In the III quarter of 2017, XTB recorded a consolidated net profit of PLN 31.3 million against PLN 4.2 million profit a year earlier. This is an increase of PLN 27.1 million, i.e. 639.5%. Operating profit (EBIT) was PLN 38.3 million vs. PLN 8.4 million a year earlier. Consolidated revenues increased by PLN 30.3 million y/y, i.e. 70.7% to PLN 73.1 million.
In period I-III quarter of 2017, the Company had PLN 60.7 million consolidated net profit compared to PLN 27.3 million profit a year earlier with sales revenue of PLN 198.3 million compared to PLN 156.6 million a year before.
Revenue growth in the III quarter by 70.7% y/y from PLN 42.8 million to PLN 73.1 million, is attributable both to the increase in the volume of turnover calculated in lots and to the profitability per lot. Turnover was higher by 55.1 thousand lots and unit profitability by PLN 48.
XTB has a solid foundation for growth in the form of a constantly growing customer base. In the III quarter of 2017 the number of new accounts increased both in relation to the II quarter of 2017 and the individual quarters of 2016, while the I quarter of 2017 was the record for new accounts. The total number of new accounts opened in the period I-III quarter of 2017 increased by 57.7% over the comparable period. In turn the average number of active accounts in the above period amounted to 20 194, which represents an increase of 22.2% y/y.
Similarly to the I half of 2017 the increase in accounts in III quarter was connected with the implementation of an optimized sales and marketing strategy and new products. An additional factor supporting such growth was the favorable situation on the financial markets.
According to the Management Board, in IV quarter of 2017, the growth of accounts should be accelerated q/q due to the intensified marketing activity and introduction of new products into the XTB offer. Moreover, the Management Board maintains that the greatest potential for business growth is in the German, French and Latin American markets.
Looking at the income from the classes of instruments responsible for their emergence, it is clear that, as in earlier periods, the stock CFDs have been leading the way. Their share in the revenue structure in the III quarter of this year reached 49.4% against 61.5% a year earlier. This is a consequence of the high interest of XTB clients in CFD instruments based on the German stock index DAX (DE30) and the US indexes US30 and US500.
The III quarter of this year revenue growth was also attributed to currency CFDs, which increased to 39.7% from 8.5% y/y. This asset class was most popular with the EURUSD currency pair. Clients also actively traded in pairs: AUDUSD, EURGBP, USDJPY, BTCUSD and USDCAD.
Geographically, XTB revenues were well diversified. Their growth has occurred in both Central and Eastern Europe and Western Europe. Countries from which the Group derives more than 15% of revenues are Poland (24.5% share for 9 months) and Spain (20.3% share for 9 months). The share of other countries in the geographical structure of revenues does not exceed in any case 15%. Latin America is also gaining on importance, which has already replaced the gap in Turkey.
XTB’s segmental revenue diversification is becoming increasingly clear. This is due to the dynamic development of the institutional segment (X Open Hub). From 2013, the Group provides services to institutional clients. Under it, XTB provides liquidity and technology to other financial institutions, including brokerage houses.
In the I quarter of 2017, XTB significantly improved its cost effectiveness compared to the same period of the previous year, while maintaining the increase in new accounts opened and the number of active accounts. In the period, operating expenses amounted to PLN 107.3 million (Q1-Q3 2016: PLN 129.6 million), decreased by 17.2% y/y. This decrease was attributed to the lower by PLN 21.1m y/y in marketing costs, mainly due to the lower spending on advertising campaigns.
In the III quarter of this year operating expenses were comparable to the level of the corresponding period of the previous year and lower than in the two preceding quarters.
The management expects operating expenses to be at a level comparable to that observed in the first three quarters of 2017. The final level will depend on the variable remuneration components paid to employees and the level of marketing expenditure. The value of variable remuneration components will be influenced by the results of the Group. The level of marketing expenditure will depend on the impact of the Group on the results and profitability of the Group and on the responsiveness of the customers to the actions taken.
Market environment and prospects
Management plans for the forthcoming periods assume the development of the Group in particular by expanding the client base, further penetrating existing markets and expanding its geographical presence in Latin America. With determination he intends to strive to build value for the shareholders.
In the opinion of the Management Board, the Company is significantly underestimated in relation to competitors listed among others on the London Stock Exchange. Emphasis requires that the XTB be internationally recognized, has a welldiversified geographic revenue base based on sound operating fundamentals, and a highly motivated board of directors.
As a result, the Group generates high net profits, as confirmed by the III quarter of 2017.
XTB, as an international entity, listed on the stock exchange has a real chance to consolidate in the industry and become a global player in the FX/CFD market of TOP 5. The XTB Board sees one of the Group’s development directions.
However, it is necessary to have a satisfactory valuation of the Company itself on the WSE, without which the implementation of the strategy in this area is severely hampered.
In the I half of 2017 consolidated operating profit (EBIT) increased by PLN 34.1 million, i.e. 183.0%, and reached PLN 52.7 million in comparison to PLN 18.6 million as compared to the same period of the previous year. Net profit was PLN 29.4 million, compared to PLN 23.0 million in a previous year. That’s an increase of 27.8%.
The net result for the I half of 2017 was mainly shaped by the following factors:
Operating revenues increased by 10.0% and reached PLN 125.2 million in the I half of 2017 in comparison to PLN 113.8 million as compared to the previous year. From the structural side they have been shaped by an increase in profitability per lot with a comparable volume of transaction in CFD instruments in lots.
The XTB has a stable foundation for future growth in the form of a growing customer base. In the II quarter of 2017, the number of new accounts was the same as in the IV quarter of 2016, while in the I quarter of this year The Group reached the record number of new accounts. The total number of new accounts in the I half of 2017 increased by 68.3% over the comparable period. The average number of active accounts in the first half of 2017 amounted to 20 016, an increase by 22.8% y/y.
According to the Management Board, in the coming months a significant portion of XTB branches should maintain the increasing rate number of accounts that observed in 2017. Germany, France and Latin America have the biggest potential for business growth. Increasing accounts is not only the result of an optimized sales and marketing strategy, but also the result of product and technology development. The management continues to see great potential in technology and product development, which should help XTB expand its customer base and reach customers who have not previously been the Group’s main target customers.
Looking at the revenue structure for the classes of instruments responsible for their origins, we see that more than half of revenue was generated on CFDs based on stock indices. The most important of these are CFD based on German and American stock indices (DE30, US500, US100, US30). Looking at the structure in greater detail, it can be seen that the increase in revenues is primarily attributable to CFDs on currencies.
Geographically, XTB revenues were well diversified. Their growth has occurred in both Central and Eastern Europe and Western Europe. Countries where the Group derives more than 15% of its revenues each are: Spain (23.0%, decrease of share from 25.5%) and Poland (19.4%, decrease of share from 23.4%). The share of other countries in the geographic structure of revenues does not exceed in any case 15%. Latin America is also gaining on global relevance.
In the I half of 2017, XTB managed to significantly improve cost-effectiveness compared to the same period of the previous year, while maintaining growth in number of new accounts and number of active accounts. Operating expenses in the first half of 2017 amounted to PLN 72.5 million, a decrease by 23.8% y/y. This decrease was attributed to the lower by PLN 18.6 million y/y in marketing costs, mainly due to lower spending on advertising campaigns.
The Management Board expects that in the II half of 2017 operating costs should be at a level comparable to that of the I half of 2017. The final level of operating expenses will depend on the variable remuneration components paid to employees and the level of marketing expenditure. The amount of variable remuneration components will influence the results of the Group. The level of marketing expenditures will depend of their impact on the performance and profitability of the Group and on the responsiveness of customers to the actions taken.
Take a decision on the Turkish subsidiary X Trade Brokers Menkul Değerler A.Ş. (Current report no. 15/2017) required the establishment of a write-down of the value of a separate intangible asset in the consolidated financial statements for the I half of 2017 in the form of a brokerage license for the Turkish market of approx. PLN 5.6 million.
The XTB Group operates in the international markets, whereby it owns cash in different currencies. This results in foreign exchange, positive and negative exchange rates occurring during the reporting periods. Due to significant zloty appreciation in the I half of 2017, the Group recorded negative exchange differences (financial expenses) in the amount of PLN 12.2 million (I half of 2016: PLN 2.9 million).
The current regulatory changes in the industry at national and international level may change its face in the long run. On the one hand, the European Securities and Markets Authority (ESMA) published on 29 June this year statement regarding possible product interventions for CFDs, binary options and other highly speculative financial products that would take place under MIFIR. In a statement, ESMA informed that Limiting the level of leverage, banning the offering of bonuses, introducing the protection against negative balance and restrictions on advertising and promotion. According to ESMA, the product interval would enter into force at the earliest January 3, 2018. On the other hand, in Poland in July this year, The draft amendment to the Act on the Amendment to the Financial Market Supervision Act and a number of other statutes has been published to show that the government is planning to reduce the maximum leverage to 1:25 for FX / CFD investors.
The proposed restrictions on the FX/CFD market are aimed at protecting retail investors primarily against market abuse, which undermined trust in the entire securities and securities industry. In the opinion of the Company, as regards the Polish market from which the Group currently achieves 19.4% of its revenues, it will be crucial to ensure uniform operating conditions for all market participants so that legislative actions do not harm Polish investors by supporting the development of the grey market of foreign entities, where the domestic investor will look for products that are optimal for his investment portfolio. Introducing the proposed one-sided restrictions for the domestic FX/CFD industry while neglecting the actions of foreign entities will be detrimental to the Polish client and the entire market. It should be noted that we are currently dealing with a project, which is not clear with the mere adoption of the changes in the shape presented in it. The legacy of our parliamentary legislative experience (e.g. with regard to the final determination of MAR sanctions) shows that, as part of the work on the project, it has undergone another change, evolving to a final version that has not always been concise and accurate. With the originally announced project. At this moment it is therefore not at all determined that the proposed changes will be enacted and will become effective.
The above-described market environment is for XTB as an internationally traded entity with a well-diversified geographical revenue base and stable operating fundamentals, an opportunity to consolidate the industry at national and international level. The XTB board sees one of the Group’s development directions.
In addition, the Company’s current management plans for the forthcoming periods assume accelerated development of the Group, in particular by expanding the client base, further penetrating existing markets, and accelerating geographical expansion into Latin American markets.
On May 19, 2017 at 10:30 am the Company organizes a conference call for investors concerning XTB exit from Turkey market. Your questions will be addressed by the XTB Management Board.
To participate in the conference call, please sign up by sending your name by e-mail to the following address: email@example.com
In return you will receive the conference call access data.
X-Trade Brokers reported a consolidated net profit of PLN 10.6 million in the I quarter of 2017, compared to PLN 31.9 million in a previous year. Operating profit was PLN 22.2 million in comparison to PLN 42.3 million as compared to the same period of the previous year. Average number of active accounts increased by 26.9%.
The net result for the I quarter of 2017 was mainly shaped by the following factors:
Operating revenues reached PLN 58.7 million in the I quarter of 2017 in comparison to PLN 82.8 million as compared to the previous year. From the structural side they have been shaped, on the one hand, by the greater trading activity of customers, which is reflected in the increase in the volume of turnover calculated in lots, and on the other hand, the decrease in profitability per lot.
One factor influencing the increase of turnover in lots, in addition to the external factors that the Group has no influence on, is the continued expansion of the customer base by the XTB Board, particularly through further penetration of existing markets. Similarly as in previous periods, the number of new accounts and the average number of active accounts increased from quarter to quarter.
The decrease in profitability per lot results from the characteristics of the XTB Group’s business model, which is characterized by high revenue volatility in a short term. It causes that profitability per lot in particular quarters may be subject to significant fluctuations. It’s visible based on the results for 2016. The longer the analysis horizon (eg. the financial year), the more stable the results are.
In the first quarter of 2017, the profitability per lot of PLN 109 can be considered close to historical annual profitabilities.
Taking into account the structure of income by classes of instruments, in the I quarter of 2017 CFD instruments based on stock indices were particularly attractive. The most important of these are CFD instruments based on German and American stock indices (DE30, US500, US30, US100).
In the first quarter of this year the markets continued the upward trends that began at the end of 2016, but not as strong as in the IV quarter of 2016. The range of CFD movement on DE30 (German index DAX-based instrument) reached around 8% in the I quarter of 2017, in comparison to approx. 15% in the IV quarter of 2016. So the scale of movement was significantly lower, which translated into a revenue decrease in the I quarter of 2017.
A significant part of the Group’s revenue were also transactions on instruments based on Turkish lira. This was due to continued weakening of the currency to record levels, particularly in January of 2017. Also turnover on pairs with TRY turned out to be important, and increased by 136% and 218% in comparison to the previous and I quarter of 2016, respectively. Such a sharp turnover increase took place even before the introduction of new regulations in Turkey on 10 February 2017.
The top ten most profitable instruments complement the EURUSD, GBPUSD, AUDUSD and VOLX (instrument based ov volatility index). USD currency pairs showed a slight correction against the strong strengthening at the end of 2016. These movements were not as strong as in the I and IV quarter of 2016, when the price movement on the EURUSD instrument was around 7%. In the I quarter of 2017, this range was less than 5%, which translated into a decrease in revenues of EURUSD by approximately 80% compared to the two previously discussed quarters.
Operating expenses in the I quarter of 2017 amounted to PLN 36.6 million, which represents a decrease by PLN 3.9 million, i.e. almost 10% in comparison to the corresponding period of the previous year.
Operating expenses decrease resulted mainly from lower salaries and employee benefits costs by PLN 3.9 million y/y due to: 1) a decrease in the cost of variable remuneration components (bonuses) by PLN 2.7 million; 2) decrease in average employment in the Group from 406 to 387 persons y/y, which translated into total savings in the amount of PLN 1.2 million.
The Management Board expects that total operating expenses will be lower in 2017 than in 2016. On a quarterly basis, they may be comparable to those of I or IV quarter of 2016. This decline should mainly result of lower marketing costs. The final level of operating expenses will depend on the variable remuneration components paid to employees and the level of marketing expenditure. The amount of variable remuneration components will be influenced by the results of the Group. The level of marketing expenditures will depend on their impact on the performance and profitability of the Group and on the responsiveness of customers to the actions taken.
The XTB Group operates in the international markets which requires having cash in a variety of foreign currencies. This results in occurring in the reporting periods exchange rate differences, positive and negative. Due to significant zloty appreciation in the I quarter of 2017, the Group recorded negative exchange differences (finance costs) in the amount of PLN 12.6 million (I quarter of 2016: PLN 4.3 million).
The Management’s plans for the upcoming periods assume to accelerate the Company’s development, in particular by expanding the client base, further penetration of existing markets and accelerating geographical expansion into Latin American markets.
XTB intends to actively participate in the industry consolidation process at both national and international level. We are witnessing further regulatory changes in the industry, which with time may change the business. Some competitors have decided to withdraw from the market due to the pressure caused by implemented additional requirements and legal barriers. This concerned in particular companies with not very strong market position. The XTB board sees this as an opportunity to consolidate the market. This situation creates opportunities for XTB development and increase in the number of new accounts.
On May 15, 2017 at 1:00 pm the Company organizes a 1Q 2017 result conference call for retail investors. Your questions will be addressed by: Omar Arnaout (CEO) and Paweł Szejko (CFO).
To participate in the conference call, please sign up by sending your name by e-mail to the following address: firstname.lastname@example.org
In return you will receive the conference call access data.