Earnings Call: H1 2021

Sep 21, 2021

Hello, and welcome to the JTC Group Half Year Results Call and Presentation. My name is Courtney, and I'll be your coordinator for today's event. Please note that this event is being recorded. And for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions. And I will now hand you over to your host, Nigel Lecane, to begin today's conference. Thank you. Good morning, everyone. Welcome to the presentation of JTC Plc's results for the half year ended 30th June 2021. I'm Nigel O'Kane, the Group's CEO. Presenting with me as usual is Martin Fotheringham, our Group CFO. If we can turn to slide 1 and the agenda. In the next 30 minutes or so, I'll present my CEO highlights for the first half of twenty twenty one, And Martin will run through the financial review. Then we will follow-up with a more detailed business review for the period and take a deeper look The M and A environment, our approach and recent deals alongside the commercial opportunities and the long term value that they bring. Then finally, on to our key takeaways, summary and outlook for the rest of the year. We will then open the forum up for questions. However, before the summary of the CEO highlights, I would ask that we turn to Slide 2. It is always satisfying to deliver awards to those who deserve it the most. In July, JCC distributed $20,000,000 of its stock to our global team to reflect the performance of the business since we listed in 2018 And the contribution made by each one of them to the capital appreciation of the business in the ensuing period. Following the establishment of the principle of True shared ownership for all employees in 1998 and our fundamental commitment to it, This is the 3rd and most significant distribution to the wider JHC team since the first one in 2012. Since this establishment, we have created £350,000,000 of value to the JTC teams as owner employees. Given the challenging environment we have been working through, the timing and quantum of the award was particularly well received, which allowed us once again to recognize our most valuable asset, Our JCC teams across the globe. Our innovative approach to ownership for all, which is subject of a current Harvard Business School MBA case study, creates a bond and dedication between the JTC teams, which goes far beyond the individual financial benefits each person derives. It fosters an environment of mutual respect and camaraderie, which in turn creates an understanding of the importance and satisfaction That comes from the enhanced results of shared endeavor or stronger together, as we like to say. Now on to Slide 4 and the CEO highlights. In the face of the ongoing economic headwinds generated by the pandemic, we're very pleased with the progress we've made in H1 2021, Which is the 1st 6 months of our new Galaxy era. The core business has continued to trade in line with our expectations, demonstrating the resilience of the business model. And as a result, I'm pleased to report we achieved strong revenue and profit growth and have largely delivered in line with our medium term guidance range. Of particular note is our period on period revenue growth of 24.8% and EBITDA growth of 22.6%. This coupled with a 19.8% rise in annualized new business won to a record of £10,300,000 From which we expect to realize a record £94,400,000 of lifetime value revenue. The PCS division has continued its recent positive performance We've landed our largest ever new business win mandate for a major global financial institution of around £2,500,000 per annum. The margins reduced to 38%, still at the top of our range, as part of a planned reinvestment in the division To ensure it remains as the preeminent trust company business in the industry. On the Institutional Client Services side, We've increased the depth and breadth of our offering by completing on the RBC Seas acquisition and adding Indos during the first half, Each supporting the drive to make our ICS practice market leading as has become the case with PCS, With more to come on the future repositioning of the funds offering in the second half. We're also delighted to report that the underlying margin drag that We've been suffering in the division in the recent past has improved significantly within the core ICS business, and more specifically, the funds practice. We will return to the divisions in more detail later in the presentation. Turning to M and A, we undertook a successful fundraise in April, which was heavily oversubscribed. We are grateful for the faith placed in us by our existing shareholder base. This is primarily with a view to providing M and A firepower To enable us to continue to compete at speed for good quality acquisitions, which will bring enhanced capabilities to the group Given our drive to build long term value. As I've mentioned, 2 deals were completed during the first half of the year. And since the fundraise, you have seen the announcements of Segway last week and Ballybunion earlier today, and we'll cover all acquisitions in more depth later. Now let's turn to Slide 5 and on to the financial highlights. Our revenue has grown to £67,000,000 a period on period rise of 24.8 percent And underlying EBITDA has risen to £21,900,000 a rise of 22.6%, delivered at an underlying group EBITDA margin 32.7 percent and stable at 34.7 percent in the core business when recent acquisitions are excluded And consistent with our underlying EBITDA guidance range of 33% to 38%. Our net organic growth was 7.6% Or 16% growth with proportionally higher levels of attrition than seen for the same period in 2020, which is typical during periods of financial uncertainty With smaller clients reducing their cost base, whilst at the same time, we'll have focused on further professionalizing our client book And exiting the higher risk, lower reward aspects of it. As mentioned previously, our annualized new business wins were up by 19 point 8 percent to a record £10,300,000 for a 6 month period. Encouragingly, since the period end, Momentum in both the value and volume of new business wins onboarded has continued. Our inquiry pipeline at the period end was percent higher at $45,300,000 and we have seen increased momentum for good sized mandates with high levels of probability of success Going into Q3, our win rates for the mandates where we have had visibility in H1 are currently running at 38% across the group and towards the top end of our normal 35% to 40% range. We anticipate that future revenues for these H1 new business wins of £94,400,000 over their lifetime using the typical 10 year estimate, 17.6 percent up on the same period last year. And finally, on to the dividend, where we have declared an interim dividend of 2.6p Now over to Martin for the financial review. Thank you, Nigel. As you've seen from this morning's results, we're pleased to report a further 6 months of Strong performance in line with management expectations. When we presented our results in April, we said that we expected the result for the 6 month period To be along the same lines as FY 'twenty given the ongoing COVID situation, but that we were also expecting to see improvements in Q2 Leading into a stronger H2 for the year. In going through this presentation, the message I'd like to convey These results are in line with management expectations, demonstrating the resilience and predictability of our business. Slide 8 sets out the underlying results posted this morning. I draw your attention to the difference between the reported and underlying results At PBT, this is in large part due to the elimination of the £20,900,000 of deferred consideration It was being accrued for the NESF earnout. Whilst the trading for that acquisition continues to improve, at this stage, it's our view But it just won't improve quickly enough to get over the earnout threshold, which is measured at May 2022. You may recall that the EBITDA threshold for the earnout was $3,200,000 and our latest view is it will be just underneath that. And hence, this is why we've chosen to reverse the accrual that had been made previously. Also included in the non underlying profits It was an £8,000,000 bargain purchase credit on the RBCC's acquisition. Turning to the underlying results. Revenue grew period on period by 24.8%, and our LTM organic growth was 7.6%. For the 6 month period, the underlying EBITDA margin fell by 0.6 percentage point. We did signpost that this would happen in the short term due to the impact of acquisitions, and I'll talk in some more detail about how the margin has developed as we go through the presentation. We've delivered a 12.2% increase in underlying EPS. Cash conversion was 108%, the same as we recorded in H120. Largely as a result of the fundraise we completed at the end of April, we've seen net debt reduced by £44,400,000 in the period since 30 June 2020. We've already deployed some of that capital, and Nigel will provide an update on what we're seeing by way of acquisition opportunities And give some insight about when and how we may deploy the capital that we raised. Our interim dividend is set at 2.6p, An 8% increase on the 2020 interim dividend. Let's now turn to Slide 9 and look at the LTM organic growth bridge. We'll look at some of the components in more detail in the slides that follow, but revenue specific areas I would draw your attention to are: Gross new organic growth was £16,400,000 an increase of 25.2 percent from H120. As anticipated, we saw a larger proportion of the organic growth come from existing clients. The new client revenues were pleasing, But these do always come with an initial cost of EBITDA margin as we improve our operational efficiency, getting familiar with these clients. Attrition was £8,600,000 in the LTM period, with 97% of non end of life revenue retained. And as always, I'll look at that in more detail in a later slide. We increased our new business wins in the period by 20% to £10,300,000 In the last 12 months, our new business wins were £19,300,000 and of that £9,200,000 Has not been recognized to date in our published results. The pipeline at the period end was £45,300,000 More or less flat with the position at the end of 2020. It's always the timing of when bids are won impacts this number. And we did, of course, have our largest ever single client win in June 'twenty one, just before the period end. So let's now turn to Slide 10 and look a bit deeper at the net organic growth. LTM net organic growth was 7.6%, Slightly less than the 8% to 10% medium term guidance, but in line with how we said we expected the year to unfold. Like 2020, the last 12 months have seen 9 months of COVID affected trading. And whilst that's not been disruptive to the general operation of the business, It has undoubtedly affected fund launches and new business volumes. We've talked before about how we look at the business The importance of long term client relationships and the contracts that we have. As a management team, we're always looking at ways we can extend and improve our quality of earnings To the longevity of our client relationships and recurring revenues. The RBCC's acquisition is a really good example of that, Structures typically have a 30 year lifespan. Therefore, we Look at organic growth on a 3 year average basis and this currently stands at 8.6%, which is well within our medium term guidance. And given the recent client wins we've seen in the latter part of H1 and that have continued in H2, we believe the group will be above the 8% guidance level by the end of financial year 'twenty one. We are seeing a trend to larger mandates As we started to work for larger and perhaps better known institutions, and Nigel will pick up on this later. You'll see that in ICS in the last 12 months that we increased the number of clients that generated revenue in excess of £500,000 per annum From 14 to 19. For PCS, we measure this as clients generating more than £100,000 per annum, And that increased from 63 to 77. Looking at the graphs on this slide, we can see that organic growth has fallen for 4 It's only in the last two halves that organic growth has been below 8%, and we're confident given recent client wins momentum in the division that will see a reversal of this trend in H2. The 3 year average organic growth is 9%. With regard to PCS, they've had a really strong last 24 months. And on an LTM basis, organic growth 9.9 percent and the 3 year average is at 8%. The market is competitive with attrition higher than we would like, But there are some very large and interesting opportunities that we're looking at. We've had some fantastic recent wins And have the 1st world challenge of onboarding these large complex clients. Let's turn now to Slide 11 and look at attrition. At the end of 2020, our attrition was 8.8%, and it fell slightly to 8.4% for the 12 months to the end of June 21. Non end of life attrition was 3%, which was at a lower rate than for 2020. The non end of life stayed constant for ICS and reduced by over 20% for PCS. As I've already said, we have a very resilient business with a sticky client base. Over the last 3 years, we've 97.8 percent retention of those revenues that were not end of life. A key component of our M and A strategy is that the businesses that we acquire have Strong and stable client relationships with a long runway of visible recurring revenue as this enhances the quality of earnings of our overall business. Looking at the divisions. In the LTM period for ICS, we had 2 non end of life losses, which were higher than £75,000 per annum. These are both due to pricing where the client left us. Looking at PCS, the bigger client losses, More than £50,000 per annum can be analyzed as follows. 3 were poached. We mentioned this 6 months ago, and I'm pleased to say But there have been no new cases. 2 went with a former relationship that was part of the BAML acquisition. One was a family dispute where the work was all moved to another provider. One was due to a client consolidating their providers into 1, And the other was where we exit the client due to fee disputes. Attrition is something we pay close attention to. Having worked hard to win clients, we really hate losing them. But we do recognize that as we grow, there can be instances where we may No longer be the solution the client is looking for. Let's move to the EBITDA margin and turn to the next slide. The underlying margin in the period fell by 0.6% to 32.7%. This is slightly outside of our medium term guidance range of 33% to 38%, but is in line with what we said would happen in 2021 as we integrate the recent acquisitions of RVCCs and Indos. We've been really pleased with the progress that we've made with both of those. Both have improved performance, and we can see a path for them to get to the JTC Group margins. The ICS margin improved by 2% to 29.1%, whereas PCS dropped back to 38% From 41.4 percent. We said many times that PCS is a well run mature business. We continue to invest in people and processes, and this combined with the cost that you absorb when taking on a lot of new business has meant the margins come back recently. What we've also been seeing is an increased amount of time being spent dealing with regulators, and it's not always possible Or indeed advisable to pass some of these costs on to your clients. The ICS margin is improving, but we know there's still work to do. We've spoken previously about the headwinds we had with NESF due to COVID in the pricing model. We stabilized trading in H2, And we continue to see recovery through 2021. I've already explained why we've eliminated the deferred consideration previously We remain confident about the long term growth prospects of the U. S. ICS market, It's one that we continue to look at from an M and A perspective. We explained before about the need for some maintenance to be performed on the core ICS business And that we've started to implement that plan. This has contributed to the margin improvement. So overall, we're happy with progress on margin in ICS, But we recognize we can't take our food off the pedal. I'm going to wrap up now looking at cash, net debt and leverage. So on Slide 13, you'll see that at 108% in H1 'twenty one, cash conversion is very consistent with prior first halves. We expect to be back within guidance at the year end. We generated an additional £3,100,000 of cash from operations period on period. With regard to net debt on Slide 14, we raised a gross £65,900,000 of proceeds from an equity raise in April of this year. Taking this into account and the funds we used in acquiring CEES and Indos as well as trading, Net debt at the end of June 'twenty one was £23,600,000 a reduction of £52,200,000 since the year end. We deployed £25,500,000 of cash on acquisitions in the last 6 months as follows: RBCC, £20,200,000 INDOS, £10,000,000 offset by cash acquired with those acquisitions of 4 £7,000,000 With regard to the recently announced deals, we expect to use £14,000,000 of cash on Segway Partners and on Ballybunion. Finally, looking at leverage on Slide 15. At the period end, it was 0.55 times LTM EBITDA, Well within our guidance range of up to 2x pro form a EBITDA. At the period end, we had £45,000,000 of undrawn bank facilities. These facilities expire in March 23, and we're in the process of reviewing these with a view to securing new facilities in the next couple of months. And now back to Nigel. Thank you, Martin. Later, we'll give further insight into our recent acquisition activity, the current market dynamics And our active pipeline. Prior to that, however, we should close out the first half of the year with a deeper dive into the group operations, Our observations are market trends and the performance of the 2 divisions. As with all businesses, the conditions we face as a result of the pandemic have rolled into 2021 and Continue to be a factor, although as I've said, we've continued to meet our high level objectives. During the first half, All our commercial metrics are up period on period, including the value and volume of new business wins. In addition, our revenue recognition conversions have improved, thanks to operational enhancements to the process. And as anticipated, our share of wallet from existing clients Increased by £3,000,000 up 54% on an LCM basis, as we predicted earlier in the crisis. Cross sales ratio between the divisions and jurisdictions are also up 61%, indicating improved cohesion and collaboration across the group And demonstrating our 2 +2 equal 5 approach in action. I've referenced the trend to larger mandates more recently, Which although very welcome for the medium to long term, can be slower to deliver revenue. For this reason, It's worth noting that the number of actual sales or case count has also increased during the period by 39%, indicating a more balanced new business mix, which continued into the Q3. We've also continued to concentrate on internal work streams and are delighted to report that the BLUEPRINT structural, behavioral And technological enhancements to improve processes, deliver efficiencies and improve the client experience are beginning to drive better results As anticipated, when introduced last year. By way of example, we have automated valuation delivery, accelerating the speed of reporting and in turn enhancing the client experience for some of our largest clients from which we expect to see significant efficiencies And wider benefits when fully deployed. Based on what we see today, we believe there is more incremental improvement to come in H2 and beyond As we hone and finesse the overall funds offering. As an aside, this growing technological capability of the group is also beginning to increasingly feature as a determining factor in the awarding of new mandates. We recently highlighted heightened pace of change in regulatory scrutiny, and this momentum has continued with fines or censure impacting many of our industry peer group colleagues, Primarily due to the more prescriptive nature of the regulatory expectations. As a result, we have placed a greater degree of attention within the divisions And further investment into our risk and compliance team and infrastructure over the period. And we anticipate this will continue to be the case for the foreseeable future. This, of course, in a more general sense, is a positive driver for the industry as a home for government services, While also acting as a barrier to entry to other smaller scale providers and helping to drive the ongoing sector consolidation. I'll elaborate on the macro M and A environment in the following slides, but before then, I wanted to cover the 2 divisions. We are pleased with the H1 progress in each with both developing well and as Martin mentioned, enhancing the size and quality of their client bases. Taking each in turn, the PCS division showed continued strong performance during H1, delivering excellent net organic growth of 9.9%, Well ahead of industry norms with significant new business wins, which included our largest ever single mandate. I mentioned in April We want to retain our preeminent market position and would invest as needed in order to do so. As part of this planned investment, we've been purposefully Developing our internal talent while making some important strategic and seasoned team hires. This has enabled us to launch a U. S. Domestic trust offering, Enhance our group wide international tax compliance capabilities as well as developing our in house investment monitoring initiative. Investments come at the short term expense of margin, but at 38%, it remains at the top end of our aforementioned benchmark of 33% to 38%. More importantly, we see significant revenue opportunities arising from building out these new initiatives within our existing client base, Improving client retention and increasing share of wallet. Once fully developed as business lines, they will attract external mandates in their own right. Turning to the ICS division, and as mentioned, we are delighted to report that the blueprint exercise in the core funds practice that we embarked upon in 2020 has started to bear fruit. We are now seeing the underlying margin beginning to improve in the core business with a 2 percentage point improvement when compared with H1 2020. These changes will incrementally and steadily improve margin, albeit potentially diluted and hidden in the short term by more recent acquisitions. Separate to these internal changes, we've been looking to reposition the Fund's practice to better reflect our capabilities as experts in the field. The process is underway to articulate this message as a more holistic offering led by our best of breed capability in a wider list of disciplines. To summarize, both divisions are performing well, and we are seeing greater collaboration and cross referrals. We are constantly improving the quality of our teams And widening out our service suite across both with the aim of being the leader in all of our chosen markets. We've now embarked on the Galaxy Era in which we plan to double the size of Business in what we estimate to be a 3 to 4 year timeframe. This will require approximately 2 thirds of our growth to come by way of acquisitions. It was with this in mind that we undertook the fundraise in April. At a macro level, the consolidation story continues to prevail in the industry, The size of deals and prices continue to rise. To some degree, there is a feeding frenzy driven directly or indirectly by private equity appetite With an emphasis on financial engineering leading to eye watering multiples being paid over the past 12 months of up to 30 times earnings And now manifesting itself in public to private activity. There are particularly hot markets, The fund services market in the U. S, for example, where multiples paid are higher, reflecting the opportunity as perceived by global consolidators To build a meaningful platform in the largest but underserved U. S. Market. We remain open minded about paying up high quality assets with recurring revenues and long term contracts, but we generally look to avoid inflated auctions. For our part, in H1, we have kept our discipline and reviewed over 30 businesses and managed to find good quality accretive deals using our 2 +2equal5 philosophy, Demonstrated by the recent additions of Segway and Ballybunion. As I've said previously, however, as we scale up and when the timing is right Market Dynamics Warranty, we will look to pursue larger deals as and when the opportunities arise. In the interim, what we will continue to look It's market leading, manageable and digestible businesses of increasing size. We have shared our discipline criteria with you previously, as summarized On the left hand side of the slide, with well over 150 potential deals considered since IPO in 2018 and only came completed. On this occasion, however, I will share a little more on the process that we follow. Earlier this year, we invested in and expanded our in house corporate finance team To create a greater capacity to pursue more off market opportunities and more targeted campaigns in our preferred geographies at a greater pace. As ever, our ability to leverage the Ownership for All philosophy and smart, straightforward and honest engagement remain key attributes in achieving success. We also benefit from having a first class integration team with significant experience from complex carve outs of global financial institutions to smaller deals And who have a reputation for adapting their style to meet the nuances of each and every deal. Their combined understanding of potential process efficiencies, The market opportunities in our existing platform allows us to find value and opportunities where others may not. Working together, the teams are focused on ultimately delivering long term value. And if we turn to the next slide, I'll expand more on what we mean by long term value And share some recent examples of just how 2+2 really does equal 5. On this slide, you can see from left to right the transactions completed during the 1st 6 months The year in addition to those announced post period end and alongside an outline of a few near term active targets. In each case, there's been a primary driver for the deal with several tangible benefits being brought into JTC, creating a compounding effect each time, which delivers greater than the sum of its parts. Looking at the transactions, RBCC has Created a brand new service line, Employer Solutions, with material potential. Commercially, with core JTC improvements, Significant cross sales capability and with line of sight to second stage revenue benefits taken in around the acquisition We'll add several millions of EBITDA in the short to medium term. It also delivered a blue chip client base. And finally, It will increase our average client lifespan with typical mandates of 30 plus years. A fantastic acquisition at an excellent price With a good counterparty, Indos brings a new depository service line due to their deep expertise and a well respected position in the market. It enhances our Irish and U. K. Capabilities and is a vital addition helping to build our Irish North American bridge. It also brings deep expertise in the ESG arena, and with our U. S. Colleagues forms the basis of our new ESG service offering. It's worth noting that since completion just 4 months ago, we already have around 1,800,000 of new pipeline inquiries through cross sales, Leveraging the wider group capabilities. Segway is a business with an excellent reputation and with JTC shared values and culture. A great addition to our U. S. Platform with expertise in venture capital and private equity countrywide with an excellent reputation for client service and a dynamic team Strengthening our JTC Americas footprint. We're already working together on new opportunities given the advantage that our global reach brings. Ballybunion brings an important manco capability to our Irish footprint and has added a third manco to our stable within JTC. It brings additional scale and greater substance to our wider Irish platform with a quality and growing client base. Targets A, B and C are all quite different and if successful will bring further capabilities, specialist expertise, Longer client mandates and diversify and accelerate our growth. In summary, what this demonstrates is how 2 plus 2 equals 5. We've enhanced the group in every respect, improved our quality of earnings and the diversity and longevity of the client base. We've developed new service lines and enhanced our expertise in key growth markets by acquiring acknowledged market leaders. This in turn has created an internal market from which we can increase share of wallet from existing mandates, Which can be measured in the millions over the medium term. So 2 plus 2 equals 5 in action, building long term value. And if we turn to the next slide, you'll be able to see just a sample of the quality and depth of our current institutional client base. JTC now provides services to 8 out of 10 of the largest global investment banks, 20 percent of the FTSE 100 Companies and circa 20 clients from the Fortune 500. This small sample demonstrates the range of clients from global banking institutions, large global fund managers, world class advisory firms And the Insurance, Real Estate, Pharmaceuticals and Fashion Industries. When the whole of the client base is revealed, it is a who's who of global institutions. In my 30th year at JCC, I can assure you that the foundations of the group and the opportunities we have have never been more exciting. And finally, on to our key takeaways. Strong start to H1 of 2021 as we enter the Galaxy era. The new business pipeline is strong with good momentum into 3rd quarter. We continue to build operational strength to improve the client experience and our margins. We're making good progress on our inorganic growth plans with more to follow, and we continue to believe our medium term guidance is achievable. Finally, we're well on our way to our 34th year of revenue and profit growth. Thank you for listening And for your ongoing support, we'll now be happy to take your questions. Thank you. The question on today's call And our first question comes in from the line of David Brockton calling from Numis. Please go ahead. Good morning, everyone. I've got two questions, please. The first one just in relation to the acquisition environment. You've touched on there how it's very competitive at present. I was just keen to understand of the deals that you've looked at and not Converted through the first half, have you lost out on price to those? Or is there a different reason why the sort of Acquisitions haven't converted there? That's the first question. And then the second question It relates to the larger mandates, and you touched on the fact that there's a slower contribution to revenues coming through from those. Should those now start to contribute in the second half and contribute towards a sort of stronger organic growth into year end? Thank you. Thanks, David. Just on the question about pricing of deals, I think we've always been very disciplined about pricing as much as any other aspect of the Of our approach to M and A. I think it's fair to say that in the U. S. With those multiples of So 30 times in fund services businesses. We are we have been in the past probably Priced out mainly by that private equity sort of approach to the business and Financial engineering really coming into play rather than looking at the underlying business. Having said that, I think generally speaking, We're fair in our approach to pricing and we're not short of opportunities frankly as In terms of the larger mandates, yes, absolutely. I think To some degree, they can take quite a long time to be fee earning and certainly fee earning In a way that is not in the 1st year struggle with that we don't struggle with the margin with regard to those. So They are a blessing in the medium to long term and probably run to 20, 30 year type mandates. But the reality is They can hurt us in the short term. That's why the business mix I'm quite pleased with the business mix actually that's come along in the last Sort of 6 months or so. Martin, do you want to add in? On the M and A, David, there were a couple of things that we probably May have mentioned 6 months ago that we were looking at quite seriously and they're not on the list. There are things that we backed away from for a variety of reasons. One was a pretty large deal that we were quite well placed on, but The more we got into that process, the more it felt that we were unearthing things in diligence that just didn't feel right to us and that Gave us cause for concern about that business. So we felt that whilst on the face of it it could be very attractive, there was just too much risk associated. So we backed off that. And the other one, we quoted it for a long time and just We really struggled to pin the principal down on the numbers. And again, on that basis, we felt we're not going to chase this. There's plenty of good deals out there. We'd far rather be, I guess, With companies that are interested in what are open and we can clearly find a deal that aligns for both sides. So Plenty out there, but the reasons that we do that, Martin, really that we're being priced out, I think we've been quite selective about what we do Rather than necessarily competing on price all the time. Makes sense. Okay, thank you very much. The next question comes in from the line of Robert Plant calling from Pan Jugel. Go ahead. Good morning, Nigel and Martin. Two questions, please. In retrospect with NESF, do you think it underperformed because of cycle or would you have done anything differently? And secondly, you've mentioned, let's call it, a headwind of regulatory costs. Do you think that cost will increase into H2 and into next year or are we past the hump? Thanks. Just taking NESF first. In spite of There are trading issues which do really come from the use of AUM and fees from bank deposits, Which clearly were hit badly by the pandemic and obviously their underlying markets too, which is really Primarily real estate, commercial real estate and hotels and the like. So I think We're quite happy with the NESF book and the in particular the management team and what they're going to achieve over time. But obviously they've we bought it at a time that was tough for them. And of course as Martin mentioned that's having an impact on the earn out. But we're happy with the business as a whole. And obviously, they're bringing some technological improvements to the business and Helping us to win mandates in some cases where it may have been more questionable whether we'd have been the chosen So no regrets. I think the earn out was structured in a way to allow for what had happened and Really pleased with the management team. So all in all, and at the price point really we're at today, I think it was a good acquisition for us as Remember about I think talking about 30 times in some places, it's the core of our platform. Think you paid more like $11 or $12,000,000 it sounds about right. The regulatory hunt Rob, yes, it's a really Tough environment out there and I don't think there's certainly not another listed currently listed business that hasn't felt the full force of it. It's across several jurisdictions. But what I would say about JTC is we've always tended to build infrastructure as we go. And therefore, the degree to which we have to sort of invest is perhaps not as extreme as with others. We've definitely improved. We've got new Chief Risk Officer and numbers 23 in that space in the business. So that's helped And actually part contributor to the PCS margin coming off because it was primarily in the PCS area is Actually that investment within the divisions actually or that particular division in that particular space. So Are we over the hump? I don't know. But as I said, the more difficult life becomes both for us as regulated businesses, It probably has an impact on our client base in terms of how more difficult it becomes for them. And therefore, you could see it as a positive driver actually for the industry as a Looks like we may have lost Rob. So we'll move on to the next question and coming from the line of Vivek Raja calling from Shaw Capital. Please go ahead. Hello. Good morning, chaps. Thanks for the presentation. I had sort of 3 areas that I wanted to explore. First one is margin. So, Martin, can I just clarify, when you provided the full year results, you were sort of indicating That in the current year, you may not meet your medium term margin, EBITDA margin range, but You're more optimistic now? So you're expecting to come in at the bottom. So I just wanted to clarify exactly What you're saying in that respect because that doesn't seem to be captured in consensus. Consensus I think is more cautious than your sort of steering. So I want to clarify that. The second thing I wanted to ask about was if you could just give us a bit more color in terms of the pricing environment, not on the M and A front, but in terms of So the business end and how that links to your attrition, what sort of price Levels are you seeing and would you expect that to increase or is that just a result of you sort of going for larger deals? Is that just generally underlying Competition in the market, is that increasing or is that sort of stable? And the last thing I wanted to ask you was The share price has obviously gone up a heck of a lot in the past couple of months since your last trading update. And I was struggling to really understand exactly what that is. I appreciate there looks to be an upgrade in today's results as intimated in your last trading update. I just wondered if I could invite you to comment on what might have driven that share price performance. Thank you very much. Hi there, there. So on the margin, You recall that we bought the Seas business and Indos in half 1 and they were both Sub JTC Margins, so that was always going to be a drag on us. And in the first Half of the year, we've had 3 months of that drag. Their margins are improving towards group levels, but they're not there yet. We'll have 6 months of that in the second half. So I guess that's why there's the caution around that although we're improving, We're still we've got we do still have a drag in the second half of the year from the acquisitions. But what I expect to see in Next year onwards is being back above the guidance levels. I hope that helps clarify things. Can I just be a bit precise because I got the sense that I mean, you'd previously said you probably would make Not to make the bottom of that range this year, I feel like you've become a little bit more optimistic about that? So are you expecting in the current year to meet the guidance range at 33% at the bottom? I'm still I'd love to say that I'm that's nailed on Vivek. My view is that we'll still be just underneath the guidance range. Okay. Thank you for clarifying that. In terms of the pricing environment and the link to attrition, I think as we've got bigger, Some of the clients that would have been JTC clients 5 or 10 years ago are probably Our appeal then would have been that we were more like a boutique and we offered a slightly different service. We've Become a little bit bigger clearly and some of that what was attractive before is perhaps less attractive Some of those clients now and there's always threat at the smaller end of the scale where The cost of doing business is clearly goes up year on year and some of the smaller clients are perhaps just questioning And the cost of that, so I don't think if anything we you don't really like it, but it's Kind of inevitable in some ways that there is some pressure on the smaller clients, just the cost of doing business for us. I think the Do you feel like getting sharper or is that sort of remaining more or less as intense as it's always been? Just if I can put my input on that, hopefully, it will cover that. I think we're still set up to be able To run smaller clients, but there's not always an understanding on behalf of smaller clients who came in with one Set of reasons for being structured, which they won't necessarily have moved with the times and the sort of The additional reporting requirements around that and the costs related to it. So it's as much it's not really us not being able To cope with them, it's just the barrier to entry has gone up and it makes people probably a bit more inclined to think about that In both, before they come in or in mature situations. So there is a It's almost a natural feeding out, but not necessarily because of JTC changing its approach. But as Martin said, inevitably as we get bigger, Probably the cost of being a JHC client, it might be you might be able to achieve that at a lower level. But as Consolidation continues to increase. The options around that particular thing and the Sort of pure boutiques are going to be struggling to keep up with the sort of changes to governance and regulation That we're just alluding to in a previous question. I don't have picked it up today. Yes, I do. Thank you. Then on the share price increase, gosh, If I knew the answer to that, I think I would be something of a We've obviously watched it go up significantly in the last couple of months. I'm not sure Exactly why that is, I could speculate as to reasons, but what we concentrate on is just doing what we can do, and we'll let the investors John, what the value of the business is and what the share price should be, it's a really tough one to answer that. I was told once by a very well known and respected fund manager to never comment on the share price today. So Okay. Thank you. Thank you. There are currently no further questions in the Thank you. And the next question comes in from the line of Callum Battersby calling from Berenberg. Please go ahead. Good morning, guys. Thanks for the call. Just two questions from me. Firstly, just another one to ask on NASF, if that's all right. So I just wanted to check If you had any more color you could give on what, if anything, changed at that business in the first half that led to the revaluation and the deferred consideration? And then kind of just a follow-up, as you mentioned on the prior question, do you mind updating us on where you're at in terms of using the NESF tech On the wider institutional client base and if there's more benefit, do you think it's still to come there? And then secondly, We're seeing many different types of companies talk about tighter labor market at the moment and some difficulties in hiring. Just wanted to ask for your thoughts on if that's something you're seeing at all in the business or think kind of that's not an issue for any reason for you? Thanks, Calum. Just on The changes in NESF, no, I think the just because of the pandemic, NESF were always going to struggle to hit their earn out. If anything, the business has improved. They've moved away from AUM reliance on their fee base to a more fixed fee And higher establishment fees as well. So they're doing all the right things. It's really just So as time has gone on, we can see that it's unlikely that we'll they'll end up making the earn out. So It's improving all of the time, but it's not going to improve quickly enough, I guess, is the best way of saying it. And As I say, I think it's professionalized quite a bit in the interim. When it comes to tech, yes, they absolutely made a contribution. But I'm disinclined really to talk about NESF in isolation because what they really needed is to work with the JPC team to put particular Sort of benefits to bear. So the exercises, we've got the technology, JTC can see the opportunities that are there. So definitely a joint effort, but I'll give you I alluded on the call to So NAV calculations now quickly, they can be turned around. Obviously, that improves the experience for our larger clients. But probably on a holistic basis, it's pretty 80% cost savings associated with that alone. And it's not completely deployed across the group yet, mainly because the engine is the same, if that makes sense, But each client's got a different way of needing it to have it delivered. Sure. There's some sort of work to do around that. And finally, on the labor market, Having distributed a big chunk of equity to our team, and I have the figures actually, I think our turnover staff turnover this year, we've recorded staff turnover as we've recorded something like 5% or 6%. And certainly one of our other in the public domain, I think one of the other listed businesses is close to 20. So As I say, there's a special bond about coming to JTC and the way we go about our business. So Generally, staff turnover isn't a huge problem for us, but obviously, it's helpful when it's reflected in the distribution. On the first question, Caleb, well, about what changed about the deferred consideration and our view on it. When we full year results in April, at that time, 1st 3 months, NESF was on track with its budget, And that budget was obviously ramping up as we go through the year. And what we found in the second Quarter is that whilst they're continuing to improve, they weren't improving fast enough in line with the budget. And just on the way the trajectory was growing, we're looking at 15% organic growth there, but we'd actually budgeted that there was going to be more, there was going to be a faster pickup, and that's where the issues come that we've influenced the 10 to 12. There's going to be a couple of million short on revenue where we think they were going to be, and that effectively all drops down into the EBITDA And hence, why we're doing to be just underneath the $3,200,000 target that was set Thank you. The final question comes in from the line of Daniel Cohen calling from HSBC. Please go ahead. Good morning, gents. Can you hear me okay? Yes, thanks. Excellent. Just a question on Competition more broadly in Institutional and Private Client. What are you Any change in behavior there? You've alluded to pricing on, I guess, on the client side or pricing demand on And some poaching within 5 by 5, but what's your feel for the sort of general pricing levels and The level of competition in the wider sector, please. I'll just take private clients first, Doug. I think the main successes for our private client business, They've obviously taken on that single largest mandate for a global bank and that really is Taking on books of clients and books and responsibilities around sort of tax reporting and the like. So whilst we talk about PCS and ICS, it'd be wrong to think that the PCS market is just individual clients running individual solutions, which is Probably closer to the sort of clients that may be under more vulnerable in the earlier conversation. So we've that's worked for a global bank. There's another big private bank which we're doing a similar exercise for. So the wins of that nature or they're in the sort of Large family offices or private offices that need institutional type solutions To what to the future, in other words, they professionalize over time and they need the sort of infrastructure we've got in place And increasingly also aware of the ESG agenda and everything that they need to be aware of in the same way So that's the private client side. That's not to say we don't take on private clients of Individual nature, but I'd say that's probably the best way of thinking of that and probably why I genuinely believe we're the market leader. On the and just judging by the sort of people who are choosing to take those services from us. On the institutional side, it's a more competitive market. We've really the last 2 or 3 acquisitions we've made have been very much Around picking out experts in the field and actually repositioning ourselves Fund services solution providers as opposed to pure fund administrators. So that's an ongoing But it's slightly more competitive there. We're finding ways to differentiate ourselves as a business So I think that that's in terms of the actual underlying client bases, we're getting they're getting more and more complex, More and more things we're doing, the bigger clients actually come back and ask us to do more and more for them as well. So Having said that, they can take a little bit longer to register if you are in So it's so plenty to go for on both sides of the business, frankly. Does that cover it for you, That's great. That's all for me. Thanks very much. Thank you. That was the final question in mid queue. So I shall turn the call back across to yourself, Nigel, for any concluding remarks. I haven't planned anything, but thank you again for dialing in and for the support that you provide us. Always happy to take other questions offline, Martin or I, when and if that does occur to you. Thank you very much. Thank you for joining today's call. 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