Argentex Group PLC (LON:AGFX) published its annual report 2022 for the nine months to 31 December 2022.
“We are encouraged that our three-pillar strategy is delivering results and we will continue to focus on building this momentum into 2023 which will see Argentex continue to grow. ”
Harry Adams, Chief Executive Officer
CEO Statement Overview
The nine month period to 31 December 2022 represented a pivotal period for the Group where the company has focused on driving sustainable and diversified growth across its 3 strategic pillars: People, Technology and International expansion. The evolving suite of technology enabled products and high service levels has attracted a growing number of institutional and corporate clients who seek a trusted and well capitalised counterparty to provide solutions to their global foreign exchange and treasury requirements.
The positive momentum from our last financial year continued into the nine month reporting period and has resulted in Group revenues of £41.0m (FY2022: £34.5m) and an operating profit of £8.1m (FY2022: £10.4m). On a 12-month basis from 01 January 2022 to 31 December 2022, Group revenues of £50.4m and operating profit of £11.3m and adjusted operating profit of £12.3m. These strong results highlight the positive impact this investment in our growth strategy has had on our performance and reinforces the significant longterm market opportunities both geographically and through new diversified products and solutions.
I am delighted by the quality of talent that the Group has recruited this year. I believe this has contributed to the company’s recent growth and reinforces our strong position as a leading provider in the global B2B payments market. We have invested in people at every level of our business across front office, operational and technological roles, as well as strengthening the Senior Leadership team. In November 2022 we announced our LTIP and I am pleased to welcome 42 members of staff as partners and owners of the Group in order to incentivise and encourage retention of senior employees in a manner that aligns with the interests of the Group’s shareholders. I’d like to thank the team for their continued hard work and commitment to the Group and look forward to maintaining this positive momentum as we enter the next phase of Argentex’s growth.
Market Backdrop
The reported period has once again been dominated by domestic and global uncertainty. The UK’s minibudget plunged the pound to its the lowest level against the dollar since decimalisation in 1971, while interest rates across the world have increased to levels not seen since the global financial crisis in 2008. Investment in growth, delivering results.
The Group has supported clients through these unprecedented events and the ongoing impacts of the Russia’s invasion of Ukraine, which has had a significant impact on trade, currency, and by extension many businesses’ profitability. Every day we speak to clients and prospects who are in desperate need of guidance, which they are not receiving from large banks and other payment institutions.
Financial Performance
The Group has capitalised on the increasing demand from institutions and corporates for a credible, service led, technology enabled provider, to manage their foreign exchange exposure and payments. Our “right tech, right touch” approach has led to Group revenues increasing to £41.0m (FY2022: £34.5m). In addition, 1,595 corporate clients traded with the Group for the period (1,749 for the 12 month period ending 31st December, FY2022: 1,624). The company remains focused on maintaining a high quality and diversified client-base with the Group’s top 20 clients accounting for 39% of total Group revenues.
The Group has maintained a disciplined approach to managing costs through the period resulting in an operating profit of £8.1m (£11.3m for the 12 month period ending 31st December 2022, FY2022: £10.4m). Operating margins are also ahead of market expectations at 19.8% with adjusted operating margins of 24.4% over the 12 month period to 31 December 2022. As a result of this strong performance through the period, the Board is pleased to announce an 12.5% increase in the total dividend to 2.25p per share.
The strength of the company’s performance over the period is ultimately down to the trust our clients place in us to generate the best quality outcomes for the spectrum of their foreign exchange and payment needs. We remain a key partner for their trading requirements in our core foreign exchange proposition and have seen an increase in revenue generated from existing clients seeking different products and solutions. This was particularly evident during the latter months of 2022, as market dynamics created one of the most volatile periods for sterling on record, therefore, companies relied on the Group to guide them through this black swan event, seeking hedging strategies, payments, treasury and risk management solutions.
Historically, our revenue mix has been a 50:50 split from spot and forward trades, however since the inception of our Structured Solutions division in FY2022, 10% of revenue was generated through this new division in the reporting period. Not only has the product mix diversified, we have seen a 65% increase in clients trading online for the period, like for like, using our new platform.
Growth Strategy
Our strategic investments across our three pillars: people, technology and international expansion, have enabled us to increase our share of client’s wallet and provide a viable alternative to the traditional banks who are seeing their historic 85% market share come under pressure.
People
We remain focused on investing in our people to drive forward our organic strategy, creating an empowering and collaborative environment for our growing team as well as fostering the next generation of graduates and financial services professionals through their early stage careers. Our success has been accelerated by the senior hires we have made in the last year across the Group to support our strategy.
The strategy to grow our office capacity continues with 25 new hires over the period. At the period end date, global headcount was 137 and our bench has never been stronger. I am proud of the entrepreneurial and supportive culture we have created, and to which every Argentex employee contributes.
Technology
The technology strategy was driven by the demand from institutional and corporate clients to give them optionality and flexibility whilst also creating efficiencies in our business. As part of ‘phase one’ of our technology strategy we launched an enhanced online platform during the period. Pleasingly, our results clearly demonstrate the immediate positive contribution this first phase of our technology development has had on both client experience and Group earnings. Online revenue increased by 89% to £1.2m (FY2022: £0.6m) and the number of trades online grew by 41% to 4248 (FY2022: 3010). We now look to activate ‘Phase 2’ of our technology plan where we remain focused on maintaining the momentum to meet the evolving client demands, both in the UK and overseas.
International Expansion
Our presence in the Netherlands and Australia is indicative of our strategy to transform the Group from a single product, single-office business into a multi-product, global business. The Netherlands subsidiary, was awarded an Electronic Money Institution (“EMI”) licence by the Dutch National Bank in September, providing access to a substantial domestic market. In 3 years, the office has grown to 16 professionals and delivers a meaningful contribution to Group revenue . While the office prioritises domestic revenue streams, this credible licence endorses Argentex’s differentiated and uncompromising approach to regulation and provides our business with a springboard to other European countries, creating a scalable model for future growth in the continent. I am pleased to announce following the period end, we have been awarded a draft Australian Financial Services License (AFSL) which launches the Australasian offering. We look forward to reporting on progress of this exciting market opportunity.
We maintain a measured and client-led approach to our international expansion and are actively monitoring for long-term growth opportunities in new regions.
Sustainability
Our growth strategy is supported by clear sustainability goals under the three pillars of Planet, People and Partners. We are committed to putting the right focus on sustainability, encompassing environmental, social and governance (ESG) issues to support our growth and yield greater business benefits by transitioning towards a sustainable business model. This year, many of the initiatives have been actioned for the first time, which are outlined later in this report on pages 64-67.
Outlook
We are encouraged that our three pillar strategy is delivering results and we will continue to focus on building this positive momentum into 2023. The strategy to grow our office capacity continues as planned over the long term. As such, we will double the footprint of our UK and European headquarters during H1 2023, with a number of expected new hires in the UK, Netherlands and Australia. Looking ahead, our focus on attracting industry-leading talent remains unchanged, whilst fostering our existing talent and bringing them up through the ranks.
We are continuing to invest to ensure our capabilities meet the increasingly digitalised requirements of our stakeholders through progressing into ‘phase two’ of our technology led product launch pipeline. This year, we will launch our alternative transaction banking division, initially giving institutions and corporates their own unique multi-currency accounts. This is an important and differentiating step for the Group as it capitalises on its core business to propel itself into new markets and territories.
The successful combination of people, technology and international expansion are expected to generate a strong return through growth in revenues, increased profitability and continued earnings quality.
I would like to thank our employees, business partners and shareholders for their continued support and look forward to sharing more updates with you in the coming period.
Harry Adams
Chief Executive Officer
11th April 2023