With reference to the announcement from the 404th meeting of the Polish Financial Supervision Authority (KNF) on 18 September 2018, the Management Board of XTB fully maintains its previous position and finds no grounds for objections regarding the company’s operations.
During the proceedings before the KNF, the Management Board provided the supervisor with extensive explanations as well as legal and quantitative expert opinions of independent entities that confirm that XTB’s use of the asymmetric deviation mechanism did not violate the principle of acting in the best interests of the clients and did not affect the clients’ transaction results. KNF’s comments on the application of this mechanism pertain to operations from January 2014 to May 2015. The guideline regarding the need for symmetrical deviation was issued by the KNF in May 2016, almost a year after the company made voluntary amendments in its IT systems.
Acting in the interest of the company and its shareholders, as well as being guided by the well being of its clients, the company intends to appeal against the decision of the supervisor.
X-Trade Brokers Dom Maklerski S.A. Management Board
OVER PLN 70 MILLION REVENUE GROWTH AND RECORD GROWTH OF PROFIT OF NEARLY 250%, GOOD PROSPECTS FOR 2018
In the first half of 2018 X-Trade Brokers Dom Maklerski S.A. (XTB) noted a growth of revenue by PLN 72,6 million up to PLN 197,9 million, as a result of increase in turnover and the improvement of profitability per lot. Operating profit increased by PLN 115,1 million, i.e. PLN 62,4 million y/y. The company reported a record consolidated net profit of PLN 100,4 million against PLN 29,4 million profit a year earlier. In this year XTB will strive to stabilize the number of new clients and average number of active clients at the levels observed in previous, record quarters. In addition, the Management Board sees the greatest potential for business growth in the German, French and Latin American markets.
MORE THAN PLN 70 MILLION INCREASE IN REVENUE THROUGH GROWTH BY 23% OF TURNOVER AND IMPROVEMENT OF PROFITABILITY PER LOT ALMOST PLN 35
In the first half of 2018, the company’s revenues amounted to PLN 197,9 million, i.e. an increase of 57,9% y/y. Such a significant increase in revenues is the result mainly from the increase of transactions volume in lots and profitability per lot. During the reporting period, the turnover amounted to 1,3 million lots, i.e. was higher by 237,5 thousand lots y/y and unit profitability amounted to PLN 153, i.e. an increase by 28,6% y/y.
GROWTH IN THE MAIN MARKETS
In the first half of 2018 XTB recorded an increase in revenues on the main markets, i.e. in Central and Eastern Europe and Western Europe, by 108,4% and 24,0% y/y, respectively. During reporting period, Poland with shares amounted to 32,3% in the sales structure, recorded PLN 64,0 million of revenues, i.e. increased by 162,2% y/y. The second, Spanish market (15,0%) in terms of shares completed the first half of this year sales at the level PLN 29,7 million. Latin America is also gaining on importance, which has already replaced gap in Turkey, obtaining PLN 10,1 million of revenues, i.e. increased by 240,2% y/y.
GROWING THE NUMBER OF ACTIVE RETAIL CLIENTS
In the first half of 2018 Group’s revenues from retail operations amounted to PLN 186,9 million, compared to PLN 105,2 million in the corresponding period of the previous year.
XTB has a solid basis for growth in the form of constantly growing customer base and number of active clients. In the I half of 2018 the number of new clients was 10 046 and was higher by 1 916 new clients y/y. The average number of active clients was higher by 4 390 y/y, i.e. 24,8% y/y.
During the reporting period, revenues from institutional activities of XTB amounted to PLN 11,0 million, i.e. decrease by 45,4% y/y. Revenues from this segment are subject to quarterly fluctuations, which is typical of the business model adopted by the Group.
RECORD NET PROFIT, COSTS AT A STABLE LEVEL
Operating profit in the first half of 2018 amounted to PLN 115,1 million, i.e. increased by 118,5% y/y. Operating expenses, in the first half of 2018 amounted to PLN 82,8 million, i.e. 14,0% increase y/y. This increase was higher by: PLN 3,0 million of marketing costs mainly due to higher expenditures on marketing online campaigns; PLN 2,8 million of salaries and employee benefits costs mainly due to the increase in variable remuneration elements (bonuses); PLN 2,6 million of other external services costs as a result of incurring more expenditure on IT systems and licenses, legal and advisory services, internet and telecommunications; PLN 1,4 million of commission costs resulting from higher amounts paid to payment service providers through which clients deposit their funds to transaction accounts and increase by PLN 1,4 million other costs.
The Management Board expects that in 2018 operating expenses should be at a level comparable (slightly higher) to that observed in the 2017. The final level will depend on the variable remuneration elements paid to employees, the level of marketing expenditures and the impact of ESMA’s product intervention on the level of revenues generated by the Group. The value of variable remuneration components will be influenced by the results of the Group. The level of marketing expenditures will depend on the impact of the results and profitability of the Group and on responsiveness of the customers to the actions taken. The impact of ESMA’s product intervention on the Group’s revenues will determine, if necessary, a revision of the cost assumptions for further quarters of this year.
DEVELOPMENT PROSPECTS IN 2018
The Group plans further development by expanding the customer base and product offer, penetrating existing markets and expanding geographically to new markets in Africa and Asia, as well as Latin America, using its presence in Belize as a starting point for expansion and business development in other countries of the region.
The entry into force of product intervention by ESMA creates both opportunities and threats for XTB. On the one hand, there is a temporary drop in trade volumes among European brokers. On the other hand, the Management Board of XTB is convinced of the business’s vitality over a longer time horizon. It seems likely that clients gradually adjust their trading strategies to a lower level of financial leverage and FX/CFD market will be consolidated. Changes in regulations may make business activity unattractive for some entities, especially those focused on a quick profit and aggressive marketing strategies. Brokers with a wide range of products and an established business position, as in the case of XTB, have a chance to increase their existing market share.
ALMOST DOUBLE INCREASE OF REVENUES AND A RECORD NET PROFIT, GOOD PROSPECTS FOR 2018
In the first quarter of oferta pro2018, X-Trade Brokers Dom Maklerski S.A. (XTB) recorded a double growth of revenues to the level of PLN 113.7 million, as a result of the increase in turnover and transaction profitability. Operating profit increased by PLN 72.7 million, ie PLN 50.5 million y/y. The company reported a record consolidated net profit of PLN 59.5 million compared to PLN 10.6 million in the corresponding period of the previous year. In this year XTB plans to further develop the client base and product offer.
– In the first quarter of 2018, we recorded almost double increase in revenues, the effect of a higher volume of client transaction trading and higher profitability per lot on all major markets of activity. The company closed the first quarter of this year, a record net profit of PLN 59.5 million. A positive financial result for the first quarter of 2018, is a good forecast for the next quarter of 2018 – comments Omar Arnaout, President of the Management Board of X-Trade Brokers DM S.A.
DOUBLING THE REVENUES THROUGH HIGHER TRANSACTIONS VOLUME AND PROFITABILITY
In the first quarter of 2018, the company’s revenues amounted to PLN 113.7 million, ie. an increase of 93.7% y/y. Doubling revenues is the result of an increase in the volume of transaction turnover of customers calculated in lots as well as profitability per lot. During the reporting period, the turnover of customers amounted to 675 thousand lots, ie. more by 135.3 thousand lots r/r, and unit profitability amounted to PLN 168, ie. an increase of 54.1% y/y.
GROWTH IN THE MAIN MARKETS
In the first quarter of 2018, XTB recorded an increase in revenues on the main business markets, ie. in Central and Eastern Europe and Western Europe, by 135.0% and 75.1% y/y, respectively. During the reporting period, Poland, which constitutes a 26.7% share in the sales structure, recorded PLN 30.3 million of revenues, ie. 186.0% increase y/y. The second Spanish market (18.0%) in terms of shares completed the first quarter of this year sales at the level of PLN 20.5 million, which gives a 56.4% increase y/y. Latin America, which filled the gap after Turkey, obtaining PLN 5.8 million of sales, also gains in importance in global sales.
GROWING THE NUMBER OF ACTIVE RETAIL CLIENTS
In the first quarter of 2018, the Group’s revenues from retail operations amounted to PLN 102.9 million, compared to PLN 44.1 million in the corresponding period of the previous year.
– We note a systematic increase in the number of customers. In the first quarter of 2018, the number of new accounts was higher by nearly 20% y/y. The number of active accounts increased by 24% y/y to PLN 25.3 thousand and it was record-breaking in the last two years. This is the effect of an effective sales and marketing strategy and the introduction of new products, with a good situation on the financial markets – says President Omar Arnaout.
During the reporting period, revenues from institutional activities of XTB amounted to PLN 10.8 million, ie a decrease by 26.1% y/y. Revenues from this segment are subject to quarterly fluctuations, which is typical of the business model adopted by the Group.
RECORD NET PROFIT, COSTS AT A STABLE LEVEL
Operating profit in the first quarter of 2018 amounted to PLN 72.7 million, ie 228.1% increase y/y. Operating expenses, during the reporting period, amounted to PLN 41.0 million, ie 12.2% increase y/y. This increase was due to increase by PLN 2.5 million costs of other external services; PLN 1.0 million costs of salaries and employee benefits and PLN 0.8 million commission expenses resulting from higher amounts paid to payment service providers, through which clients deposit their funds on transaction accounts.
The Management Board expects that during the whole calender year 2018, operating expenses should be at a comparable or slightly higher level than the one from 2017. Their final level will depend on the amount of variable components of remuneration paid to employees and on the level of marketing expenses.
In the first quarter of 2018, XTB recorded PLN 59.5 million of consolidated net profit compared to PLN 10.6 million profit a year earlier. This is an increase of PLN 48.9 million, ie 459.1% y/y.
DEVELOPMENT PROSPECTS IN 2018
The Group plans to further develop its client base and product offer, based on existing markets and new markets in Africa and Asia, as well as expansion in Latin America, using its presence in Belize. The Management sees the largest potential for business growth in Germany, France and Latin America.
In October 2017, the Management Board of X-Trade Brokers Dom Maklerski S.A. filed a criminal complaint with the District Prosecutor‘s Office in Warsaw against a client’s unlawful threats. The client, within the last 4 years, repeatedly blackmailed the company with a threat of destroying its public image, expecting a payment of PLN 3,5, 7 and at last 14 million. In February this year, the Prosecutor’s Office in Warsaw initiated proceedings in response to actions by a client, including unlawful threats against the Company’s executives and attempts to extort money. Despite the proceedings initiated, the client continues its unlawful threats against the Company by blackmailing its executives. The Company has described the incident in its 2017 annual report
The client’s claims are totally unfounded and the losses sustained by the client were solely due to the client’s bad investment decisions, as unequivocally demonstrated in the presentation during the Financial Supervision Authority’s inspection in 2016, in later documents provided to the supervisor, as well as in the expert opinion prepared by the independent consulting firm Roland Berger that analysed the client’s transactions and investment decisions. The analysis confirmed that the client’s transactions were not delayed, and the execution time of his transactions was faster than the average for other clients.
In relation to media report, the Management Board would like to point out that described by the client actions undertaken by the Company’s former employee who was dismissed on disciplinary grounds do not constitute basis for any claims by the said client. The former employee stated before the court that he had acted in an unprofessional manner and had been manipulated by the client. Earlier, the former employee stated that the client offered him money in return for cooperation to make the Company succumb to a compromise and payment of undue amount. The company denies that the client was offered any settlement offer.
XTB is supervised by the Financial Supervision Authority. Our clients’ funds are kept in segregated accounts and are covered by the compensation system of the Central Securities Depository of Poland. XTB complies with all laws and regulations that are in line with market practice and adheres to the industry’s codes of conduct. Acting in the best interest of the Company and its shareholders and guided by what is good by our clients, the Company is closely working with relevant administrative bodies in order to resolve the subject matter.
X-Trade Brokers Dom Maklerski S.A. Management Board
10% increase in revenues and over 50% in operating profit y/y, due to the growing volume of turnover and a record number of new accounts. The prospect of further expansion of the product base and expansion into new markets.
In 2017, XTB reported PLN 92 973 thousand of consolidated net profit, ie 19.6% increase y/y. Operating profit (EBIT) increased by 56.2% y/y to PLN 128 270 thousand. Consolidated revenues amounted to PLN 273 767 thousand, ie 9.3% increase y/y.
A VOLUME OF TURNOVER AND REVENUE OF THE GROUP
Increase of the Group’s revenues in 2017 by 9.3% y/y to PLN 273 767 thousand results mainly from an increase in the trading volume by 9% y/y calculated in lots with comparable profitability per lot. Looking at revenues in terms of instrument classes, it can be seen that, similarly as in 2016, CFDs based on share indices dominated. Their share in the structure of revenues on financial instruments in 2017 reached 60.7% against 46.2% a year earlier.
MAIN MARKET INCREASE, A PERSPECTIVE FOR FURTHER EXPANSION IN LATIN AMERICA
Geographically, XTB revenues were optimally diversified. Their growth occurred both in Central and Eastern Europe and in Western Europe. The countries from which the Group draws each time more than 15% of revenues are: Poland with a share of 28.6% (2016: 31.9%) and Spain with a share of 20.7% (2016: 18%). The share of other countries in the geographical structure of revenues does not exceed 15% in any case. In a global contribution, Latin America gains importance, gradually replacing the gap in Turkey.
INCREASE PARTICIPATION SERVICES FOR INSTITUTIONAL CUSTOMERS
The segmental diversification of revenues in XTB is becoming more and more visible due to the dynamic development of the institutional segment (X Open Hub). Since 2013, the Group provides services to institutional clients. XTB provides liquidity and technology to other financial institutions, including brokerage houses. In the discussed period, institutional activity reached PLN 41 580 thousand revenue, which gives an increase of 113% y/y.
A PERSPECTIVE OF FURTHER GROWTH OF THE CUSTOMERS ‘BASE
In connection with the growing customer base, XTB has a solid foundation for growth. In the fourth quarter of 2017, the number of open new accounts was record-breaking both in relation to the previous quarters of 2017 and in 2016. The number of new open accounts in 2017 increased by 62.1% y/y. The average number of active accounts was 21,088, ie an increase of 22.3% y/y. In the subsequent quarters of 2018, the increase of accounts should be continued due to the increased marketing activity and the introduction of new products to the offer. German, French and Latin America have the largest growth potential.
GROWTH OF PROFITS AT DECREASING COSTS
In 2017, the Group recorded PLN 92 973 thousand of consolidated net profit, ie increase by 19.6% y/y. Operating profit (EBIT) increased by 56.2% y/y to reach PLN 128 270 thousand. In 2017, XTB significantly improved cost efficiency, while maintaining increases in opened new accounts and the number of active accounts. Operating expenses amounted to PLN 145 497 thousand (2016: PLN 168 461 thousand), ie a decrease by 13.6% y/y. This decline was contributed by PLN 24 497 thousand lower marketing costs resulting mainly from lower expenditures on advertising campaigns.
In the fourth quarter of 2017 operating expenses were comparable to y/y and higher q/q, mainly due to an increase in costs of remuneration. In 2018, operating expenses should be at a comparable (slightly higher) level to that observed in 2017. Their final level will depend on the amount of remuneration and the level of marketing expenses. The Group’s results will affect the amount of remuneration. The level of marketing expenses will depend on the assessment of their impact on the Group’s results and profitability, as well as the responsiveness of customers to the actions taken.
The Group plans further development by expanding the customer base and product offer, penetrating existing markets and expanding geographically into Latin American markets. Due to the current underestimation of the Company, the Management Board withheld the work on market consolidation through mergers and acquisitions, focusing more on organic growth.
As regards administrative proceedings in the Polish Financial Supervision Authority (PFSA) and proceedings in the prosecutor’s office, the Management Board of XTB maintains its position and does not find any grounds for objections regarding the way the company operates and informing clients. The Management Board has independent expertise from leading law firms, which among other things say that the transaction systems used by XTB corresponded to market standards and met the demands of the legislator. Legal opinions indicate that the use of the mechanism of asymmetric deviation by XTB was a typical technical and contractual phenomenon that is commonly found on the market of financial instruments, used to protect the investment company, the party actually subject to the asymmetrical contract risk.
XTB’s activities are supervised by the PFSA and the clients’ funds are stored in segregated accounts and covered by the National Depository for Securities compensation system. XTB adheres to all applicable laws and supervision guidelines in line with market practice and adheres to industry codes. Acting in the interest of the company and its shareholders, as well as being guided by the good of clients, the company cooperates with representatives of administrative bodies in order to promptly clarify the matter.