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.
In the first quarter of 2020 XTB reported a consolidated net profit of PLN 176,0 million compared to PLN 0,8 million a year earlier. It is an increase of PLN 175,2 million. Consolidated revenue amounted to PLN 306,7 million (I quarter 2019: PLN 40,9 million) and operating expenses amounted to PLN 72,5 million (I quarter 2019: PLN 41,1 million). In this period the Group noted a record number of new clients i.e. 21 911, which is an increase of 220,2% y/y.
The results of the first quarter 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.
REVENUES
In the first quarter of 2020 XTB noted a record revenue increase by 650,0 % y/y, i.e. by PLN 265,8 million from PLN 40,9 million to PLN 306,7 million. 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 784,8 thousand lots (QI 2019: 394,4 thousand lots) and a profitability per lot increased by 276,9%.
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. In the QI of 2020 the Group reported a new record in the number of new clients amounted to 21 911 compared to 6 843 a year earlier i.e. an increase by 220,2%. This is the effect of continuing the optimized sales and marketing strategy and the successive introduction of new products to the offer, such as CFD based on sector indices, shares, ETFs and expansion into new geographic markets. The average number of active clients was higher by 23 415 y/y, i.e. 105,3%. The intention of Management Board in 2020 is to further increase the client base.
XTB’s aim is to provide a 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 commodities dominated. Their share in the
structure of revenues on financial instruments in QI 2020 reached 51,2% against
6,8% a year earlier. This is a consequence of among other large price
fluctuations on CFD instruments based on oil prices and natural gas contracts.
The second most profitable class were CFD instruments based on indices. Their
share in the structure of revenues in QI 2020 reached 36,2% (QI 2019: 89,3%).
The most popular instruments among this asset class were instruments based on
the German DAX stock index (DE30) and contracts based on American indices.
Revenues of CFD based on currency reached 11,1% of all revenues, compared to
1,1% 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.
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 27,9% (QI 2019: 54,6%) and 19,0% (QI 2019: 17,0%). 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.
EXPENSES
In the QI of 2020
operating expenses amounted to PLN 72,5 million and were higher by PLN 31,4
million in relation to the same period a year earlier (QI 2019: PLN 41,1
million). The most significant changes occurred in:
• costs
of salaries and employee benefits, an increase of PLN 19,0 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 7,6 million mainly due to higher expenditures on
marketing online campaigns;
• commission
expenses, an increase of PLN 2,5 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 2,0 million as a result of higher
expenditures on: (i) IT support service (an increase of
PLN 1,6 million y/y); (ii) IT systems and licenses (an increase
of PLN 0,4 million y/y).
In q/q terms, operating costs increased of PLN 25,2 million mainly due to higher by PLN 14,7 million costs of salaries and employee benefits and higher by PLN 6,5 million marketing expenditures.
The
Management Board expects that during the whole 2020 operating costs will be
higher than in 2019. In the coming quarters the costs of salaries and employee
benefits are expected to decline to similar levels to those we observed
quarterly in 2019. In the second quarter of 2020 marketing costs are also
expected to decline – similarly to the costs of salaries and employee benefits.
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 entry of new regulations may determine if necessary, a revision of the Group’s cost assumption.
DEVELOPMENT PERSPECTIVES
XTB with its strong market position and dynamically growing client base enters the non-European markets. XTB is consequently
implementing a strategy on building a global brand. In 2020 the Group aims to increase its European market penetration and
continue with building its position in Latin America, Asia and Africa.
In 2019 XTB reported a consolidated net profit of PLN 57,9 million compared to PLN 101,5 million net profit a year earlier. Consolidated revenues amounted to PLN 239,3 million compared to PLN 288,3 million a year earlier, and operating costs PLN 173,8 million (2018: PLN 172,5 million). The Group gained a record number of new clients, i.e. 36 555, which means an increase by 76,8% y/y.
REVENUES
In 2019 the revenues decreased by 17,0 y/y i.e. PLN 48 997 thousand from PLN 288 301 thousand to PLN 239 304 thousand. One of the relevant factors which determined the level of revenues of XTB was the product intervention of ESMA. coming into force in August 2018. The regulations limited maximum permitted level of leverage for retail clients, which resulted in lower volume of transactions concluded by clients. Consequently, CFDs turnover in lots amounted to 1 597 218 lots compared to 2 095 412 a year earlier. Profitability per lot increased by 8,7% y/y i.e. from PLN 138 to PLN 150.
In Q42019, the revenues increased by 109,3% compared to the Q4 2018, i.e. by PLN 46 785 thousand from PLN 42 786 thousand to PLN 89 571 thousand. This change was driven by: (i) higher profitability per lot – an increase by PLN 134 (from PLN 93 to PLN 227); (ii) lower financial instruments turnover noted in the number of concluded transactions in lots – a decrease by 64 723 lots (from 458 869 to 394 147 lots).
XTB has a solid basis for growth in the form of constantly growing customer base and number of active clients. In 2019 the Group reported a record number of new clients amounting to 36 555 compared to 20 672 in 2018, i.e. an increase by 76,8%. This is an effect of continuing the optimized sales and marketing strategy and the successive introduction of new products to the offer, such as CFDs based on sector indices, shares, ETFs and an expansion to new geographical markets. The average number of active clients was higher by 5 303 compared to 2018, i.e. 24,9%. The intention of the Management Board in 2020 is to further increase the client base. This is confirmed by the data for January, when the Group gained a record number of new clients i.e. 4 480.
XTB’s aim is to provide a 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 further years.
Looking at
revenues in terms of the classes of instruments responsible for their creation,
it can be seen that in 2019, CFDs based on stock indices dominated. Their share
in the structure of revenues on financial instruments reached 74,8% compared to
49,6% 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 US 500 and US 100. The second most-profitable class of assets were CFD
based on currencies. Their share in the structure of revenues on financial
instruments in 2019 reached 18,2% (2018: 23,5%). Instruments based on the
EURUSD currency pair were the most popular among this asset class. The revenues
from commodity-based instruments accounted for 5,2% of total revenues, compared
to 24,3% 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 result of operations on financial instruments
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 40,5% (2018: 25,2%) and 19,9% (2018: 14,7%) 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.
It should be noted that, similar to the retail segment, ESMA product intervention could affect the condition of the European institutional partners of XTB and thus the transaction volume in lots as well as the revenues of XTB from these clients. However, the Management Board cannot exclude that there will been increase in volatility of institutional clients in the future.
OPERATING EXPENSES
Operating expenses in 2019 amounted to PLN 173 892 thousand and were similar to those a year earlier (an increase by PLN 1 400 thousand y/y). The most significant changes y/y occurred in:
• salaries and employee benefits costs, an increase by PLN 7 546 thousand mainly due to new employment and employee
severance payments;
• marketing costs, an increase by PLN 4 394 thousand mainly due to higher expenditures on online marketing campaigns;
• costs of maintenance and lease of buildings, a decrease by PLN 4 657 and consequently an increase in depreciation costs by
PLN 2 822, relating to the entry into force of IFRS 16 Leasing;
• other costs, a decrease by PLN 9 746 thousand as a result of one-off event in Q3 2018 in the amount of PLN 9 900 thousand.
The Management Board expects that in 2020 operating expenses should be at a level of several percent higher than in 2019. The final level will depend on the pace of geographical expansion into new markets, the variable remuneration elements (bonuses) paid to employees, the level of marketing expenditures and the impact of regulations and other external factors on the level of revenues generated by the Group.
DEVELOPMENT PERSPECTIVES
The entry into force of product
intervention by ESMA creates both opportunities and threats for XTB. On the one
hand, there is a temporary drop in trade volumes among European brokers. On the
other hand, the Management Board of XTB is convinced of the business’s vitality
over a longer time horizon. The natural consequence of ESMA’s decision should
be a wave of consolidation on the market that would allow XTB to consolidate
its strong position on the European market. Less influential brokers, unable to
withstand regulatory pressure and strong competition from a very significant
brokers, will naturally disappear from the market. Consequently large brokers
should expect the client base to grow.
XTB with its strong market position and dynamically
growing client base enters the non-European markets. XTB is consequently
implementing a strategy on building a global brand. The Group aims to increase
its European market penetration and continue with building their position in
Latin America, Asia and Africa.
In the third quarter of the year 2019, XTB reported a consolidated net profit of PLN 15,5 million compared to PLN 2,9 million in the third quarter of 2018. Consolidated revenue was PLN 61,0 (Q3 2018: PLN 47,6 million) and operating expenses reached PLN 43,0 million (Q3 2018: PLN 48,8 million). In the third quarter the Group noted a record number of new clients, i.e. 10 042. This is an increase of 105,6% y/y and 8,6% q/q.
In the first three quarters of 2019 the Company reported a consolidated net profit of PLN 20,8 million compared to PLN 97,5 million reported over the same period of 2018.
REVENUES
The revenues in the Q3 2019 increased by 28,1% y/y, i.e. PLN 13,4 million from PLN 47,6 to PLN 61,0 million. Significant factors which determined the revenue growth were: (i) higher XTB clients turnover of financial instruments reflected by the number of executed transactions i.e. growth of 78 215 lots (from 345 118 to 423 333 lots), (ii) higher profitability per unit lot, i.e. growth of PLN 6 (from PLN 138 to PLN 144).
XTB has a solid foundation in the form of a constantly growing clients base and number of active clients. The intention of the Management Board in 2019 is to further increase the client base. In the period from the beginning of 2019 the Group reported a record number of new clients amounting to 26 131 compared to 14 930 in the comparable period of 2018. In the Q3 2019 the number of new clients increased by 796 q/q i.e. 8,6% q/q. This is the effect of continuing the optimized sales and marketing strategy and the successive introduction of new products to the offer, such as shares and ETFs. The average number of active clients was higher by 7 859 compared to Q3 2018, i.e. 38,8% y/y.
XTB’s aim is to provide a 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 2019 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 currency dominated. Their share in the structure of revenues on financial instruments in the Q3 2019 reached 51,6% against 22,0% a year earlier. This is a consequence of the high interest of XTB clients in instruments based on the EURUSD currency pair. The second most-profitable class of assets were CFDs based on stock indices. Their share in the structure of revenues on financial instruments in the Q3 2019 reached 36,5% (Q3 2018: 18,6%). The most popular instruments among this class were instruments based on the German DAX stock index (DE30) and the US indices US100 and US500. Revenues on CFD instruments based on commodities accounted for 8,8% of total revenues against 58,9% 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.
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 41,4% (Q3 2018: 38,4%) and 18,5% (Q3 2018: 12,5%) respectively. 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.
It should be noted that, similar to the retail segment, ESMA product intervention could affect the condition of the European institutional partners of XTB and thus the transaction volume in lots as well as the revenues of XTB from these clients. However, the Management Board cannot exclude that there will been increase in volatility of institutional clients in the future
EXPENSES
Operating expenses in the third quarter of 2019 amounted to PLN 43,0 million and were lower by PLN 5,9 million compared to the same period last year. The most important changes y/y occurred in:
• costs of salaries and employee benefits, an increase of PLN 1,7 million related to new employment and employee severance payment;
• costs of maintenance and lease of buildings, a decrease of PLN 1,1 million and consequently an increase in depreciation costs by PLN 0,9 million, mainly due to a change in the approach to the cost of renting office space from 2019, relating to the entry into force of IFRS 16 Leasing;
• other cpsts, a decrease of PLN 7,8 million as a result of one-off event in Q3 2018, i.e. which was an administrative fine imposed by the Polish Financial Supervision Authority in the amount of PLN 9,9 million.
In Q3 2019 operating expenses slightly increased by PLN 0,5 million q/q, mainly due to higher salaries and employee benefits costs by PLN 0,6 million.
The Management Board expects in the Q4 2019 operating expenses to be at a level comparable to that observed in the previous quarters this year. The final level will depend on the variable remuneration elements paid to employees, the level of marketing expenditures and the impact of ESMA’s product intervention on the level of revenues generated by the Group. The value of variable remuneration components will be influenced by the results of the Group. The level of marketing expenditures will depend on the impact of the results and profitability of the Group and on responsiveness of the clients to the actions taken. The impact of product intervention introduced by relevant regulators on local markets of European Union countries on the Group’s revenues will determine, if necessary, a revision of the cost assumptions for further months of 2019.
PERSPECTIVES
The entry into force of product intervention, introduced by relevant regulators on local markets of European Union countries, creates both opportunities and threats for XTB. On the one hand, there is a temporary drop in trade volumes among European brokers. On the other hand, the Management Board of XTB is convinced of the business’s vitality over a longer time horizon. The natural consequence of relevant regulators on local markets of European Union countries decision should be a wave of consolidation on the market that would allow XTB to consolidate its strong position on the European market. Less influential brokers, unable to withstand regulatory pressure and strong competition from a very significant brokers, will naturally disappear from the market. Consequently large brokers should expect the client base to grow.
XTB has a stable market position and dynamically growing customer base. The Group plans further development by expanding the customer base and product offer, penetrating existing markets and expanding geographically to new markets to build a global brand.
In the first half of 2019 XTB reported a consolidated net profit of PLN 5.2 million compared to PLN 1.1 million in the second half of 2018. Consolidated revenue was PLN 88.8 million (H2 2018: PLN 90.4 million) and operating expenses reached PLN 83.6 million (H2 2018: PLN 89.7 million). In this period XTB noted a record number of new clients i.e. 16 089, which is an increase of 51.4% compared to second half of 2018 (h/h).
REVENUES
The revenues in the first half of 2019 decreased by 1.8% h/h, i.e. PLN 1.6 million from PLN 90.4 to PLN 88.8 million. Significant factors which determined the level of revenues in this period were: the product intervention of the European Securities and Markets Authority (ESMA) coming into force in August 2018, which in case of the retail clients limited maximum permitted level of leverage. This had a direct impact on lower volume of transaction carried out by XTB clients. As a consequence the transaction volume in CFD instruments amounted to 779.7 thousand lots (H1 2018: 1 291.4 thousand lots, H2 2018: 804.0 thousand lots) and profitability per lot reached PLN 114 (H1 2018: PLN 153, H2 2018: PLN 112 ).
XTB has a solid foundation in the form of constantly growing customer base and number of active clients. The intention of the Management Board in 2019 is to further increase the client base. The Group reported a record number of new clients amounting to 16 089 compared to 10 626 in the second half of 2018 (H1 2018: 10 046). In the second quarter of 2019 number of new clients increase by 2 403 q/q, i.e. 35.1% q/q. This is the effect of continuing the optimized sales and marketing strategy and the successive introduction of new products to the offer, such as shares, ETFs, indexes of technology companies FANG + and other sector indexes. The average number of active clients was higher by 3 265 h/h, i.e. 16.0% h/h.
XTB’s aim is to provide a diversified investment offer simultaneously with comfort of managing the differentiated portfolio on one trading platform. The company analyzes other possibilities of expanding the product offer, which could cause the introduction of new products in 2019 and following years.
Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that similar as in the first half of 2018, CFDs based on stock indices dominated. Their share in the structure of revenues on financial instruments in the first half of 2019 reached 84.3% against 51.0% year earlier. This is a consequence of the high interest of XTB clients in CFD instruments based on the German DAX stock index (DE30) and the US indices US500, US100, US30. The second most-profitable class of assets were CFD commodities. Their share in the structure of revenues on financial instruments in the first half of 2019 reached 6.9% (H1 2018: 16.4%). The most lucrative instrument among clients was CFD based on quotations of the contract for natural gas and gold. Revenues on CFD instruments based on currency pairs amounted to 6.2% of total revenues against 29.3% a year earlier. Among this class of instruments, where the EURUSD currency pair was the most popular between XTB clients, there were more predictable trends in which the market moved within a limited price range. This led to the emergence of market trends, which can be predicted with a higher probability than in the case of larger directions of movements on the markets, which created favorable conditions for transactions concluded in a narrow range of the market (range trading). In this case, XTB has observed a higher number of profitable transactions for clients.
XTB clients, looking for investment opportunities to earn money, generally trade in financial instruments that are characterized by high market volatility in a given period. This may lead to fluctuations in the revenue structure by the asset class, which should be treated as a natural element of the business model. From the point of view of XTB, it is important that the range of financial instruments in the Group’s offer is as broad as possible and allows clients to use every upcoming market opportunity to earn money.
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 40.8% (H1 2018: 32.3%) and 23.9% (H1 2018: 15.0%). The share of other countries in the geographical structure of revenues does not exceed in any case 15%.
XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities (X Open Hub), under which it provides liquidity and technology to other financial institutions, including brokerage houses. Revenues from this segment are subject to significant fluctuations from quarter to quarter, analogically to the retail segment, which is typical for the business model adopted by the Group.
It should be noted that, similar as a retail segment, product intervention introduced by relevant regulators on local markets of European Union countries could affect the condition of the European institutional partners of XTB and thus the transaction volume in lots as well as the revenues of XTB from these clients. However, the Management Board cannot exclude that there will be increase in volatility of institutional clients in the further.
EXPENSES
Operating costs in the first half of 2019 amounted to PLN 83.6 million and were higher by PLN 0,8 million compared to the same period a year earlier. The most significant changes y/y occurred in:
• marketing costs, an increase of PLN 2.0 million due to higher expenditures on marketing online campaigns;
• costs of salaries and employee benefits, an increase of PLN 1.4 million related to new employment and employee severance
payments;
• costs of maintaining and lease of buildings, a decrease by PLN 2.4 million and thus an increase in depreciation costs by PLN
1.0 million, mainly due to a change in the approach to the cost of renting office space from 2019, in connection with the entry into force of IFRS 16 Leasing;
• other external services, a decrease by PLN 1.4 million as a result of lower expenditure on other external services (decrease by
PLN 1.4 million y/y).
In the first half of 2019 operating expenses increased by PLN 1.4 million q/q, mainly due to higher by PLN 1.1 million salaries and employee benefits costs and other expenses by PLN 0.5 million.
The Management Board expects in the second half of 2019 operating expenses to be at a level comparable to that observed in the first half of 2019. The final level will depend on the variable remuneration elements paid to employees, the level of marketing expenditures and the impact of ESMA’s product intervention on the level of revenues generated by the Group. The value of variable remuneration components will be influenced by the results of the Group. The level of marketing expenditures will depend on the impact of the results and profitability of the Group and on responsiveness of the clients to the actions taken. The impact of product intervention introduced by relevant regulators on local markets of European Union countries on the Group’s revenues will determine, if necessary, a revision of the cost assumptions for further months of 2019.
DEVELOPMENT PERSPECTIVES
The entry into force of product intervention by ESMA creates both opportunities and threats for XTB. On the one hand, there is a temporary drop in trade volumes among European brokers. On the other hand, the Management Board of XTB is convinced of the business’s vitality over a longer time horizon. The natural consequence of ESMA’s decision should be a wave of consolidation on the market that would allow XTB to consolidate its strong position on the European market. Less influential brokers, unable to withstand regulatory pressure and strong competition from a very significant brokers, will naturally disappear from the market. Consequently large brokers should expect the client base to grow.
XTB has a stable market position and dynamically growing client base. The Group plans further development by expanding the client base and product offer, penetrating existing markets and expanding geographically to new markets to build global brand.
In the first quarter of 2019 XTB reported a consolidated net profit of PLN 0,8 million compared to PLN 4,0 million a quarter earlier. Consolidated revenue was PLN 40,9 (IV quarter 2018: PLN 42,8 million) and operating expenses reached PLN 41,1 million (IV quarter 2018: PLN 40,9 million). In this period XTB noted a record number of new clients i.e. 6 843, which is an increase of 19,2% q/q. Situation on the financial and commodity market was creating limited income opportunities for XTB clients. This translated into the turnover volumes they have achieved and the level of the Group’s revenues.
REVENUES
The revenues in the first quarter of 2019 decreased by 4,4% q/q, i.e. PLN 1,9 million from PLN 42,8 to PLN 40,9 million. Significant factors which determined the level of revenues in this period were: the product intervention of the European Securities and Markets Authority (ESMA) coming into force in August 2018, which in case of the retail clients limited maximum permitted level of leverage and low level of volatility in the financial and commodity markets understood as occurrence of clear and long-term market trends at the various types of assets. As a consequence the transaction volume in CFD instruments amounted to 394,4 thousand lots (QIV 2018: 458,9 thousand lots) and profitability per lot reached PLN 104 (QIV 2018: PLN 93).
XTB has a solid foundation in the form of constantly growing client base and number of active clients. The intention of the Management Board in 2019 is to further increase the client base. Despite lower revenues in the first quarter of 2019, the Group reported a record number of new clients amounting to 6 843 compared to 5 742 a quarter earlier (QI 2018: 5 312). This is the effect of continuing the optimized sales and marketing strategy and the successive introduction of new products to the offer, such as shares and ETFs. The average number of active clients was higher by 1 677 q/q, i.e. 8,2% q/q.
XTB’s aim is to provide a diversified investment offer simultaneously with comfort of managing the differentiated portfolio on one trading platform. The company analyzes other possibilities of expanding the product offer, which could cause the introduction of new products in 2019.
Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that similar as in QI of 2018, CFDs based on stock indices dominated. Their share in the structure of revenues on financial instruments in the first quarter of 2019 reached 89,3% against 57,5% year earlier. This is a consequence of the high interest of XTB clients in CFD instruments based on the German DAX stock index (DE30) and the US indices US500, US100, US30. The second most-profitable class of assets were CFD commodities. Their share in the structure of revenues on financial instruments in the first quarter of 2019 reached 6,8% (QI 2018: 10,0%). The most lucrative instrument among clients was CFD based on quotations of the contract for coffee. Revenues on CFD instruments based on currency pairs amounted to 1,1% of total revenues against 29.2% a year earlier. Among this class of instruments, where the EURUSD currency pair was the most popular between XTB clients, there were more predictable trends in which the market moved within a limited price range. This led to the emergence of market trends, which can be predicted with a higher probability than in the case of larger directions of movements on the markets, which created favorable conditions for transactions concluded in a narrow range of the market (range trading). In this case, XTB has observed a higher number of profitable transactions for clients.
XTB clients, looking for investment opportunities to earn money, generally trade in financial instruments that are characterized by high market volatility in a given period. This may lead to fluctuations in the revenue structure by the asset class, which should be treated as a natural element of the business model. From the point of view of XTB, it is important that the range of financial instruments in the Group’s offer is as broad as possible and allows clients to use every upcoming market opportunity to earn money.
The structure of revenue by asset class (in %)
XTB places great importance on the geographical diversification of revenues. The countries from which the Group derives more than 15% of revenues are Poland and Spain with the share of 54.6% (QI 2018: 26.7%) and 17.0% (QI 2018: 18). The share of other countries in the geographical structure of revenues does not exceed in any case 15%.
XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities (X Open Hub), under which it provides liquidity and technology to other financial institutions, including brokerage houses. Revenues from this segment are subject to significant fluctuations from quarter to quarter, analogically to the retail segment, which is typical for the business model adopted by the Group.
It should be noted that, similar as a retail segment, ESMA product intervention could affect the condition of the European institutional partners of XTB and thus the transaction volume in lots as well as the revenues of XTB from these clients. However, the Management Board cannot exclude that there will be increase in volatility of institutional clients in the further.
EXPENSES
Operating expenses in the first quarter of 2019 amounted to PLN 41,1 million and were at a similar level in relation to comparative periods (QIV 2018: PLN 40,9 million and QI 2018: PLN 41,0 million). The most important changes y/y occurred in:
• marketing costs, an increase of PLN 1,4 million due to higher expenditures on marketing online campaigns;
• costs of maintenance and lease of buildings, a decrease of PLN 1.2 million and consequently an increase in depreciation
costs by PLN 0,3 million, mainly due to a change in the recognition of lease rent costs since 2019;
• other external services, a decrease of PLN 1,0 million as a result of lower expenditure on:
– IT support services (a decrease of PLN 0,6 million y/y);
– legal and advisory services (a decrease of PLN 0,5 million y/y).
In QI of 2019 operating expenses slightly increased, i.e. by PLN 0,2 million, mainly due to higher marketing expenditures by PLN 1,3 million.
The Management Board expects in 2019 operating expenses to be at a level comparable to that observed in 2018. The final level will depend on the variable remuneration elements paid to employees, the level of marketing expenditures and the impact of ESMA’s product intervention on the level of revenues generated by the Group. The value of variable remuneration components will be influenced by the results of the Group. The level of marketing expenditures will depend on the impact of the results and profitability of the Group and on responsiveness of the clients to the actions taken. The impact of ESMA’s product intervention on the Group’s revenues will determine, if necessary, a revision of the cost assumptions for further months of 2019.
DEVELOPMENT PERSPECTIVES
The entry into force of product intervention by ESMA creates both opportunities and threats for XTB. On the one hand, there is a temporary drop in trade volumes among European brokers. On the other hand, the Management Board of XTB is convinced of the business’s vitality over a longer time horizon. The natural consequence of ESMA’s decision should be a wave of consolidation on the market that would allow XTB to consolidate its strong position on the European market. Less influential brokers, unable to withstand regulatory pressure and strong competition from a very significant brokers, will naturally disappear from the market. Consequently large brokers should expect the client base to grow.
XTB has a stable market position and dynamically growing client base. The Group plans further development by expanding the client base and product offer, penetrating existing markets and expanding geographically to new markets in Africa and Asia, as well as Latin America, using its presence in Belize as a starting point for expansion and business development in other countries of the region.
The situation on the financial and commodity markets affects the financial results of XTB, in particular on the level of revenues. However, there’s no way to predict what market conditions we will have to face with in the longer term, and thus it is premature to draw conclusions about the results of the entire 2019 on the basis of the first quarter.
In 2018, XTB reported PLN 101 471 thousand of consolidated net profit compared to PLN 92 973 thousand profit a year earlier. This is an increase of PLN 8 498 thousand ie. 9.1%. Operating profit (EBIT) decreased y/y by PLN 12 461 thousand 9.7% to PLN 115 809 thousand. Consolidated revenues amounted to PLN 288 301 thousand to PLN 273 767 thousand a year earlier.
OPERATING INCOME
The revenues in 2018 increased by 5.3% y/y ie. PLN 14 534 thousand from PLN 273 767 thousand to PLN 288 301thousand. In the I half of 2018 XTB noted a record revenues (PLN 197 937 thousand), which resulted from the constantly growing customer base, clear trends in the financial markets, relatively high profitability per lot (an average of PLN 153) and significant customer activity expressed in the number of contracts in lots ( 1 291 426 lots). II half of 2018 brought reduction of revenues to the level of PLN 90 364 thousand, calmer situation in the financial markets, decreased profitability per lot (an average of PLN 116) and a decline of trading lots volume to 803 987 lots. One of the relevant factors which determined the level of revenues of XTB in 2018 was the product intervention of the European Securities and Markets Authority (ESMA) coming into force in August, which in case of the retail clients limited maximum permitted level of leverage for CFDs up to 30:1 for major currency pairs and 20:1 for non-majors currency pairs, gold and major indices. Intervention was initially implemented for the period of three months with possibility of further extension. At present, it is known that the intervention will remain in force at least till April, 2019.
Although in quarterly terms, the revenues of the XTB Group are subject to significant fluctuations, which is a phenomenon typical of the XTB business model, then in a longer time horizon, which is a year, they take on more stable and comparable values to those from historical years.
XTB has a solid basis for growth in the form of constantly growing customer base and number of active clients. In 2018 Group canvassed 20 672 new clients, it’s increase by 9.3% y/y. The average number of active clients was higher by 2 612, ie. 14.0% y/y. In IV quarter 2018 XTB noted a record number of new clients in relation to previous quarters.
In 2018, XTB continued implementation of optimized sales and marketing strategy and introduced new products such as shares and ETFs from the largest stock exchanges in Europe and the United States. Expanding XTB’s offer is a reaction to clients changing investment preferences, which include the increasing popularity of shares and ETFs. XTB’s aim is to provide a diversified investment offer simultaneously with comfort of managing the differentiated portfolio on one trading platform. The company analyzes other possibilities of expanding the product offer, which could cause the introduction of new products in 2019.
In 2019 the Management Board will strive to growing customer base. The Management sees the greatest growth potential in the German, French and Latin American market.
Looking at revenues in terms of the classes of instruments responsible for their creation, it can be seen that similar as in 2017, CFDs based on stock indices dominated. Their share in the structure of revenues on financial instruments in 2018 reached 49.6% against 60.7% 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 US100, US30, US500. The second most-profitable class of assets were CFD commodities. Their share in the structure of revenues on financial instruments in 2018 reached 24.3% (2017: 11.9%).The most lucrative instrument among customers was CFD based on quotations of the contract for oil and gold. Revenues on CFD instruments based on currency pairs amounted to 23.5% of total revenues against 24.3% a year earlier. Among this class of instruments, the USDTRY currency pair was the most popular between XTB clients.
Geographically, XTB revenues were well diversified. In 2018 their growth has occurred in both, Central and Eastern Europe, Western Europe and Latin America. Country from which the Group derives more than 15% of revenues is Poland with shares amounting to 25.2% (2017: 28.6%). The second largest market for XTB is Spain, with shares amounting to 14.7% (2017: 20.7%). The share of other countries in the geographical structure of revenues does not exceed in any case 15%. Latin America is also gaining on importance, which has already replaced the gap in Turkey.
XTB puts strong emphasis on diversification of segment revenues. Therefore, from 2013, it 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.
OPERATING EXPENSES
Operating expenses in 2018 amounted to PLN 172 492 thousand (2017: PLN 145 497 thousand) and were higher by PLN 26 995 thousand ie. 18.6% y/y. This increase was mainly higher by one-off event, which was administrative fine imposed by PFSA in the amount of PLN 9 900 thousand and higher by:
• PLN 8 481 thousand of marketing costs mainly due to higher expenditures on marketing online campaigns;
• PLN 5 328 thousand of salaries and employee benefits costs mainly due to the increase in variable remuneration
elements (bonuses). The average number of employees in the Group was 391 persons in 2018 and 388 persons in
2017. Average monthly cost of remuneration and employee benefits per one employee in the Group in 2018 amounted
PLN 16.7 thousand and increased in comparison to previous year (2017: PLN 15.7 thousand).
• PLN 2 966 thousand of other external services costs as a result of incurring more expenditure on:
– legal and advisory services (increased by PLN 1 060 thousand y/y);
– market data services (increased by PLN 995 thousand y/y) and
– IT systems and licenses (increased by PLN 627 thousand y/y).
In IV Quarter of 2018 operating expenses amounted on similar level as previous quarters of 2018 (after correcting by one-off event).
DEVELOPMENT PERSPECTIVES
XTB has a stable market position, growing customer base and over PLN 465 million of own cash on the balance sheet. The Group plans further development by expanding the customer base and product offer, penetrating existing markets and expanding geographically to new markets in Africa and Asia, as well as Latin America, using its presence in Belize as a starting point for expansion and business development in other countries of the region.
The entry into force of product intervention by ESMA creates both opportunities and threats for XTB. On the one hand, there is a temporary drop in trade volumes among European brokers. On the other hand, the Management Board of XTB is convinced of the business’s vitality over a longer time horizon. It seems likely that clients gradually adjust their trading strategies to a lower level of financial leverage. Maintaining the ESMA decision in time should lead to a wave of consolidation in the market and allow XTB to consolidate its strong position on the European market.
