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.
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.