XTB financial results for the 1st quarter of 2020
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.
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.
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.
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.