AGFX Argentex Group Plc

                                                                           COMPANY REGISTRATION NUMBER 11965856

 18 September 2024

Argentex Group PLC

("Argentex" or the "Group")

First half results for the six months to 30 June 2024

Significant progress against strategic objectives

Trading in line with expectations, full year guidance re-iterated

Jim Ormonde, Chief Executive Officer said: "Our focus during the first half has centred on resetting the company's strategic agenda and, in particular, accelerating our move into alternative banking and overseas expansion. We have added significant leadership expertise across the business including permanent appointments to our executive team and new experienced leadership within banking, operations and technology. Internationally, our Dubai and Australia operations are expected to begin trading ahead of schedule. We have also implemented rigorous cost controls across the business and have not increased overall headcount since the end of last year despite our investment in new growth areas. Trading remains in line with expectations, and we have continued to see improved trading momentum throughout the second quarter. With a strong team now in place to drive our growth agenda, I am excited about the opportunities ahead for the business and remain confident in the trading outlook for the full year and beyond."

Strategic progress

-     Experienced permanent executive team now in place to deliver growth plans

-     Key hires within alternative banking division to develop a digital product suite. Technology team now fully integrated with a clear roadmap for the new Argentex Global Platform and the build is underway

-     Rigorous cost control and accounting systems implemented across the Group

-     Strong momentum overseas with the grant of an Australian Financial Services Licence (AFSL) and the approval progress for the grant of a Dubai regulatory licence progressing ahead of schedule

Financial summary

-      Revenue of £23.9m (H1 2023: £25.0m) with 19% growth in the number of clients trading offset by 20% reduction in average spend due to lower FX volatility

-      Trading has improved through the period to 30 June, and into Q3 with revenues to end August broadly in line with prior year

-      Gross margins¹ stable at 72%

-      Underlying EBITDA² of £2.1m (H1 2023: £6.2m) impacted by lower revenue, higher headcount year on year (YoY) and ongoing investment in growth

-      Reported EBITDA of £0.7m (H1 2023: £7.2m) impacted by significant one-off items² in both periods

-      Debt free and cash generative with net cash increasing by £5.2m in H1 2024 to £23.5m (including the £3m raised in May to fund our acceleration in alternative banking

-      Capex significantly reduced to £0.5m (H1 2023: £3.6m)

Key headlines

¹  Gross profit/margin also includes the costs of commissions to provide a more transparent measure. These costs are excluded from statutory gross margin per the income statement

² Underlying EBITDA represents reported EBITDA adjusted for one off items. Reported EBITDA in H1 2024 was impacted by £1.4m one off charges for strategic review, legal fees and senior management team restructuring. Reported EBITDA in H1 2023 benefitted from £1.0m one off credits and provision releases.

Trading update and outlook

The Group continues to trade in line with market expectations and the Board remains confident in the outlook for the full year.

The improvement in trading which we saw during Q2 has continued and revenues for the eight months to 31 August were broadly flat year on year, compared to the 4% decline experienced in the first half.

We continue to expect FY24 revenues to be in the mid £40 millions, with an EBITDA margin in the low single digits as we invest in growth and the repositioning of the business, and we remain confident in our long-term prospects.

Retail investor presentation

Management will host a presentation for investors via the Investor Meet Company platform at 11.00am on Thursday 19 September 2024. The presentation will be open to all existing and potential shareholders. Questions can be submitted pre-event via the Investor Meet Company dashboard up until 8.00am on the day before the meeting or at any time during the live presentation.

Investors who already follow Argentex Group PLC on the Investor Meet Company platform will automatically be invited. Those wishing to sign up for free, and meet Argentex Group PLC, can do so via https://www.investormeetcompany.com/argentex-group-plc/register-investor

For further information, please contact:

Argentex Group PLC

Jim Ormonde - Chief Executive Officer

Guy Rudolph - Chief Financial Officer

investorrelations@argentex.com

Teneo (Financial PR)

James Macey-White / Victoria Boxall / Rashida Salemahomed

argentex@teneo.com, 020 7260 2700

Singer Capital Markets (Nominated Adviser and Broker)

Tom Salvesen / James Maxwell  / James Todd

020 7496 3000

This announcement contains inside information for the purposes of the UK version of the Market Abuse Regulation ("MAR") which forms part of UK law by virtue of the European Union (Withdrawal) Act 2018; as amended.  Upon publication of this announcement, the inside information is now considered to be in the public domain for the purposes of MAR.

About Argentex

Argentex (AIM: AGFX) is a global expert in currency risk management and alternative banking. Established in 2012 and headquartered in London, Argentex listed on London's AIM market in mid-2019 and has since added operations in Amsterdam, Dubai and Australia.

Business review

Strong progress on implementing our strategic plan

Our strategic plan, as outlined in May, is focused on driving profitable growth by increasing scale within Argentex's existing FX market whilst expanding into adjacent complementary markets, both domestically and internationally.

After a thorough review of our systems and processes, we are migrating the business to one technology platform: the Argentex Global Platform ("AGP"), utilising the existing technology teams supplemented by a number of new hires.

This move will drive efficiencies on a global scale by building a platform on which multiple new products and services can be run, and addresses all three of our core strategic pillars, namely:

·    Product diversification to enhance and complement the Group's existing offer, specifically through accelerating the Company's move into alternative banking

·    Focused geographical expansion, leveraging existing markets and licences with targeted expansion into complementary markets

·    Ensuring operational excellence by driving operational and financial efficiencies whilst delivering a best‐in‐class customer experience

Progress in all three areas has been strong in the period:

1)   Product diversification

-    Whilst we have a successful history in providing large corporates and institutions with high quality FX services and a strong brand and reputation, the product suite is quite narrow. Diversification into the broader payments and alternative banking markets should enable us to meet high value clients' needs for a full-service platform, increasing the overall addressable market and wallet share and improving customer retention. We believe revenue visibility will improve as reliance on the volatile FX market is reduced.

-    Several additional key hires were made during the period, including the appointment of Tim Rudman as Chief Operating Officer who will oversee the technology transformation. His team have developed a detailed product and technology roadmap with a key focus on automation, efficiency, and improving the customer experience via a self-serve model.

2)   Geographic expansion

-    The Board is delighted to have been granted an Australian Financial Services Licence (AFSL), a pivotal step in the business' strategic plan. The licence, granted by the Australian Securities and Investments Commission (ASIC), allows Argentex's Australian entity (Argentex Pty Ltd) to offer bespoke risk management solutions and global accounts to wholesale clients across Australia.

-    In addition, the approval process for the grant of a Dubai regulatory licence is progressing ahead of our schedule. Our offices are now operational and connected and we are making strong progress in meeting all of the preconditions required by the regulator.

3)   Operational and financial efficiencies including enhanced client retention

-    Flat headcount despite investing in growth. Headcount grew over 40% to 196 in FY23 with a significant number of hires in H2 2023 impacting H1 2024 results. Since then, however, we have focussed on essential recruitment only, investing in the growth areas of alternative banking and overseas expansion, whilst maintaining a flat headcount overall (headcount was 195 at end of June 2024).

-    Pursuing licensing efficiencies. Currently all of our transactions are assessed under our MiFID II (Markets in Financial Instruments Directive II) licence despite some transactions only requiring an EMI (Electronic Money Institution) licence. There are some potential liquidity benefits from altering our licence arrangements, and we have engaged advisors to support us in reviewing our overall licensing structure.

-    Getting the best from our suppliers. We are running a formal RFP with our liquidity providers to ensure we receive market leading service levels and pricing.

-    Pursing liquidity efficiencies. During the period we negotiated a lower amount of collateral with one of our key banking partners which released £750k of cash with a roadmap to additional liquidity in the future.

-    Implementing customer segmentation. We accelerated the adoption of Salesforce in the UK and the Netherlands in the period and introduced KPI dashboards to support our sales pipeline management.

These growth initiatives will accelerate our return to profitability as we focus on new products and new branches to drive more reliable revenues.

Financial review

       PROFIT AND LOSS

 ¹ Gross profit/margin also includes the costs of commissions to provide a more transparent measure. These costs are excluded from statutory gross margin per the income statement.

²  Underlying EBITDA represents reported EBITDA adjusted for one off items. Reported EBITDA in H1 2024 was impacted by £1.4m one off charges for strategic review, legal fees and senior management team restructuring. Reported EBITDA in H1 2023 benefitted from £1.0m one off credits and provision releases.

Revenues

Revenues declined 4% to £23.9m (H1 2023: £25.0m) which reflected the previously reported shift from forward to spot trades due to lower overall volatility in the markets. As a result, whilst active clients trading grew 19% to 1,771, this was offset by a 20% YoY reduction in average client spend. Forward contracts are typically executed at higher margins, so this mix effect tends to reduce average client spend.

Gross profit¹ declined to £17.2m in H1 2024 (£18.0m H1 2023) primarily due to lower revenues. Gross margin¹ remained stable at 72%.

EBITDA

Underlying EBITDA (prior to one-off items) declined to £2.1m (H1 2023: £6.2m) primarily due to lower revenues and higher in year staff costs. Average headcount was 196 in H1 2024: flat since 1 January 2024 but significantly ahead of H1 2023 (153) due to the investments in staff made during 2023. We expect headcount to increase in H2 2024 as we invest in alternative banking and AGP.

We also invested in our overseas subsidiaries in the period, following the recent grant of a licence to operate in Australia. Investment in overseas territories accelerated from £0.4m in H1 2023 to £1.3m in H1 2024, as part of our growth strategy.

Reconciliation of underlying EBITDA to reported EBITDA

H1 2024 reported EBITDA was impacted by one off charges of £1.4m (strategy review, legal fees and senior management team restructuring) which we do not expect to reoccur. In contrast, H1 2023 benefitted from £1.0m of provision releases, a net negative one-off impact year on year of £2.4m.

EPS

Basic and diluted EPS declined to a loss per share of 1.6p in H1 2024 (H1 2023: 2.8p profit per share) due primarily to lower EBITDA in the period, with the loss per share partially offset by an increased number of shares in issue in the period following the May 2024 capital raise. The calculation of basic and diluted earnings per share is detailed in note 4 in the financial statements and is based on 115.2m basic weighted average shares in H1 2024 (H1 2023: 113.2m).

Dividends

During the year ended 31 December 2023, the Board declared an interim dividend of 0.75p per share. In light of the Company's financial performance and trading conditions during the second half of the year, the Board declared no further dividends for FY23.

As we focus on transforming the business and investing for growth, the Board has decided not to declare an interim dividend in FY24. Whilst the Board remains committed to returning excess cash to shareholders and will continue to regularly review the dividend policy, as we continue to deliver our growth agenda it is unlikely that any dividends will be declared in FY24. 

CASH FLOW

The Group continues to be cash generative despite investing significantly for the future. Operating cash flow in H1 2024 was £3.2m (H1 2023 £4.1m). Capex was significantly lower at £0.5m (H1 2023 £3.6m) as the prior year was impacted by significant investment in new offices - in particular the lease and fit out of a second floor in our London headquarters.

Free cash flow in the period was £2.2m (H1 2023 £3.0m) with the benefit of lower capex and better working capital utilisation partially offsetting lower EBITDA. Tax paid was broadly flat at £1.0m.

NET CASH & LIQUIDITY

Net cash improved by £5.2m in the period to £23.5m at 30 June 2024 (£18.3m at 31 December 2023) due to free cash flow of £2.2m and the £3.0m net proceeds from the capital raised in May 2024 to fund our acceleration in alternative banking. Both gross cash and segregated funds grew by substantially more, due to the timing of trade settlements.

Litigation update

On 14 March 2024, the Company received an Employment Tribunal claim from a former director. The Company is contesting this claim and continues to defend its position. We have accrued for anticipated legal fees in the period.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE (LOSS)/INCOME

for the six months ended 30 June 2024

CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2024

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

as at 30 June 2024

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the period ended 30 June 2024

CONSOLIDATED STATEMENT OF CASH FLOWS