XTB financial results for the 1st quarter of 2023
In the first quarter of 2023 was another period of dynamic business development and building a client’s base for XTB. The group acquired a record 104,2 thousand new clients, an increase of 88,3% y/y, while the number of active clients increased by 44,1% y/y from 149,7 thousand to 215,7 thousand. This also contributed to the increase in the trading volume of clients on CFD instruments expressed in lots – an increase from 1,6 million to 1,8 million, i.e. 18,2% y/y.
XTB’s dynamic operational growth, coupled with favourable market conditions, translated into record-breaking financial results in the first quarter of 2023. Consolidated net profit amounted to PLN 302,8 million compared to PLN 252,6 million a year earlier. This is an increase of PLN 50,2 million. Consolidated revenues amounted to PLN 531,6 million (Q1 2022: PLN 439,8 million) with operating expenses of PLN 184,2 million (Q1 2022: 131,0 million).
In the first quarter of 2023, XTB recorded a record level of revenue. They increased by 20,9% y/y, i.e. by PLN 91,8 million, from PLN 439,8 million to PLN 531,6 million. Significant factors determining their level were high volatility in the financial and commodity markets and the constantly growing number of active clients (increase by 88,3% y/y), connected with their high transaction activity expressed in the number of CFD contracts concluded in lots. As a consequence the transaction volume in CFD instruments amounted to 1 845,2 thousand lots (Q1 2022: 1 560,7 thousand lots), and a profitability per lot amounted to PLN 288 (Q1 2022: PLN 282).
XTB has a solid foundation in the form of constantly growing client base and the number of active clients. In the first quarter of 2023 Group reported another record in this area, acquiring 104 206 new clients compared to 55 333 a year earlier, which means an increase of 88,3%. Similarly to the number of new clients, the number of active clients was also record high. It increased from 149 729 to 215 703, i.e. by 44,1% y/y.
The priority of the Management Board is to further increase the client base leading to the strengthening of XTB’s market position in the world by reaching the mass client with its product offer. The ambition of the Management Board in 2023 is to acquire, on average, at least 40-60 thousand new clients quarterly. As a result of the implemented activities, the Group acquired in the first quarter of this year 104,2 thousand new clients, while in April 2023, 20,6 thousand new clients were acquired.
In order to strengthen its market position and worldwide recognition, XTB cooperates with titled athletes who are the ambassadors of the XTB brand. In February 2022, an advertising campaign was launched with the participation of the titled martial arts competitor, the first Polish woman in the UFC organization and the champion of this organization, as well as the three-time world champion in Thai boxing – Joanna Jędrzejczyk.
In September 2022, promotional activities were launched with the participation of Conor McGregor, another XTB brand ambassador – Irish mixed martial arts (MMA) and the UFC fighter. Conor McGregor is the biggest martial arts star in the world and the best rewarded athlete according to Forbes list. Conor is not only a fighter, but also a successful person in business as an investor in many interesting projects.
The face of the XTB brand is also Jiří Procházka, a Czech fighter, one of the leading MMA fighters, UFC champion. Thanks to this cooperation, XTB plans to continue its intense promotional activities.
The team of XTB ambassadors was also joined in 2022 by Iker Casillas, a former Real Madrid footballer, considered one of the best goalkeepers of all time. He is currently the Deputy Director General of the Real Madrid Foundation.
Thanks to the cooperation with such personalities as Joanna Jędrzejczyk, Conor McGregor, Jiří Procházka or Iker Casillas, XTB started promoting the offered investment solutions, in particular, convincing that investing in various types of assets is available to everyone, using the tools provided that facilitate entry into the world of investments: through daily market analysis, as well as numerous educational materials.
Looking at XTB’s revenues in terms of the classes of instruments responsible for their creation, it can be seen that in the first quarter of 2023 CFDs based on commodities. Their share in the structure of revenues on financial instruments reached 48,8% compared to 30,2% a year earlier. The most profitable instruments in this class were CFDs instruments based on quotations of natural gas and gold. The second most profitable asset class was CFD based on index. Their share in the revenue structure in the first quarter of 2023 was 45,3% (Q1 2022: 57,4%). The most profitable instruments in this class were CFDs instruments based on the German DAX index (DE30), the US 100 index and the US 500 index. Revenues on CFDs based on currencies accounted for 4,2% of all revenues compared to 9,4% year earlier, where the most profitable instruments in this class were CFDs on currency pairs EURUSD.
XTB places great importance on the geographical diversification of revenues, consistently implementing the strategy of building a global brand. The country from which the Group derives more than 20% of revenues each time is Poland, with a share of 51,6% (Q1 2022 r.: 27,3%). Due to the overall share in the Group’s revenues, Poland was separated for presentation purposes as the largest market in terms of revenues in the Group. The Group breaks down its revenues by geographic area according to the country of the XTB office in which the client was acquired. The exception is the Middle East region, which also presents revenues from clients from this market acquired by the subsidiary XTB International Ltd. based in Belize.
XTB puts also strong emphasis on diversification of segment revenues. Therefore the Group develops institutional activities under X Open Hub brand, under which it provides liquidity and technology to other financial institutions, including brokerage houses. Revenues from this segment are subject to significant fluctuations from period to period, analogically to the retail segment, which is typical for the business model adopted by the Group.
XTB’s business model includes high volatility of revenues depending on the period. Operating results are mainly affected by: (i) volatility on financial and commodity markets; (ii) the number of active clients; (iii) volume of concluded transactions on financial instruments; (iv) general market, geopolitical and economic conditions; (v) competition on the FX/CFD market and (vi) regulatory environment.
As a rule, the Group’s revenues are positively affected by higher activity of financial markets due to the fact that in such periods, a higher level of turnover is realized by the Group’s clients and higher profitability per lot. The periods of clear and long market trends are favourable for the Company, and it is at such times that it achieves the highest revenues. Therefore, high activity of financial markets and commodities generally leads to an increased volume of trading on the Group’s trading platforms. On the other hand, the decrease in this activity and the related decrease in the transaction activity of the Group’s clients leads, as a rule, to a decrease in the Group’s operating income. Due to the above, operating income and the Group’s profitability may decrease in periods of low activity of financial and commodity markets. In addition, there may be a more predictable trend in which the market moves within a limited price range. This leads to market trends that can be predicted with a higher probability than in the case of larger directional movements on the markets, which creates favourable conditions for transactions concluded in a narrow range trading. In this case, a greater number of transactions that bring profits to clients is observed, which leads to a decrease in the Group’s result on market making.
The volatility and activity of markets results from a number of external factors, some of which are characteristic for the market, and some may be related to general macroeconomic conditions. It can significantly affect the revenues generated by the Group in the subsequent quarters. This is characteristic of the Group’s business model.
The operating costs in the first quarter of 2023 amounted to PLN 184,2 million and were PLN 53,2 million higher compared to the same period a year earlier (Q1 2022: PLN 131,0 million). The most important changes occurred in:
• marketing costs, an increase by PLN 30,8 million resulting mainly from higher expenditure on online and offline marketing campaigns;
• costs of remuneration and employee benefits, an increase by PLN 16,9 million, mainly due to an increase in employment and higher provisions for variable remuneration components (bonuses);
• other external services, an increase by PLN 2,7 million as a result of mainly higher expenditure on: (i) support database systems (increase by PLN 1,2 million y/y); (ii) market data delivery services (increase by PLN 0,6 million y/y) and (iii) legal and advisory services (increase by 0,5 million y/y);
• commission costs, an increase by PLN 1,8 million resulting from higher amounts paid to payment service providers through which clients deposit their funds in transaction accounts.
In q/q terms, operating costs increased by PLN 26,0 million, mainly due to PLN 13,4 million higher costs of salaries and employee benefits resulting mainly from an increase in employment and an increase in provisions for variable remuneration components (bonuses), higher by PLN 13,0 million of marketing costs related mainly to higher expenditures on online marketing campaigns.
Due to the dynamic development of XTB, the Management Board estimates that in 2023 the total costs of operating activities may be even higher by about a one-fourth to the level we observed in 2022. The priority of the Management Board is to further increase the client base and build a global brand. As a consequence of the implemented activities, expenditures on marketing may increase by about one-fifth compared to the previous year.
The final level of operating costs will depend on the level of variable remuneration components paid to employees, the level of marketing expenditures, the dynamics of geographical expansion into new markets and the impact of potential product interventions and other external factors on the level of revenues generated by the Group. The level of marketing expenditures depends on their impact on the Group’s results and profitability, the rate of foreign expansion and the degree of client responsiveness to the actions taken. The employment growth in the Group will be driven by its dynamic development, both on the existing and new markets. The amount of variable remuneration components is influenced by the Group’s results.
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 the General Meeting in the future to adopt resolutions on the payment of dividend, taking into account the factors indicated above, in the amount of 50% to 100% of the Company’s standalone net profit for a given financial year. The standalone net profit for the first quarter of 2023 amounted to PLN 299,8 million.
The levels of the total capital ratio (IFR) of XTB on individual days in Q1 2023 are presented in the chart below.
At the end of the first quarter of this year the total capital ratio in the Company amounted to 136,7%. The total capital ratio informs about the ratio of own funds to risk-weighted assets, in other words, it shows whether the brokerage house is able to cover the minimum capital requirement for market, credit, operational and other risks with its own funds.
Cash and cash equivalents
XTB invests part of its cash in bank deposits and in financial instruments with a 0% risk weight, i.e., in treasury bonds and bonds guaranteed by the State Treasury. As at March 31, 2023 the total value of own cash and bonds in the XTB Group was PLN 1 906,6 million, which PLN 1 535,2 million was cash and PLN 371,5 million for bonds.