XTB financial results for the 1st quarter of 2017
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:
- 1) the decrease in revenues resulting from lower profitability per lot – the high volatility of revenue in the short term, such as the quarter, is typical for the XTB business model;
- 2) improved cost-effectiveness, showing a decrease in operating costs, with simultaneous increase in the number of accounts and the number of active accounts;
- 3) occurrence of negative exchange rate differences (finance costs) in the amount of PLN 12.6 million (I quarter of 2016: PLN 4.3 million) as a result of zloty strengthening against other currencies.
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.