Financial review

2023 Financial performance

TMF Group Holding B.V. was incorporated on 13 June 2022 as part of the acquisition of TMF Sapphire Topco B.V. ("Topco") by a shareholder group led by CVC Capital Partners and a wholly owned subsidiary of the Abu Dhabi Investment Authority; and had limited operations during 2022 (nil FTE), incurring cost of €0.7 million in relation to set up of the new structure. From 1 January until 31 March 2023, TMF Group Holding B.V. had sole operations in direct connection with the acquisition of Topco and had only incurred transaction costs of €11.3 million, funded by the shareholders. On 31 March 2023, TMF Group Holding B.V. acquired 100% of the shares of Topco, indirectly acquiring 100% shares of TMF Sapphire Midco B.V. ("TMF Group"), which consolidates TMF operational entities. Refer to Governance section of the management report for further details on organisation structure.

The operating activities of TMF Group are fully consolidated in the financial statements of TMF Group Holding B.V. from the date when control is transferred. As a result, the results and cash flow of TMF Group included in the consolidated financial statements of TMF Group Holding B.V. cover the period of 1 April 2023 until 31 December 2023; therefore 2023 financial information (results and cash flow) of TMF Group Holding B.V. includes nine months of consolidated results of TMF Group in addition to transaction costs incurred in the first three months of 2023. 

Due to limited operating activities of TMF Group Holding B.V. during the period from 13 June until 31 December 2022 and 1 January until 31 March 2023, the financial information presented has been augmented by adding the full twelve months financial performance of the operational entities of the TMF Group for the years 2023 and 2022. This financial information has been adjusted to allow for a like for like comparison and reconciliations are included in the tables presented in the Financial review section. The primary operations are a result of the TMF operating entities, therefore Q1 2023 financial information of the TMF operational entities and prior year audited 2022 financial information (translated at 2023 average rates) of TMF Sapphire Midco B.V. is added and financial information of TMF Group Holding B.V. and intermediate holding companies is deducted. Refer to KPI table for explanations and definitions. 

In 2023, TMF Group grew both organically and through acquisitions in line with its stated strategy. TMF Group acquired seven companies in 2023, two of which completed prior to 31 March 2023.

TMF Group’s reported revenue increased by 14.5% to 825.8 million (2022: €721.1 million). When adjusted for acquisitions and currency effect, organic revenue grew by 12.8% (2022: 9.3%). All regions and service lines contributed to organic growth during 2023.

Results from operating activities before depreciation, amortisation, impairment charges and non-underlying and separately disclosed items (“EBITDA”) increased by 13.6% to €256.7 million (2022: €226.0 million) driven by organic growth, margin initiatives as well as contribution from acquisitions. Adjusted for acquisitions and currency effect, organic EBITDA grew by 12.0% (2022: 12.0%). Adjusted cash generated from operations excluding cash flow from non-underlying and separately disclosed items (“Adjusted cash generated from operations”) increased by €31.1 million to €165.2 (2022: €134.1 million) due to improved EBITDA partly offset by strategic investments in digitalisation. The Senior Secured Net Leverage ratio to EBITDA for covenant calculation was 4.8 on 31 December 2023.

• All regions contributing 

• Organic growth 13%

• Strong growth in Funds and Americas

• Strong contracted business and improved client retention

• All regions contributing 

• Organic growth 12%

• Improved margins as net effect mix and margin initiatives

• Strict cost control

• Investments in Funds and Capital Markets

• Reduced leverage

• Improved profitability

• Improved lock-up with substantial benefit

• Further savings on office leases

• Step up of investment in digitalisation

• RCF not used as per the end of the year

• Refinancing with net inflow of €110 million

KPIs

Income statement

Overall revenue growth of 14.5% (2022: 10.7%) includes the in-year impact of 2023 acquisitions of Goodbody Fund Management - Ireland, Avanzia Taxand - Malta, Premier - Greece, Contexpert - Romania, KPK - India, Sino Corporate Services Group - Hong Kong and China and Partners Admin - United States of America. Adjusted for the acquisitions and currency effect, revenue growth in the year 2023 is 12.8% (2022: 9.3%).

Because of TMF Group’s global operations, several countries operate in currencies other than Euro. Consequently, TMF Group is exposed to translation impacts as local currencies are translated into Euro. December 2022 audited revenue of €743.9 million, restated using 2023 rates, results in an decrease of the revenue of €22.9 million.

Employee benefit expense is driven by a 8.2% growth in FTEs, resulting from growth including acquisitions and by 5.4% increase in average employee expense. 

EBITDA improved by €30.7 million from €226 million in 2022 to €256.7 million in 2023. This EBITDA gain stems from revenue growth, margin initiatives, stable cost control and contribution from acquisitions.

For historical performance of TMF Sapphire Midco B.V., refer to audited financial statements of 2018 until 2022. 

Revenue by service line

Revenue by geographic segment

EMEA

EMEA include markets Netherlands, Belgium, Curacao (NBC), Luxembourg, Germany, Switzerland (LGS), British Isles and Ireland (BII), Nordics, South West Europe, South East Europe, Central Eastern Europe and Middle East and Africa. Revenue in EMEA increased by €52.5 million, or 12.8% to €461.6 million in 2023 from €409.1 million in 2022. This growth is driven by double-digit growth in LGS, BII, Nordics, South West Europe, South East Europe,  Middle East and Africa as well as single digit growth in other markets. The revenue includes the full year effect of the 2023 acquisition of the business of Goodbody Fund Management - Ireland (closed October 2023), Avanzia Taxand - Malta (closed November 2023), Premier - Greece (closed November 2023), Contexpert - Romania (closed December 2023). Excluding the impact from acquisitions, the year-over-year growth amounts €50.9 million, or 12.4%.

APAC

APAC include markets South East Asia, Hong Kong, Korea & Japan, China & Taiwan and Singapore, Malaysia and Australasia (SMA). Revenue in APAC increased by €23.9 million, or 14.3% to €190.7 million in 2023 from €166.8 million in 2022. Growth is mostly driven by South East Asia, Korea & Japan, Hong Kong and China & Taiwan (double digit).The revenue includes the 2023 acquisition of the business of Sino Corporate Services Group - Hong Kong and China (closed March 2023) and KPK - India (closed July 2023). Excluding the impact from acquisitions, the year-over-year growth amounts €21 million, or 12.6%.

Americas

Americas includes markets North America, Brazil, South Spanish Latam and North Spanish Latam. Revenue in Americas increased by €27.2 million, or 21.2% to €155.7 million in 2023 from €128.5 million in 2022, mainly driven by double digit growth in South and North Spanish Latam and North America. The revenue includes the full year effect of the 2023 acquisition of the business of Partners Admin – United States of America, (closed February 2023). Excluding the impact from acquisitions, the year-over-year growth amounts €19.2 million, or 14.9%.

Cash flow

Adjusted cash flow from operating activities is calculated as: EBITDA adjusted for impact of foreign exchange rates, cash inflow/(outflow) from working capital, cash outflow from lease payments and capital investments. TMF Group Holding B.V. presents IFRS 16 Office lease including payments for buildings and vehicles in amount of €23.5 million; €8.8 million of lease payments related to IFRS 16 software is reclassified to Capex (including licenses) line of the cash flow. 

The primary KPI of management for cash generation is the percentage of EBITDA converted into cash. Cash flow conversion is calculated as EBITDA plus or minus working capital movement minus capital expenditure minus lease expenses (IFRS 16) divided by EBITDA. In 2023 the cash flow conversion rate of 64.4% was achieved, compared to 59.3% in 2022.

Cash flows from operating activities improvement stem mostly from EBITDA gain, partly offset by a step up of capex and leases mostly related to accelerated investments in development of software, licenses and equipment.

Financing and treasury activities

TMF Group’s treasury function is responsible for ensuring the availability of cost-effective financing, managing TMF Group’s financial risk arising from currency, interest rate volatility and counterparty credit. Treasury is not a profit centre and is not permitted to speculate in derivative financial instruments. The treasury policies are set by the Management Board. Treasury is subject to controls appropriate to the risks it manages.

TMF Group’s activities expose it to a variety of financial risks: market risk (including currency risk and cash flow interest rate risk), credit risk and liquidity risk. TMF Group’s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on TMF Group’s financial performance.

Financial risk management is carried out by the central treasury function under instruction and with approval of the Management Board. TMF Group’s treasury function identifies, evaluates and hedges (where considered necessary) financial risks in close cooperation with TMF Group’s operating units. The Management Board  provides guidelines for overall financial risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments and investment of excess liquidity.

Refer to the risk paragraph for further details on financial risk management.

Financing

TMF Group’s primary sources of finance are secured bank borrowings provided by a syndicate of banks.

On 17 July 2023, amendment and extension of the existing senior loan agreement was executed resulting in principal loans Facility B1 of €955 million, Facility B2 of $400 million; both senior loans with maturity of May 2028 and Revolving Credit Facility of €181 million with maturity February 2028. The interest for Facility B1 is 4.5% plus 3 month EURIBOR (floored at 0%). Interest for Facility B2 is 5.0% plus 3-month USD TERM SOFR CME.

This resulted in extinguishment of existing senior loans, Lien 1 with principal of €950 million and Lien 2 with principal of €200 million and a loss on extinguishment of €15.4 million. The loss is reported as part of net finance costs in the Income statement. 

The revolving facility from our primary bank consists of a €152 million (2022: €122 million) facility for cash needs of which €152 million (2022: €109 million) is undrawn and a €29 million (2022: €28 million) facility for bank guarantees of which €10 million (2022: €6.4 million) is not used at 31 December 2023. As at 31 December 2023, the total undrawn borrowing facilities amounted to €162 million (2022: €115.4 million).

Foreign currency

TMF Group has many foreign subsidiaries that are exposed to various currencies. Treasury policy is to manage significant balance sheet translation risks in respect of net operating assets and profit denominated in foreign currencies. The methods adopted are the use of borrowings denominated in foreign currencies to the extent that cash and debt requirements allow.

Cash management

Local cash balances are centralised into a cash pool with HSBC as much as effectively possible. Countries that are not permitted to participate in the cash pool regularly upstream cash by settling intercompany balances, dividends or loans.

The cash pool consists of overdraft balances offset by credit balances (“Secured bank overdraft”) and is managed on a net surplus basis. Interest compensation is applied to the individual accounts within the cash pool.

TMF Group’s treasury function monitors cash balances daily. Appropriate action is taken to optimise interest costs while at the same time safeguarding sufficient liquidity. TMF Group continues to review opportunities to improve the efficiency of its cash management including improved Global credit control, standardised processes which will result in a decrease of lock-up days.

Outlook 2024

We expect TMF Group to continue to grow both organically and through acquisitions. Growth is expected to continue to come mostly from existing clients by geographic expansion. We also expect new services, like those resulting from ESG, as well as acquisitions to contribute to growth.

To support this growth, the number of FTEs is also expected to increase. Our employees are continuing to work partially remotely and hence we have significantly reduced our office space and will continue to do so. We expect remote working to continue and be a permanent feature of the professional services industry.

Furthermore we have planned a further investments in capital expenditure both to support client delivery as well as investment in TMF Group backbone systems. Those future investments can be funded within the existing (renewed) borrowing facilities. In case of potential larger-scaled acquisitions TMF Group will assess if additional borrowing facilities are required.

In terms of sanctions response, TMF Group took the early decision to exit Russian-owned clients. That has been acted on and most of such clients have been terminated in 2022 already. The few that remain are either prohibited to exit following sanctions or have resolved their Russian ownership. TMF Group does continue to operate in two offices in Russia for clients who are multinationals and rely on our support there. Many have chosen to withdraw, and we are enabling that to happen in an orderly fashion.

TMF Group signed agreement with Proven - Kingdom of Saudi Arabia to acquire 100% of the shares, which became effective in January 2024. The acquisitions are driving our strategic and operational performance. Due to the recent closing date, additional IFRS disclosures cannot be made until the initial accounting for the business combination, including contingent consideration, has been completed.

In January 2024, the repricing of senior loans consisting of Facility B1 of €955 million and Facility B2 of $400 million was finalised. Facility B1 of €955 million became Total Facility B1 consisting of Facility B1 of €850.9 million and New Facility B1 of €104.1 million, and Facility B2 of $400 million became Total Facility B2 consisting of Facility B2 of $370.6 million and New Facility B2 of $29.4 million. The interest of Facility B1 is unchanged in comparison to 2023. The interest of New Facility B1 is 3.75% plus 3 or 6 month EURIBOR (floored at 0%). Interest for Facility B2 is 5.0% plus 3-month USD TERM SOFR CME and for New Facility B2 is 4.0% plus 3-month USD TERM SOFR CME. This repricing resulted in substantial modification and extinguishment accounting is applied in January 2024. Any difference between the carrying amount of the original liability and fair value of new modified financial liability is recognised in profit or loss. As a result of extinguishment accounting, modification loss of €24.3 million is recognised in statement of profit or loss in January 2024.

Conclusion

In 2023, TMF Group delivered revenue growth of 14.5% (2022: 10.7%) and EBITDA improved by €30.7 million to €256.7 million (2022: €226 million). With that, we have again delivered a solid set of results and 2023 has evidenced yet again that our strategy is paying off. Despite the challenging geopolitical and economic environment we are confident that in 2024 we will further accelerate our growth and profitability.

Patrick de Graaf | Chief Financial Officer

• 4Management basis shows 2022 comparatives remeasured at constant currency (2023 average rate)
• 5Financial figures of the following intermediate holding entities are excluded in the comparison of TMF Group: TMF Sapphire Holdco B.V., TMF Sapphire Topco B.V., Tucano Holdco B.V., Tucano Midco B.V. and Tucano Bidco B.V.. To ensure a like for like comparison, the unaudited Q1 financial figures of TMF Group are added back to the 9 months consolidated figures; and audited €11.3 million transaction costs incurred by TMF Group Holding B.V. in Q1 2023 is deducted
• 62022 consolidated figures (translated at 2023 average rates) of TMF Sapphire Midco B.V. are added and 2022 consolidated figures of TMF Group Holding B.V. and intermediate holding entities are deducted
• 72023 figures presented in the Financial review are not restated for hyperinflation impact. In the financial statements of TMF Group Holding B.V., figures are restated for the impact of hyperinflation in Argentina and Turkey. Hyperinflation had the following impact on 2023 figures in the financial statements as compared to the figures in the financial review: €3.5 million lower revenues, €1.7 million lower employee benefit expenses, €0.1 million lower office expenses, €0.1 million lower professional fees, €0.5 million lower other expenses and €4.1 million higher net finance costs. 
• 8EBITDA and gross profit of TMF Group Holding B.V. are excluding impact of non-underlying and separately disclosed items in amount of €16.8 million, reclassified to positions of consolidated statement of profit or loss: €10.4 million to employee benefit expenses, €4.8 million to professional fees and €1.6 million to other expenses.