Jim Ormonde, Chief Executive Officer of Argentex Group Plc (LON:AGFX) sets out the Group’s new ambitious strategy in their recently published Annual Report for the year ended 31 December 2023. Jim notes: “A key area of focus is expanding into the broader payments and alternative banking markets; diversifying our product offering to increase our exposure to more visible, stable revenue streams.”
CEO’s STATEMENT – OVERVIEW
After a robust performance in 2022, the Group made significant investments in people, technology and overseas expansion for anticipated growth in 2023 and beyond.
In 2022 FX markets were very active due to the impact of the UK’s “mini budget” and other political/ geopolitical factors, including the Conservative party leadership campaign and the war in Ukraine. However, as the year progressed it became apparent that 2023 would not see similar levels of volatility and that the institutional market in particular, which tends to track market trends closely, would deliver suppressed levels of trading due to the market’s general “risk off” approach.
With lower levels of client activity, it was evident that revenue growth expectations for the year were unlikely to be met and that the planned increases in costs previously flagged to investors would simultaneously challenge overall profit levels. Accordingly, in November 2023, we announced that we expected to report revenue and operating profit for the year ending 31 December 2023 at approximately the same levels as for the twelve months ended 31 December 2022.
In January 2024, we confirmed that we expected revenues for the twelve months to 31 December 2023 to be approximately £49.8m and operating profit to be not less than £8.0m.
FINANCIAL AND OPERATIONAL PERFORMANCE
The Group’s investment in people, technology and overseas expansion in 2023 meant that costs grew faster than revenues.
Revenue for the year ended 31 December 2023 was £49.9m (compared to £50.4m in the 12 months ended 31 December 2022 and £41.0m in the nine months ended 31 December 2022). Operating profit was £8.1m (compared to £11.3m in the twelve months ended 31 December 2022 and £8.1m in the nine months ended 31 December 2022).
It is disappointing that 2023 revenues were flat year-on-year and operating profit lower due to a higher cost base following the investment made in the earlier part of the year. We are committed to repositioning our business and overall client focus, including some near-term measures to align costs more appropriately with revenues.
PEOPLE
Our people are the most important strategic asset in our company. Having the right people in the right roles is fundamental to our success and we made a significant number of changes in 2023, particularly across the senior management team. We need to ensure we have the correct balance of people to support our clients’ evolving needs as we move forward but we are also looking to improve quality, knowledge and expertise in every facet of the business.
We are proud that our first employee engagement survey returned an overall score of 80% but there is much we can do to improve, and the new senior management team hold regular “open door” sessions, townhalls and other staff events to ensure a culture of success and involvement emanates throughout the business.
Additionally, we continue to directly support the Social Mobility Foundation and the Argentex Academy, putting inclusivity at the heart of everything we do and building strong relationships with superstars of the future no matter what their backgrounds may be.
CLIMATE CHANGE & SUSTAINABILITY
As a small but growing services company with a team of less than 200 in four offices, we have a very limited impact on the environment. Nonetheless, we strive to minimise or mitigate any harm that we might do and also actively seek to contribute positively.
STRATEGY 2024 & OUTLOOK
We have concluded a thorough review of the business with the aim of identifying future opportunities for driving profitable growth across the business. A key area of focus is expanding into the broader payments and alternative banking markets; diversifying our product offering to increase our exposure to more visible, stable revenue streams and reduce our reliance on more volatile FX markets. However, in the near term, as we focus on repositioning and restructuring the business for profitable growth, we expect FY24 revenues to be in the mid £40s million, with an EBITDA margin in the low single digits1.
We have a strong brand and reputation in what remains a large and fragmented addressable market and we will continue to build on our key strengths and expand internationally to strengthen our position as a leader in the segment.
To enable the business to become a global financial solution expert it is necessary to have a scalable and efficient platform to facilitate accelerating growth, while delivering market leading products. To ensure that we maximise shareholder returns, and maximise investment value, we intend to undergo a period of consolidation where we will look for operational efficiencies while market conditions remain more muted. This will ensure costs are aligned with carefully considered growth expectations and an overall strategic focus underpinned by a detailed operational plan designed to minimise execution risk and fully embrace an exceptional market opportunity.
We are in the early stages of the move to diversify the business, ensuring we have the product scope and client portfolio to protect us against fluctuating market dynamics with higher quality earnings and more predictable revenue streams. We must be less transactional as a business and more focused on expert account management and wider product provision. We must put our clients’ needs at the very heart of all trading activities and we will seek to provide new customers with the exceptional rather than merely the expected as regards service and their client journey.
Our increased confidence in the market fundamentals underpins our new ambitious strategy, with a focus on three key areas in particular:
- Operational and Financial efficiencies, including enhanced client retention: We have a series of initiatives aimed at financial, operational and capital optimisation, seeking shrewder control of costs and also a thorough review of our licencing arrangements and their effect on our capital requirements. We will continue to let our clients’ needs inform our strategic focus and seek to tailor our approach and solutions more carefully to the type of clients we serve. By automating processes, we also aim to offer our clients greater autonomy whilst freeing up our resources to concentrate on customers who require higher levels of support. We are also seeking to make our sales processes more sophisticated and deliver a laser focus on customer lifetime value with a view to keeping customers for longer via careful account management focused explicitly on their needs as a business rather than any preference to transact.
- Product diversification: We are doubling down on our investment across a broader product set, especially around payments and Alternative Banking, as we seek more predictable revenue streams and diversify our market offering to bring higher quality earnings and a greater share of our customers’ preferred service provision.
- Geographic expansion: And finally, we continue to pursue our goal of geographic expansion, ensuring we leverage our existing locations and licences to ensure our footprint grows in an efficient manner alongside global banking partners who share our vision to capture and keep a more significant share of the Payments, Alternative Banking and FX market, particular on those territories where business customers are underserved and where technology presents new opportunities.
We believe there is an enormous opportunity to go further than we had originally envisaged as a global financial solutions expert and to be part of the historic coalescence between Payments, Alternative Banking and FX. This will make our earnings more predictable, improve our margins, and make us less susceptible to market dynamics than a traditional agency business.
Jim Ormonde, Chief Executive Officer
Notes
1. The forecasts are the Board’s estimates only, using internal assumptions which have not been independently verified or reported on and actual results may differ. The forecasts are not a representation of facts and should not be regarded as such by prospective investors. Rather, the forecasts are statements about the forward-looking expectations of the Board with respect to the revenue, revenue growth and EBITDA margin of the Group.
