NEX Group’s Half-Year Trading Profits Decline Despite Uptick in Revenues

NEX is in the midst of a three-year transformational programme, with trading profits offset by targeted investments.

NEX Group plc has reported its latest financials for the six-month period ending September 30, 2017. Despite an uptick in revenues, the group has seen its trading profits take a step back across a yearly basis. This was attributed to developments internally, including investments in NEX’s regulatory reporting services and other channels.

In terms of external factors, the six-month period ending September 30, 2017 has entailed both episodic pockets of volatility in tandem with prolonged droughts of market activity. Nowhere has this been more evident than in the institutional space, with big money largely sitting sidelined for much of 2017.

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For its part however, NEX Group managed to report a strong uptick in revenues, coming in at £287.0 million over the six-month period ending September 30, 2017. This is an increase of 13.0 percent year-over-year relative to £254.0 million during the same period in 2016.

Michael Spencer, Group Chief Executive Officer, commented: “Now more than ever before we’re focused on execution and delivering growth in revenue and earnings. Nevertheless, when necessary, we’ll invest to ensure that NEX is best positioned to take advantage of the significant opportunities ahead of us, as we recently did in NEX Optimisation.”

Trading profits pointed downwards

While its revenues did not disappoint, trading profits at NEX Group during the half-year interval could not build on the company’s previous success. Indeed, trading operating profit was reported at £63.0 million, down 16.0 percent from £75.0 million over the same yearly period in 2016.

Excluding one-off items however, the actual net decline in trading operating profit was approximately -1.0 percent. One-off items in aforementioned period included a £3.0 million one-off net expense, consisting of £6.0 million insured legal costs, offset by £3.0 million dividend receipts.

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In addition, NEX Group’s £6.0 million increase in trading operating profit in NEX Markets was offset by a £7.0 million decline in NEX Optimisation’s trading operating profit. Of note, there were substantial investments made in the NEX Infinity platform and regulatory reporting services during this period.

This has been reflective in NEX Regulatory Reporting’s recent strides to bolster its capabilities ahead of the MiFID II deadline on January 3, 2018. In particular, the group has garnered FCA approval as APA ahead of the deadline while also embarking on a bid to become an SFTR Trade Repository.

Michael Spencer
Photo: NEX

“We have identified a further £15 million of annualised cost savings in addition to the £25 million previously announced. Since the acquisition of Abide in October 2016, the rebranded Regulatory Reporting business has signed more than 300 new contracts and is on track to profitability. In NEX Markets, BrokerTec continues to win market share and EBS trading volumes in Asian currency pairs have reached new peaks,” explained Mr. Spencer.

In terms of NEX Group’s operating profit over the six-month period, the group’s trading operating profit margin came in at 22.0 percent, down from 30.0% during the same period in 2016.

Transformation Programme on pace for cost savings

NEX Group is in the midst of its Transformation Programme, a three-year plan that will conclude by 2019/20. Collectively, NEX has identified upwards of £15.0 million of annualized cost savings, including the recalibration of operating models in sales, product management, operation, technology, and finance.

Looking ahead: “Despite market conditions remaining challenging, we see many opportunities ahead. We have a diverse global business, an expanding client base and a robust balance sheet. This is a transitional and transformational year for NEX and we are committed to our financial aspirations of achieving compound annual revenue growth of 7%-10% and operating margins for NEX Optimisation and NEX Markets of more than 40% by FY 2019/20,” Spencer added.

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