Marex Group plc Ordinary Shares (MRX) Q2 2025 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Marex Second Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Adam Strachan, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thanks for joining us today for Marex's Second Quarter 2025 Earnings Conference Call. Speaking today are Ian Lowitt, Group CEO; and Rob Irvin, Group CFO. After Ian and Rob have made their formal remarks, we will open the call to questions. Before we begin, I'd like to remind everyone that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to Marex's press release issued today. The forward-looking statements made today are as of the date of this call, and Marex does not undertake any obligation to update their forward-looking statements. Finally, the speakers may refer to certain adjusted or non-IFRS financial measures on this call. A reconciliation schedule of the non- IFRS financial measures to the most directly comparable IFRS measure is also available in Marex's earnings release issued today. A copy of today's release and the investor presentation may be obtained by visiting the Investor Relations page of the website at marex.com. I will now turn the call over to Ian.

Good morning, and welcome to our second quarter 2025 earnings call. In the first 6 months of the year, we generated $967 million of revenue and $203 million of Adjusted Profit Before Tax, up 27% on the first half of last year. Our second quarter was yet another record, with Adjusted Profit Before Tax of $106 million, up 16% year-on-year and up 10% sequentially on a record first quarter. These are terrific results, and I'm delighted with this performance, which reinforces our belief that we have built a platform that generates high-quality diversified earnings and is set up to deliver growth across a range of market environments. While the second quarter had, as I will discuss later through my remarks, some positive factors, the operating environment is more varied. So being able to outperform last years is a very strong quarter is heartening. These results validate our strategy and the way we are executing. Those of you who have followed our earnings calls and our investment today will know I have cited the acquisition of Cowen's prime brokerage as potentially the most significant acquisition we have made to date. I remain positive about the opportunity even when the business had a slow start in 2024. Prime is proving a huge success for us. This is a business, which had $85 million of revenue at Cowen. And now on the Marex platform, is running well above $200 million of revenue on an H1 run rate basis. Our clearing business also continues to perform strongly, as we grew our balances, adding new clients and increased activity with existing clients. Our success with larger, more financial-oriented clients continues to drive high clearing volumes. We continue to execute on our growth strategy while realizing benefits of previous bolt-on acquisitions. Aarna, which closed [indiscernible] in Q1 is running, as forecasted, at around 50% above pre-acquisition levels as the anticipated day-one synergies were captured. I'll be talking later in my remarks about the cumulative effect of all of our acquisitions, which is considerable. Now we are confident we will see more opportunities with an attractive M&A pipeline in the second half of the year. We proactively managed our risk, remaining in close dialogue with our clients, through periods of uncertainty and elevated volatility, ensuring minimal losses in the quarter. Critically, we strengthened our liquidity position through the quarter with a $500 senior notes issuance that we executed in early May, as we continue to extend and diversify our funding sources. We held a record level of liquidity at the end of the quarter, with $2 billion of surplus versus the regulatory requirements. We also completed our second successful equity follow-on transaction in mid-April. The residual position held by our pre-IPO private equity shareholders is now just 17%, down from 64% at the IPO. Increasing our public float was an important strategic goal, and we have been successful at this. On Slide 5, we have laid out some of the key metrics that we use to assess our performance. Second quarter revenues grew 18% to $500 million, delivering adjusted PBT of $106 million. Revenue in the first 6 months of the year grew 23% to $967 million while margins expanded to 21%. Revenues per front office FTE increased to $1.5 million on an annualized basis, reflecting the significant effort our businesses have made to improve our productivity at the desk level as we invest in growing each of our segments. I had hoped coming into this week to be able to focus my remarks entirely on the success the firm was enjoying as we have continued to execute our strategy. On Tuesday of last week, a short seller report was published. The allegations in the report, if true, were serious. And out of respect to the market, I want to spend some time providing a response before we move on to the detailed financials in Rob's section. I've been a vocal advocate of the benefits of being a public company. On earnings calls, I have shared how we see the listing as having improved our brand, raised awareness about our firm, enabling us to win more business. It provides a currency for acquisitions and compensation paid in stock aligned staff, investors, and indeed, all stakeholders. Part of being a public company, though, is investors can short your stock and indeed, people can publish reports about your firm with no requirement to be accurate. As unpleasant as it is to be the focus of a short report, I accept that it is a part of the way the market operates and while this imposes a cost on good companies like Marex, it is part of the ecosystem, which ensures markets function well. We have analyzed the report thoroughly and can rebut all of the allegations. While I won't go point by point through every rebuttal, I do want to address several of the allegations. It is simply untrue that the 2 Luxembourg entities stated in the report are off-balance sheet. There are no off-balance sheet entities at Marex, and all of our activity is consolidated in our reporting and in our public financials. All activity, including that booked in the Luxembourg entity are reviewed by our accountants, Deloitte. The Luxembourg entity, VPF, was not created by Marex, but acquired in 2020 as part of our acquisition of BIP, a market maker in listed equity futures and options. This is the only activity that was booked in VPF, which operated from 2020 to 2023 or its replacement entity, Marex Fund. It is important also to appreciate, in addition to the limited purpose of the entity, what a small entity this is. While the local Luxembourg reporting requirements present derivative longs and shorts with a single counterparty on a gross basis on the face of the balance sheet, IFRS accounting would report these net. On that basis, the net asset value in the fund is currently $2 million, and it has a VAR of around $100,000. The maximum NAV over the past 3 years was $8 million. We have never booked any OTC transactions in the entity as asserted. It is simply a way the equity options market maker faces the exchange. It is also untrue that the acquisition of BIP was not approved by the Board as asserted in the report, it was. The transaction was presented, reviewed, and explicitly approved by the Board. Anything else would indicate a failure of governance. The original VPF fund was audited by EY, who remained the auditor of the fund after being acquired by Marex. When we chose to dissolve the original entity and replace it with the new Marex fund, we had Deloitte, who are the auditors for the entire firm, also audit this very small fund. Marex management initiated a discussion with Deloitte, and we agreed together with Deloitte that we would not be renewed they would not be renewed as statutory auditors for the fund, which resulted as this required technically when one is changing auditors in a resignation filing with the Luxembourg Company's register. We have since reappointed EY as the auditor for statutory reporting purposes of the Marex fund given their prior experience. However, Deloitte remains the auditors of the group into which the fund is consolidated, and they have full access to the financial records. Acquisitions have been an important driver of growth for the firm. One consequence of that is complex consolidation accounting. Getting this accounting right is important, and we and our auditors spend a lot of time on this. The report asserts that some of this is hard to follow, which is true and also that MCML and ED&F entity is not consolidated. Those of you who have followed the firm will recall that when we acquired ED&F, one of the key structural elements of the transaction was ensuring we were not exposed to the ongoing liabilities of the U.K. entity, ED&F Man Capital Markets Limited, or MCML, which we knew was liable for an FCA fine and ongoing litigation with various European taxing authorities. It was precisely to avoid this that we structured the U.K. purchase as an asset purchase. In short, we do not need to consolidate because we never bought this entity. The report also alleges that the firm's market-making revenue in Capital Markets must be overstated because revenues in the segment have grown while volumes have declined. Within Market Making and Capital Markets, we include not just the equity option Market Making, which uses the Luxembourg fund, but also other businesses, including our corporate bond Market Making, stock loan, and various other activity. This activity has grown over time together with the firm. The volume cited in the report applies only to the exchange-traded component of this broad set of activities. This is disclosed. So there's no mystery here. We removed this volume KPI in the first quarter of 2025 as we believe it was no longer a useful comparison to our revenue. The broader business is growing and a subset of it, ironically, the equity option market making, which uses the Luxembourg entities and is being wound down as it is no longer competitive given new entrants in the marketplace is declining. The report draws attention to how cash flow is accounted for. It is true that we include the proceeds of our structured note issuance in operating cash flow as well as the proceeds of our debt issuance. This follows IFRS accounting and is completely consistent with how other large financial institutions report cash flow. We fully disclosed this, highlighting this as a row as well as in a footnote. So analysts who have a different view of where the cash -- on the cash flow statement, they want to see these items can make those adjustments. But for the avoidance of doubt, this debate is about where on the cash flow statement cash is reflected, not a debate about the total level of cash, which is the same no matter where one counts the subcomponent. The report notes that our structured notes are cash consumptive in part. This is true because some of the proceeds are required for hedges on the embedded investment return. There is again, no mystery in that. Part of the benefit of being a public company is the number of eyes on the firm. Our auditors, Deloitte, have had to audit us to a very high standard, consistent with us being listed. We have had an unqualified audit opinion on our financial statements from Deloitte in each of the 10 years they have audited us. In addition to the rating agencies, S&P and Fitch, our regulators and the exchanges we are members of, all engage with us actively and review and audit our activity. We reviewed the short report with our Audit Committee, which includes very seasoned financial professionals, including our Board member, who is the retired CFO of CME, who is also on the Financial Accounting Standards Advisory Council of the FASB. We examined the allegations on a point-by-point basis, and the Audit Committee are completely comfortable with our rebuttal. I'd like to thank our investors, our debt holders and our clients who have engaged with us over the past week. You all completely understandably took the allegation seriously, but we're open to hear our response and listened with an open mind, and we're convinced. We can now return to the main purpose of our call, our earnings. Rob?

Thanks, Ian, and good morning, everyone. As Ian said, we are really pleased with the strength of our performance in the first half of the year. With $967 million of revenue and $203 million of adjusted profit before tax in the first half of the year, this reflects the strength and scale of our business. On an adjusted basis, first half margins increased to 21%, up from 20.2% last year, reflecting margin expansion in Agency and Execution as we built out our Prime Services business and the benefits from restructuring some of our desks. The second quarter was perhaps more noteworthy than the first, given the more varied market environment that we experienced. Q2 revenue of $500 million was 18% ahead of last year. Strong growth in Agency and Execution and steady progression in clearing more than offset softer performances in Hedging and Investment Solutions and Market Making, demonstrating the value of our diversified model. Total reported costs grew 16%, broadly in line with revenues. Front Office costs were up 21%, reflecting strong revenue performance and continued investments in future growth. Control and Support Costs were up 16%, primarily driven by investments in support functions, which included investments relating to recent acquisitions and our compliance with Sarbanes-Oxley. Margins were broadly stable versus the second quarter of last year at 21.3%, delivering adjusted PBT of $106 million, up 16% versus Q2 of last year. Our adjusted return on equity remained very strong at 31.4%, all of which meant we delivered an adjusted basic EPS of $1.08 per share, up 13% year-on-year. Focusing now on our segmental performance in Q2. Clearing revenues grew 12% to $139 million as we grew both client balances and volumes whilst managing risk well amid elevated volatility. We also saw contribution from the recently closed acquisition of Aarna this quarter, adding around $7 million of revenues. Adjusted profit before tax grew 2% to $71 million as margins decreased to 51%, reflecting continued investment in the business as we expanded into new geographies, including Abu Dhabi, APAC, and South America. Q2 was a record quarter for Agency and Execution as we grew revenues 59% to $261 million. Security revenues grew 80% to $169 million, primarily driven by the continued expansion of our Prime Services offering, including growth in security-based swaps, and Ian will say more about this shortly. Securities was also driven by growth in all asset classes from an increase in transaction volumes. Energy revenues grew 31% to $92 million, reflecting the combination of record volumes, strong demand for our environmental offerings and continued expansion of large desks in oil and energy. Adjusted profit before tax more than tripled to $69 million as margins improved from 14% to 26%, driven by improvements in productivity as well as growth in higher-margin activity, notably in Prime Services. Market Making revenue declined 17% to $57 million compared to an exceptionally strong performance in Q2 last year. We saw heightened market activity across copper, aluminum, and nickel. However, this represented a small increase on the first quarter despite a mixed environment by asset class as we benefited from diversification across the business. Metals posted its second best quarter on record with revenues of $41 million, supported by continued strength in precious metals, partially offset by continued tariff uncertainty on base metals. Energy also performed strongly, benefiting from the market volatility, driving increased revenues across all energy desks. This was a challenging environment for agriculture with revenues down $9 million due to tariff announcements and elevated prices, notably in cocoa and coffee, which reduced market liquidity. Solutions revenues reduced by 9% to $41 million in challenging market conditions, notably the volatility that followed the announcements of U.S. tariffs in April. Hedging Solutions revenue fell by 15% to $20 million as tariff uncertainty led to an overall reduction and shortening of duration in client hedging activity before recovering towards the end of the quarter. Financial products revenue was broadly stable at $21 million as tariff announcement in April caused an initial slowdown in client activity, which has subsequently normalized. Margins reduced to 15% due to investment in our new, more scalable technology platform, which will position us well for future growth. Now looking at the first half performance by segment. Clearing revenue grew 15% on last year, driven by the same higher market volatility I mentioned for Q2 and the additions of new clients, leading to higher volumes and client balances. Margins remained strong at 49%, albeit lower than last year, reflecting an increase in performance costs and investments as we expanded into new markets. Agency and Execution was the strongest performer with a 50% increase in revenues and strong profit growth as margins expanded to 25%. This was driven by strong performance in all asset classes within securities, including particularly from our prime business and record volumes in energy. Market Making was broadly flat versus last year as the second quarter was more challenging for parts of the business compared to a very strong period for metals last year, as I previously mentioned. Hedging and Investment Solutions revenues were flat year-on-year, also reflecting a more challenging second quarter compared to the first. I'll make a few comments on our performance versus overall exchange volumes on Slide 10. As we have said before, we recognize the relationship between volumes and revenues is directional, hence, why we provide both the stand-alone quarter and the longer-term trailing 12-month view on the slide. There's also activity that flows through the revenue line that is not included in the volumes. You can see this specifically in securities within Agency and Execution, where volumes that we present only account for around 1/3 of total revenues or half of revenues once you exclude Prime. Volumes on exchanges don't capture volumes from business such as equities, repos, Prime Services and other OTC activities, which are part of our revenues and explain, for example, the outperformance in agency and execution this quarter. Viewed in aggregate, we continue to gain market share across our platform and our performance continues to outpace the broader market, which itself continues to grow at a healthy rate. Now I'll cover net interest income. Our NII for 2Q 2025 was $35 million, down $31 million compared to Q2 2024. We think about NII and its two components parts. Firstly, interest income, which was $181 million for the quarter and broadly flat on Q2 '24. Although total average balances increased from $13.5 billion to $18 billion, this growth was partly -- was broadly offset by a decrease of 100 bps in average Fed funds. Interest expense increased by $28 million to $147 million as we had an additional $1.4 billion of average structured note balances and completed two senior debt issuances of $600 million in November 2024 and $500 million in May 2025. This meant we had record levels of liquidity as we went through the second quarter and allows us to position the firm strongly to support our clients and grow organically. However, this does create a headwind to net interest income. As you can see, we've continued to evolve our NII disclosure and have split out our client balances from our house balances. Average clearing balances increased to $12.8 billion for the quarter, reflecting client growth and increased client activity. Turning now to our balance sheet. As a reminder, on this slide, you can see that 80% of our balance sheet consists of high-quality liquid assets, which support client activity. Once we net off assets and liabilities by client activity, we're left with a corporate balance sheet that carries corporate cash and other assets against group liabilities, including our structured notes portfolio and senior note issuance. Total assets increased to $31.2 billion at the end of June, driven by growth in client balances in clearing and growth in securities, which includes Prime. Our debt securities have increased to $5.3 billion, enabling us to increase our liquidity and support future business growth. We continue to manage our capital and liquidity risk prudently, maintaining significant headroom above minimum requirements to ensure we're well positioned in periods of market stress. At the end of the second quarter, total funding was $5.7 billion, up from $3.8 billion at year-end, with $2 billion of surplus liquidity to support our day-to-day operations. Our structured note program remains a core source of funding for us, and we have further extended our funding maturity profile with a USD 500 million senior debt issuance in May. This also supports our investment-grade credit ratings from both S&P and Fitch. In May, Fitch upgraded its rating outlook for Marex from stable to positive to reflect our strong earnings and diversification of our franchise. Finally, we announced again a quarterly dividend of $0.15 per share for the second quarter of 2025 to be paid to shareholders on the 11th of September. We have a proactive and involved risk management approach at Marex. In Market Making, we are a client flow-driven business and do not take a directional view on prices. However, we do carry a small level of inventory to source client demand and capture the trading spreads. We transitioned to a new consolidated group VAR model, and each of the businesses was moved across separately during the first half of the year on completion of the model validation and back testing. On this basis, average daily VAR was $4 million in the first half of 2025 and remains at a very low relative level compared to the growth in the overall business. Daily average revenue in Market Making increased by 15% versus 2024 to just over $900,000 per day, maintaining 100% positive weeks and months during the first half. In terms of credit risk, we had a realized credit loss of $700,000, representing just 0.1% of revenues and reflecting our proactive and disciplined approach to credit risk management. Now I'll hand you back to Ian.

Thanks, Rob. As you see on Slide 16, we have grown our revenue over the past 2 quarters with -- and with expanding margins, profit has grown somewhat faster than revenues. Although average exchange volumes were similar to the first quarter, which were up around 12% on Q4 levels, the month-to-month picture was more varied in May and June after very high levels of activity in the first part of April. And although average volatility using VIX to illustrate was up 27% on Q1, there was a sharp spike at the start of April before normalizing as the quarter progressed. As I've said before, our business model is set up to capture upside in such periods of elevated volatility, but not reliant on them to deliver our profit growth. We presented a version of the slide that you see on -- you see here at our Investor Day, and many of you have told us that this is a helpful way to depict the quality and reliability of our earnings. On the left-hand side of the slide, we show the consistent growth in our average monthly PBT and the relatively low variability in the distribution, driving a high Sharpe ratio of 6 in the first 6 months of the year. Our profitability is not a result of a few great months. It is quite stable. This was true in the second quarter as well, as our range of monthly profitability was relatively evenly split. On the right-hand side of the chart, we show the distribution of our daily average profitability on a trailing 12-month basis through June 30 this year versus last year. You can see the distribution has shifted to the right by around $400,000 for the trailing 12 months to June 2025 from around $1 million to $1.4 million. The left tail is very small and includes only 5 negative days. You can also see in the right tail how we have successfully captured market opportunities with more above-average profitability days. Given the strong growth in Agency and Execution revenues and margins in the first 6 months of the year, we felt it was helpful to break out the growth drivers in more detail. First-half revenues of $500 million were up 50% year-on-year, driven by strong growth in both Securities and Energy. Adjusted PBT margin expanded to 25% from 13% in the first half of 2024. This reflects growth in higher- margin Prime Services, which is becoming a larger portion of Agency and Execution, as well as more gradual improvements in the segment ex-Prime. Our Prime business is a great example of how a business can flourish as part of Marex. We always believed we could improve the business, and in particular, by moving from Prime of Prime to doing more business on balance sheet, we could capture additional economics. It is this on-balance-sheet activity, which includes both securities and synthetic total return swaps, where we have seen real success. We have seen increased client demand for financing, which is an important component of revenue within Prime. We also have an outsourced trading business creating a balanced business here. Across all parts of our Prime offering, we have continued to see significant increase in clients and have a strong pipeline. As the business grows, we are not naive about the risks. The primary risk is client leverage, which we manage very carefully. Overall client risk remains low, and the client leverage at which we operate is below 50% and below industry averages. Turning now to our M&A activity in the first half on Slide 19. Acquisitions are part of the firm's DNA. We believe we have differentiated ability to source, negotiate, close, integrate and capture synergies from acquisitions where we add new capabilities, clients and products to our platform. We have an impressive track record. What perhaps is underappreciated, though, is in aggregate, how much these acquisitions, all of which are relatively modest in the amount of premium paid can deliver in terms of growth and earnings. The advantage of a number of smaller acquisitions is diversification and how they strengthen the firm more broadly. The concern with a number of smaller acquisitions is it adds complexity, which needs to be managed, but more relevant, it may, in aggregate, not have a material impact. But as you see, over 3 years, we have paid an aggregate of around $150 million in premium. And the profit after tax contribution is nearly $150 million on a run rate basis, largely, but not exclusively as a result of the success with Cowen. This is around 30% of profits before considering our unallocated corporate center. As you know, we recently announced the expected acquisition of Winterflood, which is not included in these numbers, but will contribute to our performance in 2026 and beyond. This deal gives us an opportunity to transform our existing equity U.K. market- making business, which is currently small with around $10 million of run rate revenues and a margin in the low to mid-teens. Winterflood makes around $100 million of revenue and is essentially breakeven. We are confident we can run the consolidated business at a margin above what we do currently in our smaller Marex business. So we expect to materially improve its profitability by scaling the business, capturing efficiencies and introducing broader products and services from our platform to a new set of clients. Before I conclude, a quick update on our shareholder overhang and trading liquidity. Following our successful secondary offering in mid-April and two subsequent smaller placings by our private equity shareholders, their residual shareholding is down to 17% of our issued share capital, or around 12 million shares. To put this in perspective, this is around the same number of shares as the April follow-on transaction. To be in this position some 15 months post-IPO is remarkable, and we are grateful for the support our institutional shareholders have shown in helping us get to this stage. This has allowed us average trading volume to grow materially since this time last year to now between $45 million and $65 million per day. Our inclusion in the Russell indices at the annual reconstitution in June has also helped generate new demand for our stock. And we expect further index tracking flows to come as the increase in our free float is fully reflected in future. So in conclusion. At the Investor Day, we said we expected to grow profits in a 10% to 20% range sustainably, with around 10% of this organic and the remainder from inorganic opportunities. In the first half, we delivered profit growth of 27%, somewhat below our 10-year average at 35%, but above our target range. We remain excited about the opportunities to continue to grow, adding new clients and gaining market share, while we are aware of potential headwinds, including rate reductions. We are maintaining record levels of surplus liquidity and managing our risk well, supporting our clients through periods of market volatility. We were pleased that we were able to process the extremely high volume successfully on our platform at the start of April, confirming the operational resilience of the firm and the scalability of our platform. We've had a great first half of the year and are very confident about the position of the franchise and our opportunity set. With that, I'd like to ask the operator to open the call for questions.

[Operator Instructions] We are now going to proceed with our first question. The questions come from the line of Dan Fannon from Jefferies.

Ian, wanted to follow up on some of your comments. I was hoping you could just clarify or state what your free cash flow was for the quarter as well as what it's been over the last 12 months?

Sure, Dan. So thanks for the question. As you probably know, because this is a half year, we do file interim financial statements with the SEC and the sort of cash flow numbers are included in that particular filing. So I'll talk to cash flow for the first half, which is what the reported numbers are, as well as for 2024. As a financial services firm, we're obviously extremely focused on cash and liquidity management. In terms of the free cash flow that was created in the firm, I mean, the net cash increase in the firm in 2024 by almost $1 billion and it increased in the first half of 2025 by $779 million to [ $3.329 billion ]. That's worth trying to just unpack that a little bit. So as you try to understand what are the drivers of cash flow. You start with the reported PBT. So the reported PBT for the first half of 2025 was $202 million. The comparable number for 2024 was $296 million. Now the first set of adjustments you make to that is just to look at what are the elements of PBT that are noncash. And in terms of this particular half year, the two big components are the fair value of derivatives and then a number of other items. The fair value of derivatives is actually a loss this quarter of $84 million, and the other cash items are sort of immaterial. So actually, our cash PBT is $285 million, so $83 million higher than what it was in terms of reported PBT. In contrast to 2024, in 2024, the fair value of derivative was a gain of $188 million, and the other cash items were positive $73 million. So the cash version of reported PBT was $181 million. If you take those numbers and then reflect what are the taxes that are paid, what are the cash consumed through investments to make acquisitions, and then for dividends, stock buybacks, things of that kind, what that gets you to from that $285 million is a reduction in terms of what the cash goes through, which is $47 million. And that's consistent with the $51 that we had in 2024. Then, of course, there are obviously adjustments to working capital. So we're supporting clients through the activities that we do with them. We issued notes and debt. And then we utilize the cash to support our clients. And that increase in net working capital for 2025 is $733 million. So the total cash increase is $779 million, which includes the $47 million, which is the PBT adjusted for cash for all of our acquisitions and for the dividends and the buybacks, and then an increase in working capital. And that's where we are. The fair value of derivatives, that is important to appreciate though, now is offset essentially against fair value adjustments that turn up in our working capital. So the fair value loss that we had that was included in the adjustment of PBT is offset by changes in the value of the structured notes and to the extent that hedges are conducted on exchange in changes in payables and receivables.

I think the only thing I'd add, Ian, is -- Dan. As Ian said, we have filed unaudited accounts on the SEC website, but Deloitte did carry out a SAS 100 review of those to PCAOB guidance.

Hopefully, that answered your question, Dan.

Yes. That was very detailed. I appreciate all of that. And then just a follow-up. As we think about the remainder of this year, and also, I guess, in the next, given the inorganic adds that you've made and you outlined in the deck, can you talk about expense synergies and realizations and just kind of how we -- what's left in terms of operational efficiencies that we could see coming out of the business? Understanding also there's revenue upside, but thinking more around the cost would be helpful.

Yes. I think that -- in terms of the acquisitions that we described on that one particular slide, I think most of the synergies have really been captured. And as a general matter, I think most of the synergies we anticipate are revenue synergies from here rather than cost synergies. Hamilton Court, obviously, we closed quite recently. There, I think our expectation is sort of revenue synergies, more than it's cost synergies. Winterflood, we haven't closed yet, and I suspect Winterflood driving up the margins will be a combination of sort of revenue and costs. But from our perspective, what's really important from these acquisitions is being able to forecast what the synergies are going to be as was the case in Aarna, although those were revenue synergies. And then capturing those. And I think we've been able to do that very successfully.

[Operator Instructions] And the questions come from the line of Benjamin Budish from Barclays.

Ian, maybe following up on the end of your prepared remarks around the sustainability of the business. Just looking into Q3, we kind of see exchange volumes around the Board kind of softening just a little bit. It's mostly environmental and some very tough comps. I guess, where in your P&L, as we think about the back half of the year, do you think the kind of recent performance is most sustainable? I'm curious, in particular, on the securities business where you've seen some really phenomenal growth. But where do you see the things being a little bit more resilient versus more susceptible, at least in the near term, to some market swings?

Yes. Look, I mean, I think that -- we thought about this a lot. I think we see strength in, frankly, every part of our business. Look, I mean I don't think that we're anticipating the same level of growth in -- throughout the securities business. But we're -- as we look at the set of things that are underway and the initiatives that are underway, we don't see that retreating. And we do see an opportunity to continue to grow. We've had a very strong July. So we're feeling good about the momentum in the franchise. We do recognize that in all likelihood, there will be rate reductions. And I think that the impact of rate reductions, as we described is relatively modest. It's something like $20 million of PBT for a 100 basis point move. So we expect some level of headwinds from that, but we think that we can offset those through the remaining -- through the growth that we see around the franchise. So we're actually, as I said in my remarks, pretty positive.

Maybe one kind of follow-up, just a modeling question. Kind of in the weeds, but I'm curious if you could talk a little bit about the allocation of net interest expense, just the sort of mix looked a little bit different this quarter than it has in the past, sort of a higher expense allocation to the solutions business, lower corporate interest -- net corporate interest income despite higher cash balances. Curious if there's anything we need to understand? I know it's a little bit hard from a modeling perspective. But if you could talk a little bit about what's going on there and how to think about that allocation would be helpful.

Rob, why don't you take that?

Yes. Let me just sort of start off, just talking about net interest income in the first quarter. Sorry, in the second quarter compared to the first quarter. So as you saw on the slides that we presented, our interest income was up marginally. Although rates were flat, we did have some balanced growth. Interest expense, though, is up $21 million compared to the first quarter, reflecting $800 million worth of debt issuance. And as we said, this has positioned the firm well for future growth. And given the market volatility that we saw in April, we thought it was an important thing to do. As I look at it -- as I look at it, therefore, it meant, I was long on liquidity. So therefore, what I look to do is to optimize our liquidity across the group as much as I can. And we did deploy some of that additional liquidity into the business. And that's why house balances only went up by $0.1 billion on the chart that we've given out. The majority of the additional cash that we raised went to support some of our trading businesses, notably in capital markets and our Prime business. I want to be really clear, these businesses are often self-funding typically, but we made a conscious decision to use house cash to support them. So I think you are seeing a little bit of a change in perhaps how we deployed some of that cash. At a high level, though, from a solutions perspective, the increase really in interest expense is reflects the higher and issued structured notes and any liquidity that they've used within the quarter. And in the corporate center, it's predominantly the headwinds from additional senior issuance.

[Operator Instructions] And the questions come from the line of Alexander Blostein from Goldman Sachs.

Well, just maybe building on that last point. When we think about the NII trajectory from here off of this kind of $35-ish million quarterly run rate, I think the debt issue was those partial quarter. So presumably, there's a little bit of headwind into Q3. But you also talked about just growth in the business. So with rate cuts, maybe just give us a bit of a reset on how you're thinking about NII trajectory from here? And also, are there any other incremental debt you expect to issue for the deals that haven't closed yet?

Why don't I start, Alex, and I'm sure Ian can add. So I'd like to sort of think about interest income for the rest of the year. Obviously, we all look at the forward curve, and I think it's currently predicting 2 to 3 cuts potentially by the end of the year. So I'd expect our interest income to be sort of broadly flat to where we are at the end of the second quarter because I think that we will be able to broadly offset those headwinds with additional balances. I do think, though, that interest expense has probably peaked. And I think that going forward, you can expect to see two things. Obviously, the interest expense cost will go down as interest rates come down because it's all floating rate debt. And I also think we are beginning to see a little bit of compression on our debt spreads.

Yes. I mean, I think that we've been operating with very high liquidity. So this is Alex. And I don't think that in light of the size of those surpluses, which seems completely appropriate going into the environment we were in, that we'll look to see those increase. So I think that the second half of the year is about deploying some of that cash that we've raised to support our clients.

So in other words, the GBP 100 million plus payment for Winterflood, you guys don't expect to issue any incremental liquidity, that's something you can fund with internal resources at this point?

Absolutely.

And then speaking of deals, maybe zooming out a little bit. You spoke to a fairly robust pipeline, I guess, and you guys continue to do more frequent deals, but also some of them tend to be a little larger. So when you assess the opportunity set, for the next kind of 6 to 12 months when it comes to inorganic opportunities, what's roughly the makeup? What are some of the geographies and maybe product sets that comprise the more kind of actionable items within that pipeline?

Perhaps I can cover that. It's Paolo Tonucci. In terms of the size of the acquisitions, the largest will be Winterflood. We have probably 6 or 7 that are sort of live transactions at the moment of sort of varying size. But I mean, nothing larger than Winterflood. I would say 50% of the transactions are on the -- within the sort of financials or securities part of the business. So Winterflood being sort of the most obvious, and then there are some other sort of smaller transactions that will add to that. They are not -- I think this is just a function of where the opportunities exist. They are primarily in the U.K. and in Europe. And -- but I expect that you know, the times we sort of talked about before, we'll see more opportunities in the U.S. and in Asia. We do have sort of interestingly, a couple of sort of smaller acquisitions in Asia, which I think are sort of going to build out our profile. So quite a mix geographically, although, I mean, in terms of size, they're typically smaller than the sort of GBP 100 million or so Winterflood transaction.

[Operator Instructions] And the question come from the line of Bill Katz from TD Cowen.

Just a question, coming back to capital management at large now. Given that the liquidity in the shares is higher given the cash flow of the company is stronger and given where the stock is trading, particularly in light of recent events, how are you thinking through maybe just capital management priorities? Is there room here to potentially step into doing buyback and/or working with the PE sponsors to potentially limit leakage into the market through buyback versus maybe the deal backdrop?

Yes. Look, I mean, I think that our priority to date has been about increasing the float. And as a result, buybacks were not part of our -- our capital plan. I mean, exactly the points that you've raised, I think now that we've got a very substantial float, that becomes less of an issue. To the extent that we can deploy capital in acquisitions, I think that's very desirable and you've seen the impact of the acquisitions in driving value. So I think that -- that -- to the extent that we still feel that we have really good acquisition opportunities, we're going to pursue those. But I do think that we're now in a world where, as you say, I think buybacks become something that we can consider and perhaps should. And I think that it's definitely the case given the recent news out in the marketplace, but -- that the private equity shareholders would be likely to hold their positions. Although, obviously, that's decision for them.

Just as a follow-up, maybe looking into -- should we look into the businesses a little bit. You'd mentioned that pretty optimistic on the Prime side. I was wondering if you could talk a little bit about maybe quantifying the pipeline of opportunity there? And is there any way to sort of unpack the margin of the Prime business versus the residual business, just to think through the incremental segment of upside, margins overall?

Bill, it's Paolo. I'll try and cover that. In terms of the progress and the sort of opportunities, most of the -- most of the impact has been by adding new clients and by adding products. And we're seeing a really good pipeline of new clients. So I think in the first half of the year, we added somewhere around 150 new Prime accounts. And when I look at the pipeline of clients going forward, it's probably stronger than it has been before. So we're adding a lot of clients. I think that you will see continued growth in that business, not at the rate that we saw in the past 12 months, but certainly somewhere in the low double digits, perhaps high single, low double digits. And primarily, as I say, driven by additional clients. The other parts of the Agency and Execution business on the security side also -- have also been growing strongly. And we have added more people, we've added more products and more capability. So I expect that we will be able to drive further growth. I mean, every segment within the sort of financials part of the business has grown quite considerably mid-teens to sort of 30% across the sort of non-Prime segments. And as I say, we're investing. Some of the reorganizations that we -- some of the reorganizations at the desk level, starting to generate some good returns. Then I think I'm very optimistic about the Winterflood transaction. And I mean, just to reiterate Ian's point, I mean, we generate a mid- teens return of really a relatively small -- one might call it a subscale equities business. And Winterflood is -- a great brand. It's a $100 million revenue business, and we feel confident that we'll be able to generate very good margins, at least comparable margins from that. So overall, across that part of -- I mean, obviously, that's market making predominantly and as opposed to just execution. But across the financial parts of our business, I'm confident we'll see good growth.

[Operator Instructions]. And the questions come from the line of Alex Kramm from UBS.

Just wanted to follow up on an earlier question on kind of the outlook for the remainder of the year and maybe be a little bit more specific about this quarter so far. You talked about July was strong, but that can mean a lot of different things. So when I look at kind of exchange volumes, I think metals are down 10% quarter-to-date versus the second quarter, energy down 20%, securities markets, mixed. So maybe talk about how you're trending against those kind of KPIs? Or any reason why you would be outperforming some of what we're seeing in the market?

Yes. Look, I think that -- as we've -- as we sort of talked about before, there are sort of two things that go on, right? Obviously, there's what's going on in the market and then what's going on with share. And as a result, you could grow as we have, faster than the market if you're gaining share. And in the event that markets are declining, you can actually continue to grow if the share gains offset those. And I think the other point is we have a lot of growth levers inside the firm, which mean that even when some businesses are down, others are likely to be performing better. So when I sort of said July is strong, it's operating at levels that are comparable to the second quarter.

And then thanks for obviously addressing the short report in all detail. Maybe one question related to that. I hope it's fair. But just wondering what kind of feedback you've gotten from clients? Because I'm sure they're watching this. And I think some of your large clients have taken your part a lot over the years and as they onboarded, but this is financial services and a lot of it is built on trust. So just wondering how those conversations have been? Or if any, if you've seen any sort of change in activity or any lines being pulled? Just wanted to get more detail there.

Yes. No, it's a good question. I mean, look, I think the impact has been pretty modest. I mean, as I sort of indicated in my remarks, I mean, there have been active conversations with a very large number of counterparts, and people have been, I think, interested in what it is we have to say. There are a couple of data points, which I'm sure you track, Alex, which is what's going on with take balances in the U.S., which are reported on a daily basis. And what we see there is our balances are essentially flat to where they were before the short seller came out. I mean, it certainly rounds to an identical number. And I think that's indicative of broadly what we're seeing in the firm. I mean, there is some very limited amount of sort of retrenchment, but it is very limited and often post the engagement with the firm, people have brought balances back. And interestingly, two of the largest and most sophisticated hedge funds in the world have extended their clearing mandates with us just over the last week. So it clearly is something that we're putting a lot of time and effort against. But I think I'm pretty pleased with how muted that effect is in our liquidity, which was always extremely strong, remains extremely strong. So there's sort of 0 issues there. The amount of structured notes that we've had to buy back is absolutely trivial amount. So really, the impact to date has been extremely muted.

[Operator Instructions] The next questions come from the line of Patrick Moley from Piper Sandler.

I had one on the Market Making segment in the second quarter, specifically in ags. The revenues there flipped negative in the quarter. I think in your prepared remarks, you had said that there was some tariff-related impact. But just was hoping you could give a little bit more color on the dynamic there in the second quarter and whether some of those headwinds that you were facing have abated in the third quarter?

So thanks, Patrick. As I said in my prepared remarks, revenues were down on the back of the tariff announcements. And what we are actually seeing going on, notably in cocoa and coffee, was elevated prices, which significantly reduced market liquidity. So it was a much slower quarter for the business.

Yes. And I think I can say it's sort of continued into this quarter as well. I mean, again, it's a benefit of a diversified business is even when you have a slowdown in one part of your market making, other parts can take up the slack. It's certainly as I sort of reflect on the second quarter, we had pretty strong performance in metals, and we actually had pretty strong performance in energy and that offset, to some extent, the impact in ags. But I think you're seeing the impact in ags in a lot of places. I think you saw that in Cargill's announcement this week. You saw it, I think, in sort of StoneX's announcement. So this isn't something that's just affecting Marex. I think it's a more broad sort of effect.

And then maybe just a last one on clearing balances in the quarter, still up strong year-over-year, but moderated a bit sequentially. So I was hoping you could just talk about how we should think about balanced growth from here throughout the rest of the year and where you'd expect that to kind of settle?

Again, I mean, I think that we have a pretty strong pipeline. It -- you're never quite sure exactly when those close, but our pipeline is probably sort of consistent with what you saw in the average for the first half of the year.

We are now going to take one final question. And the questions come from the line of Carlos Gomez-Lopez from HSBC.

First, I wanted to thank you for the increased disclosure and the improvement, especially in the share count that you show in Page 16 of your earnings release or 25 of your presentation. You are now at 71.7 million shares at the end of the period. Can you remind us what we should expect for the share count to do over the next year or 2 years?

Look, I mean -- I think you should expect that to remain very consistent unless to -- one of the earlier questions, we begin to buy back stock, which is not currently sort of our plan. So I think what we've committed to was not increasing dilution by more than 1%. And so I don't think that would be the maximum amount. But we don't have any expectation of either diluting or at the moment of buying back stock, although that could adjust if we changed our view on how much capital we had and how we wanted to deploy it.

So that was my question. There are no particular share option plans or anything else that should lead us to have more than 1% dilution going forward from what you have today?

No.

And if I could ask one last question. I mean you obviously must have looked at RJ O'Brien. Was that too large transaction for you? Or is that a business that perhaps you could have been interested in?

Look, I think it's a transaction that we would have been interested in. I think our view was -- it wasn't a great cultural fit for us. And I think that our -- what we're excited about is what we're actually doing, which is a number of more modest acquisitions, which collectively are delivering very substantial increases to the earnings of the firm. And so it's less of a -- we didn't want to do it. I mean, we did have some conversations. They didn't lead to anything. But I think it wasn't a great fit for us. It seems like it's a better fit for StoneX. And so they were the ones who did it. But I mean it's not the case that we would not consider a transaction of that size if we felt it was the right fit for us and that we were highly confident that we could deliver value for our shareholders if we pursued it.

We are now going to take the last question. And the questions come from the line of Alex Kramm from UBS.

Yes. Just one quick one. I think someone asked earlier about margins and agency, execution. I don't think you fully addressed that. So maybe you can just talk about the outlook there a little bit? I mean, it seems like that's been doing really nice and improving nicely with the Prime growth. And just wondering if that's all that is? And then maybe talk about the front office costs. I think early last year, it was running, like, close to 80%, I guess, comp expense. We're in the mid-50s now. So just curious, how we should be thinking about the ceiling on, I guess, compensation expense and how that works, ultimately impact the margins?

Alex, it's Paolo again. I'll try and cover them to the margin point. We'd always said that in the Agency and Execution part of the business margins, we would be targeting margins of over 20% and hoping to get towards 20 -- towards the mid-20s. And we obviously exceeded that. There has been a change in mix with a larger proportion of our profits coming from Prime and from some of the activities around that support of Prime and its clients as well as the clearing clients, so more coming through on, for example, repo and stock loan. So I think that these margins are sustainable. I think there's room for some improvement because certainly within the composition of our desks, there are some that are still not quite at scale, and it takes a little bit of time for that to come through. There's some that are still generating bottom-line losses or profit-level losses. So I think there's room for some improvement, but I think we're sort of close to the optimal level. And certainly, with the Prime business, as we talked about, as you know, it's a relatively high fixed cost business. So the margin at the margin is high. And is -- it's comparable to the Clearing business. So we are achieving margins on average that are comparable to Clearing and at the margin, it probably has a similar dynamic, some more than 50% margin at the margin.

All right. Well, thanks, everybody. A lot of questions and a lot of materials. I apologize for the sound issues that we had at the outset. I guess these things sometimes happen, it's unfortunate. But thank you for remaining online with us. And we're obviously extremely pleased with the quarter. We're extremely pleased with the half-year. We really are excited about some of the prospects over the next period, and we feel that the strategy is the right strategy and that we're executing that strategy extremely well. So thank you all, and look forward to following up with some of you over the next couple of weeks.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.