In the first quarter of 2022 XTB reported a consolidated net profit of PLN 252,6 million compared to PLN 89,1 million a year earlier. This is an increase of PLN 163,5 million. Consolidated revenues amounted to PLN 439,8 million (Q1 2021: PLN 186,7 million), and operating expenses amounted to PLN 131,0 million (Q1 2021: PLN 86,9 million). During the period, the average number of active clients increased by 46,3 thousand clients, which means and increase by 44,7% y/y.
Revenuesl
In the first quarter of 2022, XTB reported a record increase in revenues by 135,6% y/y, i.e. by PLN 253,1 million from PLN 186,7 million to PLN 439,8 million. The significant factors determining their level were high volatility in the financial and commodity markets and the constantly growing average number of active clients (increase by 44,7% y/y), combined with their high transactional activity expressed in the number of contracts concluded in lots. Consequently, trading in derivative instruments amounted to PLN 1 560,7 thousand lots (Q1 2021: 1 115,4 thousand lots), and the profitability per lot increased by 68,4%.
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. In the first quarter of 2022, the Group acquired 55 333 new clients compared to 42 760 a quarter earlier, which means an increase of 29,4%. This is the effect of continuing the optimized sales and marketing strategy, bigger penetration of already existing markets, successive introduction of new products to the offer and expansion into new geographic markets. The number of active clients was record high in the analysed period. It increased from 127 174 to 149 726, i.e. by 17,7% q/q.
The ambition of the Management Board in 2022 is to acquire, on average, at least 40 thousand new clients quarterly. As a result of the implemented activities, the Group acquired a total of 55,3 thousand new clients in the first quarter of 2022, while in April 2022, 15,3 thousand new clients were acquired.
The priority of the Management Board is to further increase the client base leading to the strengthening of XTB’s market position in the world. These activities will be supported by a number of initiatives, including the new advertising campaign launched on February 14, 2022 with the participation of the new XTB brand ambassador – Joanna Jędrzejczyk – a titled martial arts competitor, the first Polish woman in the UFC organization and a champion in this organization, as well as a three-time world champion in Thai boxing.
XTB, thanks to the cooperation with Joanna Jędrzejczyk, started promoting the offered investment solutions, in particular, convincing that investing in various types of assets is available to everyone, using the tools provided that facilitate entry into the world of investments: through daily market analysis, as well as numerous educational materials.
Looking at XTB’s revenues in terms of the classes of instruments responsible for their creation, it can be seen that in the first quarter of 2022, CFDs based on index were in the lead. Their share in the structure of revenues on financial instruments reached 57,4% compared to 39,9% a year earlier. This is a consequence of high profitability on CFD instruments based on the US 100 and US 500 indexes, the German DAX stock index (DE30) or the Russian RUS 50 index. The second most profitable asset class was commodity CFDs. Their share in the structure of revenues in the 1st quarter of 2022 was 30,2% (Q1 2021: 53,8%). The most profitable instruments in this class were CFDs based on quotations of crude oil, gold and natural gas prices. Revenues on CFDs based on currencies accounted for 9,4% of all revenues, compared to 2,7% a year earlier, where the most profitable financial instruments in this class were based on the EURUSD currency pair.
XTB places great importance on the geographical diversification of revenues, consistently implementing the strategy of building a global brand. The country from which the Group derives more than 20% of revenues each time is Poland, with a share of 27,3% (Q1 2021 r.: 37,8%). Due to the overall share in the Group’s revenues, Poland was separated for presentation purposes as the largest market in terms of revenues in the Group. The Group breaks down its revenues by geographic area according to the country of the XTB office in which the client was acquired.
XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities under X Open Hub brand, under which it provides liquidity and technology to other financial institutions, including brokerage houses. Revenues from this segment are subject to significant fluctuations from period to period, analogically to the retail segment, which is typical for the business model adopted by the Group.
XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company and it is at such times that it achieves the highest revenues. Therefore, high activity of financial markets and commodities generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic of the Group’s business model.
Operating expenses
The operating costs in the first quarter of 2022 amounted to PLN 131,0 million and were PLN 44,1 million higher compared to the comparable period (Q1 2021: PLN 86,9 million). The most important y/y changes occurred in:
– marketing costs, an increase by PLN 17,6 million resulting mainly from higher expenditure on online marketing campaigns;
– costs of salaries and employee benefits, an increase by PLN 15,6 million mainly due to the increase in employment and provisions for variable remuneration components (bonuses);
– commission costs, an increase by PLN 3,6 million resulting from higher amounts paid to payment service providers through which clients deposit their funds in transaction accounts;
– other external services, an increase by PLN 2,6 million as a result of mainly higher expenditure on: (i) IT systems and licenses (increase by PLN 1,0 million y/y); (ii) legal and advisory services (increase by PLN 0,8 million y/y) and (iii) market data delivery services (increase by PLN 0,7 million y/y).
In q/q terms, operating costs increased by PLN 30,3 million, mainly due to higher marketing costs by PLN 13,4 million, mainly related to higher expenditure on online marketing campaigns, and higher by PLN 10,5 million costs of remuneration and employee benefits resulting mainly from the increase in employment and an increase in provisions created for variable remuneration components (bonuses) and commission costs higher by PLN 3,5 million, resulting from the amounts paid to payment service providers through which clients deposit their funds in transaction accounts.
Due to the dynamic development of XTB, the Management Board estimates that in 2022 the total costs of operating activities may even be about a third higher than that observed in 2021. The priority of the Management Board is to further increase the client base and build a global brand. As a consequence of the implemented activities, marketing expenditure may increase by over 40% compared to the previous year.
The final level of operating costs will depend on the level of variable remuneration components paid to employees, the level of marketing expenditures, the dynamics of geographical expansion into new markets and the impact of potential product interventions and other external factors 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 depends on their impact on the Group’s results and profitability, the rate of foreign expansion and on clients responsiveness to the actions taken. The impact of a new product intervention on the Group’s revenues will determine, if necessary, a revision of the cost assumptions.
Dividend
The XTB dividend policy assumes recommendation by the Management Board to the General Meeting a dividend payment in the amount taking into account the level of net profit presented in the standalone annual financial report of the Company and a variety of factors relating to the Company, including prospects for further operations, future net profits, demand for cash, financial situation, the level of capital adequacy ratios, expansion plans, legal requirements in this area and KNF guidelines. In particular, the Management Board, when submitting proposals for dividend payment, will be guided by the need to ensure an appropriate level of the Company’s capital adequacy ratios and the capital necessary for the development of the Group.
The Management Board maintains that its intention is to recommend to the General Meeting in the future to adopt resolutions on the payment of dividends, taking into account the factors indicated above, in the amount ranging from 50% to 100% of the Company’s standalone net profit for a given financial year. The unit net profit for the first quarter of 2022 amounted to PLN 249,0 million.
The levels of the total capital ratio (IFR) of XTB on individual days in the first quarter of 2022 are presented in the chart below.
At the end of the first quarter of this year the total capital ratio in the Company was 218,0%. The total capital ratio informs about the ratio of own funds to risk-weighted assets, in other words, it shows whether the brokerage house is able to cover the minimum capital requirement for market, credit, operational and other risks with its own funds.
Cash and cash equivalents
XTB place part of its cash in financial instruments with a 0% risk weight, i.e. in treasury bonds and bonds guaranteed by the State Treasury. As at March 31, 2022, the total value of own cash and bonds in the XTB Group was PLN 1 271,6 million, of which PLN 937,3 million was cash and PLN 334,3 million for bonds.
The year 2021 was for XTB a period of dynamic business development, entering new markets and building a client base. As a result, the Group acquired a record 189 thousand new clients compared to 112 thousand a year earlier (increase by 68,9% y/y). This translated into a significant increase in the volume of clients’ trading on CFD instruments expressed in lots – an increase from 3,2 million to 4,1 million lots, i.e. by 29,3% y/y.
XTB’s dynamic operating growth translated into very good financial results in 2021, despite the “high base” effect from the first half of 2020, when the markets experienced above-average volatility caused, among others, by the global COVID-19 pandemic. Consolidated net profit amounted to PLN 237,8 million compared to PLN 402,1 million a year earlier. Consolidated revenues amounted to PLN 625,6 million (2020: PLN 797,8 million) with operating expenses of PLN 348,7 million (2020: PLN 282,0 million).
Revenues
In 2021, XTB’s revenues decreased by 21,6% y/y, from PLN 797,8 million to PLN 625,6 million. This decrease was due to the profitability per lot lower by PLN 99, amounting to PLN 152 (2020: PLN 251). This decrease is mainly due to the effect of the “high base” from the first half of 2020, when the markets experienced above-average volatility caused, among others, by the global COVID-19 pandemic. The client trading volume, calculated in lots, was higher by 29,3% y/y.
In the fourth quarter of 2021, revenues increased by 31,2% y/y, i.e. by PLN 43,6 million, from PLN 140,0 million to PLN 183,6 million. This change was influenced by: (i) higher turnover of clients in financial instruments expressed in the number of transactions concluded in lots – an increase by 272 613 lots (from 800 935 to 1 073 549 lots); (ii) slightly lower profitability per lot – a decrease by PLN 4 (from PLN 175 to PLN 171).
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. This is the key to the amount of recurring income in the future. The Group reported another record in this area, acquiring 189 187 new clients compared to 112 025 a year earlier, which means an increase of 68,9%. This is the effect of continuing the optimized sales and marketing strategy, bigger penetration of already existing markets, successive introduction of new products to the offer and expansion into new geographic markets. Similarly to the number of new clients, the average number of active clients was also record high. It increased from 107 287 to 190 452, i.e. by 77,5% y/y.
The ambition of the Management Board in 2022 is to acquire, on average, at least 40 thousand new clients quarterly. As a result of the implemented activities, the Group acquired a total of 18,1 thousand new clients in January 2022, while in February 2022, 15.1 thousand new clients were acquired.
Looking at XTB’s revenues in terms of the classes of instruments responsible for their creation, it can be seen that in 2021, CFDs based on commodities were in the lead. Their share in the structure of revenues on financial instruments reached 49,3% compared to 33,0% a year earlier. This is a consequence of, among others high profitability on CFD instruments based on quotations of gold, natural gas, crude oil and silver prices. The second most profitable asset class was index-based CFDs. Their share in the revenue structure in 2021 was 32,8% (2020: 53,2%). The most profitable instruments in this class were CFDs based on the US 100 index, the German DAX share index (DE30) and the US 500 index. Revenues on CFDs based on currencies accounted for 12,5% of all revenues, compared to 11,5% a year earlier, where the most profitable financial instruments in this class were based on the EURUSD currency pair.
XTB places great importance on the geographical diversification of revenues, consistently implementing the strategy of building a global brand. The country from which the Group derives more than 20% of revenues each time is Poland, with a share of 33,5% (2020: 37,0%). Due to the overall share in the Group’s revenues, Poland was separated for presentation purposes as the largest market in terms of revenues in the Group. The Group breaks down its revenues by geographic area according to the country of the XTB office in which the client was acquired.
XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities under X Open Hub brand, under which it provides liquidity and technology to other financial institutions, including brokerage houses. Revenues from this segment are subject to significant fluctuations from period to period, analogically to the retail segment, which is typical for the business model adopted by the Group.
XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company and it is at such times that it achieves the highest revenues. Therefore, high activity of financial markets and commodities generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic of the Group’s business model.
Operating expenses
The operating costs in 2021 amounted to PLN 348 772 thousand and were PLN 66 768 thousand higher than in the previous year (2020: PLN 282 004 thousand). The most important changes occurred in:
• marketing costs, an increase by PLN 32 370 thousand resulting mainly from higher expenditure on online marketing campaigns;
• commission costs, an increase by PLN 13 648 thousand resulting from higher amounts paid to payment service providers through which clients deposit their funds in transaction accounts;
• costs of remuneration and employee benefits, an increase by PLN 12 121 thousand mainly due to an increase in employment;
• other external services, an increase by PLN 8 991 thousand as a result of mainly higher expenditure on: (i) IT systems and licenses (increase by PLN 4 456 thousand y/y); (ii) legal and advisory services (increase by PLN 1 778 thousand y/y) and (iii) market data delivery services (increase by PLN 1 367 thousand y/y).
XTB has just adopted a detailed ESG strategy for sustainable development, which is one of the pillars of XTB’s business strategy. Its three main areas are environment, social responsibility and corporate governance.
The ESG strategy also includes specific goals and tasks for the coming years. As a technology company XTB strives to digitize its processes as much as possible, and thus lower its carbon footprint and ultimately reach carbon neutrality. Additionally, in the area of caring for the natural environment XTB focuses on educating its employees and associates and promoting good practices.
In the area of social responsibility, the company puts the strongest emphasis on economic education. XTB wants to provide everyone interested in the functioning of financial markets with an open access to knowledge on this subject. Therefore, it is constantly expanding the free base of educational materials, where one can find numerous articles, videos and comments on market insights. XTB’s social goal is also to create a working environment that is friendly to all employees respecting their values, ensuring equal treatment and their comprehensive development.
In the third area – corporate governance – XTB wants to develop the position of one of the world’s largest Forex / CFD brokers, listed and supervised by regulatory bodies on financial markets where the company is present: FCA, BaFin, ACPR, CySEC, IFSC. The company also puts emphasis on clear and transparent communication with all its stakeholders, especially regarding long-term goals and planned activities. All initiatives in the area of social responsibility are carried out by the XTB Capital Group and the XTB Foundation, which was established in 2020.
The implementation of the adopted ESG Strategy will be monitored and reported on an ongoing basis. The implementation of the ESG Strategy and initiatives in this area is coordinated by the ESG Manager who is directly reporting to the Management Board of XTB in the structure of the organization. For the detailed information on XTB’s sustainable development strategy visit ir.xtb.com website – tab ESG.
In the third quarter of 2021 XTB reported PLN 104,3 million of consolidated net profit compared to PLN 68,4 million of profit a year earlier. Consolidated revenues reached PLN 200,0 million (Q3 2020: PLN 139,6 million), and operating costs PLN 84,8 million (Q3 2020: PLN 60,1 million). In this period, the Group acquired over 38 thousand new clients against 21 thousand a year earlier (increase by 82,1% y/y).
Revenues
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In the third quarter of 2021 XTB noted revenues increase by 43,3% y/y, i.e. from PLN 139,6 million to PLN 200,0 million. The significant factor determining the level of revenues was a constantly growing client base combined with their high transaction activity noted in the number of concluded transactions in lots and in the nominal value of the realized turnover. As a consequence the transaction volume in CFD instruments amounted to 1 044 thousand lots (III quarter 2020: 760 thousand lots) and a profitability per lot amounted to PLN 192 (III quarter 2020: PLN 184).
Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that CFDs based on commodities dominated. Their share in the structure of revenues on financial instruments in the third quarter of 2021 reached 58,2% against 22,9% a year earlier. This is a consequence of the high interest of XTB clients in CFD instruments based on gold, silver and natural gas. The second most profitable class were CFD instruments based on indices. Their share in the structure of revenues in III quarter of 2021 reached 22,5% (III quarter 2020: 52,0%). The most profitable instruments among this asset class were CFDs based on the US 100 and US 500 indexes. Revenues of CFD based on currencies reached 15,7% of all revenues, compared to 20,1% a year earlier, where the most popular financial instruments in this class were based on the EURUSD currency pair.
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. This is the key to the amount of recurring income in the future. From the beginning of the year, the Group reported another record in this area, acquiring 146 427 new clients compared to 73 612 a year earlier, which means an increase of 98,9%. This is the effect of continuing the optimized sales and marketing strategy, bigger penetration of already existing markets, successive introduction of new products to the offer and expansion into new geographic markets. Similarly to the number of new clients, the average number of active clients was also record high. It increased from 53 309 to 106 961, i.e. by 100,6% y/y.
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The priority of the Management Board is to further increase the client base, leading to strengthen the market position of XTB in the world. These activities will be supported by a number of initiatives, including introduced on 5th October 2020 a new offer for shares and ETFs (Exchange-Traded Funds) “0% commission” for monthly volumes up to EUR 100 000. This offer was received with enthusiasm by current and new XTB clients. The company aims to be the first choice and comprehensive solution for every investor. Over the past few years, XTB has done a great deal of work – from expanding the offer by around 3,9 thousand financial instruments (from 1 500 to 5 400 currently), to the continuous improvement of the web and mobile version of the award-winning xStation platform. Now with a free offer, XTB has opened the door wide to anyone interested in investing in both real stocks and ETFs. XTB currently allows client to invest in over 3 000 real stocks from 16 of the world’s largest stock exchanges, including New York Stock Exchange, London Stock Exchange, Spanish Bolsa de Madrid, German Börse Frankfurt and of course Warsaw Stock Exchange. Besides stocks, XTB offers over 270 ETFs, including commodities, real estate and bonds.
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The „0% commission” offer is supported by a marketing and advertising campaign with the participation of the new XTB brand ambassador – one of the best football manager on the world, José Mourinho. The new XTB ambassador is the coach who not only won championships in a record number of countries (Portugal, England, Italy and Spain), but is also one of only three coaches who have won the UEFA Champions League twice with two clubs.
The ambition of the Management Board for 2021 was to acquire at least 120 thousand new clients. This goal was achieved in July this year. The management board assumes that in the following periods it will be possible to acquire at least 30 000 new clients quarterly on average. In October 2021, the Group acquired a total of 13,0 thousand new clients.
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XTB places great importance on the geographical diversification of revenues. The country from which the Group derives more than 15% of revenues is Poland with the share of 32,1% in III quarter of 2021 (III quarter 2020: 34,5%). The share of other countries in the geographical structure of revenues does not exceed 15%. Due to the overall share in the Group’s revenue, Poland was set apart for presentation purposes as the Group’s largest revenue market.
The Group breaks down its revenues by geographic area according to the country of the XTB office in which the client was acquired.
XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities under X Open Hub brand, under which it provides liquidity and technology to other financial institutions. 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.
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XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company and it is at such times that it achieves the highest revenues. Therefore, high activity of financial markets and commodities generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic of the Group’s business model.
Expenses
The operating costs in the third quarter of 2021 amounted to PLN 84,8 million and were PLN 24,7 million higher compared to the comparable period (III quarter 2020: PLN 60,1 million). The most important y/y changes occurred in:
– costs of salaries and employee benefits, an increase by PLN 11,2 million, mainly related to new employment;
– marketing costs, an increase by PLN 6,9 million resulting mainly from higher expenditure on online marketing campaigns;
– commission costs, an increase of PLN 3,1 million resulting from higher amounts paid to payment service providers through which clients deposit their funds in transaction accounts;
– other external services, an increase by PLN 1,7 million as a result of mainly higher expenditure on: (i) IT systems and licenses (increase by PLN 1,2 million y/y); (ii) internet and telecommunications (increase by PLN 0,3 million y/y).
In q/q terms, operating costs increased by PLN 8,4 million, mainly due to higher by PLN 8,3 million costs of salaries and employee benefits, mainly due to the creation of provisions for variable remuneration components (bonuses) and employment growth.
Due to the dynamic Group development, the Management Board estimates that in 2021 the total costs of operating activities may be about a dozen percent higher than what we noticed in 2020. The priority of the Management Board is to further increase the client base and build a global brand. In the fourth quarter of this year, an increase in marketing expenditure is assumed compared to the level in the third quarter of this year.
The final level of operating costs will depend on the level of variable remuneration components paid to employees, the level of marketing expenditures, the dynamics of geographical expansion into new markets and the impact of any new regulations and other external factors 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 depends on their impact on the Group’s results and profitability, the rate of foreign expansion and on clients responsiveness to the actions taken. The impact of a new product intervention on the Group’s revenues will determine, if necessary, a revision of the cost assumptions.
Dividend and capital requirements
The XTB dividend policy assumes recommendation by the Management Board to the General Meeting a dividend payment in the amount taking into account the level of net profit presented in the standalone annual financial report of the Company and a variety of factors relating to the Company, including prospects for further operations, future net profits, demand for cash, financial situation, the level of capital adequacy ratios, expansion plans, legal requirements in this area and KNF guidelines. In particular, the Management Board, when submitting proposals for dividend payment, will be guided by the need to ensure an appropriate level of the Company’s capital adequacy ratios and the capital necessary for the development of the Group.
For example, the Polish Financial Supervision Authority, in its last Statement on dividend policy in 2021, published on December 16, 2020 recommended that the dividend in 2021 should be paid only by brokerage houses that have met, among others, the following criteria:
A. Dividend in the amount not exceeding 75% of the net profit for 2020:
I. for entities subject to capital adequacy standards pursuant to Regulation (EU) No 575/2013 of the European Parliament and the Council of the European Union of 26 June 2013 on prudential requirements for credit institutions and investment firms amending Regulation (EU) No 648/2012 (EU Official Journal of the EU L 176 of June 27, 2013, hereinafter referred to as: “Regulation 575/2013”) as of December 31, 2020:
• Common Equity Tier I ratio was at least 6%;
• Tier I capital ratio was at least 9%;
• the total capital ratio is at least 14%;
II. for entities not subject to capital adequacy standards pursuant to Regulation 575/2013 as at 31 December 2020, the ratio being the share of equity in total assets is at least 50%;
III. the last supervisory grade assigned in the BION process is 1 or 2;
IV. the entity in 2020 and until the date of approval of the financial report and adoption of the resolution on the distribution of profit for 2020 did not violate the provisions on capital requirements contained in Regulation 575/2013 and the Law of July 29, 2005 on trading in financial instruments (OJ, 2020, item 89) and the provisions on limits on large exposures, excluding breaches of limits relating to clients’ funds.
B. Dividend in the amount not exceeding 100% of the net profit for 2020:
I. meets all the criteria listed in A;
II. for entities subject to capital adequacy standards in accordance with Regulation 575/2013, the criteria referred to in point (a) And points I are met at the end of each quarter in 2020;
III. for entities not subject to capital adequacy standards in accordance with Regulation 575/2013, the criterion referred to in point (a) A point II is met at the end of each quarter in 2020.
On June 28, 2021, the Company received a supervisory grade (BION) of 2 [2,46] from the Polish Financial Supervision Authority. The assessment was given on December 31, 2020. Published by the Polish Financial Supervision Authority on May 22, 2018. Announcement on the position regarding the dividend policy in the medium-term, aimed at facilitating financial market entities supervised by the Polish Financial Supervision Authority in terms of financial planning related to the payment of dividends in the average indicates that the current supervisory assessment for XTB is in line with the criteria recommended by the Polish Financial Supervision Authority, which should allow the Company to potentially pay dividends for the current financial year in accordance with these criteria.
From June 26, 2021, XTB applies capital adequacy monitoring in accordance with Regulation (EU) 2019/2033 of the European Parliament and of the Council of November 27, 2019 on prudential requirements for investment firms and amending Regulations (EU) No. 1093/2010, (EU ) No. 575/2013, (EU) No. 600/2014 and (EU) No. 806/2014, hereinafter referred to as “IFR Regulation” It replaced, in the case of XTB, Regulation of the European Parliament and of the Council (EU) No. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms, amending Regulation (EU) No. 648/201, hereinafter referred to as the “CRR Regulation”. Both regulations require maintaining an appropriate ratio of own funds to the risk incurred – in the case of the CRR Regulation, it’s measure was the total risk exposure, and the total capital ratio could not be lower than 8%, while in the case of the IFR Regulation, the total measure of the risk incurred is the highest of the values: (i) a fixed overhead requirement, (ii) a fixed minimum capital requirement, or (iii) a “K-factor” requirement related to customer risk, market risk and firm risk; in the case of the IFR Regulation, the ratio of total own funds cannot be lower than 100%.
In order to ensure comparability, the requirements from previous periods have been properly scaled; however, it should be noted that the value of the total risk exposure calculated in accordance with the CRR Regulation is calculated in a different way than the value of the capital requirement calculated in accordance with the IFR Regulation.
The chart below presents the value of the total capital ratio (CRR) in Q1-Q3 2021.
The chart below presents the value of the total capital ratio (IFR) in Q1-Q3 2021.
The total capital ratio informs about the ratio of own funds to risk-weighted assets, in other words, it shows whether the brokerage house is able to cover the minimum capital requirement for market, credit, operational and other risks with its own funds. At the end of the third quarter of this year, the total capital ratio in the Company was 126,9% (the equivalent under the CRR Regulation 10,2%).
It should be remembered that every year the PFSA publishes updated Positions on dividend policy applicable to brokerage houses when paying dividends for a given year. If the PFSA uses a simple scaling of the ratios in the future, the level of equity and capital requirements above which XTB could pay a dividend could be 175%. It should be noted, however, that the Commission may set the appropriate levels in a completely different way, taking into account the ongoing supervision over brokerage houses. If the criteria are left unchanged in future positions, the position of the PFSA will apply, stating that for entities not subject to capital adequacy standards in accordance with Regulation 575/2013 (CRR Regulation), the ratio being the share of equity in total assets as at 31 December of the previous year was at least 50%.
The Management Board maintains that its intention is to recommend to the General Meeting in the future to adopt resolutions on the payment of dividends, taking into account the factors indicated above, in the amount ranging from 50% to 100% of the Company’s standalone net profit for a given financial year. The unit net profit for the period of 9 months of 2021 amounted to PLN 167,9 million.
Cash and cash equivalents
In an environment of low interest rates, which discourages the maintenance of deposits in banks, XTB started to locate part of its cash in financial instruments with a risk weight of 0% (treasury bonds and bonds guaranteed by the State Treasury). As at 30.09.2021 the total amount of own cash and treasury bonds in the Group amounted to PLN 898,9 million, that includes PLN 754,6 million of own cash and PLN 144,3 million of treasury bonds.
In the first half of 2021 XTB reported a consolidated net profit of PLN 65,0 million compared to PLN 293,5 million a year earlier. Consolidated revenue amounted to PLN 242,0 million (H1 2020: PLN 518,2 million) and operating expenses amounted to PLN 163,3 million (H1 2020: PLN 138,3 million). In this period the Group noted a record number of new clients i.e. 108k compared to 52k a year earlier (an increase of 105,7% y/y).
Revenues
In the first half of 2021, the Group’s revenues decreased by 53,3% y/y, from PLN 518,2 million to PLN 242,0 million. This was due to the lower profitability per lot by PLN 199, which amounted to PLN 122 (H1 2020: PLN 321). This decrease is mainly due to: (i) low volatility in the financial and commodity markets in the second quarter of 2021 and (ii) the high base effect from the first half of 2020, when the markets experienced above-average volatility caused, among others, by the global COVID-19 pandemic.
After a good first quarter of 2021, when the Group generated PLN 186,7 million in operating revenues, the second quarter (April and May) brought low volatility on the financial and commodity markets, which translated into a decline in revenues and profitability per lot. Along with lower volatility, the transaction activity of clients also decreased. There was a more predictable trend with the market moving within a limited price range. This led to market trends that were more likely to be predicted than in the case of greater market volatility, which created favourable conditions for range trading. In this case, XTB recorded a greater number of profitable transactions, which led to a decrease in XTB’s market making result. As a consequence, the profitability per lot amounted to PLN 63 and reached the lowest level in the last 5 years. Since XTB’s presence on the WSE, a lower level was recorded only in the second quarter of 2016 – PLN 59, which only confirms the exceptional nature of the last quarter.
From the point of view of the conditions in the financial markets in the first half of this year it is worth noting that this was the period in which the upward trend in the cryptocurrency market continued until mid-May. This market is characterized by the fact that clients investing in CFDs on cryptocurrencies are willing to hold their open positions much longer and not close profits in a short time, as in the case with other instruments. Such market characteristics had a negative impact on the Group’s revenues (PLN 46,6 million loss on CFDs on cryptocurrencies in the first half of 2021). As a consequence, in mid-May this year XTB has decided to change the business model for CFD instruments based on cryptocurrencies, i.e. fully securing the market position on cryptocurrencies. Currently, the entire open position of the Company on these instruments is covered in hedging transactions with liquidity providers. The company plans to maintain this model indefinitely. The negative result from CFDs on cryptocurrencies can be attributed to the period when the market making model was still used, and the cryptocurrency markets continued to grow dynamically. When there is a correction in these markets in the second half of May, the market position of XTB was almost completely reduced.
Looking at the stock and index markets in the second quarter of this year. it should be noted that they were characterized by much lower volatility than in the previous quarter. The DAX index in April and May unsuccessfully tried to break above the record levels, which was only achieved at the beginning of June. Additionally, the entire range of movement of this instrument in the second quarter closed to around 800 points. Price changes were much more pronounced in the case of instruments based on US indices, which translated into an increase in revenues in this group q/q, but to a much lesser extent than a decrease in revenues on the DE30 instrument.
The group also reported a decrease in revenues on CFD instruments based on oil and precious metals. During the period, these instruments recorded upward trends, but it was largely due to long positions concluded by XTB clients. Additionally, in the case of oil-based instruments, the extent of price movement was lower than in the previous quarter.
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. This is the key to the amount of recurring income in the future. In the H1 of 2021 the Group reported a new record in the number of new clients amounting to 107 854 compared to 52 434 a year earlier i.e. an increase by 105,7%. This is the effect of continuing the optimized sales and marketing strategy, bigger penetration of already existing markets, successive introduction of new products to the offer and expansion into new geographic markets. Similarly to the number of new clients, the number of active clients was also record high. The number of active clients increased from 52 084 to 105 005, i.e. by 101,6% y/y.
The increase in the number of active clients translates into an increase in the volume of their turnover, measured both by the number of contracts concluded in lots and the nominal value of the turnover. As a consequence, trading in derivative instruments amounted to PLN 1 986,7k lots (H1 2020: 1 613,9k lots) and was higher by 372,8k lots y/y.
The priority of the Management Board is to further increase the client base, leading to strengthen the market position of XTB in the world. These activities will be supported by a number of initiatives, including introduced on 5th October 2020 a new offer for shares and ETFs (Exchange-Traded Funds) “0% commission” for monthly volumes up to EUR 100 000. This offer was received with great enthusiasm by current and new XTB clients. The company aims to be the first choice and comprehensive solution for every investor. Over the past few years, XTB has done a great deal of work – from expanding the offer by around 3,8k financial instruments (from 1 500 to 5 300 currently), to the continuous improvement of the web and mobile version of the award-winning xStation platform. Now with a free offer, XTB has opened the door wide to anyone interested in investing in both real stocks and ETFs. XTB currently allows clients to invest in over 2 900 real stocks from 16 of the world’s largest stock exchanges, including New York Stock Exchange, London Stock Exchange, Spanish Bolsa de Madrid, German Börse Frankfurt and of course Warsaw Stock Exchange. Besides stocks, XTB offers over 270 ETFs, including commodities, real estate and bonds.
The „0% commission” offer is supported by
a marketing and advertising campaign with the participation of the new XTB brand ambassador – one of the best football managers in the world, José Mourinho. The new XTB ambassador is the coach who not only won championships in a record number of countries (Portugal, England, Italy and Spain), but is also one of only three coaches who have won the UEFA Champions League twice with two clubs.
The Company expects on the effectiveness of the new offer for shares and ETFs as well as the campaign with José Mourinho. In particular, the ambition of the Management Board is to acquire in 2021 at least 120 thousand new clients, that is an average 30 thousand new clients quarterly. The Management Board assumes that in the next quarter, the growth of new clients will approach the aforementioned assumptions due to the holiday season. In July 2021, the Group acquired a total of 12.7k new clients.
XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities under X Open Hub (XOH) brand, 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.
XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company and at such times it achieves the highest revenues. Therefore, high activity of financial and commodities markets generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic for the Group’s business model.
Expenses
In the H1 of 2021 operating expenses amounted to PLN 163,3 million and were higher by PLN 25,0 million in relation to the same period a year earlier (H1 2020: PLN 138,3 million). The most significant changes occurred in:
• marketing costs, an increase of PLN 19,1 million mainly due to higher expenditures on marketing online campaigns;
• commission expenses, an increase of PLN 7,3 million as a result of larger amounts paid to payment service providers through which clients deposit their funds on transaction accounts;
• other external services, an increase by PLN 5,7 million as a result of mainly higher expenditure on: (i) IT systems and licenses (increase by PLN 2,5 million y/y); (ii) legal and advisory services (increase by PLN 1,2 million y/y) and (iii) IT support services (increase by PLN 0,9 million y/y);
• costs of salaries and employee benefits, a decrease of PLN 7,0 million mainly due to lower provisions established for variable components of remuneration (bonuses) and an increase in employment;
In q/q terms, operating costs decreased by PLN 10,5 million, mainly due to lower marketing expenditure by PLN 8,0 million and lower costs of salaries and employee benefits by PLN 3,1 million, mainly due to the release of provisions for variable components salaries (bonuses) and commission costs lower by PLN 1,6 million, resulting from lower amounts paid to payment service providers through which clients deposit their funds in transaction accounts, and higher costs of other external services by PLN 1,5 million.
Due to the dynamic Group development, the Management Board estimates that in 2021 the total costs of operating activities may be about a dozen percent higher than what we noticed in 2020. The priority of the Management Board is to further increase the client base and build a global brand. As a consequence of the implemented activities marketing expenditures may increase by over 20% compared to the previous year.
The final level of operating costs will depend on the level of variable remuneration components paid to employees, the level of marketing expenditures, the dynamics of geographical expansion into new markets and the impact of potential product interventions and other external factors 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 depends on their impact on the Group’s results and profitability, the rate of foreign expansion and on clients responsiveness to the actions taken. The impact of a new product intervention on the Group’s revenues will determine, if necessary, a revision of the cost assumptions.
Dividend and capital requirements
The XTB dividend policy assumes recommendation by the Management Board to the General Meeting a dividend payment in the amount taking into account the level of net profit presented in the standalone annual financial report of the Company and a variety of factors relating to the Company, including prospects for further operations, future net profits, demand for cash, financial situation, the level of capital adequacy ratios, expansion plans, legal requirements in this area and KNF guidelines. In particular, the Management Board, when submitting proposals for dividend payment, will be guided by the need to ensure an appropriate level of the Company’s capital adequacy ratios and the capital necessary for the development of the Group.
For example, the Polish Financial Supervision Authority, in its last Statement on dividend policy in 2021, published on December 16, 2020, recommended that the dividend in 2021 should be paid only by brokerage houses that have met, among others, the following criteria:
A. Dividend in the amount not exceeding 75% of the net profit for 2020:
I. for entities subject to capital adequacy standards pursuant to Regulation (EU) No 575/2013 of the European Parliament and the Council of the European Union of 26 June 2013 on prudential requirements for credit institutions and investment firms amending Regulation (EU) No 648/2012 (EU Official Journal of the EU L 176 of June 27, 2013, hereinafter referred to as: “Regulation 575/2013”) as of December 31, 2020:
• Common Equity Tier I ratio was at least 6%;
• Tier I capital ratio was at least 9%;
• The total capital ratio is at least 14%;
II. for entities not subject to capital adequacy standards pursuant to Regulation 575/2013 as at 31 December 2020, the ratio being the share of equity in total assets is at least 50%;
III. the last supervisory grade assigned in the BION process is 1 or 2;
IV. the entity in 2020 and until the date of approval of the financial report and adoption of the resolution on the distribution of profit for 2020 did not violate the provisions on capital requirements contained in Regulation 575/2013 and the Law of July 29, 2005 on trading in financial instruments (OJ, 2020, item 89) and the provisions on limits on large exposures, excluding breaches of limits relating to clients’ funds.
B. Dividend in the amount not exceeding 100% of the net profit for 2020:
I. meets all the criteria listed in A;
II. for entities subject to capital adequacy standards in accordance with Regulation 575/2013, the criteria referred to in point (a) And points I are met at the end of each quarter in 2020;
III. for entities not subject to capital adequacy standards in accordance with Regulation 575/2013, the criterion referred to in point (a) A point II is met at the end of each quarter in 2020.
On June 28, 2021, the Company received a supervisory grade (BION) of 2 [2,46] from the Polish Financial Supervision Authority. The assessment was given on December 31, 2020. Published by the Polish Financial Supervision Authority on May 22, 2018. Announcement on the position regarding the dividend policy in the medium-term, aimed at facilitating financial market entities supervised by the Polish Financial Supervision Authority in terms of financial planning related to the payment of dividends in the average indicates that the current supervisory assessment for XTB is in line with the criteria recommended by the Polish Financial Supervision Authority, which should allow the Company to potentially pay dividends for the current financial year in accordance with these criteria.
From June 26, 2021, XTB applies capital adequacy monitoring in accordance with Regulation (EU) 2019/2033 of the European Parliament and of the Council of November 27, 2019 on prudential requirements for investment firms and amending Regulations (EU) No. 1093/2010, (EU ) No. 575/2013, (EU) No. 600/2014 and (EU) No. 806/2014, hereinafter referred to as “IFR Regulation” It replaced, in the case of XTB, Regulation of the European Parliament and of the Council (EU) No. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms, amending Regulation (EU) No. 648/201, hereinafter referred to as the “CRR Regulation”. Both regulations require maintaining an appropriate ratio of own funds to the risk incurred – in the case of the CRR Regulation, it’s measure was the total risk exposure, and the total capital ratio could not be lower than 8%, while in the case of the IFR Regulation, the total measure of the risk incurred is the highest of the values.: (i) a fixed overhead requirement, (ii) a fixed minimum capital requirement, or (iii) a “K-factor” requirement related to customer risk, market risk and firm risk; in the case of the IFR Regulation, the ratio of total own funds cannot be lower than 100%.
In order to ensure comparability, the requirements from previous periods have been properly scaled; however, it should be noted that the value of the total risk exposure calculated in accordance with the CRR Regulation is calculated in a different way than the value of the capital requirement calculated in accordance with the IFR Regulation.
The chart below presents the value of the total capital ratio (CRR) in the first half of 2021.
The chart below presents the value of the total capital ratio (IFR) in the first half of 2021.
The total capital ratio informs about the ratio of own funds to risk-weighted assets, in other words, it shows whether the brokerage house is able to cover the minimum capital requirement for market, credit, operational and other risks with its own funds. At the end of the first half of this year. the total capital ratio in the Company was 155,3% (the equivalent under the CRR Regulation 12,4%).
It should be remembered that every year the PFSA publishes updated Positions on dividend policy applicable to brokerage houses when paying dividends for a given year. If the PFSA uses a simple scaling of the ratios in the future, the level of equity and capital requirements above which XTB could pay a dividend could be 175%. It should be noted that the Commission may set the appropriate levels in a completely different way, taking into account the ongoing supervision over brokerage houses. If the criteria are left unchanged in future positions, the position of the PFSA will apply, stating that for entities not subject to capital adequacy standards in accordance with Regulation 575/2013 (CRR Regulation), the ratio being the share of equity in total assets as at 31 December of the previous year was at least 50%.
The Management Board maintains that its intention is to recommend to the General Meeting in the future to adopt resolutions on the payment of dividends, taking into account the factors indicated above, in the amount ranging from 50% to 100% of the Company’s standalone net profit for a given financial year. The unit net profit for the first half of 2021 amounted to PLN 62,0 million.
Cash
In an environment of low interest rates, which discourages the maintenance of deposits in banks, XTB started to locate part of its cash in financial instruments with a risk weight of 0% (treasury bonds and bonds guaranteed by the State Treasury). As at 30.06.2021 the total amount of own cash and treasury bonds in the Group amounted to PLN 768,0 million, that includes PLN 621,8 million of own cash and PLN 146,2 million of treasury bonds.
In the first quarter of 2021 XTB reported a consolidated net profit of PLN 89,1 million compared to PLN 40,2 million a quarter earlier. It is an increase of PLN 48,9 million. Consolidated revenue amounted to PLN 186,7 million (IV quarter 2020: PLN 140,0 million) and operating expenses amounted to PLN 86,9 million (IV quarter 2020: PLN 83,6 million). In this period the Group noted a record number of new clients i.e. 67 231, which is an increase of 75,0% q/q.
Revenues
In the first quarter of 2021 XTB noted revenues increase by 33,4% q/q, i.e. by PLN 46,7 million from PLN 140,0 million to PLN 186,7 million. The significant factor determining the level of revenues was a constantly growing client base combined with their high transaction activity noted in the number of concluded transactions in lots and in the nominal value of the realized turnover. As a consequence the transaction volume in CFD instruments amounted to 1 115 thousand lots (Q4 2020: 801 thousand lots) and a profitability per lot amounted to PLN 167 (Q4 2020: PLN 175).
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. In the Q1 of 2021 the Group reported a new record in the number of new clients amounted to 67 231 compared to 38 413 a quarter earlier i.e. an increase by 75,0%. This is the effect of continuing the optimized sales and marketing strategy, bigger penetration of already existed markets, successive introduction of new products to the offer and expansion into new geographic markets. Similarly to the number of new clients, the number of active clients was also record high. The number of active clients increased from 72 346 to 103 446, i.e. by 43,0% q/q.
The priority of the Management Board is to further increase the client base, leading to strengthen the market position of XTB in the world. These activities will be supported by a number of initiatives, including introduced on 5th October 2020 a new offer for shares and ETFs (Exchange-Traded Funds) “0% commission” for monthly volumes up to EUR 100 000. This offer was received with great enthusiasm by current and new XTB clients. The company aims to be the first choice and comprehensive solution for every investor. Over the past few years, XTB has done a great deal of work – from expanding the offer by around 3,7 thousand financial instruments (from 1 500 to 5 200 currently), to the continuous improvement of the web and mobile version of the award-winning xStation platform. Now with a free offer, XTB has opened the door wide to anyone interested in investing in both real stocks and ETFs. XTB currently allows client to invest in over 2 800 real stocks from 16 of the world’s largest stock exchanges, including New York Stock Exchange, London Stock Exchange, Spanish Bolsa de Madrid, German Börse Frankfurt and of course Warsaw Stock Exchange. Besides stocks, XTB offers over 250 ETFs, including commodities, real estate and bonds.
The „0% commission” offer is supported by a marketing and advertising campaign with the participation of the new XTB brand ambassador – one of the best football manager on the world, José Mourinho. The new XTB ambassador is the coach who not only won championships in a record number of countries (Portugal, England, Italy and Spain), but is also one of only three coaches who have won the UEFA Champions League twice with two clubs.
The Company expects on the effectiveness of the new offer for shares and ETFs as well as the campaign with José Mourinho. In particular, the ambition of the Management Board is to acquire in 2021 at least 120 thousand new clients, that is an average 30 thousand new clients quarterly. As a result of the implemented actions, in the first 20 days of April the Group acquired 10,6 thousand new clients in total.
Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that in Q1 2021 CFDs based on commodities dominated. Their share in the structure of revenues on financial instruments reached 53,8% against 51,2% a year earlier. This is a consequence of the high interest of XTB clients in CFD instruments based on gold, silver and oil prices. The second most profitable class were CFD instruments based on indices. Their share in the structure of revenues in Q1 2021 reached 39,9% (Q1 2020: 36,2%). The most profitable instruments among this asset class were instruments based on the German DAX stock index (DE30) and American stock index US 100. Revenues of CFD based on currency reached 2,7% of all revenues, compared to 11,1% a year earlier.
XTB places great importance on the geographical diversification of revenues. The countries from which the Group derives more than 15% of revenues are Poland with the share of 37,8% (Q1 2020: 27,9%). 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 under X Open Hub (XOH) brand, 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.
XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company and it is at such times that it achieves the highest revenues. Therefore, high activity of financial markets and commodities generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic of the Group’s business model.
Expenses
In the Q1 of 2021 operating expenses amounted to PLN 86,9 million and were higher by PLN 14,4 million in relation to the same period a year earlier (Q1 2020: PLN 72,5 million). The most significant changes occurred in:
• marketing costs, an increase of PLN 16,3 million mainly due to higher expenditures on marketing online campaigns;
• costs of salaries and employee benefits, a decrease of PLN 7,9 million mainly due to lower provisions established for
variable components of remuneration (bonuses);
• commission expenses, an increase of PLN 5,2 million as a result of larger amounts paid to payment service providers
through which clients deposit their funds on transaction accounts.
In q/q terms, operating costs increased of PLN 3,3 million mainly due to higher by PLN 3,2 million commission expenses as a result of larger amounts paid to payment service providers through which clients deposit their funds on transaction accounts and higher by PLN 2,8 costs of salaries and employee benefits resulting from an increase in employment and higher by PLN 2,2 million marketing costs mainly due to higher expenditures on marketing online campaigns, and also lower by PLN 4,2 million other costs and lower by PLN 0,4 million other external services.
Due to the dynamic Group development, the Management Board estimates that in 2021 the total costs of operating activities may be about a dozen percent higher than what we noticed in 2020. The priority of the Management Board is to further increase the client base and build a global brand. As a consequence of the implemented activities marketing expenditures may increase by over 20% compared to the previous year.
The final level of operating costs will depend on the level of variable remuneration components paid to employees, the level of marketing expenditures, the dynamics of geographical expansion into new markets and the impact of potential product interventions and other external factors 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 depends on their impact on the Group’s results and profitability, the rate of foreign expansion and on clients responsiveness to the actions taken. The impact of a new product intervention on the Group’s revenues will determine, if necessary, a revision of the cost assumptions.
Dividend
The XTB dividend policy assumes recommendation by the Management Board to the General Meeting a dividend payment in the amount taking into account the level of net profit presented in the standalone annual financial report of the Company and a variety of factors relating to the Company, including prospects for further operations, future net profits, demand for cash, financial situation, the level of capital adequacy ratios, expansion plans, legal requirements in this area and KNF guidelines. In particular, the Management Board, when submitting proposals for dividend payment, will be guided by the need to ensure an appropriate level of the Company’s capital adequacy ratios and the capital necessary for the development of the Group.
The Management Board maintains that its intention is to recommend in the future the adoption of resolutions to the General Meeting on dividend payment taking into account factors mentioned above, at the level of 50% to 100% of Company’s standalone net profit of a given financial year. The standalone net profit for Q1 2021 amounted to PLN 87,0 million.
The chart below presents levels of the total capital ratio in Q1 2021.
As at the end of Q1 of the current year the total capital ratio amounted to 9,9%. The total capital ratio informs about the relation between own funds and risk-weighted assets. It shows whether the brokerage house is able to cover the minimum capital requirement for market, credit, operational and other risks with its own funds.
Cash and cash equivalents
In an environment of low interest rates, which discourages the maintenance of deposits in banks, XTB started to locate part of its cash in financial instruments with a risk weight of 0% (treasury bonds and bonds guaranteed by the State Treasury). As at 31.03.2021 the total amount of own cash and treasury bonds in the Group amounted to PLN 1 047,0 million, that includes PLN 642,8 million of own cash and PLN 404,2 million of treasury bonds.
Foreign expansion
XTB with its strong market position and dynamically growing client base builds its presence in the non-European markets, consequently implementing a strategy on building a global brand. The XTB Management Board puts the main emphasis on organic development, on the one hand increasing the penetration of European markets, on the other hand successively building its presence in Latin America, Asia and Africa. Following these activities, the composition of the capital group will be expanded by new subsidiaries. It is worth mentioning that geographic expansion is a process carried out by XTB on a continuous basis, the effects of which are spread over time. Therefore, one should not expect sudden, abrupt changes in the group results on this action.
Currently, the Management Board efforts are focused on the start of operational activities in United Arab Emirates and Republic of South Africa. At the end of November 2020 XTB received the preliminary approval of the DFSA regulator to conduct brokerage activities in United Arab Emirates. It is an approval of the „in principal” type, that requires the fulfilment of conditions (mainly operational type) before the actual start of operations. One of the condition was the establishment of the company XTB MENA Limited in DIFC (Dubai International Financial Centre) which took place on 9 January 2021. The process is currently underway over the fulfilment of other conditions. The intention of the Management Board is to start operating activities in United Arab Emirates in the first half of 2021. In terms of Republic of South Africa, due to the complex local formal and legal conditions, the Management Board is currently not able to indicate the expected date of the start of operations on this market. Subsidiary XTB Africa (PTY) has been in the licensing process since February 2019.
The development of XTB is also possible through mergers and acquisitions, especially with entities that would allow the Group to achieve geographic synergy (complementary markets). Such transactions will be carried out, only when they will bring measurable benefits for the Company and its shareholders. XTB is currently not involved in any acquisition process.
2021.03.29
XTB awarded ‘mWIG40 company of the year’ in Parkiet’s Byki i Niedźwiedzie competition!
During the annual Byki i Niedźwiedzie (Bulls and Bears) competition, X-Trade Brokers DM SA was honored with the title of the company of the year from the mWIG40 index. Byki i Niedźwiedzie is one of the oldest and most prestigious competitions for companies listed on the Warsaw Stock Exchange. The list has been prepared by the editors of Gazeta Giełdy i Inwestorów Parkiet for over 27 years.
– 2020 was a very good time for XTB and its investors. The company recorded over 350% growth on the Warsaw Stock Exchange, but also achieved record levels in terms of net profit. We have also reported records in terms of the number of customers, newly acquired accounts and turnover. We are very happy that we are one of the fastest growing companies in our industry and that customers appreciate the way we develop. – said Omar Arnaout, CEO of XTB, receiving the award.
The full Byki i Niedźwiedzie 2021 award gala, which took place this year in a virtual formula, can be viewed at:
For many companies 2020 was a time of struggle for survival – for XTB it was a time of building capacity and dominance to be an even better and stronger company in the future. High volatility on financial and commodity markets as well as interest rate cuts made trading on financial instruments very attractive for many investors. As a consequence, the Group noted a record-breaking number of new clients, i.e. 112 thousand compared to less than 37 thousand a year earlier (an increase of 206,5% y/y). Transaction volume in CFD instruments in lots almost doubled – an increase from 1,6 million to 3,2 million lots, i.e. by 98,8% y/y.
The dynamic operating growth of XTB under favorable market conditions brought record financial results in 2020. Consolidated net profit amounted PLN 402,1 million compared to PLN 57,7 million a year earlier. Consolidated revenue amounted to PLN 797,8 million (2019: PLN 239,3 million) with operating costs at the level of PLN 282,0 million (2019: PLN 173,9 million).
Revenues
In 2020 XTB noted a record increase of revenues by 233,4% y/y i.e. PLN 558 446 thousand from PLN 239 304 thousand to PLN 797 750 thousand. The significant factors determining the level of revenues were high volatility on financial and commodity markets caused by among others coronavirus COVID-19 global pandemic and a constantly growing client base combined with their high transaction activity noted in the number of concluded transactions in lots. As a consequence the transaction volume in CFD instruments amounted to 3 175,2 thousand lots (2019: 1 597,2 thousand lots) and a profitability per lot increased by 67,7% y/y i.e. from PLN 149,8 in 2019 to PLN 251,2 in 2020.
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. In 2020 the Group reported another record in this area by acquiring 112 025 new clients compared to 36 555 a year earlier. This is the effect of continuing the optimized sales and marketing strategy, bigger penetration of already existed markets, successive introduction of new products to the offer and expansion into a new geographic markets. Similarly to the number of new clients, the number of active client was also record high. The number of active client increased from 45 837 to 107 287, i.e. by 134,1% y/y.
The priority of the Management Board is to further increase the client base, leading to strengthen the market position of XTB in the world. These activities will be supported by a number of initiatives, including introduced on 5th October 2020 a new offer for shares and ETFs (Exchange-Traded Funds) “0% commission” for monthly volumes up to EUR 100 000. This offer was received with great enthusiasm by current and new XTB clients. The company aims to be the first choice and comprehensive solution for every investor. Over the past few years, XTB has done a great deal of work – from expanding the offer by around 3 000 financial instruments (from 1 500 to 4 500 currently), to the continuous improvement of the web and mobile version of the award-winning xStation platform. Now with a free offer, XTB has opened the door wide to anyone interested in investing in both real stocks and ETFs. XTB currently allows client to invest in over 2 000 real stocks from 16 of the world’s largest stock exchanges, including New York Stock Exchange, London Stock Exchange, Spanish Bolsa de Madrid, German Börse Frankfurt and of course Warsaw Stock Exchange. Besides stocks, XTB offers over 200 ETFs, including commodities, real estate and bonds.
The „0% commission” offer is supported by a marketing and advertising campaign with the participation of the new XTB brand ambassador – one of the best football manager on the world, José Mourinho. The new XTB ambassador is the coach who not only won championships in a record number of countries (Portugal, England, Italy and Spain), but is also one of only three coaches who have won the UEFA Champions League twice with two clubs. The Portuguese will be the XTB’s global ambassador for the next two years.
The announcement of José Mourinho collaboration with XTB also marked the launch of the new global marketing campaign “Be like José”. Its creative concept is based on the similarities between the challenges faced by investors and trainers on a daily basis. A well-considered strategy, the will to win and the ability to learn from mistakes are the main factors of success in both football and finance.
The company expects on the effectiveness of the new offer for shares and ETFs as well as the campaign with José Mourinho. In particular, the ambition of the Management Board is to acquire in 2021 at least 120 thousand new clients, that is an average 30 thousand new clients quarterly. As a result of the implemented actions, in January 2021 the Group acquired 21,8 thousand new clients in total, while in February 23,6 thousand new clients.
Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that CFDs based on index dominated in 2020. Their share in the structure of revenues on financial instruments in 2020 reached 53,2% against 74,8% a 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 US indices US100 and US500 and contract based on volatility index listed on the U.S. organized market. The second most profitable class of assets were CFD based on commodities. Their share in the structure of revenues on financial instruments in 2020 reached 33,0% (2019: 5,2%). The most profitable instruments among this asset class were CFD instruments based on oil prices, gold and natural gas contracts. Revenues of CFD based on currency reached 11,5% of all revenues, compared to 18,2% a year earlier.
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 37,0% (2019 r.: 39,9%) and 16,0% (2019 r.: 19,9%) respectively. The share of other countries in the geographical structure of revenues does not exceed in any case 15%.
XTB also puts strong emphasis on diversification of segment revenues. Therefore the Group develops, besides retail segment, 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.
XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company and it is at such times that it achieves the highest revenues. Therefore, high activity of financial markets and commodities generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic of the Group’s business model.
Operating expenses
In 2020 operating expenses amounted to PLN 282,0 million and were higher by PLN 108,1 million in relation to the same period a year earlier (2019: PLN 173,9 million). The most significant changes occurred in:
• marketing costs, an increase of PLN 50,0 million mainly due to higher expenditures on marketing online campaigns;
• costs of salaries and employee benefits, an increase of PLN 33,1 million mainly due to provisions for variable remuneration
components (bonuses) and an increase in employment;
• commission expenses, an increase of PLN 14,2 million as a result of larger amounts paid to payment service providers through
which clients deposit their funds on transaction accounts;
• other external costs, an increase of PLN 4,8 million as a result of higher expenditures on: (i) IT systems and licenses
(an increase of PLN 2,6 million y/y); (ii) IT support services (an increase of PLN 1,0 million y/y).
In the third quarter of 2020 XTB reported a consolidated net profit of PLN 68,4 million compared to PLN 15,5 million a year earlier. Consolidated revenue amounted to PLN 139,6 million (Q3 2019: PLN 61,0 million) and operating expenses amounted to PLN 60,1 million (Q3 2019: PLN 43,0 million). In this period the Group noted a number of new clients above 21 thousand compared to 10 thousand a year earlier (an increase of 110,9% y/y).
In the period Q1-Q3 2020 the Company reported a consolidated net profit of PLN 361,9 million compared to PLN 20,7 million a year earlier
Revenues
In the third quarter of 2020 XTB noted revenue increase from PLN 61,0 million to PLN 139,6 million, i.e. by 129,1% y/y. The significant factors determining the level of revenues were constantly growing client base combined with their high transaction activity noted in the number of concluded transactions in lots and higher y/y continuing volatility on financial and commodity markets. As a consequence the transaction volume in CFD instruments amounted to 760,4 thousand lots (Q3 2019: 423,3 thousand lots) and a profitability per lot reached PLN 184 (Q3 2019: PLN 114).
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. As a consequence the base for generating results is at a much higher level than it was in 2019. In the third quarter of 2020 the Group reported 21 178 new clients compared to 10 042 a year earlier. This is the effect of continuing the optimized sales and marketing strategy, bigger penetration of already existed markets, successive introduction of new products to the offer and expansion into a new geographic markets. Similarly to the number of new clients, the number of active client also increased. The number of active client increased from 28 136 to 55 760, i.e. by 98,2% y/y.
The first half of 2020 was marked by above-average volatility in financial markets, what allowed XTB to achieve record revenues and significantly increase the client base. The priority of the Management Board is to further increase the client base in the subsequent periods, leading to strengthen the market position in the world. These activities will be supported by a number of initiatives, including introduced on October 5 this year a new offer for shares and ETFs (Exchange-Traded Funds) “0% commission” for monthly volumes up to EUR 100 000. This offer was received with great enthusiasm by current and new XTB clients. The company aims to be the first choice and comprehensive solution for every investor. Over the past few years, XTB has done a great deal of work – from expanding the offer by around 3 000 financial instruments ( from 1 500 to 4 500 currently), to the continuous improvement of the web and mobile version ot the award-winning xStation platform. Now with a free offer, XTB has opened the door wide to anyone interested in investing in both real stocks and ETFs. XTB currently allows client to invest in over 2 000 real stocks from 16 of the world’s largest stock exchanges, including New York Stock Exchange, London Stock Exchange, Spanish Bolsa de Madrid, German Börse Frankfurt and of course Warsaw Stock Exchange. Besides stocks, XTB offers over 200 ETFs, including commodities, real estate and bonds.
The „0% commission” offer is supported by a marketing and advertising campaign with the participation of the new XTB brand ambassador – one of the best football manager on the world, José Mourinho. The new XTB ambassador is the coach who not only won championships in a record number of countries (Portugal, England, Italy and Spain), but is also one of only three coaches who have won the UEFA Champions League twice with two clubs. The Portuguese will be the XTB’s global ambassador for the next two years.
The announcement of José Mourinho collaboration with XTB also marked the launch of the new global marketing campaign “Be like José”. Its creative concept is based on the similarities between the challenges faced by investors and trainers on a daily basis. A well-considered strategy, the will to win and the ability to learn from mistakes are the main factors of success in both football and finance.
The company expects on the effectiveness of the new offer for shares and ETFs as well as the campaign with José Mourinho and plans to approach the possibility of repeatedly obtaining 30 000 clients in the coming periods. In particular, the ambition of the Management Board is to acquire in the fourth quarter of 2020 approximately 25-30 thousand of new clients and in 2021 an average 30 thousand new clients quarterly. As a result of the implemented actions, in the period from 1 to 31 October this year the Group acquired 11,4 thousand new clients in total
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.
Based on the previous two quarters, the third quarter of 2020 brought a noticeable drop in market volatility during the holidays in July and August. Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that CFDs based on stock indices dominated. Their share in the structure of revenues on financial instruments in the third quarter of 2020 reached 52,0% against 36,5% a year earlier. This is a consequence of the high interest of XTB clients in CFD instruments based on the US indices US100 and US500. The second most profitable class of assets were CFD based on commodities. Their share in the structure of revenues on financial instruments in the third quarter of 2020 reached 22,9% (Q3 2019: 8,7%). The most profitable instruments among this asset class were CFD instruments based on gold and silver. Revenues of CFD based on currency reached 20,1% of all revenues, compared to 51,7% a year earlier. Among this class of instruments, the EURUSD currency pair was the most popular between XTB clients.
XTB places great importance on the geographical diversification of revenues, consistently implementing the strategy of building a global brand. The countries from which the Group derives more than 15% of revenues are Poland and Spain with their share in Q3 2020 of 34,5% (Q3 2019: 41,4%) and 15,9% (Q3 2019: 18,5%). The share of other countries in the geographical structure of revenues does not exceed in any case 15%.
XTB also puts a 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.
XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company and it is at such times that it achieves the highest revenues. Therefore, high activity of financial markets and commodities generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic of the Group’s business model.
Expenses
In the third quarter of 2020 operating expenses amounted to PLN 60,1 million and were higher by PLN 17,1 million in relation to the same period a year earlier (Q3 2019: PLN 43,0 million). The most significant changes occurred in:
• marketing costs, an increase of PLN 9,1 million mainly due to higher expenditures on marketing online campaigns;
• costs of salaries and employee benefits, an increase of PLN 4,0 million mainly due to increase in employment;
• commission expenses, an increase of PLN 3,3 million as a result of larger amounts paid to payment service providers through which clients deposit their funds on transaction accounts;
• other external costs, an increase of PLN 1,3 million as a result of higher expenditures on: (i) IT systems and licenses (an increase of PLN 0,8 million y/y); (ii) IT support services (an increase of PLN 0,6 million y/y).
In q/q terms, operating costs decreased of PLN 5,6 million mainly due to lower by PLN 4,4 million costs of marketing expenditures and lower by PLN 1,5 million costs of salaries and employee benefits.
The Management Board expects that during the whole 2020 operating costs of the Group may be higher by approximately 50% compared to 2019, of which in the fourth quarter of 2020 marketing costs are expected to increase to levels higher than in the second quarter of 2020, whilst the cost of salaries and employee benefits will be at a similar level to that of the third quarter of 2020. As a consequence, the total value of operating costs in the fourth quarter of 2020 may be similar to that of the second quarter of 2020.
The final level of operating costs will depend on the level of variable remuneration components paid to employees, the level of marketing expenditures, the dynamics of geographical expansion into new markets and the impact of potential product interventions and other external factors 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 depends on their impact on the Group’s results and profitability, the rate of foreign expansion and on clients responsiveness to the actions taken. The impact of a new product intervention on the Group’s revenues will determine, if necessary, a revision of the cost assumptions.
Dividend and capital requirements
The XTB dividend policy assumes recommendation by the Management Board to the General Meeting a dividend payment in the amount taking into account the level of net profit presented in the standalone annual financial report of the Company and a variety of factors relating to the Company, including prospects for further operations, future net profits, demand for cash, financial situation, the level of capital adequacy ratios, expansion plans, legal requirements in this area and KNF guidelines. In particular, the Management Board, when submitting proposals for dividend payment, will be guided by the need to ensure an appropriate level of the Company’s capital adequacy ratios and the capital necessary for the development of the Group.
The Management Board maintains that its intention is to recommend in the future the adoption of resolutions to the General Meeting on dividend payment taking into account factors mentioned above, at the level of 50% to 100% of Company’s standalone net profit of a given financial year. The standalone net profit for nine months of 2020 amounted to PLN 380,5 million.
Taking into account the position of the KNF published on 22 May 2018, regarding the dividend policy of brokerage houses in the medium term, it is recommended to pay dividends only by brokerage houses that especially:
• at the end of each quarter, have a total capital ratio of at least 14% – then it is possible to pay a dividend in the amount not higher than 100% of the net profit for a given year, or
• as at the last calendar day of a given year had a total capital ratio of at least 14% – then it is possible to pay a dividend at the level not exceeding 75% of the net profit for a given year;
• obtain a BION supervisory assessment of 1 or 2.
The chart below presents levels of the total capital ratio in Q1-Q3 2020
The total capital ratio informs about the relation between own funds and risk-weighted assets. It shows whether the brokerage house is able to cover the minimum capital requirement for market, credit, operational and other risks with its own funds. At the end of the first quarter of this year the total capital ratio in the Company amounted to 18,0%, at the end of the second quarter of 2020: 13,6%, and at the end of third quarter of 2020: 15,1%. This means that on condition of obtaining the total capital ratio as at 31.12.2020 at the level of at least 14% and meeting the other criteria, it will be possible to pay a dividend from the Company’s standalone net profit for the 2020 at the level of up to 75% of its profit.
The Management Board wants to protect the interest of shareholders in terms of the possibility of paying dividends from net profit of 2020 and applied to KNF for permission to include part of the profit for H1 2020 (maximum to 24,9% of this net profit) to Equity Tier I. As a result of these actions, if the KNF approval will be obtained, the Company’s capital base and the total capital ratio should be increased. In the opinion of the Management Board, this will secure the achievement of the total capital ratio as at 31.12.2020 at the level of at least 14%.
Cash and cash equivalents
In an environment of low interest rates, which discourages the maintenance of high deposits in banks, XTB started to locate part of its cash in financial instruments with a risk weight of 0% (treasury bonds and bonds guaranteed by the State Treasury). As at 30.09.2020 the total amount of own cash and treasury bonds in the Group amounted to PLN 880,7 million, that includes PLN 680,0 million of own cash and PLN 200,7 million of treasury bonds. The Management Board assumes that the value of the portfolio of instruments of 0% risk will increase in the future.
Consolidated net profit amounted to PLN 293,5 million compared to PLN 5,2 million a year earlier. Consolidated revenue amounted to PLN 518,2 million (H1 2019: PLN 88,8 million) and operating expenses reached PLN 138,3 million (H1 2019: PLN 83,6 million). In this period the Group also noted a record number of new clients i.e. 52.434, which means an increase by 225,9% compared to the first half of 2019.
The results of the first half of 2020 were charged with the reclassification of negative foreign exchange differences in the amount of PLN 21,9 million arising from the translation of the XTB Yönetim Danışmanlığı Anonim Şirketi (former: X Trade Brokers Menkul Değerler A.S.) subsidiary’s equity from the position “Foreign exchange differences on translation” in equity to income statement. The recognition of reclassification in the above amount as financial cost in accounting records is an accounting operation. However, it did not affect the liquidity position of XTB nor the total amount of Group’s equity as at the date of its booking. The value of consolidated net profit, after adjusting it for the mentioned one-off event would be PLN 315,4 million.
Revenues
In the first half of 2020 XTB noted a record revenue increase from PLN 88,8 million to PLN 518,2 million, i.e. by 483,6% y/y. The significant factors determining the level of revenues were above-average volatility on financial and commodity markets caused by among others coronavirus COVID-19 global pandemic and a constantly growing client base combined with their high transaction activity noted in the number of concluded transactions in lots. As a consequence the transaction volume in CFD instruments amounted to 1.613,9 thousand lots (H1 2019: 779,7 thousand lots) and a profitability per lot reached PLN 321 (H1 2019: PLN 114).
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. In the first half of 2020 the Group reported a new record in the number of new clients amounted to 52.434 compared to 16.089 a year earlier. This is the effect of continuing the optimized sales and marketing strategy, bigger penetration of already existed markets, successive introduction of new products to the offer and expansion into a new geographic markets. Similarly to the number of new clients, the number of active client was also record high. The number of active client increased from 23.688 to 52.084, i.e. by 119,9% y/y. The intention of Management Board in 2020 and subsequent years is to further increase the client base.
XTB’s aim is to provide clients with diversified investment offer simultaneously with comfort of managing the differentiated portfolio on one trading platform. The company analyses other possibilities of expanding the product offer, which could cause the introduction of new products in 2020 and subsequent years.
Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that CFDs based on stock indices dominated. Their share in the structure of revenues on financial instruments in the first half of 2020 reached 48,8% against 84,3% a 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 and contract based on volatility index listed on the U.S. organized market. The second most profitable class of assets were CFD based on commodities. Their share in the structure of revenues on financial instruments in the first half of 2020 reached 40,6% (H1 2019: 6,9%). The most profitable instruments among this asset class were CFD instruments based on oil prices, gold and natural gas contracts. Revenues of CFD based on currency reached 8,6% of all revenues, compared to 6,2% a year earlier.
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 (%)
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 34,1% (H1 2019: 40,8%) and 17,8% (H1 2019: 23,9%). 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 period to period, analogically to the retail segment, which is typical for the business model adopted by the Group.
XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company and it is at such times that it achieves the highest revenues. Therefore, high activity of financial markets and commodities generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic of the Group’s business model.
Expenses
In the first half of 2020 operating expenses amounted to PLN 138,3 million and were higher by PLN 54,7 million in relation to the same period a year earlier (H1 2019: PLN 83,6 million). The most significant changes occurred in:
• costs of salaries and employee benefits, an increase of PLN 25,2 million mainly due to provisions established for variable
components of remuneration (bonuses) and unused holidays and an increase in employment;
• marketing costs, an increase of PLN 20,2 million mainly due to higher expenditures on marketing online campaigns;
• commission expenses, an increase of PLN 6,6 million as a result of larger amounts paid to payment service providers through
which clients deposit their funds on transaction accounts;
• other external costs, an increase of PLN 1,9 million as a result of higher expenditures on: (i) IT systems and licenses
(an increase of PLN 0,7 million y/y); (ii) legal and consulting services(an increase of PLN 0,6 million y/y).
In q/q terms, operating costs decreased of PLN 6,8 million mainly due to lower by PLN 11,9 million costs of salaries and employee benefits and higher by PLN 5,5 million marketing expenditures.
The Management Board expects that during the whole 2020 operating costs will be higher than in 2019. The final level of operating costs will depend on the level of variable remuneration components paid to employees, the level of marketing expenditures, the dynamics of geographical expansion into new markets and the impact of potential product interventions and other external factors 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 depends on their impact on the Group’s results and profitability, the rate of foreign expansion and on clients responsiveness to the actions taken. The impact of a new product intervention on the Group’s revenues will determine, if necessary, a revision of the cost assumptions.
In terms of remuneration costs and employee benefits, in the subsequent quarters of 2020 it is assumed that their amount may fluctuate between the levels recorded in Q2 2020, and those noted in Q4 and Q3 of 2019. In the third quarter of this year, due to holiday period, the Management Board plans to limit online marketing activities. This may result in a decrease in marketing costs by approximately 20-30% and lower client base growth. In turn, in the fourth quarter of this year the Management Board aims to strengthen branding activity in the Group.
Dividend and capital requirements
The XTB dividend policy assumes recommendation by the Management Board to the General Meeting a dividend payment in the amount taking into account the level of net profit presented in the standalone annual financial report of the Company and a variety of factors relating to the Company, including prospects for further operations, future net profits, demand for cash, financial situation, the level of capital adequacy ratios, expansion plans, legal requirements in this area and KNF guidelines. In particular, the Management Board, when submitting proposals for dividend payment, will be guided by the need to ensure an appropriate level of the Company’s capital adequacy ratios and the capital necessary for the development of the Group. The Management Board maintains that its intention is to recommend in the future the adoption of resolutions to the General Meeting on dividend payment taking into account factors mentioned above, at the level of 50% to 100% of Company’s standalone net profit of a given financial year. The standalone net profit for the first half of 2020 amounted to PLN 312,6 million.
Taking into account the position of the KNF published on 22 May 2018, regarding the dividend policy of brokerage houses in the medium term, it is recommended to pay dividends only by brokerage houses that especially:
• at the end of each quarter, have a total capital ratio of at least 14% – then it is possible to pay a dividend in the amount not
higher than 100% of the net profit for a given year, or
• as at the last calendar day of a given year had a total capital ratio of at least 14% – then it is possible to pay a dividend at the
level not exceeding 75% of the net profit for a given year;
• obtain a BION supervisory assessment of 1 or 2.
The chart below presents levels of the total capital ratio in the first half of 2020.
The total capital ratio informs about the relation between own funds and risk-weighted assets. It shows whether the brokerage house is able to cover the minimum capital requirement for market, credit, operational and other risks with its own funds. At the end of the first quarter of this year the total capital ratio in the Company amounted to 18,0%, and at the end of the second quarter of 2020: 13,6%. This means that on condition of obtaining the total capital ratio as at 31.12.2020 at the level of at least 14% and meeting the other criteria, it will be possible to pay a dividend from the Company’s standalone net profit for the 2020 at the level of up to 75% of its profit.
The Management Board wants to protect the interest of shareholders in terms of the possibility of paying dividends from net profit of 2020 and plans to apply to KNF for permission to include part of the profit for H1 2020 (maximum to 25% of this net profit) to Equity Tier I. As a result of these actions, if the KNF approval will be obtained, the Company’s capital base and the total capital ratio should be increased. In the opinion of the Management Board, this will secure the achievement of the total capital ratio as at 31.12.2020 at the level of at least 14%.
Cash
XTB, as an investment company, operates in the market making model for CFD instruments. It means that the Company offers liquidity on the market by accepting, on its own account, purchase and sale transactions of financial instruments concluded and initiated by its retail and institutional clients. The Group does not engage, strictly speaking, in proprietary trading in anticipation of changes in prices or values of the underlying instruments. The activity in market making model causes market risk which, in accordance with applicable law, must be covered by maintaining sufficiently high equity (capital ratio). On the asset side in the balance sheet, this is shown in the value of own cash.
In an environment of low interest rates, which discourages the maintenance of high deposits in banks, XTB started to locate part of its cash in financial instruments with a risk weight of 0% (treasury bonds). As at 30.06.2020 the total amount of own cash and treasury bonds in the Group amounted to PLN 812,7 million, that includes PLN 681,3 million of own cash and PLN 131,4 million of treasury bonds. The Management Board assumes that the value of the portfolio of instruments of 0% risk will increase in the future.
