher margin businesses, including electronic D2C Credit and Rates trading and Data & Analytics.

We look forward to providing our investors with a detailed update on our 2020 progress, as well as our multi-year strategic plans and financial targets for the Group - including the proposed acquisition of Liquidnet - at our Capital Markets Day, scheduled for 1 December 2020.

2020 full year guidance

TP ICAP's broking revenue is driven primarily by transaction volumes in the secondary financial markets. As such the Group's broking revenues correlates more closely with derivative exchange volumes than with the financial results of the trading divisions of global investment banks which reflect fluctuations in asset values, the level of spreads earned on direct trading with customers, as well as the impact of primary debt and equity issuance activity.

While transaction volumes were particularly subdued in the third quarter, we started to see increased activity in our broking businesses during October. In addition, investments made in the sales capability of the Data & Analytics business during the year, together with new product launches, means that we expect that business to exit the year with a double-digit growth rate. Together with market volatility that we anticipate resulting from the US elections and Brexit we expect our full year revenue guidance to be in line with 2019 on a constant currency basis.

While compensation expenses in the broking businesses have fallen in line with the lower revenue in the Period, we also expect to maintain that variability within the business and continue to target improving the revenue generated per broker. In addition to efficiency actions we have been taking in our broking businesses during H2, we are seeking further improvement in the Group's operating profit margin and have implemented a targeted reorganisation of the structure of broking businesses as a result of current market conditions. We expect these actions to achieve annualised savings of approximately £35m by the end of 2021. We will offer more detail on the £35m cost savings at the 1 December Capital Markets Day. 

Financial position and liquidity:

§ Fitch re-affirmed the Group's BBB- with stable outlook investment grade credit rating in October 2020.

§ As at the end of the Period, £260m of the Group's Revolving Credit Facility ("RCF"), which matures in December 2022, remained undrawn. This facility remains available to meet the Group's liquidity needs and can be used for general corporate purposes. The Group has no bond maturities until 2024.

For further information:

Analysts and investors:

· Al Alevizakos, Head of Investor Relations and FP&ADirect: +44 (0) 20 3933 3040

Mobile: +44 (0) 79 9991 2672

E-mail: Alevizos.Alevizakos@tpicap.com 

Media:

· William Baldwin-Charles, Group Media Relations DirectorDirect: +44 (0) 20 7200 7124

Mobile: +44 (0) 78 3452 4833

E-mail: William.Baldwin-Charles@tpicap.com

· Neil Bennett, Maitland

Direct: +44 (0) 20 7379 5151

E-mail: tpicap-maitland@maitland.co.uk

About TP ICAP:

§ TP ICAP brings together buyers and sellers in global financial, energy and commodities markets.

§ It is the world's largest wholesale market intermediary, with a portfolio of businesses that provide broking services, data & analytics and market intelligence, trusted by clients around the world.

§ We operate from offices in 26 countries, supporting award-winning brokers with market-leading technology.

Further information on the company and its activities is available on the Company's website: www.tpicap.com