In the first quarter of 2019 XTB reported a consolidated net profit of PLN 0,8 million compared to PLN 4,0 million a quarter earlier. Consolidated revenue was PLN 40,9 (IV quarter 2018: PLN 42,8 million) and operating expenses reached PLN 41,1 million (IV quarter 2018: PLN 40,9 million). In this period XTB noted a record number of new clients i.e. 6 843, which is an increase of 19,2% q/q. Situation on the financial and commodity market was creating limited income opportunities for XTB clients. This translated into the turnover volumes they have achieved and the level of the Group’s revenues.

REVENUES

The revenues in the first quarter of 2019 decreased by 4,4% q/q, i.e. PLN 1,9 million from PLN 42,8 to PLN 40,9 million. Significant factors which determined the level of revenues in this period were: the product intervention of the European Securities and Markets Authority (ESMA) coming into force in August 2018, which in case of the retail clients limited maximum permitted level of leverage and low level of volatility in the financial and commodity markets understood as occurrence of clear and long-term market trends at the various types of assets. As a consequence the transaction volume in CFD instruments amounted to 394,4 thousand lots (QIV 2018: 458,9 thousand lots) and profitability per lot reached PLN 104 (QIV 2018: PLN 93).

XTB has a solid foundation in the form of constantly growing client base and number of active clients. The intention of the Management Board in 2019 is to further increase the client base. Despite lower revenues in the first quarter of 2019, the Group reported a record number of new clients amounting to 6 843 compared to 5 742 a quarter earlier (QI 2018: 5 312). This is the effect of continuing the optimized sales and marketing strategy and the successive introduction of new products to the offer, such as shares and ETFs. The average number of active clients was higher by 1 677 q/q, i.e. 8,2% q/q.

XTB’s aim is to provide a diversified investment offer simultaneously with comfort of managing the differentiated portfolio on one trading platform. The company analyzes other possibilities of expanding the product offer, which could cause the introduction of new products in 2019.

Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that similar as in QI of 2018, CFDs based on stock indices dominated. Their share in the structure of revenues on financial instruments in the first quarter of 2019 reached 89,3% against 57,5% year earlier. This is a consequence of the high interest of XTB clients in CFD instruments based on the German DAX stock index (DE30) and the US indices US500, US100, US30. The second most-profitable class of assets were CFD commodities. Their share in the structure of revenues on financial instruments in the first quarter of 2019 reached 6,8% (QI 2018: 10,0%). The most lucrative instrument among clients was CFD based on quotations of the contract for coffee. Revenues on CFD instruments based on currency pairs amounted to 1,1% of total revenues against 29.2% a year earlier. Among this class of instruments, where the EURUSD currency pair was the most popular between XTB clients, there were more predictable trends in which the market moved within a limited price range. This led to the emergence of market trends, which can be predicted with a higher probability than in the case of larger directions of movements on the markets, which created favorable conditions for transactions concluded in a narrow range of the market (range trading). In this case, XTB has observed a higher number of profitable transactions for clients.

XTB clients, looking for investment opportunities to earn money, generally trade in financial instruments that are characterized by high market volatility in a given period. This may lead to fluctuations in the revenue structure by the asset class, which should be treated as a natural element of the business model. From the point of view of XTB, it is important that the range of financial instruments in the Group’s offer is as broad as possible and allows clients to use every upcoming market opportunity to earn money.

The structure of revenue by asset class (in %)

XTB places great importance on the geographical diversification of revenues. The countries from which the Group derives more than 15% of revenues are Poland and Spain with the share of 54.6% (QI 2018: 26.7%) and 17.0% (QI 2018: 18). The share of other countries in the geographical structure of revenues does not exceed in any case 15%.

XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities (X Open Hub), under which it provides liquidity and technology to other financial institutions, including brokerage houses. Revenues from this segment are subject to significant fluctuations from quarter to quarter, analogically to the retail segment, which is typical for the business model adopted by the Group.

It should be noted that, similar as a retail segment, ESMA product intervention could affect the condition of the European institutional partners of XTB and thus the transaction volume in lots as well as the revenues of XTB from these clients. However, the Management Board cannot exclude that there will be increase in volatility of institutional clients in the further.

EXPENSES

Operating expenses in the first quarter of 2019 amounted to PLN 41,1 million and were at a similar level in relation to comparative periods (QIV 2018: PLN 40,9 million and QI 2018: PLN 41,0 million). The most important changes y/y occurred in:

• marketing costs, an increase of PLN 1,4 million due to higher expenditures on marketing online campaigns;

• costs of maintenance and lease of buildings, a decrease of PLN 1.2 million and consequently an increase in depreciation

costs by PLN 0,3 million, mainly due to a change in the recognition of lease rent costs since 2019;

• other external services, a decrease of PLN 1,0 million as a result of lower expenditure on:

– IT support services (a decrease of PLN 0,6 million y/y);

– legal and advisory services (a decrease of PLN 0,5 million y/y).

In QI of 2019 operating expenses slightly increased, i.e. by PLN 0,2 million, mainly due to higher marketing expenditures by PLN 1,3 million.

The Management Board expects in 2019 operating expenses to be at a level comparable to that observed in 2018. 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 clients 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 months of 2019.

DEVELOPMENT PERSPECTIVES

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. The natural consequence of ESMA’s decision should be a wave of consolidation on the market that would allow XTB to consolidate its strong position on the European market. Less influential brokers, unable to withstand regulatory pressure and strong competition from a very significant brokers, will naturally disappear from the market. Consequently large brokers should expect the client base to grow.

XTB has a stable market position and dynamically growing client base. The Group plans further development by expanding the client 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 situation on the financial and commodity markets affects the financial results of XTB, in particular on the level of revenues. However, there’s no way to predict what market conditions we will have to face with in the longer term, and thus it is premature to draw conclusions about the results of the entire 2019 on the basis of the first quarter.